UK House prices: News & Views

[sash777]

Am just in the process of selling a residential investment property I own - put it on the market about a month ago, accepted an offer after 2 days. Buyer couldn't get finance so after a much-protracted attempt it all fell through. Put it back on the market again on Friday, had an offer on Monday morning. This buyer has also failed to get credit, despite being cash-rich, and so has actually decided to fund the purchase off their own back. Hopefully this one will go through - solicitors certainly seem to think that it should all be fine this time.

 

From this experience it does seem to me that there is a definite shortage of buyers (the two offers I've had have come from the only two people who actually showed an interest in seeing the place), but those that are looking are very determined to buy. Surely the market will run out of these as unemployment continues to rise.

[drbubb]

Fascinating chart - look at that amazing similarity

 

I stumbled across this relationship as I was examining the last 18 year cycle peak

 

 

Previous peak in 1989 was Pds.62,782,

and I noticed that when I scaled it up by 3x, the peak was in line with the 2007 high (Pds.184,131)

 

I asked myself, what about the drop from the 1989 high, how big was it,

and how similar was the drop to what we have seen in 2007-9.

When I ran the numbers it proved really striking, almost spooky.

 

From the 1989 peak, the market dropped to almost exactly 50,000, and 3x that would be 150,000.

How close did the actual 2009 low come to that?

 

I decided to run the numbers more precisely, and I found this:

 

.. 1989 x Multiplier = .. 2007

===== .. ======= . =====

62,782 .. x 2.933 ...... 184,131 Peak levels, precise ratio: 2.93286

62,782 .. x 2.963 ...... 186,044 Nationwide NS.Oct07, ratio: 2.96333

50,000 .. x 2.963 ...... 148,150 "expected level"

 

The actual level (Nationwide, Feb.09 Low) was very close to that : 147,746, a remarkable similarity

 

I also note that 50,000/62,782 is a ratio of 79.6% (very near to a 20% drop), and

147,746/186,044 is a ratio of 79.4% - that is really rather amazingly close!

 

What does this mean?

Well, that the level from whence the Dead Cat bounce started looks as if it could have been

predicted months ahead of time with amazing accuracy. But this does not mean that we

have hit the ultimate low, simply a nice "harmonic ratio" in accord with the prior cycle low.

 

My own view is that the Feb.2009 low will be busted, and that will usher in a panic which

will demoralise the bulls, probably sometime in the first half of 2010. Once this shock hits,

the market will move lower, as homeowners realise the market will have to grind down and

find a lower low somewhere, possibly out in 2012/13.

[nicejim]

Interesting parallels there, Dr B. The last 2 troughs have each been lower than the 2 preceding peaks, inflation adjusted. Anyone think it'll be different this time?

 

http://www.housepricecrash.co.uk/graphs-av...house-price.php

[DoctorSolar]

My own view is that the Feb.2009 low will be busted, and that will usher in a panic which

will demoralise the bulls, probably sometime in the first half of 2010. Once this shock hits,

the market will move lower, as homeowners realise the market will have to grind down and

find a lower low somewhere, possibly out in 2012/13.

I sincerely hope you are right Dr B. As you may have seen from a few of my posts on the subject house prices here in Edinburgh seem to have barely fallen at all and I am still priced out the market even though both myself and wife have what I think are good salaries in stable jobs and a sizable deposit (35% at current prices).

 

Sadly to get back to sane prices we will most likely need to see a massive wave of repossessions. People wont sell at a loss unless forced to. Low interest rates have bailed the over stretched out for the time being. Will the UK gov keep bailing them out? If they do then we could trundle along at current prices for quite some time.

[drbubb]

Am just in the process of selling a residential investment property I own - put it on the market about a month ago, accepted an offer after 2 days. Buyer couldn't get finance so after a much-protracted attempt it all fell through. Put it back on the market again on Friday, had an offer on Monday morning. This buyer has also failed to get credit, despite being cash-rich, and so has actually decided to fund the purchase off their own back. Hopefully this one will go through - solicitors certainly seem to think that it should all be fine this time.

