How far will house prices fall [volume 4]

[Tango13]

V6Alfisti said:

I still think Henry Pryor has hit the nail on head "we are at the top of the cycle, there are affordability issues but bluntly many people are worried that what they buy today could be worth less tomorrow."

I bought my flat in 2000 for £82k, the person completing on it on Friday needs a deposit of £80k before they even start paying the mortgage...

'Affordability issues' is an understatement of fairly biblical proportions imho.

[ooid]

Another house I have seen in East London, just got sold.

To be honest, it was really priced to sell! My only reservation was the potential road-noise but I guess it does not make any difference now!!

https://www.keatons.com/property-details/10820-vic...

[spikeyhead]

Forced sales of a few high end homes incoming

https://www.bbc.co.uk/news/world-44954587

[bobski1]

Currently buying in Oxfordshire & this is one thing which seems to worry me the most is what happens when prices fall.

I am paying fair value for the property & with some mods will increase the value but when the market drops I guess none of that will matter too much.

For me doesn't feel like a wait & see as we've looked for 3 months & nothing was really coming down. Had to bite the bullet & buy something as renting is just getting expensive

[skwdenyer]

With regards to those claiming 5x salary is insanity, here's a worked example based upon local conditions in the Yorkshire Dales where I now live some of the time.

2 bed house to rent £750 pcm
Similar house to buy c.£275k.
Assume 10% deposit, £247k to finance
Assume 2.28% mortgage (Barclays, 90% LTV) 5 year fix
Repayments (during fixed term) £1081 pcm

£292k at 5x income multiple implies salary of £58.4k. Affordability calculator says £58.4k is good for nearly £2k pcm rent.

Assume single earner, £58.4k = approx £3490 pcm take-home.

If rates rise to, say, 6%, monthly payment rises to approx £1590 pcm. If they rise to 10% then that's £2244 pcm.

£1590 pcm is easily sustainable with a sensible lifestyle. £2244 is more problematic.

So the 5x salary looks like a decent risk at rates up to 6% or so. If the 5x is on combined salaries (which would have take-home of combined approx £3872 pcm take-home assuming an even split) then that equation is simply a little more attractive.

So would I take a risk on 5x at 90% ltv in the current market with a 5-year fix? Yes, absolutely, and I don't see it as reckless in the current political climate - after all, the government has bet everything on keeping the property market alive.

[rovermorris999]

bobski1 said:

Currently buying in Oxfordshire & this is one thing which seems to worry me the most is what happens when prices fall.

I am paying fair value for the property & with some mods will increase the value but when the market drops I guess none of that will matter too much.

For me doesn't feel like a wait & see as we've looked for 3 months & nothing was really coming down. Had to bite the bullet & buy something as renting is just getting expensive

I wouldn't worry about it unless you expect to be selling again in the short term. If you think of it as a home first and financial asset second the worry goes away. If you have to move again, you'll be buying and selling so the rise or fall in the market will affect your sale and purchase and it'll even out.

The law of supply and demand always wins in the end. I can't see supply going up massively and demand will always be there with a growing and ageing population, with the proviso of temporary troughs as financial cycles come and go.

[stuckmojo]

skwdenyer said:

With regards to those claiming 5x salary is insanity, here's a worked example based upon local conditions in the Yorkshire Dales where I now live some of the time.

2 bed house to rent £750 pcm
Similar house to buy c.£275k.
Assume 10% deposit, £247k to finance
Assume 2.28% mortgage (Barclays, 90% LTV) 5 year fix
Repayments (during fixed term) £1081 pcm

£292k at 5x income multiple implies salary of £58.4k. Affordability calculator says £58.4k is good for nearly £2k pcm rent.

Assume single earner, £58.4k = approx £3490 pcm take-home.

If rates rise to, say, 6%, monthly payment rises to approx £1590 pcm. If they rise to 10% then that's £2244 pcm.

£1590 pcm is easily sustainable with a sensible lifestyle. £2244 is more problematic.

