Friday, Dec 08, 2006

We're all doomed

IFA Online: We're all doomed!

A week old, I know, but have not yet seen this article posted.

By the way, I have only been checking this blog for a couple of months. Out of interest, I would like to know how it has changed over time. Were many of you readers using the blog this time last year? If so, were the same sort of negative articles constantly being posted? Or is the cynicism about the market a recent development? Come on, be honest!

Posted by about to buy @ 09:16 PM (2859 views)
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1. sirgoogle said...

about to buy

You are correct it is only in the last 3 months that the sentiment has changed in the main stream press. Up until then the only negative comments on the housing market were comming from this Blog (lone voices crying in the wilderness). Now it would seem we are part of the main stream.

I suspect that the housing slowdown/crash in the US has something to do with it

Saturday, December 9, 2006 08:21PM Report Comment

2. uncle chris said...


Firstly, my advice to you is to rent. Just work out how much an interest only mortgage will cost you for your intended property, add 1% per annum for household maintenance and then compare it to what you can rent for locally. If you save significant amounts by buying then good luck, but make sure you won't be too dissapointed if prices do drop. Yes they will come up again, but if you are happy staying where you are for 10-15 years then it shouldn't be a problem. Personally I'm 100% confident that prices will fall, sold my house last November and am sitting in rented until I can get more house for my money.

With regards to this site, I've been posting for just over a year and the sentiment has remained pretty much the same. There has been some genuine surprise that the market has not crashed in 2006 (as most predicted) but bloggers have identified a number of major factors supporting the market, such as unprecedented immigration, a fad for Buy-to-Let (now in trouble we hear) and absolutely crazy lending practices by the banks, desperate to capture ever increasing shares of the market whatever the cost. Personally I think this will come back and bite them in the not-so-distant future, especially when we hear that nearly a million people have defaulted on at least one mortgage payment in the past year.

I've actually been very impressed by the intelligent and reasoned level of debate on this site. I do not see those posting as cynicists, but rather as realists who are looking beyond the vested interest hype towards the true fundamentals of the British economy. Although it appears to have thrived over the past 9 years, the growth has very much been built on private and state borrowing on a massive scale. At some point this debt will have to be repayed, unless UK plc can take out an IVA.

Saturday, December 9, 2006 11:40PM Report Comment

3. Duangping said...

i have been looking at this blog for the past 10 months and have noticed more recently that there are more and more articles that are predicting that the correction in the housing market is coming soon and is almost inevitable.i have just sold my 2bed terrace house and banked the money and i will be going into rented will only buy back into the market once house prices took me over 6 months to sell my property and had over 40 viewings eventually sold for 5% below asking price and i live in the south east? I bought my house in aug 88 just before last crash the same lies and bs was being peddled by estate agents banks and morgage lenders then dont believe them and dont buy property.

Sunday, December 10, 2006 10:04AM Report Comment

4. Jaydatta said...

I have recently bought a flat in London, mainly because fed up of renting and putting up with landlords.
For me, it is not so much an investment, but having my own place, and hopefully would not need to move in the next 5-10years.
I know a lot of people, who have sold their property in 2005 and this year, renting and hoping for the HPC to get in the housing market again.
That made me realise, even if there is a crash, we would not see the scale what happenned in the early nineties.
There seems to be a lot of people, with cash from the sales proceeds, willing go into the market if it crashes, preventing the prices to drop too much.

Sunday, December 10, 2006 11:11AM Report Comment

5. About-to-buy said...


I very nearly bought somewhere this time last year but bottled it, thinking that I would wait for a year, during which time prices would not hugely increase. How wrong I was. In the same area that I nearly bought last year, equivalent houses are now 100k more expensive. That hurts.

I really don't want to suffer the same pain next year - which is why I'm determined to buy now (and hopefully get somewhere where I'll be happy for a long period of time).

I know so many people who want to buy houses. There also seem to be a lot of people who, like uncle chris, are waiting to prices to fall before they buy. Do you not think that this reserve of people waiting to buy will stop a fall from happening? As soon as prices level off or begin to fall, those waiting will begin to buy.

