Sunday, July 6, 2014

This crash will be a big one

Reality of london property boom

Quite amazing prices increases that can only be described as unsustainable surely..interesting to note they then went on to buy other overpriced property in london!..perhaps thinking they Bagged a bargain!

Posted by taffee @ 07:29 AM (7324 views)
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27 thoughts on “This crash will be a big one

  • woohooo. I should buy one of these houses for 1MM now so when they cost 3MM in 5 – 10 years, it will make me a millionaire.

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  • I’ve known lots of people like this. Folk who bought a house to live in, now worth lots more than they paid for it. The BtL brigade who bought in over the last. 3 or 4 years are hoping that prices will keep going up fast.
    As tgey say….Assumptions make as ASS of U and ME.

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  • Useless examples. It’s not about the current boom but glorifying gains mostly accumulated before the crash.

    Waste of time. Typical DM. Hand-rubbing middle-England-riling smugness unsubtly masked as genuine concern.

    The agent says HPs in some areas have risen 150% in 2 years. That’s the story. Who cares that HPs have quintupled in nice areas since 1995, that’s been the case on and off for a decade.

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  • britishblue says:

    I don’t think it is a useless article. I think it is one of the best ‘red flag’ articles i’ve ever seen as to just what a bubble London is in. We have had the worst recession and financial crisis in living memory and ordinary houses, owned by ordinary people are valued at lottery money prices. Maybe they will go much higher, that’s what happens in bubbles, but eventually everything gets back to the equilibrium. Maybe we”ll get another 20 or 30% appreciation in London before the elections in 10 months time, then the fun will really start.

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  • Thing is, the official inflation figures are still falling. This is, I repeat, due not to monetary impact but down to new technology, globalisation and a steady flow of progressively cheaper labour. Without stimulus, retail prices would have plummeted. The banksters fear that because the asset backing to their debt would collapse. That and supporting high government debt is the problem. Government debt is unsustainable because deflation increases people’s standard of living eventually to a point where government socialism is no longer necessary, and so the debt that sustains socialism also becomes unnecessary.

    So, all the printed money has stopped prices collapsing, but they are still heading south, with deflation now in Scandinavia and almost in Europe. The one thing that can’t be printed is land and houses, and so things like that are what are pumped up by the quantitative easing.

    They say rates will rise, but I think that the Bank of England will not raise rates unless British inflation starts to rise, but if I’m right about technology and cheap labour, it could yet fall to deflation, because Europe is collapsing and France falling into a new recession, and so new migrants coming in will accept lower wages and provide the spare capacity necessary to keep rates low.

    Sweden attempted higher rates, but crashed into deflation, and has now slashed them again. The Bank of England will not wish to repeat that here:
    http://www.telegraph.co.uk/finance/economics/10944166/Sweden-slashes-rates-to-avert-deflation-after-Riksbank-mutiny.html

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  • @4 britishblue

    why don’t you think whoever wins the election (looks like labour) will not be able to keep kicking the can further down the road? as I asked here many times, I really see no external (market) force that would make our BoE boys increase overnight rate. After all, it is a human decision, this is why people used to sit on the edge of their seats on rate announcement day. I feel they can keep rate at 0.5 no matter what – or eventually raise it when it does not matter anymore, e.g. true inflation at 30% which means economy may be really booming.

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  • @4 britishblue

    why don’t you think whoever wins the election (looks like labour) will not be able to keep kicking the can further down the road? as I asked here many times, I really see no external (market) force that would make our BoE boys increase overnight rate. After all, it is a human decision, this is why people used to sit on the edge of their seats on rate announcement day. I feel they can keep rate at 0.5 no matter what – or eventually raise it when it does not matter anymore, e.g. true inflation at 30% which means economy may be really booming.

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  • This is the chart that must turn north, and seriously above 2%, or a sudden jump striking fear of upwards trajectory to justify a rise:

    I still contend that the danger zone for rates is the 5 to 10 year period. I will fix my mortgage for 10 years soon as I am sure that inflation and rates have bottomed.

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  • This is the chart that must turn north, and seriously above 2%, or a sudden jump striking fear of upwards trajectory to justify a rise:

    I still contend that the danger zone for rates is the 5 to 10 year period. I will fix my mortgage for 10 years soon as I am sure that inflation and rates have bottomed.

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  • The true inflation rate is probably approaching hyper-inflation. It is just that modern technology and labour mobility is counteracting all monetary action, absorbing it all. If reported inflation in the next report dips, possible due to deflation imported from Europe, all bets are off for a raise in rates, and you will understand why BOE put in upper limits for a housing boom. Those measures are in place because BOE does not anticipate being able to raise rates to quell property prices.

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  • Just as the minimum wage was put in by Liebour because they knew that the immigration wave they allowed would put downwards pressure on wages, so they were making an insurance package to ensure that the bottom rung did not get ridiculously cheap. The market instead created an alternate black market for those willing to accept far less than minimum wage, black budget, to combine with welfare payments.

