October 2009 property bet
Discussion
and have another couple of 'em Well done Noel.
I love PHs! A simple post about a small wager and out come the " I wouldn't do it like that brigade"!
The moths in my wallet are all a flutter. What I need is, come the spring, a couple of pundits to say something like "buy now before you miss the bargains" and all the sheep with little or no memories will rush back in to the market and save me. And, of course, the odious Brown will help me by 'bigging things up' for an early election too. Ho hum.
I love PHs! A simple post about a small wager and out come the " I wouldn't do it like that brigade"!
The moths in my wallet are all a flutter. What I need is, come the spring, a couple of pundits to say something like "buy now before you miss the bargains" and all the sheep with little or no memories will rush back in to the market and save me. And, of course, the odious Brown will help me by 'bigging things up' for an early election too. Ho hum.
tvrbob said:
I'd like to buy at the bottom for long-term investment. The way I see it we haven't reached the bottom yet.
The fact is that the vast majority of sellers are still not reducing their prices low enough to align with the market in the hope that they can ride out the bottom and sell when prices start to rise. The longer prices stay artificially high the longer the bottom of the market will take to turn.
I'm not sure your analysis is right. IMO the market price is the market price - if you don't think the market is correct now then how can you ever believe the market at some other time is 'correct'?The fact is that the vast majority of sellers are still not reducing their prices low enough to align with the market in the hope that they can ride out the bottom and sell when prices start to rise. The longer prices stay artificially high the longer the bottom of the market will take to turn.
Buying at the bottom or selling at the top as a deliberate strategy is for practical purposes impossible. Yes, some people get it right by chance just like some people who bet on the horses. But you can never be sure the market has reached bottom, top or anywhere else.
What you should be looking at are the fundamentals. There's two main approaches,
1. I want a house to live in. I can afford the monthly repayments and am likely to be able to continue to afford them if interest rates go up again. I like and can afford that house so will buy it.
2. I want to invest ££££££ and think property could deliver capital growth in the longer term. I don't want to live in the property so will rent it out. If the rental income is sufficient to give me some net profit (even if interest rates go up again) then I'm happy to take on the capital risk, hoping that house prices will go up but recognising that they might go down.
Banks have tightened credit, and mortgages are not easily available to everyone (as they were previously).
- Banks will lend maximum 3.5x salary (or 3x joint salary)
- Banks will lend 75% LTV (loan to value) for their best rates
- Buy to let mortgages have mostly been withdrawn to the average buyer
It's doubtful any of these will reverse in the next year or 2, so how can prices go up with all these restrictions for the average buyer?
Even if interest rates went close to zero percent, the banks still won't lend you the money, so how will the demand for housing increase?
- Banks will lend maximum 3.5x salary (or 3x joint salary)
- Banks will lend 75% LTV (loan to value) for their best rates
- Buy to let mortgages have mostly been withdrawn to the average buyer
It's doubtful any of these will reverse in the next year or 2, so how can prices go up with all these restrictions for the average buyer?
Even if interest rates went close to zero percent, the banks still won't lend you the money, so how will the demand for housing increase?
tvrbob said:
cymtriks said:
It's not different this time, the market has simply adjusted to supply and demand as always.
Wrong, it is different this time because every 'up' cycle throughout recent history has been controlled by rules that maintain parity between earnings and the size of permitted mortgage debt. This time the lenders raised the level of permitted debt which in turn enabled people to pay disproportionately higher prices for property. This released money into the housing market which reduced supply and further increased cost through demand. The supply demand equation delivered the 'up' cycle but availability of money via deregulation of the borrowing v earning rule triggered the 'up' cycle and maintained it too long and ultimately until it reached values grossly disproportionate to the innate value of that housing.Supply and demand cycles need to be grounded by a stable financial base. Housing has always been controlled by the earning v mortgage debt rule, but not this time. Earnings are a common grounding but in this case earnings could not ground the equation because the earnings control was altered to permit higher debt.
Interest rates are still low by historical measures so the theoretical income multiple, if it were not for the current problems, would still be high.
Remember that for a long time in the eighties and nineties interest rates much higher than than the last decade's, in fact about twice as high, were normal. This is why income multiples were lower. Again supply and demand.
Ozzie Osmond said:
I'm not sure your analysis is right. IMO the market price is the market price - if you don't think the market is correct now then how can you ever believe the market at some other time is 'correct'?
