'We've reached a tipping point' Signs of house price weakness

CLAPTON

Thrugelmir wrote: »

Markets move on confidence and safety in numbers (the herd instinct).

it's difficult to see how a market could move other than on confidence and numbers.

Rota

CLAPTON wrote: »

it's difficult to see how a market could move other than on confidence and numbers.

And right now, with the economy getting more buoyant by the second I see no driver for a huge correction in house prices. People would be deluded to think otherwise.

Of course there will be hiccups but we are a million miles away from the GFC of 2008. I tend to ignore the cherry picked bad news and take a look overall. If you are less likely to lose your job you will be more inclined to buy a house or make a big ticket purchase.

Jason74

Crashy_Time wrote: »

Big words. Do you care to walk me through some of my false assumptions?

Happy to help on this one, although I’m not convinced it will make much difference. There are a number of ways in which your posts are fundamentally out. I haven’t got time to list them all, but a few of the more glaring ones include:

1) At one point, you actually stated that someone could be in negative equity having paid off a Mortgage. This is of course impossible. To be fair, you did later acknowledge your error here, but still carried on talking about the issue of a property being worth less than someone paid for it after 25 years. For starters, this is (as others have stated) highly unlikely. But even if it did happen, so what. The key benefit of home ownership is that there comes a point where you no longer have to pay housing costs. At that point, you’re making a whacking great saving, Month in, Month out, forever. And that’s before you consider that you still own an asset (of whatever value), wheras with renting you have nothing.

2) You seem to assume that non asset backed interest only Mortgages are the norm. They’re not. Now yes, you might look at the bald figures that say around half of London Mortgages are interest only, and make that assumption, but that misses the point that the bulk of these will be older “investment backed” loans such as Endowment mortgages. While these have their own problems, most of these loans will be for a low LTV based on current values (being older mortgages), and any shortfall will be pretty small compared to the value of the home. The portion of “pure” (ie, not backed by an investment) IO Mortgages issues peaked at 24% in 2006, and the number being written now is a fraction of that. There may be some big issues for individual borrowers, but the overall market impact will be negligible.

3) You also seem to assume that constant “MEWing” as property values rise is the norm. It isn’t. In my day to day life, I’ve only ever come across one person who did this. More usefully for the discussion, I used to work in the financial services industry for several years, primarily relating to mortgages (I actually came out of the business in 2004, as I was unhappy with what I saw at that time as increasingly poor and dangerous lending). In that time, out of dozens of clients I helped with Mortgages, I came across a sum total of three who chose to MEW (and one of those was for value adding home improvements). This idea you have that most people are mortgaged up to the max of their property values throughout their time of ownership simply isn’t true.

4) You ignore the basic numbers in favour of long term home ownership. Percy produced a great worked example of why home ownership generally worked much better than renting in the longer term, and you (unsuccessfully) tried to pick holes in what was a watertight argument. Even increasing the Mothly Mortgage payment by £200 a Month still left the maths clearly in favour of home ownership, yet you somehow tried to claim that the example was wrong. You seem to somehow dispute the simple reality that for the vast majority of people in the vast majority of circumstances, home ownership is by far the best long term option

5) Your generally dismissive and at times downright offensive approach to other posters. Even if your arguments are sound (which many of yours aren’t, see above), it just isn’t on to go around accusing people of “being at the crack pipe”, and telling them to “stop posting nonsense” (to think of just a couple of examples). It’s very difficult to be taken seriously when you post in that manner.

So there are a few examples of why I came to the conclusion I did. There are of course a few posters on the bull side of the debate who post in a similar manner, but I think it’s important to pick you up on this as a bearish poster precisely because I am someone who sees never ending HPI as socially disastrous, and would like to see a change. Arguing against the dominant narrative is a difficult task at the best of times. Having posters come in and put an alternative view in a manner so easily shot down that it discredits the whole alternative view only makes it harder still.

ukcarper

Good post Jason but wasted I fear.

mayonnaise

Great post and yes, it will be wasted on the likes of Crashy Time
Nevertheless, great post.

Good to see you back, Jason

Rota

Fantastic post Jason. However, like you and others have mentioned, has probably fallen on deaf ears. Crashy admits he would never buy. So even a 95% drop wouldn't be enough.

All he wants to do is crack a beer and laugh? :beer: You don't need a catastrophic economic event to do that. :rotfl:

Like other members of the HPC brigade they fail to "get" basic economics and holding onto a 3-4 year view (which has now rolled onto 10-12 years) instead of 20+ has rendered them economically impotent.

I saw one guy STRed in 2010! Talk about the perfect bottom pick. Just the wrong side of the trade.

In_For_A_Penny_2

HAMISH_MCTAVISH wrote: »

When prices here double in just over a year, then by all means bring up NI again as a comparator. Until then.....

Doubling of prices in 12 months is a bit arbitrary - is this the objective measure of a bubble?

I agree there is undoubtedly a supply/demand aspect to HPI in mainland UK but I still maintain there is a degree of speculative buying - disentangling this and ascertaining the relative contribution of each factor is difficult if not impossible.

