Were there many STRs before/during the last crash?

BobProperty

EdInvestor wrote: »

As far as the impact on property goes, there seem to be three issues at work: the crunch, building oversupply and mortgage misselling. The US is in the worst state because it has high exposure to all three.

The UK market has medium exposure to the crunch by comparison, oversupply is limited to inner city new build flats, and misselling so far (mainly self cert) does not seem too serious.

I'm not sure I agree with your descriptions. The US has the following problems: The average house has more debt secured against it than the owner has equity, but I don't believe the average US citizen has (proportionately) more unsecured debt and less savings than their UK counterpart. The US does have oversupply and realtors have increasing inventories. But, mortgage mis-selling? The US "allows" it. It treats it's citizens as grown ups and expects them to understand what they are signing. There won't be much, if anything, done to the "mis-sellers".
The UK market may have medium exposure to the crunch, but the average citizen has too much debt. We haven't got far into investigating "mis-selling" and don't think we will. Oversupply, though, is relative to borrowing ability. If we were like Brazil (was it?, can't remember) where mortgages were unavailable (and I can't remember why either, probably high inflation) and you had to buy cash (I know, what a concept :eek:) then we would have had massive oversupply at any time in recent history. We have "oversupply" now, but only because there isn't the (borrowed) money available to chase the market up.

Gorgeous_George

EdInvestor wrote: »

... So why should there be a crash now?

Without all the research, I'd say because if the banks are prepared to lend 60% of what they did before, houses can only cost 60% of what they did before.

GG

Turnbull2000

EdInvestor wrote: »

So why should there be a crash now?

Why didn't this save the US, Irish and Spanish markets?

I suppose you could change your mantra back to supply.

EdInvestor

Gorgeous_George wrote: »

Without all the research, I'd say because if the banks are prepared to lend 60% of what they did before, houses can only cost 60% of what they did before.

GG

You can have lower prices or you can have rationing and queues along with a bit more saving. IMHO we are more likely to see the latter.

After all, waiting in a nice tarted-up affordable BTL is perfectly pleasant, is it not?
That's what happens in other countries.

WTF?_2

EdInvestor wrote: »

You can have lower prices or you can have rationing and queues along with a bit more saving. IMHO we are more likely to see the latter.

After all, waiting in a nice tarted-up affordable BTL is perfectly pleasant, is it not?
That's what happens in other countries.

Most people in the UK these days don't even have enough savings to cover a month's bills and expenses, should they lose their income. Therefore I think it's unlikely that we'll see a mass movement towards saving tens of thousands of pounds to buy a stupidly overpriced property.

We haven't so much had a housing bubble as we have had a credit bubble and it just so happens that housing was the asset class that benefited most from cheap and easy money.

Take the cheap and easy mortgage away and prices will fall. That's without any sort of recession being 'needed' which would also blow the housing market out of the water ... or considering the effects of inflation which are leaving most people more stretched than ever just paying for basics like food, lighting and heating.

PasturesNew

EdInvestor wrote: »

@4% they pay 6,000 in interest a year, a very comfortable 12% of joint gross salary
@8% they pay 12,000 a year, a big leap up to 24% of their joint gross salary but manageable.

Here's why it was different last time:

@10% interest they paid 15,000 interest a year - a high 30% of their joint salary
@15% their interest payments rocket to 22,500, almost half their joint gross income and completely unaffordable

I viewed these figures from the perspective of today's rental market.
Currently agents will often look at income and deem that you can't rent a property if you're paying out more than 50% of your income in rent.

I think a lot of people in private rented are certainly paying 35-40% of their income in rent. I am paying 35% for a studio flat, which in terms of your wording above is "a high 30%", so rents are high these days too using those words.

Which is veering off topic a bit, but let's not forget that it's not just house purchase prices that are high, these are having a knock on effect to some extent on rentals unless you're one of the lucky few in cheap social housing.

PasturesNew

Gorgeous_George wrote: »

Without all the research, I'd say because if the banks are prepared to lend 60% of what they did before, houses can only cost 60% of what they did before.

GG

I'd agree with this, but people aren't used to the price falls yet. Once they've got the hang of that, give it 2-3 years while they wait all excited ... then they'll realise that the tighter lending criteria means that it's still the same people that can afford the houses. Just the house prices that have actually changed.

Generali

EdInvestor wrote: »

Clearly what's needed is time for the banks to write down these losses, while still generating adequate profits.Meantime they are cleaning up their loan books, getting rid of risky stuff and pulling in cash at the same time, cherrypicking their best clients and squeezing as much margin out of new lending as possible.It will take time until they are all sure that there are no hiddeen nasties in the system and start lending normally to each other, and that's where the BoE is needed, to keep supplying money for lending until this confidence returns.

As far as the impact on property goes, there seem to be three issues at work: the crunch, building oversupply and mortgage misselling. The US is in the worst state because it has high exposure to all three.

The UK market has medium exposure to the crunch by comparison, oversupply is limited to inner city new build flats, and misselling so far (mainly self cert) does not seem too serious.

If you look at Spain, it has a very serous oversupply problem, but no mainstream credit crunch problem as local banks were not allowed to securitise. It may have some crunch/misselling effects via Costa property bought by expats with UK mortgages.

So each market is likely to react differently, it's really not appropriate to extrapolate from the US to the UK IMHO much less Japan where the bubble was so massive that it was always going to take decades to clear, even without their cultural problems..

Thanks, interesting stuff and pretty much unarguable.

I think where the US consumer goes from here is crucial to the next phase of this. I was listening to a conference call from one of the big US banks about 3 weeks ago and the economist was talking about the US consumer sector being 4xChinese GDP or 2xJapanese GDP.

I believe that MEW in the US has been about 8% of GDP so if the US consumer merely stops that part of consumption but carries on borrowing freely on credit cards and HP finance then that's a mighty big hit to world GDP, one that's going to be hard to shrug off.

EdInvestor

PasturesNew wrote: »

I think a lot of people in private rented are certainly paying 35-40% of their income in rent. I am paying 35% for a studio flat, which in terms of your wording above is "a high 30%", so rents are high these days too using those words.

Tax also needs to be factored in: IIRC in the 80s basic rate was 35% or so - that's why MIRAS was so important and why everyone rushed to get on the ladder so that both parties would be eligible.

These days income tax rates are much lower, and while other taxes may be higher ( petrol, VAT etc), you do have a choice about paying them, to some extent at least.
The other big difference is that consumer goods like sofas, washing machines and TVs are hugely cheaper.

Basically there's a lot more "slack" in the income vs outgoings balance sheet before people will be in so much trouble they are forced to sell..That suggests there will be no crash.

Paul_N_4

EdInvestor wrote: »

Basically there's a lot more "slack" in the income vs outgoings balance sheet before people will be in so much trouble they are forced to sell..That suggests there will be no crash.

Are you suggesting people have more disposable income today than they did in the 90's? I was under the impression we were now at record debt levels per head due to the recent credit boom. That would suggest the "slack" has already been used up.

You seem to suggest it was more expensive to reside in this country in the lates 80s and 90s than it is today. Do you have links to back this? Its common knowledge that income tax may not seem all that bad right now, but tax is heaped everywhere else, e.g. National Insurance, council tax, etc.

Where as you seem to be debating whether or not house prices will fall, I think you'll find they already are, and have been for several months. Most commentators suggest this will be a continuing trend this year and into next.