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

Rota

Joeskeppi wrote: »

Am I in 2008?

You would have to wonder wouldn't you?

Jack_Johnson_the_acorn

The earlier you purchase the better, this should be obvious to crashy, buy at 25 and have no mortgage at 45... I did and plan to be mortgage free by the time I'm 38. Dependent on the level of future interest rates. I will have paid around £145k including interest and deposit. rent would be £360k over the next 50 years(assuming that rent is £600 per month for the next 50 yrs..... Highly unlikely

neilp2000

Sorry to chip in mid thread (I don't currently have the time to read through 19 pages!), but as MSE is all about reducing peoples' expenditure, and ensuirng people have safe and manageable levels of debt, I sincerely hope house prices return to sane levels. I appreciate when negative equity kicks in that a minority of people will be stuck in houses they want/need to move from, but we have to get away from the mentality of rocketing house prices being a good thing. We should want cheaper housing costs and lower debt levels, so we can either retire earlier, or spend money on other things.

hpc_troll

Jason74 wrote: »

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.

Hello all. Long time listener, first time caller. Hope that the username shows that I'm not here under false pretences.

Search for "Mortgage Equity Withdrawal Dries Up in U.K.", WSJ article, April 2013. Annual mortgage equity withdrawal was £5bn to £15bn every year from 2001 to 2007. Net lending in the same period would be about £120bn a year, (search for "Economic Review, June 2014" ONS release, Figure 13) - so roughly speaking during a 7 year period £1 from every tenner advanced was MEW. In order for your anecdotal to hold up you'd need to have been dealing with an unrepresentative sample - hopefully admirably thrifty money saving experts, more inclined to pay off their mortgages than use their house as a piggy bank. If you'd been dealing with a representative sample then as you were only involved in one MEW transaction the odds say you brokered mortgages for 10 customers.

Crashy_Time

Jason74 wrote: »

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.

The people running the Ponzi usually make out OK, until they are caught (In the bankers case they just had to apologise a couple of times and they got to keep all their bonus )


Those getting in early usually think they are doing great, but they need to watch for their exit point (In this case 2008 was the red flag, but as those piling in probably thought it was a "new paradigm" they were just borrowing as much as possible to join the party, and the bankers were encouraging it to make more bonus)


Those getting in later were driven by fear, the fear of "missing out" or "not getting on the ladder" or being "renter losers" etc.
Their fear drove them on to borrow amounts way beyond their means to pay back (without never ending HPI) sometimes on I.O terms.


When the money stops flowing into the Ponzi at the same rate, due to systemic failure, borrower sentiment, or banks being more cautious, we have a problem, and not everyone can exit the Ponzi at a profit, or even with what they have paid in.


The bankers were smart, they played with other peoples money and positioned themselves to benefit from the central banks printing presses and also had water tight contracts to allow them to keep their skim.


The little people however were not so smart, and although those who lived it up on MEW then cashed out at the right time with a nice profit patted themselves on the back and thought they were "really canny investors" they were really just lucky. The people who bought from them at ever inflating prices were relying on another borrower coming along ( a greater fool) to buy their debt from them, but alas many who bought at the peak found that THEY were the greater fool and no one was coming to bail them out.


At this point the central banks and governments stepped in to protect the whole system from meltdown and pumped money in via HTB, QE etc. to keep some air in the tyres, hence preventing a crash and true price discovery. This is where we are today, and people seem to believe it is somehow normal, or things will be OK with a "little froth off the top" etc. It won`t be OK. We can play around with examples about buying 40k flats years ago, but when the madness really got started ordinary punters were borrowing 400K not 40. I spoke to healthcare workers in Edinburgh before the first crash who told me their houses were now worth "half a million", and they were, for about six months. Didn`t see them again after that, they may be receiving some (mental) healthcare of their own by now.


The earlier poster who said something like - A house is always worth more than you have paid into it sums up the UK blind spot when it comes to property, especially recently. If you bought into this Ponzi in the last ten years all bets are off.

hpc_troll

wotsthat wrote: »

What's that got to do with anything? Crashy/ Dances with Sheeple wouldn't have mewed - he abhors the practice so it seems representative enough to simply compare crashy the renter vs crashy the buyer.

Yes, I see what you mean. First you decide what I should talk about, then you set the terms of the debate. That is going to make it much easier for you to win the argument. I wish I'd thought of it first.

You see what I was trying to do was weaken the credibility of another poster by pointing out that one of their empirical claims didn't really stand up to the Bank of England data, but I see that's not really what you want me to do, so I apologise.

Perhaps you could explain in greater detail how best I can help you demonstrate that you are right?

In my defence, I thought it was conventional to take the thread title as determining what exactly was to be debated. MEW is relevant as it anchors some sellers to the price that they attached when they re-mortgaged, when of course they should accept that what determines price is what somebody else is willing and able to pay. A gap between those two assessments might explain low transaction volumes post-2008 and indicate that current high prices are more fragile than they appeared, which would, I believe, make it germane to the actual matter at hand.

Crashy_Time

neilp2000 wrote: »

Sorry to chip in mid thread (I don't currently have the time to read through 19 pages!), but as MSE is all about reducing peoples' expenditure, and ensuirng people have safe and manageable levels of debt, I sincerely hope house prices return to sane levels. I appreciate when negative equity kicks in that a minority of people will be stuck in houses they want/need to move from, but we have to get away from the mentality of rocketing house prices being a good thing. We should want cheaper housing costs and lower debt levels, so we can either retire earlier, or spend money on other things.

Great post. Sums up the required direction of travel for the UK perfectly. Some on here won`t like it mind.

hpc_troll

What am I doing wrong - I replied to a post from this delightful fellow wotsthat, but his post is not in the thread. I'm new here - how does that work?

CLAPTON

neilp2000 wrote: »

Sorry to chip in mid thread (I don't currently have the time to read through 19 pages!), but as MSE is all about reducing peoples' expenditure, and ensuirng people have safe and manageable levels of debt, I sincerely hope house prices return to sane levels. I appreciate when negative equity kicks in that a minority of people will be stuck in houses they want/need to move from, but we have to get away from the mentality of rocketing house prices being a good thing. We should want cheaper housing costs and lower debt levels, so we can either retire earlier, or spend money on other things.

house prices will reduce when we build sufficient for people wants:
given the low level of building and the rising population that will be no time soon.

chucknorris

Crashy_Time wrote: »

The earlier poster who said something like - A house is always worth more than you have paid into it sums up the UK blind spot when it comes to property, especially recently. If you bought into this Ponzi in the last ten years all bets are off.

Last house we bought was in 2008, we bought it for £243k and spent about £17k on it, so just under £265k incl. all the fees etc.


Our rental profit is currently over £12k a year, the total rental profit since purchase is about £65k the current value is about £360k. Total current rental profit and capital gain is therefore about £160k.