When/Will house prices cool down?
Discussion
gangzoom said:
When waking up at before 5am so you can park at a train station and than get to work for 9am is seen as preferable to having to go some where that isn't on the tube map, you sound like every Londoner I know 
.
I get to leave the house at 815am, do the school run, and than cycle to work from the school, usually am at the desk before 9am. But it's pretty hellish to live some where as remote as Leicester!!!
I'm 100 miles from London these days and have always woken early. But that doesn't change the fact that in any city you don't want to be commuting with the school run and clerks but either with the coffee makers or solicitors either side of the peak time. .I get to leave the house at 815am, do the school run, and than cycle to work from the school, usually am at the desk before 9am. But it's pretty hellish to live some where as remote as Leicester!!!
I think a lot of people struggle to understand that different people find pleasure from different things in life. Many genuinely don't like the chaos and heave of London but many don't like the homogeny of regional towns. So I'd agree with you that somewhere like Leicester is pretty hellish. But I overtly recognise that for many others it is a lovely place. The idea of uniformly leaving at 8.15, doing the school run and being at a desk by 9 is my personal idea of suburban hell but millions do that and clearly that's their pleasure but it's not everyone's
Anyway, back to the house price aspect, I feel that we're in a hiatus currently which may be a lull. Everywhere has that sort of feel that the bad news is over and we're moving on but I'm not entirely convinced that the underlying drivers of downward pressure have gone away. Things like easing inflation, job security, stabilising rates and energy costs softening seem to have generally assured the consumer that the bad times are behind them but as it generally takes years for events to cumulatively work through there is an argument that this is just the relief rally after the first dip from peak.
M2 money supply while recovering from a steep contraction in Q4 last year still looks to be in decline and we currently hover at the £3tn level waiting to see stability or further falls. Consumers, despite getting pay rises, many of which do or can be made to outstrip personal inflation haven't increased saving rates from frighteningly low levels pre-Covid. We have the largest middle income class the U.K. has ever had but it has the saving habits of the lower income demographic (This is a new money scenario where the high income is first generation and they over shop due to having nothing in their youth as well as a need to advertise their success. This is a huge issue in China at present where this effect has been enormous and is causing major structural issues as the new 'middle class' has no actual wealth but considerable debt. In the U.K. it's still quite large and tends to manifest itself via higher income earners using credit for consumer goods and services because despite having high income they don't have the actual wealth that usually brings.). We also have a housing loan market that has almost entirely been shifted into short term debt contracts which ought to terrify people due to the remargining power it gives the lenders, yet people appear instead to be really happy with being offered an illusionary discount in exchange for that ability of the lender to remargin their debt.
For me I see all these 2 year fixes as a potential time bomb that could destroy all mortgage holders at the early stages of their 25 year purchasing plan when their LTV is at such low levels that just a change in the sentiment of the lender's valuation team could wipe out their margin in an instant. That's a real risk to the market. Mortgage holders could see zero material change in their personal solvency, income good, job prospects good, savings rate OK but at the swish of a pen the lender can revalue the property value downwards by and amount that completely wipes out their deposit and forces them to pluck a new deposit out of thin air or be treated as a junk debt customer and moved onto the SVR, which isn't even a financial product but just a fear stick to cajole consumers into fee based, remarginable products.
I still think we are teetering and that an 'event' would tip it all. And while many look to things like the stock market as that is where these trigger events have occurred or manifested themselves historically I'm not convinced that in the modern economy where debt is the controlling factor that this is a valid argument.
Commercial office space and its debt is looking quite toxic. It was a big speculative bubble in the run up to Covid and commercial property assets in the West were primary holdings sought by the vast swathes of Asian wealth needing a secure home. For nearly a decade it was also the case that you could gear up massively on cheap debt from the capital markets and get a higher yield from a commercial building. And unlike resi mortgages no governments were controlling multiples or regulating any of this behaviour. It was all left to the lenders. For years investors were leveraging office blocks to near 100% debt and sometimes over. But the flow of Asian wealth has eased, in some cases reversed as Asian investors have needed to divest of assets b overseas to shore up balance sheets at home as their property market collapses in debt. The cheap debt model is gone and debt now costs more than property yields which means not only have the number of entrants eased right off but many existing participants are now operating under water as their debt refinancing rates now far exceed the asset yield. And it's not just an attack on the debt front but also on the yield side as the whole WFH shift means occupancies have been falling and tenants have been renegotiating rents downwards.
