Prices to fall as "irrational" rally ends

the_ash_and_the_oak

StevieJ wrote: »

But should provide support at the FTB level ironically, as pensioners trade down and FTB try to buy.

Do you mean ftbs will buy the properties pensioners vacate?

Harry_Powell

I think he means that pensioners and FTBers will be competing for the same properties and drive up the price.

IveSeenTheLight

the_ash_and_the_oak wrote: »

Do you mean ftbs will buy the properties pensioners vacate?

My first property was a 2 bed flat that was previously owned by a pensioner and passed onto their family through inheritance.

The place needed modernising, but then again most people want to put their stamp on the properties.

So in essence, there will be lots of properties in which FTBers could buy that pensioners vacate.

IveSeenTheLight

Harry_Powell wrote: »

I think he means that pensioners and FTBers will be competing for the same properties and drive up the price.

That could happen also.
Depends on how many properties are available.

I also think pensioners may turn more to selling their property but remaining in it.
That way they have their "pension" and still get to stay in their home.

michaels

great link - I wonder how much trading costs are - real chance here for the bulls and bears to put their money where their mouth is...

kennyboy66 wrote: »

http://www.tfsbrokers.com/pdf/RISK&MANAGE/2009/Sep-09.pdf

kennyboy66_2

Generali wrote: »

To make myself clear regarding pensions and house prices in the medium term I see the following happening.

1. Government and private companies are unable to make good on pension and (possibly) healhcare promises as massive liabilities are either unfunded (public sector) or only partially funded (private sector).

2. Individuals ultimately will need to raise cash in retirement if the income stream they hoped for isn't there. The obvious way to do that is to sell the house and buy something smaller or in a cheaper neighbourhood.

3. That process is likely (IMO) to be a long lasting and continual drag on the UK housing market and probably the economy as a whole.

All this is possible but I wonder about the how much of an increase there will be of this type of house sales.

1) It happens already (and has always done so), but the driver has been maintenance, heating and infirmity.

2) It surely only pulls forward house sales from this group anyway. ie sell at 65 or die and sell at 83

3) I would suspect the effect is fairly minimal unless people exit the owned market.
If they sell a 5 bed detached, I suspect they won't be buying a city centre flat.
They could well be competing with 1st time house buyers.

4) The benefits system makes selling a modest house and then renting, pretty much impossible. It hardly makes sense paying cash rich pensioners hosuing benefit.

5) It is somewhat an exaggeration to say that private pensions are "partially funded".
The UK has pretty good individual, company money purchase and final salary provision. Obviously there is a real issue with final salary schemes but under-funding estimates go up and down like a brides nightgown, depending on stock market & bond rates. I think final salary schemes in the UK are about 85% funded.
An effect of QE has been to reduced bond yields - one of the consequences is that this then increases pension deficits.

A radical idea to address the final salary pension issue for companies might be to;

1) Cap the maximum paid to say £35k
2) Impose a 10% reduction on all benefits.

carolt

kennyboy66 wrote: »

3) I would suspect the effect is fairly minimal unless people exit the owned market.
If they sell a 5 bed detached, I suspect they won't be buying a city centre flat.
They could well be competing with 1st time house buyers.

Funnily enough, my parents' next door neighbours, pensioners in a 5 bed house, sold up to do exactly that. Their kids had flown the nest, and they wanted to be more central and convenient.

As I write this, I am reminded of another example, a relative who moved to a new city to be near her grandchildren, and again, bought near the centre, causing her daughter to move in from the suburbs to be nearer her parents.

So it obviously does happen!

Blacksheep1979

Generali wrote: »

Making money from house prices falling via a derrivative isn't the same thing as shorting housing. As the short can't be truly hedged, you won't find the derrivative hedges being put on and unwound having any impact on underlying prices.

You can't short houses as you can't borrow them and sell them.

Builders are in effect shorting when they sell off plan...

Conrad wrote: »

This is a key factor that will drive prices up, as people are prepared to put more into housing than they otherwise would have, in order that they might have a larger asset with which to down trade from.

The Brits don't like pensions or other packaged investments any more, so stick those premiums into housing instead.

It will more likely drive prices down as there will be more people trying to liquidate assets.

kennyboy66_2

carolt wrote: »

Funnily enough, my parents' next door neighbours, pensioners in a 5 bed house, sold up to do exactly that. Their kids had flown the nest, and they wanted to be more central and convenient.

As I write this, I am reminded of another example, a relative who moved to a new city to be near her grandchildren, and again, bought near the centre, causing her daughter to move in from the suburbs to be nearer her parents.

So it obviously does happen!

Really - you'd think by the time you were in your 60's you would have acquired enough wisdom to realise that the price of 90% of city centre flats are over-priced and the service charges only keep getting higher and higher.

Generali

Harry_Powell wrote: »

Thanks for clearing that up, generali.

What sort of time frame do you have on this theory? As I posted above, current pensioners are safe with their personal pension annuities and state pensions, people coming up to retirement in the next 5 to 10 years are much more likely to have had the benefit of final salary pensions during their working life, and while their companies may have a deficit in the pension fund, this will not affect the individual employees. People who have longer than the 5 to 10 years to retirement should see their pension pots recover as the stockmarket recovers (many will have made significant strides towards recovery already now that the FTSE100 is around the 5000 mark).

That's if people have a pension at all. Many will be simply receiving the state pension which again will not be impacted by stockmarket movements. I just don't see a sudden rush to the market of "Silver Sellers" forced out of their houses due to the drop in pension income.

Well the FTSE 100 index is still around about the level it was in 1998 so private pensions may not be in great shape.

People relying on the state to pay their pension (Civil Servants lower paid workers) are likely to be sorely disappointed when they compare the outcome to the promise.

StevieJ wrote: »

But should provide support at the FTB level ironically, as pensioners trade down and FTB try to buy.

Yes although older people may start to look in other areas (eg cheaper parts of the UK or even other countries).

Blacksheep1979 wrote: »

Builders are in effect shorting when they sell off plan...

More selling forward than short.