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

the_flying_pig

Cleaver wrote: »

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.



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.



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.

This isn’t really a high quality enough debate to merit getting particularly precise or detailed but in brief:
(1) We’ve gone way off topic in discussing an article that is basically about an annoying tendency for estate agents to arrive at prices that are higher than any buyer will pay, leading to houses not selling, in these cases there not being any price other than hypothetical, unrealised, asking one.
(2) The EA who wrote the blog is basically misquoting Grant Schapps who was talking about the ‘right’ level of prices from a macroeconomic sustainability/desirability point of view – what the EA is interested in is the ‘right’ prices to enable individual houses to sell.
(3) Your definition of what a house is worth is means something but it’s not relevant to any real debate since it tells one nothing about: (a) policy issue 1 [my focus] – banks being left with houses that can't be sold for an amount equal to the debt borrowed against them; or (b) policy issue 2 [the blogger’s focus] – EAs being left with large stocks of unsold houses.

Cleaver

the_flying_pig wrote: »

This isn’t really a high quality enough debate to merit getting particularly precise or detailed

Oh, okay. My apologies for that.

the_flying_pig wrote: »

(3) Your definition of what a house is worth is means something but it’s not relevant to any real debate

Just to be clear, the worth of a house being defined by the price agreed between the buyer and the seller isn't my definition, it's pretty much the standard economic definition.

Market value: "The price of an item paid based on the laws of supply and demand without the influence of external factors."

You're discussing the external factors, which is fine. I'll bow out now then, as I wouldn't want to provide even more low quality debate.

zappahey

Cleaver wrote: »

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.

Nearly but not quite. Market theory is predicated upon what someone is willing and able to pay. To put myself in the cash buyer's shoes, thanks to the wonders of the internet I now know that credit is tight and those without the cash cannot pay £4,500, so why on earth would I offer the same amount. I would be 'cutting my own throat' and offering £3500, maybe agreeing at £4000 and thus setting the true market value.

The deal actually has to take place to set the market value.

doire_2

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.

Thats it? Those two reasons?

Not what the Council of Mortgage Lenders have said.

Loughton_Monkey

Heyman wrote: »

If the answer is the eradication of Estate Agents entirely, then I'm all for it.

A trained monkey could do a better job in most instances.

What about untrained monkeys?

diable

Loughton_Monkey wrote: »

What about untrained monkeys?

They become MP's

Gorgeous_George

http://forums.moneysavingexpert.com/newreply.php?do=newreply&p=37356276

brit1234 wrote: »

Congratulations on your STR (sell to rent). Prices will be a lot lower by next Summer as the crash continues and you will get more for your money.

Looking good so far. Houses will soon be free.

GG

diable

Gorgeous_George wrote: »

http://forums.moneysavingexpert.com/newreply.php?do=newreply&p=37356276



Looking good so far. Houses will soon be free.

GG

They already are ask the son of Gadaffi....

Loughton_Monkey

Gorgeous_George wrote: »

http://forums.moneysavingexpert.com/newreply.php?do=newreply&p=37356276



Looking good so far. Houses will soon be free.

GG

Actually, in all seriousness, some of them are.

There are many old dilapidated properties. Will cost you £250K, but actually, the land is worth at least that. You pay £25K for demolition, £125K to build, and then it's worth £400K.

myhouse_2

It's way too simplistic to say that because someone is willing to pay a certain price, that is what the house is actually worth (whether that price be too low or too high). There are plenty of cases where people overpay and underpay. A better definition of actual worth would need to involve several similar houses to prove that that first house could justify its price.