Wednesday, Oct 07, 2009

No return to the bust, either

Telegraph: House prices: no return to the boom

House prices have jumped by nearly 6pc since April but economists are divided over how long the recovery will last.
The improvement has come despite rising unemployment and the ongoing problems in the mortgage market, while the number of mortgages approvals is still half the level of 12 months ago, at a volume that would normally be consistent with price falls.
Seema Shah, of Capital Economics, is bearish, saying: "We suspect that recent gains in house prices will be reversed in due course. Currently, prices are being driven up by a shortage of property for sale."
But Ray Boulger of the Council of Mortgage Lenders is more upbeat, saying he expects house prices to rise 7.5% overall this year, with 5-6% growth in 2010.

Posted by little professor @ 10:01 AM (1924 views)
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30 Comments

1. brickormortis said...

Is this the seem Ray Bulger who didn't foresee any of the problems of recent times? Is this also the Ray Bougler who clearly has his head stuck up his a*$@?

...And if house prices are going to rise at such a rate, does this not suggest that Mr. Bulger should be lobbying for rate rises? OR does Mr. Boulger have a nice big house and a few/empire of BTLets????

Wednesday, October 7, 2009 10:42AM Report Comment
 

2. uncle tom said...

Small case study:

Typical and fairly historic Essex village with 930 houses, usual amenities, mainline station, and in a good school catchment area. Average mix of property. About 20 properties are shared equity, and about 50 are social lets.

Number of houses currenty for sale: 34
Number sold in last six months: 8

So current sale rate just 1.7% p.a.

Nominal time on market currently in excess of two years..

..so, which way are prices likely to go over the next year??

Wednesday, October 7, 2009 10:45AM Report Comment
 

3. luckyjim said...

UT

What is your theory to explain rising prices if it's not shortage of supply ?

Wednesday, October 7, 2009 11:19AM Report Comment
 

4. alan said...

luckyjim,
A number of young folk I know are getting married/forming partnerships. In ALL the cases parents have chipped in 10%. Sometimes 40%. The parents have recieved legacies from their families over the last couple of years and have decided to pass it on instead of investing it at 2% or whatever.

"Guiding" parents see a drop of 12-15% as an opportunity to buy, not looking back to the 90's when houses were much, much cheaper. They feel house prices will go up (long term). Their children, still encumbered with Uni debt, take what's offered.

All of these folk have decided to buy since last Easter. I guess money is buring a hole in the parents' pockets. I guess you could say they have a "faith" in property.

When lots of buyers want to buy at the same time, temporarily the prices (in my bit of Essex) go up.

Wednesday, October 7, 2009 11:40AM Report Comment
 

5. uncle tom said...

luckyjim,

I think it's mainly a statistical illusion - the properties that are actually selling are the better ones in their class.

There is also the factor that many people are holding out for too much, because if they accept a lower offer, they will not have a deposit on the place they want to move to.

Among other vendors, the impression that the market has turned has fed on itself, so they are no longer willing to accept a bad offer.

However, the market is not remotely sustainable, and there is good maths to show that the number of empty properties coming onto the market is far in excess of the number of new households being formed.

Once reality kicks in, and we see a return to falling prices, then that too could rapidly feed on itself..

..hold tight!

Wednesday, October 7, 2009 11:57AM Report Comment
 

6. luckyjim said...

UT

The statistical illusion theory is a fair one. At these low volumes the numbers are suspect.

As for vendors holding out for too much - that is the same thing as a lack of supply. It doesn't matter how many houses are (in theory) up for sale or how long they are on the market. If the vendors are under no pressure to accept a reduced price there IS a shortage of supply. You can call it a shortage of realistic vendors if you prefer. But, as I keep asking, what is going to change that ? What is going to make large numbers of sellers drop their prices ? I don't think there is anything on the horizon. I can see the stalement carrying on for another two or three years at least.

As for the 'good maths' - I'm sorry but those numbers did NOT stack up. If they did prices would be falling now.

Alan,

I think you are right about the demand side - at these low volumes there are enough people out there who CAN get a mortgage and are happy to buy at 15% below peak.

Wednesday, October 7, 2009 12:41PM Report Comment
 

7. smugdog said...

We seem to hold on to this belief that all will be well when "reality kicks in" Reality: "the state of things as they actually exist", this is now, this is it!, this is how the public behave and react. This is how our leaders want us to react.

Wednesday, October 7, 2009 01:11PM Report Comment
 

8. alan said...

Smugdog,
Thanks for reminding us about the wishes of our leaders. Yes, they have a vested interest too.

I don't know many folk who have had a pay rise in the last year. Against that, inflation is going up, certainly food inflation. Gravity will start to act on the market soon. I just can't see where all the new buyers will come from.

Wednesday, October 7, 2009 01:27PM Report Comment
 

9. letthemfall said...

