Halifax +2.6 % MoM

Cannon_Fodder

Conrad wrote: »

I'm just arranging a mortgage for a FTB who has saved £50,000. He is 28 now and on an average income.

Again people are allowing thier narrow view cloud the reality.

Just came across this in the Mortgage section and wondered whether it should be quite SO hard for this guy;

danielanthony wrote: »

Hi all,

We just got an AiP from Halifax for £207,000 @ 90% LTV @ 6.99% fixed for 5 years through a broker. Our joint income is £67,000.

...to get more than a 10% deposit together...£67k income...


IMO, a large section of society are so hocked up, or at least just barely balancing their finances on a breakeven basis, that a £50k deposit is pure fantasy to them.

Dan:_4

Cannon_Fodder wrote: »

Just came across this in the Mortgage section and wondered whether it should be quite SO hard for this guy;





...to get more than a 10% deposit together...£67k income...


IMO, a large section of society are so hocked up, or at least just barely balancing their finances on a breakeven basis, that a £50k deposit is pure fantasy to them.

Maybe they are just enjoying life - you only live once afterall.

Cannon_Fodder

Dan: wrote: »

Maybe they are just enjoying life - you only live once afterall.

That's exactly my point. Who has the capacity, let alone want, to save £50k before they can get a "decent" mortgage?

A 90% LTV for £207,000, means 23,000 deposit..a pretty substantial amount of cash, but not enough apparently.

Maybe Conrad's example has had no life, saved every penny, to get his £50k...?

In the future the two switch sides, as the "enjoyer" is looking at a £1500 a month mortgage...ouch!

pawpurrs

Can I ask a really silly question, how do they work out the rises and falls?
If its worked out on sold prices, then the figures would be about three mths behind, yes, so a bit early for the spring bounce? In which case we should see a few mths of increases? And if its worked out that way then, a month where you see a lot more of the higher end of the market sold, rarther than the bottom end, would see an increase, is that how its done?

dopester

pawpurrs wrote: »

is that how its done?

I think they calculate it from the mortgage amounts they extend in any one month.

It is complicated, and not truly understood or accepted here, but when people pay more for property in an area than in a previous month or year... that makes other homes notional value rise. So Halifax knows what people are borrowing for mortgages as they are extending the mortgage finance.

For example.. if someone came along and paid £200K for next door's flat, and you had bought near identical flat at £140K a few years before, you and the market proper would probably consider yours to be worth a similar amount via comparables.

The Halifax House Price Index
Background

Although one hundred per cent coverage of all house purchase transactions financed by the Halifax is obtained, those transactions that do not constitute a fully consistent body of data for the purpose of house price analysis are excluded from the Indices.

These exclusions primarily cover property sales that are not for private occupation and those that are likely to have been sold at prices which may not represent 'free' or 'normal' market prices, for example, most council house sales, sales to sitting tenants, etc. Only mortgages to finance house purchase are included; remortgages and further advances are excluded.

http://www.hbosplc.com/economy/indexmethodology.asp

dopester

pawpurrs wrote: »

And if its worked out that way then, a month where you see a lot more of the higher end of the market sold, rarther than the bottom end, would see an increase, is that how its done?

Filler text to post.

The indices calculated are 'standardised' and represent the price of a typically transacted house. The need for 'standardisation' arises because no two houses are identical and may differ according to a variety of characteristics relating to the physical attributes of the houses themselves or to their locations.

In summary, prices are disaggregated into their constituent parts using a commonly used statistical technique called multivariate regression analysis. This allows values to be attributed to the various qualitative characteristics (type of property, region, etc.) and quantitative characteristics (age of property, number of habitable rooms, garages, bathrooms, etc.) of a property.

As a result, the technique allows us to track the value of a 'typical' house over time on a like-for-like basis (i.e. with the same characteristics). This prevents the possibility of short-term changes in the set of properties sold from month to month (for example, shifts in the regional complexion of the market or a change towards more large properties being sold) giving a misleading impression of the change in the price of a 'typical' house.

pawpurrs

Thanks Dopester, so its a bit more accurate than I thought then, if it is based on comparable properties.........interesting.

And not quite as stupid a question as I thought! Around my parts theres a lot of very individual houses, IE no estates all period one offs, so that must be difficult to Judge increases and decreases, all you can go is the last time the property was sold. Its all a bit sketchy isnt it!

dopester

Sorry to mislead. It is my view the market on the whole works out value on comparables, through the prices being paid by those buying, to those who are selling.

Halifax must partly use that, in their calcs, and the mortgages they are extending.... but they also use their own complicated (mathematical) smoothing process as well for determining average house value. It isn't a stupid question at all.

baileysbattlebus

Graham_Devon wrote: »

Have you read what it's based on?

Someone can't just sketch something that gets so much attention based on history. They would be ridiculed.

500 years of pricing history have gone into it. It wasn't someone sitting there with a HB pencil trying to draw a camel and getting it wrong.

The chart has been around since early 2006. It was created by a university professor, Jean-Paul Rodrigue, to describe bubbles. Like the dotcom bubble, the tulip bubble, the housing bubble. If you haven't come across it before it makes quite interesting reading.

