How far will house prices fall [volume 4]

[kingston12]

In a thread titled 'How far will house prices fall', it must be inevitable that London will feature most given that's where prices are most stretched?

Drainbrain's posts illustrate that in certain parts of the country, prices really don't have much to fall by. If you can buy a flat for somewhere around 2x the minimum wage, or buy one to rent and make a 20%+ gross yield, then that is a better than it ever was in most places.

I think the thread has been quite interesting lately, given that the two main conversations have been about a £20k flat in Glasgow and another one for 45 times that price in London!

Both of those interest me, even though neither of them reflect the market around me. I might only live seven or so miles from South Kensington, but in a very different area indeed.

Edited by kingston12 on Saturday 23 September 09:26

[W124]

It does look, at least look anyway, that the malaise in London is spreading. I live in Bucks, Amersham way, and it's all gone very quiet here. Looks like a bit of a perfect storm all of a sudden.

[ClaphamGT3]

W124 said:

It does look, at least look anyway, that the malaise in London is spreading. I live in Bucks, Amersham way, and it's all gone very quiet here. Looks like a bit of a perfect storm all of a sudden.

"Malaise in London" is - and no offence intended - just too generic a term to be meaningful. Some parts of the market are in decline, others are static or showing slow growth and some are performing strongly. Lack of stock is also distorting any attempt to meaningfully trend data. As a 'for instance' there are two houses for sale in the seven streets around where we live. Up to early 2016 the houses had reached a certain price point. The two on the market currently are at 10 & 20% above that (albeit the 20% one is eot with a garage) and any buyer would want to spend another £100k on either. The one that has just sold (completed) was priced at the early 2016 level and they accepted an offer 2.5% below that suggesting that good quality, realistically priced stock will still shift

[W124]

ClaphamGT3 said:

W124 said:

It does look, at least look anyway, that the malaise in London is spreading. I live in Bucks, Amersham way, and it's all gone very quiet here. Looks like a bit of a perfect storm all of a sudden.

"Malaise in London" is - and no offence intended - just too generic a term to be meaningful. Some parts of the market are in decline, others are static or showing slow growth and some are performing strongly. Lack of stock is also distorting any attempt to meaningfully trend data. As a 'for instance' there are two houses for sale in the seven streets around where we live. Up to early 2016 the houses had reached a certain price point. The two on the market currently are at 10 & 20% above that (albeit the 20% one is eot with a garage) and any buyer would want to spend another £100k on either. The one that has just sold (completed) was priced at the early 2016 level and they accepted an offer 2.5% below that suggesting that good quality, realistically priced stock will still shift

Edited due to sausage finger/hangover convergence.

Yes - you are right. Malaise is too vague. Really it's just that, out here at least, people are chary about the market in general. Sentiment is a funny thing.

I was merely observing a slow-down in the insane world of property round here. It's definitely there. And not driven by lack of stock either.

Edited by W124 on Saturday 23 September 09:28

[g3org3y]

ClaphamGT3 said:

...good quality, realistically priced stock will still shift

Definitely this.

I've mentioned before that my wife and I have spent the last 18 months trying to buy a house (in Essex).

Decent property in desirable areas that is priced properly is selling within a week. The usual overpriced stuff is sitting for months and months.

[Sheepshanks]

anonymous said:

[redacted]

People are weird about things they own though - trying to get an off-peak villa at the moment and despite literally thousands being available most owners (generally Brits) won't budge on price, or they offer 10% off. They'd rather it sat there empty.

[Sa Calobra]

Sa Calobra said:

matrignano said:

Unfortunately that's the going price (currently) for decent 2 beds in the area I want to live in.
Nothing particularly fancy at all.
I just don't won't to compromise, I'm 34 and been renting all my life, I don't care about getting a "better deal" by buying in an up and coming area (read: st area with potential to become super expensive), I just want somewhere where I know I'll be happy for a few years. And get on the ladder and stop paying somebody else's mortgage.

I can wait no probs, I just fear that I might lose potentially the only viable buying window I have given my budget. If prices go up by even just 10% I'll be priced out and who knows when I'll ever be able to afford to buy in south ken again.

Re: London salaries - plenty of people include myself who make a good wage.
What I really struggled with was putting together 100k+ in savings to put a deposit down. Even with high London salaries it's not that easy to save that kind of cash in a reasonable time frame.