So the 5x salary looks like a decent risk at rates up to 6% or so. If the 5x is on combined salaries (which would have take-home of combined approx £3872 pcm take-home assuming an even split) then that equation is simply a little more attractive.

So would I take a risk on 5x at 90% ltv in the current market with a 5-year fix? Yes, absolutely, and I don't see it as reckless in the current political climate - after all, the government has bet everything on keeping the property market alive.

Yes but two things:

- on combined salaries, if one of you wants to look after children, take a break, do anything other than full time employment (willingly or not) - you're fked.
- on LTV, that works well if you never plan to move from that 2 bed house and expect selling prices not to reduce (which is unlikely in the short term).
- on Interest rates, hope they don't increase, so I guess you're safe there.

On balance, I wouldn't buy now. I'm in the North East and would be looking at 4 bedroom houses. I won't be moving into the market anytime soon

[V6Alfisti]

stuckmojo said:

Yes but two things:

- on combined salaries, if one of you wants to look after children, take a break, do anything other than full time employment (willingly or not) - you're fked.
- on LTV, that works well if you never plan to move from that 2 bed house and expect selling prices not to reduce (which is unlikely in the short term).
- on Interest rates, hope they don't increase, so I guess you're safe there.

On balance, I wouldn't buy now. I'm in the North East and would be looking at 4 bedroom houses. I won't be moving into the market anytime soon

Also I am not sure where the 5x came from, but I think the latest figures show the average is 5.5x in the cheapest area (North East) and 13x in South East.

[stuckmojo]

V6Alfisti said:

Also I am not sure where the 5x came from, but I think the latest figures show the average is 5.5x in the cheapest area (North East) and 13x in South East.

I guess it's from one of those "how much you can borrow" calculators, where you find that mortgage provider who wants to take a risk.

[Chris Type R]

Chris Type R said:

Chris Type R said:

Down the road from us:

Added to RM 13 Nov 2016 at £3,750,000 - http://www.rightmove.co.uk/property-for-sale/prope...

Relisted 20 Oct 2017 at £2,500,000 - http://www.rightmove.co.uk/property-for-sale/prope...

Post revival.... now up for auction, guide price £1,250,000 - https://www.rightmove.co.uk/property-for-sale/prop...

Which is probably closer to realistic.

Withdrawn from auction - http://auctions.savills.co.uk/Auctions/LotDetails?...

[V6Alfisti]

Today's news seems to be centering around Foxton's losses due to the faltering London market.

Interesting Deloitte article here as well

http://blogs.deloitte.co.uk/mondaybriefing/2018/07... particularly "A standard measure of affordability compares house prices to rents and to incomes relative to long-term averages. At £226,351 the average UK house is almost eight times median annual earnings. The OECD estimates that UK housing is 29% overvalued against incomes and 41% overvalued against rents."

[Matt p]

Ouch, 29% over valued?. Doubt we will ever see that sort of reduction in prices it’ll be a bloodbath. However stranger things have happened I guess so who knows.

[z4RRSchris]

Matt p said:

Ouch, 29% over valued?. Doubt we will ever see that sort of reduction in prices it’ll be a bloodbath. However stranger things have happened I guess so who knows.

we are already there in London.

Houses im looking at were at £1.3m and are now at £1m.. (and not selling)

[p1stonhead]

Matt p said:

Ouch, 29% over valued?. Doubt we will ever see that sort of reduction in prices it’ll be a bloodbath. However stranger things have happened I guess so who knows.

Overvalued compared to incomes. Thats not the same. Foreign investors dont have 'incomes' which means its pointless. Not only locals can buy.

[alfaman]

Matt p said:

Ouch, 29% over valued?. Doubt we will ever see that sort of reduction in prices it’ll be a bloodbath. However stranger things have happened I guess so who knows.

Well the reduction from late 1989 was around 20-25% or more .... I can remember the pain after my first house purchase.

Which equates to approx 25-30% overvalue.

Somehow I doubt there will be a 25% correction this time though.

[V6Alfisti]

p1stonhead said:

Overvalued compared to incomes. Thats not the same. Foreign investors dont have 'incomes' which means its pointless. Not only locals can buy.

