Kate ([info]x_mass) wrote,
@ 2009-03-13 13:31:00
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i kept saying house prices were going to fall
I kept telling people that house prices were over valued and house prices would fall but i was always told they would go to the limit then tail off, yet this limit never seemed to happen

guess i was right. Doesn't make me feel good though

"House prices remain out of kilter with what people earn. No matter what the government does, they will head lower until they reach a level which people can afford, which history has shown to be about three times earnings. And they will probably overshoot this to the downside because of the scale of the preceding boom and the oncoming bust. There is nothing anyone, not tycoon nor politician, can do to stop this inevitable course. All they can do is delay it."

average uk national income is approximately £24,000 per annum , uk average house is 3 bed. long term bank maximum mortgage was 3.5 times first person earnings plus 1.5 times the other persons earnings that's 5 x earnings, that means a three bed house should end up at 120,000 maximum in the long term.

oh and the reason that interest rates will go to 15% is that we are currently massively inflating the economy to stop deflation. that will have to be paid back. Also we have been using M3 money that hid the real inflation rate for years, the cost of that still needs to be repaid as well in falling house prices

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[info]the_magician
2009-03-13 02:04 pm UTC (link)
Without wanting it to sound like an insult ... it didn't take a genius to realise that house had reached unsustainably high values compared to average income.... and that in every house bubble in the last 50 years or so, there's been a drop of house prices ...

... it has also been pointed out that "house prices" is a really difficult thing to measure ...
1) the mix of single occupancy dwellings (flats, starter homes etc.) is higher now than at any point in the past 100 years
2) the listing price at the agent's office and the selling price can be fairly different (see 4 below)
3) the prices of sales going through the land registry are, at the moment
a) those of houses people *have* to sell, even at a really low offer (bankruptcy, moving to a new job, death duty etc.) and those who don't have to sell aren't ... so you're seeing a disproportionate number of lower priced properties, and a far bigger discount to asking price for the ones that actually complete.
b) there are new apartment and house builders who are selling part-equity or doing "we pay your deposit" to artificially maintain the prices of their (empty) new stock ... so locally there are flats for £156,000 (but the small print says, this is for 75% of the flat, and you have to pay the other 25% in ten years time, either from assessed market value, or if you sell sooner, you pay 1/4 of the sale price) so you only have to find 156k now but the landregistry gets it listed at over 200k.
4) with a shortage of mortgage funds and a tightening up of acceptable risk, there are far fewer people around who can afford a house at the moment (big deposit is a usual blocker) so again the ones with money can negotiate a much lower price as there is far less competition
5) there's been a house building boom, so there are lots of nasty city centre blocks of flats and slightly out of town ugly estates.

All these combine to make the current house prices incredibly volatile and uncertain ... and with layoffs, worldwide recession/depression etc. then banks are going to continue to be tight with money, and people are going to continue to lose jobs and need to sell to pay off high levels of personal debt, means that for a while yet the houses that sell are likely to be selling at a big discount ...

... so house price on completion values are going to continue to dive for a while yet ...

... in buying and selling shares, it would be lovely to buy at the bottom and sell at the top ... it's probably better to buy as the market is dropping (and near the bottom) and sell as it gets towards the top ... in both cases you'll have people who want to sell to you/buy from you and you can make money ... it's the same with the house market ... buy when you think houseprices will drop a little more (obviously if you buy and then it drops a lot more, you'll have to hold on longer to make a profit)

My plan at the moment is indeed to look at buying later this year, or perhaps next year, and in the meantime get the London house in rentable state, pay off debts and start to think about amassing a deposit in some way.

I wouldn't buy now, not unless it was at a good discount to the "market".

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[info]x_mass
2009-03-14 04:31 am UTC (link)
I wasn't saying i was a genius, I have been saying that house prices were unsustainable for nearly 8 years now. And i been proved repeatedly wrong.

the point about the article and what i have been saying is where will prices end up at the end of this and although I hate to say it, a maximum price in london for a 3 bed house of 150,000 at current income levels seems likely. That's approximately 50% of the current pricing.

but then my analysis as i have said has been shown repeatedly to be wrong

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[info]the_magician
2009-03-14 11:14 am UTC (link)
I think that London prices will still run a little higher, as there is more demand than supply, there has (historically) been inflation, and London salaries are higher ...

... this means a lot of people are sitting on houses where, even at the reduce prices in the market, the house "value" is well above the mortgage ... my house is still probably worth more than twice what I paid for it in 1997 (at the peak it was well over 2.5x) so (if I hadn't run up my debt elsewhere) I'd still have a £100k "deposit" to put down on the next house ...

