2012 and onwards Predictions

Really2

Realmoney wrote: »

Wow 20 to 30% nominal falls? Shocking :eek: With inflation over 5% now, I only think another 10% real fall in 2012 (5% nominal) who knows what or when the bottom will be. It does depend when interest rates go back up, the longer they stay abnormally low the longer the bottom will take to arrive.

That was from peak, we had around 20%, so the falls ended 2009. we are now well in to the nominal stagnation phase.

pwllbwdr

Realmoney wrote: »

I remember not so long ago inflation was around 2% and the BOE saying sorry we were so wrong yet again it will come down soon do not worry no need to raise base rate yet.

Can you provide a source for that please? I thought the target was 2%. Why were the BOE apologising for hitting or being close to their target?

Realmoney_2

pwllbwdr wrote: »

Can you provide a source for that please? I thought the target was 2%. Why were the BOE apologising for hitting or being close to their target?

When inflation went over 2% the target was lower.

Basically the BOE have always been wrong lately with their targets for inflation and saying it will come back down.

5.2% inflation now and the base rate is still 0.5%, tick tock, tick tock

IveSeenTheLight

Realmoney wrote: »

All they can do is extend and pretend.

Indeed, as time goes on, the requirement for property (both to purchase and to rent) increases as the number of households increase, meanwhile, there are insufficient properties being brought to the markets

as they say

Realmoney wrote: »

tick tock, tick tock

Jimmy_31

MrRee wrote: »

I've said it before and I'll say it again ...... every single property has a floor to its value.

That floor is where the BTL's step in and buy - which is at 7% or above Yield.

Find a property you are interested in, find out what the rental per year is, work out what the 7% yield point would be and there you have your base figure for that property ...... it really is as simple as that.

And, I can tell you all right now ... we are very close to asking prices hitting that magic 'BUY' figure - so, further falls just cannot happen - it is a dead certainty that we are bouncing along the bottom.

Thats great news mr ree.

Nobodys snapping up the heavily reduced cheap properties around here, still a way to go before we reach the floor:j.

dtsazza

MrRee wrote: »

That floor is where the BTL's step in and buy - which is at 7% or above Yield.

...

so, further falls just cannot happen - it is a dead certainty that we are bouncing along the bottom.

That's true, for as long as those preconditions continue to hold.

To imply that 7% is some sort of universal constant seems shortsighted. If greater returns become available in other asset classes, then the return demanded from BTL will rise accordingly. For instance, if you could get 6% from an instant-access savings account (not saying that will happen next year!) you'd be an idiot to take on the liabilities of owning a property for just 1% extra return.

And the margin above, say, cash that landlords demand will vary as well with their views on future economic developments. If they're a little worried about their own financial security they would want a greater yield in exchange for the inflexibility of tying up the money in a 25-year mortgage. And their views of market conditions matter too - if there's a fear that rents might contract, landlords would demand a bigger buffer zone on the yield to account for this. Or if an increase in void periods is feared - each week of void wipes 2% off the yield. On the other hand, if a landlord was bullish about the future of rents (and hence house prices) he might be willing to take less yield initially with a view to riding the market up, with low mortgage payments locked in.

Additionally, the yield is a relative figure which compares the profits from renting to the house price.

Profits come firstly from returns - i.e. the rental prices. As rental prices move, the house price that represents 7% changes proportionally. And secondly the profits are what's left after expenses, the biggest one being the mortgage interest. As interest increases, yield drops (for a given rent) and so the house price representing 7% yield falls as well.

Plus there's ancillary expenses (such as redecorating, maintenance) eating into the profit too; while these aren't as pronounced as interest rates, an annual increase equal to 1% of the house price will reduce yield by the same amount; which means that the house price would have to fall by about 15% to turn the 6% yield back into a 7% one.


So, if all other things stay static, then yes - you might be right that it's a dead certainty that we're bouncing along the bottom.

However, if rents, mortgage rates, cash interest rates, dividend yields, exchange rates, attitudes to risk or costs for painters/plumbers/furniture/tools have the audacity to move in the next year then the bottom will move with them.

Flight2quality

dtsazza wrote: »

That's true, for as long as those preconditions continue to hold.

To imply that 7% is some sort of universal constant seems shortsighted. If greater returns become available in other asset classes, then the return demanded from BTL will rise accordingly. For instance, if you could get 6% from an instant-access savings account (not saying that will happen next year!) you'd be an idiot to take on the liabilities of owning a property for just 1% extra return.

And the margin above, say, cash that landlords demand will vary as well with their views on future economic developments. If they're a little worried about their own financial security they would want a greater yield in exchange for the inflexibility of tying up the money in a 25-year mortgage. And their views of market conditions matter too - if there's a fear that rents might contract, landlords would demand a bigger buffer zone on the yield to account for this. Or if an increase in void periods is feared - each week of void wipes 2% off the yield. On the other hand, if a landlord was bullish about the future of rents (and hence house prices) he might be willing to take less yield initially with a view to riding the market up, with low mortgage payments locked in.

Additionally, the yield is a relative figure which compares the profits from renting to the house price.

Profits come firstly from returns - i.e. the rental prices. As rental prices move, the house price that represents 7% changes proportionally. And secondly the profits are what's left after expenses, the biggest one being the mortgage interest. As interest increases, yield drops (for a given rent) and so the house price representing 7% yield falls as well.

Plus there's ancillary expenses (such as redecorating, maintenance) eating into the profit too; while these aren't as pronounced as interest rates, an annual increase equal to just 1% of the rent will reduce yield by the same amount; which means that the house price would have to fall by about 15% to turn the 6% yield back into a 7% one.

(If a two-bedroom flat rents out for £700 p/m and the local DFS puts up the price of new beds by £42, that'd cause a 15% drop in house prices by itself, if the landlords replace the beds each year.)


So, if all other things stay static, then yes - you might be right that it's a dead certainty that we're bouncing along the bottom.

However, if rents, mortgage rates, cash interest rates, dividend yields, exchange rates, attitudes to risk or costs for painters/plumbers/furniture/tools have the audacity to move in the next year then the bottom will move with them.

Very good post I must say.

I remember the time not too long ago actually when the savings and investment board was full of 6 or 7% interest savings accounts. As you say most people would prefer their money there than the risks involved with BTL, and maybe getting a bad tenant who stops paying for whatever reasons and you have to go to court to get them out which means they almost certainly smash the place up in the end.

Its purely the unsustainable low rates that are propping up BTL and house prices and rents.

When rates go back to normal levels repossessions will go up as well as people selling up and getting out as quick as they can, before the big falls come marking the end of the downturn in house prices.

We have a way to go yet though.

IveSeenTheLight

Jimmy_31 wrote: »

Thats great news mr ree.

Nobodys snapping up the heavily reduced cheap properties around here, still a way to go before we reach the floor:j.

Fancy adding to the discussion by announcing where "round my way" actually is.
Then we may be able to discuss / debate / agree with you.

Otherwise you are sounding very much like you come from West Bromwich

SteveV2

House prices will rise.

How fast depends on the banks.

AliceJenkins

The economy has already recovered a lot, I don't understand the mass gloomy predictions.