House prices continue to fall (Hometrack Report)

ReportInvestor

But not a pyramid scheme.

dippy

ReportInvestor wrote:

I wouldn't describe it as that, mm. It's often argued on this board that comfortably off homeowners can't realise their investment & so don't actually benefit from high house prices.

In pyramid schemes, people in the middle of the pyramid do not win, only the ones at the top do. The analogy to the top of the pyramid here are to people who exit the market such as people who emigrate, who sell up to move into old peoples' homes or even people who downgrade.

deemy2004

Too much money... until something happens to drains the money supply then prices will still be supported at extra high levels. in the past its been negative growth i.e. a recession thats casued prices to fall back to more reasonable levels.

So keeping ones eyes on the GDP figures will indicate what we can actually expect to happen to house prices... Low annual GDP growth of approx 1.5% will mean drifting prices. GDP growth below 1% will mean falling house prices.
Negative GDP growth will mean sharply falling prices.

GDP growth above 2% will mean supported - soft landing type house prices.

GDP growth above 3% will mean rising house prices.

So where is GDP today ?

Well according to the National Institute for Economic and Social Research GDP growth this year will be 2% and next year is forecast at 2.5%.

Now it all depends on whether the actual matches the forecasts ???

Ian_W

Just when you thought it was safe to go out - The thread gets lively again!!

wibble68 wrote: When you bought in 94 this was not a gamble. House prices were below the long term average. We are still some 20 - 25% above the long term average making it a very big gamble indeed.

Of course it was a gamble, don't think any of us had access to the sort of info that's available these days on t'internet, just pundits some of whom were saying prices would rise, others saying they'd stagnate for years - a bit like now in reverse really! In fact, it was a time ..." when homeowners are all crying into their beer and telling you to steer clear as prices "will never go up"... " as meanmachine said, only most of us didn't take that at anything but face value.

Anyway where is it written that because prices are below an average they must rise? An average is just that - if prices stay low for years the average will come down and vice versa. It tells you what's happened in the past, not what's going to happen in the future.

So it's a gamble whenever you buy, but, hey ho, so's life. You take a chance when you get up in the morning, you take a gamble if you don't - lot of people die in bed you know! If you don't like the odds, don't buy a ticket - but don't then stand on the sidelines whinging & grizzling cause others have done alright when they've taken the risk!!

Meanmachine wrote: ... at which you get on the property ladder will affect your wealth, life and possibly your health for the next 25 years.
I think it's disgraceful for current owners (who bought at the market bottom) to coax FTBers to join this pyramid scheme now.

You may be right on your first point BUT it's a fact that most people who bought in the last 25 years have been proved over the longer term to be better off buying than renting, whenever in the cycle [if that's what it is] they bought - though I'd have to accept that history may not repeat itself. On the second, it would be in your words "madness" to think that a thread that's read at most by a few hundred FTB's will in any way infuence the behaviour of FTB's overall or even individual's who read it - it's opinion - no more, no less.

So if it's "discraceful" to offer a view that's different to your own, I'll plead guilty [though I had hoped to grow old discracefully in a rather more hedonistic way !!] and throw in another one for good measure.

How many posts have there been on this forum in which muppets come along and want to buy a BTL ...

Are these the same "muppets" who were building up the equity to BTL in the property they had bought, whilst you were paying rent?? Maybe they are going into BTL at the wrong time, wouldn't do it myself, but it's their money to gamble, good luck to 'em I say.

I don't quite understand the points about the pyramid - isn't that why all you "FTB's" are hoping for a price fall, so you can get in when prices are below the average and when you emigrate or downsize you'll have made a [bigger] profit? So the pyrimids immoral when it's too expensive, but not when it's affordable? Some pyrimid, some morals!!

Fifer on another thread said " My view is that the mass housing market is still too new for history to be any great indicator either way ... " most people forget, or don't know, it's only been around for 30 years or so. So "historical" data about it ain't, well, very historical and anything going back longer than 30 years, like how good or bad property is as an investment over 50 years, isn't dealing with the same market. The data on interest rates is much more long standing [though not the means of setting them] yet only a few months ago the "experts" were predicting rates of 5-6% by 2006 and where are they heading now?