The lending dip in Q4 last year looks to have been caused by the number of property refinancing deals getting recategorised as junk debt by the banks. US occupancy rates in some key cities have collapsed and the longer they stay down the more likely it is that they will have a manifest impact on the restructuring of those cities. London seems better placed but still has vast numbers of property assets now underwater. We've had a decade of the 'family wealth office' clumsily over paying for property assets while playing the Billy big balls, look at me, I'm a playa game. They now are starting to have to refinance at huge premiums as their flood of money in has slowed making it riskier for them to maintain their new and much higher debt obligations.
And if there were to be a commercial property debt driven implosion then pension funds will be smashed hard. The kind of hard hit most are currently thinking comes from the stock markets which as they're currently rising means everything is all good and safe.
Personally, given how illiquid property funds are I wouldn't have a penny invested in that area of the market because getting one's money out should you want to if it were to start to fall wouldn't be possible. An investment where you have no control as to whether you can cash out or not is about as toxic and risky as it gets. It is certainly an aspect anyone with a pension should be paying some attention to right now. Even if the stock market falls you can always exit or hedge but with property funds if the need to exist comes from the fund then that fund will halt exits and hedging facilities for private investors are almost non existent as the stock lend would have been pulled by the pension funds.
Mr Whippy said:
Lol CGT down on house sales?
Is this more cronyism? Conservatives and pals selling up or something?
This is absolutely unnecessary while at the same time they’re exposing even more trinkety CGT to eBay sales and reduced tax free allowance to nearly nothing.
No one needs more than one house, and gains in excess housing in the current environment are imo ill-gotten, so why the tax break?
Rats / sinking ship springs to mind.Is this more cronyism? Conservatives and pals selling up or something?
This is absolutely unnecessary while at the same time they’re exposing even more trinkety CGT to eBay sales and reduced tax free allowance to nearly nothing.
No one needs more than one house, and gains in excess housing in the current environment are imo ill-gotten, so why the tax break?
havoc said:
Mr Whippy said:
Lol CGT down on house sales?
Is this more cronyism? Conservatives and pals selling up or something?
This is absolutely unnecessary while at the same time they’re exposing even more trinkety CGT to eBay sales and reduced tax free allowance to nearly nothing.
No one needs more than one house, and gains in excess housing in the current environment are imo ill-gotten, so why the tax break?
Rats / sinking ship springs to mind.Is this more cronyism? Conservatives and pals selling up or something?
This is absolutely unnecessary while at the same time they’re exposing even more trinkety CGT to eBay sales and reduced tax free allowance to nearly nothing.
No one needs more than one house, and gains in excess housing in the current environment are imo ill-gotten, so why the tax break?
The more sensible thing to have done would have been to offer an exit amnesty prior to substantially increasing the tax via a ratcheting timing scale. They could even have set a nice trap by allowing the bulk of the CGT discount and subsequent increase be set by the local authority who would keep what they don't discount.
DonkeyApple said:
Anyway, back to the house price aspect, I feel that we're in a hiatus currently which may be a lull. Everywhere has that sort of feel that the bad news is over and we're moving on but I'm not entirely convinced that the underlying drivers of downward pressure have gone away. Things like easing inflation, job security, stabilising rates and energy costs softening seem to have generally assured the consumer that the bad times are behind them but as it generally takes years for events to cumulatively work through there is an argument that this is just the relief rally after the first dip from peak.
Agree with this.Also, all these people saying "stagnant house prices are the way forward" (which I don't entirely disagree with) - at the current rate of wage inflation, if we're aiming for the current 8x mutliple to drop to the historic 4-5x multiple (avg house price : avg earnings), then simple compounding suggests it'll take us +/- 20 years (!) to get back to that (IMHO sustainable) level. Another generation who'll struggle to buy/own their own home (bad grammar, sorry), and then wonder "WTF do we do in retirement?"
DonkeyApple said:
MConsumers, despite getting pay rises, many of which do or can be made to outstrip personal inflation haven't increased saving rates from frighteningly low levels pre-Covid. We have the largest middle income class the U.K. has ever had but it has the saving habits of the lower income demographic.
In the U.K. it's still quite large and tends to manifest itself via higher income earners using credit for consumer goods and services because despite having high income they don't have the actual wealth that usually brings. We also have a housing loan market that has almost entirely been shifted into short term debt contracts which ought to terrify people due to the remargining power it gives the lenders, yet people appear instead to be really happy with being offered an illusionary discount in exchange for that ability of the lender to remargin their debt.
