How far will house prices fall [volume 4]

[essayer]

anonymous said:

[redacted]

I guess that's a pretty large area with lots of property types and good and bad areas.

'Character' properties in Berkhamsted close to the station, for example, seem to sell really quickly, even three bed terraces with on street parking for north of £500k. Same with some areas of Tring. Go out into the villages though and it might be a different story.

[Mr Whippy]

NRS said:

Mr Whippy said:

So with your accounting principle is there any consideration made for the value of said item you borrow against becoming worth less over time?

Ie, borrow £200,000 and the item is worth £100,000 at the end?

Or do you just assume a static value?

What about the opposite? Which in the general picture for the long term is actually more likely given historic trends? Again not saying you should buy, but you are taking a risk either way.

Indeed.

But even the price going up doesn't equal value going up, due to the other variable of inflation.

It gets quite complicated.


Just as a side thought, I remember years ago where I worked, we were making a stochastic pension modeller. All very posh maths that ran into some huge database with a big London based company that did the risk on it all basically.
In idle discussion about the accuracy of the outcomes the guy doing the programming finally conceded that all big events that could make the statistics useless were ignored, but that these big events generally happened at a frequency where at least one or two would happen in any one persons working life (ie, through their retirement)

I think we've had it quite lucky in our lifetimes in the West because we've seen perpetual economic growth, no significant wars, diseases, natural disasters etc.
Pension providers were all DB, now they're all DC, and now we have ZIRP I wonder what DC can even do for most savers. The environment has turned from high perpetual growth, to no expectations of growth at all.


It's at least reasonable to *not* assume perpetual growth and increase in value of everything forever.

While annuity providers are projecting near zero growth from a point 30 years into the future to a point 55 years in the future, you do wonder why they don't get into property!

[V6Alfisti]

Some more views of the softening in more developed areas, this is exactly what I have been seeing in Queens Park, Warwick Avenue, Camden, Kentish e.t.c....

http://www.hamhigh.co.uk/property/is_the_property_...

[walm]

Foxtons reported today. Expecting a weak H2.
Stock down -3% today and now down -20% YTD.

[V6Alfisti]

Apparently Q1 2016 didn't increase nearly as much as expected and actually dropped even with all the Btl purchases. I wasn't expecting that.

http://www.telegraph.co.uk/property/commercial/hou...

[turbobloke]

V6Alfisti said:

Apparently Q1 2016 didn't increase nearly as much as expected and actually dropped even with all the Btl purchases. I wasn't expecting that.

http://www.telegraph.co.uk/property/commercial/hou...

Quite cool, as in, not that hot.

The regional chicken soup averages are still well-mixed as per the national chicken soup average. Further examination of the local situation but still with an inevitably small sample size (realistically, any bigger and it wouldn't be local enough) suggests that the EA blurb currently being peddled very locally to us is correct in speaking of a price jump, something of the order of 10% to 12% since January. That contrasts with the region's performance in Q1 as shown in the DT article (nearly -1%).

[Timmy40]

V6Alfisti said:

Apparently Q1 2016 didn't increase nearly as much as expected and actually dropped even with all the Btl purchases. I wasn't expecting that.

http://www.telegraph.co.uk/property/commercial/hou...

Very interesting article that. It would seem pretty obvious that unless interest rates fall further ( how can they ), or wages increase signifiacntly ( unlikely ), or lenders suddenly relax their criteria ( post MMR virutally banned ) house prices simply can't grow YOY by more than inflation.

I suppose if the report is correct and another 3m people move here over the next 14 years that might prop up the SE.

[V6Alfisti]

Timmy40 said:

Very interesting article that. It would seem pretty obvious that unless interest rates fall further ( how can they ), or wages increase signifiacntly ( unlikely ), or lenders suddenly relax their criteria ( post MMR virutally banned ) house prices simply can't grow YOY by more than inflation.

I suppose if the report is correct and another 3m people move here over the next 14 years that might prop up the SE.

Indeed but personally I think this is a sign of something a bit more than house prices npt growing YoY more than inflation.

Bear with me...

House prices have largely been supported from two key elements of demand:

BTL - Jan-March was supposed to be the month that BTL'ers went crazy and bought anything they could lay their hands on, despite this the figres show an overall drop of 0.5%? BTL'ers own representation states that quite a significant percentage of current owners realise that the numbers don't add up anymore what with the increased taxation on revenue and now also new property purchases. So demand here is shrinking, I read somewhere that inquiries have dropped 90% since April 2016

Foreign Investment - Largely the Russians and Chinese, the Russians have pulled away due to poor foreign exchange and the Chinese have also increasingly pulled out of London (seemingly heading towards Manchester now). Add in all the Nine Elms/Hammersmith stories....there would then also appear to be alot more supply (at the upper end).

