A "full-scale property boom will begin in 2014"

HAMISH_MCTAVISH

......the economic figures have started to suggest that the British economy is pulling out of its longest and deepest recession on record.

One of the main reasons for this turnaround has been a sudden pickup in housing prices and mortgage lending, the traditional driving forces of the British economy.

This improvement, in turn, has reflected a bold new government-backed borrowing program, whereby the British Treasury is guaranteeing up to £600,000 of new mortgage debt for anyone who can put up 5 percent of equity into buying a home.

While this audacious policy attracted surprisingly little attention in the media when George Osborne announced it in his March budget, British homeowners and bankers were quick to catch on.

As a result, house prices are rising rapidly across Britain, mortgage lending has rebounded to its highest level since the Lehman crisis and homebuilders’ shares have almost doubled.

And all this is before the government incentives are expanded from newly-built houses to secondhand properties and remortgages in January 2014.

For the moment, house prices are being bid up by cash-rich buyers who are front-running the government subsidies, in the confident expectation that a full-scale property boom will begin in 2014.

http://blogs.reuters.com/anatole-kaletsky/2013/07/05/who-will-get-credit-for-britains-economic-turnaround/

Recovery is certainly gaining strength....

But 2014 is still a brave call for the start of a "full scale property boom".

princeofpounds

Here's a question for you hamish as our resident property bull; how high do you think property prices could go before you would cease to be bullish? How much juice is in the tank?

HAMISH_MCTAVISH

princeofpounds wrote: »

how high do you think property prices could go before you cease to be bullish?

How much juice is in the tank?

Heh.

Complicated question with a number of component parts in the answer...

Supply and demand:
Given the truly extraordinary housing shortage in this country, the market will have to continue rationing houses in limited supply through price.

And given both the impending large demographic bulge of FTB age people (bigger than the boomer generation) and the lowest house building levels in a century, conditions are strongly in favour of rapidly rising prices.

Affordability:
FTB mortgage payments as a percentage of income peaked in 1990 at 68%.

They're currently 27%, versus a long term average of 38%, and that's with most FTB mortgages being closer to 5% than 0.5% thanks to bank margins being hiked to near record highs.

I think it is likely that the neutrality point for base rates in the next cycle will be 3% or so, versus 5%+ in the last one...

And also likely that bank margins will decrease as competition returns to the market and available funding increases.

So under those circumstances, prices could almost double without affordability meaningfully exceeding long term average levels.

Mortgage Rationing:
The state has implemented policies which have worsened lending availability and artificially repressed house prices, such as changing mortgage rules, failing to fix the dysfunctional credit markets, changing capital requirements for high LTV lending, etc, etc, etc.

Mortgage lending remains, in the words of the CML themselves, "completely dysfunctional".

We have millions of renters paying more in rent than they would for a mortgage, demonstrating their ability to service debt, yet forced into renting thanks to mortgage rationing.

This is politically unsustainable.

So it will not be sustained.

Conclusion:
There has been an extraordinary confluence of events conspiring to keep house prices artificially low over the last few years.

Yet in spite of endemic mortgage rationing, high unemployment, record high bank margins, crippling deposit requirements, record high rents preventing saving, doom and gloom all over the media, and an incompetent government that has missed opportunity after opportunity to fix a dysfunctional and broken market, prices remain just 10% below peak and are now are rising again.

Given the next few years are going to see the biggest wave of FTB age people in history, bigger even than the boomers, come crashing into a housing market with one of the worst shortages in history, where building has fallen to the lowest levels in a century, and all in the run-up to a general election..... time is very much running out for how much longer they can keep prices artificially restrained.

When some semblance of normality returns to the currently dysfunctional lending markets, as it eventually and inevitably will, the speed and scale of prices rises will be truly eye watering.

So to answer your question:

How high will they go?

I think we'll see prices nearly double in real terms over the next cycle, driven by worsening shortages and markedly lower average interest rates than the last cycle saw.

Peaking in the mid to late 2020's, shortly after the next demographic bulge peaks.

Graham_Devon

You could get higher house prices, sure.

But to get a recovery, first you need to start wuthdrawing from the life support. Rather than withdrawing, were just getting pumped with stronger drugs on a more frequent basis.

A recovery (IMO) would be when we can start removing stimulus and still grow.

That isn't what we have at the moment, again, IMO removing stimulus would be more akin to playing Jenga with the economy.

TruckerT

HAMISH_MCTAVISH wrote: »

Heh.

Complicated question with a number of component parts in the answer...

Supply and demand:
Given the truly extraordinary housing shortage in this country, the market will have to continue rationing houses in limited supply through price.

And given both the impending large demographic bulge of FTB age people (bigger than the boomer generation) and the lowest house building levels in a century, conditions are strongly in favour of rapidly rising prices.

Affordability:
FTB mortgage payments as a percentage of income peaked in 1990 at 68%.

They're currently 27%, versus a long term average of 38%, and that's with most FTB mortgages being closer to 5% than 0.5% thanks to bank margins being hiked to near record highs.

I think it is likely that the neutrality point for base rates in the next cycle will be 3% or so, versus 5%+ in the last one... So prices could almost double without affordability meaningfully exceeding long term average levels.

Mortgage Rationing:
The state has implemented policies which have worsened lending availability and artificially repressed house prices, such as changing mortgage rules, failing to fix the dysfunctional credit markets, changing capital requirements for high LTV lending, etc, etc, etc.

Mortgage lending remains, in the words of the CML themselves, "completely dysfunctional".

We have millions of renters paying more in rent than they would for a mortgage, demonstrating their ability to service debt, yet forced into renting thanks to mortgage rationing.

