How low will property go?

ukcarper

mrlegend123 wrote: »

Most Baby boomers and a small amount of generation X dipped in when the housing market tripled over a short period of time, right place at the right time. My dad is a baby boomer and he openly admits it.

Depends when you first bought as I said property was almost 5x median earnings in 1972 compared to 6x now.

System

ukcarper wrote: »

Depends when you first bought as I said property was almost 5x median earnings in 1972 compared to 6x now.

Yes, in 1972 the high P/E lasted roughly couple of years. Next time that happened was in 1989 but since 2007 we have been stuck at a constant high P/E.

wotsthat

mrlegend123 wrote: »

Wotsthat - what are you on about? dismisses official stats? Facts don't lie! Several organisations use the homelet rental index as reference. If you are still unsure, please use home.co.uk and cross reference their figures with homelet.

Of course people who rent have the same income levels as people who are mortgage owners. What planet are you on?!?

Im a renter (forces married quarter), my disposable household income is a lot higher than most of my friends who are mortgage owners. Please do not get mixed up between disposable income and discretionary income.

You are another silly billy wotsthat!

Quite, how many renters do you know who pay £200 rent like you? Exceptions don't prove rules.

On planet Earth renters earn less than owners and are probably paying less per month on accommodation too. It's self evident really - you need to be an above average earner to buy the average house these days.

wotsthat

mrlegend123 wrote: »

Most Baby boomers and a small amount of generation X dipped in when the housing market tripled over a short period of time, right place at the right time. My dad is a baby boomer and he openly admits it.

He's admitting prices were cheap and he got lucky.

He's not saying that those prices have ever been normal even though you might wish they were.

ukcarper

mrlegend123 wrote: »

Yes, in 1972 the high P/E lasted roughly couple of years. Next time that happened was in 1989 but since 2007 we have been stuck at a constant high P/E.

True but if you bought in 1972 like I did that doesn't help especially when you consider that in real terms you're salary was worth half what it is now. Prices in London and the south east are the highest they've been which is not great but that doesn't mean they are over priced.

p1212

cells wrote: »

In the short term or artificial events you mentioned can influence prices downwards. That doesn't mean there will be a crash in property prices in the near term.

As another poster here points out there have been 'property prices are about to crash' people for 20 years. Inner London prices are up 10x since then so even if they went down 50% they would still be 5x higher than what the 1995 cohort of crash cheer leaders were doi g their dance

The first artificial events have been the deregulation of banks and mortgages in the nineties, as you say somehow accidentally prices have been going up exactly since then, together with the debt secured on dwellings figure...

Property prices were about to crash in 2008, they headed south big time, the only thing which saved them from the crash is - as you would say - artificial events, like bringing down interest rates to 0.5% and trillions of $ spent on bank bailouts on both sides of the pond.

If you haven't calculated yet, I now tell you that from 1 trillion GBP you could build 5 million houses worth 200K each, now if the state gives the land for free that would mean 5 million 4 bedroom detached houses. Or 10 million 2-3 bed flats. But we rather spent this money on saving the banks and speculative money, like leveraged BTL landlords, so they can go on bidding more and more on the same pile of old bricks. This is actually all helicopter money, for example BoE just recently said they will likely never sell most of the bonds they've bought for 375 billion through QE.

This is still going on today, the most recent events are italian banks, cause they hold a huge amount on performing mortgages:
http://www.bloomberg.com/news/articles/2016-06-30/eu-approved-167-billion-liquidity-guarantees-for-italy-banks

I translate it to you what they mean "liquidity guarantee = if a bank took too much risks to a point where it would go bust in a free market, we will give it any amount of essentially free money, so it won't". That is also exactly what BoE meant on the recently announced billions of extra liquidity for banks.

That's also why prices have been increasing since 2008 as they keep preventing the free market mechanisms from correcting and misbehaving market participants going bust. They have been not allowed to fail (banks and leveraged speculative money) hence asset prices have not corrected since.

Actually their behaviour changed in a way that now banks and speculative money know they are backed by central banks so they got even more reckless.

Now these are above what I call artificial events, not trying to bring back some health into the market by fighting these all.

At the moment no one really knows how far this all can go and of course bigger the difference between the real and the propped up value of an asset the bigger the fall will be.

