Houses overvalued still?

Thrugelmir

RDB wrote: »

You like most people have just read a few things about what happened to gold and silver in 1980. But like most people you dont have your facts right.

The actual top of the spike was over $52 oz.

Yes the Hunt brothers had a lot to do with it, but how can you explain the same thing happening to gold?

Gold has already way passed its 1980 high, silver is nowhere near yet.

A lot? They manipulated and effectively controlled the market.

Sir_Humphrey

chucky wrote: »

a good strategy - have you accepted that mortgage rates will not be higher until you buy or will you be needing a mortgage?

An increase in mortgage rates would be offset by further falls in actual prices as people only helped by ultra-low rates have to sell up or are repo'ed.

My deposit already gives me access to the most competitive deals right now, but these are have too high a spread for them to tempt me - I would not want a tracker right now in particular. Fixed mortgage rates are higher than they were in late-2005/early-2006.

Rates are only low for those people who already own, which goes towards explaining the low supply level right now as the spreads still reflect boom conditions on longer fixed rates and tracker mortgages (many fixed rate deals revert to trackers BTW).

I suspect that the eventual normalisation of the mortgage market as IRs rise will lead to this gap closing. For FTBs, this would lead to little change in actual new mortgage rates as spreads close on new mortgages. However, for those already on trackers (those taking them out right now) the spread would of course be maintained. I suspect banks/BS's would keep SVR spreads high to encourage remortgaging - they still need all the money they can get, and will be losing money on a lot of existing deals right now.

That is all speculation of course as we are talking about the future here. Judgments on IRs should be made over 25 years of a mortgage, not the initial rate anyway.

Thrugelmir

sss555s wrote: »

No one said they were good solutions but solutions all the same and yeah i think speculating has a lot to do with the housing market and when/when not it's over priced.

A return to recent lending policies are odds on not to happen.

SilverStandard

HAMISH_MCTAVISH wrote: »

I think it is extremely unlikely as long as we continue to add 408,000 people a year to the UK's population, needing 250,000 new houses, but only build 80,000 per year.

When population growth ends, as it surely must eventually, and housebuilding catches up, as it no doubt will, then prices will stop rising, and a long term decline against real income will begin.

This will not happen in my lifetime though, nor the lifetime of anyone posting on this board. The children of this generation may see such a thing towards the end of their life, and the grandchildren almost certainly will.

Unlike America, the British property bubble is not a problem of
over-supply. In the US, land is abundant and a property price
boom spawns a house-building frenzy.The UK is different. Our
housing stock is rather more fixed than in the US.This led most
people to believe that, in the face of apparent growing demand
from immigrants and from the trend towards smaller families
in particular, that it was a supply shortage that was fuelling UK
house-price growth. So much so that the latest housing report,
chaired by Kate Barker, ex-member of the Bank of England’s
Monetary Policy Committee, recommended that Britain start a
huge new house-building plan – a plan which has only recently
swung into action.
So it’s a shame that the government hadn’t looked a bit less
politically and a bit more judiciously at what exactly was fuelling
Britain’s house-price boom. For starters, we wouldn’t now be
planning to build several new towns in the face of what will
probably prove to be the worst downturn in UK house prices in
living memory. To assess where and when we might expect UK
house prices to stop falling, we have to look more closely at
what made them go up in the first place.

The demand and supply argument never held much water.

First why did rents fail keep up with the rate of inflation for five out of the last six

years? Especially when you consider that immigrants are mostly
economic migrants who often can’t open a bank account, let
alone buy a house.The answer, as we have regularly pointed
out at MoneyWeek, is that with demand almost unlimitedly high
and effectively fixed, it’s the supply and price of credit that actually
determines house prices.That’s bad news in a banking crisis,
when credit is not only going to be tight but banks will want
to withdraw loans they’ve already extended. Indeed, the Council
of Mortgage Lenders already expects net mortgage lending to
be negative in 2009.
Another issue for this country is that, just as in the late 1980s,
our housing market appears to be six to 12 months behind the
US.That means that their market has moved much further back
towards equilibrium than the UK market. Not only is US affordability
back at the 1970s highs, but after much bigger price falls
than we’ve sustained, the house price-to-income ratio is only 10-
20% above long-term norms (see red line on chart). But in the
UK, the house price/earnings ratio has only just begun to correct,
suggesting we need to see significantly more downside
before house prices are back in line with earnings.Taking the
1995 low for this ratio as our worst-case scenario and assuming
zero growth in earnings (possibly a fair assumption in a deflationary
recession), that would imply a further 41% downside for
the Nationwide House Price Index.
Doubtless some of that fall will be negated by wage growth. But
if bank crises normally witness a 36% real fall in house prices, as
Harvard professor Kenneth Rogoff and his collaborator Carmen
Reinhart found in a recent study, there’s no reason to think the
UK will buck the trend this time around. As for how long it will
take, past bank crises suggest house prices fall for six years.The
last correction also saw prices fall every year from 1990 through
to 1996. And at that time, there was no bank crisis and interest
rates were cut each and every year. So it seems likely that, given
the scale of both the distortions in long-run house price ratios
and of the current banking bust, that our housing market will
take at least a ‘normal’ amount of time to fix and will remain a
good six to 12 months behind the US right the way through the
cycle. So we appear to be looking at another five years of falling

prices and a trough no sooner than 2013 or 2012 at best.



