How far will house prices fall [volume 4]

[okgo]

Don't think so. Plenty of normal houses on the market.

Or do you actually mean the pricing of normal houses is too high?

[rovermorris999]

It's all down to supply and demand. Both can be manipulated to a certain extent by tweaking interest rates, 'affordability' rules and planning but with a steadily increasing population and virtually unlimited temporary or permanent immigration from the EU then the market will be fundamentally underpinned. Yes there will be periods where prices fall due to the economic cycle but long term I can't see them falling in real terms. The only thing that will materially affect the market is a big relaxation of planning rules and making it more profitable to build than hang on to the land.

[p1stonhead]

okgo said:

Don't think so. Plenty of normal houses on the market.

Or do you actually mean the pricing of normal houses is too high?

Yes thats what I meant. Not saying they are 'too high' as the market dictates it, but they are subjectively high for low to middle earners.

[okgo]

Wasn't there a graph on this thread that actually showed the supply/demand had very little to do with the prices in London...

[rovermorris999]

There's more to the housing market than London and graph or no graph, if there were more starter homes then either more people would move to London and support the prices or prices would fall once demand was sated. Supply and demand is behind it all including the oligarch-fuelled top end. It's the basic immutable rule. Rules and tweaks applied by governments affect supply or demand as does market sentiment which is affected by all sorts of things. But ultimately, that's what it comes down to.

[kev1974]

stuckmojo said:

To give some context: For not much more:

http://www.zoopla.co.uk/overseas/details/38965838?...

mmm yeah but how much is heating and general maintenance on a place like that? Probably way more than the mortgage and service charges on the London flat, unless you're prepared to run the French villa into the ground.

[walm]

kev1974 said:

mmm yeah but how much is heating and general maintenance on a place like that? Probably way more than the mortgage and service charges on the London flat, unless you're prepared to run the French villa into the ground.

Nah... it's heated by wood. Hugely efficient.
That's why everyone is taking out their condensing gas boilers and replacing with open fires.
.... wait, hold on.

[z4RRSchris]

sub prime has fallen 25% this year. Prime has fallen 15%. sales have just dried up.

I wonder how long that takes to filter down to the second hand market?

[loafer123]

An article in the Standard yesterday was pointing out that modern flats were being sold for a 60% premium over comparable secondhand stock, so it may be that the impact has a decent shock absorber.

[Pork]

okgo said:

Wasn't there a graph on this thread that actually showed the supply/demand had very little to do with the prices in London...

There's been much written on supply and demand. Build rates, population and immigration has far less to do with house prices than availability of funding.

The price of homes will stay high while funding is there, and will increase if further stimulus is introduced. If the music stops playing and finance becomes much more scarce or much more costly, the price of your home will be affected.

I was expecting the market to factor in an increase in the cost of finance which is anticipated in the next year or two. That is still a way away but if you have a 25 year mortgage, what might seem good value at 0.5% base might no be at 2%, 3% or even more. It certainly doesn't seem to be making an impact at all near me, things are still going up at a rate of knots.

[98elise]

Pork said:

okgo said:

Wasn't there a graph on this thread that actually showed the supply/demand had very little to do with the prices in London...

There's been much written on supply and demand. Build rates, population and immigration has far less to do with house prices than availability of funding.

The price of homes will stay high while funding is there, and will increase if further stimulus is introduced. If the music stops playing and finance becomes much more scarce or much more costly, the price of your home will be affected.

I was expecting the market to factor in an increase in the cost of finance which is anticipated in the next year or two. That is still a way away but if you have a 25 year mortgage, what might seem good value at 0.5% base might no be at 2%, 3% or even more. It certainly doesn't seem to be making an impact at all near me, things are still going up at a rate of knots.

In a free market prices are always driven by supply and demand. Finance is just a component of demand.

Demand is the a combination of the desire to own, and the means to own (finance). Take one away and you don't have demand. Supply is just the ability to meet (or not) the demand.

We have more people that want to buy, than we have available stock. While finance is available then prices will rise, however change one of the other components and prices will react accordingly.

Immigration and population growth are just a component of the desire to buy (i.e. it adds to the numbers).