Not quite. The market isn't moving even though money has become available. There is no market and this is likely due to the fact that the market price isn't the market price. This IMO is mostly due buyer hesitation and to the 'price' being too high, owners hoping to ride out the bottom and sell on the rise. If money is available and houses are being bought and sold then, as you put it, 'the market price is the market price'. The current stagnation can no longer be put down to lenders reluctance, it's now buyers reluctance which means that prices still haven't reached parity with buyers perceived value. Simply put, prices still need to reduce before supply and demand can come back to the market. Ozzie Osmond said:
Buying at the bottom or selling at the top as a deliberate strategy is for practical purposes impossible. Yes, some people get it right by chance just like some people who bet on the horses. But you can never be sure the market has reached bottom, top or anywhere else.
Correct, there's no looking glass. It is true however that many investment houses (several pension funds that I am aware of) are waiting for the right moment. I trust that those wise people know more than I do and so if they haven't made their move yet neither will I. The market bottom can only be identified retrospectively by evidence of sustained increase in selling price. I'm sure you'll agree that we won't see price increase until we see houses selling again. I therefore believe that the rising prices can be predicted by the precursor increase in the number of house sales.loafer123 said:
cymtriks said:
The government are not powerless.
They can change the rules.
They can nationalise banks.
They can take control of interest rates.
They can pump money into the system.
They also know that judgement is approaching and that the housing market is a key issue.
I predict a quick recovery of house prices. This may be built on sand. It may end in tears. But do you think they care? If they lose the gamble they'll just blame the banks or the tories.
Your faith in the ability of governments to reflate the economy and consumer sentiment is both touching and naive.They can change the rules.
They can nationalise banks.
They can take control of interest rates.
They can pump money into the system.
They also know that judgement is approaching and that the housing market is a key issue.
I predict a quick recovery of house prices. This may be built on sand. It may end in tears. But do you think they care? If they lose the gamble they'll just blame the banks or the tories.
You can't buck the market cycle, and we are only part way down a steep and deep slope.
The government can control all sorts of financial stuff and they want to keep their jobs. If they keep them and things turn bad then they blame the banks. If they don't keep them and things turn bad they blame the tories. So regardless of the long term effects they will try everything in their power to generate even the bare minimum of upturn.
cymtriks said:
The income multiple allowed increased as interest rates fell thus reducing the monthly repayments that had to be made. This is supply and demand in action.
Interest rates are still low by historical measures so the theoretical income multiple, if it were not for the current problems, would still be high.
Remember that for a long time in the eighties and nineties interest rates much higher than than the last decade's, in fact about twice as high, were normal. This is why income multiples were lower. Again supply and demand.
I'd suggest that we're never going to agree. I will say however that you are right with regard to supply and demand. Market cycles are always driven by supply and demand. The issue for me is that writing the whole thing off as pure supply and demand and rejecting all other market drivers is too simplistic a view. This time other significant actions worked to drive the 'up' market further than supply and demand would naturally of moved. Interest rates are still low by historical measures so the theoretical income multiple, if it were not for the current problems, would still be high.
Remember that for a long time in the eighties and nineties interest rates much higher than than the last decade's, in fact about twice as high, were normal. This is why income multiples were lower. Again supply and demand.
The increased availability of money was not a reaction to low interest rates as you suggest. It resulted from an excess of cash being managed by investors. Money is bought and sold like anything else and therefore responds to supply and demand. Supply was high so cost reduced therefore money become easy to attain. Interest rates and money supply are loosely connected but were being driven independently on this occasion.
NoelWatson said:
Pugsey and I are having a bet on the future value of property. Specifically, we are betting on whether the average house price will be higher in a year's time than it is today. For the baseline we are using Halifax October 2008
http://www.hbosplc.com/economy/includes/HousePrice...
with an October 2008 average of £168,176 (this came out on Thursday 6th). When the October 2009 report comes out (should be the same day as the Nov MPC vote - 4th November), if...
a). the average house price is equal to or more than £168,176, Noel pays £250 to Poppy Appeal
b). the average house price is less than £168,176, Pugsey pays £250 to Poppy Appeal.
I will update this thread on a monthly basis with the Halifax numbers.
November 2008: -2.6%, average price £163,605http://www.hbosplc.com/economy/includes/HousePrice...
with an October 2008 average of £168,176 (this came out on Thursday 6th). When the October 2009 report comes out (should be the same day as the Nov MPC vote - 4th November), if...
a). the average house price is equal to or more than £168,176, Noel pays £250 to Poppy Appeal
b). the average house price is less than £168,176, Pugsey pays £250 to Poppy Appeal.