Obviously the big boys all knows these things above, but no one wants to pull the trigger as that would mean a huge recession (recession = when rich guys lose money) and also that would mean all this money we've spent until now - now embedded into high asset prices - would disappear overnight due to prices collapsing.

That's why we are just giving a few more hundreds of billions of liquidity every time a banks needs it, we try to kick down the can on the road a bit more and then wait for the miracle, a huge a inflation and following wage inflation, so all these debts would be inflated away in a few years, average wage would be like 100K with average house prices of 500K and everything would be back to normal.

Instead of this we actually have DEFLATION, the worst nightmare of all the central bankers in this situation now that actually means total failure of all the QE. By now they have realized QE is not working as the freshly injected money is not circulated in real economy, it does not push up wages and inflation, it is rather going into high asset prices due to the things I explained in my former post.

They know it, but they don't have any better idea at the moment and they are not brave enough to pull the trigger and have a fresh start.

Instead they try to gradually move back to the normal, for example FED is the first who tries to normalize the situation, by raising interest rates. That actually means the UK have a limited amount of time to have the miracle, otherwise prices will correct big time when higher US rates forces us to raise our rates too.

By the way here in the UK Osborne also started to tighten with the stamp duty and the BTL tax changes and there is a huge chance that May will continue it as we have now limited time. If she reverses Osborne's changes she exposes the UK to the danger of a huge crash when we finally need to start tightening due to external circumstances, like higher US rates.

Hence my best bet is that May won't do anything at all with the housing market, won't reverse osborne's changes. Falls due to brexit actually will help her to achieve kind of a tightening she cannot be held responsible for.

The big problem is when it becomes clear she won't reverse changes and tightening is the way forward, everyone will know the game is over and even holding cash will be a better option than an asset with falling prices and investors will start leaving the market en mass which will result in some major correction.

cells

p1212 wrote: »

The first artificial events have been the deregulation of banks and mortgages in the nineties, as you say somehow accidentally prices have been going up exactly since then, together with the debt secured on dwellings figure...

Property prices were about to crash in 2008, they headed south big time, the only thing which saved them from the crash is - as you would say - artificial events, like bringing down interest rates to 0.5% and trillions of $ spent on bank bailouts on both sides of the pond.

If you haven't calculated yet, I now tell you that from 1 trillion GBP you could build 5 million houses worth 200K each, now if the state gives the land for free that would mean 5 million 4 bedroom detached houses. Or 10 million 2-3 bed flats. But we rather spent this money on saving the banks and speculative money, like leveraged BTL landlords, so they can go on bidding more and more on the same pile of old bricks. This is actually all helicopter money, for example BoE just recently said they will likely never sell most of the bonds they've bought for 375 billion through QE.

This is still going on today, the most recent events are italian banks, cause they hold a huge amount on performing mortgages:
http://www.bloomberg.com/news/articles/2016-06-30/eu-approved-167-billion-liquidity-guarantees-for-italy-banks

I translate it to you what they mean "liquidity guarantee = if a bank took too much risks to a point where it would go bust in a free market, we will give it any amount of essentially free money, so it won't". That is also exactly what BoE meant on the recently announced billions of extra liquidity for banks.

That's also why prices have been increasing since 2008 as they keep preventing the free market mechanisms from correcting and misbehaving market participants going bust. They have been not allowed to fail (banks and leveraged speculative money) hence asset prices have not corrected since.

Actually their behaviour changed in a way that now banks and speculative money know they are backed by central banks so they got even more reckless.

Now these are above what I call artificial events, not trying to bring back some health into the market by fighting these all.

At the moment no one really knows how far this all can go and of course bigger the difference between the real and the propped up value of an asset the bigger the fall will be.

Obviously the big boys all knows these things above, but no one wants to pull the trigger as that would mean a huge recession (recession = when rich guys lose money) and also that would mean all this money we've spent until now - now embedded into high asset prices - would disappear overnight due to prices collapsing.

That's why we are just giving a few more hundreds of billions of liquidity every time a banks needs it, we try to kick down the can on the road a bit more and then wait for the miracle, a huge a inflation and following wage inflation, so all these debts would be inflated away in a few years, average wage would be like 100K with average house prices of 500K and everything would be back to normal.