... house prices will continue to drop, but then there's the reply to your other comment, there's a natural connection between rental prices and house prices and if rent is much more expensive than a mortgage, more people will look at buying ... and there's still limited rental properties (particularly in "nice" areas) so you'll still get the situation where, like my brother in Camden, a one bedroom flat costs more than £300/week in rent ... with the current interest rates that "sets" a buying price well above that £150k you mention.

If a "maximum" price of £150k for a 3-bedroom house in London comes back, I think we're back to house prices in the early 80s or earlier, if you're going to count Hampstead etc. ... but there are very desireable areas, and there are people sitting on large piles of cash (those who got out of stocks early enough, those with guaranteed final salary pensions, high earners etc.) so there's still going to be a premium for Bayswater/Hampstead etc. and so I think you probably mean a maximum average price across London ... or do you?

If a three-bed house in Hampstead was available for £150k, I'd buy it!



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[info]x_mass
2009-03-14 02:55 pm UTC (link)
i did mean on average. Actually my brother regrets not having bought a lovely fat for himself rather than for a friend on the edge of hampstead back in the early nineties it was a short walk to the on to the heath. back then it was seriously run down area. Now who knows!

one thing i suspect will happen is that a lot of people will be carrying negative equity, and for a lot of people that means hundreds of thousands of pounds. i suspect we will see a lot of people opting to go bankrupt to get out from under their negative equity, or otherwise they face 15-20 odd years waiting for house prices to end up back in the positive. i sure banks will scream at politicians to remove bankruptcy options since it will cost them so much to write off the debt, but frankly they wont have a leg to stand on since they were bailed out so much themselves.

the reality is that its better for the economy if we all take the bankruptcy hit and then people start amazing wealth again. However what this country will do without the banking sector and north sea oil is another question. possibly start encouraging our best and brightest to actually produce real research and development rather than just work in the city?

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[info]the_magician
2009-03-15 10:51 am UTC (link)
I agree with the bankruptcy thing ... in the US, at least in some states I believe, your primary residence is protected under bankruptcy, so that you continue to have a place to live. That may be one option for this country (leading to howls from those that lost their house before the law changed)

My brother isn't in negative equity, but between the mortgage, tax bills and other debts, he's going into bankruptcy anyway (the current market has pretty much killed his business) he's got a buyer for his flat, but he's selling at a fairly big discount to get the money in now, to pay off what he can and put down the deposit and first months rent on a flat before going bankrupt (it's what the CAB advised) ... There were figures less than a year ago that showed that if house prices dropped something like 20% only about 5% of mortgages would go into negative equity ... however GfK had a recent survey of 60,000 home buyers and estimates that up to 1 in 3 mortgages could be (or will this year) go into negative equity (some people disagree with the methodology and the scale of the problem)

"For a lot of people that means hundreds of thousands of pounds" ... if they bought with a 100% mortgage, and the house prices drops 50%, then that still means they had to buy at over 400k at 100% mortgage ... I don't think there really are "lots of people" in that category ... there are a small group of people who've bought properties up near (or above) £1million that may well have a negative equity of "hundreds of thousands of pounds".

A lot of people buying the £300k + houses have done so based on selling their previous property and having a substantial deposit, as the mortgage component was still going to be a multiple of their income ... let's say they were on £40k and got a 5x mortgage, that's 200k, so that £300k house would have needed a 33% deposit ... so a house price drop of 30% would still leave them in positive equity. And a drop of 50% would leave them with a negative equity of £50k ... so the important figure isn't how soon house prices return to the peak of the market, but (for that person) how soon it returns to a 30% drop from peak ... anyone who bought in the last two years (and 50% of people who remortgaged in the last two years) may be in negative equity now.
Telegraph article on GfK survey

The country still has a banking sector, even if a lot of the shareholding is ("on our behalf" - ha!) by the government, and the financial depression is worldwide, so handling it well could actually become *more* important to this country ...

start encouraging our best and brightest to actually produce real research and development rather than just work in the city?
Having met many City types, I wouldn't trust them to produce medicines, robots or anything else :-)
But yes, it's a lovely thought ... any ideas about how we can encourage more R&D in this country?

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[info]x_mass
2009-03-14 04:33 am UTC (link)
the problem with buy at the bottom sell at the top is
a. getting your timing right
b. where are you going to live?

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