 

From this experience it does seem to me that there is a definite shortage of buyers (the two offers I've had have come from the only two people who actually showed an interest in seeing the place), but those that are looking are very determined to buy. Surely the market will run out of these as unemployment continues to rise.

 

I still find it hard to believe that the UK has such a Mickey Mouse system for selling homes.

 

In HK, sales typically close in about 45 days after the price is agreed, with the following system:

 

+ Deposit paid (usually 2-3%) on the day the price is agreed. Either side can still drop out for a few days, typically

up to 10 days. But if the buyer drops out, he loses the deposit. If the seller drops out, he pays back the deposit,

plus the same amount again. This is nice and symmetrical. And so if the buyer has not yet line up his bank,

he can get out, but pays a useful penalty for tying up the property and wasting the sellers time.

 

+ Rest of the initial 10% is paid at the contract signing date, usually within 14 days after the price is agreed.

 

+ Sales closes, and the seller get the remaining 90%, usually 45 days after price was agreed.

 

WHY, oh why, does the UK use anything different?

This is the 21st century, why does the UK use a system from the 17th century?

 

BTW, something that helps everyone in getting these transactions done "so quickly", is the transparency of the system here.

Every transaction is reported immediately, and is available in a central databank, which is highly accurate, with no cash bonuses hidden, or other such nonsense. So buyers and sellers, and their banks can easily check the real market price, without relying on some pirate EA's "price estimate."

 

Every week, average prices are released for each major estate in Hong Kong. Following is the price index for the estate where we still own several properties:

 

 

This is in HK$ per square foot, so you can multiply the square footage of your property by this number, and make some adjustments for the floor, view, etc., and you have a very good idea what your property is worth. Also, there are websites where you can input the location of your property, and get a precise valuation.

 

Here are the valuations from various banks for a property we sold 9 days ago:

 

Using the Centaline index figure (see above) : $3,200 x 657 sf = $2.12 Million

I like using the MMI x a Multiplier: 68.5 x 46 = $3,151 x 657 sf = $2.07 Million

(ours is on a high floor, and deserves a premium)

 

HSBC valuation.. : $2.36 Million (they usually overvalue high floors)

Hang Seng bank : $2.13 Million

Average value.... : $2.24 Million

 

Our selling price? $2.2 Million

[drbubb]

I sincerely hope you are right Dr B. As you may have seen from a few of my posts on the subject house prices here in Edinburgh seem to have barely fallen at all and I am still priced out the market even though both myself and wife have what I think are good salaries in stable jobs and a sizable deposit (35% at current prices).

 

Sadly to get back to sane prices we will most likely need to see a massive wave of repossessions. People wont sell at a loss unless forced to. Low interest rates have bailed the over stretched out for the time being. Will the UK gov keep bailing them out? If they do then we could trundle along at current prices for quite some time.

 

I know it can be frustrating.

But try to look at it rationally: this rally was manufactured by the government, through reducing rates to

record lows. The low rates are ruining the future of the pound, and the UK economy. They cannot be

sustained forever. The UK cycle doesnt bottom until probably 2012/13 (or longer), and there's room

for a 30-50% fall (maybe more) from present levels. Look away,and dont even think about buying

until late 2011, when it is worth studying the market.

 

Dont fall for the low-rate-con-job !

 

Keep building savings, and you will be in a strong position to buy when the market does bottom.

[DoctorSolar]

I know it can be frustrating.

But try to look at it rationally: this rally was manufactured by the government, through reducing rates to

record lows. The low rates are ruining the future of the pound, and the UK economy. They cannot be

sustained forever. The UK cycle doesnt bottom until probably 2012/13 (or longer), and there's room

for a 30-50% fall (maybe more) from present levels. Look away,and dont even think about buying

until late 2011, when it is worth studying the market.

 

Dont fall for the low-rate-con-job !

 

Keep building savings, and you will be in a strong position to buy when the market does bottom.

Thanks Dr B. Makes sense.

