Sunday, November 26, 2006

Optimism still fuels house price engine

Optimism still fuels house price engine

Buyers are continuing to bank on price rises of 10% per year. This emotional element is seen as a big driver behind continued house price rises.

Posted by bob @ 04:15 PM (461 views)
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6 thoughts on “Optimism still fuels house price engine

  • And what fuels the optimism?

    Dumb Journalists.

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  • I think some first timers are banking on 20% rise a year. If prices stop rising I don’t think this will damped demand that much though because people will still look to long term price growth instead. ? the fact that prices are still rising suggests to me that market still has some way to go before the top. If prices were completely unaffordable the market would already be stagnant or falling as quite simply people couldn’t afford it. The mere fact that people are still buying fast and at higher and higher prices every day suggests that they can afford it in paper terms at least otherwise they wouldn’t be able to borrow the money.

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  • I am doubful if people can really afford it….the banks are chasing up the prices by relaxing multiples, giving people the illusion of affordability. Give someone who is on a x5 mortgage a divorce, a period of unemployment, or just the cumulative effect of a year of normal bills and they may soon realise that its not so affordable (throw in another interest rate rise as well….). Once sentiment changes the prices may just keep going down until prices are rediculousely cheap. Why buy a house now if you can get it cheaper next year…..just the opposite of must buy now as it will be unaffordable next year….

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  • The market was stagnating outside London even before the last IR rise.

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  • Nohpc – your logic is flawed. You cannot say that the market hasn’t topped just because the last figures show a rise. In december we may see figures for november showing falls. Which would mean that the top of the market was October.

    You are also missing the point that there are some peolpe (the very wealthy) that are not priced out of the market and never will be. There are also next time buyers moving area but not house price. i.e. the property they bought for 10,000 is sold for 500,000 so they then buy another in a different area (maybe due to a job move) for 500,000.

    The point is that there are still transactions, and those transactions are for high prices. In fact as more and more people get priced out of the market, there is a bias in those properties still being sold (i.e. the ones to the very wealthy) which would skew the figures and make it look like prices are rising despite the fact that in actual fact it marks the turning point. The fact that sales volumes are down and prices are up might suggest that this is the turning point.

    You suggest that people will look to the long term, but really if you were an FTB who can’t afford a house, then prices start falling and you realise that if you buy now, it will be worth several thousand pounds less next month, what you will do is wait for the market to bottom, on the basis that the longer you wait, the better a property you will be able to buy. BTL landlords may be looking long term, but then subsidising a tenant as the value of your investment decreases every month would take some serious guts (or stupidity). After all if the market turns, a BTL landlord could sell, stuff the money under the mattress, and buy back again some time later and have massively increased his profits. Not only would he have missed a capital depreciation, but when he buys back again, he no longer has to subsidise the tenant.

    When you say “people are still buying fast” I wonder where you get this opinion. All of the statistics I’ve seen haev suggested the opposite.

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  • House prices falling steadily in the States. House prices stagnant in Ireland and falling in many areas. Banks generally advised in both those places to reel it in and prepare for defaults. The virus seems to be moving East….guess who’s next?

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