London property market bubble?

cells

Generali wrote: »

As the very successful investor, if rather less successful economist, said, "Markets can remain irrational longer than you can remain solvent". Just because there is an asset price bubble today, doesn't mean that prices will drop tomorrow.

My data came from here:
http://www.lloydsbankinggroup.com/globalassets/documents/media/economic-insight/house-price-tools/regionalhistoricq42015.xls

(opens in Excel).

My calculations are:

• SE 3 years =(P39-P37)/P37
• London 3 years =(R39-R37)/R37
• SE 5 years =(P39-P35)/P35
• London 5 years =(R39-R35)/R35

You've got to have a hell of a commute for it to cost you 5 grand. Guildford to Waterloo is under £3,500 or £4,200 if you want to get the tube too for some unfathomable reason. From Sevenoaks you get change from four grand if you want to include the tube.

The commute from Sevenoaks to Waterloo isn't much longer than a long tube journey.

It would be just as easy to argue that London house prices falling by 20% redressed the run-up in the late 90s/early noughties. Prices rose by well in excess of 10% pa for 7 years from 1997. From 1997 - 2003 prices rose by 130% give-or-take (same source).

the idea that London homes are easily tradeable for guildford homes plus a commute is only true for a small fraction of the population and that tradeoff already exists if we want more people to move to guildford we are going to need a higher differential in prices.

Also homes are virtually free because debt is free. If you have an option of a £400k home in guildford or a £1 million home in Hackney I would go with hackney. the 2% mortgage will be covered by basic inflation while the lost time spent on trains 2 hours a day extra and the £4k or whatever it is on train tickets is real lost money

There is also a good deal of people who WANT to buy in higher priced locations which is the opposite of what you think people should be doing (moving to cheaper areas like guildford). If I had £100 million I would probably put quarter of that into a v.nice home in Kensington. A lot of rich people do just that they dont want a ford fiesta they want a £500k supercar even if both are more or less the same thing



Overall you seem to be suggesting London homes are some 40% overpriced and in a bubble. I think prices are about fair now and were undervalued after the 2008 crash for a number of years. Also as Ive noted before prices are no worse than paris and cheaper than new york

Filo25

To be honest its the commuting costs that put me off moving outside London, if you have 2 people working in London, its an expensive commute, and those costs are rising significantly each year as they tend to, the NPV of that cost going forwards starts to look pretty horrible.

I did have a look at "nice" commuting towns, but costs close to the station were far from cheap, and it very much ties you to working near certain mainline stations unless you want to waste most of your time on a commute.

That said its fair to see the rest of the South East outperforming London in the near future, that seems to be the trend that is already developing.

It will be interesting to see what happens to London this year, it will be facing more headwinds than it has for a while, the stamp duty changes will continue to weigh on prime London, its hard to envisage the strong overseas capital flows continuing in the light of the economic situation (it would certainly be "interesting" if those started to reverse), and the environment for BTL investors has gotten a lot less favourable in recent times, a correction of sorts wouldn't surprise me, especially in a lot of the new build flats aimed at overseas investors and BTLs.

A correction isn't a broader crash however (which is what I would associate with a true bubble), underlying demand to work and live in London and the South East remains strong and has continued to outstrip the growth in supply, interest rates remain low and look likely to stay that way for the forseeable future.

A broader economic crash is probably the biggest overall threat to the market, its the only thing likely to significantly dent underlying economic demand, which could see a significant medium term decline, imho anyway.

padington

London needs to take a breather, I think if the market naturly restricted London to 3% max average for the next five years now that would be a very good thing for London

One other thing to consider however though is that we are on the edge of a massive technological paradigm shift ( sorry to use the overused term but I think it's fair to say that's it true ). Virtual reality is going to knock it out of the park over the next five years . Samsung S7 phone is leading the way and it's going to be possible to have a beer with ALL of your mates around the world soon just with your mobile phone and have a right giggle doing it.