Sunday, December 10, 2006 03:01PM Report Comment

6. bidin'matime said...

About to buy

I'm in a very similar position to Uncle Chris - sold mid 2005 (just before they put the interest rate down..), sitting on enough cash to buy outright the house I rent, but paying less in rent than I get in net interest (ie after tax..) from the sale proceeds of my old house - that sold for nearly 10% less than the landlord paid for this one! So no hurry to buy here

There has always been the odd 'bear' who will go to print in the mainstream press to point out that 'things can't go on like this', but one of the features of a bubble is that the doomsayers are constantly being proved wrong, until they all shut up for fear of being put to the sword (the Emperors new clothes syndrome). Roger Bootle (Capital Economics) is a good example - a year or so ago he quite reasonably expressed the view that prices would fall by around 20% within a year - unfortunately having put a time scale on it, which of course has been proved wrong, he now keeps a bit quiet.

However, while the bears have been hushed by the bubble (they say that when the last bear becomes a bull, that's when a market crashes) as prices keep on upwards, so the more intelligent bulls (the optimists) have to admit that it can't go on and, those in a position to advance independent comment, will start to set out their bearish views. If the bubble keeps going regardless, then they too fall by the wayside, so we get a bit of a stand-off.

However, as Sirgoogle says, certain factors encourage them to come forward, such as seeing the market falling in the US, so more are prepared to come forward and risk being wrong, maybe because they recognise that there is some mileage in being regarded, with the benefit of hindsight, as the little boy in the crowd who pointed out that the Emperor in fact had no clothes.

Whether this adverse comment will of itself bring about the collapse or do much to accelerate it is debatable, but it must gnaw away at the confidence of some who feel that they might just buy, so it can't hurt.

I've spent my life working in the financial field and, whilst this helps in some respects, it hinders in others, as I risk becoming far too analytical - I have often been guilty of 'paralysis by analysis'. However, having made the decision to sell nearly 2 years ago, I've had that long to consider the factors - almost on a daily basis - and my conclusion is based on one simple observation.

This is that, if house price inflation remained at or above the rate of wage inflation for the next 25 years or so, and if my son (currently aged 24 ) was to follow exactly in my footsteps in terms of career and earnings over that time, then he would not be able to afford to buy the house I sold last year. Not only that, at the age of 40, he would not be able to buy the house I owned at that age and even at the age of 30 he would not be able to afford the house I owned at that age. And I repeat, that's assuming that he followed the exact same career path, earning then what someone would earn doing what I did at that age.

(So how was I able to buy them? because or average, incomes rose roughly in line with house prices, up to the time I bought my last house 10 years ago).

So my question is simple - if the next generation are not going to be able to afford these properties, who the hell is going to buy them? Certainly not BTL my landlord gets a return of 3.3% on this place, so it's only a good investment if you assume HPI (he bought it before setting of to cruise the Caribbean and wanted to keep his foothold in the market). BTL, while it lasts, will prop up the bottom end of the market, but you wont find many who will borrow several hundred thousand to buy one property.

The only conclusion is that they will have to fall in price, in relation to earnings. Which, of course, is the crunch if inflation takes off and earnings double in the next five years, then house prices can keep going up in price (but more slowly than wages), because earnings would catch them up. But if inflation were to take off in such a way, interest rates would have to rise I had feared that the government would re-define a suitable rate of inflation earlier this year (eg 3% - still pretty low by historical standards) to avoid the need for rate rises, but they did not and allowed rates to rise, so I can't see them back-tracking now if inflation were to return to double figures, wed have to be looking at substantial rate rises.

And if rates rise substantially, then, yes, youve guessed it, millions find themselves unable to afford their existing home, let alone move up the so-called ladder.

So there you have it either the market will stagnate and prices start to fall to sensible levels (frightening off the BTLs completely, thus popping that particular bubble) or we get inflation and rates rise, resulting in stagnation and repossessions and an almighty crash. Take your pick.

Sunday, December 10, 2006 06:17PM Report Comment

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