What happens when confidence is reduced and how the "herd" then reacts is also very difficult to predict.

Thrugelmir

CLAPTON wrote: »

it's difficult to see how a market could move other than on confidence and numbers.

Investors aren't always rational. As have an over reliance on hindsight rather than looking towards the horizon.

PS. Safety in numbers isn't which you appear to think it is.

Thrugelmir

In_For_A_Penny wrote: »

What happens when confidence is reduced and how the "herd" then reacts is also very difficult to predict.

Stampede....................... for the exit door

Crashy_Time

Jason74 wrote: »

Happy to help on this one, although I’m not convinced it will make much difference. There are a number of ways in which your posts are fundamentally out. I haven’t got time to list them all, but a few of the more glaring ones include:

1) At one point, you actually stated that someone could be in negative equity having paid off a Mortgage. This is of course impossible. To be fair, you did later acknowledge your error here, but still carried on talking about the issue of a property being worth less than someone paid for it after 25 years. For starters, this is (as others have stated) highly unlikely. But even if it did happen, so what. The key benefit of home ownership is that there comes a point where you no longer have to pay housing costs. At that point, you’re making a whacking great saving, Month in, Month out, forever. And that’s before you consider that you still own an asset (of whatever value), wheras with renting you have nothing.

2) You seem to assume that non asset backed interest only Mortgages are the norm. They’re not. Now yes, you might look at the bald figures that say around half of London Mortgages are interest only, and make that assumption, but that misses the point that the bulk of these will be older “investment backed” loans such as Endowment mortgages. While these have their own problems, most of these loans will be for a low LTV based on current values (being older mortgages), and any shortfall will be pretty small compared to the value of the home. The portion of “pure” (ie, not backed by an investment) IO Mortgages issues peaked at 24% in 2006, and the number being written now is a fraction of that. There may be some big issues for individual borrowers, but the overall market impact will be negligible.

3) You also seem to assume that constant “MEWing” as property values rise is the norm. It isn’t. In my day to day life, I’ve only ever come across one person who did this. More usefully for the discussion, I used to work in the financial services industry for several years, primarily relating to mortgages (I actually came out of the business in 2004, as I was unhappy with what I saw at that time as increasingly poor and dangerous lending). In that time, out of dozens of clients I helped with Mortgages, I came across a sum total of three who chose to MEW (and one of those was for value adding home improvements). This idea you have that most people are mortgaged up to the max of their property values throughout their time of ownership simply isn’t true.

4) You ignore the basic numbers in favour of long term home ownership. Percy produced a great worked example of why home ownership generally worked much better than renting in the longer term, and you (unsuccessfully) tried to pick holes in what was a watertight argument. Even increasing the Mothly Mortgage payment by £200 a Month still left the maths clearly in favour of home ownership, yet you somehow tried to claim that the example was wrong. You seem to somehow dispute the simple reality that for the vast majority of people in the vast majority of circumstances, home ownership is by far the best long term option

5) Your generally dismissive and at times downright offensive approach to other posters. Even if your arguments are sound (which many of yours aren’t, see above), it just isn’t on to go around accusing people of “being at the crack pipe”, and telling them to “stop posting nonsense” (to think of just a couple of examples). It’s very difficult to be taken seriously when you post in that manner.

So there are a few examples of why I came to the conclusion I did. There are of course a few posters on the bull side of the debate who post in a similar manner, but I think it’s important to pick you up on this as a bearish poster precisely because I am someone who sees never ending HPI as socially disastrous, and would like to see a change. Arguing against the dominant narrative is a difficult task at the best of times. Having posters come in and put an alternative view in a manner so easily shot down that it discredits the whole alternative view only makes it harder still.

Sorry, I fell asleep around point 4 (only kidding) but I get your drift that we have different views on a few things. My basic stance is that property prices are dictated by sentiment and availability of credit and we are headed for a crash and slump lasting many years.
The Edinburgh flat discussed above has moved nowhere in price for ten years, why should it do anything other than drift lower for the next ten? Without all the government intervention it would be back at 40k by now?


I like the flexibility and low responsibility of renting, and by saving/investing the equivalent or slightly more than your rent every month you build a nice liquid cash cushion. Bricks and mortar is a very illiquid home for your money, and the price falls will come quicker than you can reduce your asking price when things unravel. Why buy something today that will be cheaper in the morning? Why worry about not buying a flat at 40k years ago when they are heading back that way now?


Frankly I wouldn`t have wanted to live in the flats I viewed in the 90`s longer than a year, max, and yes I could have sold up in `07 and made a small windfall, but I would still need to live somewhere, so we are back to timing the market again, and of course those who miss the selling window this time are going to see a lot of their equity wiped out.


Sorry, but if you don`t see that posters like Hamish are on the crack pipe (Of HPI addiction) or at least trolling for one of the big builders then you are not looking hard enough, likewise if you think that the position of it being a massive bubble fuelled by cheap credit and an unsustainable lending model (A Ponzi basically) is "easily shot down" then you may just be too young or too influenced by property ramping to know any better?