Friday, March 9, 2007

Terrace houses lead property boom

Terrace houses lead property boom

The average terraced house now costs £186,316 as against £54,945 a decade ago. And they are still rising at 10k a year. Signs of a crash? The answer is a resounding NO

Posted by steve @ 11:45 AM (485 views)
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19 thoughts on “Terrace houses lead property boom

  • Signs of a crash are record house price to earnings, unprecedented debt, buy to lets not covering mortgage payments and rising interest rates. Not the previous years perfomance. If we believed you, we’d have done well to pile into shares last month, just before they lost 5% in a week.

    How about looking at the bigger picture rather than being spoon fed positive spin by vested interests. Year on year rises have long since peaked. Take away the London factor and they’re falling in many parts of the country.

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  • at 186k for a terrace house I am starting to think that I should start focusing on ohter things as I will never be able to buy a house, let alone a decent house.

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  • sold 2 rent 1 says:

    Steve,

    You are right.
    Do you believe there will never be a crash or just that it is another year away?

    For me, the boom still has another 9 months or so to go
    There is still way too much liquidity.

    11.1% annual HPI

    Here is a list of the predictions at the start of the year
    http://www.bsa.org.uk/feature/2007hp.htm

    With Lombard Street Research prediction of 10 to 15%, they are clearly in the lead to be the best predictor AGAIN this year.
    This boom still has some way to go before the almighty crash of 2008-10

    LSR quarterly report of “Housing affordability index” in 3 weeks time. Can’t wait to see it.

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  • I really wonder why the BBC reports stuff like this. When an item becomes so pricey that the average punter cannot afford it then the average punter will look for a cheaper equivelent. In property terms and excluding semi-permanent dwellings a terraced property is normally the cheaper option and is all the punter can afford. Demand is then greater for this property type and the laws of supply and demand will mean that this type of item will increase faster than items where demand is not so great.

    Will it mean there will not be a crash, probably little bearing on matters really. If BTL who commonly buy terraced places desert the market then it will probably crash fairly quickly.

    I’m with s2r1 on the timing. Unless a catastrophic World event occurs then nothing is likely to become noticeable until late this or early next year. The market still has too much forward momentum.

    Just because the government choose not to include HPI in their inflation measure does not mean it is not there and it also does not mean it won’t have any economic impact.

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  • This report just says average prices for terraced properties have gone up £130,000 in the last 10 years. It’s a statement of “fact”, but it doesn’t necessarily tell you anything about the future. When I was 18, I had “increased in height by 18 inches in the last 10 years”. Try to divine the future from this and, 14 years on, I would now be 7 feet and 9 inches tall – which I’m not, you won’t be surprised to learn.

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  • george monsoon says:

    I say if you are looking for the trigger to catastrophe, just keep your eyes looking over the shoulder of the media at the Americans slowly.. slowly.. creepy creepy into Iran.

    Then all hell will let loose. America trying to fight umpteen wars at once, with an already weak dollar.

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  • George, I really don’t buy the Iran thing as the trigger because it wont happen. If it happens it won’t be until Iraq and Afghanistan are stable which could take years. The US and the UK are way too over-stretched to even contemplate it. With middle-east feeling towards the west it would quite simply flare up so quickly it would as you say be the catastrophe for allied troops but both the US & UK know that only too well.

    As with any comments to a blog I may be proved wrong but in this instance I don’t think I will be.

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  • Properteee prices are highly cyclical and we are at the very top of that cycle now. Furthermore, this is the biggest financial bubble in history and is entirely based upon temporary fundementals. As Interest rates ‘normalise’ so to will over inflated asset prices. Investing in anything upon the basis of past performance is surely a good way to loose money. Who knows when it will blow up, a month, a year, 3 years? The point is that prices have shot way beyond any sustainable fundementals and therefore will collapse eventually. If anyone wants to gamble that they can get in and get out again with a proffit before the tumble then go for it, but yields are now crap for BTL anyway. Only the ‘property ladder’ propaganda (the ‘ladder’ incidently no longer even exists, and hasn’t done for some time) keeps people believing that property is a one way bet. It simply Isn’t.
    I am certainly happy to be on my side of the trade at present, and feel desperately sorry for the young families who have been duped into buying this year. It may be a long time before they are ever ‘back in the black’.