Instead of this we actually have DEFLATION, the worst nightmare of all the central bankers in this situation now that actually means total failure of all the QE. By now they have realized QE is not working as the freshly injected money is not circulated in real economy, it does not push up wages and inflation, it is rather going into high asset prices due to the things I explained in my former post.

They know it, but they don't have any better idea at the moment and they are not brave enough to pull the trigger and have a fresh start.

Instead they try to gradually move back to the normal, for example FED is the first who tries to normalize the situation, by raising interest rates. That actually means the UK have a limited amount of time to have the miracle, otherwise prices will correct big time when higher US rates forces us to raise our rates too.

By the way here in the UK Osborne also started to tighten with the stamp duty and the BTL tax changes and there is a huge chance that May will continue it as we have now limited time. If she reverses Osborne's changes she exposes the UK to the danger of a huge crash when we finally need to start tightening due to external circumstances, like higher US rates.

Hence my best bet is that May won't do anything at all with the housing market, won't reverse osborne's changes. Falls due to brexit actually will help her to achieve kind of a tightening she cannot be held responsible for.

The big problem is when it becomes clear she won't reverse changes and tightening is the way forward, everyone will know the game is over and even holding cash will be a better option than an asset with falling prices and investors will start leaving the market en mass which will result in some major correction.

A long post of lots of nonsense and some hope that events will move in a way to benefit you

In the real world the UK is a rich country with £8.8 trillion net worth and a GDP of close to £1.8 trillion annually. House prices are set by local supply and demand which is why prices in a lot of the l country haven't moved much for 10 years

You need to have a read of some of the posts on usernet from 20 years ago. There were crazy folk back then talking about the imminent crash in London in 1995. Fast forward 20 years and inner London is 10x the price it was then. Don't make the same mistake they did and only look at the negative information and predictions.

Look at the huge GDP of this country and the huge sums of capital owned by its citizens. Then look at a £100k terrace and tell me its overpriced and a 50% crash is imminent with a straight face

p1212

cells wrote: »

A long post of lots of nonsense and some hope that events will move in a way to benefit you

In the real world the UK is a rich country with £8.8 trillion net worth and a GDP of close to £1.8 trillion annually. House prices are set by local supply and demand which is why prices in a lot of the l country haven't moved much for 10 years

You need to have a read of some of the posts on usernet from 20 years ago. There were crazy folk back then talking about the imminent crash in London in 1995. Fast forward 20 years and inner London is 10x the price it was then. Don't make the same mistake they did and only look at the negative information and predictions.

Look at the huge GDP of this country and the huge sums of capital owned by its citizens. Then look at a £100k terrace and tell me its overpriced and a 50% crash is imminent with a straight face

According to the nationwide data in 1995 first time buyer earnings and price ratio in London was 2.6, the lowest value in the whole series and just dropped down from 6 + banks and debt were strictly regulated.

Today this number is 10 - the highest number ever - and we have the effect of the last 2 decades unregulated debt built into sky high prices and the whole financial and political environment has been promoting debt for very long time.

In 1995 everything was set to the minimum, prices, debt, now everything is maxed out, there is no way further up from here, unless they start giving helicopter money to house buyers.

While prices have been increasing in the second half on the nineties and they are increasing now too, the two are totally different situation.

Crashy_Time

cells wrote: »

A long post of lots of nonsense and some hope that events will move in a way to benefit you

In the real world the UK is a rich country with £8.8 trillion net worth and a GDP of close to £1.8 trillion annually. House prices are set by local supply and demand which is why prices in a lot of the l country haven't moved much for 10 years

You need to have a read of some of the posts on usernet from 20 years ago. There were crazy folk back then talking about the imminent crash in London in 1995. Fast forward 20 years and inner London is 10x the price it was then. Don't make the same mistake they did and only look at the negative information and predictions.

Look at the huge GDP of this country and the huge sums of capital owned by its citizens. Then look at a £100k terrace and tell me its overpriced and a 50% crash is imminent with a straight face

You sound really desperate now, keep going though, it`s very funny...:rotfl:

westernpromise

There were indeed some absolute gems back in February 1996. You had both classic crash trolls and some very acute insights in response, which the trolls mainly just ignored.

house prices wouldn't rise with inflation since the low turnover indicates that houses are still perceived as overpriced.

lack of demand indicates that housing is still regarded as overpriced. That indicates further falls rather than a rise.