Also very true. We've been sold the lifestyle lie that we can have it all if we just borrow or put it on payment plans (PCP?!?), which leaves us permanently chasing the next hit of "look what I've bought", with nothing to show at the end of it when we retire on (frankly pretty sIn the U.K. it's still quite large and tends to manifest itself via higher income earners using credit for consumer goods and services because despite having high income they don't have the actual wealth that usually brings. We also have a housing loan market that has almost entirely been shifted into short term debt contracts which ought to terrify people due to the remargining power it gives the lenders, yet people appear instead to be really happy with being offered an illusionary discount in exchange for that ability of the lender to remargin their debt.
t) money-purchase schemes that are worth a quarter of our pre-retirement income because no-one's been talking about that time-bomb.Talking of pensions and the hit to come...
DonkeyApple said:
And if there were to be a commercial property debt driven implosion then pension funds will be smashed hard. The kind of hard hit most are currently thinking comes from the stock markets which as they're currently rising means everything is all good and safe.
Personally, given how illiquid property funds are I wouldn't have a penny invested in that area of the market because getting one's money out should you want to if it were to start to fall wouldn't be possible. An investment where you have no control as to whether you can cash out or not is about as toxic and risky as it gets. It is certainly an aspect anyone with a pension should be paying some attention to right now. Even if the stock market falls you can always exit or hedge but with property funds if the need to exist comes from the fund then that fund will halt exits and hedging facilities for private investors are almost non existent as the stock lend would have been pulled by the pension funds.
I don't think the average Gen-X or Millennial realises what's ahead of them. The London property-owning set can retire to the regions and have a nice little nest-egg from it all, but very few others can. Some lucky people will be able to cash-in an inheritance from their parents when they die-off, but that's a 1-time thing which will leave the next generation sPersonally, given how illiquid property funds are I wouldn't have a penny invested in that area of the market because getting one's money out should you want to if it were to start to fall wouldn't be possible. An investment where you have no control as to whether you can cash out or not is about as toxic and risky as it gets. It is certainly an aspect anyone with a pension should be paying some attention to right now. Even if the stock market falls you can always exit or hedge but with property funds if the need to exist comes from the fund then that fund will halt exits and hedging facilities for private investors are almost non existent as the stock lend would have been pulled by the pension funds.
t out of luck.And in 20-30 years time when most* people are struggling through a delayed semi-retirement and wondering why we haven't got what our parents / grandparents had, we need to look back to the last 20-30 years and recognise the lies we let ourselves be told and the empty promises we swallowed from politician after politician.
* Public sector aside.
DonkeyApple said:
We also have a housing loan market that has almost entirely been shifted into short term debt contracts which ought to terrify people due to the remargining power it gives the lenders, yet people appear instead to be really happy with being offered an illusionary discount in exchange for that ability of the lender to remargin their debt.
For me I see all these 2 year fixes as a potential time bomb that could destroy all mortgage holders at the early stages of their 25 year purchasing plan when their LTV is at such low levels that just a change in the sentiment of the lender's valuation team could wipe out their margin in an instant. That's a real risk to the market. Mortgage holders could see zero material change in their personal solvency, income good, job prospects good, savings rate OK but at the swish of a pen the lender can revalue the property value downwards by and amount that completely wipes out their deposit and forces them to pluck a new deposit out of thin air or be treated as a junk debt customer and moved onto the SVR, which isn't even a financial product but just a fear stick to cajole consumers into fee based, remarginable products.
I’ve never really understood either why the typical consumer can’t see the risk in short term fixes. When levels of leverage have been so high, and underlying rates so low, it doesn’t take major movements in base to create significant damage at refinancing time. For me I see all these 2 year fixes as a potential time bomb that could destroy all mortgage holders at the early stages of their 25 year purchasing plan when their LTV is at such low levels that just a change in the sentiment of the lender's valuation team could wipe out their margin in an instant. That's a real risk to the market. Mortgage holders could see zero material change in their personal solvency, income good, job prospects good, savings rate OK but at the swish of a pen the lender can revalue the property value downwards by and amount that completely wipes out their deposit and forces them to pluck a new deposit out of thin air or be treated as a junk debt customer and moved onto the SVR, which isn't even a financial product but just a fear stick to cajole consumers into fee based, remarginable products.
It’s a great business model for the industry as it allows:
1) the remargining you mention;
2) short term money to be used to fund what should be regarded as long-term commitments;
3) a lovely ongoing flow of fees.
The only time they really make sense is if you think that rates are on a significant downward trend.
There are some good properties available at the moment for investment purposes. (1 bed or studio). Some landlords retiring, offloading and some just re-adjusting their portfolios. I mean some prices are 2017 levels, which is pretty good imho if you are FTB at the moment with good deposit.
People need to be careful what they are believing the state of play is.
I remember these forums discussing how the recession had barely got started, and that was summer 2009.
I recall how recession and deepening economic horror was due all the way from 2016 to Covid.
Humans are, what they've always been. Resilient, and keen for a better future. While many prophesise the end of days....they do so for many many years. While the rest of society cracks on.