On the run up to the 2008 recession we were house hunting and me and my wife were split. I was saying it's madness and not sustainable. She was panicking and saying if we don't buy now it'll just keep on rising and we'll be locked out. I said it's going to crash, it must at the prices etc. I can see a similar thing happening locally to me now. It's heating up. We've held off looking for our next move for a year. I think the interest rates will spike due to some sort of side event. It's a gut feel but I had the same feeling as 06-08.

The key point is would you be stretching yourself to buy this house in sw5? In 2007/08 we would have stretched ourselves and although our employers did wobble in the recession we weren't to know that we would have survived/kept our jobs as it was close for me. So if your employer was affected by a recession (would they be?) would your job be safe?

[TheLordJohn]

V6Alfisti said:

If people were on 2.5x multiples down here, property would be flying. I think the average property price is about 13x versus average salary in London.

Edited by V6Alfisti on Friday 22 September 22:32

My combined salary isn't 'average' though, so not a true comparison.
As per the last line of my previous, no one is truly tied down to where they are born/raised.
They may want to live in 1 certain area (I'd love to be able to afford the Cotswolds) but in reality, life's a bh.

[hyphen]

TheLordJohn said:

V6Alfisti said:

If people were on 2.5x multiples down here, property would be flying. I think the average property price is about 13x versus average salary in London.

Edited by V6Alfisti on Friday 22 September 22:32

My combined salary isn't 'average' though, so not a true comparison.
As per the last line of my previous, no one is truly tied down to where they are born/raised.
They may want to live in 1 certain area (I'd love to be able to afford the Cotswolds) but in reality, life's a bh.

Life is only a bh due to the housing system we have put in place being a bh!

[mjb1]

mike74 said:

dazwalsh said:

So in a nutshell from my own perception it appears the southeast is stalling a wee bit but other areas still going strong?

I'm waiting for a crash up here in Leeds but no signs of it just yet.

London has always lead the UK property market with (mostly) price rises ''rippling out''... it might be a few more months yet but the rest of the UK will eventually catch the cold that London currently has.

I'm not sure how far the ripple will reach though, maybe 75 mile north of London? Beyond that I think prices are fairly insulated - because they haven't seen the huge inflation that the SE has since the last crash, there isn't that much to lose shed from their prices. Normally markets are in some sort of growth otherwise they're crashing. Generally, a straight stagnation or slow correction is rare, when buyers lose confidence they wait it out as much as possible. What we are currently seeing is only people that really, really need to move doing so, everyone else is sitting tight for as long as possible.

So supply is down, as well as demand, and that is keeping prices moderately static. If we can avoid a crash, then great, but most of London and the SE appears to be vastly over inflated. I think only professional couples with well above (national) average wages have much chance of getting on the ladder. London must be full of unskilled workers who have no prospect of getting on the ladder? But maybe I'm out of touch - are shop assistants etc, earning £35k+ in London?

The current stamp duty arrangements are definitely having an effect on the London and SE prices, and it wouldn't surprise me if the the govt relaxes them soon. In a rising market market people don't notice/care so much as they move up the ladder, because they're grateful for the huge increase in value they've probably realised on the place they're selling. But as soon as growth eases off to the point where you can't move up the ladder without feeling the hit of the huge stamp duty fee, then the wheels stop turning, and before you know it the train is rolling back down the hill.

[TheLordJohn]

hyphen said:

Life is only a bh due to the housing system we have put in place being a bh!

Well vote someone different into parliament then.
Or start a party if you're that bothered.

Ever rising house prices are considered 'good' by a lot of homeowners, that's why politicians continue to meddle to encourage them. That, and a city the size of Bradford is growing in the U.K annually.

The simple fact of the matter is there is plenty of good housing stock across a huge % of the U.K which can be had for £250k or less.
Two people earning the national average, that's 5 x combined; less with deposit taken into account.

Plenty of excuses from everyone as to why they don't own a home.
I accept it's never been more expensive (in relation to income) to buy, but people are happy to waste money on the latest generic, white diesel German motor, 2 iPhone whatevers, nights out and takeaways, unused gym memberships etc, and 'Netflix and chill'...

[V6Alfisti]

TheLordJohn said:

My combined salary isn't 'average' though, so not a true comparison.
As per the last line of my previous, no one is truly tied down to where they are born/raised.
They may want to live in 1 certain area (I'd love to be able to afford the Cotswolds) but in reality, life's a bh.

I think I misread your main point, which was that anyone can move and not face those London/Surrey multiples (true).

