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UK House prices: News & Views

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I think you need to reverse that:

"there is absolutely no guarantee that rates will STILL BE ULTRA-LOW in two years."

Well that's just saying the same thing.

 

I know, some will say, " But if rates jump, many people will be in a mess, and the government will not allow that

to happen." Can he not see that the decision is no longer with the BofE? The UK's fate is in th hands of the market.

And there are many examples around the world of how disaster visits countries in such circumstances.

 

I'm under no illusion that if IR's rise then we are sunk. I have always said if that happens all bets are off.

 

If the markets turn on the UK (which is not that likely compared to several countries, due to the long dated structure of UK debt and, like it or not, the deficit reduction currently under way), then of course there is not much the BofE / Gov can do (assuming they don't use the nuclear option of haircuts and debt forgiveness).

 

I just believe that it would be better for everyone if we had a gentle fall in prices along with "some" inflation over several years. (Yes, an ideal world).

 

In your scenarios, everyone looses.

 

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Stalled auctions herald 2011 house price falls

 

The prices of properties sold at auction slumped in December heralding falls for the wider market, according to a financial forecaster.

 

An index, due to be published later today, will show the discount between homes under the hammer and the wider market was 26% last month, widening sharply from 20% in November.

The Zoopla Auction Price Index is compiled with economic forecaster Fathom Consulting, and aims to forewarn of wider market moves by tracking activity at auctions.

 

Its accuracy in doing so has yet to be proved but it has made some correct calls in recent years, most notably plunging to 40% several months before the wider market hit rock bottom in March 2009.

 

 

http://www.thisismoney.co.uk/mortgages-and..._id=57&ct=5

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I just believe that it would be better for everyone if we had a gentle fall in prices along with "some" inflation over several years. (Yes, an ideal world).

In your scenarios, everyone loses.

I am not interested in constructing "rosy scenarios" - I want realistic ones.

 

Under my scenario, and most scenarios I believe are realistic, the UK property bubble bursts, as it has in virtually all other Western countries.

The losers will be those who were too optimistic (believing in rosy scenarios), and failed to prepare and took on too much risk.

 

I recommend that people stay realistic and avoid the high risk / low reward scenarios.

 

You are hardly winning a prize by buying overvalued properties in the desperate HOPE that things will work out.

It matters greatly that risk and reward are not symmetrical outcomes, and betting on property and getting it wrong may ruin your finances for a lifetime.

Whilst getting it right, is merely a halfway decent outcome.

 

Heads: you lose big time... Tails, you have to repay debt on an expensive property.

 

Leave those terrible odds to the mad bulls, while sane people stay away, happy to wait for lower prices.

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I am not interested in constructing "rosy scenarios" - I want realistic ones.

 

Under my scenario, and most scenarios I believe are realistic, the UK property bubble bursts, as it has in virtually all other Western countries.

The losers will be those who were too optimistic (believing in rosy scenarios), and failed to prepare and took on too much risk.

 

I recommend that people stay realistic and avoid the high risk / low reward scenarios.

 

You are hardly winning a prize by buying overvalued properties in the desperate HOPE that things will work out.

It matters greatly that risk and reward are not symmetrical outcomes, and betting on property and getting it wrong may ruin your finances for a lifetime.

Whilst getting it right, is merely a halfway decent outcome.

 

Heads: you lose big time... Tails, you have to repay debt on an expensive property.

 

Leave those terrible odds to the mad bulls, while sane people stay away, happy to wait for lower prices.

The trouble is Dr B, we all thought things were way out of control many years ago (2003 for me, 2001 for you) and as you know, things kept going for many years after that.

 

Eg, for someone who bought in 2003, when I was worried about overpriced housing, not only have they still got positive capital gains, but also have paid off several years of their mortgage.

 

It is not a rosy scenario to imagine gentle falls over a period of years with inflation slowly taking its course. It is a very possible scenario and to be honest, could be the most likely outcome (with some ups and downs along the way).

 

I totally agree that it would be daft for a stretched first time buyer to purchase now. But, for a couple with secure jobs and decent wage, what's the problem if they want to take the plunge? I know a couple like this who are over paying their mortgage significantly each month.