http://free-emails.moneyweek.com/mm-property-outlook-2009.pdf

chucky

RDB
Last Activity: Today 3:41 PM

SilverStandard
Last Activity: Today 3:42 PM

just like clock work, one logs odd and the other logs on...

i love the serial silver and gold rampers :A

Sir_Humphrey

HAMISH_MCTAVISH wrote: »

I'd be interested to see the workings of that calculation, as I've done somthing similar and estabished that I am over £30,000 better off by buying in 2007 than I would have been by renting since then.

I consume far less housing than I would have done otherwise, meaning my rent is less than the interest payment on a potential mortgage.

This is by living in a flatshare, which is what just about everyone of my age I know does in London - including those far better paid than I.

HAMISH_MCTAVISH

RDB wrote: »

Can you post where on Earth you get these figures from.

I was just reading something the oposit, how all the forigners are leaving in droves because the pound is falling so much they can earn more in their own countries.

Yes, for about the 10th time now....:rolleyes:

“The central assumption from the Department of Communities and Local Government is that long term net migration will be 171,500 per year, resulting in an annual increase in the number of households in England of 252,000 once other factors are taken into account.

Even if one were to assume zero net migration, however, the number of households is still projected to expand by an average of 153,000 units per year through to 2031. Whatever the true number is, it is almost certain that current levels of housing construction have fallen far below future levels of household formation (chart 3).

Based on recent levels of housing starts, it looks likely that only around 100,000 homes will be built during 2009, which would represent by far the lowest level on record. {Edit: This is from July 2009, the final number of houses built in 2009 is only around 80,000}

As it is likely to take time for the economy and housing construction to recover to pre-crisis levels, the potential exists for a considerable housing shortfall to develop over the next few years. This would be on top of the shortfall that already started to develop in 2004, when even boom-time levels of construction failed to keep pace with household growth

http://www.nationwide.co.uk/hpi/historical/Jul_2009.pdf

And.....

According to the study by Jil Matheson, the national statistician, Britain's population is on course to pass 70 million in about 20 years. She said projections based on past demographic trends suggest a 17 per cent increase in population over the next 25 years, to hit 71.6 million by 2033. It is currently 61 million.

http://www.telegraph.co.uk/news/uknews/immigration/6920841/Immigrants-family-appeals-costing-taxpayers-1million-a-week.html

HAMISH_MCTAVISH

SilverStandard wrote: »

http://free-emails.moneyweek.com/mm-property-outlook-2009.pdf

Sorry, but Moneyweek's crash ramping emails have been pretty comprehensively discredited around here.

The United Nations, the Office for National Statistics, and all the major housing economists (perhaps excluding CE) all believe that population is increasing, and is due to hit 70 million within the next couple of decades or so.

HAMISH_MCTAVISH

Sir_Humphrey wrote: »

I consume far less housing than I would have done otherwise, meaning my rent is less than the interest payment on a potential mortgage.
.

Fair enough. If you're renting a room, or living with parents, and so therefore not comparing like for like it's entirely possible.

Sir_Humphrey

HAMISH_MCTAVISH wrote: »

Fair enough. If you're renting a room, or living with parents, and so therefore not comparing like for like it's entirely possible.

My other consumption has been higher however (I have travelled more and bought more gadgets than I could have done for 2006-2008).

My breakdown (to within a few hundred quid) is:

Had I bought (over four years):

Loan Principal paid off: £+7100
Interest Paid: £-15650
HPI (comparing similar flats on same street): £-5000 (asking price)
Council Tax inc single occupancy allowance: £-3000
Service Charges: About £-2500
Stamp Duty (property would now be under £125k): £-1290
Depreciation of fittings etc: £-1000 (conservative estimate)
Maintenance (exc communal) : £-2000 (conservative estimate)

So the sum spent would be: £-23340

For renting:

Rent paid: £-16000
Interest earned: £+1200
Reduction in mortgage required and therefore interest over first four years of mortgage: £+1970 (and counting). This is key as this will save the same amount over 25 years in nominal terms.

So the sum spent is: £-12830

This makes me better off by £10510, or thereabouts, even with conservative assumptions for maintenance, and ignoring the fact that I have been sharing fuel/electric bills for four years (mega saving there). Of course, the saving is much greater since over the 25 years of the mortgage, I would be paying off a mortgage £10000 lower than otherwise.

Of course, I would have been better off buying in 2002, but I was not remotely in a position to do so.

The killer thing about buying over renting (particularly with flats) is paying to maintain the damn things.

EDIT: I forgot to add the extra house insurance/life insurance premiums had I bought.

EDIT 2: Had I rented the same flat, the additional rent would have been £9600 over four years (plus £400 in lost interest), so I would have still been ahead, but by a lower amount.