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Paracab
23rd Apr 2004, 02:14
Has anyone got any idea about what is going to happen with property in the near future ?

According to certain broadsheets the market is about to collapse, and others, it coudn't be stronger.

I am looking to move, but am deeply concerned about the consequences should the timing be wrong.

I currently reside in the first property I have ever purchased, very much in positive equity. Any advice from more experienced proon property owners would be very appreciated.

Rugz
23rd Apr 2004, 06:54
It's a difficult thing to predict, however, consider this.

If house prices continue to rise at the rate they are and have been, eventually first time buyers will be priced out of the market. At some point those who are on the first rung of the ladder will not be able to afford to buy their next property and so on.

It's going to have to seriously slow down and there is a distinct possibility the house prices will drop. In my opinion, as the housing market is quite strong, any drop in prices will be more of a small adjustment that allows the first time buyers and first time movers back into the market (rather than a collapse).

But then again, who knows. Markets are funny things and its those that can predict whats going to happen that make the most money.

Morpheme
23rd Apr 2004, 07:01
The IMF posted a warning yesterday about Britain facing a housing price meltdown which could hurt the economy.

But as you say, who knows what might happen? Interest rates are still low, so the perils of the late 80's may not be repeated.

Whatever the case, property ownership is fast becoming another elitist occupation!

Stockpicker
23rd Apr 2004, 07:13
Bloke called Tony Dye who correctly predicted stockmarket meltdown in 2000 (albeit his timing was a bit skewhiff) has said the housing market's in for meltdown. More interestingly, when housebuilders have reported profits recently, they have been better than the market expected and analysts have had to raise their expectations for future profits. This usually leads to share price rises, but the shares of these companies have actually been falling, so the City in general reckons it's all over (and there is a strong correlation with interest rates - as rates go up, the market sends housing shares down).

Even if each individual indicator is wrong, I suspect there's a danger these things could be self-fulfilling.

under_exposed
23rd Apr 2004, 07:34
Itís cyclical, as is the stock market. Houses are high, shares are low. I subscribe to sell high and buy low.
But when things will change, who can say.

M.Mouse
23rd Apr 2004, 08:14
It is finely balanced. An increase in interest rates, as happened in the '80s, would be the biggest factor in slowing or reversing the current supply and demand led boom.

It is not difficult to borrow and manage high multiples of income to purchase at the moment. The minute that changes with rising interest rates the surplus of buyers disappears overnight, prices drop, people then hang on to see what will happen and prices stagnate and fall further.

Much like the mad rush to get on 'the property ladder', which in itself fuels house inflation, the rise and fall of the property market tends to be a vicious circle in both directions.

I had 4 properties when the market last collapsed and it virtually bankrupted me. I thought I was being incredibly clever. I see many people doing the same now but all their borrowings are based on the present high value of their properties. The difference now is nobody is predicting the 15% + interest rates that hit us in the '80s. Many are gambling on making big bucks, and good luck to them, but I wouldn't be able to sleep at night.

Having had my fingers burnt badly once I now live in a house I can afford because I like and can afford to live in it. If it rockets or falls in value it is now of lttle concern except to give me a warm fuzzy feeling while the value is high.

montster
23rd Apr 2004, 08:38
If you want to move, then move but don't get silly about what you can afford. I too am moving from my 1st house with a lot of equity to a much larger house, but because of the equity I have, house prices will have to drop by 60% before my new house is worth less than the mortgage I'm taking out.

Since you're already on the ladder, if you view a house as somewhere to live rather than an investment, the only likely time that you will get caught out is if you agree to buy a place while prices are high, but prices drop before you sell yours. If, on the other hand, you view the property as an investment then I wouldn't know what to advise about the market:confused:

topcat450
23rd Apr 2004, 08:46
I've got my fingers crossed for a meltdown, only because I simply cannot afford to get a foot on the ladder, and equally if my pay goes up at the rate of inflation, I will never be able to afford a property unless there's a crash - but you're in a pretty decent position if there is a slowdown, as you've already got a foot on the ladder - just don't be silly with what you can afford.

gruntie
23rd Apr 2004, 09:27
If house prices continue to rise at the rate they are and have been, eventually first time buyers will be priced out of the market.

I think first-time buyers are ALREADY priced out of the market.

The difference this time around from previous is the massive amount of investment in "buy to let" property which is keeping the market going. BUT, this market itself is on a knife-edge: with massive over-supply of rental property, rental yields have dropped to a level where they are perilously close to current interest rates. These rates will only go UP and when they reach that crucial level there will be a lot of people trying to get out of "buy-to-let" in a hurry. With first-timers already absent, just think what that will do to the market.