This is politically unsustainable.

So it will not be sustained.

Conclusion:
There has been an extraordinary confluence of events conspiring to keep house prices artificially low over the last few years.

Yet in spite of endemic mortgage rationing, high unemployment, record high bank margins, crippling deposit requirements, record high rents preventing saving, doom and gloom all over the media, and an incompetent government that has missed opportunity after opportunity to fix a dysfunctional and broken market, prices remain just 10% below peak and are now are rising again.

Given the next few years are going to see the biggest wave of FTB age people in history, bigger even than the boomers, come crashing into a housing market with one of the worst shortages in history, where building has fallen to the lowest levels in a century, and all in the run-up to a general election..... time is very much running out for how much longer they can keep prices artificially restrained.

When some semblance of normality returns to the currently dysfunctional lending markets, as it eventually and inevitably will, the speed and scale of prices rises will be truly eye watering.

So to answer your question:

How high will they go?

I think we'll see prices nearly double in real terms over the next cycle, driven by worsening shortages and markedly lower average interest rates than the last cycle saw.

Peaking in the mid to late 2020's, shortly after the next demographic bulge peaks.

There is lots of stuff that is only affordable by the very rich, and a decent home looks like becoming one of them.

TruckerT

the_flying_pig

HAMISH_MCTAVISH wrote: »

Heh.

Complicated question with a number of component parts in the answer...

Supply and demand:
Given the truly extraordinary housing shortage in this country, the market will have to continue rationing houses in limited supply through price.

And given both the impending large demographic bulge of FTB age people (bigger than the boomer generation) and the lowest house building levels in a century, conditions are strongly in favour of rapidly rising prices.

Affordability:
FTB mortgage payments as a percentage of income peaked in 1990 at 68%.

They're currently 27%, versus a long term average of 38%, and that's with most FTB mortgages being closer to 5% than 0.5% thanks to bank margins being hiked to near record highs.

I think it is likely that the neutrality point for base rates in the next cycle will be 3% or so, versus 5%+ in the last one... So prices could almost double without affordability meaningfully exceeding long term average levels.

Mortgage Rationing:
The state has implemented policies which have worsened lending availability and artificially repressed house prices, such as changing mortgage rules, failing to fix the dysfunctional credit markets, changing capital requirements for high LTV lending, etc, etc, etc.

Mortgage lending remains, in the words of the CML themselves, "completely dysfunctional".

We have millions of renters paying more in rent than they would for a mortgage, demonstrating their ability to service debt, yet forced into renting thanks to mortgage rationing.

This is politically unsustainable.

So it will not be sustained.

Conclusion:
There has been an extraordinary confluence of events conspiring to keep house prices artificially low over the last few years.

Yet in spite of endemic mortgage rationing, high unemployment, record high bank margins, crippling deposit requirements, record high rents preventing saving, doom and gloom all over the media, and an incompetent government that has missed opportunity after opportunity to fix a dysfunctional and broken market, prices remain just 10% below peak and are now are rising again.

Given the next few years are going to see the biggest wave of FTB age people in history, bigger even than the boomers, come crashing into a housing market with one of the worst shortages in history, where building has fallen to the lowest levels in a century, and all in the run-up to a general election..... time is very much running out for how much longer they can keep prices artificially restrained.

When some semblance of normality returns to the currently dysfunctional lending markets, as it eventually and inevitably will, the speed and scale of prices rises will be truly eye watering.

So to answer your question:

How high will they go?

I think we'll see prices nearly double in real terms over the next cycle, driven by worsening shortages and markedly lower average interest rates than the last cycle saw.

Peaking in the mid to late 2020's, shortly after the next demographic bulge peaks.

you should send a copy of that to The Economic Journal. they'd be sure to print it.

Thrugelmir

Originally Posted by HAMISH_MCTAVISH

We have millions of renters paying more in rent than they would for a mortgage, demonstrating their ability to service debt, yet forced into renting thanks to mortgage rationing.

This is politically unsustainable.

Not sure what the Politicians can do. Not least that many that rent wouldn't be accepted for a mortgage in any event.

HAMISH_MCTAVISH

Thrugelmir wrote: »

many that rent wouldn't be accepted for a mortgage in any event.

And therein lies the problem.

90%+ of those that rent can clearly afford to pay a mortgage.

But instead are forced to pay for someone else's mortgage, rather than their own.

EchoLocation

A new boom? Please.

Perhaps this alleged improvement in the housing market will give Osborne a convenient excuse to cancel the massively criticised subprime Help to Buy scheme?

michaels

EchoLocation wrote: »

A new boom? Please.

Perhaps this alleged improvement in the housing market will give Osborne a convenient excuse to cancel the massively criticised subprime Help to Buy scheme?

It is interesting - Labour saw the housing market start to decline in 2005/6 and proposed letting people pt individual property assets in to their pensions, the announcement was enough to drive the market forward again, even though in the end the idea was dropped shortly prior to implementation...

chucknorris

HAMISH_MCTAVISH wrote: »

So to answer your question:

How high will they go?

I think we'll see prices nearly double in real terms over the next cycle, driven by worsening shortages and markedly lower average interest rates than the last cycle saw.

Peaking in the mid to late 2020's, shortly after the next demographic bulge peaks.

Well obviously of course I hope that in time you are proved correct. But I have always thought that the last peak was quite high and I can't really see prices going much past that (in real terms). People still have to be able to afford to buy houses, so I can't see how prices generally could double in real terms, perhaps they might have a chance of increasing more in London. But if they went up anyway near 50% in London (probably less than that) in real terms, I think that I would be looking to get out and take the profit.