 

With the future of the pound being ruined by current low interest rates I've mostly been saving through buying gold/silver/palladium. Views are pretty split at the moment how these will fair over the next quarter so I have stopped buying for the moment until the picture becomes a little clearer. Im hoping that at worst the pound will fall more than these metals collectively by 2011.

 

[drbubb]

Interesting parallels there, Dr B. The last 2 troughs have each been lower than the 2 preceding peaks, inflation adjusted. Anyone think it'll be different this time?

 

http://www.housepricecrash.co.uk/graphs-av...house-price.php

 

People forget...

Almost a year ago, the BofE and the Fed panicked, and slammed their fist down hard on the Panic button,

reducing rates to historically low levels. We are still in the panic mode, which was meant to be a temporary

response. And people have begun to think it is normal, and they are entering transactions, buying property,

with the insane notion that today's "panic low" rates can somehow be maintained.

 

If they are, it will lead to another wave of malinvestments, which is what we are beginning to see now.

If, the bofE regain's its courage, it will have to raise rates, and that will kill the recovery.

 

If I was going to buy property now, I might consider going so, while taking out a massive put on Sterling.

But that idea is more of a thought experiment than a real suggestion

 

[G0ldfinger]

... Keep building savings, and you will be in a strong position to buy when the market does bottom.

This is exactly what I am doing, with these two charts always in my mind:

 

http://gold.approximity.com/since1968/

[drbubb]

Thanks Dr B. Makes sense.

 

With the future of the pound being ruined by current low interest rates I've mostly been saving through buying gold/silver/palladium. Views are pretty split at the moment how these will fair over the next quarter so I have stopped buying for the moment until the picture becomes a little clearer. Im hoping that at worst the pound will fall more than these metals collectively by 2011.

 

I actually think you can "protect" your Gold holdings by buying SPX puts

 

[allyjcambo]

I know it can be frustrating.

But try to look at it rationally: this rally was manufactured by the government, through reducing rates to

record lows. The low rates are ruining the future of the pound, and the UK economy. They cannot be

sustained forever. The UK cycle doesnt bottom until probably 2012/13 (or longer), and there's room

for a 30-50% fall (maybe more) from present levels. Look away,and dont even think about buying

until late 2011, when it is worth studying the market.

 

Dont fall for the low-rate-con-job !

 

Keep building savings, and you will be in a strong position to buy when the market does bottom.

 

"....The low rates are ruining the future of the pound, and the UK economy. They cannot be

sustained forever......"

 

This is a point with which I'm struggling at the moment.

 

Firstly, if all currencies currently have low rates and are likely to continue to do so indefinitely, how do UK low rates ruin the future of the pound and the UK economy?

 

Secondly, as long as deflationary forces are at work (e.g. over-capacity, lack of demand, high unemployment) interest rates can presumably stay at the low levels, no? I think these forces are going to stick around for quite some time.

 

Thirdly, there is often talk about the bond market rather than the BoE pushing up rates. But equally there are guys like Hugh Hendry who refer to this fear as the 'bogey man'. He thinks there will be plenty of demand for the bonds - we have an immediate precedent in Japan.

 

In other words, will the UK not be able to hold its rates at these low levels for the next 2-3 years without risk to the pound? And will this not support house prices?

 

 

 

[drbubb]

Your:

"....The low rates are ruining the future of the pound, and the UK economy. They cannot be sustained forever......"

This is a point with which I'm struggling at the moment.

 

Very good questions, AJC.

Especially since the damage may not be apparent just yet.

 

Firstly, if all currencies currently have low rates and are likely to continue to do so indefinitely, how do UK low rates ruin the future of the pound and the UK economy?

 

Not "all currencies" are being managed this way, ie printing money, or borrowing from abroad, to flood the system with cheap money. Many are, that is true, but the extent to which government debts are growing in the UK is alarming, even more severe than in the US, where it is also alarming. After all, someone has to be providing that credit, if the "borrowing from foreigners" occurs, or it must be done through money printing. In either case, borrowing or money printing, the claims against the government are growing, and if the people holding those claims try to convert them out of Sterling, they hold the potential to crash the currency.

