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

Jason74

ukcarper wrote: »

Wanting house prices to fall and prices actually falling are two different things. I personally think prices have become to high in the South East but with the shortage of available housing I can't see a major fall in the near future although I wouldn't be surprised to see some small falls saying that I didn't expect the recent large increases.

I have to say, that's my take exactly. I think it would be a good thing if prices in London and the South East were to fall significantly, but I don't think they actually will. I think we're probably at (or close to) a short term "top" (based on a combination of affordability and people starting to stop and take a long hard look at just how much prices have gone up), but we'll get stagnation or a small drop from here rather than a crash. And at some point in the next five years, the whole HPI express will steam off again

hpc_troll

Rota wrote: »

Welcome, can you tell us how long you have been on the wrong side of the market? Would be nice to see Bruce, Venger and TheCount join up here. Would be great to debate them in a forum where you can give an opinion without being banned.

I think the point is worth making again. House price inflation ahead of earnings growth is redistributive; transferring wealth from those who do not yet have an ownership claim on housing to those who do.

If you believe that whether an individual is being impoverished or enriched by this mechanism is relevant to a party's credibility in this debate, then you are seeking to exclude anyone who is saving for a deposit or anyone who is being excluded from buying because even with a substantial deposit equivalent of two or three years net earnings, they cannot borrow enough to reach current prices.

Not everyone "one the wrong side of the market" is there by choice.

Most importantly, I would argue that regardless of your intent, some of your posting on this thread is functionally equivalent trolling the thread. The topic is the future path of house prices, have they reached a tipping point right now, banning policy on some other forum is off topic. Repeated off-topic posts ruin threads and are thus a from of trolling the thread.

If it is really a debate on the issue in the thread title that you want, then why not suspend the ad hominem attacks and debate?

Blooloo

On the other issue that appears to have cropped up about IO mortgages for BTL only.

This seems to be another prop...the whole premise being that a family is to be housed in a mortgaged property...either by renting or buying outright with finance.

It seems odd that the BTL model is based on the introduction of a third party taking on the loan, where the basis for repayment is the person actually living there...It seems that many rent because they cant get or afford the mortgage, yet, they can afford to pay off the landlord who then pays off the mortgage and looks after things like insurance, repayment and maintenance. Basing a whole lending model on this criteria is clearly one that needs props, and still allowing IO in the BTL lending regime is clearly one such prop.

There will come a time when even this prop isnt enough and the bankers need to look through this two entity arbitrage opportunity they still currently have.

Of course, renting is highly suitable for some people, but for me, it is clear that for the majority of leveraged BTL, the model is stupid and reliant on a current and very likely temporary arbitrage.

Jason74

ukcarper wrote: »

People expecting a large fall in the near future and people expecting large rises for ever are both as made as each other as far as I'm concerned. Can you explain the economic reality in detail because I fail to see it.

And people who claim they no what will happen for sure are (regardless of what they're claiming as "the truth") are the maddest of all imho.

ukcarper

Jason74 wrote: »

I have to say, that's my take exactly. I think it would be a good thing if prices in London and the South East were to fall significantly, but I don't think they actually will. I think we're probably at (or close to) a short term "top" (based on a combination of affordability and people starting to stop and take a long hard look at just how much prices have gone up), but we'll get stagnation or a small drop from here rather than a crash. And at some point in the next five years, the whole HPI express will steam off again

I'm not saying I would like to see a significant drop although I would have preferred they hadn't increases so much. I would be quite happy to see small falls or stagnation allowing prices to fall in real terms.

Rota

hpc_troll wrote: »

I think the point is worth making again. House price inflation ahead of earnings growth is redistributive; transferring wealth from those who do not yet have an ownership claim on housing to those who do.

If you believe that whether an individual is being impoverished or enriched by this mechanism is relevant to a party's credibility in this debate, then you are seeking to exclude anyone who is saving for a deposit or anyone who is being excluded from buying because even with a substantial deposit equivalent of two or three years net earnings, they cannot borrow enough to reach current prices.

Not everyone "one the wrong side of the market" is there by choice.

Most importantly, I would argue that regardless of your intent, some of your posting on this thread is functionally equivalent trolling the thread. The topic is the future path of house prices, have they reached a tipping point right now, banning policy on some other forum is off topic. Repeated off-topic posts ruin threads and are thus a from of trolling the thread.

If it is really a debate on the issue in the thread title that you want, then why not suspend the ad hominem attacks and debate?

Who has the word troll in their username?

I know many people STRed on the bet houses would drop. They are on the wrong side of the trade at this point .