If lack of supply, such as it is, comes down to people holding out for more money, then that has a limited lifespan, unless everyone is going to stop moving. In the end prices are down to the amount of money buyers can get their hands on while believing that the house they buy will be worth more in future. The only way prices can stay at their present levels, way above fair value historically, is if a rising flow of credit is directed at them indefinitely. If that were to happen (and I think it unlikely) that would be a sure way to wreck the economy - more than it is already.

Wednesday, October 7, 2009 01:35PM Report Comment
 

10. uncle tom said...

Smugdog,

If you think this is the end game for the house price crash, take a look at this graph, and tell me where the 40% of the population who make up the third and fourth income quintiles are supposed to live?

http://www.statistics.gov.uk/cci/nugget.asp?id=334

Currently they are people who mostly bought when property was very much cheaper, so are getting by - but what is the next generation supposed to do?

The state can only afford to bail out the housing costs of the fifth quintile - and that will probably have to be cut back..

Alan,

Which figures do you disagree with?

Wednesday, October 7, 2009 01:38PM Report Comment
 

11. uncle tom said...

(oops - my numbering of quintiles reversed the order used by the graph)

Wednesday, October 7, 2009 01:42PM Report Comment
 

12. smugdog said...

I would rather surround myself with the knowledge of you chaps than listen to those who believe we are back to the races. I choose not to wear blinkers.

Wednesday, October 7, 2009 02:04PM Report Comment
 

13. house said...

@12, smugdog, are you an estate agent, by the sounds of it you are, what you are doing is trying to match the asking price to a buyer who is willing to pay. You are in business and the moral issue is ir-relevant. If morality matters, then no one would ask for a pay rise or to increase prices to make more profit if you can get away with it. The $64 question is, if you are an estate agent, would you risk your own money to invest in property. I see many estate agents advertised a property as an investment. I always ask myself if it is a good investment then why don't they buy the property and earn a return from it. Your comments on this would be appreciated.

Wednesday, October 7, 2009 02:34PM Report Comment
 

14. smugdog said...

House:

I laugh at those who preach that prices must come down in order to have a fair and sustainable society. In reality, for many, their game is self serving greed. Sell high, buy low, then hope the whole thing swings around and they can talk big profits once more.

Many here do have a social conscience and moral principles and that is commendable.

No, I'm certainly not an Estate Agent. I certainly profit from changes in market conditions, but so do many that I employ.

Wednesday, October 7, 2009 02:58PM Report Comment
 

15. tenant super said...

What is the next generation supposed to do? It isn't the next generation but the current generation of young people priced out and no one seems to care much about their predicament, not even their own parents who would rather take a slice of equity from their home to help the kids in at the bottom rather than see prices fall. The choices to the priced out generation are,

- Be well and truly sh@fted by shared ownership schemes
- Live in Victorian style overcrowding (as already happens for many families)
- Be well and truly sh@fted by private landlords
- Stay nominally single forever because they can't afford to leave parents home

My parents had six children, the older three bought homes. The younger three (aged 21, 23 and 28) are priced out and still at home.

I am a bear, truly. Just feeling very depressed by the goings on of the last few months and losing faith. I am wondering whether house prices were historically 3.5 times salary because mothers stayed at home and that's all the banks would lend. Perhaps we are moving to a new era where housing takes up a larger slice of take home income, and mothers have no option but work whilst dumping children in sub standard day-care to fund the cost of living in some dreary semi.


My parents

Wednesday, October 7, 2009 03:33PM Report Comment
 

16. uncle tom said...

I laugh at those who preach that prices must come down in order to have a fair and sustainable society

Virtuous principles won't bring house prices down - they'll come down because they can't stay up..

..I am still a homeowner, and my only vested interest is that I would like to indulge the project of building a house from scratch; and want to get the inevitable price correction out of the way before investing in a suitable plot.

I have a stronger vested interest in seeing the Pubco's come unstuck, as I would also like to buy the freehold of my local - at a fire sale price..!

Wednesday, October 7, 2009 03:35PM Report Comment
 

17. house said...

smugdog,

Thank you for your response. What annoys most of us is that the game at present is played fairly. The vested interest including the government are artificially propping up the asset prices.If all of us knew that, that would be the case we all would have taken advantage of the position and made a profit from it. But the normal understanding was that if you take the risk and you take the fall if it does not work out. This has not been the case in respect of the property market. Also no one like the idea of people saying I told you so that property only always goes up. I personally think there may modest falls in property in the next few years, maybe by a maximum of 10% over 3 years. To be fair if you take 4 x £25000 (average salary) plus a deposit of £30000, then a starter 2 bed house would cost say £130000. Therefore in my opinion, the prices may level of at around £120000.

I think we all will just have accept this.I know it is not fair play but then that is life Nothing is fair in life. It makes mockery of education and knowledge.