 

The UK got a taste of that last year, see chart:

 

And another sharp drop in Sterling may lie in the future, when those claims are aggressively converted, at some future stage.

The chart above does suggest that the "next slide in Sterling" has started already.

+ +

The problem is the malinvestment that is occurring now, adding to the previous malinvestment that produced the 2008/9 crisis. If the government was borrowing to invest in high yielding investments, above the long term interest rates they will be paying, then the investments would be fine. They would be adding to the wealth of the country. But this is not the case. The money is being handed to the banks, to replace capital that has been written off (thanks to the previous wave of malinvestment), and as subsidies to people and industries that cannot make it on their own. Just as it has in the personal sphere, the UK is helping to create a "culture of dependency" in the corporate sphere to go with it.

 

To make matters worse, the low rates are encouraging another round of homebuying, to match that of the buyers curse period of 2005-7. People are looking at today's low interest rates, and making calculations about whether it is better to buy or rent, and they are believing that it is worth the risk of buying. If rates were higher, they would not be buying at current prices, they would await lower prices. In this way, they are locking themselves into an asset that will be more expensive, and a cash drain, when interest rates rise again.

 

These housing malinvestments will not only harm individual homebuyers, when rate rise, they may also harm the banks that lent the new mortgage loans, if they default on their loans.

 

Secondly, as long as deflationary forces are at work (e.g. over-capacity, lack of demand, high unemployment) interest rates can presumably stay at the low levels, no? I think these forces are going to stick around for quite some time.

 

The current situation is deteriorating day-by-day, as commercial real estate comes unstuck, as people lose their jobs, and fail to make loan payments, as the UK government debt piles up, and the government's ability to rollover on favorable terms becomes endangered, and finally, as the new wave of malinvestment helps to make the Uk economy less efficient.

 

The only good thing that I can see is the longer the low rates persist, the more debt will be paid off. But this is a very slow cure, and it takes maybe 14 years to pay off half of a 20 year mortgage loan. With such a slow cure at the household level, and debts building dangerously faster at the government level, things are getting worse, and more risky every day.

 

The most likely next crisis will be either: a Sterling slide, or a rapid deterioration of one of the "saved" banks thanks to problems in their commercial real estate portfolios. And then there are a whole host of other risks that I cannot even imagine.

 

Thirdly, there is often talk about the bond market rather than the BoE pushing up rates. But equally there are guys like Hugh Hendry who refer to this fear as the 'bogey man'. He thinks there will be plenty of demand for the bonds - we have an immediate precedent in Japan.

 

In other words, will the UK not be able to hold its rates at these low levels for the next 2-3 years without risk to the pound? And will this not support house prices?

 

Japan has huge government debts, sure. But it also has huge household savings. We do not have that level of household savings in the UK. They were wiped out by Mr. Brown, who encouraged household borrowing in 2000-2003, to keep the UK out of recession, and keep his "end to boom and bust problem" (ie no recession.) Then the pace of househiold borrowing continued as the housing bubble grew and grew. So UK households no longer have the level of savings to match their government's borrowing.

 

Watch the Pound, I dont think you will have anything like 2-3 years before the next crisis.

[id5]

I still find it hard to believe that the UK has such a Mickey Mouse system for selling homes.

...

This is in HK$ per square foot, so you can multiply the square footage of your property by this number, and make some adjustments for the floor, view, etc., and you have a very good idea what your property is worth. Also, there are websites where you can input the location of your property, and get a precise valuation.

...

History Dr. B. history. It's been a 1,000 years since the UK has been conquered, the Civil War was just a power struggle not a revolution and its result just a change of heads. There are just too many vested interests from the legal and banking fraternities to want or allow a change, you can also add in the estate agents, surveyors, financial advisors, etc that all make a cut of any attempted sale. Labour tried to make a change but ended up making the system even more of a rip off with their Home Information Pack.

 

As to selling houses by the sq ft or sq metre, if that was to happen in the UK all and sundry would be able to see that the recent rise in house prices was not due to the market getting better but because of those that have brought a larger house at a discounted price, although one above the average. ‘It’s a bargain! And look, we got it right because now house prices are increasing!’. Sadly the fundamentals that caused the original drop in price are still there, just peeking out from behind the curtain, their effects just delayed by the government trying to make things look better, stringing out the game just a little bit further.

