How far will house prices fall [volume 4]

[jdw1234]

Was this discussed?

http://www.theguardian.com/money/2014/dec/15/londo...

I think the Rightmove index understates declines in average asking price.

Please correct me if I am wrong, but it only registers the initial asking price in the index and does not take into account subsequent price reductions.

If so, the landreg figures should be interesting when they catch up (3 month lag).

[Rovinghawk]

9mm said:

Quoted yields seem like a bit of a joke to me, as they never never appear to take into account things like repairs, maintenance charges, periods where the property is unoccupied, tenancy disputes, unpaid rent, etc.

They form a basis for comparison.

[walm]

jdw1234 said:

Was this discussed?

I think you are right about the methodology but wrong about the interpretation.

They take "all new properties" each month and compare it to previous months.
So it is genuinely like-for-like.

Of course, there could be a disconnect between lowered prices of existing for sale properties and the aspirations of new sellers but it isn't clear which way that would go.
In other words, you can't possibly know whether asking price drops (on existing for sale property) in November were better or worse than the asking price drops in October.

However, what seems far more likely to me is that new listings will take those changes into account - as obviously people want to price close to what the CURRENT asking prices look like in their area.

So the VERY BEST measure would be what Rightmove give us.

Of course it could be skewed if a whole bunch of very expensive property came to market (or very cheap) in one month.

[jdw1234]

But don't new listings every month make a small proportion of overall listings?

E.g. if 5 new properties come on at initial kite flying prices, but in the same month 100 other existing listed properties reduce by 10% then the index doesn't reflect the true decline.

I appreciate what you are saying about new listings matching existing prices, but I think there is a bit of a lag before new vendors accept the price promised by the estate agent to get a listing/last sold price on street is not realistic (for example).

What about that house on Bishop's Av. which was up initially for £100m, but is now offers over £30m!!

[Mr Whippy]

walm said:

Derek Chevalier said:

NomduJour said:

Mr Whippy said:

OK, and my point is that oop'north properties are cheap and have yields because they are risky

No - a strong market with capital appreciation means yield compression (people will pay more for the same return, trade-off being capital growth). Not the same thing as risk vs yield per se.

More details in on Wkikpedia

http://en.wikipedia.org/wiki/Greater_fool_theory

I don't think this is fair.
I think it is absolutely rational to believe in LONG TERM inflation.
(Particularly with a government printing money!)
As a result it makes sense that hard assets will also rise in price.

So if I were doing a full financial analysis of a property investment I would absolutely build in some level of inflation which would enhance my returns above and beyond the simple net rental yield.

People do this everyday. A 4% gross yield on property absolutely does not justify the risks, transaction and other costs.
You would be better off with that new risk-free 4% bond from the government or whatever it is.

So completely rational people are building in some capital appreciation to their numbers.
And with a little leverage, it doesn't have to be huge to add 1-2ppt to the yield.

Of course you can disagree and say - look at the oil price, look at wages, look at interest rates and say we will have zero to negative inflation which is most likely close to true for a couple of years.
However, it's not irrational to disagree with that view.

That's all fine if you believe the current value represents what people are willing to pay for these properties today with current credit availability and salary outlooks in the areas they are, and a new round of FTB'ers moving up (ie, a generation on without pre 2000 equity to tag along)

What my point is, is that stuff up in the North boomed for no other reason than cheap credit and a high degree of growth potential fervour, driven by probable actual growth in the south, alongside cheap credit offered based on the idea that if prices would rise then there was little risk to lenders.

How else could my property jump almost 60% in 2 years, and the two years before that it'd jumped 35%... that's a near doubling in 4yrs.

That was common at the time all over the Leeds city area.

NO boom in jobs. NO boom in salaries. NO boom in transport links. No nothing except a boom in property values, a boom which never really corrected in 2007/2008.


That isn't a good place to start from if you're buying and expecting capital appreciation in the medium term.


Even from 2000 values, at 5% growth average per year, we'd only just have doubled by now... but salaries and jobs and potential to earn in most of the North hasn't risen my 5% average per year in that intervening 15 years.

What exactly will drive house prices UP, when they're already all but unaffordable to FTB'ers today (generation rent, high unemployment, relatively poor salaries, tighter borrowing restrictions)?


Maybe if salaries were rising fairly strongly, interest rates off the bottom, and low unemployment, I'd say yes maybe houses will go up in value. But right now there is no signals to suggest anything but another decade of doldrums as the debt is devalued away for another half generation.


Dave

[walm]

I can't disagree with any of that, other than to say that as ever it is about location.
I certainly wouldn't be building in much inflation in a market that was up 100% over 4 years!!

[Mr Whippy]

I agree.

There will be hot spots where things just turn out to be good.

Finding them will require a significant amount of homework and some thought/risk consideration about the UK economy in the 2015-2030 period imo.


Dave

[jonah35]

Every new generation wants a home and they don't care what prices are, they just want to buy.

Interest rates are more likely to go down than up.

Even just with inflation a £100k house goes up £2kpa.

Population is going up.

