UK House prices: News & Views

[Van]

Hey. I've been following this conversation and I'm inclined to agree with you. Although, it can become quite tempting to buy a place.

 

The"experts" say that if the purchase price for properties similar to the one you rent is less than 15 times your annual rent, then buying makes sense. Where I am in the American Midwest this is easily true. In fact, I can buy a flat or even a townhouse (attached) that is considerably nicer than the shoebox rental I currently call home for 10-15 times my rent. If I went to the suburbs I could buy a single family home (with garden and all) for less than 15 times my rent. So I sometimes think I am "throwing money away" renting. Of course, given the economy and the RE market it seems like rents should be much lower - but it hasn't happened yet.

 

And, you know, sometimes it almost hurts to look at pictures online of places I can afford to buy that have much nicer baths, kitchens, woodwork, etc. But, especially being single, I don't want to get married to my local jurisdiction/politicians/tax policies.

 

Yes, x180-200 the monthly rent is about the "correct" price for a house for the long term average. The trouble is that ZIRP has hugely distorted the market. Mortgages are so cheap IF you can find 15-20% deposit, but who has a spare £50k lying around? Prices are not going up and lender are not keen so no one can MEW to release equity to inject back into the bottom of the market. It's a standoff and that's why transactions are still on life-support levels.

[wee Jinky]

. It may just be the case that rents will continue to rise to the point where it is cheper to buy than rent.

 

you cannot squeeze blood out of a stone

London is only attractive for its employment potential (imo)

It gets to a point when you are actually worse off living there than

everywhere else renting or buying

Not everyone can be an investment banker

without nurses binmen postmen etc etc it will cease to function

 

[John Doe]

The crash which everyone appears to be waiting for, may not happen. It may just be the case that rents will continue to rise to the point where it is cheper to buy than rent. While house prices remain weak in nominal terms, and falling in real terms.

Quite right.

 

The key is IR's. Until there is a shock and they rise rapidly, the crash may not happen, just a scenario as you describe.

 

Of course, the shock might not come.

 

And, you know, sometimes it almost hurts to look at pictures online of places I can afford to buy that have much nicer baths, kitchens, woodwork, etc. But, especially being single, I don't want to get married to my local jurisdiction/politicians/tax policies.

 

That can and does change with a family on board. But the point is correct. After we STR'd (for the second time) we rented OK places, but they were not ours and were not designed/kitted out as we wanted.

 

After we got ours in the dip in 2009, we made it just as we wanted. That has a value that is sometimes left out of the sums.

[wee Jinky]

Quite right.

 

The key is IR's. Until there is a shock and they rise rapidly, the crash may not happen, just a scenario as you describe.

 

Of course, the shock might not come.

 

 

 

That can and does change with a family on board. But the point is correct. After we STR'd (for the second time) we rented OK places, but they were not ours and were not designed/kitted out as we wanted.

 

After we got ours in the dip in 2009, we made it just as we wanted. That has a value that is sometimes left out of the sums.

 

I dont agree

does it really matter if its your mortgage repayments or everything else

that is increasing in cost ?at the end of the day people will have less and less money in their pockets

to service their debts ,those who are living on the edge will get pushed over and those looking to enter the market

will have less to buy with

Obviously a rise in rates will be more direct but inflation will have its effect

 

[BoldAsBrass]

The only real acceptable (to me) reason for buying now is the possibility that hyperinflation will destroy all (cash) savings and owning a house outright would be better than owning worthless paper and you are bound to the UK. I don't think we are there just yet, if hyperinflation is the outcome.

 

Does it have to be hyperinflation? Why not just a bit of old-fashined, ordinary inflation.

 

Inflation of 5% a year will soon wipe out your debts.

 

I used to argue that we won't get inflation in this country because of the nature of our globalized economy. But, I don't argue that any more. With inflation on the march in the contries that supply us with cheap imports, a bout of global inflaiton is inevitable.

[Jake]

After we got ours in the dip in 2009, we made it just as we wanted. That has a value that is sometimes left out of the sums.

I think that kind of 'value' can also become despised or cause heartbreak in certain conditions, if you are talking emotional value.

 

[Jake]

Does it have to be hyperinflation? Why not just a bit of old-fashined, ordinary inflation.

 

Inflation of 5% a year will soon wipe out your debts.

 

I used to argue that we won't get inflation in this country because of the nature of our globalized economy. But, I don't argue that any more. With inflation on the march in the contries that supply us with cheap imports, a bout of global inflaiton is inevitable.

Fine, with wage inflation, too. Anyone had a pay rise recently? Or one on the horizon?

 

At the moment it's really looking like stagflation isn't it?

[Jake]

I dont agree

does it really matter if its your mortgage repayments or everything else

that is increasing in cost ?at the end of the day people will have less and less money in their pockets

to service their debts ,those who are living on the edge will get pushed over and those looking to enter the market

will have less to buy with

Obviously a rise in rates will be more direct but inflation will have its effect

 

And spare a thought for Japan and all those who bought into the late 80's. Zero interest rates did nothing to save them for 20 years (and counting.)

[drbubb]

Does it have to be hyperinflation? Why not just a bit of old-fashined, ordinary inflation.

