It’s time to face the music and address the house price problem

System

Cleaver wrote: »

I think both. House prices are generally high, due to unrealistic sellers who aren't that bothered about selling. Plus mortgages are difficult to get. Put both together and you have low mortgage approvals.

Yeah, I suspect you're right
.
Shame that there's no stats on failed mortgage applications, would be an eye opener.

the_flying_pig

Cleaver wrote: »

...The 'right house price' is the price agreed for a particular property between the seller and the buyer. These are the only two people who set the right price, as presumably they are both happy with the final figure.

...

that's not really true, though, is it? if it were the entire valuation part of chartered surveyors' businesses would be wiped out overnight.

as a lender i don't give a damn about what someone who's borrowing from me to buy thinks a house is worth. what i care about, in case it all goes pear-shaped & i have to reposess & then sell, is basically what an average buyer will pay. to take an absurd example, the woman in the article below might have a particularly high willingness to pay for a house that happened to have a short stretch of the Berlin Wall running through its garden… but because her fetish is entirely unique, I cannot take her personal preferences into account when considering what the house is worth.

http://www.telegraph.co.uk/news/newstopics/howaboutthat/2035996/Woman-married-to-Berlin-Wall-for-29-years.html

googler

brit1234 wrote: »

The author of the article has seemed to of really !!!!ed off other estate agents with his comments under the article. Its very bitter and hate filled over there in estate agent world.

http://www.estateagenttoday.co.uk/news_features/Peter-Hendry-blog

It's open forum over there, just the same as this. The 'estate agents' might not be that at all .....

ILW

the_flying_pig wrote: »

that's not really true, though, is it? if it were the entire valuation part of chartered surveyors' businesses would be wiped out overnight.

as a lender i don't give a damn about what someone who's borrowing from me to buy thinks a house is worth. what i care about, in case it all goes pear-shaped & i have to reposess & then sell, is basically what an average buyer will pay. to take an absurd example, the woman in the article below might have a particularly high willingness to pay for a house that happened to have a short stretch of the Berlin Wall running through its garden… but because her fetish is entirely unique, I cannot take her personal preferences into account when considering what the house is worth.

http://www.telegraph.co.uk/news/newstopics/howaboutthat/2035996/Woman-married-to-Berlin-Wall-for-29-years.html

Surely that article is a wind up.
"She has now shifted her affection to a garden fence"

System

Comments are amusing

Ummm... there are TWO, actually. First Time Buyers on Strike, which has 7 members. SEVEN!!! You were right, seven IS SLIGHTLY more than five... and:
First Time Buyers Unite - which has a giddying 17 members.

Look out Agents - they'll ALL turn up in a town near you soon.

In a Mini. ALL OF THEM!! ;0)

Arf. I love this concept of a "strike".

I am now on strike from buying myself everything I can't afford, I feel a lot better for it.

Cleaver

the_flying_pig wrote: »

that's not really true, though, is it? if it were the entire valuation part of chartered surveyors' businesses would be wiped out overnight.

It is true. The value of an asset is the agreed price between the seller of an asset or item. I own a car. I think it's worth £5,000. You want to buy it and think it's worth £4,000. We agree on £4,500, so we can say that that car is worth £4,500. That's the exact, current market value of that car. Whether I can get the money together to pull through on that deal is neither here or there, because we've shown that someone is willing to buy and another sell at that price. So market theory suggests that someone with the cash will along and buy it at that price.

A surveyor valuing a house on behalf of a bank is a separate issue relating to the risk in lending someone money. It's completely different to the market price of an asset, which is purely set by the buyer and the seller.

the_flying_pig wrote: »

as a lender i don't give a damn about what someone who's borrowing from me to buy thinks a house is worth. what i care about, in case it all goes pear-shaped & i have to reposess & then sell, is basically what an average buyer will pay.

Sorry to point out the obvious, but if the seller and the buyer have agreed a price, then that is what the house is worth. Full stop. That's simply how a market works. The bank in this case is just the middle man that loans the money. Of course, you'll always get the odd person that offers a stupid amount and the bank won't loan, but this is a completely different debate.

the_flying_pig wrote: »

to take an absurd example, the woman in the article below might have a particularly high willingness to pay for a house that happened to have a short stretch of the Berlin Wall running through its garden… but because her fetish is entirely unique, I cannot take her personal preferences into account when considering what the house is worth.