ANY COMMENTS.

Wednesday, October 7, 2009 03:43PM Report Comment
 

18. justwatching said...

WHAT FALLING PRICES?

I'll ask again.

WHAT FALLING PRICES?

Wednesday, October 7, 2009 04:04PM Report Comment
 

19. justwatching said...

WHAT FALLING PRICES?

I'll ask again.

WHAT FALLING PRICES?

Wednesday, October 7, 2009 04:04PM Report Comment
 

20. justwatching said...

WHAT FALLING PRICES?

I'll ask again.

WHAT FALLING PRICES?

Wednesday, October 7, 2009 04:04PM Report Comment
 

21. justwatching said...

Sorry, had a funny moment then.
What I meant to write was.

WHAT RISING PRICES?

From the fantasy index of fantasy house prices we are seeing a 'steady increase'

If memory is correct the Land Reg figures did a sping bounce of 1.7% & 0.1% in consecutive months. We're now on the 0.1% drop last month.

So, two months 1.8% up, panic over folks. Jump in quick. Looking at the above comments I do agree with the fantasy index staistical anomolies.

Don't worry folks. Next months LR figures will be negative, wont get a mention on the news though.

Wednesday, October 7, 2009 04:09PM Report Comment
 

22. Tenant Super said...

I accept UTs argument for the rise being a statistical illusion. However, there must be multiple confounding factors affecting the indices. When we saw those big 2% monthly falls, perhaps it was because the first defaulters and distressed sellers were people who stretched to buy the worst properties in their class. It is a bit suspect to think the indices are wrong when up but right when down.
That said, I agree with justwatching; the LR stats seem to be the ones worth paying attention to.

Wednesday, October 7, 2009 04:20PM Report Comment
 

23. uncle tom said...

ANY COMMENTS.

Yes.

Have a look at the current employment prospects and financial position of those who should be about to embark on home ownership.

They have big debts instead of savings, and unemployment in the 25-35 bracket is rocketing. Only a minority have parents with enough spare cash to come to the rescue.

The supply of genuine FTB's (many people get counted twice or more in their life) is going to be extremely thin for the next few years, and far below the supply side of the market.

Construction on the other hand, is one of the tried and tested ways of pulling a nation out of recession, and I expect the next government will be proactive on that front.

Meanwhile the Spanish market is likely to implode completely, with huge debt defaults, and a sell-off at or below build cost; which will doubtless prove very tempting to UK pensioners.

It all points toward the Uk moving toward a housing market that is more than saturated on the supply side..

..so why should a 2 bed starter sell for £120k, if it only costs £35k to build..?

Wednesday, October 7, 2009 04:26PM Report Comment
 

24. house said...

UT, I absolutely and wholeheartedly agree with what you say.
Find me land at a reasonable price then we are talking. I myself would not mind buying land have a chance to build a home from scratch.
How did you get to the figure f £35k to build. I thought the footage cost is around £75 to £85 per sq.ft. which makes a 700 sq.ft.property costing around £60000 plus other costs of £10000 to £15000 for kitchen etc. If land cost around say £40000 for a small plot then plus profit of say £15000 for the builder makes my figure not too far out.

Please correct me because in the 1991.I had a 4 bedroom detached property built for £60000 and the land sold to me by the same builder was £40000. Today it would appear that the same piece of land would go for between £110k and £130k plus the building cost of £100k . This makes the cost to around £230k. This is in Cornwall. It is a joke here.

Let's hope that you are right and that the UK is moving toward a housing market that is more than saturated on the supply side.

I am looking forward to it if it happens otherwise £125k in opinion is the price we may have to live with. It is absolutely ridiculous.

Wednesday, October 7, 2009 04:49PM Report Comment
 

25. uncle tom said...

If you are building an estate, as opposed to a single home, £600 per sq m - £60 per sq ft; is easily achieved for all costs, including kitchens etc. Typical 2 bed starter is usually around 60m2 - or a little less..

You can pay quite a lot more for a one-off project, especially if you go heavy on the internal details.

Wednesday, October 7, 2009 05:03PM Report Comment
 

26. house said...

UT, thanks. Let's hope the supply exceeds demand in the future for the correction to occur. I am a bear from past experience of the 1990's, but there was no vested interest intervention then as far as I am aware.

Wednesday, October 7, 2009 05:33PM Report Comment
 

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28. uncle tom said...

TC,

IIRC the old lending mantra was 2.5 x first income, plus 1 x second income - anyone else didn't count.

I like the household income graph because it reveals the extreme disparity between the richest and poorest in the UK - something that has got much worse under New Labour..

..stats that reference 'average' income are now very misleading, and even the quintile graph fails to reveal the extreme disparity between the the top 10% and the next 10%..

Thursday, October 8, 2009 12:28AM Report Comment
 

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