[Adam Ansel]

98elise said:

In a free market prices are always driven by supply and demand. Finance is just a component of demand.

Demand is the a combination of the desire to own, and the means to own (finance). Take one away and you don't have demand. Supply is just the ability to meet (or not) the demand.

We have more people that want to buy, than we have available stock. While finance is available then prices will rise, however change one of the other components and prices will react accordingly.

Immigration and population growth are just a component of the desire to buy (i.e. it adds to the numbers).

However housing is not a free market. It is a distorted and highly inefficient market.
Estate Agents act to ramp up prices. Tax and finance are both easier for landlord than owners. Land supply is throttled by outrageously ridiculous planning laws. From deciding to build a house to moving in takes years. Even deciding to buy an already built house takes a silly amount of time. Government interferes with schemes like help to buy and by having protected, subsidised long tem tenancies in "social housing". etc etc
If housing were a truly free market then a 4 bed detatched house with an ample garden would be £100K and a 2 bed apartment would be £50K.

[walm]

Pork said:

if you have a 25 year mortgage, what might seem good value at 0.5% base might no be at 2%, 3% or even more.

Sadly if you think the average house buyer has that level of financial sophistication then you must have missed all the neg-am liar loans handed out in 2006-07!

[Adam Ansel]

walm said:

Sadly if you think the average house buyer has that level of financial sophistication then you must have missed all the neg-am liar loans handed out in 2006-07!

Sheeple only look at the monthly payments and ask if their cashflow is enough. Osborne must be wetting himself about a base rare rise. Very many people are right on the edge of affordibility with their homes, which now consume a ridiculous proportion of income. A LOT of people would have to declare bankruptcy if interest rates were normal. If oil prices went back up this would happen very quickly. QE driven inflation is being masked by the low historic price of many economic inputs.

[turbobloke]

Adam Ansel said:

98elise said:

In a free market prices are always driven by supply and demand. Finance is just a component of demand.

Demand is the a combination of the desire to own, and the means to own (finance). Take one away and you don't have demand. Supply is just the ability to meet (or not) the demand.

We have more people that want to buy, than we have available stock. While finance is available then prices will rise, however change one of the other components and prices will react accordingly.

Immigration and population growth are just a component of the desire to buy (i.e. it adds to the numbers).

However housing is not a free market. It is a distorted and highly inefficient market.
Estate Agents act to ramp up prices. Tax and finance are both easier for landlord than owners. Land supply is throttled by outrageously ridiculous planning laws. From deciding to build a house to moving in takes years. Even deciding to buy an already built house takes a silly amount of time. Government interferes with schemes like help to buy and by having protected, subsidised long tem tenancies in "social housing". etc etc
If housing were a truly free market then a 4 bed detatched house with an ample garden would be £100K and a 2 bed apartment would be £50K.

Agreed that housing is a market but not a particularly free one.

Regional markets? See under Grimsby or Hull or Middlesbrough.

2-bed house not flat up for less than £50k:
http://www.zoopla.co.uk/for-sale/details/39449161

4-bed semi not detached but asking below £100k:
http://www.zoopla.co.uk/for-sale/details/38697683?...

£160k asking price for a 4-bed detached house:
http://www.zoopla.co.uk/for-sale/details/39476007?...

[walm]

Adam Ansel said:

walm said:

Sadly if you think the average house buyer has that level of financial sophistication then you must have missed all the neg-am liar loans handed out in 2006-07!

Sheeple only look at the monthly payments and ask if their cashflow is enough. Osborne must be wetting himself about a base rare rise. Very many people are right on the edge of affordibility with their homes, which now consume a ridiculous proportion of income. A LOT of people would have to declare bankruptcy if interest rates were normal. If oil prices went back up this would happen very quickly. QE driven inflation is being masked by the low historic price of many economic inputs.

Bingo.
Combined with that age-old belief that "well the house price will have gone up so I can always re-mortgage" mantra!

[V6Alfisti]

Adam Ansel said:

Sheeple only look at the monthly payments and ask if their cashflow is enough. Osborne must be wetting himself about a base rare rise. Very many people are right on the edge of affordibility with their homes, which now consume a ridiculous proportion of income. A LOT of people would have to declare bankruptcy if interest rates were normal. If oil prices went back up this would happen very quickly. QE driven inflation is being masked by the low historic price of many economic inputs.

