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Stu_London

House Price Thread

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With this topic likely to attract lots of media attention over the next few months, I thought I would start a new thread.

Rightmove reported this week that asking prices were down 1.7% in July, with London leading the way with a 4.1% drop. The other indices (nationwide, halifax and land registry) have been largely flat for a few months and with the prospect of government austerity, much of the main stream media is becoming quite bearish on house prices.

Although prices are down 10% or so from their ridiculous peak of Autumn 2007, I still personally believe that property is far too expensive relative to peoples incomes and a much bigger correction is still needed. High house prices are effectively a millstone around the neck of the UK, they increase the cost of everything, for households, businesses and government. And as the majority of houses are finances by mortgages, one of the by-products of high house prices is that billions of pounds is being paid in mortgage interest each month that would be spent elsewhere in the economy if prices were at a more realistic level. The cumulative value of residential real estate in the UK is currently about £4trillion. Documents from the treasury show that the coalition think that £3trillion is a much more sensible figure. Does this mean the government is keen to see prices crash?

Not publicly, however it is clear that government policy is leaning this way with many of the props that the Labour adminstration put in place to support house prices being removed in the name of efficiency savings and a greater focus on getting banks to lend to business rather than to increase mortgage funding.

Labour will, in my opinion, be judged very harshly in historical terms for their stewardship of the economy. An extract from Michael Portillo (love him, hate him - he does talk a lot of sense) in the Sunday Times sums it up for me: -

[i]House prices have to fall because the crazy inflation in residential property was a key feature of the unsustainable boom that preceded the recession. It was unrealistic home valuations that led many people into reckless spending and debt. In the process many other many others found that they could no longer aspire to own their own home because pay lagged far behind house price inflation. Lower prices are needed to restore us to economic reality, to put investment in real estate closer to par with other means of saving and to improve social justice.

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Yet there still hasn't been any action too prevent this happening again. They seem to be depending on market forces to hold back silly lending. If there isn't any action as soon as we recover the silly lending will start again and house market will resume it's upward track until the bubble bursts again.

The Tories started the rot Labour continued it and it looks like the present Government again isn't going to do anything either. It's a huge vote loser as the only way I can see you keeping the house prices down is a firm rule of 3 times your max wage, overtime not included and so many years in the present job, plus a realistic interest rate while at the same time keeping business interest rates down too encourage expansion. Effectively decoupling the two.

All eyes on the budget but I can't see any real action on the problem.

People already in houses will have a negative equity but this doesn't really matter as long as you stay put just live in them. They won't be happy though and the X on the next voting paper will go to labour.

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Yet there still hasn't been any action too prevent this happening again. They seem to be depending on market forces to hold back silly lending. If there isn't any action as soon as we recover the silly lending will start again and house market will resume it's upward track until the bubble bursts again.

The Tories started the rot Labour continued it and it looks like the present Government again isn't going to do anything either. It's a huge vote loser as the only way I can see you keeping the house prices down is a firm rule of 3 times your max wage, overtime not included and so many years in the present job, plus a realistic interest rate while at the same time keeping business interest rates down too encourage expansion. Effectively decoupling the two.

All eyes on the budget but I can't see any real action on the problem.

People already in houses will have a negative equity but this doesn't really matter as long as you stay put just live in them. They won't be happy though and the X on the next voting paper will go to labour.

Between Q2 1979 and Q2 1997, house prices rose by 216.8% - -however in real terms adjusted for inflation, house prices in this period fell by 3.2%

Between Q2 1997 and Q3 2007, house prices rose by 215.3% - in real terms adjusted for inflation, a rise of 137.8%

Still think it's a problem started by the Tories?

I'm sure that hard facts won't stop you from blaming the 1980s tories for house price inflation and all of the other of the nations ills. I'm also sure that whilst Gordon Brown believed that selling little boxes to each other for ever increasingly ridiculous prices was the basis of economic growth, Osborne/Cable et al know better and whilst they won't go as far as you recommend because it would cause a catastrophic crash of the market, the removal of 100%+ mortgages, interest only mortgages and self certified mortgages will go part of the way to regulating mortgage lending.

