The housing market - next 20-50 years

[XMT]

Hi.

I am looking to buy my first home and I know I might sound a little crazy but when will this madness end.
If I'm wrong in my thinking then please correct it.

People already struggle to afford to buy a place across the country never mind just London. Every article I have read talks about an average 6-10% value increase per year. Is this always going to be the case?

What does this mean for the younger generation or our children's children?

It's just complete an utter madness.
Someone please explain.

Everything I have read (I am in Scotland) it's only going to get worse!

Edited by XMT on Saturday 4th February 22:23

[trowelhead]

XMT said:

Hi.

I am looking to buy my first home and I know I might sound a little crazy but when will this madness end.
If I'm wrong in my thinking then please correct it.

People already struggle to afford to buy a place across the country never mind just London. Every article I have read talks about an average 6-10% value increase per year. Is this always going to be the case?

What does this mean for the younger generation or our children's children?

It's just complete an utter madness.
Someone please explain.

Everything I have read (I am in Scotland) it's only going to get worse!

Edited by XMT on Saturday 4th February 22:23

Press reports usually centre around London/SE, when large parts of the UK are still "affordable" in real terms. Sensationalism sells ad space though.

[kiethton]

God that graph is pretty sensationalist.

Said it a few times, house price to earnings is irrelevant, it need to be vs. Net household earnings/household disposable income...

The purchasing power of people now is substantially higher than it was previously, most women looking to buy a first or even second home now work, people generally buy together not on their own.

Also consider the proportion of people that could afford to buy historically, chart net household creation and net new home construction. With higher divorce rates, more OAP's and net immigration the proportion of people that can afford to buy has been shrunk by external factors, London is another level as you've got to consider price competition globally...being a global city and all. When considering the cost of housing vs the income of the people in the percentile that can now actually afford them they're still pretty cheap...

Inequality and population growth exceeding supply is the bigger issue, as long as the balance stays as is it can only get worse.

[XMT]

So what your saying is, being in Scotland I should stop moaning lol lol

[kiethton]

No more that if you actually analyse the full suite of data available houses are quite expensive but in real terms they are still in the normal range and not as expensive as they've been in real terms historically., that's in GBP, index it in a foreign currency and they're far cheaper still - our housing stock is a global commodity after all

[Prohibiting]

Aren't we due a house crash this year similar to 08?

[XMT]

Prohibiting said:

Aren't we due a house crash this year similar to 08?

I'd be interested to hear opinions on this

[davepoth]

XMT said:

Prohibiting said:

Aren't we due a house crash this year similar to 08?

I'd be interested to hear opinions on this

Nobody has a clue. The big problem, as alluded to by posters above, is that London property is now an investment grade asset class. That means that the house market anywhere within commuting distance of London (which now includes Bristol, apparently) is being skewed by macroeconomic trends in a way that we never used to see. Even if the UK economy tanked it's likely that London prices would hold up, as the "asset class" properties are effectively priced in USD.

As you can see in that graph, houses outside of the commuter area (North, Scotland and Wales) are holding roughly steady in proportional terms. So those areas are probably not due a crash.

[egor110]

Prohibiting said:

Aren't we due a house crash this year similar to 08?

Was that a proper crash?

We had a meeting with our mortgage advisor around that time , who said due to the equity in our 3 bed , hang on and when the crash comes we could afford to sell cheap and move up to a 4-5 bedroom, the crash never came and the prices didn't drop.

[eldar]

XMT said:

I'd be interested to hear opinions on this

There are more potential buyers than houses. Until that changes prices will not decrease much, if at all. Short term boom/bust, but overall pressure is upwards.

Relax planning regulation to increase supply to match demand sounds good, but it won't do a lot in the south east.

[kingston12]

XMT said:

People already struggle to afford to buy a place across the country never mind just London. Every article I have read talks about an average 6-10% value increase per year. Is this always going to be the case?

