Panic selling by landlords could turn slump into rout

dopester

IveSeenTheLight wrote: »

What has the last post got to do with the thread saying that LL's are panic selling turning a slump into a rout?

Well I didn't explicitly state it as I thought it obvious.

When landlords are seeing their property drop in price -£145 a day in April (on the basic average UK home.. so much more painful losses for more expensive property), as well as subsidising their tenants in many instances.... as well as fears of continuing monthly falls, that must provide quite a powerful motive in many an amateur landlord of year 2002+ wanting to get shut of such an "investment" imo.

IveSeenTheLight

wisbech_lad wrote: »

Exactly. He's equivalent to Buffet in shares (buy value, even if market is declining) Well, apart from the fact his firms have gone bankrupt couple of times, and Buffet never has.

But most don't do this (buy on decline) Given that most people in UK, when their share based pension plans tanked, didn't do the sensible thing (put more money into share based pensions, because they are now better value for money) but abandoned share based pension plans as an asset vehicle, what makes you think people won't behave in exactly the same way with BTL's?

I dont know what other people will do, it's up to them. what makes you think that people won't buy as the market falls or gets to the bottom?

I know if I have the funds I would be buying, not now, but certainly before the market believes it has hit the bottom.

When the market thinks it has turned, I see a flood of people looking for property probably making the demand higher than it was in the last few years

dopester

IveSeenTheLight wrote: »

Donald Trump built his empire buying property in New York with money he did not have at a time when everyone was selling and property was on the decline.

What's he doing nowadays I wonder?

It's not like Donald Trump didn't get badly beaten in one major real estate downturn. His bullish real estate views and complacency before 1989 saw him right on the edge of personal bankrupcy.

BTW - he's doing fine. I watched a US finance show the other day, and the interviewers were seriously asking him if he had any intentions of running for President in the future.

Also watched the latest US Celebrity Apprentice recently on YouTube, in which Donald Trump is the boss. It was a full show.. like 14 episodes - not a mini Celeb Apprentice like UK version. Ivanka, his daughter (gorgeous but smart too) and his son (handsome and smart) on the board panel. Was a great show. Expected to dislike Piers Morgan but he was really way above everyone else, even on tasks which didn't need networking, and was the rightful winner.

Lotus-eater

IveSeenTheLight wrote: »

When the market thinks it has turned, I see a flood of people looking for property probably making the demand higher than it was in the last few years

I agree, I've enjoyed your posts lately, shame I can't say the same about pickles.
However you are forgetting about sentiment, when we have constant doom on the tv about couples who have been hurt and destroyed by the fall in prices/high living costs/mortgage repayments/job insecurity, attitudes may change from waiting with a deposit clutched in their sweaty little hands waiting for the right time, to going with the popular view of the moment which is, houses are toxic atm.

wisbech_lad

IveSeenTheLight wrote: »

I dont know what other people will do, it's up to them. what makes you think that people won't buy as the market falls or gets to the bottom?

I know if I have the funds I would be buying, not now, but certainly before the market believes it has hit the bottom.

When the market thinks it has turned, I see a flood of people looking for property probably making the demand higher than it was in the last few years

History. People didn't buy during the last property slump, or the last share slump. They wait until it is clear that the cycle has turned. Of course, it may be different this time, we'll have to wait and see

inmypocketnottheirs

wisbech_lad wrote: »

Hmm, when your Scottish Widows pension shares went down 20% or more, did you say "w00t, I get me 20% more shares for the same amount, buy buy buy" or did you say "share based pensions are a disaster, I'll go bung my money into BTL instead"

So actually then, you do advocate throwing money into a shrinking pot?!?!

RHemmings

Jonbvn wrote: »

And having heard from our pinko transgendered friends at the Gruaniad, this just in from the Facist Bullyboys at the Torygraph:

"There is likely to be a contraction in the market but no wholesale selling out of buy-to-let." says Fionnuala Earley, Nationwide's chief economist. "Most of the landlords have a fair amount of equity cushion and will be able to ride this out."

There seems to be an assumption here that if landlords don't go into negative equity, then they're "fine", "able to ride this out". I don't think landlords are going to panic over negative equity per se, they're going to panic over losing huge amounts of money. Remember that if prices go down, the amount lost is multiplied by any leverage. And most investors are very concerned about losing money on investments, even if the value of the investment doesn't get to zero or less than zero.

wisbech_lad

inmypocketnottheirs wrote: »

So actually then, you do advocate throwing money into a shrinking pot?!?!

Yes. It's called "dollar cost averaging", "asset allocation" and "asset rebalancing"

http://www.efficientfrontier.com/

has some good articles on investment

It is very difficult to do, because rebalancing sometimes involves selling assets that are performing well, and buying poorly performing assets, which requires massive discipline. But this basically forces you to "sell high and buy low", and take a long term view.

IveSeenTheLight

Lotus-eater wrote: »

However you are forgetting about sentiment

I'm not, I siad when the market has changed, i.e. this will need sentiment to change

IveSeenTheLight

dopester wrote: »

Well I didn't explicitly state it as I thought it obvious.

When landlords are seeing their property drop in price -£145 a day in April (on the basic average UK home.. so much more painful losses for more expensive property), as well as subsidising their tenants in many instances.... as well as fears of continuing monthly falls, that must provide quite a powerful motive in many an amateur landlord of year 2002+ wanting to get shut of such an "investment" imo.

Well, personally speaking as a landlord who bought post 2002. the gains made allow for a drop of at least 22% before it gets back to the price I paid for them. Even more till negative equity hits me. Definately no panicking here

I'm not concerned with paper valuation dropping. I will only concern myself about this if / when I sell, which will be a long way away (at least 15 years).

There will be some landlords that will want to capitalise on equity increase in the last few years, this maybe was their strategy, is it the majority?, I would doubt that.

I think your 2002+ date may be a bit more realistic if you said 2005+, however I managed to buy one property in Jan 2007 and the figures added up, so it was still possible.

Less than 1% of BTL mortgages had missed payments more than 3 months. The percentage is slightly higher when you look at wider mortgages.
This is what makes me think that some may panic, but I doubt the majority will.
To give this perspective, the CML statistics webpage under Buy-to-let mortgages, market summary shows that the average outstanding mortgages is 117.5k. Given that the UK average house price is 173K, this shows quite a bit of equity before the BTL empire goes into negative equity.
I repeat, LL's may decide to capitalise on this equity and sell, will this be panic selling, I dont think so.

On the flip side there does appear to be 300,000 more BTL mortgages than there was at the end of 2005, so there is a potential that these people will have a higher LTV.

0.9% is reported as having more than 3 months defaulted payments, this is 9,660 out of 1,073,300 BTL outstanding mortgages