Thisbisnt to criticise any post on here. FWIW I agree that ultimately this is a house of cards, built on sand. All this though was being pointed out fifteen years ago, and here we still are.
I remember these forums discussing how the recession had barely got started, and that was summer 2009.
I recall how recession and deepening economic horror was due all the way from 2016 to Covid.
Humans are, what they've always been. Resilient, and keen for a better future. While many prophesise the end of days....they do so for many many years. While the rest of society cracks on.
Thisbisnt to criticise any post on here. FWIW I agree that ultimately this is a house of cards, built on sand. All this though was being pointed out fifteen years ago, and here we still are.
LuckyThirteen said:
I remember these forums discussing how the recession had barely got started, and that was summer 2009.
I recall how recession and deepening economic horror was due all the way from 2016 to Covid.
I’d argue that:I recall how recession and deepening economic horror was due all the way from 2016 to Covid.
08/09 was very much event driven (as it is, to a large degree, now).
16-COVID there were lots saying that a recession was “due” because it suited their narrative or wishes…
My point is that there's always a doom argument.
See Euro crisis that began with Greece. See the current laughable state of US debt. Wsee the UK debt.
Somehow it keeps getting, fudged, pushed and delayed. All I'm pointing out is that if you'd listened to all the doom for the last fifteen years you would never have done anything except buy physical gold.
See Euro crisis that began with Greece. See the current laughable state of US debt. Wsee the UK debt.
Somehow it keeps getting, fudged, pushed and delayed. All I'm pointing out is that if you'd listened to all the doom for the last fifteen years you would never have done anything except buy physical gold.
That’s true, but the doom-mongering seems, more
often than not, to be from those who feel that a “correction” would be to their benefit.
There are a few things that I find concerning:
1) levels of consumer debt;
2) a seemingly increased expectation that others will plan for/bail out a large percentage of the population;
3) the changing generational views around work vs reward;
4) the socioeconomic demographics of society as a whole and the way that seems to be changing (not for the better);
5) the current state of government/politics.
Things could definitely be better…
often than not, to be from those who feel that a “correction” would be to their benefit.
There are a few things that I find concerning:
1) levels of consumer debt;
2) a seemingly increased expectation that others will plan for/bail out a large percentage of the population;
3) the changing generational views around work vs reward;
4) the socioeconomic demographics of society as a whole and the way that seems to be changing (not for the better);
5) the current state of government/politics.
Things could definitely be better…
havoc said:
Agree with this.
Also, all these people saying "stagnant house prices are the way forward" (which I don't entirely disagree with) - at the current rate of wage inflation, if we're aiming for the current 8x mutliple to drop to the historic 4-5x multiple (avg house price : avg earnings), then simple compounding suggests it'll take us +/- 20 years (!) to get back to that (IMHO sustainable) level. Another generation who'll struggle to buy/own their own home (bad grammar, sorry), and then wonder "WTF do we do in retirement?"
Not sure I agree with this maths.Also, all these people saying "stagnant house prices are the way forward" (which I don't entirely disagree with) - at the current rate of wage inflation, if we're aiming for the current 8x mutliple to drop to the historic 4-5x multiple (avg house price : avg earnings), then simple compounding suggests it'll take us +/- 20 years (!) to get back to that (IMHO sustainable) level. Another generation who'll struggle to buy/own their own home (bad grammar, sorry), and then wonder "WTF do we do in retirement?"
Let’s say (for round numbers sake) average income today £30k, average house price £240k (8x multiple).
Assume 5% p.a. wage growth for 5 years (compounding) and you get 27.5% wage growth, to £38,288.
Flat house price of £240,000 and the multiple is 6.3x.
Uk wage inflation in the year ending Dec 2023 was 6.3%.
If you had 4% wage growth for 20 years wages would be £65.7k; with a flat £240k house price the multiple would be well below 4x.
In reality I think until something is done on supply (or interest rates were >6% for a sustained period), we won’t see the multiple fall below 6x.
But I do think we could see numbers along the following lines
End 2021: Prices £275k, wages £32.5k, 8.5x multiple
End 2024/mid 2025: Prices £250k, wages £37.5k, 6.75x multiple
LuckyThirteen said:
People need to be careful what they are believing the state of play is.
I remember these forums discussing how the recession had barely got started, and that was summer 2009.
I recall how recession and deepening economic horror was due all the way from 2016 to Covid.
Humans are, what they've always been. Resilient, and keen for a better future. While many prophesise the end of days....they do so for many many years. While the rest of society cracks on.
Thisbisnt to criticise any post on here. FWIW I agree that ultimately this is a house of cards, built on sand. All this though was being pointed out fifteen years ago, and here we still are.