Absolutely,

I am staggered by the amount of seemingly smart people and some in Financial roles who just fail to grasp that we are at record lows for interest rates and completely fail to factor in any increase.

People are living right on the limit of affordability for 'now', unless many have a promotion coming up. Those rate rises will reverse any downward trend in repossessions. However I do understand that people are desperate but it's not worth losing a deposit and ultimately a home due to a short term/limited view.

[turbobloke]

V6Alfisti said:

Adam Ansel said:

Sheeple only look at the monthly payments and ask if their cashflow is enough. Osborne must be wetting himself about a base rare rise. Very many people are right on the edge of affordibility with their homes, which now consume a ridiculous proportion of income. A LOT of people would have to declare bankruptcy if interest rates were normal. If oil prices went back up this would happen very quickly. QE driven inflation is being masked by the low historic price of many economic inputs.

Absolutely,

I am staggered by the amount of seemingly smart people and some in Financial roles who just fail to grasp that we are at record lows for interest rates and completely fail to factor in any increase.

People are living right on the limit of affordability for 'now', unless many have a promotion coming up. Those rate rises will reverse any downward trend in repossessions. However I do understand that people are desperate but it's not worth losing a deposit and ultimately a home due to a short term/limited view.

It still looks as though a BoE rate rise is some way off, so that promotion might just arrive in time

[V6Alfisti]

contango said:

I concur, however we are coming up to the 7 year anniversary of 0.5% Uk base rates (05 March).
I never thought they would stay this low for such an extended period of time, with lack of inflation and possibility of the economy losing traction, an argument could be put forward for the next move to be a cut...not enough evidence yet though.
That is the point, 7 years has become the norm, those who have been lucky, right place-right time have done well.
So nobody wanted to be left behind and took their leap into the unknown.
With property prices increasing with interest only and pension buy to lets taking stock out of the market, human nature of not wanting to miss out has been stronger than the prudence of what could, empirically bring this crashing down.
At the end of the day the traits of greed have been stronger than fear backed by a government policy to keep the housing sector strong, in the hope this has a positive impact on the economy and keeps them in power.
Rates will go up one day(?), if something has worked well, that is the new normal, you can see why many are still jumping into the housing market.

(disclaimer: no products to sell and no leverage on property! )

I can't disagree, few people predicted it would stay so low for so long, and it will provide people with a sufficient buffer. However a lot of people I know have actively gone into property knowing they could lose it all if rates rise or they have any downtime between jobs. Literally zero contingency.

I have a plot reserved, but also looking at opportunities abroad. If something comes to fruition there, I avoid £400k plus of debt for a very average zone 3 property, and get to live somewhere nicer like Barcelona.

My situation is slightly different to most FTB as I ran my own business before joining the corporate world, and this is the only reason I have a large deposit. Most people either struggle, get trapped in HTB, bank of Mum/Dad or simply don't buy. The current prices are simply bonkers.

I do wonder at what price point people in London simply leave (if this hasn't already started)

[p1stonhead]

contango said:

I concur, however we are coming up to the 7 year anniversary of 0.5% Uk base rates (05 March).
I never thought they would stay this low for such an extended period of time, with lack of inflation and possibility of the economy losing traction, an argument could be put forward for the next move to be a cut...not enough evidence yet though.
That is the point, 7 years has become the norm, those who have been lucky, right place-right time have done well.
So nobody wanted to be left behind and took their leap into the unknown.
With property prices increasing with interest only and pension buy to lets taking stock out of the market, human nature of not wanting to miss out has been stronger than the prudence of what could, empirically bring this crashing down.
At the end of the day the traits of greed have been stronger than fear backed by a government policy to keep the housing sector strong, in the hope this has a positive impact on the economy and keeps them in power.
Rates will go up one day(?), if something has worked well, that is the new normal, you can see why many are still jumping into the housing market.

(disclaimer: no products to sell and no leverage on property! )

I think the current level (+/- 1 or 2%) is the new 'normal'. IMO they will never go back to where they once were. Too many people would be crippled by it, sending us into another huge mess.