 

[romans holiday]

"....The low rates are ruining the future of the pound, and the UK economy. They cannot be

sustained forever......"

 

This is a point with which I'm struggling at the moment.

 

Firstly, if all currencies currently have low rates and are likely to continue to do so indefinitely, how do UK low rates ruin the future of the pound and the UK economy?

 

Secondly, as long as deflationary forces are at work (e.g. over-capacity, lack of demand, high unemployment) interest rates can presumably stay at the low levels, no? I think these forces are going to stick around for quite some time.

 

Thirdly, there is often talk about the bond market rather than the BoE pushing up rates. But equally there are guys like Hugh Hendry who refer to this fear as the 'bogey man'. He thinks there will be plenty of demand for the bonds - we have an immediate precedent in Japan.

 

In other words, will the UK not be able to hold its rates at these low levels for the next 2-3 years without risk to the pound? And will this not support house prices?

Assuming your points above, that the pound will remain relatively strong, that deflationary forces will dominate the economy, and that the bond market will remain intact, I would still come to the conclusion that house prices will crash. Rather than house prices being supported they will have to fall. How could the present support/bounce in house prices be sustainable when the population finally gets it that they are in for years of deflation and increasing unemployment?

 

The main casualty of deflation is the deflation of asset prices and government policy is now at best only delaying an inevitable process. Consumer psychology has not completely turned yet, the house buying mania is still alive, there are still some cashed up buyers around.... once these conditions no longer abound, it does not matter what government does in order to support house prices and they will start to decline.

[FWIW]

Assuming your points above, that the pound will remain relatively strong, that deflationary forces will dominate the economy, and that the bond market will remain intact, I would still come to the conclusion that house prices will crash. Rather than house prices being supported they will have to fall. How could the present support/bounce in house prices be sustainable when the population finally gets it that they are in for years of deflation and increasing unemployment?

 

The main casualty of deflation is the deflation of asset prices and government policy is now at best only delaying an inevitable process. Consumer psychology has not completely turned yet, the house buying mania is still alive, there are still some cashed up buyers around.... once these conditions no longer abound, it does not matter what government does in order to support house prices and they will start to decline.

 

A colleague of mine has recently told me that he has bought a house worth £500,000 for £375,000...apparantly he got the deal done as he has superior negotiaton skills to anyone else.

 

It's logic like this that has got this country funked...

 

Anyway, we all have a long way to go down yet. I think 2012 is a key date for this uk hpc.

 

 

[romans holiday]

A colleague of mine has recently told me that he has bought a house worth £500,000 for £375,000...apparantly he got the deal done as he has superior negotiaton skills to anyone else.

 

It's logic like this that has got this country funked...

 

Anyway, we all have a long way to go down yet. I think 2012 is a key date for this uk hpc.

If he bought it for 375,000, then that is what it is worth. An asset is only worth what it can be sold for.

 

I would not make an offer on a property today unless I was extremely embarrassed with the amount I was offering. I wouldn't want to tie up all my capital in property, and certainly wouldn't want to become overly indebted.

 

Staying on the side-line and liquid in strong currencies, while assets deflate, is the sensible approach. Easy to do when you consider property is over-valued, and property ownership over-rated.

[FWIW]

If he bought it for 375,000, then that is what it is worth. An asset is only worth what it can be sold for.

 

I would not make an offer on a property today unless I was extremely embarrassed with the amount I was offering. I wouldn't want to tie up all my capital in a property/properties, and certainly wouldn't want to become overly indebted.

 

Staying on the side-line and liquid in strong currencies is the way to go. Easy to do when you consider property is over-valued, and property ownership over-rated.

 

Exactly what i said....

 

He seems to be of the opinion that now that has bought it (and will no doubt paint it, etc) it will be worth much more than £500,000!

 

I am sure this psychology is unique to the UK house market. We have had years of 'as safe as houses' and fairy tales of the 3 little pigs and the brick house...