I agree and of course, governments will always seek to step in to support a market such as housing. There is every chance that we will just plod on as before but my sentiment is more around a belief that the risk of an event is just so much closer than is normal and I'm not entirely sure everyone is looking in the right places for signs. For example lots of media talk about the stock market but from where I sit the issue and risk is the debt markets. European banks are bolstering for the increased risk of U.S. junk bond defaults and many European banks aren't in the best of shape currently. Commercial property in the West looks to be on a real knife edge presently. But I agree with entirely that we tend to see more potential horrors than ever manifest although we also tend to gloss over risk all too easily and I feel risk is quite high currently yet many firmly believe the worst is over, which also tends to concern me. I remember these forums discussing how the recession had barely got started, and that was summer 2009.
I recall how recession and deepening economic horror was due all the way from 2016 to Covid.
Humans are, what they've always been. Resilient, and keen for a better future. While many prophesise the end of days....they do so for many many years. While the rest of society cracks on.
Thisbisnt to criticise any post on here. FWIW I agree that ultimately this is a house of cards, built on sand. All this though was being pointed out fifteen years ago, and here we still are.
havoc said:
Also, all these people saying "stagnant house prices are the way forward" (which I don't entirely disagree with) - at the current rate of wage inflation, if we're aiming for the current 8x mutliple to drop to the historic 4-5x multiple (avg house price : avg earnings), then simple compounding suggests it'll take us +/- 20 years (!) to get back to that (IMHO sustainable) level. Another generation who'll struggle to buy/own their own home (bad grammar, sorry), and then wonder "WTF do we do in retirement?"
I don't think the average Gen-X or Millennial realises what's ahead of them. The London property-owning set can retire to the regions and have a nice little nest-egg from it all, but very few others can. Some lucky people will be able to cash-in an inheritance from their parents when they die-off, but that's a 1-time thing which will leave the next generation st out of luck.
And in 20-30 years time when most* people are struggling through a delayed semi-retirement and wondering why we haven't got what our parents / grandparents had, we need to look back to the last 20-30 years and recognise the lies we let ourselves be told and the empty promises we swallowed from politician after politician.
* Public sector aside.
The 8x is never going to go back to 3x because we are not going to revert to locking out 50% of the intelligent population from the work force again. I don't think the average Gen-X or Millennial realises what's ahead of them. The London property-owning set can retire to the regions and have a nice little nest-egg from it all, but very few others can. Some lucky people will be able to cash-in an inheritance from their parents when they die-off, but that's a 1-time thing which will leave the next generation s
t out of luck.And in 20-30 years time when most* people are struggling through a delayed semi-retirement and wondering why we haven't got what our parents / grandparents had, we need to look back to the last 20-30 years and recognise the lies we let ourselves be told and the empty promises we swallowed from politician after politician.
* Public sector aside.
The basic multiple has increased permanently in reflection of society evolving to twin income households being the norm.
So if values are at 8x then you're looking at 5-6x household income being the new normal.
This also means that the younger professional generations will have two pensions to live off when they retire.
Meanwhile, single men will need to look at how single women, including widows, used to make ends meet to see what they will need to do.
The 'London property owning set' is mostly a momentary blip where a short age demographic just got lucky with timings in that they left full time education into a rapidly and massively growing economic environment for professionals of all classes and sex and creed which coincided with an abnormally depressed property market after the excesses of the 80s. They also were very willing to buy in the inner zone dumps that had been left to rot by the older generations to then be joined by the rampant influx of overseas wealth that also wasn't scared of non fancy Z1/2 postcodes.
But the younger generations have two incomes, two pensions, inheritances due to the massive Boomer wealth expansion, aren't regarded by social classes or out dated sexist beliefs, have the freedom to live and work in disparate locations and whether to spend all their money financing loans to live an overly extravagant lifestyle remains all individuals' free choice.
Younger people may not get the meteoric growth that was a blip in time but that hasn't changed the reality that the fundamental reason to buy a home before 40 is to not be paying rent past 60. It's not to make bank flipping every few years and paying away vast sums in fees and taxes in the hopes to have a manshun to downsize from.
And most of the people I know who are younger than me are doing absolutely fine. They have much higher salaries than we did but are flat sharing with mates for years while putting money in the bank and then, having bought, their core priority has been and remains to pay down the debt while as always, others around them chose to rent new cars and take plentiful holidays when not having others prepare their food.
DonkeyApple said:
LuckyThirteen said:
People need to be careful what they are believing the state of play is.
I remember these forums discussing how the recession had barely got started, and that was summer 2009.
I recall how recession and deepening economic horror was due all the way from 2016 to Covid.
