Sentiment

macaque_2

Propety values are 90% emotion and 90% fundamentals. As to which 90% wins depends on the time frame looked at. In the long run the fundametals win. In the short term however, emotion can take prices either to a fraction or a multiple of the fundamental value (based on long term borrowing costs, prosperity, affordability, tax rules, ability of the property to generate income etc).

Given that the UK has the dubious distinction of being the most indebted nation on earth (by some measures), rising unemployment, low wage inflation, high commodity inflation and high taxes; the fundamentals would suggest that house prices should be lower, much lower.

The average age of the first time buyer is now late 30's. The average price of a house that meets the needs of a person of this age is probably in the range of £350-450k (a family cannot live in a 1 bed starter home). Based on salary however, such a buyer would struggle to pay much more than £150k.

So howe have £150k houses come to be selling for £450k? The answer is greed and herd instinct. More to the point however, at what stage do house values return to the fundamentals (or even overshoot)? The answer is when greed and herd instinct is replaced by fear and herd instinct. The item below is more significant for the impact of the headline than the content of the article. Some multiple property owners will be motivated to cash in their chips (or cut their losses) when seeing a headline like this. That in turn will create the material for a more dramatic headline along the same lines. Sentiment giveth and sentiment taketh away.

Desperate householders slash asking prices

http://www.mortgages.co.uk/news/2011/Nov/desperate-householders-slash-asking-prices.html

wotsthat

Property values are 90% sentiment and 90% fundamentals - that's 180% - no wonder they are so expensive.

RenovationMan

wotsthat wrote: »

Property values are 90% sentiment and 90% fundamentals - that's 180% - no wonder they are so expensive.

Just what I was thinking. I wonder what the other 10% (20%?) consists of?

RenovationMan

macaque wrote: »

The average age of a house buyer is now late 30's. The average price of a house that meets the needs of a person of this age is probably in the range of £350-450k (a family cannot live in a 1 bed starter home). Based on salary however, such a buyer would struggle to pay much more than £150k.

I'm slightly above that age range (early 40s) and bought my house for £450k. Yet based on my salary I couldn't have afforded a £450k house.

Who can solve this complex paradox??

Mallotum_X

The average ftb at late 30s still seems very odd. I havent got to late 30s yet but have owned a house for nearly 10 years. I know this figure gets quote a lot but it strikes me that there must be a lot of distortion in the figures. It would suggest there must be a reasonable number of FTS in their 40s or older to get the average up that high.

I dont think I know anyone who bought their first place over the age of 40.

Mallotum_X

RenovationMan wrote: »

Who can solve this complex paradox??

Can I have a go...

Your dad was Ronnie Biggs and he gave you a big deposit from his ill gotten gains...

Mallotum_X

macaque wrote: »

The average age of a house buyer is now late 30's. The average price of a house that meets the needs of a person of this age is probably in the range of £350-450k (a family cannot live in a 1 bed starter home). Based on salary however, such a buyer would struggle to pay much more than £150k.

House prices may be high but in most of the country a 3 bed semi is much closer to 150k than 350k.

Itismehonest

Mallotum_X wrote: »

House prices may be high but in most of the country a 3 bed semi is much closer to 150k than 350k.

Yes.
Like most things in the property market everything depends upon where the property is. The same applies to prices. In some places they are rising, in other fairly static & elsewhere they are falling.

To me the most relevant words in the top post were Desperate Householders.
We had our place o the market for a few months but everyone interested was unable to proceed because they couldn't sell their own place. We've taken ours off the market now & it won't go back on until things are more steady.

I feel for the people who really have to sell & I find something extremely distasteful about the flocks of vultures circling above them hoping for a total crash so they can pick over the bones.
I'm not talking about the people who genuinely can't get on the housing ladder. It's the ones who have funds but lurk eagerly awaiting their idea of a bargain. I can't see much difference between their speculative greed & that of the bankers myself.

andybenw

Mallotum_X wrote: »

House prices may be high but in most of the country a 3 bed semi is much closer to 150k than 350k.

Yep, 3 bed terrace I'm in probably around 140k. A 3 bed semi about 160k. More for driveway as crammed in. A 140k house is well within the average joes grasp as long as he saves for the deposit.

London and london commuting area prices distort the average I feel.

chewmylegoff

RenovationMan wrote: »

Who can solve this complex paradox??

Mr Deposit?

MacMickster

macaque wrote: »

Propety values are 90% emotion and 90% fundamentals.

You're not a banker are you?

Its just that your maths reminds me of Fractional Reserve Banking - i.e. makes no sense at all to me.