In the 80's the boom peaked in London & the SE first while it continued to roar ahead in the North. Currently, we're seeing exactly the same thing.

However "meltdown" and "collapse" are too strong, they imply reduction to near-zero. What will happen is a major correction, at maybe up to 20%.

Just my .02

Groundbased
23rd Apr 2004, 10:07
Gruntie,

Totally agree with your assessment of the buy to let scenario. Especially as a lot of buy to letters have as high as possible an LTV on these properties there is no room for them to have an empty period, some even remortgaging their main residence to make a deposit. That's not a good recipe.

However, one of the main problems is lenders. It's no good for them if first time buyers are priced out of the market as they don't make profits. So they roll out the self cert mortgages, thirty plus year terms and parent/child mortgages to keep advances and market share up. They are fuelling the boom in this way.

I would like to see it stabilise for a good period of time, maybe even some small reductions in the 10% type of range. The potential for serious economic damage is far too great is things continue as they are.

Wee Weasley Welshman
23rd Apr 2004, 10:40
You'll only get a crash when people are forced to sell in distress.

This will occur in one of two scenarios:

1) Unemployment rises, people loose their jobs and can't afford to pay the mortgage,

2) Interest rates rise significantly and people can't afford to pay the mortgage.


1) is highly unlikely and 2) again nobody is forecasting rates going much past 5%. I conclude that a crash is unlikely.

Rather blatantly though the rises will have to stop. If we saw house prices 'collapse' by 10% then they would have gone back to the level of only 9 months ago. The properties most likely to face declining values are the one and two bedroom 'starter' houses/flats.

Planning permission for this so called 'affordable housing' is becoming much easier. It is the sort of tat that first time buyers have to buy and if they refuse - as they are doing now - then the price will have to come down a bit.

Demand for anything period, anything practical or anything nice will remain apace. Though this will change in about 15yrs time when the WW2 baby boomers start to die - releasing their agreeable houses.

I really wouldn't worry too much about it.

Cheers

WWW

FFP
23rd Apr 2004, 11:12
I am one of those first time buyers who is unable to get on the ladder. Oxfordshire is a nightmare to buy in, and as I mentioned on other threads £120,00 won't buy a one bed flat. Fortunately me and missus are able to occupy MQ and so while it is 'dead' money it's not as bad as those spending £700 a month on rent.

I for one am declining to get into this 5X salary multiple mortgage and 100% mortgage as I can only see interest rates going up from here (timescale obviously anyones guess).

It needs more people to say " This house is simply not worth the ridiculous price you are asking"

I shall sit tight. build up my deposit, and go back when prices are representative of what the houses are actually worth (about 20 % less than they are at the moment for me.)

It will happen :\

Ropey Pilot
23rd Apr 2004, 16:29
$120,000 won't buy you a one bed flat down south - but you can build a 4 bed detached from scratch for less! Got to buy the land (obviously), but since so many people won't even think about this route it is seriously cheap (comparatively) for those who will. And the "Southern premium" is only on the land - not the house.

Only prob is that it is a bit of a scary prospect and most banks require a more substantial deposit than normal for a 'self-build' mortgage.

Not brave enough for this myself - just do up other peoples places, but there are magazines on the subject ("Homebuilding and Renovating" or something similar).

And for my tuppence worth - I can't see a 'crash' coming, but it will slow down (mind you I thought that 2 years ago. := )

The majority of those that are alredy on the ladder should be OK either way as you have extra cash from the house you have sold to buy the new overpriced one, or if your value plummets it still OK as you will be buying a bargain. Unfortunate if you are caought out by differing markets in differing regions or a long time between selling and buying in a rising market:ugh:

FFP
23rd Apr 2004, 16:31
Self build is exactly what I'm planning on doing once I have the deposit/finances.

It seems to make sense to me.

IB4138
23rd Apr 2004, 17:47
Stockpicker,

Are you sure you don't work for the Daily Express?

this has been an attempted non scoop for over 12 months!

spork
23rd Apr 2004, 18:07
I tend to agree with Wee Weasley Welshman. It's only when folks can't afford to pay the mortgage that values have to drop.

The frightening thing has to be that my mortgage in 1975 was trivial compared to current ones here in the SE of England. (still tricky to pay at times though) Approx. identical house value: 1975 £12,000 and 2004 £260,000. Thus the interest rate changes are now far more significant and damaging to your chances of keeping up payments, especially if over-extended.

I worry more about when we eventually go into the Euro. This seems inevitable, and the requirements essentially seem to be that our economy deteriorates significantly before we join. :confused: :confused: :confused:

You want it when?
23rd Apr 2004, 18:43
If you can afford it, move up the ladder. Nuff said.