Humans are, what they've always been. Resilient, and keen for a better future. While many prophesise the end of days....they do so for many many years. While the rest of society cracks on.
Thisbisnt to criticise any post on here. FWIW I agree that ultimately this is a house of cards, built on sand. All this though was being pointed out fifteen years ago, and here we still are.
I agree and of course, governments will always seek to step in to support a market such as housing. There is every chance that we will just plod on as before but my sentiment is more around a belief that the risk of an event is just so much closer than is normal and I'm not entirely sure everyone is looking in the right places for signs. For example lots of media talk about the stock market but from where I sit the issue and risk is the debt markets. European banks are bolstering for the increased risk of U.S. junk bond defaults and many European banks aren't in the best of shape currently. Commercial property in the West looks to be on a real knife edge presently. But I agree with entirely that we tend to see more potential horrors than ever manifest although we also tend to gloss over risk all too easily and I feel risk is quite high currently yet many firmly believe the worst is over, which also tends to concern me. I remember these forums discussing how the recession had barely got started, and that was summer 2009.
I recall how recession and deepening economic horror was due all the way from 2016 to Covid.
Humans are, what they've always been. Resilient, and keen for a better future. While many prophesise the end of days....they do so for many many years. While the rest of society cracks on.
Thisbisnt to criticise any post on here. FWIW I agree that ultimately this is a house of cards, built on sand. All this though was being pointed out fifteen years ago, and here we still are.
Just a silly computer game retailer, GameStop, was causing issues a few years back so I fully agree, there is huge risk everywhere.
I think the issue this time is perceived CB omnipotence is misplaced… if they can’t pull the cat out of the hat, or people worrying that they can’t perform, and it’s going to be a mess!
Mr Whippy said:
Just throw in some bitcoin via ETFs, on margin, for a bit more systemic risk.
Just a silly computer game retailer, GameStop, was causing issues a few years back so I fully agree, there is huge risk everywhere.
I think the issue this time is perceived CB omnipotence is misplaced… if they can’t pull the cat out of the hat, or people worrying that they can’t perform, and it’s going to be a mess!
Yup. The whole insane gambling aspect of modern higher income earners is just another big discussion and an area where so many have willingly allowed themselves to be so crushingly deluded. Long gone are the days of retired blokes throwing away their partner's pensions and inheritance on spivy penny shares in the illusion that it makes them powerful money managers down at the club house. I've never seen such a delusional gambling epidemic among younger society nor all the excuses and man maths that follow the behaviour. Just a silly computer game retailer, GameStop, was causing issues a few years back so I fully agree, there is huge risk everywhere.
I think the issue this time is perceived CB omnipotence is misplaced… if they can’t pull the cat out of the hat, or people worrying that they can’t perform, and it’s going to be a mess!
As for CBs, would they not ultimately step in on commercial property were there to be a big Western property junk bond collapse? Paying pennies in the £ to acquire distressed commercial property assets would be a rather good long term play? Settle the debts sufficiently to keep the defaults manageable but seize the underlying assets rather than allowing the lenders to retain them? I think the mistake CBs made last time they printed money to bail out lenders was that they didn't take enough equity because it all happened too quickly but this time we can see it potentially unfolding with much more clarity and experience.
It would be quite nice for the U.K. taxpayer to take over the distressed physical assets of the family offices, overseas shelterers and pension funds. Plus stakes in the prime lenders in exchange for bailing their balance sheets out also.
brickwall said:
havoc said:
Agree with this.
Also, all these people saying "stagnant house prices are the way forward" (which I don't entirely disagree with) - at the current rate of wage inflation, if we're aiming for the current 8x mutliple to drop to the historic 4-5x multiple (avg house price : avg earnings), then simple compounding suggests it'll take us +/- 20 years (!) to get back to that (IMHO sustainable) level. Another generation who'll struggle to buy/own their own home (bad grammar, sorry), and then wonder "WTF do we do in retirement?"
Not sure I agree with this maths.Also, all these people saying "stagnant house prices are the way forward" (which I don't entirely disagree with) - at the current rate of wage inflation, if we're aiming for the current 8x mutliple to drop to the historic 4-5x multiple (avg house price : avg earnings), then simple compounding suggests it'll take us +/- 20 years (!) to get back to that (IMHO sustainable) level. Another generation who'll struggle to buy/own their own home (bad grammar, sorry), and then wonder "WTF do we do in retirement?"
Let’s say (for round numbers sake) average income today £30k, average house price £240k (8x multiple).
Assume 5% p.a. wage growth for 5 years (compounding) and you get 27.5% wage growth, to £38,288.
Flat house price of £240,000 and the multiple is 6.3x.