Then you have people who want a property to live in, e.g. FTB and Upgraders, these have largely been priced out for a couple of years and overall I think the volumes of house sales are a 1/4 of what they were a few years ago.

Also we talk about a housing shortage, but do we really? The difference being that spare supply was taken up by FI and BTL, that tide is turning. Ultimately people that would be buyers are now renters ...and guess where they live...in a house.

Then many people are leaving London due to the current pricing, hence Bristol, Oxford, Reading, Luton e.t.c are shooting up in value.

I personally think that prices will continue to drop, but there is no doubt a balancing point wherere FTB'ers and other buyers can start to afford property again and the volumes will rise (assuming the supply logic works out). Basically we are talking about the classic property lifecycle, I think we may be balancing right on the top of one of those peaks right now. Hence why I suspect a lot of property in London is now being listed, get out whilst the prices are at record highs.

All IMO of course, and seriously reconsidering a new build plot I have reserved! It looked reasonable value a few months ago, now that gap is quickly falling away as more properties hit the market, with significant reductions compared to Q3/Q4 2015. Now to convince the girlfriend .. :/

Edited by V6Alfisti on Thursday 28th April 15:41

[Mr Whippy]

V6Alfisti said:

I personally think that prices will continue to drop, but there is no doubt a balancing point where FTB'ers and other buyers can start to afford property again and the volumes will rise (assumingly the supply logic works out). Basically we are talking about the classic property lifecycle, I think we may be balancing right on the top of one of those peaks right now. Hence why I suspect a lot of property in London is now being listed, get out whilst the prices are at record highs.

I think you're right, but the other mechanism is that people just won't sell/move, they'll stay put and extend etc.

If they don't move, they don't realise the 'loss', even though for a single home owner there is no such thing if the market makes generalised up/down movements.


I genuinely think properties are likely to just remain much of a muchness in price, and in some years salaries will begin to rise again and at that point property values won't... not until the equivalent value drop is realised which makes the market competitive enough for the FTB'ers to start buying, which allows the entire ladder of property ownership to get moving again.

[V6Alfisti]

Mr Whippy said:

I think you're right, but the other mechanism is that people just won't sell/move, they'll stay put and extend etc.

If they don't move, they don't realise the 'loss', even though for a single home owner there is no such thing if the market makes generalised up/down movements.


I genuinely think properties are likely to just remain much of a muchness in price, and in some years salaries will begin to rise again and at that point property values won't... not until the equivalent value drop is realised which makes the market competitive enough for the FTB'ers to start buying, which allows the entire ladder of property ownership to get moving again.

Agreed that many home owners will hold onto their properties, but where I think we will see selling up is BTL in London.

e.g. if they bought in 2012 at 300k and its now worth 450k (with say a 4% yield), then the property prices stay stagnant at the £450k mark but the yield has now dropped, then the BTL has a pitiful yield and no/little asset appreciation. But they then have the fear of drops, issues with tenants and medium to longer term interest increases.

Then you have the chinese investors which appear to be reneging on new build contracts, again more supply.

I am not sure if its BTL selling or home owners taking the huge increases in value (and moving away from London), but my saved searches are buzzing with new properties and price drops.

Still agrivated by HTB, imo all it's done is help increase property prices, land those in debt who can't afford the current prices and put them at massive risk whenever the interest rates increase.

Edited by V6Alfisti on Thursday 28th April 16:22

[Mr Whippy]

V6Alfisti said:

Still agrivated by HTB, imo all it's done is help increase property prices, land those in debt who can't afford the current prices and put them at massive risk whenever the interest rates increase.

That is all it is. Help to buy.

Forget about if it's worthwhile, affordable, or helpful generally.

Yep, it seems like it's been a perfect bit of propaganda. Government get a continuation of high property value increases, they get some good return debts on their books, and young people think government are helping them buy houses

Good old government eh! I'm so glad I didn't vote for Cons as that is all they seem to be capable of.

[jonah35]

Timmy40 said:

V6Alfisti said:

Apparently Q1 2016 didn't increase nearly as much as expected and actually dropped even with all the Btl purchases. I wasn't expecting that.

http://www.telegraph.co.uk/property/commercial/hou...

