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

satchmeister

SUFFER_THE_LITTLE_GHOULS wrote: »

Nothing wrong with house prices it is because the lending has temporarily been restricted that prices have stabilized. I'd rather see the government force the lenders to open their vaults and introduce a house price escalator whereby price rises happen each year at an agreed limited percentage, linked to inflation or something. This would enable everybody to benefit as soon as they jump on the escalator.

Prices always rise every year by 10 % and double every seven years, so the government does not need to do anything. Buy now before you miss the boat or you will never get on the property ladder. The only thing the government could do is to make it illegal for prices to fall.

THE_GHOULS_APPRENTICE

SUFFER_THE_LITTLE_GHOULS wrote: »

Nothing wrong with house prices it is because the lending has temporarily been restricted that prices have stabilized. I'd rather see the government force the lenders to open their vaults and introduce a house price escalator whereby price rises happen each year at an agreed limited percentage, linked to inflation or something. This would enable everybody to benefit as soon as they jump on the escalator.

Excellent point brother. In addition as house prices shoot up again it'll help turn the economy around and get this great little country of ours back on its feet.

Cleaver

doire wrote: »

Thats it? Those two reasons?

Not what the Council of Mortgage Lenders have said.

No, that isn't it. Joeskeppi asked whether it was one or the other of those two factors, and I said that I thought it was both. If pushed I would go on to say that there are dozens of other factors in addition.

Cleaver

myhouse wrote: »

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.

Sorry to really go on about this, but you're still missing the point. There is no 'overpay' or 'underpay', that's your opinion, or someone elses opinion, on the deal that's been struck between the buyer and seller. I understand your point on looking at a bigger data sample and using averages, but that's just lookng at lots of different market prices isn't it? Take the graph below, which shows the last five days of prices for a share I own (NPE):



So what's the market value for this share? Well, each little change in this chart represents a moment where a buyer and a seller agreed at price. At 11.24 on 10th March the market value for this company was 405p per share, but at 09:38 the following day the market value per share was 448p per share. Just a couple of hours later at 14:14 a buyer and a seller did a deal for 418p per share.

Who is overpaying and who is underpaying in this example? Was the buyer at 11.24 on the 10th getting a good deal at 405p? Did the person at 09:38who paid 448p per share get ripped off? Maybe they all underpaid? Maybe the all over paid?

Actually, none of them overpaid or underpaid. They paid the market value for that share at the precise time they bought it, because that was the market price agreed between buyer and seller.

By all means give your opinion on what is overpriced and what is underpriced, and use averages and various statistical techniques to work out a general market value. But the most accurate market price is the one agreed between buyer and seller at that moment.

zappahey wrote: »

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.

In a way I completely agree with you and in a way I don't.

I can't disagree with anything you've written, as it makes perfect sense. Market theory does indeed rely on a load of external factors. For example, the price paid for the share above might depend on external factors such as credit available to buy shares, number of shares in issue, good or bad news about the company, sentiment, rumour etc. etc. But these are all external. Market price is simply the agreed amount that an asset is worth after all the external factors have taken their toll on the agreement.

In your example, there is no 'true' market value, the market value is simply £3500. External factors have already had their impact and the value is set at the agreed price between you and the seller.

I think we're probably saying the same thing really! I just take issue with people saying that a house is 'overvalued' or 'undervalued'. A house is never overvalued or undervalued, it's worth what someone buys or sells it for after external factors have effected the market. Sounds a small difference, but it's quite crucial to understanding in my opinion.

saleda

Someone needing to use a vending machine asks me for 5 £1 coins in exchange for a £5 note.

Sorry,I've only got 3,I say.

Since he only needed 2 he gave me the fiver for the 3 £1 coins.

Are you saying that £5 is the most accurate market price for those 3 £1 coins?

Just because they were worth £5 to one person at that exact time ,the accurate market price remains £3.

Cleaver

saleda wrote: »

Someone needing to use a vending machine asks me for 5 £1 coins in exchange for a £5 note.

Sorry,I've only got 3,I say.

Since he only needed 2 he gave me the fiver for the 3 £1 coins.

Are you saying that £5 is the most accurate market price for those 3 £1 coins?

Just because they were worth £5 to one person at that exact time ,the accurate market price remains £3.

If there were an annual award for the daftest counter-argument on the forum this would win by a country mile. And considering Asheron posts on here that's quite an astounding achievement.

I can't believe I'm actually going to respond to this, but what they hell. The person who wanted to use the vending machine was willing to exchange £5 in notes for £3 in coins so they could obtain something from the machine. This tells you nothing about the market value of the £3 coins, it tells you everything about that individuals abilty and motivation to purchase something from the vending machine.

AndyGuil

Joeskeppi wrote: »

Right, we have low mortgage approvals.

This article is saying that that's due to the valuation being wrong.

The majority of stuff I read states low approvals because the lending criteria for individuals is too tight and you need a spotless credit rating to get any money, regardless what the valuation is.

So which is it?

Edit: What we need is stats for mortgage denial reasons.

It's tight because banks want high deposits for the buyer to absorb the risk of house depreciation. Interest rates for minimum deposit mortgages are very high.

Once the market is at a reasonable level and buying starts to push house prices up with high volumes then the banks will start relaxing.

saleda

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.

It isn't impossible at all. 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.



What if the stupid amount person pays cash.

How can he buy the house for what it's worth,at the right house price and buy it for a stupid amount?

Cleaver

saleda wrote: »

What if the stupid amount person pays cash.

How can he buy the house for what it's worth,at the right house price and buy it for a stupid amount?

I think this is the last time I'll post on this thread, but just to give it one last try...

It is not up to you, me or anyone else to decide what is a good, bad, high or low price in a market. Of course we can have an opinion, but it's just an opinion. There is no 'stupid' price, there is no 'right' price, there is no 'wrong' price. In any market with multiple assets being sold, the market will find the market value price based on a number of external factors.

So one last try. A man is selling an apple and puts it up for sale for £1. Someone offers him 50p. They barter for a while and settle on 76p. The market value of that apple is therefore 76p. It doesn't matter if you think this expensive, or that I think it's cheap, that's the market value of that apple.

Put together thousands of apple sellers with thousands of apple buyers and what you have is an apple market, where the prices of apples fluctuates from second to second based on a wide range of external factors. Let's say that an average of 100,000 apples are sold every day in this make-believe apple market for between 75p and 77p, and this has been the price range for a month. But suddenly people start buying them for 80p, then 90p. For the next months apples are bought for between 90p and 91p.

We can debate for ages whether the apples are 'worth' 90p, or whether 90p represents good or bad value, or the external factors that have caused apples to suddenly cost 90p. But none of this matters, because the market price of an apple is now 90p. It matters not whether people pay with cash or with credit, as these are just examples of external factors which have effected a price. You can shout until you're blue in the face that an apple isn't 'worth' 90p, but it is, because the market price for an apple is now 90p.

Is any of this making sense yet? It's pretty much how any market in the world works. Hamish, Generali... anyone? A little help here? Please?

ess0two

Go get em Cleaver................you can lead a horse to water but you can't make it drink.