Property market 'heading for a fall in 2008'

cambsman

Rick62 wrote: »

If high prices were caused by supply and demand then you would see rents also increasing by a similar amount.

In stock market terms rents and cost of building (plus land plus 'cost' of getting planning) all represent fundamentals while traded prices represent sentiment.

In a rational market the traded price should be supported by fundamentals (eg value of house equals cost of buying land and building, and is fully supported by the yield, ie rent).

If the price is higher than supported by fundamentals then it is a speculative bubble. Speculative bubbles don't plateau, they keep shooting up until they stall, then they crash and usually hard.

The problem is right now there is a whole generation who have never experienced a speculative bubble burst (unless they were lucky enough to have dot.com shares). When it does it is not just a matter of quickly selling at 5 to 10% below the peak, the buyers just arn't there at any sort of price.

Speculative demand is still demand. and yes, that speculative demand can wither away just as quickly as it has been built up. Youre both right, you and the poster who said its supply and demand, even if it is driven by speculation rather than buyers who are simply looking for a place to live.

foot_loose

i can see how house prices are going to crash seeing that alot of eastern europeans have been here for over three years and are now able to get mortgages. prices will continue to rise

danm

Rick62 wrote: »

If high prices were caused by supply and demand then you would see rents also increasing by a similar amount.

In stock market terms rents and cost of building (plus land plus 'cost' of getting planning) all represent fundamentals while traded prices represent sentiment.

In a rational market the traded price should be supported by fundamentals (eg value of house equals cost of buying land and building, and is fully supported by the yield, ie rent).

If the price is higher than supported by fundamentals then it is a speculative bubble. Speculative bubbles don't plateau, they keep shooting up until they stall, then they crash and usually hard.

The problem is right now there is a whole generation who have never experienced a speculative bubble burst (unless they were lucky enough to have dot.com shares). When it does it is not just a matter of quickly selling at 5 to 10% below the peak, the buyers just arn't there at any sort of price.

I agree with the essence of your post Rick. Unless the price of houses was just the land + build costs (in current terms) then you are always paying for more than the true value of the asset.

As with other markets, shares for example, share price doesn't reflect the tangible assets of the company. It reflects elements of goodwill and human capital which can't easily be valued. Not being able to easily value somthing, does not mean its over-valued.

With houses, as soon as i pay more than land+build costs, i must be paying for somthing else....an element of the goodwill factor that means that this property to me means more than just bricks and mortar.

Maybe you've hit the nail on the head regarding rental prices. Maybe the reason why rents are not inceasing is due to an increase in the rental stock, which is the upwards driving force in raising the price of houses

BTL'ers want (demand) more houses = house prices up = more properties (supply) available to rent = rent down (or perhaps even)

still supply and demand

Generali

Gorgeous_George wrote: »

There would be more people looking to buy their own homes (former BTL tenants).

Why are housing associations and the councils spared the venom directed to BTLers?

Maybe renting should be illegal. Would this rid you of your jealousy?



GG

I'm not jealous. The way I see it, the BTL boom has allowed me to realise an ambition (living in the Barbican) and now lets me live in a big 3 bed house in a nice part of Kent, effectively with a large subsidy from my LL. That subsidy effectively pays the wages and food bill of my au pair so is a pretty big lifestyle boost!

If rents rise dramatically (unlikely I feel) or house prices fall (more likely) so that the LL subsidy disappears then I'll buy.

As far as I am concerned, renting or buying a house is a transaction like getting an electricity supplier - another utility that I need that is dull and a lot of hassle to sort out.

On the other hand, the bubble mentality that surrounds housing I find fascinating...

thesaint

I dare show my face (Greedy BTL parasite).

Just want to dispel an untruth muttered earlier.

Falling houseprices is unlikely to bankrupt Landlords, There will always be people who will rent properties either through choice or necessity.

The value of my properties is irrelevant, Why? I am not selling.
On the contrary, if prices were to drop, I would buy more.

If the price drop was due to an immediate massive hike in interest rates it would be a different thing altogether.

Generali

thesaint wrote: »

I dare show my face (Greedy BTL parasite).

Just want to dispel an untruth muttered earlier.

Falling houseprices is unlikely to bankrupt Landlords, There will always be people who will rent properties either through choice or necessity.

The value of my properties is irrelevant, Why? I am not selling.
On the contrary, if prices were to drop, I would buy more.

If the price drop was due to an immediate massive hike in interest rates it would be a different thing altogether.

As I see it, in a falling market the risks to BTL are 3 fold:

- Pressure being put on rents by rising unemployment. I currently pay about £1k a month in rent. If I lose my job and can't get another then I'll be looking for HB to pay it. If they won't stump up a grand, I have to find somewhere cheaper.

- Rising unemployment causing BTLers that subsidise their properties being unable to do so. It's pretty tough to cover a BTL mortgage on unemployment benefit - those that don't have anything put aside for such an eventuality could well be wiped out by a void of just a few months.

- Rising interest rates increasing the number of LLs that have to pay to cover their BTL. If this happens, some wno't be able to afford it, others will just get fed up.

If you have distressed sellers in a falling market, everything can unravel very quickly. In that situation, you can forget getting a BTL mortgage of 90% LTV, you can probably forget getting a BTL mortgage at all. Certainly, banks would be looking for very big deposits.

IMO, you are right to say that if you have low levels of borrowing or none at all, you'll be fine. The 85% mortgage and paying a hundred quid or so on top of the rent guys are taking massive risks with their financial future. If they were a financial firm they'd be stress testing their portfolios with scenarios like - what happens if HPs fall 50% and rents fall 20%. I am not saying that will happen but it is a plausable worst case.

BTman

thesaint wrote: »

I dare show my face (Greedy BTL parasite).

The value of my properties is irrelevant, Why? I am not selling.
On the contrary, if prices were to drop, I would buy more.

Look up the meaning of "greed", then you will understand why BTL landlord's are referred to as greedy.;)

thesaint

BTman wrote: »

Look up the meaning of "greed", then you will understand why BTL landlord's are referred to as greedy.;)

Never quibbled about being called greedy, I have no need to look it up.

epoman

thesaint wrote: »

The value of my properties is irrelevant, Why? I am not selling.

Agree. The experienced BTL LL will truly be in it for the long term, with no intentions to sell ever.

epoman

Generali wrote: »

- Rising interest rates increasing the number of LLs that have to pay to cover their BTL. If this happens, some wno't be able to afford it, others will just get fed up.

If you have distressed sellers in a falling market, everything can unravel very quickly. In that situation, you can forget getting a BTL mortgage of 90% LTV, you can probably forget getting a BTL mortgage at all. Certainly, banks would be looking for very big deposits.

IMO, you are right to say that if you have low levels of borrowing or none at all, you'll be fine. The 85% mortgage and paying a hundred quid or so on top of the rent guys are taking massive risks with their financial future.

Yes, it's the newbie BTL LL's who have jumped in without doing their figures who are most at risk because they have left no margin to cover interest rate increases/voids etc. If they become distressed sellers then this will have a downward effect on the market. The experienced BTL LL's are in it for the long term and will be able to ride through any correction because they are not having to dip into their own pockets to maintain their investment.