Scales tipping as demand outstrips supply again

1echidna

It looks as though I may be a loan voice here postulating that we may have reached the bottom. OK there are many houses on rightmove but a lot are fishing in the hope of catching someone willing to pay an unrealistic price. If people were willing to pay anywhere near the price some are asking, prices would be surging up rather than the small rises we have seen for a month or two. I would argue that aside from this it is a pretty slack market both in terms of what is being offered and in the number of people trying to buy. But perhaps in terms of money there is a change in the balance with distrust of the stock market and lousy saving rates some see property as an investment either for themselves or in helping their children with a deposit. I wonder too whether, despite what many say here, there is a bit of a change in sentiment about the prospects for the housing market which means sellers holding off and buyers pitching in. To my mind inflation will rear its ugly head again (and rightly or wrongly I suspect many think like me) and property has a record of being a safe hedge against inflation.

Thrugelmir

1echidna wrote: »

It looks as though I may be a loan voice here postulating that we may have reached the bottom. OK there are many houses on rightmove but a lot are fishing in the hope of catching someone willing to pay an unrealistic price. If people were willing to pay anywhere near the price some are asking, prices would be surging up rather than the small rises we have seen for a month or two. I would argue that aside from this it is a pretty slack market both in terms of what is being offered and in the number of people trying to buy. But perhaps in terms of money there is a change in the balance with distrust of the stock market and lousy saving rates some see property as an investment either for themselves or in helping their children with a deposit. I wonder too whether, despite what many say here, there is a bit of a change in sentiment about the prospects for the housing market which means sellers holding off and buyers pitching in. To my mind inflation will rear its ugly head again (and rightly or wrongly I suspect many think like me) and property has a record of being a safe hedge against inflation.

Property does track inflation. However prices in recent years have risen far beyond an inflation linked value. Even with current price levels the majority of average homes are still overpriced.

It may well be the market treads water with minimal change (+10% to -10%) until the economy rebalances. Though this could take some years.

The stock market over a 15 year period with dividend income reinvested would have given you a better return than residential property (as an investment) now.

1echidna

Thrugelmir wrote: »

Property does track inflation. However prices in recent years have risen far beyond an inflation linked value. Even with current price levels the majority of average homes are still overpriced.

It may well be the market treads water with minimal change (+10% to -10%) until the economy rebalances. Though this could take some years.

The stock market over a 15 year period with dividend income reinvested would have given you a better return than residential property (as an investment) now.

Thanks for the considered reply. However I think price is determined by the market and if the market determines it prices will continue to beat an inflation linked index. I accept that affordability is an issue but even though less people percentage wise may be able to afford, in a limited market, prices may continue to rise on the basis of there being enough people able to afford. We shall see.

I probably should do some research but the stock market is volatile and the housing market also has its ups and downs and I wonder how comparisons would be over 30, 20 and 10 year intervals. UK is not generally a share holding society (individuals not pensions schemes I mean) and I suspect many more individuals feel more comfortable with savings or investing in property.

nearlynew

1echidna wrote: »

T
I probably should do some research but the stock market is volatile and the housing market also has its ups and downs and I wonder how comparisons would be over 30, 20 and 10 year intervals. UK is not generally a share holding society (individuals not pensions schemes I mean) and I suspect many more individuals feel more comfortable with savings or investing in property.

This quandry you find yourself in is a direct result of inflation.

Inflation is not caused by rising prices, as many people think.
Rising prices are the result of inflation. i.e. an increase in the money supply.

Since your currency is being devalued you are forced to take higher risks with your money just to break even, never mind get ahead.

Remeber - inflation is theft. Pure and simple
It is the silent thief pickpocketing you without you noticing.

But i know who is doing the stealing. do you?

And there is an alternative.

sabretoothtigger

The stock market over a 15 year period with dividend income reinvested would have given you a better return than residential property (as an investment) now.

The risks dont compare. People shouldnt put housing money into stocks.
On stocks we're 33% down from 10 years ago and houses are probably still up.
Thats not an argument in favour because both markets are messed up to put it technically

Housing is still less risky, use 25 year comparisons and we might get clarity.
Lets not copy the banks who screwed up and juggled housing like its just another asset to gamble, 25 years puts it in the proper frame

1echidna

nearlynew wrote: »

This quandry you find yourself in is a direct result of inflation.

Inflation is not caused by rising prices, as many people think.
Rising prices are the result of inflation. i.e. an increase in the money supply.

Since your currency is being devalued you are forced to take higher risks with your money just to break even, never mind get ahead.

Remeber - inflation is theft. Pure and simple
It is the silent thief pickpocketing you without you noticing.

But i know who is doing the stealing. do you?

And there is an alternative.

Legalised theft I am afraid. And when I was young, with a large mortgage and above inflation payrises from my point of view there was a perverse justice to it. I have gained some from it and lost some and stand to lose some more. Interested in your alternative but if it involves some kind of extreme purgatory for the young and the country because of debts I think I would rather grin and bear my losses.

