Saturday, January 12, 2013

Still overpriced

Home Truths

'British house prices have posted only modest overall declines over the past five years (although rising rents and incomes have also helped bring things closer to fair value). But the British market may do rather better than still-stretched valuations suggest. For one thing, it does not suffer from the glut of empty homes that has created ghost towns in Ireland and Spain. And according to the Bank of England’s latest credit-conditions survey lenders are more willing to make mortgage finance available than at any time since the financial crisis. The number of mortgage approvals for new purchases is at its highest for almost a year.' I'm not sure that the figures in this article match my personal experience. I would not now be able to buy the house that I bought in 2000.

Posted by nubbers @ 10:50 AM (2951 views)
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7 thoughts on “Still overpriced

  • 21% overpriced only – that’s not outrageous. Though one might argue that overpricing is worse in London, thanks to all those foreign buyers.

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  • …….artificially low interest rates is the last word on UK housing.

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  • I just kind of had another thought about this.

    Now what IF our fiat money if vast overvalued as well? What IF our income received in paper money wasn’t supposed to buy us cheap foods, booze, a new car every 5 years, 3 overseas holidays and a new iphone every year? And overpricing of properties is basically just a counter balance of undervaluation elsewhere?

    If so, then to use overvalued fiat money to assess that whether property is overvalued or not, won’t that be pointless? What if our fiat money is 21% overvalued against everything except properties? Wouldn’t that make perfect sense? Wouldn’t that mean that properties are not overvalued against fiat money?

    What if people thought the same and they simply see debt as the most effective way of getting rid of vastly overvalued fiat money? Doesn’t that explain that the fact property price won’t come down is a just result of people exchanging fiat money for real asset?

    And the less credible the fiat money is, the less people want to hold is, the more expensive

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  • You only have to recall the headline (and risible, idiotic article to match) from the Economist “Why Japan will emerge stronger” some 20 or so years or so ago to realize what a bunch of fools they really are.

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  • @3.peter_2008 said…

    Peter – you are spot on the money – not ‘IF’ about it! I’m originally from Australia, but been in the UK for 12 years. When I arrived here, £1 was fetching $3.10 Australian. Now in 2013, it’s hovering around $1.50 – a 50% fall – check any currency graph and you will see the trend of the £ continually losing value. With close on £400 billion being printed out of thin air and added to the system over the last few years, it’s like going to a pub for a beer… and the publican fills your pint glass half way with beer and just finishes topping up with tap water – you may have a full pint but is it full value or even taste the real thing?!! With all the speculation the UK may lose it’s AAA rating this year, there is the belief about that the £ is overvalued at current levels, so the currency will come under more downward pressure. What many people are doing is thinking house prices will crash in ‘headline number terms’, but for British nationals on their British incomes paid in British pounds, they have already lost wealth and losing it – not obvious to many, because it’s being exacted by stealth, as 90% of the population are unable to see it. I see it as suddenly, if I wish to move back to Australia at some point, my savings ‘I thought I had here’, when I go to transfer them back to Australian $, will be worth half of what they thought they would be, and will buy me very little back in Australia. Hence, why London property has boomed over the last 5 years in line with the crashing currency – it’s cheap here for those from abroad with their often much stronger currencies. My brother from Australia came over last year, and in his eyes, he thought property was cheap here and good value – even in London!! – why? – because he was converting prices to Australian dollars. In currency terms and with the devaluation of the £ against the Australian $ over the past decade, prices work out half price! The ‘ones in the know’, especially since the crunch five years ago, had got their money into prime property, foreign currencies backed by strong fundamentals/commodities, shares paying strong dividends (with the share prices always jumping with each new injection of ‘quanitative easing’ – ‘money printing’ – ‘more water and less beer’), gold or silver, fine wines, artwork etc. This is what is known as the transfer from wealth – those that were winning in the good times, refuse to now lose now – instead, by stealth, people with savings are having their wealth continually stolen away.

    Sadly, if you are sitting in cash (British £) and waiting for a great crash in property prices, it most probably will never happen – it has happened through currency devaluation is still happening! – I amongst others believed it was going to happen five years ago and waited, waited, waited….. . Well, the crash has happened …it’s to the currency!! I finally bought here last year instead of renting as it became obvious that my savings here were being devalued and that with interest rates kept so low, I was only punishing and fooling myself for the last decade, waiting for house prices to fall, with rents ever increasing and trying to compete against buyers with their foreign currencies that have been able to buy them more and more here. All that has fallen is the value of my £s I have worked hard for. Even if I wanted to send it to Australia, it would buy be a cardboard box as it doesn’t get you many Australian $ now. As someone who now has British citizenship and lived here for over a decade, I fully understand why the average Joe here is so p+++ed off with life and can’t be bothered – where’s the reward in working hard when the system is not for the ordinary person living and working here?

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  • Peter, I also have concerns about the actual value of money we hold. One thing that can’t be explained is why food prices have not risen at the same rate. Eric Pickles said on the BBC this morning that the price of a chicken should be about 50 pounds if chicken prices had risen at the same rate as house prices. Have governments around the world been manipulating food markets to keep the price of food down and if so what happens when they can no longer manipulate these markets?

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  • @ OpenVision Oddly enough, I bought last year, too. I too felt unease to hold too much cash £. Like you, I too waited 10 years, but I wouldn’t say that you and I were fooling ourselves. For me, it was well worth it. In my area, property price was back to 2002/2003 level (I paid £2000 less than the guy who bought it new in 2002). The house was in very good condition. And if you add 10 years of inflation (whether wage or RPI or CPI), it is back to 2000/2001 level. That year is significant for me, because that was around dot com, 911, when things got really crazy. I would have to borrow 7 to 8 time my income (which was impossible unless I lie) when I just started working 10 years ago. By waiting 10 years, I managed to pay down more than 50% deposite. And I am financially much better than my friends who mostly bought around 2006/2007 when people are considered losers, if they don’t buy a house after 5 years of working. It’s a lesson I would pass to my children.

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