Added to...factors like housing probably having reached a peak in terms of the percentage of the Uk population who actually want to be homeowners...The odds are that there will be further real falls in house prices.

The fact that volumes are low when compred even with the period before the boom indicate that houses are still overpriced.

Rising interest rates, I suspect, may be the trigger for phase two of the housing bust.

Notice how very, very little the crash trolls' thinking has changed in 20.5 years. The claim that low volumes connote falling prices was neatly exploded further down the thread by another contributor with a much better - and still relevant - explanation:

As anyone who has tried to buy a house recently will tell you, the problem is a lack of quality on the market. Sellers perceive prices to be too low relative to the income that can earned from renting the property out.

to which another poster replied, with great insight

This [early 1996] is the soon-to-disappear golden age of house-buying. Anyone still procrastinating over making a purchase had better get their skates on. First time buyers have got it made, but not for very much longer.

A very perceptive and wholly accurate observation. To some people it was abundantly clear at the time that this was a stupendously good time to buy. Someone else notes:

the overall housing market defies simple mathematical analysis...the more expensive homes in London are now some 40% above the bottom of the market at the end of 1992.

As we have discussed before, quality of location holds its value. If you were awake and paying attention in 1996, like that poster, you could see it then. Elsewhere in that thread, we have this observation:

I saw an offer advertised for new houses (purchase price about £70,000) which equated to repayments of £49 per week. This was subsidised by the developer, so once the subsidy stopped it was going to go up to about £65 per week. Rental on roughly equivalent properties seemed to be nearly double that amount. This is in London....

This is of course how BTL started. Rents were astronomical in 1996; there'd just been a property bust and people would pay almost anything not to be exposed to another one. If you had the cojones you went long property, taking the risk of capital loss, and let your property out to people frightened of that risk, for roughly double what buying was costing you.

All of the above from this Usenet thread of 1996: https://groups.google.com/forum/#!msg/uk.finance/ziECfUDSCFM/K4wuspagd6kJ

Here's another which is also fun.
https://groups.google.com/d/msg/uk.finance/tjd5oVhI0S0/4JajEtTtjzgJ
From December 1995, and entitled "House prices 1995", we have more vintage crash trollery:

Well my learned real estate friend, What happens if the investment yu buy depreciates?? then yu are stuck in a home yu bought because yu thought it was an investment NOT becuase yu really wanted to live there. 30 years stuck in a bad buy that yu never even liked in the first place??? I dont think so.

That was written on December 22, 1995. Crashy Time could have written it yesterday; the thinking is identical. But from others, there is also insight:

Growth in demand is likely to be strong in family homes. Also don't forget the Grey Panthers. The population is ageing, and more last-buyers will be trading down.

Scroll forward to March 2005 and the crash trolls were still hard at it:

This attempt to kick-start a house-price debate is laughable. Everyone knows the crash has already begun

Here is someone the crash trolls scared out of buying:

I don't understand how anyone gets on the ladder. Maybe I could afford a 1 bed studio flat with all my savings and 4x my wage, but those will be the first things to drop when a housing crash happens. I'm earning just a bit under the UK average wage (academia, you see). So I'm renting scummy places (and that's 1/3 of my income), in the hope I can ever save up enough to get on the first rung.
https://groups.google.com/d/msg/uk.finance/tF7vf6R-YAI/v7I0odZhlSUJ
Note bit in bold. Not "if"; "when". That's crash trolls, that is; that's where listening to them gets you. I expect he's grateful to the crash trolls of 2005 for their sage insights and very glad he acted on their advice and didn't buy....not.

A sensible poster suggested that
if you accept that inflation and interest rates have reached a lower level than for the 1980's-90's, you should also accept that the 3.5 to 4.0 multiple will reach a higher level - perhaps between 5.0 & 6.0?

- which of course is an accurate prediction of what has eventuated since. The crash troll won't have it though:
No, I don't accept that. There is no justification for a higher multiple if real rates have not declined, and later, the financially attractive alternative of renting is where the smart money is.

Was it even possible to be more wrong? This is why I tend to dismiss crash trolls as holding the least valuable opinions anywhere online. Their opinions, forecasts and reasoning are wholly stale and have not moved on in 21 years; probably longer if archives went back that far. They resemble a doomsday sect forever predicting the end of the world next Tuesday week, and when it doesn't happen, they just forget they were ever wrong and change the date.