Very interesting article that. It would seem pretty obvious that unless interest rates fall further ( how can they ), or wages increase signifiacntly ( unlikely ), or lenders suddenly relax their criteria ( post MMR virutally banned ) house prices simply can't grow YOY by more than inflation.

I suppose if the report is correct and another 3m people move here over the next 14 years that might prop up the SE.

I'm not so sure I agree Timmy.
Interest rates can fall further by going negative or to zero.
Lenders could and are relaxing criteria, st James place have just launched an inter generational mortgage.
House prices have been growing by more than inflation in the past few years even though interest rates haven't changed.
People are taking money out of pensions, the population is increasing and practically every non finance person only ever believes house prices will only ever rise.
They're rising at present so why will that stop if nothing changes?

Mortgages are, at present, Pretty affordable for all. A £100k repayment mortgage may be £400 pm so £200 per spouse. That's affordable for practically anyone with a job - even a part time minimum wage job.

Yes, I know £100k won't buy a penthouse in London but in the north that would get a 2/3 bed cottage etc.

I think eventually it will be accepted that you will never fully own your home and you will pass a mortgage on to your family. It's accepted with leasing a car now that you simply pay the interest of you like so I think it's not far fetched to imagine that.

[menousername]

jonah35 said:

I'm not so sure I agree Timmy.
Interest rates can fall further by going negative or to zero.
Lenders could and are relaxing criteria, st James place have just launched an inter generational mortgage.
House prices have been growing by more than inflation in the past few years even though interest rates haven't changed.
People are taking money out of pensions, the population is increasing and practically every non finance person only ever believes house prices will only ever rise.
They're rising at present so why will that stop if nothing changes?

Mortgages are, at present, Pretty affordable for all. A £100k repayment mortgage may be £400 pm so £200 per spouse. That's affordable for practically anyone with a job - even a part time minimum wage job.

Yes, I know £100k won't buy a penthouse in London but in the north that would get a 2/3 bed cottage etc.

I think eventually it will be accepted that you will never fully own your home and you will pass a mortgage on to your family. It's accepted with leasing a car now that you simply pay the interest of you like so I think it's not far fetched to imagine that.

You work for St James place dont you?

[Timberwolf]

V6Alfisti said:

I am not sure if its BTL selling or home owners taking the huge increases in value (and moving away from London)

I can only go by my local area so this could be far from representative - but the smart money was doing that move away 18-24 months ago before it was popular without making too much fuss about it. The last few months have seen a huge number of people jumping on the bandwagon, no doubt spurred on by newspaper articles about how the 'burbs are the next big thing (possibly egged on by editors who got in before the rush)... but not really thinking about how that sudden demand is distorting a supply-constricted market or that the poky Victorian terrace they're splashing £600k on was only £400k a couple of years ago, and there's a lot of cheaper and better housing stock further into the capital that they're ignoring because the Guardian told them they could make a quick buck out in the sticks.

The risk here is that if the flow of equity from London flats being sloshed around a previously sleepy market suddenly gets cut off, those people who are late to the party will see exactly the same fall as they would have further in. Except as well as taking a bath on property value, they're also stuck out in the middle of nowhere waiting a lot longer for a recovery and paying an extra £300/month to get to work compared to just staying in London and seeing out the dip.

Edited by Timberwolf on Thursday 28th April 23:27

[Casa1862]

jonah35 said:

I'm not so sure I agree Timmy.
Interest rates can fall further by going negative or to zero.
Lenders could and are relaxing criteria, st James place have just launched an inter generational mortgage.
House prices have been growing by more than inflation in the past few years even though interest rates haven't changed.
People are taking money out of pensions, the population is increasing and practically every non finance person only ever believes house prices will only ever rise.
They're rising at present so why will that stop if nothing changes?

Mortgages are, at present, Pretty affordable for all. A £100k repayment mortgage may be £400 pm so £200 per spouse. That's affordable for practically anyone with a job - even a part time minimum wage job.

Yes, I know £100k won't buy a penthouse in London but in the north that would get a 2/3 bed cottage etc.

I think eventually it will be accepted that you will never fully own your home and you will pass a mortgage on to your family. It's accepted with leasing a car now that you simply pay the interest of you like so I think it's not far fetched to imagine that.

The government help to buy Isa etc will mean lots of buyers in 3 to 4 years, I don't know any youngest who's not got one, basically free money. The fact that they have some money and have a chance to buy will mean a lot will make it happen somehow. They've had an interest generated and will want to spend that money. If a lot of btl sell up then they could mop up the cheaper properties. All assuming mortgage availability is still good, quite a bit of pent up demand.