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Between Q2 1979 and Q2 1997, house prices rose by 216.8% - -however in real terms adjusted for inflation, house prices in this period fell by 3.2%

Between Q2 1997 and Q3 2007, house prices rose by 215.3% - in real terms adjusted for inflation, a rise of 137.8%

Still think it's a problem started by the Tories?

I'm sure that hard facts won't stop you from blaming the 1980s tories for house price inflation and all of the other of the nations ills. I'm also sure that whilst Gordon Brown believed that selling little boxes to each other for ever increasingly ridiculous prices was the basis of economic growth, Osborne/Cable et al know better and whilst they won't go as far as you recommend because it would cause a catastrophic crash of the market, the removal of 100%+ mortgages, interest only mortgages and self certified mortgages will go part of the way to regulating mortgage lending.

Yes as they lifted the credit controls and created the problem. Labour continued it. Also a good jiggle of figures as inflation was 18% in 1980. I know you're a blind Tory but can you take your blue rose tinted glasses off for a bit. Also when did Maggie lift the credit controls?

Under labour house price inflation has never been as High as under the Tories.

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With this topic likely to attract lots of media attention over the next few months, I thought I would start a new thread.

Rightmove reported this week that asking prices were down 1.7% in July, with London leading the way with a 4.1% drop. The other indices (nationwide, halifax and land registry) have been largely flat for a few months and with the prospect of government austerity, much of the main stream media is becoming quite bearish on house prices.

Although prices are down 10% or so from their ridiculous peak of Autumn 2007, I still personally believe that property is far too expensive relative to peoples incomes and a much bigger correction is still needed. High house prices are effectively a millstone around the neck of the UK, they increase the cost of everything, for households, businesses and government. And as the majority of houses are finances by mortgages, one of the by-products of high house prices is that billions of pounds is being paid in mortgage interest each month that would be spent elsewhere in the economy if prices were at a more realistic level. The cumulative value of residential real estate in the UK is currently about £4trillion. Documents from the treasury show that the coalition think that £3trillion is a much more sensible figure. Does this mean the government is keen to see prices crash?

Not publicly, however it is clear that government policy is leaning this way with many of the props that the Labour adminstration put in place to support house prices being removed in the name of efficiency savings and a greater focus on getting banks to lend to business rather than to increase mortgage funding.

Labour will, in my opinion, be judged very harshly in historical terms for their stewardship of the economy. An extract from Michael Portillo (love him, hate him - he does talk a lot of sense) in the Sunday Times sums it up for me: -

[i]House prices have to fall because the crazy inflation in residential property was a key feature of the unsustainable boom that preceded the recession. It was unrealistic home valuations that led many people into reckless spending and debt. In the process many other many others found that they could no longer aspire to own their own home because pay lagged far behind house price inflation. Lower prices are needed to restore us to economic reality, to put investment in real estate closer to par with other means of saving and to improve social justice.

A few words you have forgotten.

Supply /demand.

Interest rates and mortgage supply.

Houses prices will fall IF demand falls, I can’t see that happening in the next 30yrs given the growing population, massive increase in one person house holds and restriction in new builds.

Now interest rates affect the mortgage you pay. 3 or 6 times income is meaningless if you don’t account for the interest .

Interest rates are historically low and likely to stay that way so people will want to borrow high multiple incomes .

Lending is obviously restricted how does this impact the market ?.

Not as much as you think as 80% of sales people use equity from their old home. Mortgages account for far less then 50% of the total value of homes (in the over 50s I think its under 30% happy to be corrected)

So we have high demand historic low interest rates and trillions of ‘equity’ in homes that can go from one old house to the other new house.

The only way you can reduce house price rises is make interests rates punitive or impose taxes on equity transfers and /or put stamp duty at 10% + etc

Much of the historic reckless spending was due to MBNA giving 0% APR for 3yrs and £25,000 credit limit on people who earn £14,000. These people will never repay that debt back (Hence massive increase in IVA’s bankruptcy etc) etc etc.