If you arrive with equity all the better. The mortgage, any mortgage bceoms easier to pay - and if the market does crash (as happened in the late 80's) would you rather live in larger house that you can still afford and not worry, or watch your equity degarde?

Will there be a crash? Any reliable indicators are shot, so you pay your money and hope. I'd go for a bit of market stagnation, with some sellers being forced to be a little bit more realistic.

FFP - You might think on a buy to let in the Midlands / Halifax area. Whilst you troll around for a chunk of land to self build on. A pal just bought a 3 bed terrace in Greetland for £60K, painted it and then sold it a year or so later for £75K. Not a bad return and it kept them in the market instead of renting.

As for whining first time buyers. I went to the max multiple on my salary of £14k in 1988 to buy a bedsit in Luton. The market has always been tough to get into, thanks to the crash I lost loads on that bedsit. Negative Equity? Polite term for well ****ed.
:\

So RugZ - move.

Smeagol
23rd Apr 2004, 19:07
Like others here, I think that there will have to be a reversal in the rise of house prices.

Whether this will result in a 'crash' or just a slow down followed by a gradual return to more sensible prices over an extended period, I don't know.

I made a conscious decision to get into the property market (for investment purposes) some years ago, but only buy with cash or a small morrtgage at least. Managed to buy at the right time and in the right place (so far at least) and it has proved a good investment. Damn site better than putting money into a private pension fund anyway!

Just waiting for the downturn to arrive.

curmudgeon
23rd Apr 2004, 22:11
I'm a great believer in the old adage that the next banking crisis will happen when the last person to remember the last one retires.

So will it be with the property market.

My personal experience - when I bought my current house about 12 years ago, the market was bad and getting worse. I had tried for nearly 2 years to sell my old flat, and whenever I had a buyer for the flat the place I was buying fell through, and whenever I had somewhere to buy, the flat sale fell through. Eventually I decided to keep the flat and rent it out. At that time, the flat was worth about a third of what I paid for the house.

I've today exchanged contracts on the flat. I'm currently selling it for about half of what I could sell the house for. So there has been a mismatch in the relative prices of the two places over the last 12 years. One contributer to this mismatch is, I think, the relatively low interest rates affecting one place more than the other, but I believe that the major factor is the current volumes of buy to let, which have disproportionately driven up prices at the cheaper end of the market.

There appears to have been a lot of silly money going into buy to let in the last few years. I've seen it with friends who have rented - people forming syndicates to buy a place without any formal agreements between them, and nobody willing to spend money on the maintenance. As other posters have mentioned, these investors don't have any slack in the cash flows to cover things like void periods or sudden maintenance costs. And with so many places to rent these days, rents have fallen over the past few years (I've seen it - the last two tenancies have been at about a 10% discount to the time before, each time), and tenants are not going to put up with landlords who are not prepared to adequately maintain the properties.

I'm sure that there have been a few landlords who have been happy to cover negative cash flow from the properties by either borrowing more on the mortgage, or borrowing elsewhere knowing that it was covered by the increasing value of the properties. But if prices start to stagnate, which is not difficult at the current levels, people may be more wary about such borrowing, which could cause a rush to sell, thus exacerbating the problem.

Those who don't take such a view of the market say that interest rates have risen, in the UK, but it doesn't seem to have slowed down price rises. I agree. What many haven't taken into account is the percentage of fixed rate mortgages over the last few years. So borrowers who took out a three year fixed rate 2.5 years ago haven't been affected by rate rises. Yet. They will be in 6 months time, though. They won't get the same rate again, and certainly rents haven't gone up to match. And their property's decoration has had 3 years wear and tear from the tenants.

Lenders have been falling over themselves to lend. In a market where the value of the underlying security has kept going up, there have been minimal bad debts. But once the downward pressure starts, bad debts will go up, leading to a tightening of lending criteria, and more importantly speedier foreclosures to get the best possible price in a forced sale before it drops some more.

And the current interest rate outlook is not down, not flat, but up. Sure, fixed rate mortgages rolling off will take some of the immediate pressure off, but its only going to smooth the inevitable.

So Paracab, if you want to move to another house because you want to live there, do it. It's a place to live, not an investment. If you're looking for an investment, I suggest you look elsewhere. There are others with a lot less downside risk.

cur

p.s.

WWW, Sorry to use your example, because I agree on the face of it that rates going up to 5% p.a. doesn\'t sound much, and seems quite affordable.