I will update this thread on a monthly basis with the Halifax numbers.
http://www.hbosplc.com/economy/includes/04_12_08Ho...
NoelWatson said:
NoelWatson said:
Pugsey and I are having a bet on the future value of property. Specifically, we are betting on whether the average house price will be higher in a year's time than it is today. For the baseline we are using Halifax October 2008
http://www.hbosplc.com/economy/includes/HousePrice...
with an October 2008 average of £168,176 (this came out on Thursday 6th). When the October 2009 report comes out (should be the same day as the Nov MPC vote - 4th November), if...
a). the average house price is equal to or more than £168,176, Noel pays £250 to Poppy Appeal
b). the average house price is less than £168,176, Pugsey pays £250 to Poppy Appeal.
I will update this thread on a monthly basis with the Halifax numbers.
November 2008: -2.6%, average price £163,605http://www.hbosplc.com/economy/includes/HousePrice...
with an October 2008 average of £168,176 (this came out on Thursday 6th). When the October 2009 report comes out (should be the same day as the Nov MPC vote - 4th November), if...
a). the average house price is equal to or more than £168,176, Noel pays £250 to Poppy Appeal
b). the average house price is less than £168,176, Pugsey pays £250 to Poppy Appeal.
I will update this thread on a monthly basis with the Halifax numbers.
http://www.hbosplc.com/economy/includes/04_12_08Ho...
http://www.hbosplc.com/economy/includes/02_01_09Ho...
My analysis is this.
Banks were bonkers to get into the 95%, 100%, 110% mortgage territory. Return to the traditional "10% cash deposit" seems inevitable.
In a very densely crowded country people will pay for their housing as much as they can afford. Unless a very significant proportion of borrowers default on their mortgages as a result of losing their jobs there won't be much downward pressure. Also interest rates have fallen significantly which reduces the default risk.
Therefore, once the banks stop wetting their trousers (after all, they're the only people saying housing is very substantiall over-valued and it's exactly the opposite of what they were saying 18 months ago, so what do they know about it!) and enable people to start moving house again prices will rapidly stabilise about where they are now and then move up. If you extrapolate the mortgage figures which say only 27,000 people moved house in a month - that's 324,000 in a year; or only 3.24 million in a decade! - it rapidly becomes apparent that the current lull simply cannot continue. What's more, some people will want to trade up and take advantage of suppressed prices/cheap mortgages.
Which makes the bet an interesting one. Especially in light of the spurious accuracy of the average figures published!
Banks were bonkers to get into the 95%, 100%, 110% mortgage territory. Return to the traditional "10% cash deposit" seems inevitable.
In a very densely crowded country people will pay for their housing as much as they can afford. Unless a very significant proportion of borrowers default on their mortgages as a result of losing their jobs there won't be much downward pressure. Also interest rates have fallen significantly which reduces the default risk.
Therefore, once the banks stop wetting their trousers (after all, they're the only people saying housing is very substantiall over-valued and it's exactly the opposite of what they were saying 18 months ago, so what do they know about it!) and enable people to start moving house again prices will rapidly stabilise about where they are now and then move up. If you extrapolate the mortgage figures which say only 27,000 people moved house in a month - that's 324,000 in a year; or only 3.24 million in a decade! - it rapidly becomes apparent that the current lull simply cannot continue. What's more, some people will want to trade up and take advantage of suppressed prices/cheap mortgages.
Which makes the bet an interesting one. Especially in light of the spurious accuracy of the average figures published!
NoelWatson said:
NoelWatson said:
NoelWatson said:
Pugsey and I are having a bet on the future value of property. Specifically, we are betting on whether the average house price will be higher in a year's time than it is today. For the baseline we are using Halifax October 2008
http://www.hbosplc.com/economy/includes/HousePrice...
with an October 2008 average of £168,176 (this came out on Thursday 6th). When the October 2009 report comes out (should be the same day as the Nov MPC vote - 4th November), if...
a). the average house price is equal to or more than £168,176, Noel pays £250 to Poppy Appeal
b). the average house price is less than £168,176, Pugsey pays £250 to Poppy Appeal.
I will update this thread on a monthly basis with the Halifax numbers.
November 2008: -2.6%, average price £163,605http://www.hbosplc.com/economy/includes/HousePrice...
with an October 2008 average of £168,176 (this came out on Thursday 6th). When the October 2009 report comes out (should be the same day as the Nov MPC vote - 4th November), if...
a). the average house price is equal to or more than £168,176, Noel pays £250 to Poppy Appeal
b). the average house price is less than £168,176, Pugsey pays £250 to Poppy Appeal.
