October 2009 property bet
Discussion
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.
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.
I'm watching this with great interest. I'd like to buy at the bottom for long-term investment.
The way I see it we haven't reached the bottom yet. Theoretically we should have because money is available again but we won't actually reach the bottom until property is selling at the bottom. 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.
This isn't about availability of mortgage money. Investors are looking for the next long-term investment and housing is it. If prices hit the bottom the housing market would become very active, a sellers market, just what those sellers want but won't take the plunge for.
The way I see it we haven't reached the bottom yet. Theoretically we should have because money is available again but we won't actually reach the bottom until property is selling at the bottom. 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.
This isn't about availability of mortgage money. Investors are looking for the next long-term investment and housing is it. If prices hit the bottom the housing market would become very active, a sellers market, just what those sellers want but won't take the plunge for.
I fear your bet maybe at risk. Its not about which way the property market is going, but your betting based on the prices reported by Halifax. Who knows if the Halifax makes it through the next year? The Lloyds bid is looking a little wobbly. Wouldn't a more independent index be more appropriate?
jazzybee said:
I fear your bet maybe at risk. Its not about which way the property market is going, but your betting based on the prices reported by Halifax. Who knows if the Halifax makes it through the next year? The Lloyds bid is looking a little wobbly. Wouldn't a more independent index be more appropriate?
May I suggest that if the Halifax index is no longer available this time next year, both should send £250 to the Poppy Appeal?
Blib said:
jazzybee said:
I fear your bet maybe at risk. Its not about which way the property market is going, but your betting based on the prices reported by Halifax. Who knows if the Halifax makes it through the next year? The Lloyds bid is looking a little wobbly. Wouldn't a more independent index be more appropriate?
May I suggest that if the Halifax index is no longer available this time next year, both should send £250 to the Poppy Appeal?Lets take this step by step.
The cost of anything is determined by supply and demand.
For several decades we have had more demand due to longer life spans, more divorce, immigration, planning restrictions on new builds and pressure groups against new builds.
Over the same time we have had a constant under supply to meet that demand.
So costs have steadily gone up.
Now note an important point, I did not say "price", I said "cost"
The price is the headline figure, the average house price as either a number of pounds or as some multiple of income. Cost is the whole cost of getting a house which includes stamp duty, deposits, mortgage and any other expense incurred.
Currently we hear a lot about house prices falling but do not confuse this with cost. Cost has risen remorselessly. Oh yes, the headline price of a house has dropped but the combined effect of interest rates, deposits, market confidence, etc has made it harder than ever to actually get on the housing ladder.
This is why, despite falling prices, estate agents are not busy. The market has simply corrected itself in other ways.
Now fast forward for your little wager.
The government want to get in again. They know what the housing market did to the other side. They have seen how negative equity and the effect of borrowing criteria can kill a government. That's how they got in.
They will try very hard to get the housing market moving again even if it means serious problems in the future. No one will know untill after the election, they'll be two bust gloating over their equity, helping their kids with deposits and feeling confident again to notice the storm comming.
So my predictions are:
The cost of anything is determined by supply and demand.
For several decades we have had more demand due to longer life spans, more divorce, immigration, planning restrictions on new builds and pressure groups against new builds.
Over the same time we have had a constant under supply to meet that demand.
So costs have steadily gone up.
Now note an important point, I did not say "price", I said "cost"
The price is the headline figure, the average house price as either a number of pounds or as some multiple of income. Cost is the whole cost of getting a house which includes stamp duty, deposits, mortgage and any other expense incurred.
Currently we hear a lot about house prices falling but do not confuse this with cost. Cost has risen remorselessly. Oh yes, the headline price of a house has dropped but the combined effect of interest rates, deposits, market confidence, etc has made it harder than ever to actually get on the housing ladder.
This is why, despite falling prices, estate agents are not busy. The market has simply corrected itself in other ways.
Now fast forward for your little wager.
The government want to get in again. They know what the housing market did to the other side. They have seen how negative equity and the effect of borrowing criteria can kill a government. That's how they got in.