But if someone has borrowed a few years ago at 3%, for a fixed period, and then has to reset the rate at 5%, that\'s a 66.6% increase in the monthly cash out of the door. Exactly the same as someone who had borrowed in the late 80\'s at 10% p.a., and then suddenly discovered that the rate had risen to 16.667% overnight. Think what the gradual rise to 15% rates did to the market.

cur

Stockpicker
24th Apr 2004, 09:55
Nope, IB , promise I'm what my profile says! I was really just passing on my observations of what the stockmarket's doing, as it can often be quite a handy barometer (quite often I find that if I think something's priced wrongly, it's because the market knows something I don't!). From the tone of responses here, I'd say the discussion isn't about whether prices will keep going up but about whether the MPC can successfully manage a gradual slowdown rather than the post-EMU exit meltdown that happened before. The interesting factor for me that's come out of this thread is the impact that the huge buy-to-let market might have.

ETOPS773
24th Apr 2004, 11:47
Was talking to my dad about this the other night.The conclusion we came up with is that its not going to slump like many of us wish for,rather deflate.

I think the problem is going to be with wages.More european states joining up soon,wanting to earn more money thus jumping over to the UK.Over here they would be paid what they think is alot (IE earning £4.50 an hour,rather than £2 in their home country).

Now,as we all know-beancounters rule business,so who would they rather hire? UK workers who they have to pay £10 an hour,or someone who would be happy with £3 or 4.There lies the problem.

Also bear in mind the UK is primarily a serivce industry,a worrying trend is our call centres are going to India and unemployement will rise due to this I`m sure.Manual labour and jobs within the health service are also getting in more and more foriegn workers to fill the gap.

So,fewer jobs which pay less are on the way.Can people really afford to take on morgages that are 6,7 even 8 times their earnings.Not a chance! Now throw in the housing shortage into the equation.

Not good news I`m sure you will agree.

spork
24th Apr 2004, 16:05
Good points there ETOPS773. This thread has come up with a lot of interesting and different perspectives on this topic.

Like the stock market, I think the housing market suffers blips for no reason at all. (maybe someone sneezed) The idea of a significant number of "buy to let" owners deciding to sell at the same time could be one of those times I suppose.

However, it's such a complex issue that over time it all seems to even out in the end. It's when you have to buy or sell that matters, and where we are on the price roller-coaster at that moment in time.

ratsarrse
26th Apr 2004, 21:00
I'd quite like to own my own flat or a small house. Absolutely out of the question. I'd have to borrow getting on for 5 times my annual salary to buy a one bedroom (or maybe even a euphemistic 'two' bedroom flat) in an area I wouldn't really want to live in. I was considering buying 2 years ago, and decided against it because prices were looking unrealistic then and were surely (I thought) on the verge of dropping a bit.

It wouldn't be so bad if you could get something halfway decent for your £100+ grand. The majority of housing in Britain is, frankly, shit: cheap and nasty houses built from lowest cost material on mean portions of land. £150 grand for a cheapo Barratt box on a postage stamp? You're having a laugh. It isn't worth it, and even after decades of inflation, still won't ever be worth it (assuming the house is still standing).

Emigrating has never looked so appealing...but that's another thread...;)

Bletchley
26th Apr 2004, 21:22
The continuation of the housing market ultimately depends upon a supply of first time buyers (FTB).

We are now in a situation, taking where I live, where FTB cannot get onto the housing marker because they cannot get the salary multiplier.

I lived through this in the 1980's and I hear all the same arguements about things not going bust again.

Ultimately FTB will not be able to get a mortgage, hence the bottom end of the chain collapses, taking everything with it.

As for buy to rent (BTR), well I am advised that 5% of value is a good return on rental. Compare that to the Interest Rate.

BTR has caused a temporary shortage of properties and has driven the market up, however as with all things everyone is now into it and the market is starting to become overheated. This will lead to a fall in rental prices. You can see this happening in some cities already.

Now faced with a small marginal difference between Interest Rates and rents, there is nowhere for the BTR mob to go. The really clever BTR people are getting out of the market, the only ones staying in are those with very high equity values such that any reduction in rent will not impact on any commerial mortgage payments they might be making.

A very simple rule in investment is to get out as fast as possible when the papers start 'tipping' something. The clever money has been in and is then moving out, leaving the mug punters to jump in with both feet.

The final killer will be the tax increases that MUST come shortly unless Brown is to change his long stated Fiscal policy and principles. I cannot see this being the case because the underlying principle of any Socialist Government is to tax and spend.

When Blair goes shortly there will be one mighty fight and only a true Socialist will get the Crown. To do that he will have to pander to the old pet hates of Labour, i.e. the property owning classes, so look out for tax increases.

That will be the final straw.