If a £60k house is £60k in 20 years I'd be surprised, that means the economy has had a bad run. the average wage at that time may be £50k.

no one knows what will happen

[Pork]

jonah35 said:

Interest rates are more likely to go down than up.

what makes you say that?

jonah35 said:

no one knows what will happen

I agree.

[Mr Whippy]

jonah35 said:

no one knows what will happen

Good post

But the law of averages suggests it could be terrible, just as much as it could be amazing.

[gibbon]

Pork said:

jonah35 said:

Interest rates are more likely to go down than up.

what makes you say that?

jonah35 said:

no one knows what will happen

I agree.

UK CPI came out yesterday down -0.3% month on month, and down to 1% year on year. The target, note, not a cap, but the target, is 2%, we havent been anywhere near that for a long time. The economy is slowing further. I dont believe rates will go up for a long time, could they go down? I would think its entirely plausible.

[turbobloke]

gibbon said:

Pork said:

jonah35 said:

Interest rates are more likely to go down than up.

what makes you say that?

jonah35 said:

no one knows what will happen

I agree.

UK CPI came out yesterday down -0.3% month on month, and down to 1% year on year. The target, note, not a cap, but the target, is 2%, we havent been anywhere near that for a long time. The economy is slowing further. I dont believe rates will go up for a long time, could they go down? I would think its entirely plausible.

Is that regarding another quarter point or all the way in one go?

ET correct points. Quarter point being 25 basis points.

[Mr Whippy]

gibbon said:

Pork said:

jonah35 said:

Interest rates are more likely to go down than up.

what makes you say that?

jonah35 said:

no one knows what will happen

I agree.

UK CPI came out yesterday down -0.3% month on month, and down to 1% year on year. The target, note, not a cap, but the target, is 2%, we havent been anywhere near that for a long time. The economy is slowing further. I dont believe rates will go up for a long time, could they go down? I would think its entirely plausible.

Nothing is going anywhere until something changes.

That is either corrections, wiping out of debts, new economic models, world changing innovations or technologies that generate huge economic growth etc.


If you think property today is undervalued against the UK economic background then hop on by all means I say!

[gibbon]

Mr Whippy said:

Nothing is going anywhere until something changes.

That is either corrections, wiping out of debts, new economic models, world changing innovations or technologies that generate huge economic growth etc.


If you think property today is undervalued against the UK economic background then hop on by all means I say!

I dont think property is undervalued, but i think it is finite, and i think money is exceptionally cheap to borrow, and will remain so for some time, pushing up finite commodities like art, classic cars, property and land.

I could however be completely wrong.

[Derek Chevalier]

gibbon said:

Mr Whippy said:

Nothing is going anywhere until something changes.

That is either corrections, wiping out of debts, new economic models, world changing innovations or technologies that generate huge economic growth etc.


If you think property today is undervalued against the UK economic background then hop on by all means I say!

I dont think property is undervalued, but i think it is finite, and i think money is exceptionally cheap to borrow, and will remain so for some time, pushing up finite commodities like art, classic cars, property and land.

I could however be completely wrong.

How are you able to ascertain that money is cheap to borrow, unless you are taking out a fix over the duration of the mortgage (not sure these are available widely in UK)?

[Derek Chevalier]

fishballs said:

The fact is we are in a very benign interest rate environment with low inflation.

What inflation measure are you using? House prices? Classic car prices. There are speculative bubbles wherever you look. I'm not sure you can claim that rates are benign - we are still in the situation where rates are at "emergency lows", and real interest rates remain negative.

[gibbon]

Derek Chevalier said:

How are you able to ascertain that money is cheap to borrow, unless you are taking out a fix over the duration of the mortgage (not sure these are available widely in UK)?

I make a judgement on the short to medium term outlook, and arrange funding as per that view. You can currently borrow at sub 1.5% for two years, I am fairly confident that the subsequent 2 to 3 years will still be able to be financed at below 2%. Again, i could be wrong, but thats my view and my position accordingly.

In the mean time i get to enjoy living in a lovely home for agreeable cost.

[gibbon]

Derek Chevalier said:

What inflation measure are you using? House prices? Classic car prices. There are speculative bubbles wherever you look. I'm not sure you can claim that rates are benign - we are still in the situation where rates are at "emergency lows", and real interest rates remain negative.

CPI and RPI are considered fairly good indicators.

[Mr Whippy]

gibbon said:

Mr Whippy said:

Nothing is going anywhere until something changes.

That is either corrections, wiping out of debts, new economic models, world changing innovations or technologies that generate huge economic growth etc.


If you think property today is undervalued against the UK economic background then hop on by all means I say!

I dont think property is undervalued, but i think it is finite, and i think money is exceptionally cheap to borrow, and will remain so for some time, pushing up finite commodities like art, classic cars, property and land.

I could however be completely wrong.

But everything is finite.

Speculate, growth, peak, correction, speculate, growth etc etc.

Where are we on the curve. I'd say a very big top, or a very wide bottom... which one is up to you to decide.

[Derek Chevalier]

gibbon said:

In the mean time i get to enjoy living in a lovely home for agreeable cost.

Ditto for me, but I am very aware that the current situation is not normal in any way.