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Stalled auctions herald 2011 house price falls

 

The prices of properties sold at auction slumped in December heralding falls for the wider market, according to a financial forecaster.

 

An index, due to be published later today, will show the discount between homes under the hammer and the wider market was 26% last month, widening sharply from 20% in November.

The Zoopla Auction Price Index is compiled with economic forecaster Fathom Consulting, and aims to forewarn of wider market moves by tracking activity at auctions.

 

Its accuracy in doing so has yet to be proved but it has made some correct calls in recent years, most notably plunging to 40% several months before the wider market hit rock bottom in March 2009.

 

 

http://www.thisismoney.co.uk/mortgages-and..._id=57&ct=5

Now that looks like good value ;)

 

I guess it would also imply about a 7-10% fall in wider market (seeing there was a 20% fall when the index read -40%).

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I am not interested in constructing "rosy scenarios" - I want realistic ones.

 

Under my scenario, and most scenarios I believe are realistic, the UK property bubble bursts, as it has in virtually all other Western countries.

The losers will be those who were too optimistic (believing in rosy scenarios), and failed to prepare and took on too much risk.

 

As I see it the losers will be everybody. You seem to think the 10 year old UK property bubble will 'burst' and that the only people who will 'lose' are those who took on too much risk.

 

Well, there's all sorts of scenarios. On the one hand people who took on too much risk - as long as they keep paying their mortgages - will be unaffected - apart from being unable to move house. On the other the major UK housebuilders go bust - who will be around to hoover up the land at lower prices and build. Where will the money come from to build with?

 

On the other hand, a property bubble 'bursting' along with mass repossessions etc. - will cause a banking system collapse and - not to put too fine a point on it - chaos.

 

I think the global inflation scenario is a hundred times more likely than the 10 year old property bubble bursting scenario. Where I live we've had stagnant house prices for about 7 years now. Which, set against inflation, means we have already had nominal falls. Give it another 20 years and property will become affordable again.

 

Or will it? As long as people pay daft rents, there will always come a point where someone will plunge in and buy to let out. Part of the structural shift in property ownership that is going on now.

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Eg, for someone who bought in 2003, when I was worried about overpriced housing, not only have they still got positive capital gains, but also have paid off several years of their mortgage.

 

It is not a rosy scenario to imagine gentle falls over a period of years with inflation slowly taking its course. It is a very possible scenario and to be honest, could be the most likely outcome (with some ups and downs along the way).

 

I totally agree that it would be daft for a stretched first time buyer to purchase now. But, for a couple with secure jobs and decent wage, what's the problem if they want to take the plunge? I know a couple like this who are over paying their mortgage significantly each month.

Sure.

Remember, I bought in HK 10 properties in 2007-8. So I am not without the nerve to buy.

For most of those years, Gold and Gold mining shares have been a FAR BETTER BUY than UK property, so I think renting in the UK, and putting my capital to work in Mining shares and HK property was a far smarter way to play it, than putting my capital in work in overpriced UK property.

 

Having said that....

Dancing on the edge of the precipice and buying now, is not like 2003 - it is more like buying in 2007. Except that this time, if the slide picks up momentum, there will not be a big drop in interest rates to save the property buyers. That trick has been exhausted.

 

So comparing today with 2003, is like comparing 1929 with 1922 - I reckon the big drop is dead ahead. And every month you see a "crash cruise speed" drop should reinforce the wisdom of waiting to buy.

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As I see it the losers will be everybody. You seem to think the 10 year old UK property bubble will 'burst' and that the only people who will 'lose' are those who took on too much risk.

 

Well, there's all sorts of scenarios. On the one hand people who took on too much risk - as long as they keep paying their mortgages - will be unaffected - apart from being unable to move house. On the other the major UK housebuilders go bust - who will be around to hoover up the land at lower prices and build. Where will the money come from to build with?

 

On the other hand, a property bubble 'bursting' along with mass repossessions etc. - will cause a banking system collapse and - not to put too fine a point on it - chaos.

My gawd man, you are far too UK centric !

 

Take a look outside the UK and see what happens when a Property bubble bursts !