Business cycles are a well understood concept commonly linked with technological innovations which often trigger a phase of investment and new opportunities in terms of market and employment. The outcome is economic expansion and as the technology matures and markets are saturated, expansion slows down. A phase of recession is then a likely possibility as a correction is required to clear the excess investment or capacity. The bottom line is that recessions are a normal condition to a market economy as they are regulating any excess, bankrupting the weakest players or those with the highest leverage. What appears peculiar in the current context is that one of the mandates behind the creation of central banks is to fight a process that occurs "naturally". The interference of central banks such as the Federal Reserve appear to be exaggerating the amplitude of bubbles and manias that fuel them. It could be argued that business cycles are being replaced by phases of booms and busts, which are still displaying a cyclic behavior, but subject to much more volatility. Although manias and bubbles have appeared many times before in history under very specific circumstances (Tulip Mania, South Sea Company, Mississippi Company, etc.), central banks appear to make matters worst by providing too much credit and being unable or unwilling to stop the process with things are getting out of control. Instead of economic stability regulated by market forces, monetary intervention creates long term instability for the sake of short term stability. Are we now condemned to live in a world where fiat money constantly shifts from one bubble to the other? This remains to be seen, but I would argue that the destructive effects of a bubble's blow off, like the current real estate bubble, could become strong enough to shake the foundations of a fractional reserve banking system, even one as large and as sophisticated as in the United States. Understanding how bubbles and their manias are created would certainly help.

Click here to download a PDF version of this figure (distribution permitted).
The different phases in a bubble are backed up by 500 years of economic history. Each time the situation is obviously different, but there are always a lot of similarities. The situation applies pretty well to the current real estate bubble, which is rapidly unfolding as these lines are written. Simplistically four phases can be identified:
1) Stealth. Those who understand the new fundamentals realize an emerging opportunity for substantial future appreciation, but at a substantial risk since their assumptions are so far unproven. So the "smart money" gets in, often quietly and cautiously. This category of investor tends to have better access to information and a higher capacity to understand it. Prices gradually increase, but often completely unnoticed by the general population. Larger and larger positions are established as the smart money start to better understand that the fundamentals are well grounded and that this asset is likely to experience significant future valuations.
2) Awareness. Many investors start to realize the momentum, bringing additional money in and pushing prices higher. There can be a short-lived sell off phase taking place as a few investors cash in their first profits (there could also be several sell off phases, each beginning at an higher level than the previous one). The smart money takes this opportunity to reinforce its existing positions. In the later stages of this phase the media starts to notice and those getting in are increasingly "unsophisticated".
3) Mania. Everyone is noticing that prices are going up and the public jumps in for this "investment opportunity of a lifetime". The expectation of future appreciation becomes a "no brainer" and a linear inference mentality sets in; future prices are a "guaranteed" extrapolation of past price appreciation, which of course goes against any conventional wisdom. This phase is however not about logic. Floods of money come in creating even greater expectations and pushing prices to stratospheric levels. The higher the price, the more investments pour in. Fairly unnoticed from the general public caught in this new frenzy, the smart money as well as many institutional investors are quietly pulling out and selling their assets to eager future bag holders. Unbiased opinion about the fundamentals becomes increasingly difficult to find as many players are heavily invested and have every interest to keep the appreciation - "the game" - going. The market gradually becomes more exuberant as "paper fortunes" are made and greed sets in. Everyone tries to jump in and new investors have absolutely no understanding of the market, its dynamic and fundamentals. Prices are simply bid up with all financial means possible, particularly leverage and debt. If the bubble is linked with lax sources of credit, then it will endure far longer than many observers would expect. At some point statements are made about entirely new fundamentals implying that a "permanent high plateau" has been reached to justify future price increases; the bubble is about to collapse.
4) Blow-off. A moment of epiphany (a trigger) arrives and everyone roughly at the same time realize that the situation has changed (like the Road Runner Coyote realizing he is about to fall after walking on thin air for a few seconds). Confidence and expectations encounter a paradigm shift, call it a reality check, not without a phase of denial where many try to reassure the public that this is just a temporary setback and that anyone saying otherwise does not know what he is talking about. Some are fooled, but not for long. Like a directionless herd many try to unload their assets to a greater fool, but takers are few; everyone is expecting further price declines. The house of cards collapses under its own weight and late comers (commonly the general public) are left to hold the bag while the smart money has pulled out a long time ago. Prices plummet at a rate much faster than the one that inflated the bubble. Many over-leveraged bag holders go bankrupt, triggering additional waves of sales. There is even the possibility that the valuation undershoots the long term mean, implying a significant buying opportunity. However, the general public at this point considers this sector as "the worst possible investment one can make in his life". This is the time when the smart money starts acquiring assets at bargain bottom prices.
Bubbles can be very damaging, especially for those who arrived late with the hope of getting something for nothing. Even if they are inflationary events, the outcome of a bubble's blow off is very deflationary as large quantities of capital vanish in the wave of bankruptcies they trigger. Historically, they tended to be far in-between, but over the last decade we have experienced the largest bubbles in human history back-to-back; the stock market (which deflated in 2000) and the real estate (which is likely to deflate in 2006).

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baileysbattlebus wrote: »

The chart has been around since early 2006. It was created by a university professor, Jean-Paul Rodrigue, to describe bubbles. Like the dotcom bubble, the tulip bubble, the housing bubble. If you haven't come across it before it makes quite interesting reading.

Thanks for that Bailey, the explanations of each phase are fascinating, and seem to apply directly to the housing market we are currently seeing, in fact it's unnerving to see how accurate it is playing out as we speak. It seems at this time we are heading for the 'return to normal phase'. Seeing how the graph has been so accurate so far, it will be interesting to how the next few years pan out.