To use your example, let's say all houses in that area don't have a bit of the berlin wall running through them and are worth £100,000. One house does have the berlin wall running through it and is on sale for £500,000, which someone then agrees to pay because they have a fetish for historic walls. The market has done it's work and that house is now worth £500,000. Full stop.

What you're saying is that the market has an external factor effecting volume, which is the issue of credit. But that's a whole other debate.

The simple point I'm making is that a bank (or any lender) is secondary in the price setting in the housing market, as they just follow what buyers and sellers agree between each other.

ILW

Surely resale value is a better indication of market value than a one off offer.

abaxas

In any sale the 'price' is defined by the buyer. It is up to the seller to decide if they wish to sell at that price.

the_flying_pig

Cleaver wrote: »

...To use your example, let's say all houses in that area don't have a bit of the berlin wall running through them and are worth £100,000. One house does have the berlin wall running through it and is on sale for £500,000, which someone then agrees to pay because they have a fetish for historic walls. The market has done it's work and that house is now worth £500,000...

Well, kind of.

If that particular woman, the only person in the world who irrationally attaches a value to getting intimate with a wall, happens to pass away, or perhaps switch her attention to a tree or something like that, does the house suddenly become ‘worth’ £400k less?

The thing that this example shows is that the house is was worth £500k to this one person but only £100k to anyone else. It was, therefore, only worth £100k to a bank, who would only take possession of the house at such time as the one person in the world with the higher valuation stopped becoming creditworthy.

It’s this kind of reasoning that leads most lay definitions of what something is worth to be based on something akin to averages, and to be calculated with reference to other similar transactions.

Cleaver

the_flying_pig wrote: »

If that particular woman, the only person in the world who irrationally attaches a value to getting intimate with a wall, happens to pass away, or perhaps switch her attention to a tree or something like that, does the house suddenly become ‘worth’ £400k less?

Sorry if I sound like a stuck record, but I'll try again. If that woman then passes away and the house is put back on the market it is again 'worth' the exact amount that the seller and a buyer agree on. It could be at that point that walls have very much gone out of fashion and the most someone is willing to pay is £200,000. It could be that everyone now wants a wall and someone is willing to pay £600,000. But just to say again, it's 'worth' the amount that the buyer and seller agree on.

You're using words like 'irrational' and phrases like 'attaches value', meaning that you're trying to second guess why a person has paid an amount for something, and whether you feel it was a good purchase at that price. This isn't relevant. To say again, the buyer and seller have agreed a price, and this price is what the asset is worth. Your opinion isn't relevant.

the_flying_pig wrote: »

The thing that this example shows is that the house is was worth £500k to this one person but only £100k to anyone else. It was, therefore, only worth £100k to a bank

Gosh, this is difficult. I'll try again with another example. Harrods sell a range of mobile phones that are around £60,000. They have a couple of diamonds attached to them and are made by some trendy label, or something along those lines. 99.99% of the population thinks that these phones are worth no where near £60,000 and understand that they can get a perfectly good phone for £200. They are overvalued, in terms of most people's opinion.

However, the market price for this phone is clearly £60,000. This is because Harrods, as the seller, sell them to buyers who seem to be more than happy to buy them for £60,000. So £60,000 is the correct, fair, appropriate, bang-on-the-money market price for one of these phones. What you, I or 99% of the population think is irrelevant. It may be a small market, but it's the market.

the_flying_pig wrote: »

It’s this kind of reasoning that leads most lay definitions of what something is worth to be based on something akin to averages, and to be calculated with reference to other similar transactions.

I don't really have any type of complex, avant-garde reasoning going on here. I'm saying that the market value of something is the price that the seller and the buyer are willing to agree on. And that's it.

There are then hundreds of other factors that can effect that price, including the supply of credit. So the supply of credit is one factor that can start to alter the market (as we've seen). But the market shapes itself around these factors, not the other way around.