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

Rota

:wall::wall::wall:

Percy1983

Crashy_Time wrote: »

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.

This just doesn't make sense.

So in my case rather than spending £480 a month on a mortgage I should save £480 a month, thats all great but what do I do about the £400 a month rent bill?

Or do you mean saving over and above, ie rent and save £400 or buy and only save £320?

However I cut the sums I seem to be better off for buying.

Jason74

Crashy_Time wrote: »

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?

Thanks for the attempt at a sensible reply, I have to confess that it's more than I was expecting. Indeed, the rather unecesary last paragraph aside, it actually represents a good contribution to the debate. I actually agree with you that sentiment and Credit availability are key drivers in the property market, and for that reason, Hamish's view that it's all about a housing shortage is (while accurate in the sense that there is a shortage) a major oversimplification.

But, imho it's several steps too far to deduce that because credit and sentiment are key factors, we must (or even are likely to) be heading for a massive crash. Apart from some excessive multiples (which aren't actually used that often in practice), there isn't imho much in current lending patterns to be concerned about. And like I say, I say that as someone who came out of the Mortgage market in 2004 precisely because was (correctly as it turned out imho) very concerned about lending practices. At 40 years old and with close to 20 years working in personal finance in one capacity or another, I think I'm both old enough and sensible enough to have a decent grasp of what I see arond me.

I do think Hamish et al are wrong in the assumption that prices will keep going up in excess of income for ever. There comes a point where there just isn't the money there to support further rises above earnings growth, and in my part of the world (South London suburbs), there is a real sense that we are not far from that point. But when we get there, will prices crash?. No imho. There will be a bit of a "blow off" as the speculative money realises that the big gains are no longer there to be made, and then it will setttle down. In my area, that is exactly what seems to be happening right now, although I'd distrust anyone who claims to be able to see the future.

The big issue for me, is the description of the market as a "ponzi". It's in large part a controlled market for sure, and those who talk about thre "free market" need to remember the extent to which the powers that be intervened in the past few years to prop up the property market and prevent the "free market" from running it's course. But as others have rightly pointed out, the nature of a Ponzi scheme is that people end up with nothing. Even if you start from the premise that houses are grossly overpriced, eventually reaching a point where people are free of housing costs for life is a long way from ending up with nothing.

You have a way of doing things that you say works well for you. Perhaps you should just enjoy that, without feeling the need to be disrespectful to those with a different view. To be fair, there are at least a couple of bullish posters (none of whom have significantly contributed to this thread, alhough at least one has made a brief appearance) who should probably do likewise.

wotsthat

Crashy_Time wrote: »

Why worry about not buying a flat at 40k years ago when they are heading back that way now?

I know that flat isn't for you but say it gets back down to £40k tomorrow and you buy it for cash. Your lifetime housing costs would be £80k rent plus £40k flat = £120k.

If you'd bought it on a 17 year repayment mortgage then today you'd be mortgage and rent free and would have spent about £57k.

So if there's a c50% crash tomorrow and you've got £40k cash you're still down £63k. You could have upgraded a couple of times along the way and still been better off.

I think you're overly concerned with the price of houses and don't understand that it's the cost of accommodation that matters. The longer gambles of this nature continue the lower your chance of breaking even because it requires a monthly investment to (not) stay on the sidelines.

Jason74

mayonnaise wrote: »

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

Good to see you back, Jason

Thanks Mayo. I must admit I'd have thought you'd have been glad to see the back of a poster with views so different to your own, so nice to be wrong on that one :T.

In a funny way, it's actually seeing some of the posts from the HPC mob on a couple of threads that made me start posting again. I think there is a real need for an alternative view to "HPI will go on forever and it is good that it will" narrative that is dominant on here (after all, it's not much of a debate if everyone agrees with each other!). But seeing how badly those arguments were being made in some quarters, I thought other contributions were needed, and it would be silly to continue to stay out of the fray on account of one obnoxious poster who I will deal with by simply ignoring

Percy1983

wotsthat wrote: »

I know that flat isn't for you but say it gets back down to £40k tomorrow and you buy it for cash. Your lifetime housing costs would be £80k rent plus £40k flat = £120k.

If you'd bought it on a 17 year repayment mortgage then today you'd be mortgage and rent free and would have spent about £57k.

So if there's a c50% crash tomorrow and you've got £40k cash you're still down £63k. You could have upgraded a couple of times along the way and still been better off.

I think you're overly concerned with the price of houses and don't understand that it's the cost of accommodation that matters. The longer gambles of this nature continue the lower your chance of breaking even because it requires a monthly investment to (not) stay on the sidelines.

This does seem to be the point which he is missing, in my case I bought at the first opportunity, as mentioned I could rent at £400 (approx).

So since I have bought I would have spent £11.6k on rent, so for it to be wrothwhile I would have needed my house to decrease in value by at least £11.6k... it hasn't.

As mentioned I don't want rampant HPI and don't cheer on HPI, but to be realistic prices aren't going to reduce massively, at best we will see see years of flat prices or increases below wage increases which will of course reduce the cost in real terms.

Crashy_Time

wotsthat wrote: »

I know that flat isn't for you but say it gets back down to £40k tomorrow and you buy it for cash. Your lifetime housing costs would be £80k rent plus £40k flat = £120k.

If you'd bought it on a 17 year repayment mortgage then today you'd be mortgage and rent free and would have spent about £57k.

So if there's a c50% crash tomorrow and you've got £40k cash you're still down £63k. You could have upgraded a couple of times along the way and still been better off.

I think you're overly concerned with the price of houses and don't understand that it's the cost of accommodation that matters. The longer gambles of this nature continue the lower your chance of breaking even because it requires a monthly investment to (not) stay on the sidelines.

What interest rate are you using for your calculation, and are you including upkeep and repairs?

Crashy_Time

Percy1983 wrote: »

This does seem to be the point which he is missing, in my case I bought at the first opportunity, as mentioned I could rent at £400 (approx).

So since I have bought I would have spent £11.6k on rent, so for it to be wrothwhile I would have needed my house to decrease in value by at least £11.6k... it hasn't.

As mentioned I don't want rampant HPI and don't cheer on HPI, but to be realistic prices aren't going to reduce massively, at best we will see see years of flat prices or increases below wage increases which will of course reduce the cost in real terms.

Really? Sales volumes are about half their "peak" number? A lot of people are sitting on their hands because low interest rates and government intervention are allowing them to. What happens if there is a real shift in sentiment, or the demographics start pushing a lot of people into downsizing or care, who is going to pay the peak prices then, and what are they going to pay with?

System

Am I in 2008?

wotsthat

Crashy_Time wrote: »

What interest rate are you using for your calculation, and are you including upkeep and repairs?

4.55% - that's my average rate since 1997/98 on Halifax SVR's, Nationwide BMR & Nationwide fixes (fees included) - so nothing dynamic and easily achievable.

No I've not included maintenance. I bought a new house in the time period we're talking about (3 bed detached) - checking through my records I've spent £9700 on repairs and maintenance - to be honest much of that was discretionary anyway.

Edited to add - you need to remember that whilst nit picking about interest rates and maintenance the calculations have been run very much in your favour i.e. 0% HPI since 1997/ I've assumed you have £40k in cash and a 50% crash has been built in to happen this week.