I will update this thread on a monthly basis with the Halifax numbers.
http://www.hbosplc.com/economy/includes/04_12_08Ho...
http://www.hbosplc.com/economy/includes/02_01_09Ho...
But then I've always been a glass half full guy.
house prices will fall
as previously mentioned,
all this is just self correction,
- the banks / estate agents allowed house prices to reach 6 time average income by over valueing /over lending
- it was never sustainable, the banks are going to have to go back to 10% deposit + 3.5 times your income
- people can't afford to spend as much, so prices come down to reach a level people can afford
As far as i'm concerned, it's that simple
Also an increase in demand contributed
- more people divorcing (still happening)
- dotcom bubble collapse lack of faith in stock market (people arent going to have faith in housing now)
- amatuer buy to let (thats going to happen less)
- lack of confidence in pension system (again are people going to want to invest in property instead over the next few years)
I think pugsy should get his cheque book out now
-
as previously mentioned,
all this is just self correction,
- the banks / estate agents allowed house prices to reach 6 time average income by over valueing /over lending
- it was never sustainable, the banks are going to have to go back to 10% deposit + 3.5 times your income
- people can't afford to spend as much, so prices come down to reach a level people can afford
As far as i'm concerned, it's that simple
Also an increase in demand contributed
- more people divorcing (still happening)
- dotcom bubble collapse lack of faith in stock market (people arent going to have faith in housing now)
- amatuer buy to let (thats going to happen less)
- lack of confidence in pension system (again are people going to want to invest in property instead over the next few years)
I think pugsy should get his cheque book out now
-
Pugsey said:
NoelWatson said:
NoelWatson said:
NoelWatson said:
Pugsey and I are having a bet on the future value of property. Specifically, we are betting on whether the average house price will be higher in a year's time than it is today. For the baseline we are using Halifax October 2008
http://www.hbosplc.com/economy/includes/HousePrice...
with an October 2008 average of £168,176 (this came out on Thursday 6th). When the October 2009 report comes out (should be the same day as the Nov MPC vote - 4th November), if...
a). the average house price is equal to or more than £168,176, Noel pays £250 to Poppy Appeal
b). the average house price is less than £168,176, Pugsey pays £250 to Poppy Appeal.
I will update this thread on a monthly basis with the Halifax numbers.
November 2008: -2.6%, average price £163,605http://www.hbosplc.com/economy/includes/HousePrice...
with an October 2008 average of £168,176 (this came out on Thursday 6th). When the October 2009 report comes out (should be the same day as the Nov MPC vote - 4th November), if...
a). the average house price is equal to or more than £168,176, Noel pays £250 to Poppy Appeal
b). the average house price is less than £168,176, Pugsey pays £250 to Poppy Appeal.
I will update this thread on a monthly basis with the Halifax numbers.
http://www.hbosplc.com/economy/includes/04_12_08Ho...
http://www.hbosplc.com/economy/includes/02_01_09Ho...
But then I've always been a glass half full guy.
NoelWatson said:
NoelWatson said:
NoelWatson said:
Pugsey and I are having a bet on the future value of property. Specifically, we are betting on whether the average house price will be higher in a year's time than it is today. For the baseline we are using Halifax October 2008
http://www.hbosplc.com/economy/includes/HousePrice...
with an October 2008 average of £168,176 (this came out on Thursday 6th). When the October 2009 report comes out (should be the same day as the Nov MPC vote - 4th November), if...
a). the average house price is equal to or more than £168,176, Noel pays £250 to Poppy Appeal
b). the average house price is less than £168,176, Pugsey pays £250 to Poppy Appeal.
I will update this thread on a monthly basis with the Halifax numbers.
November 2008: -2.6%, average price £163,605http://www.hbosplc.com/economy/includes/HousePrice...
with an October 2008 average of £168,176 (this came out on Thursday 6th). When the October 2009 report comes out (should be the same day as the Nov MPC vote - 4th November), if...
a). the average house price is equal to or more than £168,176, Noel pays £250 to Poppy Appeal
b). the average house price is less than £168,176, Pugsey pays £250 to Poppy Appeal.
I will update this thread on a monthly basis with the Halifax numbers.
http://www.hbosplc.com/economy/includes/04_12_08Ho...
http://www.hbosplc.com/economy/includes/02_01_09Ho...
http://www.hbosplc.com/economy/includes/05_02_09Ho...
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