Do You Expect House Prices To Increase In Over The Course Of The Next 12 Months?

tomstickland

I don't really understand what the argument is at the moment. Kenny can you summarise it please?

Pal

I am guessing that the arguement is that, if a house has been bought using a fairly large amount of gearing (a mortgage), and house prices "only" go up by 3% p.a., then house owners are more likely to make a profit by hanging on for a few years than selling immediately.


It is, of course, a completely daft arguement. If house prices rise by 3% p.a. then it is probably worth buying now, or hanging onto any properties you already own. The balance is between the amount of interest you pay on the mortgage compared to the annual increase in house prices, factoring-in the opportunity cost of any (post-tax) profit you could make by selling now.

The obvious flaw with the arguement is that house prices will not rise at 3% p.a. for 5 years. They may rise faster, slower, or fall, but they are highly unlikely to rise by 3% each year.

I think that people can argue that houses are overvalued until they are blue in the face, but they are not going to fall until either interest rates or unemployment rates rise significantly. Kenny is correct that there are lots of external factors in play, but until one of them has an impact on either UK interest rates or unemployment, house prices are going to stay about where they are at the moment. They cannot increase significantly because the UK consumer is hitting their borrowing limits, and they will not fall significantly because there are too many sheep who are willing to borrow to the hilt to "get on the ladder".

There is one other factor that might lead to house price falls in some areas: housing supply. Every square inch of land within built-up areas is now having "luxury flats" or "modern starter homes" built on it, and oversupply is a real potential issue. When (not if) the oversupply starts to impact prices at the bottom of the "ladder", it has to feed through to prices further up eventually.

nmiah786

Pal wrote:

I am guessing that the arguement is that, if a house has been bought using a fairly large amount of gearing (a mortgage), and house prices "only" go up by 3% p.a., then house owners are more likely to make a profit by hanging on for a few years than selling immediately.


It is, of course, a completely daft arguement. If house prices rise by 3% p.a. then it is probably worth buying now, or hanging onto any properties you already own. The balance is between the amount of interest you pay on the mortgage compared to the annual increase in house prices, factoring-in the opportunity cost of any (post-tax) profit you could make by selling now.

The obvious flaw with the arguement is that house prices will not rise at 3% p.a. for 5 years. They may rise faster, slower, or fall, but they are highly unlikely to rise by 3% each year.

I think that people can argue that houses are overvalued until they are blue in the face, but they are not going to fall until either interest rates or unemployment rates rise significantly. Kenny is correct that there are lots of external factors in play, but until one of them has an impact on either UK interest rates or unemployment, house prices are going to stay about where they are at the moment. They cannot increase significantly because the UK consumer is hitting their borrowing limits, and they will not fall significantly because there are too many sheep who are willing to borrow to the hilt to "get on the ladder".

There is one other factor that might lead to house price falls in some areas: housing supply. Every square inch of land within built-up areas is now having "luxury flats" or "modern starter homes" built on it, and oversupply is a real potential issue. When (not if) the oversupply starts to impact prices at the bottom of the "ladder", it has to feed through to prices further up eventually.

Pal

You have made a very balanced argument and I have no reason to disagree with your post, unlike other people whose post are completely one-sided!

Oh btw 3% was only an assumption and the scenario was that someone had been mad enough to have already bought at the overinflated price and they couldnt afford to sell and make an exit!!!

tomstickland

Well, the good news is that I'd find a 1 or 2 bed flat totally acceptable and they're building 100s of them round here!

Pal

I'd hang around then for a while - you should be able to snap up one in a year or so for a "reasonable" price. ("Reasonable" in this case meaning just double the price they were in 1997.)

IN_LIKE_EVERYONE_ELSE!

Massive correction, if you are considering a house purchase at this time, make an offer 30% below asking price. Repossession will be a hot topic on this forum in 2006.

I am renting, I have carried out no home improvements for 18 months and I love it.

tomstickland

My plan is to save the most massive deposit possible and I'm happy to keep on doing that for another 2 years.

kinster_2

tomstickland wrote:

My plan is to save the most massive deposit possible and I'm happy to keep on doing that for another 2 years.

@ what interest is that at?

tomstickland

Varous interest rates, I haven't caculated the overall average, but I guess that it's just over 4% after tax.

Edit:
I've just done a rough and ready sum and it's come out at 5%.

kinster_2

Pal wrote:

I am guessing that the arguement is that, if a house has been bought using a fairly large amount of gearing (a mortgage), and house prices "only" go up by 3% p.a., then house owners are more likely to make a profit by hanging on for a few years than selling immediately.


It is, of course, a completely daft arguement. If house prices rise by 3% p.a. then it is probably worth buying now, or hanging onto any properties you already own. The balance is between the amount of interest you pay on the mortgage compared to the annual increase in house prices, factoring-in the opportunity cost of any (post-tax) profit you could make by selling now.

The obvious flaw with the arguement is that house prices will not rise at 3% p.a. for 5 years. They may rise faster, slower, or fall, but they are highly unlikely to rise by 3% each year.

I think that people can argue that houses are overvalued until they are blue in the face, but they are not going to fall until either interest rates or unemployment rates rise significantly. Kenny is correct that there are lots of external factors in play, but until one of them has an impact on either UK interest rates or unemployment, house prices are going to stay about where they are at the moment. They cannot increase significantly because the UK consumer is hitting their borrowing limits, and they will not fall significantly because there are too many sheep who are willing to borrow to the hilt to "get on the ladder".

There is one other factor that might lead to house price falls in some areas: housing supply. Every square inch of land within built-up areas is now having "luxury flats" or "modern starter homes" built on it, and oversupply is a real potential issue. When (not if) the oversupply starts to impact prices at the bottom of the "ladder", it has to feed through to prices further up eventually.

Agreed, what this guy said. Too many people on here with a one-sided view.