 

Inflation of 5% a year will soon wipe out your debts.

 

I used to argue that we won't get inflation in this country because of the nature of our globalized economy. But, I don't argue that any more. With inflation on the march in the contries that supply us with cheap imports, a bout of global inflaiton is inevitable.

...here we go again - when will people learn?...

 

Price inflation is of ZERO help to those who want to buy property.

 

In fact, food and energy price inflation will make property less affordable, since people will have to buy essentials before they put equity into shelter or mortgage payments

 

What is needed is RISING INCOMES - that is the key thing

[John Doe]

I dont agree

does it really matter if its your mortgage repayments or everything else

that is increasing in cost ?at the end of the day people will have less and less money in their pockets

to service their debts ,those who are living on the edge will get pushed over and those looking to enter the market

will have less to buy with

Obviously a rise in rates will be more direct but inflation will have its effect

I would counter that most people with mortgages got them before the drop in rates, so for a while now they have actually been better off with greater spending power. I would agree about households that might have lost a wage earner though.

 

The inflation will have an effect on their spending power, (and most definitely lower the cost of housing in real terms) but, unless it falls back in the next year, there will come a time when people start saying enough is enough and the wage demands increase. This is already happening in the private sector where pay awards are increasing (I think its up past 1.8% Av now, from practically nothing a year or two back).

 

I think that kind of 'value' can also become despised or cause heartbreak in certain conditions, if you are talking emotional value.

 

Fair point, in certain circumstances. I guess you don't miss what you've never had.

[BoldAsBrass]

...here we go again - when will people learn?...

 

Price inflation is of ZERO help to those who want to buy property.

 

In fact, food and energy price inflation will make property less affordable, since people will have to buy essentials before they put equity into shelter or mortgage payments

 

What is needed is RISING INCOMES - that is the key thing

 

I don't think it's a question of learning. When people refer to 'inflation' - they mean a general increase in prices and wages. When one refers to the inflation of, for example, the 1970s - one is not referring to just price inflation or just wage inflation.

 

At the moment, clearly, there is price inflation without wage inflation. But that cannot continue forever. When I argue that we can tolerate 'inflation' in this country because there is going to be (there is already) a period of global inflation I mean, and I would have thought this was self evident, that we are going to have a period of wage and price inflation. Sure, times are hard and wage inflation will lag price inflation. But it will come.

[BoldAsBrass]

Fine, with wage inflation, too. Anyone had a pay rise recently? Or one on the horizon?

 

At the moment it's really looking like stagflation isn't it?

 

Wage inflation will follow eventually. I guess it depends what you do for a living. I haven't been able to raise my rates for a good few years now - but a friend of mine who runs his own IT consultancy (mainly networking but he does all sorts - basically advises, manages, procures and installs the complete IT infrastructure for people) has got so much work on he's just jacked his rates by 50%. He told me he was hoping a few clients would tell him to get stuffed so he could have the odd day off - no-one did - so he's still working long hours, 7 days a week (and making a fortune).

 

Another guy I know runs a PR agency - he's flat out - it just depends on what you do, who your clients are etc. A neighbour runs a sandwich shop which has given him a good living for the last 20 years. He says he's barely breaking even at the moment - trade has fallen off a cliff.

 

It's like house prices - there is a huge variation in the market.

[drbubb]

Wage inflation will follow eventually. I guess it depends what you do for a living. I haven't been able to raise my rates for a good few years now - but a friend of mine who runs his own IT consultancy (mainly networking but he does all sorts - basically advises, manages, procures and installs the complete IT infrastructure for people) has got so much work on he's just jacked his rates by 50%. He told me he was hoping a few clients would tell him to get stuffed so he could have the odd day off - no-one did - so he's still working long hours, 7 days a week (and making a fortune).

 

Another guy I know runs a PR agency - he's flat out - it just depends on what you do, who your clients are etc. A neighbour runs a sandwich shop which has given him a good living for the last 20 years. He says he's barely breaking even at the moment - trade has fallen off a cliff.

 

It's like house prices - there is a huge variation in the market.

A few people working hard, and making more money will not raise Property prices.

 

If the average person in the UK makes a smaller income, I think prices will go lower. At the same time, prices may have risen in London only while incomes are rising there. But if Austerity brings down London incomes, I cannot see how property prices will rise, or even how rents will rise. A change in average incomes, pushing them down, will push down rents and property prices too. And rising interest rates can press them down too, even if incomes rise a bit.

 

The vulnerability of property prices should be clear to all who think clearly, beyond the soundbite-mentality of estate agents.

[Van]

Mortgage rates have risen in the last week.

 

2 deals that I have been monitoring:

 

Nationwide 2yr fixed 85% LTV 4.39% -> 4.99%

ING 2yr fixed 80% LTV 3.69% -> 3.89%

 

Despite the bullish Rightmove figure, the reality is that the screws are being turned on the UK housing market as economic reality begins to bite.