There will be a virtual reality app and kit gold rush and London will see A good bit of that action. London has 1.7million of the most highly skilled workers in the land. New York something like 1.2 and Paris just 600'000. We are primed to play a major part in the future tech revolution.

Facebook paying us the tax it was paying to Ireland is simply homage to that fact.

I wouldn't be surprised if the first bunch of MSE forumites hang around a virtual camp fire sharing laughs in real time this year.

Mad thought huh ?

Generali

cells wrote: »

Overall you seem to be suggesting London homes are some 40% overpriced

No. Absolutely not.

I've not said that and you shouldn't infer that from my posts.

Brock_and_Roll

I am a long distance London Commuter at great cost from Brockenhurst in the New Forest.


The village has always (since the advent of the railway) been significantly more expensive than other local areas, however in recent years the disconnect has become pronounced.


Average prices are well over £500k - a huge multiple of any incomes earnt locally. So the market depends on a fresh supply of outside money, primarily people re-locating from the home counties and London. In recent years, even those people with relatively modest incomes and modest houses in London have had the equity built up to allow them to "live the country dream" but still get to work.


However, unlike London in recent months/years, there does seem to be a ceiling prices, especially in relation to normal family homes. The only reason that I can think of to explain this difference is that prices in London contain a significant speculative element, whereas prices outside do not.

cells

Generali wrote: »

No. Absolutely not.

I've not said that and you shouldn't infer that from my posts.

??

I thought you posted that you thought London prices entered a bubble 3 years ago and if prices are up about 45% since then would you not think prices are some 45% too high now (minus maybe 10% due to GDP growth over the 3 years)?

Anyway that is what I inferred from your posts.

Maybe you can clear it up. you feel London prices are now in a bubble? so prices are overpriced by how much in your view?

mwpt

cells wrote: »

I think prices are about fair now

Do you have any method behind that? As in, why the current prices and not 20% higher, or 20% lower?

CLAPTON

Brock_and_Roll wrote: »

I am a long distance London Commuter at great cost from Brockenhurst in the New Forest.


The village has always (since the advent of the railway) been significantly more expensive than other local areas, however in recent years the disconnect has become pronounced.


Average prices are well over £500k - a huge multiple of any incomes earnt locally. So the market depends on a fresh supply of outside money, primarily people re-locating from the home counties and London. In recent years, even those people with relatively modest incomes and modest houses in London have had the equity built up to allow them to "live the country dream" but still get to work.


However, unlike London in recent months/years, there does seem to be a ceiling prices, especially in relation to normal family homes. The only reason that I can think of to explain this difference is that prices in London contain a significant speculative element, whereas prices outside do not.

london prices reflect the fact that its population is growing at about 100,000 a year

cells

mwpt wrote: »

Do you have any method behind that? As in, why the current prices and not 20% higher, or 20% lower?

Well I wouldn't say to the exact penny what I mean is that prices (asking prices) are about correct now, plus 15% or minus 10%

Why are London prices correct now?
well people are buying.
There is still a profit to be made from BTL.
The economy has now entered more normal waters (whereas thinking 2009 prices were normal or correct in the middle of a global recession is silly)
Future supply of property and demand from population growth looks positive for prices
London economy will likely continue to outperform rUK which is positive for prices.


Of course having said that I am aware that reasonable arguments can be made for any price level and only time will tell what the markets will do.

I do however think post crash we have definitely exited the cheap prices of 2009-2013 and now we will have normal-ish prices for 2014-2016 and we may well keep on with a boom from 2017-2020 which would set us up nicely for a correction from 2021-2026

richdeniro

I don't see how a one bedroom flat like this can be worth over 250k and will maintain that price.

http://www.rightmove.co.uk/property-for-sale/property-39303684.html

By the time you've done the work that needs doing (it needed a complete renovation) you would be down almost 300k.

I went and saw it, it was in a grim block with thin walls, single glazed windows, etc. Even if I was buying it for 160k I'd want a 2nd/3rd viewing and would really have to think about it.

2-3 years ago the one bedroom flats in this block were going for around 120k.