Some equity releases funded holidays rather then home improvements but I don’t have any figures on that.

So house prices will I'm afraid continue to rise , I guess about 10% next 2 yrs :drinks:

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So house prices will I'm afraid continue to rise , I guess about 10% next 2 yrs :drinks:

If this is the case, do you think this is good thing, given that wages will probably not rise in the next 2 years (or not by 10% anyway).

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It would be interesting too see the house prices percentage rise outside of the recessions. Under Labour they only had one major glitch.

Houses prices won't fall much as people will just sit in them until either the recession is over or they can "handle the debt". As Stew says demand outstrips supply. Without any control people will again push themselves beyond the limit even if only 90% loans are available.

First time buyers unless on a high wage are now effectively out of the market. They'll be kippers and stay with the parents and then inherit the house as that's the only way they can get a house.

So we're back to responsible lending perhaps the restrictions on lending could be gradually brought in creating a slow housing price drop.

Either way the present Government has got a problem created by the Tories and not dealt with by Labour and too deal with it they'll need to be very brave.

If this is the case, do you think this is good thing, given that wages will probably not rise in the next 2 years (or not by 10% anyway).

Not a good thing the only pay rises of 10% will be for the bosses via bonus's and other deals. The average worker will get poorer due to inflation being higher than interest rates.

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Perhaps the biggest stumbling block is people's attitudes to housing in general. During the boom times people borrowed on the ever-rising 'value' of their property to splash out on holidays, cars and consumables. The widespread opinion was that 'houses only ever rise in value' and even now in these very different times theres little change in this view among the general population. This became extremely obvious last year with the resumption of rises in prices (some 10% in a year) despite the underlying fundamentals being poorer than they've been for decades.

What we seem to have at the moment is pretty much a stalemate. Prices are still far too high and deposits required by first time buyers are back to normal levels (i.e 25% for the better rates, 10% at a minimum). Essentially the market is running on low transaction levels based on people with houses moving around and a few cash buyers. This cant go on though so eventually there will have to be a correction. The level of correction depends on how stubborn those already owning property are. There are countless houses on rightmove that have been on for 18 months to 2 years priced at peak-market levels without any sort of price decreases. My partner and I moved into our house in July 2009 and many of the properties on the market now are the same ones that were there when we were looking 15 months ago.

What I think will happen is very small nominal fall but against a backdrop of inflation of around 3-5% for a few years (who knows maybe more). That way, prices can fall by a huge amount in real-terms without 'upsetting' these people who believe their house cant possibly drop in value. At the end of the day this has to happen, as prices are just absolutely ridiculous. I shudder when I see programs such as 'location location location' when first time buyers with a budget of £250,000 cant get more than a 2 bed flat. Even here in nearby Hull, which has low property prices compared to the rest of the country, the average house costs £95,000, but the average wage is £16,000 (median wage is much lower). Such is the extent of the rises above wage inflation, that you can have a household in the same street where both people work full-time to pay the mortgage, yet next-door theres only one person working part-time for the same quality of life - with the only reason being they bought 10 years earlier.

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IMHO housing is only going down in value. Essentials such and food, gas, electricity, petrol and tax are going to start increasing in cost and incomes will stay fixed. This means there will be less income to spend on your mortgage and once interest rates start increasing things are only going to get much worse. However, i suspect that land will increase in value particularly if it can be used to grow food or raise stock.

BTW London_Stew is growing up fast. I'll post another photo at the weekend! :good:

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BTW London_Stew is growing up fast. I'll post another photo at the weekend! :)

Excellent!

I think the posts by reef and SCC are spot on.

The only way for house price rises in the long term is for a healthy first time buyer market. Regulation recently announced and the fact that banks will take years to rebuild their balance sheets and capital ratios mean that there will be no return to the insane lending pratices of the last decade which would be required to sustain price rises for some considerable time, if ever at all.

Or course, supply is a factor but I am not aware of any tent cities because of lack of houses and with net migration forecast under this administration, it looks more and more likely to be anything other than a very long term issue.