Thrugelmir

sabretoothtigger wrote: »

The risks dont compare. People shouldnt put housing money into stocks.
On stocks we're 33% down from 10 years ago and houses are probably still up.
Thats not an argument in favour because both markets are messed up to put it technically

Housing is still less risky, use 25 year comparisons and we might get clarity.
Lets not copy the banks who screwed up and juggled housing like its just another asset to gamble, 25 years puts it in the proper frame

I not suggesting that people should buy shares instead of property, other than as an investment. And then as part of a balanced portfolio.

I would always put my home first before speculative investment.

The majority of investment return from shares is by reinvesting the dividend income. Thereby compounding your return. Of course there is a risk buts its possible to avoid the wildest excesses of the stock market.

Another reason the return is better for shares. Is that buying them through either an ISA or pension plan at least gives protection from tax. Rental property is subject to income tax on rent and capital gains tax on price gain for an individual.

Generali

Thrugelmir wrote: »

I not suggesting that people should buy shares instead of property, other than as an investment. And then as part of a balanced portfolio.

I would always put my home first before speculative investment.

The majority of investment return from shares is by reinvesting the dividend income. Thereby compounding your return. Of course there is a risk buts its possible to avoid the wildest excesses of the stock market.

Another reason the return is better for shares. Is that buying them through either an ISA or pension plan at least gives protection from tax. Rental property is subject to income tax on rent and capital gains tax on price gain for an individual.

Also, unless you're very rich it's hard to diversify with property investments.

It's good to have as part of a balanced portfolio though I reckon.

bigfatbelly

Demand is outstripping supply in certain areas. Lots of people are downsizing and looking for smaller/cheaper places to live. Remember, downsizing is different to downgrading - and a lot of people have cottoned onto that.

You've now got people who are selling off their homes at a reduced rate and getting £1M for them, and then they're grabbing up very nice places for £700k.

Likewise some people are swallowing a loss and selling up for £500k and buying up good properties for just £350k.

All areas differ of course, but any GOOD properties, in good areas, are being snapped up by people downsizing. And it's actually the fairly wealthy people who are downsizing. As always they're snapping up the bargains because they're cash buyers. I actually have heard of 2 cases of gazumping in the last 5 weeks - one property was on at £350k (went for £365) but was outstanding in terms of uniqueness, and the other one was asking £629.950 and got £649k.

There's a lot of stuff going on out there that we don't hear about. Probably because the rich (as always) want to snap up the lovely properties before they even get on to the market. One estate agent I know of (the one who sold the first property) has a list of wealthy cash buyers on his books and as soon as a property comes up which he knows they'd like he's on the phone to them. These properties don't even make the EAs list - they're often haggled over BEFORE being listed! Surprised? I bet! But it's happening out there more than you'd ever know!

dopester

bigfatbelly wrote: »

Demand is outstripping supply in certain areas. Lots of people are downsizing and looking for smaller/cheaper places to live. Remember, downsizing is different to downgrading - and a lot of people have cottoned onto that.

You seem to be another property-worshipper, but that is alright. Whatever the problem.. property is the answer. Can't lose with property can you?

I don't dispute all that you suggest is going on in the market.

It is part of my projection anyway. Great time to cash-in on high-value luxury property, as the values at the top for luxury homes, even in good areas, are set to fall beyond belief.

Yes. Can imagine some competition for older down-sizers wanting a home.. which they can do if they reduced their own home from £950K, and sold at £750K...but are buying at £350K-£400K... that leaves them a nice pot of financial security to fall-back on + and some room for manoeuvre on price in securing the property in a chosen "good" location that suits them best in downsizing.

However the whole process continues over the longer term in just one direction - downwards with values falling.

If you are among the millions who have a high percentage of your wealth in real estate, take note. The danger of being wiped out, or having a large portion of your assets eroded, may be greater than you think.

Those who have held houses for a long time, including most older home-owners, have little or no mortgage debt. For overall owner-occupied real estate to reach 49.2 percent, more recent borrowers had to be leveraged to the hilt. There is no doubt that debt has skyrocket.

For older owners, housing has been a substitute for financial savings. Before these paper windfalls generated from the sixties onwards can be converted to cash, however, new buyers must be found. Most of these buyers will not have sufficient cash reserves to pay 50 percent down. Therefore mortgage lenders will have to absorb a growing share of the housing market risk for prices to remain stable.

They are unlikely to do this.

Losses on real estate loans will be the main cause of increasing losses in the banking system. Creditors normally react to rising losses by curtailing lending, imposing higher qualifications on borrowers, and raising loan rates higher than they would be otherwise.

As this trend becomes apparent, aging homeowners, who are depending upon their homes to provide retirement security, will try to sell. This will push prices down further. Paul Hewitt estimates that "the predicted trade-up market may not materialise if growing numbers elect to remain in housing they consider adequate, rather than risk their equity in large luxury homes.

A combination of demographic trends, deflationary fallout, and the breakdown of infrastructure could make housing perform poorly. This would hit the middle class hard, endangering the savings of millions. It could be just one of several factors contributing to the evaporation of retirement.