Rebalancing of housing market

_CC_

http://www.bbc.co.uk/news/business-43043294

7.4% increase in FTB mortgages.

17% drop in new BTL mortgages.

On the face of it, this looks to be a welcome shift with the various tax changes working as intended.

Also, despite the large drop in BTL mortgages; "Separate official data shows UK house prices rose by 5.2% in 2017."

westernpromise

That's one way of looking at it, sure, but another is to note that despite the withdrawal of BTL landlords from the market, house prices continue to go up.

Those who reviled BTL buyers as the cause of high house prices must find this mystifying. As I've suggested before I suspect what's happening is that landlords have always taken a much more pragmatic view of what a property is worth than emotional and often irrational buyers.

A landlord has to consider whether the rent he can charge will fund costs of ownership, which are maintenance plus either finance costs or, if bought outright for cash, the opportunity costs of no longer having the cash invested elsewhere. If a house is offered at £200k the landlord will look at what it lets for and may come up with a best bid of only £160k.

A buyer just has to consider if she likes the house more, and if the economics are better, than renting. The answer to both is almost always going to be Yes. At that point she borrows whatever it takes, with the seller kidding her that her £190k bid needs to improve because he's got landlord interest (at £160k, but she doesn't know that).

Be careful what you wish for, I think. It presages rent increases down the line, since the supply of rented housing must now diminish relative to still-increasing demand. Those who rented because they couldn't afford to buy now find themselves even further from being able to afford to buy. And as rents rise so will the bids from landlords for rentable property rise.

I'm not sure this is a good time to buy more property (speculatively - if you need more, you just get on and do it), but it's a pretty strong Hold signal.

Carl31

westernpromise wrote: »

That's one way of looking at it, sure, but another is to note that despite the withdrawal of BTL landlords from the market, house prices continue to go up.

Those who reviled BTL buyers as the cause of high house prices must find this mystifying. As I've suggested before I suspect what's happening is that landlords have always taken a much more pragmatic view of what a property is worth than emotional and often irrational buyers.

A landlord has to consider whether the rent he can charge will fund costs of ownership, which are maintenance plus either finance costs or, if bought outright for cash, the opportunity costs of no longer having the cash invested elsewhere. If a house is offered at £200k the landlord will look at what it lets for and may come up with a best bid of only £160k.

A buyer just has to consider if she likes the house more, and if the economics are better, than renting. The answer to both is almost always going to be Yes. At that point she borrows whatever it takes, with the seller kidding her that her £190k bid needs to improve because he's got landlord interest (at £160k, but she doesn't know that).

Be careful what you wish for, I think. It presages rent increases down the line, since the supply of rented housing must now diminish relative to still-increasing demand. Those who rented because they couldn't afford to buy now find themselves even further from being able to afford to buy. And as rents rise so will the bids from landlords for rentable property rise.

I'm not sure this is a good time to buy more property (speculatively - if you need more, you just get on and do it), but it's a pretty strong Hold signal.

yes but HPI has reduced from the ridiculous amounts the other year. What is it now? about 2%? from 10-11% the other year?

Obviously some of that will be seasonal, but the changes must have had some affect

westernpromise

HPI rises and falls all the time. How do you disentangle one effect from any other? The fact is that a certain mindset, that needs someone to blame for its own errors, decided landlords were to blame for high house prices. Landlords are now a fading factor but prices continue to rise. Whom shall we blame and tax next?

_CC_

westernpromise wrote: »

That's one way of looking at it, sure, but another is to note that despite the withdrawal of BTL landlords from the market, house prices continue to go up.

Sure, that will irk those that believe prices are too high.

They don't appear to be too high for all those new FTB, though.

Thrugelmir

westernpromise wrote: »

That's one way of looking at it, sure, but another is to note that despite the withdrawal of BTL landlords from the market, house prices continue to go up.

Only a detailed analysis will provide a meaningful explanation.

GreatApe

westernpromise wrote: »

That's one way of looking at it, sure, but another is to note that despite the withdrawal of BTL landlords from the market, house prices continue to go up.

Those who reviled BTL buyers as the cause of high house prices must find this mystifying. As I've suggested before I suspect what's happening is that landlords have always taken a much more pragmatic view of what a property is worth than emotional and often irrational buyers.

A landlord has to consider whether the rent he can charge will fund costs of ownership, which are maintenance plus either finance costs or, if bought outright for cash, the opportunity costs of no longer having the cash invested elsewhere. If a house is offered at £200k the landlord will look at what it lets for and may come up with a best bid of only £160k.

A buyer just has to consider if she likes the house more, and if the economics are better, than renting. The answer to both is almost always going to be Yes. At that point she borrows whatever it takes, with the seller kidding her that her £190k bid needs to improve because he's got landlord interest (at £160k, but she doesn't know that).

Be careful what you wish for, I think. It presages rent increases down the line, since the supply of rented housing must now diminish relative to still-increasing demand. Those who rented because they couldn't afford to buy now find themselves even further from being able to afford to buy. And as rents rise so will the bids from landlords for rentable property rise.

I'm not sure this is a good time to buy more property (speculatively - if you need more, you just get on and do it), but it's a pretty strong Hold signal.

You are over analysing things.