Uk wage inflation in the year ending Dec 2023 was 6.3%.
If you had 4% wage growth for 20 years wages would be £65.7k; with a flat £240k house price the multiple would be well below 4x.
In reality I think until something is done on supply (or interest rates were >6% for a sustained period), we won’t see the multiple fall below 6x.
But I do think we could see numbers along the following lines
End 2021: Prices £275k, wages £32.5k, 8.5x multiple
End 2024/mid 2025: Prices £250k, wages £37.5k, 6.75x multiple
I was working on a 3% average pay increase (if you look at the last 20 years, it's not even been that high for the public sector and lower-paid service sector jobs, worryingly), which would give a c.85% rise in incomes vs flat house prices over 20 years, taking the multiple from e.g. 8x to around 4.5x.
To suggest we'll see AVERAGE* wage increases of 4-5% implies either inflation remains uncontrolled or our economy miraculously encounters a purple patch and grows significantly. And post-Brexit, plus with the public purse being utterly empty with a load of national debt, I just can't see that happening. None of the current politicians convince me they're going to transform our stuttering economy either.
Your end example...is utterly misleading:-
- it was the 2022 data that was showing a c.9x multiple. 2021 wasn't the peak or anywhere near it, from what I can see. So you'd need to fast-forward probably 18 months for your starting point.
- ...and then you wouldn't be able to use the average wages you suggest, which suggest >16% compound wage growth across 3 years.
* i.e. across both 10-15 years and across most sectors of the economy.
LooneyTunes said:
I’ve never really understood either why the typical consumer can’t see the risk in short term fixes.
...
The only time they really make sense is if you think that rates are on a significant downward trend.
Like now?...
The only time they really make sense is if you think that rates are on a significant downward trend.
I don't think they'll crash, but I do think they'll meander downwards steadily.
I did some sums before deciding (gambling) on a 2-year fix, and I'd need 5-year fix rates to remain within 0.9% of their current rates in order to be out-of-pocket in 24 months time when I re-mortgage again. That's possible, but I think our economy will need the stimulus more than inflation will need controlling across the next 2 years.
DonkeyApple said:
The 8x is never going to go back to 3x because we are not going to revert to locking out 50% of the intelligent population from the work force again.
The basic multiple has increased permanently in reflection of society evolving to twin income households being the norm.
So if values are at 8x then you're looking at 5-6x household income being the new normal.
This also means that the younger professional generations will have two pensions to live off when they retire.
...
But the younger generations have two incomes, two pensions, inheritances due to the massive Boomer wealth expansion, aren't regarded by social classes or out dated sexist beliefs, have the freedom to live and work in disparate locations and whether to spend all their money financing loans to live an overly extravagant lifestyle remains all individuals' free choice.
1) I said 4-5x, not 3x. Big difference.The basic multiple has increased permanently in reflection of society evolving to twin income households being the norm.
So if values are at 8x then you're looking at 5-6x household income being the new normal.
This also means that the younger professional generations will have two pensions to live off when they retire.
...
But the younger generations have two incomes, two pensions, inheritances due to the massive Boomer wealth expansion, aren't regarded by social classes or out dated sexist beliefs, have the freedom to live and work in disparate locations and whether to spend all their money financing loans to live an overly extravagant lifestyle remains all individuals' free choice.
2) The data that figure comes from includes the period where 2-income households became the norm (80s through 90s - it was only 2000-onwards, with the stupid relaxation of the debt market, when things took off). So you're not highlighting an underlying change in society, you're conflating a supply-led boom (supply of mortgages to those who shouldn't have had them at the given level) with a demand-led boom.
3) In most (family) households, the second income is usually still substantially lower as one parent sacrifices career progression for 5-15 years to be the primary caregiver, working part-time and stalling any promotions. And that period typically coincides with when the household is trying to establish itself on the property market. (Footnote)
4) Pensions going forward are going to be notably worse than they are right now (even in public sector, to a lesser degree) - no more final salary schemes, much lower employer contributions, ongoing drop in the rates of return on equities vs 20-30 years ago, and that nasty little bugbear, average salaries falling behind CPI for the last 15 years, meaning that spending requirements upon retirement have got worse, so a household NEEDS 2 pensions at retirement.
Footnote: I've said it before and I'll say it again - the liberalisation of the debt market, and subsequent demand-side adjustments to the market (e.g. Help to Buy) are one of the biggest cons of recent times, facilitating a massive transfer of wealth from the poor to the rich (& the young to the old, to a degree) that we've ever seen. Because the rich (let's say top-10%) and the old were the only ones with the equity behind them to get into buy-to-let or to take advantage or pre-existing multiple property ownership. While the young and the poor were the ones conned into taking out ridiculously high-multiple mortgages (i.e. too much debt) in a market that was only going 1 way in price because of what they were being sold into.
havoc said:
brickwall said:
havoc said:
Agree with this.