Yes but as with most things there are multiple levers at play.

Foreign investment has tangibly reduces, as FI typically requires confidence in a market or suitable reward for risk, whilst we currently have an uncertain political/economic future, a wobbly pound. Add into this the opening up of pandora's box by revealing the names of foreign investors which have a rather less honest looking source of funds, and interest rates starting to creep up globally.

We all know that as soon as interest rates reach a normal average, house prices definitely will not be maintained.

As I can see it, FI has more risk, less to negative reward....if I was FI right now, I wouldn't be buying property to flip/keep empty like many did in the past and no doubt made some great returns. I would be looking at other countries, or investment vehicles.

Adding to this if you follow Henry Pryor on Twitter, he often has a number of EA's responding to his post. One recently said that they had seen a significant drop in Chinese/Russian interest and other regions had picked up slightly in response but foreign interest was down by at least 50%...rather significant.

This isn't just London/UK specific, many global hot property markets are falling back ... in fact https://moneyweek.com/house-prices-arent-just-slip...

"Prices in Sydney fell by 4.5% in the second quarter, while prices in Melbourne slipped too.

Australia is far from alone. Hot global markets everywhere are slowing down. Canada is another good example.

And now we’re seeing it happen in the US as well. As Bloomberg reports: “The US housing market – particularly in cutthroat areas like Seattle, Silicon Valley and Austin, Texas – appears to be headed for the broadest slowdown in years.”

The number of home sales (of existing homes as opposed to new builds) fell in June for the third month in a row. New builds are selling at the slowest pace in eight months.

Meanwhile, the inventory of unsold homes – the amount of supply on the sidelines – is rising again. Prices in May were up by 6.4% year-on-year (so a lot stronger than in the UK, for example), but that’s the smallest annual gain since 2017 – and over the last three months, prices have risen at their slowest rate since 2012."

Edited by V6Alfisti on Monday 30th July 15:20

[turbobloke]

V6Alfisti said:

We all know that as soon as interest rates reach a normal average, house prices definitely will not be maintained.

Some questions if I may.

Do we all have operational Mk I crystal balls meaning we all really do know?!

What's normal, and when will it be reached?

[p1stonhead]

V6Alfisti said:

p1stonhead said:

Overvalued compared to incomes. Thats not the same. Foreign investors dont have 'incomes' which means its pointless. Not only locals can buy.

We all know that as soon as interest rates reach a normal average, house prices definitely will not be maintained.

Normal based on?

ten years is 'normal' in my book. Its certainly been a much longer constant rate than ever before. Doesnt that count as 'normal'?



P.S - im playing devils advocate. But I dont think it will be above say 2% base rate in the coming ten years either. No one has a crystal ball however.

Edited by p1stonhead on Monday 30th July 15:40

[Shnozz]

turbobloke said:

V6Alfisti said:

We all know that as soon as interest rates reach a normal average, house prices definitely will not be maintained.

Some questions if I may.

Do we all have operational Mk I crystal balls meaning we all really do know?!

What's normal, and when will it be reached?

It does make for interesting times. For many reasons I feel a rate rise is long overdue - not least to support Sterling but also to try and put some brakes on the continued debt expansion of both individuals and businesses. Brexit could see Sterling drop yet further and I see little attraction for foreign investment in such a climate but it does assist the UK in terms of exports.

However, the implications of even a modest rate rise could lead to big collapses in house prices and, in turn, consumer confidence and unemployment.

Neither option is very attractive and with rates where they have been for 10 years there is little room to work with. It's a pretty ugly situation and the easiest "solution" to switch back on the printing presses only serves to put further strain on Sterling.

Of course none of us have a crystal ball but if I did, whatever I see before us looks pretty grey and stormy.

Edited by Shnozz on Monday 30th July 17:14

[turbobloke]

It looks to me as though the BoE committee is looking to make room for a rate reduction or two early- to mid-next year, given that there are grounds (excuses) for a modest rise at the moment in terms of wages and borrowing
.