How interest rates affect property values

cells

economic wrote: »

hmmm how do you define value in property? you must have some sort of method to come up with the statement the current prices are fair value.

multiple reasons but one major reason is that in much of the country build costs are above or close to market prices

I would say this applies to about >half of England and possibly most of Scotland and Wales , where the cost to build a new terrace is higher or comparable to buy a existing terrace.


London is expensive but London is much richer than rEngland. Not only are wages higher but the forgotten capital gifts, capital inflows and inheritances are much higher. Where in the grim north homes are bid and bought more so on income in the sunny south gifts/inheritances play a big part.

economic

cells wrote: »

multiple reasons but one major reason is that in much of the country build costs are above or close to market prices

I would say this applies to about >half of England and possibly most of Scotland and Wales , where the cost to build a new terrace is higher or comparable to buy a existing terrace.


London is expensive but London is much richer than rEngland. Not only are wages higher but the forgotten capital gifts, capital inflows and inheritances are much higher. Where in the grim north homes are bid and bought more so on income in the sunny south gifts/inheritances play a big part.

yes I agree however this does not mean it will carrying on going up. confidence/sentiment is the over ruling driver. this can easily change. people can afford it but if they are nervous about the market they will not buy. asking prices will reduce and then you may have a correction (what seems to be happening now in London - unfortunately I just bought - doh!). not sure how long it will last however.

rates are low for a reason - people are not spending, they are saving/hoarding. even at current low rates people may find it affordable but they may chose not to buy property if they are nervous about the market.

prices do not keep going up until no one can afford it. unless it really does turn into a bubble.

Filo25

With prices where they are now in London, transaction costs are also becoming extremely high in many areas, which of course has the obvious effect of depressing the volume of transactions, which makes it all the easier to maintain high values, for all the market is slowing according to the stats, around where I bought there still appears to be huge interest when appropriately priced good property comes on the market.

That said I don't think a correction or a prolonged period of stable prices would be the worst fate that could befall London, I just don't forsee a crash anytime soon in the absence of some other economic event, such as a severe recession leading to forced sales and weakening rental demand, or rapid interest rate rises.

economic

on your method for "fair value" - this is complete BS. no method for fair value should be taken seriously if it doesn't incorporate sentiment. and good luck trying to model sentiment!

economic

Filo25 wrote: »

With prices where they are now in London, transaction costs are also becoming extremely high in many areas, which of course has the obvious effect of depressing the volume of transactions, which makes it all the easier to maintain high values, for all the market is slowing according to the stats, around where I bought there still appears to be huge interest when appropriately priced good property comes on the market.

That said I don't think a correction or a prolonged period of stable prices would be the worst fate that could befall London, I just don't forsee a crash anytime soon in the absence of some other economic event, such as a severe recession leading to forced sales and weakening rental demand, or rapid interest rate rises.

where did you buy?

Filo25

economic wrote: »

where did you buy?

Highams Park out in the wilds of Zone 4.

economic

nice. I bought in Highgate zone 3.

mwpt

Filo25 wrote: »

With prices where they are now in London, transaction costs are also becoming extremely high in many areas, which of course has the obvious effect of depressing the volume of transactions, which makes it all the easier to maintain high values, for all the market is slowing according to the stats, around where I bought there still appears to be huge interest when appropriately priced good property comes on the market.

It has been something I've been thinking about. I was reluctant to agree that the high stamp duty cost was actually a bad thing. I saw it as a good means to keeping values from running away and hopefully generating a bit extra tax from already very rich people. But I have to admit that the points about it being a barrier to move are probably correct.

Since in our current situation we obviously can't just give up the revenue generated from stamp duty, I would prefer instead we minimise the one off tax and move toward a land value tax instead.

That said I don't think a correction or a prolonged period of stable prices would be the worst fate that could befall London, I just don't forsee a crash anytime soon in the absence of some other economic event, such as a severe recession leading to forced sales and weakening rental demand, or rapid interest rate rises.

I would welcome a downward movement in house prices! I could fairly easily afford the monthly payments on a property that is double the cost of what I bought my current property for but I am reluctant to do it. If prices drop 30% over a couple of years I'd almost certainly want to trade up. But then, so would a lot of other people, and that is why I don't think we'll see a large drop in prices absent an external event.

economic

mwpt wrote: »

It has been something I've been thinking about. I was reluctant to agree that the high stamp duty cost was actually a bad thing. I saw it as a good means to keeping values from running away and hopefully generating a bit extra tax from already very rich people. But I have to admit that the points about it being a barrier to move are probably correct.

Since in our current situation we obviously can't just give up the revenue generated from stamp duty, I would prefer instead we minimise the one off tax and move toward a land value tax instead.



I would welcome a downward movement in house prices! I could fairly easily afford the monthly payments on a property that is double the cost of what I bought my current property for but I am reluctant to do it. If prices drop 30% over a couple of years I'd almost certainly want to trade up. But then, so would a lot of other people, and that is why I don't think we'll see a large drop in prices absent an external event.

if prices fall 30% then clearly sentiment would have changed and perhaps people may not be so confident to trade up. and only the brave would. who knows.

mwpt

economic wrote: »

if prices fall 30% then clearly sentiment would have changed and perhaps people may not be so confident to trade up. and only the brave would. who knows.

Sure, I'd examine the current conditions and see which way I thought the wind was blowing. With my excellent record at predicting house price movements I'm sure I'd make the right call.