Landlords are only proxy bidders for tenants. If tenant demand goes up landlords will add to the housing stock. If tenant demand goes down landlords will reduce the rental stock. For the best part of 10 decades (1900-2000) landlords were net sellers. From 2000-2005 it was about flat. Only from 2004/5 onwards have landlords been net buyers and that is because if you import 5 million migrants over a short period your going to need to expand the rental stock by 2 million homes.

Landlords don't drive prices up or down. The hpc cheerleaders believe landlords do drive prices but when I ask them why when landlords are net sellers did house prices go up they have no coherent response. Landlords were net sellers for many decades yet house prices kept going up. Landlords were net zero (not buying or selling) for many years yet prices went up and more recently landlords were net buyers and prices went up

So irrespective of landlords buying or selling or sitting in the sideline prices went up primarily thanks to inflation.

Also the crash cheerleaders simply have no idea of how expensive homes really are. I just replaced a front door it cost me close to £1000 and it wasn't anything extraordinary. Yet some of the clowns over at hpc think new homes can be built for £40k. Sure if they are made of Lego bricks but real houses have costs in excess of £100k and seeing as how most places in the UK you can buy a 3 bedroom terrace for £120k things don't look expensive

GreatApe

_CC_ wrote: »

Sure, that will irk those that believe prices are too high.

They don't appear to be too high for all those new FTB, though.

The problem is most people have some sort of in built biological feeling/sense/belief that the value of something is what it cost yesteryear or what someone else paid it for

This is even true in monkeys.

https://youtu.be/1wmUyOyM0m0

economic

I wonder how demographics will change the housing market. Will our market be more like Germanys? If we get lower birth rates, people being single or childless for a lot longer, surely this would increase demand for smaller properties say flats and reduce demand for larger properties?

Also as the job market changes during the current technological revolution, maybe there will not be a need to stay close to work and instead people can live anywhere they want as they can work remotely from home. With better transport links to big city like London, there is no need to live in London if you can work from home. If you want to visit London for other reasons, just take a 2-3 hour train journey.

The other big change that i think could happen is universities closing down and degrees are taught online. No need for campuses, no need for student accommodation and you suddenly reduce so much demand in the uni towns.

A lot of the above seems quite negative for property prices in the longer term for the hot spots like London.

GreatApe

fl:

economic wrote: »

I wonder how demographics will change the housing market. Will our market be more like Germanys? If we get lower birth rates, people being single or childless for a lot longer, surely this would increase demand for smaller properties say flats and reduce demand for larger properties?

Also as the job market changes during the current technological revolution, maybe there will not be a need to stay close to work and instead people can live anywhere they want as they can work remotely from home. With better transport links to big city like London, there is no need to live in London if you can work from home. If you want to visit London for other reasons, just take a 2-3 hour train journey.

The other big change that i think could happen is universities closing down and degrees are taught online. No need for campuses, no need for student accommodation and you suddenly reduce so much demand in the uni towns.

A lot of the above seems quite negative for property prices in the longer term for the hot spots like London.

We can't easily get to a Germany type of situation anytime soon

If we wanted to get to Germany levels in 20 years we would have to build 600,000 hones a year which is still impossible. So its not at all likely anytime soon

Interestingly it also shows that massive supply won't result in extremely cheap homes. Building 600,000 homes per year is massive supply but at the end of this 20 year period house prices wouldn't be particularly cheap

The most expensive city in Germany which is Munich prices are close to 10,000 euro per sqm.
That means a 150sqm property costs 1.5 million euro. Hardly cheap. Sort of similar prices to zone 2 London.

Berlin nicer parts are closer to 5500 euro per sqm so a 100sqm home costs 550,000 euro again not that much cheaper than a typical London property which is a little under £500,000

Simple reality seems to be that where the economy is strong and growing house prices are expensive. Where the economy is in recession and contracting house prices are low.


I'm still quite bullish on property.
If the Germans with over 41 million homes for 82 million people can sustain non cheap prices and the media talk of a shirtgage the. I think my thesis is sound. People just simply want more and more property. People don't seem to buy less property if its cheaper. They just buy a bigger property or in a nkre expensive area.

GreatApe

Germany is no longer cheap
Birmingham 3 bedroom terrace £120,000 or about £1,500 per sqm
Berlin median price 3,600 Euro per sqm

Berlin more than twice the price of Birmingham!!
Median prices
Hamburg 3,700/sqm
Hanover 2,300/sqm
Dresden 2,200/sqm
Düsseldorf 2,500/sqm
Cologne 2,700/sqm

Our #2 city is a good deal cheaper than most German cities.


I think the idea of German cheap homes is a relic when the crash cheerleaders were looking at Germany in recession (or near recession) and the pound was overvalued.

Like I said I am still bullish on property especially outside London.
Prices are close to reinstatement values in a lot of the UK. Prices are not just affordable but cheap

Germany with much more supply than us has higher prices. London is the exception it is expensive but rUK is too cheap.

Of course short term anything can happen. If brexit causes a recession property prices will go down. If corbyn raises property taxes a lot prices can go down. But in a normal decent 3% growth environment I could see places like Birmingham house prices double from 2015-2025

Most the crash cheerleaders are going to be so screwed.