They will try very hard to get the housing market moving again even if it means serious problems in the future. No one will know untill after the election, they'll be two bust gloating over their equity, helping their kids with deposits and feeling confident again to notice the storm comming.
So my predictions are:
- House prices will recover. The government will do whatever is necessary to make this look better by 2010. And in the long term they will be as high as 2007 if not higher as all the factors that drive demand get bigger and supply is still restricted.
- House cost will get worse in the long term. It will be harder than ever to actually buy a house BUT and this is a very big BUT the government will lean hard on lenders to cooperate with them over this in the run up to an election so it will be better in early 2010 even if this means meltdown in 2011.
cymtriks said:
The cost of anything is determined by supply and demand.
Normally true but uniquely the last upward cycle of the housing market was driven by availability of money. The number of houses selling didn't change greater than normal long term growth. The lenders were able to offer very attractive interest rates and they changed the rules to allow people to borrow against ever greater proportions of their future earnings.This drove the cost of housing to exceed the value of housing. The value v cost balance needs to be restored before supply and demand can take control of the market again. This is why this market swing is long and deep. There are two downward drivers working together against a market that is artificially high with regard to both drivers.
cymtriks said:
- House prices will recover. The government will do whatever is necessary to make this look better by 2010. And in the long term they will be as high as 2007 if not higher as all the factors that drive demand get bigger and supply is still restricted.
- House cost will get worse in the long term. It will be harder than ever to actually buy a house BUT and this is a very big BUT the government will lean hard on lenders to cooperate with them over this in the run up to an election so it will be better in early 2010 even if this means meltdown in 2011.
The government can do very little to achieve this by 2010, however. The recent intervention is about safeguarding the financial system and stopping meltdown, not reflating the housing market.
I also dispute the required increase in housing stock.
The figures are based on peoples desires, not peoples needs.
tvrbob said:
cymtriks said:
The cost of anything is determined by supply and demand.
Normally true but uniquely the last upward cycle of the housing market was driven by availability of money. The number of houses selling didn't change greater than normal long term growth. The lenders were able to offer very attractive interest rates and they changed the rules to allow people to borrow against ever greater proportions of their future earnings.This drove the cost of housing to exceed the value of housing. The value v cost balance needs to be restored before supply and demand can take control of the market again. This is why this market swing is long and deep. There are two downward drivers working together against a market that is artificially high with regard to both drivers.
Money supply and credit availability is just the bank's view of market confidence. If they think the market is sound and/or they can manage greater risk then they slacken off the lending criteria and the deposit requirement.
The banks view of market confidence is related to supply and demand and how they think they can tap into that.
It's not different this time, the market has simply adjusted to supply and demand as always.
The market value of housing, or anything else for that matter, is never exceeded, it is what it is regardless of how it is justified until supply and demand change it in some way.
How long and deep a transition is is anyones guess but I think it will be shorter because those in power dare not let it be longer.
loafer123 said:
cymtriks said:
- House prices will recover. The government will do whatever is necessary to make this look better by 2010. And in the long term they will be as high as 2007 if not higher as all the factors that drive demand get bigger and supply is still restricted.
- House cost will get worse in the long term. It will be harder than ever to actually buy a house BUT and this is a very big BUT the government will lean hard on lenders to cooperate with them over this in the run up to an election so it will be better in early 2010 even if this means meltdown in 2011.
The government can do very little to achieve this by 2010, however. The recent intervention is about safeguarding the financial system and stopping meltdown, not reflating the housing market.
I also dispute the required increase in housing stock.
The figures are based on peoples desires, not peoples needs.
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.
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.
loafer123 said:
Your faith in the ability of governments to reflate the economy and consumer sentiment is both touching and naive.
You can't buck the market cycle, and we are only part way down a steep and deep slope.
Quite. You only have to look to Japan's attempts to relate its economy to see how difficult it is.You can't buck the market cycle, and we are only part way down a steep and deep slope.
My bet would be on UK property falling a good deal more.
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.
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