However the practical/life reality for many is that it isn't an option, so people will either stretch themselves (which I agree is silly) or make a compromise (which is fine) and all based on a risk assessment (which is my point).

The difference in risk between the two regions (Quick Google):

Avg Salary Yorkshire = £21k, Avg Property = £155k . Thus 7.38x multiple
Avg London Salary = £35k , Avg Property = £607k. Thus 17.34x multiple

Vastly different commitments and flexibility. With massively different commitments in terms of stamp duty/deposit.

[V6Alfisti]

TheLordJohn said:

Well vote someone different into parliament then.
Or start a party if you're that bothered.

Ever rising house prices are considered 'good' by a lot of homeowners, that's why politicians continue to meddle to encourage them. That, and a city the size of Bradford is growing in the U.K annually.

The simple fact of the matter is there is plenty of good housing stock across a huge % of the U.K which can be had for £250k or less.
Two people earning the national average, that's 5 x combined; less with deposit taken into account.

Plenty of excuses from everyone as to why they don't own a home.
I accept it's never been more expensive (in relation to income) to buy, but people are happy to waste money on the latest generic, white diesel German motor, 2 iPhone whatevers, nights out and takeaways, unused gym memberships etc, and 'Netflix and chill'...

Again this misses the practical reality of having to be in an area for work, but yes there are areas that are cheaper.

You also miss the qualification of how much more expensive in relation to income it is now vs the past, the number is VASTLY different and nothing to do with so called perks and is a massive generalisation. There was a simple graph that showed the difference.

When property is 17x times average salary in an area, no perks/night outs make a blind bit of difference.

I personally have the savings/salary to buy in London but a simple assessment of the market shows that I am at severe risk of losing my shirt in the short/medium term and would be at least five figures down if I bought last year in some the areas I looked at inc Maida Vale, and can now afford to buy in Kensington that I couldn't last year. This is simple fact.

I have nothing to gain in joining this conversation, just sharing my view. If some people see the risk as well, and a short stand off allows them to reduce their commitments to the bank, all the better. I am not an Estate Agent/Developer with a direct interest in selling/commissions, but even a number of EAs seem rather gloomy about the short term prospects based on the RICS report.

[mjb1]

There's no such thing as 'average' though in reality. There is a lot of high end stuff in London that pulls up the average figure. There are also a larger proportion of 'professional' jobs that are significantly higher paid than the 'average' wage. In other parts of the country, there is proportionally less top end stuff. Not sure how that affects things.

Agree, it's definitely a higher stakes game in London. But no lender will do 17x salary, mind you they won't do 7x either, which is your multiplier for Yorkshire. So in both examples, that makes home buying unaffordable for a single person without a hefty deposit. And when you point out the 17x figure, why the hell is anyone daft enough to want to live/work in London? Drawn in by the higher salary, then lose out much more on cost of housing. So why do it, better off elsewhere earning less, and paying less, surely? I can understand well paid management/professionals being in London, what I can't understand is why unskilled/low skilled workers would want to be, when they must have zero chance of getting on the housing ladder.

I'd argue that it's higher risk in London purely because of prices, and how they've surged since 2008/10. Nothing to do with salary multiples.

[p1stonhead]

V6Alfisti said:

TheLordJohn said:

Well vote someone different into parliament then.
Or start a party if you're that bothered.

Ever rising house prices are considered 'good' by a lot of homeowners, that's why politicians continue to meddle to encourage them. That, and a city the size of Bradford is growing in the U.K annually.

The simple fact of the matter is there is plenty of good housing stock across a huge % of the U.K which can be had for £250k or less.
Two people earning the national average, that's 5 x combined; less with deposit taken into account.

Plenty of excuses from everyone as to why they don't own a home.
I accept it's never been more expensive (in relation to income) to buy, but people are happy to waste money on the latest generic, white diesel German motor, 2 iPhone whatevers, nights out and takeaways, unused gym memberships etc, and 'Netflix and chill'...

I would be at least five figures down if I bought last year

If you bought last year, would you have needed to move again this year?

If not you wouldn’t have ‘lost’ anything. Value of your house means nothing if you aren’t trying to move.

The statement above makes me think you would always be trying to figure the value of your house out once you had bought which would drive you insane.

Edited by p1stonhead on Saturday 23 September 14:51

[V6Alfisti]

p1stonhead said:

If you bought last year, would you have needed to move again this year?

If not you wouldn’t have ‘lost’ anything. Value of your house means nothing if you aren’t trying to move.