Also, all these people saying "stagnant house prices are the way forward" (which I don't entirely disagree with) - at the current rate of wage inflation, if we're aiming for the current 8x mutliple to drop to the historic 4-5x multiple (avg house price : avg earnings), then simple compounding suggests it'll take us +/- 20 years (!) to get back to that (IMHO sustainable) level. Another generation who'll struggle to buy/own their own home (bad grammar, sorry), and then wonder "WTF do we do in retirement?"
Not sure I agree with this maths.Also, all these people saying "stagnant house prices are the way forward" (which I don't entirely disagree with) - at the current rate of wage inflation, if we're aiming for the current 8x mutliple to drop to the historic 4-5x multiple (avg house price : avg earnings), then simple compounding suggests it'll take us +/- 20 years (!) to get back to that (IMHO sustainable) level. Another generation who'll struggle to buy/own their own home (bad grammar, sorry), and then wonder "WTF do we do in retirement?"
Let’s say (for round numbers sake) average income today £30k, average house price £240k (8x multiple).
Assume 5% p.a. wage growth for 5 years (compounding) and you get 27.5% wage growth, to £38,288.
Flat house price of £240,000 and the multiple is 6.3x.
Uk wage inflation in the year ending Dec 2023 was 6.3%.
If you had 4% wage growth for 20 years wages would be £65.7k; with a flat £240k house price the multiple would be well below 4x.
In reality I think until something is done on supply (or interest rates were >6% for a sustained period), we won’t see the multiple fall below 6x.
But I do think we could see numbers along the following lines
End 2021: Prices £275k, wages £32.5k, 8.5x multiple
End 2024/mid 2025: Prices £250k, wages £37.5k, 6.75x multiple
I was working on a 3% average pay increase (if you look at the last 20 years, it's not even been that high for the public sector and lower-paid service sector jobs, worryingly), which would give a c.85% rise in incomes vs flat house prices over 20 years, taking the multiple from e.g. 8x to around 4.5x.
To suggest we'll see AVERAGE* wage increases of 4-5% implies either inflation remains uncontrolled or our economy miraculously encounters a purple patch and grows significantly. And post-Brexit, plus with the public purse being utterly empty with a load of national debt, I just can't see that happening. None of the current politicians convince me they're going to transform our stuttering economy either.
Your end example...is utterly misleading:-
- it was the 2022 data that was showing a c.9x multiple. 2021 wasn't the peak or anywhere near it, from what I can see. So you'd need to fast-forward probably 18 months for your starting point.
- ...and then you wouldn't be able to use the average wages you suggest, which suggest >16% compound wage growth across 3 years.
* i.e. across both 10-15 years and across most sectors of the economy.
Clearly the wage inflation we’ve seen of late has still been a reduction in living standards for many/most. And I don’t think we will see a continuation of that wage growth for the next 20 years unless - as you say - inflation remains uncontrolled or we hit a miraculous purple patch.
Where I probably am in a different place is I do think we will have wage (and general) inflation at the 4-5% level for some time yet. When I look a what companies are baking into prices and expected wage bills over the next 1-2 years, it’s clear inflation expectations have shifted from c2% to c5%. To bring them back down again means either a painful economic downturn/recession, or a long slog of more gentle (but continued) pressure. I think governments and central banks are opting for the latter.
Cumulative wage inflation from Oct 2020 to Oct 2023 was 18%; that’s 5.6% CAGR. I think it’s eminently possible we see a further 2 years at (say) 4.5% CAGR, which would make nominal wages in Autumn 2025 about 30% higher than they were in Autumn 2020.
And equally, I houses have lost a reasonable amount of the Covid boom now, and I could see them remaining pretty flat (in nominal terms) over the next 2 years as mortgage rates remain at 4-5% and people keep rolling off the cheap fixes of 2019-2021.
havoc said:
LooneyTunes said:
I’ve never really understood either why the typical consumer can’t see the risk in short term fixes.
...
The only time they really make sense is if you think that rates are on a significant downward trend.
Like now?...
The only time they really make sense is if you think that rates are on a significant downward trend.
I don't think they'll crash, but I do think they'll meander downwards steadily.
I did some sums before deciding (gambling) on a 2-year fix, and I'd need 5-year fix rates to remain within 0.9% of their current rates in order to be out-of-pocket in 24 months time when I re-mortgage again. That's possible, but I think our economy will need the stimulus more than inflation will need controlling across the next 2 years.
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