whats going to happen in years to come with interest only mortgages?

HAMISH_MCTAVISH

shortchanged wrote: »

I suppose I've never really looked at it in detail because when you have such a massive difference in 'averages' for things which are supposed to recording the same data it just seems like bizarre detailing of the facts.

A short tutorial....

http://www.miac-acadametrics.co.uk/userfiles/file/MIACAcadametricsWebsiteHousePriceArticle.pdf

HAMISH_MCTAVISH

shortchanged wrote: »

Can you please explain how people are going to afford these property prices in 2020 ?

The basics are below....

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.

HAMISH_MCTAVISH

shortchanged wrote: »

the more you argue for the case of the average price being the circa £230K mark the more you realise how ridiculously overpriced property is in relation to average earnings.

Only if you're statistically illiterate and don't comprehend the distribution of prices and earnings around the averages.

shortchanged_2

HAMISH_MCTAVISH wrote: »

Read more: http://www.thisismoney.co.uk/money/mortgageshome/article-2270763/How-Land-Registry-undercooks-house-prices-90k.html#ixzz2YgK0LZI5

Is that your real name Hamish.........Simon Lambert?

HAMISH_MCTAVISH

shortchanged wrote: »

Is that your real name Hamish.........Simon Lambert?

Is that the best you can do?

Acadametrics has a similar explanation at the link earlier, but I thought something from the Mail might be more at your level....;)

shortchanged_2

In your comprehensive answer Hamish you have forgotten about such things as the huge level of student debts that will come into play over the next few years.

Also does this mean if we are going to see a massive boom over the next few years we will see the subsequent massive crash? If so when do you predict this Hamish because I might keep some cash back to jump in then, or do you just see house prices rising ad infinitum from this point?

HAMISH_MCTAVISH

shortchanged wrote: »

In your comprehensive answer Hamish you have forgotten about such things as the huge level of student debts that will come into play over the next few years.

Not forgotten.

Just not of enough significance to change the outcome.

Also does this mean if we are going to see a massive boom over the next few years we will see the subsequent massive crash?

That's usually what happens after booms.

Whether or not it's massive depends on how many lessons have been learned from this one.

If so when do you predict this Hamish

Late 2020's is when the next demographic trough will start to hit.

So likely prices will fall around then.

because I might keep some cash back to jump in then,

Why?

Prices will still be cheaper today than they are at any point ever again.

No trough in history has ever fallen to the nominal trough of the previous cycle.

or do you just see house prices rising ad infinitum from this point?

Prices rise, prices fall, but they rise more than they fall.

Cornucopia

I agree that prices will rise (are rising now in some parts). However, I struggle to see them doubling - simply for the reason of affordability vs. salary growth.

shortchanged_2

HAMISH_MCTAVISH wrote: »

Late 2020's is when the next demographic trough will start to hit.

So likely prices will fall around then.



Why?

Prices will still be cheaper today than they are at any point ever again.

No trough in history has ever fallen to the nominal trough of the previous cycle.

Cheers Hamish, I'll keep a handy £300K for then. Because if that trough is anything like the year 99-00, I'll be minted if I buy a property when you say the trough will be and sell it off after 5 or 6 years.

grizzly1911

Cornucopia wrote: »

I agree that prices will rise (are rising now in some parts). However, I struggle to see them doubling - simply for the reason of affordability vs. salary growth.

I have made a similar point to Hamish in the last couple of days but it doesn't figure in his theories. Disposable income is contracting too for many.