Fresh Start about House Prices

deemy2004

Very cunning ! :j

Britian has had its house price bull run for the forseable future

EdInvestor

Hi Deemy

At the moment people still see rising annual house price inflation so assume that they can wait out any weakness. But when they actually see big RED headlines saying that house prices are falling year on year.. then you will get a mad dash for the exit and a large drop in just 1 quarter.

Not sure this will happen (agree if it did, the effect would probably be as you say).But last year's -2% in August drops out next month and should be replaced with a positive figure surely?

And with an interest rate reduction likely at the same time....

DrStep

loopy_lass wrote:

er... i dont really understand all this malarky...

loops

Let me tell you and everyone a story.....

At the moment people who just come into about thinking into buying a house (and not been following market trends) are almost conditioned into thinking - "this is how much houses cost"

This is not true - houses are extortionately overpriced (fuelled by the Buy-To-Let (BTL) and investor/renovator boom) Normally, working class people should be able to buy a house at a relatively young age and by saving for a couple years for a 5-10% deposit. The amount of first time buyers into the market back then was about 60% of transactions.

Today you have to have two full time workers in the high earning brackets to afford a 2 bed terraced starter home/flat. The average first time buyer is now 30+ and it takes longer to save up for the deposit (if at all and go straight into 100% mortgages). Many first time buyers (FTB) have had to borrow much more than they would have liked in order to get onto the property ladder. Most buyers are priced out altogether. This is why the amount of first time buyers is at its lowest level, 10% if I am correct. More young adults are stuck living at home with their parents. If you have bought as a FTB lately, it is likely that would be the last purchase you make - it is nigh on impossible to move into a larger house as the price gap for the next house is huge; compounded if you have chosen a interest only mortgage.

Now as house prices are stabilising- (wage inflation is near equal to house price inflation) there is no rush to buy a property. It is a good idea to rent - but keep one eye on the prices of properties.

The property market is no different to any other market I believe- it is cyclical (there are ups and there are downs). :rolleyes:

There are some good graphs here
http://www.housepricecrash.co.uk/house-price-crash-graphs.php
It is always important to do your own research and buy a home for the right reasons. The site listed here might be biased towards house prices falling but the data is taken from the Bank of England - who are not biased.

Other sources are Hometrack or Rightmove which publish a monthly report on what house prices are doing. I dont believe they have a bias - but always er on the side of caution. And theres the old fashioned way - look through property papers periodically.

DrStep

You may notice on one of the graphs - Mortgage Equity Withdrawal (MEW) graph has started to plummet. MEW is releasing the new found wealth you have got when you have bought a house, and it has increased in value (maybe £100,000+). This is a form of secured borrowing.

I do believe many have stopped borrowing against their house(s) to fund a BTL or renovation project due to a change in sentiment. BTL is seeing little gain as the rent does not cover the mortgage, the renovators are seeing little profit and are better off doing more hours in their daytime job. If there is no new money coming into the system, prices have stagnated (which we have seen). What will happen next?

loopy_lass

ok, thanks, i have some clarity. I do know that in 2 yrs time when i finish my degree ( i will be 42 then) i will come into £10K, thought that was a reasonable deposit coupled with a reasonable job of around £26k pa i thought it would be a cunning plan. Except houses round here are £120+ for a bog standard ex council house..

thanks for tips.

loops x

Mr_Proctalgia

Just to add to the confusion :-)

http://www.manchesteronline.co.uk/men/personalfinance/s/166/166525_mortgage_lending_soars.html

michaels

deemy2004 wrote:

The UK housing market fell 1% in June as against 0.2% rise in May.. annual house price inflation is now just 2.4% - On marches the trend to negative annual house price inflation ! And THEN IT WILL hit home ! That the trend is over !

At the moment people still see rising annual house price inflation so assume that they can wait out any weakness. But when they actually see big RED headlines saying that house prices are falling year on year.. then you will get a mad dash for the exit and a large drop in just 1 quarter.

The British economy is slowing.... lets hope the housing market decline does not tip us into a recession !!!

Which is an interesting viewpoint - of course an asset is worth what people are willing to pay for it. Trading FX the specualtive volumes are so great that any underlying flows are dwarfed. However I do not think this is the case for the housing market. The supply of housing is limited, people can not chose to live nowhere, there is a cost associated with not owning - ie rent. If interest rates do not rise (I know this is a major proviso but the markets are not pricing in any lage increase) then in many areas house prices are not out of sync as renting is not that much cheaper than mortgage interest payments (capital repayments are 'savings'). All things being equal there should be a slightly higher costto owning as this reflects a payment for the 'volatility' - ie the opportunity to possibly make capital gains.

Mr_Proctalgia

More confusion to balance up the views a little

http://www.rightmove.co.uk/pdf/p/hpi/HousePriceIndex18July2005.pdf

Thorpeedo

meanmachine wrote:

Why wouldn't ANYONE sell in a falling market? It's easier to trade up in such a scenario.

Example: My house is "worth" £200K, my dream house is worth £300K.

If the market drops, my house is now worth £150K and my dream house £230K. The next rung up therefore becomes smaller.

I do wish people on the ladder would take the pound signs from their eyes for one nanosecond and THINK about how the market operates.

The only people affected by a drop in prices will be recent speculators and FTBeras. But they can't say they weren't warned...

Try telling my other half.... !! She see's spare capacity in the budget and wants to move! Not save it till we can get a decent return on it !

ManAtHome

michaels wrote:

people can not chose to live nowhere

But they can (and do, and have to) live with their parents longer. As Dr Step said, you now need to be a couple with above-average earnings to 'get on the ladder' - I just don't see how property prices can continue to outstrip salary increases forever.