Stay out of debt, and do not squander your precious equity on Houses, and you will be left standing to pick up the pieces when the homeowners and BTL investors fall over.

 

"people who took on too much risk - as long as they keep paying their mortgages - will be unaffected"

 

?? / They will lose equity, lose flexibility, and be trapped with no money to take advantage of lower prices.

 

I suggest you travel to Ireland sometime, or the USA, so you can see how that works.

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As I see it the losers will be everybody. You seem to think the 10 year old UK property bubble will 'burst' and that the only people who will 'lose' are those who took on too much risk.

 

Well, there's all sorts of scenarios. On the one hand people who took on too much risk - as long as they keep paying their mortgages - will be unaffected - apart from being unable to move house. On the other the major UK housebuilders go bust - who will be around to hoover up the land at lower prices and build. Where will the money come from to build with?

 

On the other hand, a property bubble 'bursting' along with mass repossessions etc. - will cause a banking system collapse and - not to put too fine a point on it - chaos.

 

I think the global inflation scenario is a hundred times more likely than the 10 year old property bubble bursting scenario. Where I live we've had stagnant house prices for about 7 years now. Which, set against inflation, means we have already had nominal falls. Give it another 20 years and property will become affordable again.

 

Or will it? As long as people pay daft rents, there will always come a point where someone will plunge in and buy to let out. Part of the structural shift in property ownership that is going on now.

 

The extremely complacent scenario you describe along with the social shift to neo feudalism (property haves verses have-nots) you mentioned in earlier posts requires IRs to stay where they are for at least 5 years (and that is not just base rates but domestic mortgage rates too). Also required is a sustained economic recovery that allows wage inflation to match core inflation and the creation of a significant number of non public sector jobs.

 

However, five years of weak, sub-trend growth, rising employment and high energy and commodity price inflation along with a banking sector that remains crippled in terms of funding itself at non-punitive rates simply will not deliver this. High inflation without commensurate wage inflation will not enable further debt creation, in fact it will result in the exact opposite.

 

There is an almost complete mismatch between what governments and central banks want the cost of credit to be (this is what you seem to believe it really is, btw) and what banks have to pay to raise the funds to grant new loans.

 

Debtors have a big shock in store. Either that or, as I've previously mentioned, they must be subsidised, at steadily increasing levels -- for ever -- and at the cost of the productive economy.

 

 

 

 

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Debtors have a big shock in store. Either that or, as I've previously mentioned, they must be subsidised, at steadily increasing levels -- for ever -- and at the cost of the productive economy.

Exactly.

That's suicidal for the economy, and in a post-Brown era, I think the government is capable of seeing that, whatever their rhetoric

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http://www.home.co.uk/asking_price_index/HAPIndex_JAN11.pdf

Home.co.uk figures show Dr Bubb may be correct about the next leg down.

How far down they go depends on supply though....

Summary

The mix-adjusted average Asking Price for homes on the market in England

and Wales has fallen by a further 0.4%.

 

-0.4% is on the edge of Crash Cruise speed

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Summary

The mix-adjusted average Asking Price for homes on the market in England

and Wales has fallen by a further 0.4%.

 

-0.4% is on the edge of Crash Cruise speed

Annual change in asking prices: -0.6%

6-month change in asking prices: -1.3%

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Link to their main site

 

http://www.fathom-consulting.com/research/.../latest-update/

 

Looks a bit grim, and I quote

 

 

This is also reported on This is Money.

 

the discount between homes under the hammer and the wider market was 26% last month, widening sharply from 20% in November.

 

....

 

The sample size in December was unusually large, giving us a high degree of confidence in this new reading,' said Andrew Brigden, senior economist at Fathom Financial Consulting. 'We have not seen such a large discount, in a month where there was a good number of auction sales, since late 2008-early 2009, in the aftermath of the collapse of Lehmans.

 

'We expect to see bigger falls in house prices, as measured by the lenders' indices, as we move into the New Year. If the reading on the Fathom/Zoopla API remains close to its current level, then a double-digit fall in house prices through 2011 is on the cards.' Yesterday, an index published by Halifax, the UK's largest mortgage lender, revealed house prices fell 1.3% in December and were down 3.4% over the whole of 2010.