    Truly interesting times. As I saw on Zero Hedge recently, the bond market is behaving differently now. The statement was: “Simply put – this is not your father’s bond market anymore.” http://www.zerohedge.com/news/2014-07-05/all-bond-bears-banking-inflation

    An interesting thing to note about the BOE inflation chart above, even on the upper projection, BOE are suggesting that inflation peaked out for the foreseeable future in 2011 and they anticipate inflation to steady at the 2% target. As we know, BOE doesn’t care if we are a bit above 2%. They were quite happy at above 3% for a while despite Swervyn Mervyn having to write to the Chancellor. Remember the first time? It was a big to do, but then month after month, letter after letter, and no action on inflation. It was just a farce. Maybe because they saw the deflation coming, because they knew that the new waves of immigration would destroy wage led inflationary spirals.

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  • Its odd. All this talk about rates rising, at a time when inflation is below target for the first time in a very long time. At the point where BOE put in limits to stop a breakaway housing boom, at a point where all other central banks are reducing rates, and we have only just started experiencing economic growth after half a decade of depression.

    Something does not smell right.

    I’m on the edge of my seat seeing if the majority are wrong and rates are infact going to stay the same or even start falling. I could be way off. But the “everybody agrees rates will rise” cry just does not hold any water.

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  • britishblue says:

    [email protected] I don’t think the can, can be kicked down the road indefinitely and I don’t think it is interest rates that are the trigger. I think it is sentiment that is being pumped and bubbled up as well. We are fast losing the class system in London and it is being split into asset owners and non asset owners. There was an interesting article in the telegraph yesterday that said that professional like solicitors and doctors could no longer afford private education for their children because of a 4 fold increase in costs. It said a plumber could have afforded it 20 years ago. It also mentioned that private schools are now the domain for the very rich or foreigners. I would go further an say a newly qualified Doctor in London, who has finished 5 years study doesn’t have a chance of saving a deposit and buying a half decent property in their own right, let alone think about a family and private education. Either this continues indefinitely and people accept that if they don’t have family money or assets they are ‘have nots’ and if they have assets they are ‘haves’ irrespective of how talented they are and maybe then it could continue for a long while. my guess is if this continues too long there will either be a lurch to the right or left in politics and in 20 years time the UK could be a different place. I don’t expect it to go this far, but if tomorrows youth are shut out of wealth in the future, why should they comply when they get older?

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  • London has been a detached [no pun intended] bubble form the rest of the UK for a long time now [1998 onwards].
    This will burst & primarily affect London & more “desirable” parts of the commuter belt / home counties, but the rest of the UK
    won’t see a ripple. How much this bursts depends on any legislation to prevent funny money washing disguised as investment.

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  • This bubble.bursting affects everyone in the UK because our banks have been lending big sums into it

    Underlying trend is that prime london property isn’t shifting and there are big price reductions taking place
    Which should come out in the months ahead figures

    Sentiment can change quickly and then you won’t see an investor/speculator for.dust

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  • bidin'matime says:

    @ libertas – didn’t I read “this is probably one of my last posts here” on one of your postings last week…?

    I’m not criticising your postings, or your decision to continue posting – I’m just intrigued to see your continued interest – and I get the impression that, having bet on red, while the rest of us bet on black, you await the fall of the roulette ball with the same interest as we do….

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  • I have decided that price is not the issue. I’m happy for prices to drop 3% per annum over a 25 year period, and I will still be better off buying than renting, because half my mortgage payments are repayments and the overall mortgage cost is lower than renting for this area!! About 50% lower than renting!! Rents accelerate faster than selling prices because sale prices are based on surveyors looking at previous sales, so new higher prices are driven by marginal cash buyers raising the bar in a local area. This is how the market is made on the margins by the minority, which is why sentiment is so important.

    My main issue now is interest rates. Will Britain really cut rates when inflation is collapsing? If inflation has picked up since May, we could see that, but the higher Sterling of late will reduce the cost of imports, pushing inflation down potentially, and that may stop rates going up.

    My question is when to fix my mortgage!

    I could only get a mortgage from Nationwide, because I did not have prior pay-checks, but after my third pay check I can get mortgages from the whole market, so I am on a variable, awaiting whether inflation is rising or falling in three months. Nervous about whether to fix or remain on variable. Today’s fixed rates could look expensive in a couple years time if British inflation begins falling towards 1% or lower. It is presently on that trajectory.

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  • Nationwide are the new northern rock,

    After First Direct turned away my sub 3x earnings, £100k <50%LTV mortgage request I went to Nationwide and they gave me a offer right away.
    Since the market is softening and I started a new job today, I have held back hoping to get a good reduction sometime next year. I can't see prices rising outside London unless the govern-bank-ment do something really big. like 50% shared equity on any property to unlimited value.
    BTL aren't going to pour in at current yields and certainly not in the 3/4 bed detached family market we are looking in.