The statement above makes me think you would always be trying to figure the value of your house out once you had bought which would drive you insane.

Edited by p1stonhead on Saturday 23 September 14:51

We always knew that a London flat would be a 2-4 year option, hence additional reluctance.

So it would never have been a 1 year decision, but I can't see things being rosy in another 1-2 years time given interest rates will be slowly creeping up!

We are still two minds about exactly what place we want. i.e 2 bedroom place in London, or 4 bed house in Surrey with garages e.t.c

Edited by V6Alfisti on Saturday 23 September 15:15

[p1stonhead]

V6Alfisti said:

p1stonhead said:

If you bought last year, would you have needed to move again this year?

If not you wouldn’t have ‘lost’ anything. Value of your house means nothing if you aren’t trying to move.

The statement above makes me think you would always be trying to figure the value of your house out once you had bought which would drive you insane.

Edited by p1stonhead on Saturday 23 September 14:51

We always knew that a London flat would be a 2-4 year option, hence additional reluctance.

We are still two minds about exactly what place we want. i.e 2 bedroom place in London, or 4 bed house in Surrey with garages e.t.c

Ah ok then. Yes 2-4 year timeline is definitely a fair bit riskier.

[rxe]

V6Alfisti said:

I think I misread your main point, which was that anyone can move and not face those London/Surrey multiples (true).

However the practical/life reality for many is that it isn't an option, so people will either stretch themselves (which I agree is silly) or make a compromise (which is fine) and all based on a risk assessment (which is my point).

The difference in risk between the two regions (Quick Google):

Avg Salary Yorkshire = £21k, Avg Property = £155k . Thus 7.38x multiple
Avg London Salary = £35k , Avg Property = £607k. Thus 17.34x multiple

Vastly different commitments and flexibility. With massively different commitments in terms of stamp duty/deposit.

IMO those averages are out of whack for London - at least the sort of people who would be attempting to buy a house in London. Our graduate starting salary is £34k, and no, we're not a bank. If I had to guess, I would think that our average salary is 60k, which would put a couple on a 5x multiple to buy an average house. We haven't advertised a role below £30k for about a decade.

[V6Alfisti]

mjb1 said:

There's no such thing as 'average' though in reality. There is a lot of high end stuff in London that pulls up the average figure. There are also a larger proportion of 'professional' jobs that are significantly higher paid than the 'average' wage. In other parts of the country, there is proportionally less top end stuff. Not sure how that affects things.

Agree, it's definitely a higher stakes game in London. But no lender will do 17x salary, mind you they won't do 7x either, which is your multiplier for Yorkshire. So in both examples, that makes home buying unaffordable for a single person without a hefty deposit. And when you point out the 17x figure, why the hell is anyone daft enough to want to live/work in London? Drawn in by the higher salary, then lose out much more on cost of housing. So why do it, better off elsewhere earning less, and paying less, surely? I can understand well paid management/professionals being in London, what I can't understand is why unskilled/low skilled workers would want to be, when they must have zero chance of getting on the housing ladder.

I'd argue that it's higher risk in London purely because of prices, and how they've surged since 2008/10. Nothing to do with salary multiples.

A fair point, and you are right about London being a mugs game. Salary is vanity.

I am in the management/professional services games, but know that way of life would be better outside of the city. Factor in the fiance's views, family and friend ties...that factor/option diminishes significantly

Multiples are still certainly a factor, as it indicates affordability but of course you are right there is some very top end stuff the skewes figuers but frankly there is little to no sub 200k property that anyone would want to live in.

The 7x multiple is purely salary to house price and includes no deposit.

So on that basis to get the 5x multiple folk talk about on here, you would need a deposit of £50k

The London multiple would be a deposit of £432k

Lets even look at more realistic first time buyer fodder of £400k, thats still a £125k deposit.

(All assuming single owner)

If a couple, easily affordable in Yorkshire. In London at average prices means a deposit of £257k

[scenario8]

Greater London, and the nearer, commutable South East is absolutely bursting with people in full time employment earning vastly less that £34k pa let alone £60k pa. Many of those people (who aren't on the ladder or own their home outright) would love to be homeowners.

As is frequently the case on PH "we" working in certain professional sectors, surrounded by others we assume to be similarly normal appear to mistake our own circumstances as being very widely shared. Not everyone alighting at Bank each weekday morning is on the fast track to partnership status. London is stuffed full of non-high flyers.