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http://www.fathom-consulting.com/research/.../latest-update/

 

Looks a bit grim, and I quote

 

I havent read all the arguments on this thread, but i am in the Bubb camp on this one. I think this is "it"..the final capitulation where the masses finally realise that the property boom is well and truely over!

 

I expect to see high single/low double digit falls over the next 2 years years before a gradual levelling out and bottoming around year 2000 levels (maybe lower if we see large interest rate rises) I would really like to trade up but will have to see how things look in the property market when we get close to the bottom.

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I havent read all the arguments on this thread, but i am in the Bubb camp on this one. I think this is "it"..the final capitulation where the masses finally realise that the property boom is well and truely over!

 

I expect to see high single/low double digit falls over the next 2 years years before a gradual levelling out and bottoming around year 2000 levels (maybe lower if we see large interest rate rises) I would really like to trade up but will have to see how things look in the property market when we get close to the bottom.

 

I agree except that I also expect a "BTL tsunami" period at some point where the BTL crowd all try to get out at the same time. This may be brief but would see a dramatic plunge in prices.

 

 

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I agree except that I also expect a "BTL tsunami" period at some point where the BTL crowd all try to get out at the same time. This may be brief but would see a dramatic plunge in prices.

 

Yes I can see that happening. Some will try to get out as they see prices falling, but the other scenario is that there will come a point near the bottom of the market where buying once again becomes a viable option over renting. The overlevereged landlords will try to keep rents high to cover their mortgages, but if its then cheaper to buy, rental demand will dry up.

 

Keeping with the topic of this thread, i lived through and just about survived the last HPC. I learned a lesson on the dangers of taking on too much debt but i was young and naive at the time like many of todays youngsters who will get burned this time around

 

That HPC was a walk in the park compared to what we are about to see!

 

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I agree except that I also expect a "BTL tsunami" period at some point where the BTL crowd all try to get out at the same time. This may be brief but would see a dramatic plunge in prices.

Very possible to see a point of recognition amongst the BTL-ers.

 

But we are not there yet.

Go to Property Tribes and read some of the comments there - they are in full blooming denial now.

And they find the arguments that I have articulated "boring", whilst they are unable to refute a single point.

 

It will be bloody.

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Very possible to see a point of recognition amongst the BTL-ers.

 

But we are not there yet.

Go to Property Tribes and read some of the comments there - they are in full blooming denial now.

And they find the arguments that I have articulated "boring", whilst they are unable to refute a single point.

The Home.co.uk report mentions high rents as one of the factors that will support prices.

 

I expect to see high single/low double digit falls over the next 2 years years before a gradual levelling out and bottoming around year 2000 levels (maybe lower if we see large interest rate rises) .

 

That's pretty close to my expectation.

 

However, I don't see a BTL tsunami (some problems yes, tsunami no). Rents are still way too high and no danger of hoards of FTB's being able to get mortgages, hence more renters for a long time to come.

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The extremely complacent scenario you describe along with the social shift to neo feudalism (property haves verses have-nots) you mentioned in earlier posts requires IRs to stay where they are for at least 5 years (and that is not just base rates but domestic mortgage rates too). Also required is a sustained economic recovery that allows wage inflation to match core inflation and the creation of a significant number of non public sector jobs.

 

However, five years of weak, sub-trend growth, rising employment and high energy and commodity price inflation along with a banking sector that remains crippled in terms of funding itself at non-punitive rates simply will not deliver this. High inflation without commensurate wage inflation will not enable further debt creation, in fact it will result in the exact opposite.

 

There is an almost complete mismatch between what governments and central banks want the cost of credit to be (this is what you seem to believe it really is, btw) and what banks have to pay to raise the funds to grant new loans.

 

Debtors have a big shock in store. Either that or, as I've previously mentioned, they must be subsidised, at steadily increasing levels -- for ever -- and at the cost of the productive economy.

 

At the moment banks seem to be successfully paying 2% to savers and charging borrowers anything between 4% and 20% depending whether they are lending to a mortgagee or a credit card user.

 

Bank margins at the moment are very high. Base rate could go up quite a bit and banks would not have to raise interest rates. Margins would fall - but they've had a couple of years of high margins now to boost their capital positions.