My own view, though not with any of the knowledge DEEMY has, is if we hit reccession prices will fall, if we don't they may fall back a bit or be stagnant for a while before increasing again. So those hoping for a mighty fall be careful what you wish for, it may come true, and if your job goes it won't matter if you're renting or buying - no money means no roof [or at least not the same one] over your head!!

Any FTB's who are undecided - it probably makes you think you don't know what to think!! Buyings a gamble, not buying is a gamble, make your own mind up BUT there are many very good reasons to buy a home than profit. There again, what do I know!?!

ReportInvestor

deemy2004 wrote:

Too much money... until something happens to drains the money supply

A while back I suggested that one factor in this equation was that student debt was going to rise from average £13K to average £20K+ over the next three years. This is the group most likely to buy property.

I suggest another minor factor will be tax rises, Council Tax (a geared play on extravagant public sector pensions) and rising water rates and gas bills.

But we, as a nation, have yet to face up to need to save for our retirement (often using our possession of property as an excuse). The killer facts are the massive switch to defined contribution schemes, the lower gilt yields that keep down annuity rates and increased longevity.

When we do, there will be less money to spend on housing. In todays FT, Philip Coggan points out that you need to save 15% of earnings between 21-60 to get a pension worth just 39% of your salary at aged 60.

But students in four years time will be facing £21K debts. If the property market is still healthy then they will have to ignore pensions if they want to pay off debt and get on the housing ladder.

But something's got to give, and it may, in part, be property.

My own view is all this will act as a drag, rather than a stop, on the long term trend for property to rise in line with incomes rather than prices.

Property will continue to rise in the medium term.

After all, we are still a small Island which speaks the world's universal language and will continue to attract immigration. And that will help to sustain our economic growth longer than those European countries whose population may stagnate or decline.

deemy2004

Yeh there is a lot that is dragging on properties and hence they are slowly declining.. very slowly..

But it increasingly looks likely that, that knock out punch is unlikely to materialise not for the next year or so anyway i.e. a recession.

Another drag on the housing market is the revival of the stock market, the more speculative elements will be looking to switch back into equities, the more the market strengthens and people start to forget the bear market.

So the next 12 months looks likely to see a housing market slowly drifting lower. How much ? 4% ? 5% ?

Ian_W

Before going on about reducing "money supply" [thought that was when the money spitter at Tesco's didn't work!] DEEMY asked about buying at the peak of the market in the 90's and selling now ...

What if you had bought in 1990? Perhaps for £90k followed by £90k of mortgage payments...

According to Nationwide's house price index, the value of a £90k property in 1st quarter of 1990 would now [2nd quarter 2005 are latest figures] be a tad shy of £240k .

Assuming the 90k mortgage payments were repayment and you'd rented at perhaps 2/3rds that cost of you'd have had £30k to invest over 15yrs at about £2k a year. Would that have produced £150k [+ of course, the equity the mortgage has paid off in 15 yrs] "profit" - don't think so, but I'm open to be persuaded otherwise?

Of course the market could drop 66% and wipe out any profit but so could any market you invest in and even in a bank your money is only 100% protected up to £2k. Then again you could walk under a bus to-morrow, or win the lottery on Wednesday - neither's likely, both are possible and either way you wouldn't be worrying about house prices - trust me on that!!

deemy2004

Ian_W wrote:

Before going on about reducing "money supply" [thought that was when the money spitter at Tesco's didn't work!] DEEMY asked about buying at the peak of the market in the 90's and selling now ...

According to Nationwide's house price index, the value of a £90k property in 1st quarter of 1990 would now [2nd quarter 2005 are latest figures] be a tad shy of £240k .

Assuming the 90k mortgage payments were repayment and you'd rented at perhaps 2/3rds that cost of you'd have had £30k to invest over 15yrs at about £2k a year. Would that have produced £150k [+ of course, the equity the mortgage has paid off in 15 yrs] "profit" - don't think so, but I'm open to be persuaded otherwise?

I was replying to a specific post as below -

Bit the bullet and brought my house in 1994 for £45000 (Which seamed a lot of money at the time). Its cost me about £40000/£45000 in mortgage payments during that time, about what i would have paid in rent. I have just sold it for £170000.I think all you doomsters should stop lining landlords pockets , get yourselfs on the property market and take a gamble. In ten years time you will wonder what all the fuss was about.

So the value IS as above i.e. £170k Hence there would have been NO profit.