Blooloo

Rota wrote: »

Welcome, There is a right and a wrong choice. One choice ends with you having a house to live in when you retire. Played smart, you will have an income from other properties too. The other sees you struggling to get social housing in your 60's, while spending more money on rent when you could of avoided it.

Can you tell us how long you have been on the wrong side of the market? Would be nice to see Bruce, Venger and TheCount join up here. Would be great to debate them in a forum where you can give an opinion without being banned.

Im not on any side of the market. I have an income, I have no choice to buy.

The point you missed out on was the question of choice...I dont have it, many others do not have it...Financialisation has removed this choice and it is removing more market entrants every day leveraged buys are encouraged.

However, I rent in a lovely huge house with a great, unleveraged, landlord.

Balance sheets dont pay bills, and BTL doesnt always end up in the bed of rose petals you aspire to. Of course, it has for some.

Jason74

ukcarper wrote: »

Not sure what's happening but it looks like I'm morphing into Crashy I hope I don't sell my house and start to rent.

You're OK for now, you just have first stage crashyitis. That's easily treated. If you start dishing out random insults as a response to sensible debate, then you have a more advanced form of the disease and a foolhardy STR followed by a lifetime or renting and ranting awaits.

hpc_troll

Jason74 wrote: »

I have to say, that's my take exactly. I think it would be a good thing if prices in London and the South East were to fall significantly, but I don't think they actually will. I think we're probably at (or close to) a short term "top" (based on a combination of affordability and people starting to stop and take a long hard look at just how much prices have gone up), but we'll get stagnation or a small drop from here rather than a crash. And at some point in the next five years, the whole HPI express will steam off again

I think that people are ignoring or underestimating the significance of the tightening of credit underwriting standards since 2012, and I think that unless the present tighter regulation of owner-occupier mortgages are relaxed this will put an effective cap on sustainable HPI rates, all other things being equal, and that cap will be earnings growth, presently about 1%-2%.

However, I don't think that all things will be equal. I think that a major contribution to the recent move in prices at the bottom of the market has been buy to let lending. With lower interest rates, a larger interest only buy to let mortgage can be serviced with the same rent take from a tenant, hence sales prices for likely target properties inflate to reflect the new, lower interest rates. For this effect to continue, interest rates need to fall again. However, they cannot fall far from these low levels.

Further, this effect may be being transmitted presently through transaction chains because Funding For Lending has made 60% LTV mortgage rates very, very cheap - once in a lifetime cheap, with some deals at 1.5% or 2% before fees. Again, for this effect to continue it is not enough just for rates to remain low, they need to fall again.

In fact, the Funding For Lending Scheme (FLS) is being withdrawn from the owner-occupied sector (but not for buy to let (BTL)). The withdrawal of FLS should be expected to elevate these very low mortgage interest rates. Hence if this was the only effect you might expect BTL target properties to hold up whilst in the near term (12-18 months) this effect in isolation will bear down on the prices of larger family homes which are less likely to be target of BTL. As current demand is priced in, any reduction in current demand predicated on rising mortgage rates on relevant mortgage products would be expected to weaken support for current prices.

In short - I can only see how earnings growth, lowering interest rates or changes in credit underwriting standards can give us an HPI express steaming off again. I cannot foresee any of these occurring. Taking each in turn:

Nominal earnings growth has struggled to exceed Consumer Price Inflation (CPI) since the crisis (real earnings have been falling). As the Bank of England targets 2% CPI, if this trend persists wage inflation will run at about 2%. The trend of median earnings inflating at CPI has been persistent in the US for decades, but will be a new development here. One way to form an opinion would be to consider whether today's UK economy is more like the UK economy of the 1970s or the US economy of the 1990s.

As the policy rate (Bank of Engalnd base rate) is already at 0.5% any drop in rates will only have a marginal effect and a rise in rates over the medium term (3-5 years) is hopefully more likely that an fall or stasis, as either of these would indicate a failure of the economy to (continue?) to recover from the crisis.

Financial stability goals will trump the political desire for HPI and credit underwriting standards will remain more like today's than like the credit underwriting standards of the late boom (which gave us products like high-LTV self-certified interest only mortgages).

What do you see as the drivers of the return of the HPI express?

hpc_troll

Rota wrote: »

Who has the word troll in their username?

I know many people STRed on the bet houses would drop. They are on the wrong side of the trade at this point .

Calling myself a troll doesn't make a troll any more than calling myself hpc_millionaire would make me rich, or calling yourself rota makes you the highest appellate tribunal of the Roman Catholic Church or a list of employees who are working on any given day, week, or month (Hat tip to wikipedia, natch).