As for demand, this should not be confused with desire. Plenty of desire of Ferraris but not that many sold. Without easy, cheap credit demand will remain supressed from the bottom upwards.

Interest rates have undoubtedly been a factor in stopping and partially reversing the crash that occured between late 2007 and early 2009, however low or zero interest rates on an densely populated island doesn't automatically mean house price rises by default. Japan for example has seen over 50% of it's residentail property values wiped off following their bubble of the late 80s, early 90s, all of which occured in an environment where interest rates were zero or not far above.

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Between Q2 1979 and Q2 1997, house prices rose by 216.8% - -however in real terms adjusted for inflation, house prices in this period fell by 3.2%

Between Q2 1997 and Q3 2007, house prices rose by 215.3% - in real terms adjusted for inflation, a rise of 137.8%

Still think it's a problem started by the Tories?

I'm sure that hard facts won't stop you from blaming the 1980s tories for house price inflation and all of the other of the nations ills. I'm also sure that whilst Gordon Brown believed that selling little boxes to each other for ever increasingly ridiculous prices was the basis of economic growth, Osborne/Cable et al know better and whilst they won't go as far as you recommend because it would cause a catastrophic crash of the market, the removal of 100%+ mortgages, interest only mortgages and self certified mortgages will go part of the way to regulating mortgage lending.

Can you provide figures for Scotland/Wales/NI/England as I am sure these will differ from your "national" figures. It is hard to judge stats when they are bundled up across a fundamentally different set of countries.

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Can you provide figures for Scotland/Wales/NI/England as I am sure these will differ from your "national" figures. It is hard to judge stats when they are bundled up across a fundamentally different set of countries.

Plus they were several recessions in that period and inflation was very high at times. At one time 18%.

Also the house boom started in the SE faltered then spread slowly out. So yes regional variations also have to be taken into account.

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Interest rates 'may hit 8pc' in two years

The article states:

To control inflation, "interest rates will rise rapidly as well", Mr Lilico says. "To keep [RPI] inflation down to only 10pc for one year, the economy will have to be able to tolerate interest rates of perhaps 8pc."

Mr Lilico added: "There is a risk that... the economy will not be able to tolerate 8pc interest rates without the mass defaulting on mortgages that we are trying to avoid. If that is the case, then interest rates may have to be kept lower for an additional nine months and the consequence will be inflation peaking at 20pc rather than 10pc, as in the 1970s. The consequence of interest rate rises will be another recession in 2013 or 2014," he said.

Does ebay sell lifeboats?

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Can you provide figures for Scotland/Wales/NI/England as I am sure these will differ from your "national" figures. It is hard to judge stats when they are bundled up across a fundamentally different set of countries.

I can't access figures for just England, however the house price inflation in Scotland and Wales was slightly lower than the UK average under both the tories between 1979-1997 and Labour 1997-2007. Northern Ireland experienced the biggest boom between 1997-2007 of any region, in fact by 2007 parts of Belfast were more expensive than large areas of London. Prices in NI have since declined by around 40% leaving many who bought at the peak facing financial ruin.

Northern Ireland is a slightly unique case as it not only suffered from the bad economic policies of Gordon Brown's chancellorship which fuelled asset price bubbles but it also had floods of money coming from the Republic of Ireland, whose government was persuing a similarly flawed economic path.

The bottom line remains the same and applies to all regions, in terms of affordability, housing remained pretty much the same from the start of the tories government to the end (there was a bubble caused by Lawson in the last 80s but that popped and prices fell back). Under labour houses became much less affordable, particularly to those Labour claim to represent the most, those in the low and middle income brackets

Plus they were several recessions in that period and inflation was very high at times. At one time 18%.

You are making a non point about inflation.

yes, inflation was much more of an issue in the 70s, 80s and early 90s and as such it would seem reasonable that as prices for other things rise and wages rise, that house prices would as well, although they would not necessarily become less affordable.

What is baffling for me is why the Labour government thought it was a good idea to allow and actively promote via their policies house price inflation of between 10% and 20% in their first decade of power and somehow think they were doing the economy and the country some good.