[menousername]

Casa1862 said:

The government help to buy Isa etc will mean lots of buyers in 3 to 4 years, I don't know any youngest who's not got one, basically free money. The fact that they have some money and have a chance to buy will mean a lot will make it happen somehow. They've had an interest generated and will want to spend that money. If a lot of btl sell up then they could mop up the cheaper properties. All assuming mortgage availability is still good, quite a bit of pent up demand.

The max contribution seems to be 3k

The days of that being a meaningful addition to a deposit are long gone. In fact thats based on saving 12k giving a total deposit of 15k which is just not significant anymore.

Also, unless I misread, you cannot dump any more than I think £1,600 in at the begining and the max monthly is £200. So that appears to require you to build that up over 4 years.

While it does help, I think most are motivated by the interest rate generally. When it comes to buying, four years down the line, they will need to suppllement this with another 15k at least, which in most places will still leave them with a huge LTV and high interest rate.

It seems to be a small contribution to getting people on a ladder they can barely afford to be on. Anyone for whom this 3k makes the difference between buying or not probably cannot afford to be buying, depressingky and regrettably. The reality is to be able to afford to buy you need to have saved a deposit large enough that the 3k does not make a difference. Sure it may cover some fees and nobody will turn it down, but I just think that the days are gone where 3k was worth getting excited about, let alone going to do anything to move the market with waves of FTBers excitedly waving their 3k around

• Edit

What happens in four years time if prices have increased and these FTBers cannot get on the ladder. If they take their money out they get no interest rate at all?

Edited by menousername on Friday 29th April 08:10

[Casa1862]

I believe they get the interest but not the additional funds the government contributes.

I agree on its own it's not a lot of money but with the other government schemes, parental contribution, 40 year mortgages, buying jointly it all least gives some hope, however false it may be. The fact that these people have an interest in potentially owning property means a lot, surprising what folks can do to make it happen. My nephew was typical 25 year old, blew all his money but came into £5k, he's opened a HTB ISA and putting in the max, all of a sudden he's got a goal, checking on rightmove constantly, and saving like mad, total change. Fairly sure in 3 to 4 years he'll have the deposit, he's had a sniff of what could be, will be quite few like him wanting to spend the cash they've saved.

Part of the reason I'm not looking for a new car, as soon as I even walk into a showroom to LOOK, the deals practically done, somehow that £15k budget becomes £20k without too much trouble.

[jonah35]

menousername said:

jonah35 said:

I'm not so sure I agree Timmy.
Interest rates can fall further by going negative or to zero.
Lenders could and are relaxing criteria, st James place have just launched an inter generational mortgage.
House prices have been growing by more than inflation in the past few years even though interest rates haven't changed.
People are taking money out of pensions, the population is increasing and practically every non finance person only ever believes house prices will only ever rise.
They're rising at present so why will that stop if nothing changes?

Mortgages are, at present, Pretty affordable for all. A £100k repayment mortgage may be £400 pm so £200 per spouse. That's affordable for practically anyone with a job - even a part time minimum wage job.

Yes, I know £100k won't buy a penthouse in London but in the north that would get a 2/3 bed cottage etc.

I think eventually it will be accepted that you will never fully own your home and you will pass a mortgage on to your family. It's accepted with leasing a car now that you simply pay the interest of you like so I think it's not far fetched to imagine that.

You work for St James place dont you?

Nope was just pointing out that inter generational mortgages are starting to appear in the uk like they are in Japan etc.

[XJ40]

menousername said:

The max contribution seems to be 3k

The days of that being a meaningful addition to a deposit are long gone. In fact thats based on saving 12k giving a total deposit of 15k which is just not significant anymore.

Well £15k seems a perfectly adequate deposit to get started with. You could put that down as 5% on a £300k property, that would buy you a nice family house in most parts of the country. In reality an FTB is probably more likely to put that down as 10% on a £150k property I would have thought, seems perfectly reasonable to me.

Yes one could wait until they had a larger deposit before buying, in order to secure a lower interest loan. Personally I think getting on the so called ladder sooner is generally favourable in the long run, the equity gained through paying down the mortgage and price inflation would likely more than offset the extra paid in interest...

Edited by XJ40 on Friday 29th April 10:32

[walm]

XJ40 said:

Well £15k seems a perfectly adequate deposit to get started with. You could put that down as 5% on a £300k property, that would buy you a nice family house in most parts of the country.

I don't think that a £285k mortgage is achievable for the majority of people (outside PH directors of course).
That's over 5x on a £50k income, which most people don't have, do they?