 

 

[romans holiday]

Exactly what i said....

 

He seems to be of the opinion that now that has bought it (and will no doubt paint it, etc) it will be worth much more than £500,000!

 

I am sure this psychology is unique to the UK house market. We have had years of 'as safe as houses' and fairy tales of the 3 little pigs and the brick house...

The psychology is still alive and kicking in NZ and Australia.... will take some time to kill it off. A generation has known no different, yet a little perusal of history in that department would have told anyone curious that it was not the norm but an anomaly. Then again, greed has a way of blinkering people.

[nicejim]

The only good thing that I can see is the longer the low rates persist, the more debt will be paid off. But this is a very slow cure, and it takes maybe 14 years to pay off half of a 20 year mortgage loan. With such a slow cure at the household level, and debts building dangerously faster at the government level, things are getting worse, and more risky every day.

To quantify this, January's Credit Action report stated daily interest payments of £252m and August's stated "only" £182m. I think this is for personal debt. The overall level of personal debt rose slightly but so did savings, and the rate of increase in debt is falling.

http://www.creditaction.org.uk/debt-statistics.html

 

Net mortgage lending was negative for the first time, according to latest monthly figures release today.

http://www.citywire.co.uk/personal/-/news/....aspx?ID=355629

 

But whilst the people become more responsible, the government soaks itself in debt.

[Mike Mustard]

The thing that astonishes me most about the UK media is how property price inflation is normally reported as a good thing.

People visiting from continental Europe cannot understand why something becoming more expensive fills so many British people with glee.

 

Welcome to Animal Spirit central.

[G0ldfinger]

The thing that astonishes me most about the UK media is how property price inflation is normally reported as a good thing. ...

Yes, it's completely retarded.

[G0ldfinger]

From HPC:

 

Isn't it funny, how in my 2-year old projection in my signature below I even got the little nudge up right?

[marceau]

The psychology is still alive and kicking in NZ and Australia.... will take some time to kill it off. A generation has known no different, yet a little perusal of history in that department would have told anyone curious that it was not the norm but an anomaly. Then again, greed has a way of blinkering people.

 

 

If you can't expand credit, you can't expand house prices. Simple as that, despite what Gordon and badger (and Rudd) say.

[id5]

From HPC:

 

Isn't it funny, how in my 2-year old projection in my signature below I even got the little nudge up right?

I do hope GF that the rest of the prediction in your siggy's graph becomes true, now would it be nice to wave that under the noses of the 'but no one could predict it' brigades

[modigliani1]

"....The low rates are ruining the future of the pound, and the UK economy. They cannot be

sustained forever......"

 

This is a point with which I'm struggling at the moment.

 

Firstly, if all currencies currently have low rates and are likely to continue to do so indefinitely, how do UK low rates ruin the future of the pound and the UK economy?

 

Secondly, as long as deflationary forces are at work (e.g. over-capacity, lack of demand, high unemployment) interest rates can presumably stay at the low levels, no? I think these forces are going to stick around for quite some time.

 

Thirdly, there is often talk about the bond market rather than the BoE pushing up rates. But equally there are guys like Hugh Hendry who refer to this fear as the 'bogey man'. He thinks there will be plenty of demand for the bonds - we have an immediate precedent in Japan.

 

In other words, will the UK not be able to hold its rates at these low levels for the next 2-3 years without risk to the pound? And will this not support house prices?

 

 

All your points are valid. Yes, they might sustain the pound and house prices for some time (months, even years).

But in the end these policies are just postponing the inevitable and might very well end up making the problems that the UK economy is facing even deeper. I strongly believe the UK would be better off taking the sour pill asap. But it would be politically unpopular so obviously it won't happen.

 

Ask yourself: what would have happened to house prices if the govt hadn't slashed the rates? Prices would have kept dropping. They weren't allowed to. Now, as DrBubb pointed out, the market is experiencing a rally based on absolutely artificial and unsustainable circumstances. When this whole ficitional environment vanishes, we are gonna see the real extent of the current crisis.