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My view is much simpler: God stop making land a long time ago, and with the present green agenda, it is unlikely that 'new' land will be opened up for affordable housing. More people = more demand = higher prices. Simples innit?

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My view is much simpler: God stop making land a long time ago, and with the present green agenda, it is unlikely that 'new' land will be opened up for affordable housing. More people = more demand = higher prices. Simples innit?

Not quite

Japan - population 127 million

UK - population 62 million

Japan - 873 people per 100 miles sq

UK - 659 people per 100 miles

Japanese house prices - down 60% since 1991

Average interest rates in Japan since 1991 - between 0% and 1%

Reason for decline - lack of credit due to bailed out zombie banking system

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I'm hoping for a 30% drop in prices over the next couple of years.

I couldn't give a monkeys for the value of my house at present - it's just 'paper' profits - i won't be realising my assets until a retirement in 10 years+ if we decide to move on then.

I really want to see a major price adjustment so more of the younger population can get on the property ladder once again - if the UK average house price of circa £160K can drop by 30% then more people can buy their own house. Otherwise the UK is in real danger of becoming an embittered society. I'm all in favour of the market economy - it seems to me that, by any measure, prices should fall by at least 20% to redress the current imbalance. Bring it on!

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I'm hoping for a 30% drop in prices over the next couple of years.

Once inflation starts kicking in and sterling is devalued you are going to see houses 30% 'cheaper'. If house prices fall by another 30% then the Brits are in for a double whammy - a de-valued pound and falling house prices!

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Speak of the devil ........

Mortgage rates may hit 14pc within two years

Now that is going to hurt!

Well yes it would, if it was ever going to happen, which of course it isn't. It strikes me that there are so many 'think tanks' and 'advisory bodies' around nowadays they spend more of their time dreaming up quasi-plausible worst case scenarios to get their names in the papers than actually presenting genuine sensible reports. It's only a few weeks since a different 'expert body' predicted that interest rates could stay below 2% for the next three years. Similarly, for every scare story about soaring inflation, (usually based on rising commodity prices), there is another warning of the prospect of deflation , (usually based on slashed government spending and a second recession)............ To be honest most of it is just so much hot air.

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Well yes it would, if it was ever going to happen, which of course it isn't.

Without inflation how is the government going to pay off the sovereign debt? Are they going to tax you instead? Or will they slash spending? My bet is they all do all three!

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Once inflation starts kicking in and sterling is devalued you are going to see houses 30% 'cheaper'. If house prices fall by another 30% then the Brits are in for a double whammy - a de-valued pound and falling house prices!

A devalued pound is not always bad news for everyone, but depends on how far it devalues. Business can benefit, especailly the exporters.

As for falling house prices not everyone suffers. In a large number of cases the price of one's house today compared to a few years ago doesn't really matter if you're not planning to move or realise that asset. A large number of owner occupiers don't move that often. Most people own a house as their main residence to live in - not speculate and make a quick buck.

Those that speculate for short term reasons and/or buy-to-let (maybe for medium/longer term) should be fully aware of the highs and lows of joining this part of the free market economy.

Falling house prices just tend to sap consumer confidence and may affect retail spending for a time - no bad thing as the growth of the last 13 years in the UK economy was based on consumer spending funded by easy credit.

A fundamental adjustment to house prices is absolutely necessary to redress the imbalance in the economy. Just part of the longer term economic cycle in my book.

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Don't suppose anyone can guarantee what interest rates are going to do can they?

My fixed rate comes to an end in April 2012, and by then house prices might have slipped further again whilst interest rates might have shot up, meaning I have less equity and therefore face a massive hike in my interest rate. So I could take an early redemption penalty on the chin right now, and fix again for 5 years at 5.19%. Or I could wait and see what happens in two years time...if I hadn't been on my fixed rate over the past few years, I'd have saved a packet. I'm not bothered that I haven't, as at least I've known what my monthly payments were during all the world wars and deflation/hyperinflation episodes we've been through recently.

Tricky eh?

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