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  • britishblue says:

    in my area of south west London houses are still selling for extortionate prices but the message from estate agents is changing from encouraging even more ramped up prices to ‘don’t miss the boat’, ‘now is the best time to sell and if you don’t sell now you might not get so much’. On the ride up estate agents work for the sellers and its fixed bids and treating buyers like second class citizens, where sellers can choose. On the ride down they switch sides to the buyers and start saying things like, the couple are getting divorced and looking for a quick sale, etc. ‘

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  • Interesting. I bet he bought to benefit from capital appreciation due to high speed trains from Ashford. However, that link is now fully priced in and he maybe is looking elsewhere, but how stupid to sell everything all at once and announce it like that. This will reduce the price he can get, but he could have quietly disposed of the properties in small batches without pissing in his own market. This is almost as bad as Gordon Brown selling half of Britain’s gold reserves at the bottom of the market after announcing the sale beforehand!!

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  • Oops, the above post was not meant for this thread.

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  • @4

    But house prices had quadrupled in a lot of those areas between 1998 and 2007, so quintupling over nearly twice as much time isn’t that impressive. The text of the article tells the real story, they obviously just couldn’t find any recent sellers to gloat about it. Brixton and other places in zone 2, along the new overground line mostly, have seen 75-150% price rises in just the last couple of years.

    That’s more bubbly than 2003 or 2005, where prices rose 25% p.a. nationwide.

    Notting Hill is old news. I’ve heard people in Hackney say their home values have tripled since 2007. Given the economic conditions, that’s insane.

    @17

    I’ve noticed that too and concluded the same.

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  • @20: “given economic conditions, that’s insane”. flashman has always said economic conditions are improving greatly and future prosperity is already priced in flats or specifically Hackney flats in your example

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  • @20: “given economic conditions, that’s insane”. flashman has always said economic conditions are improving greatly and future prosperity is already priced in flats or specifically Hackney flats in your example

    There simply is no improvement, other than more government and public debt. They are ALL doubling down.

    Flashman always went on about the US and how well it doing…..2014 1st quarter GDP was -2.9% and that’s a massively ‘up’ manipulated figure.

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  • @21 I think it has more to do with the gentrification of that area and the amount of housing transactions going on. Very few people can afford to pay £1m+ for a 3-bed, unless they have already made £500k+ on a 2-bed.

    My point was that prices tripled in that area over a period that began just before the recession began. My understanding is that, whilst prices fell 20% nationwide and in London alone, certain areas (e.g. the poorer areas surrounding Notting Hill, that agents insist on referring to as Notting Hill, like Ladbroke Grove, Latimer road etc., and Hackney) never really saw those sorts of price falls, as the areas themselves were seeing prices rise by 15% p.a. more than anywhere else anyway.

    Across London, prices fell 20% and are now 50% above their 2007 peak. In parts of Hackney, small family houses are 200% above their 2007 peak. The idea that the value of your home could triple in 7 short years that included the worst recession in history is astounding. Apparently, there are a lot of cash-rich foreign buyers in those areas and, as I said, the makeup of the people in Hackney is being rapidly transformed, but to explain the phenomenon away with “economic conditions are improving greatly and future prosperity is already priced in” is a bit reductive IMHO.

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  • Hackney is just like Brixton. The replacement of Silverlink on the North London Line with London Overground has seen trains double in capacity, with a train every five minutes when previously it was once very 15mins in 40yr old rolling stock.

    The next big one to watch out for is where I am buying, on the Lea Valley lines. Presently, Ponders End and others on the Liverpool Street to Hertford East line gets only two trains per hour. They are upping it to four per hour by 2018, and work starts 2020 for Crossrail 2. Even if that does not go ahead, the line from Liverpool Street to Cheshunt and Enfield Town is being taken over by London Overground. New rolling stock is already ordered, and as soon as Crossrail 1 is finished, services will increase on that line, using vacated platforms that run from Romford to Liverpool Street, that will soon go underground to Paddington. The Liverpool Street to Chingford line will also have a makeover. There are also massive regeneration proposals at Angel Road and Northumberland Park, huge regeneration happening around Tottenham. At Southbury / Ponders End, the notorious estate there is being demolished and rebuilt and the Middlesex University site will be regenerated. You can visibly see prices spilling out from the Picadilly Line zone where first time buyers are priced out, with prices rapidly rising around that area, but you can still get a terraced house of two bedrooms for about £260k around, say, Silver Street, but soon as TFL put that line on the London Overground map with new rolling stock, nothing will sell for under £300k, and off they go, as they say.

    Already, in and around Tottenham / Edmonton, Letting Agents about 1.5yrs ago stopped on average selling rentals to DHS, with many offices being 100% DHS to now being 100% private lettings within that small timescale. In that short time, people priced out of, say, Stoke Newington, are moving to the area because they are priced out. That never happened before, but Edmonton is only 10mins from Stoke Newington.

    So it is all change. Just in the last few weeks, since the big articles about a London housing boom, I’ve seen the availability of houses in that area shrink to next to nothing being for sale, and so I’m super glad we sealed our house just three weeks ago!!

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  • So it is all change. Just in the last few weeks, since the big articles about a London housing boom, I’ve seen the availability of houses in that area shrink to next to nothing being for sale, and so I’m super glad we sealed our house just three weeks ago!!

    But you are buying when prices at an ALL TIME HIGH. Ever heard of buying low and selling high?

    Moreover you seem completely oblivious to the fact that UK government are just borrowing and pumping up the economy before the election next year.

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