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  • Denzil,

    I wish I could share your optimism on this, but fear the wounded empire at the moment. The US is already apparently formenting ‘terrorism’ within Iran, by stiring ethnic tensions within the Country (as some might say they have done in Iraq)

    Of course I may be wrong, but i do fear some kind of attack from either the Isreal or the US may be imminent. If so, who knows what retaliation that will trigger globally, its not as if the Iranians haven’t had enough time to prepare for such an event.

    Very scary times indeed!

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  • Why do we need a trigger? What was the trigger for the US housing crash?

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  • It won’t be America that attacks Iran…. it will be Israel….

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  • Hello

    If property is becoming unaffordable to first timers or young families up sizing, what about the virtues of renting? Does it not become a cheaper alternative without the risks of a crash and negative equity?

    I have 2 houses near London which are rented out but near the end of this year the fixed rates that I received 2 years ago are up. This means that neither will break even given 100% occupency and no big repairs/maintainance.
    But my long term hope is that if buying slows down then demand for rent should go up. Rent is still basically at the same rate as it was 5 years ago whereas property prices have continued to rise. So rent is due an increase.

    So I think I will stay in it for the long haul as long as the shortfall in the rent doesnt break me!

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  • I recently went to a talk given by an official of the Israeli Embassy in London. He made it very clear that if somebody else doesn’t deal with the Iranian nuclear programme, they will.

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  • Yes Popalot, and watch the reaction ( or complete lack of) of the ” international community” to that non-sanctioned action.

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  • s2r1 .
    It’s interesting to note comments made by LSR in 2004 .
    http://archive.thisisdorset.net/2004/4/16/68166.html
    “RISING house prices are expected to suffer a “correction” in 2005, predict analysts Lombard Street Research.Bank of England officials must raise interest rates next month if the impact of that price correction is to be minimised, says LSR.”Low rates continue to stimulate the domestic economy and could be storing up worse problems of adjustment in future.”The eventual correction – probably in 2005 – will be worse than it would have been had interest rate policy been more pre-emptive.”

    Yet now they predict 10-15% hpi and no mention of “correction” .

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  • It is funny how all the past predictors of corrections now suddenly think their fears are unfounded two years later. Could be because:

    1. They realise that the MPC has a hide agenda of protecting the housing market or
    2. They fear being ridiculed for getting it wrong once already.

    I have no idea. I think both have some degree of truth.

    As for rents going up, sorry Badgolfer – supply and demand have worked against you. There are thousands of other would-be landlords in the same situation as you, and many of them are losing money. But if they raise their asking rents, their properties stand empty.

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  • Badgolfer – it might be sensible to sell ’em. Sound like they are more trouble than they are worth – and potentially a liability.

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  • sold 2 rent 1 says:

    Deadspider,

    Fair point.

    I think LSR developed the “housing affordability index” model because they got it so wrong in 2004.
    This new model seems pretty accurate and IMHO is the key indicator to watch every quarter.

    If we have another IR rise in the spring and HPI increases at >10% for the next 4 months, LSR will forecast another crash for 2008 in their July quarterly report.

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  • Badgolfer; thanks for your input, it would be interesting of all of us came clean on this website so we could analyse the pro’s and con’s of each of our situations. Here in Australia the rental vacancy rate (the amount of rental properties currently available for rent) is now as low as 1.4% in some cities, only now have rents started to increase. I would serioulsy try and find out what the regional rental vacancy rate is in your area before signing up to your long term plan. I read recently that over 600,000 homes are currently empty in the UK, do you really think rents are going to go up when there are so many rental properties available????

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