The 6-10% is based on what has happened over the past few decades. There are several big differences to the average over that period at the moment:

1. Wage growth is much lower than it has been on average during that period.
2. Interest rates are much lower which has helped offset the lower wages.
3. Buy to let is much more popular.
4. Overall excess demand is much higher because of huge population increase compared to number of houses built.

I think that stalled wage growth is the one factor that needs to change to keep a reasonably high level of house price growth. However cheap mortgages remain, if people just can't borrow enough, this must be a limiting factor.

For example, a 1 bed flat in my area would have cost me £100k in 2000, £400k now, which is an average of 8.5% annual growth over 17 years. Assuming a 15% deposit anda 5x income mortgage, I'd have needed an income of £17k in 2000, almost £57k now.

That means that low earners are priced out of the area, but it is still affordable for some.

However, if the same 8.5% growth continues for the next 17 years, the flat will be worth £1.6m, meaning an income of £272k would be required. If wages stay as flat as they are, that will still be a very high income in 2034.

It seems ridiculous that a 1 bed flat in zone 6 London could ever be worth £1.6m, but it would have seemed similarly ridiculous in 2000 that it would be worth £400k 17 years later with limited wage growth.

[rdjohn]

I think that the simple answer is a question.

Are you likely to need a roof over your head for the next 20-50 years?

So, if the answer is YES, then you have the opportunity to buy a high value asset with high leverage via a mortgage.

Alternatively, you can pay someone else a dividend for their investment.

I bought my first house in 1972 when Gazumping had only just been invented. I have lost count of the number of predicted crashes that have occurred during the last 45 years, I have only switched house 4-times, but I have always had a roof over my head and come up smelling of roses, in the fullness of time. I have used its collateral to start businesses and secure cheap loans.

Whilst demand greatly exceeds supply of quality properties, nothing is likely to change massively "in the long term".

So your only real concern is location, location, location.

[XMT]

rdjohn said:

I think that the simple answer is a question.

Are you likely to need a roof over your head for the next 20-50 years?

So, if the answer is YES, then you have the opportunity to buy a high value asset with high leverage via a mortgage.

Alternatively, you can pay someone else a dividend for their investment.

I bought my first house in 1972 when Gazumping had only just been invented. I have lost count of the number of predicted crashes that have occurred during the last 45 years, I have only switched house 4-times, but I have always had a roof over my head and come up smelling of roses, in the fullness of time. I have used its collateral to start businesses and secure cheap loans.

Whilst demand greatly exceeds supply of quality properties, nothing is likely to change massively "in the long term".

So your only real concern is location, location, location.

Yes but where does this end? Surely it's just not possible for it to always go up and up and up. How is anyone meant to get into the property ladder then?

[rdjohn]

Exactly what we thought back in 1972. Are you supposing you will not need a roof over your head in 50-years time?

Hopefully, who can afford to buy it will be a problem for your estate. You always need a roof.

My only big considerations would be are your circumstances stable? Partner and job etc.

The only time you come unstuck is if you have to sell when prices fall? If not, then you just hunker down and ride it out.

[drainbrain]

XMT: I just did a Rightmove search of East Ayrshire + 5 miles.

Up to £100k there are currently in excess of 2000 properties available.

Up to £70k there are 1308

Up to £50k there are 567

What exactly is the problem??

[eldar]

XMT said:

Yes but where does this end? Surely it's just not possible for it to always go up and up and up. How is anyone meant to get into the property ladder then?

Who knows where it will end, too many variables.

Get on the property ladder by planning. Loads of people manage it.

[BoRED S2upid]

drainbrain said:

XMT: I just did a Rightmove search of East Ayrshire + 5 miles.

Up to £100k there are currently in excess of 2000 properties available.

Up to £70k there are 1308

Up to £50k there are 567

What exactly is the problem??

Which is the case for great swathes of the country! OP stop reading the Daily Mail its not that bad outside of London.