Wednesday, Aug 09, 2006

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Money Week: What next for UK house prices?

MoneyWeek's Brian Durrant puts forward very believable arguements that the Housing Market will not be crashing. Fundamentally, stagnation or sluggish growth will occur for a number of factors, including (but not limited to) immigration, higher household formation and supply shortages. He doesn't debate the future of interest rates to a great extent - I wonder why?

Posted by talking rot @ 05:33 PM (555 views)
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1. denzil said...

I like this line:
>>The rally in house prices from September 2005 to January 2006 was partly the result of a moral hazard inadvertently created by the Bank of England.

Until such time that the BTL stop taking up the slack I don't believe the market will fall substantially and will probably just stagnate. I barely see any change in the appetite for BTL and if anything the appetite for BTL from what I can see is probably stronger.

It seems crazy to me. The general public need to be slapped out of this malaise of thinking that property will only ever go up in value.

Wednesday, August 9, 2006 05:55PM Report Comment

2. Marzipan said...

'And each yourselves from a dismal existence rotting unloved in a bedsit without time we urged our readers to ignore their advice and in the process saved a handsome tax-free capital gain. '

what the *** does that mean??

Wednesday, August 9, 2006 06:21PM Report Comment

3. sirgoogle said...

I must admit that when one looks at the huge numbers of extrememly smug people who have "benefited" from the boom it is hard to believe that there ever will be an HPC, as there is such mass denial that the value of the whole market is grossly overvalued. NB. It is this public "mass denial" that I think the BBC has picked upon as it typically reflects public opinion. I am sure it does not intend to be a VI.

Once again I state that the HPC will only come when a lot of houses HAVE to come onto the market at once. This can only be through unemployment or IR rises (have a look at the HPC Wiki link below for possible reasons). There are no other scenarios, as the normal volume of houses comming onto the market is just too low otherwise. A solid long term buyers market has to be created. or [[Possible triggers for a house price crash]]

Wednesday, August 9, 2006 10:11PM Report Comment

4. uncle chris said...

Valid points Sir Google (sure you could make that Lord with a little "loan" to the labour party), but if the reins on easy credit are tightened then it must have an impact on the amount people can offer for properties and in turn the house prices. Many banks are belatedly moving to a more cautious position and with the standard variable mortgage rate at 6.75% we will increasingly see the more expensive properties sitting on the market for many months, if not years. I predict that low-priced houses (<100,000) will continue to sell well due to being targetted by wealthy FTBs, downsizers and perhaps a few foolhardy BTL.

That said, looks like we'll have to rely on our landlords subsidising our living costs for another year or so - more time to save and get interest on those savings :-)

Wednesday, August 9, 2006 11:51PM Report Comment

5. Stavka said...

Just as low US interest rates created the global housing bubble, so will the US housing crash effect the global housing market. It will take 6-12 months to filter through but make no mistake, things are looking pretty dire over there. Take a look at the San Diego and Florida markets as an early indicator of things to come.

Thursday, August 10, 2006 03:00AM Report Comment

6. paul said...

MoneyWeek's analysis is certainly noteworthy. They are not traditionally as biased as state-controlled media (the BBC).

It is interesting that Durrant believes a prolonged stagnation to be more desirable than a crash. In my reckoning, a prolonged stagnation is akin to a war of attrition rather than a battle of victors and is far less desirable than a crash and subsequent recovery.

It is the worst of worst case scenarios, as the accompanying cramp on consumer spending will grind the economy to a halt. People will not be able to trade up on the increased value of their property, price inflation will be high, interest rates will be high and unemployment could go through the roof.

On the other hand, had the Bank of England taken the same laissez-faire attitude towards negative house price inflation as runaway house price inflation, the market would have bottomed out about now looking at the graph on the HPC front page. Instead we have the same vulnerable market that we had over a year ago, as the government PR machine has gone into overdrive to maintain irrational confidence in the housing market.

So there is definitely a state-sponsored denial of the downside risks of housing "investment". It should also be interesting to see the other side of the coin - namely the effects of astronomically priced housing on emmigration, labour mobility, wage inflation and birthrates, which are already being witnessed and the signs are not good. Check out The Singing Pig website's property forum - they are the closest equivalent to devil's advocates that we have, and they admit between themselves that their current bag and oulook are not at all rosy (it is intersting to look at their suspicions of an impending BTL tax too).

These are the first indicators that the prolonged stagnation that MoneyWeek indicate we're moving into might not be all that healthy for UK plc. It could be that in hoping for a HPC, we actually have a far more optimistic outlook than reality will give us.

Thursday, August 10, 2006 09:56AM Report Comment

7. Ticktock said...

I'll be interested in how the BTL crowd react once they realise that they are to be the new 'social landlords'.

Those with voids are already having to accept 'guaranteed rental' arrangements from councils and this was always the plan. You have done up the councils housing stock for them, and now carry all the risks and costs previously bourne by the councils. Your investment is only now marginally proffitable and the IR risks are yours alone. When the new housing legislation comes in you will find it difficult to refuse, or remove, DSS tennants and these will be your only tennants. You have been done by your own greed.

Thursday, August 10, 2006 10:38AM Report Comment

8. J. B. M. C. said...

Great site. What does 'VI' stand for?

Thursday, August 10, 2006 12:36PM Report Comment

9. George Monsoon said...

JBMC, welcome

VI = Vested Interest. i.e. someone who has something to gain from talking the market up.

Thursday, August 10, 2006 01:07PM Report Comment

10. autopilotengage said...

Ticktock, astute point, i've also believed that for some time the intention of, or at least a fortunate side effect of, the continued government apathy towards "buy to let" is the privatisation of social housing, and how "new labour" a policy it is too!
Another globalisation syntomn is also interest rate changes taking a long time to pan out as central bankers cautiously watch their peers; South Korea have raised today and the south east Asian economies are important for us HPC'ers because they export many of the goods which make up the CPI basket, and a run on SEA currencies means imported inflation for the UK and economies which influence our position like the US and EU.

Thursday, August 10, 2006 02:42PM Report Comment

11. indiablue19 said...

Tick Tock,
Excellent thought you've put forward. And furthermore there are the landlord responsibilities for tenant's behavior which have now been legalised and prosecution to obtain ASBOs where necessary. In Scotland property may be considered relatively "cheap, " but the BTLers have just been handed a long list of maintenance and upkeep requirements against which tenants can make demands -- effective April of 2006. Not a pretty sight.

Friday, August 11, 2006 12:14PM Report Comment

12. bidin'matime said...

Just back from a week away and catching up on the news. TickTock's theory about BTL's providing convenient social housing is valid. I've got clients who've done this - they bought properties and let them out via social services, who seem to have continuous demand. But this cannot remain rosy forever - if it wasnt viable for local authorities to be social landlords, how can it be so for the private landlord in the long run? And as TT suggests, sooner or later the government will use it's bargaining position to push up the demands on the landlords - and it sounds from what Indiablue19 says that this is already happening in Scotland.

How long before we see 'right to buy' provisions extended to private tenants, with the appropriate discounts..?

Saturday, August 12, 2006 05:27PM Report Comment

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