 

Using interest rates to control inflation caused primarily by rises in global commodity prices will have no affect whatsoever - apart from a minor decrease in commodity prices as the currency rises. (As I said before, saving £10 a week on commodity prices will be more than offset (for most people) by paying £50 a week more on their mortgage ... so - no good to anyone).

 

And, of course, if interest rates rise, relatively speaking, in concert around the world - currency relationships will stay broadly the same. So, the only affect of raising interest rates will be to make sure that people have less money to spend. This will depress demand but it won't depress prices - because the price increases are caused by increases in global commodity prices. So we'll end up buying less stuff but at higher prices - which sounds deflationary in terms of jobs and economic activity but not in terms of prices.

 

I think we'll have close to zero base rate for years to come. One of the factors in play these days, as opposed to previous recessions / crises - is that all the developed economies are in the same boat.

 

From the Daily Telegraph today:

 

"Three million people would struggle to pay their mortgage if interest rates rose by just 1 per cent, new research has disclosed."

 

So, raising interest rates by 1% would cause, over a period of time, mass repossessions - a huge drain on the public purse as people have to be housed - and would expose banks' capital positions and force another bank bail out or a collapse of the banking system.

 

Which is my point - there is simply too much money lent into the housing market now (the boom is 10 years old in my area) for a collapse to be thinkable. Base rates are going to be low for years.

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Which is my point - there is simply too much money lent into the housing market now...for a collapse to be thinkable. Base rates are going to be low for years.

 

A strange conclusion to reach - I would have said that there is simply too much money lent into overvalued housing for a collapse not to occur.

 

I agree that base rates will be low for years but why will that make any difference? - just look at Japan and the US. Rates fall along with everything else in a deflation, including rents. (I do however think we will get a blip in rates as the bond market signals no more QE).

 

 

 

 

 

 

 

 

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Property Tribes...It will be bloody.

 

It will. I wonder just how far they will let their losses run until they bail? It'll be interesting to follow but they have been warned.

Based on the beliefs that they hold e.g. It only takes commitment and everything will work out fine in the long run, I expect that they will be the last out and possibly signal the time to buy.

 

 

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I think we'll have close to zero base rate for years to come. One of the factors in play these days, as opposed to previous recessions / crises - is that all the developed economies are in the same boat.

 

Which is my point - there is simply too much money lent into the housing market now (the boom is 10 years old in my area) for a collapse to be thinkable. Base rates are going to be low for years.

 

 

Unfortunately for you and your argument the base rate does not necessarily determine mortgage rates. And it is these that determine the cost of the credit that flows into the UK property market. Swap rates are rising regardless of an ultra low base rate, and this is having a knock effect on mortgage rates for new lending.

You may remender that the correlation between swap rates and the base rate was also broken after the Lehman crisis, although I can't recall exactly when.

 

See the following article

 

Since November 2010, two-year swap rates have increased from 1.31% to 1.72% and five-year swaps have gone from 2.18% to 2.82% in the same period.

 

David Hollingworth, director of communications at London & Country, says: “Swap rates have fluctuated over the last two years, but of late they have been on an upward trend.

 

“We have already seen evidence of lenders increasing their fixed rate mortgages because of swap rates and the sharper fixed deals are under threat.”

 

Industry consultant Mehrdad Yousefi says high inflation is worrying the money markets and pushing up swap rates.

 

Halifax raised the rates on its two-year fixes by 0.2% today and blamed the increased cost of funding and swap markets.

 

So. you see that the cost new lending, which is what will ultimately drive the market, is under considerable upward pressure. When new lending is squeezed then this must put downward pressure on prices. Although you don't state it, I think what you mean is that existing mortgage holders on tracker mortgages must, and will be protected at all costs. I disagree. ZIRP served to prevent mass defaults when the financial crisis hit. Continuing it depends on what proportion of the banks total loan book consists of these kind of mortgages. When this proportion falls to a low enough percentage and the bank have enough capital to withstand the commensurate losses, it will be safe to raise rates and let some debtors sink underwater. People should be preparing for this event. Anyway, the rates on new loans is rising.

 

 

 

 

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