[Meralti]

Wage inflation will follow eventually. I guess it depends what you do for a living. I haven't been able to raise my rates for a good few years now - but a friend of mine who runs his own IT consultancy (mainly networking but he does all sorts - basically advises, manages, procures and installs the complete IT infrastructure for people) has got so much work on he's just jacked his rates by 50%. He told me he was hoping a few clients would tell him to get stuffed so he could have the odd day off - no-one did - so he's still working long hours, 7 days a week (and making a fortune).

 

Another guy I know runs a PR agency - he's flat out - it just depends on what you do, who your clients are etc. A neighbour runs a sandwich shop which has given him a good living for the last 20 years. He says he's barely breaking even at the moment - trade has fallen off a cliff.

 

It's like house prices - there is a huge variation in the market.

 

There is no inevitable rise in wages. In fact they are unlikely to match inflation. The current situation is not like the 1970s, as you stated in an earlier post. The inflation we are seeing in the UK is not about you or your mate hiking your rates or buying a butty in yer launch hour. It is about the Brics countries closing the gap in wages and prosperity between them and the west. This means that wages in the west will not increase at anything like the rate that they are doing in the Brics - therefore wages rises, such as they are, will not match inflation. This will lead to a reduction of expendable income for western workers.

 

There is an article in Citywire today stating that prices will fall. It has a nice graph of house prices to average earnings. The average long term price-to-earning ration is 3.7. The current ration for the UK 5.3. This means that UK wages must rise by over 50% in order for the long term price-to-earning ration to be restored at the current average house price. Anyone expecting to recieve that either works for a bank or lives in cloud cuckoo land.

 

Before you say it. I know that the long term average is an abstract concept and there is no law that states it must be maintained at a value of exactly 3.7. However, neither is it an infinitely elastic thing. At the moment it indicate how out of kilter prices are; and the idea that earnings place an upper limit on how far prices can rise is obvious.

 

If wages do not rise then prices must come down. Or a combination of both. I expect to see very small, below inflation wages rises and significant HP falls.

 

 

[frizzers]

Interesting that in Fiat Money Inflation in France, which details the monetary inflation of the 1790s which led eventually to the French Revolution, the author Andrew Dickson White repeatedly points out how there was runaway inflation in the price of everything as people rushed to get out of paper. But at the same time wages were unchanged. In fact in many cases they fell.

 

 

[John Doe]

There is no inevitable rise in wages. In fact they are unlikely to match inflation.

 

Nothing is inevitable, but if inflation stays high, then there will be increasing pressure for (and eventually will be) higher wages.

 

The PTB would have a hard job keeping them in check if the genie is let out.

 

The current situation is not like the 1970s, as you stated in an earlier post. The inflation we are seeing in the UK is not about you or your mate hiking your rates or buying a butty in yer launch hour. It is about the Brics countries closing the gap in wages and prosperity between them and the west.

 

Possibly, but then again, IIRC the problems in the 70's started off with commodities going sky high (mid east and far east wars -oil shock - gold at $800), and with inflation rising rapidly. At first there were no real wage rises, then the wage rises began and it all went crazy. Though not the same, there are similarities.

 

This means that wages in the west will not increase at anything like the rate that they are doing in the Brics - therefore wages rises, such as they are, will not match inflation. This will lead to a reduction of expendable income for western workers.

 

While that would appear a likely outcome, there is still very low inflation in the US and EU and Japan (at the moment). If that stays the same (or even reduces as the deflationists believe) then there might not be such a reduction of expendable income in the West. (just here )

 

[VictorBroom]

Mortgage rates have risen in the last week.

 

Exactly. The general public would do well to monitor rates as you are doing. Somehow, everyone is transfixed on what the BoE rate is and then applies it to their own situation. I guess there are trackers x% above (or below) the BoE rate but it would still make sense to follow actual mortgage rates in the marketplace.

 

[Meralti]

Nothing is inevitable, but if inflation stays high, then there will be increasing pressure for (and eventually will be) higher wages.

 

The PTB would have a hard job keeping them in check if the genie is let out.

 

 

 

Possibly, but then again, IIRC the problems in the 70's started off with commodities going sky high (mid east and far east wars -oil shock - gold at $800), and with inflation rising rapidly. At first there were no real wage rises, then the wage rises began and it all went crazy. Though not the same, there are similarities.

 

 

 

While that would appear a likely outcome, there is still very low inflation in the US and EU and Japan (at the moment). If that stays the same (or even reduces as the deflationists believe) then there might not be such a reduction of expendable income in the West. (just here )

 

Your last point seems to contradict all your other ones and many of your previous posts. A period of high inflation followed by a second deflationary crash is a distinct possibility. However, should this happen it will pretty much wipe out all those people who rush into property as a protection against inflation now.

 

[frizzers]

Interesting reading ...

[John Doe]

Your last point seems to contradict all your other ones and many of your previous posts. A period of high inflation followed by a second deflationary crash is a distinct possibility. However, should this happen it will pretty much wipe out all those people who rush into property as a protection against inflation now.

Yes, I could have put it better. I think over time these effects will likely take place. However, most of the time such large changes can take many many years, though sometimes with large jumps in-between stable periods.

 

We might be having (or just had) one of these jumps at present, but these thing rarely go in a straight line and can indeed sometimes reverse (Like in the Asian crisis 1997, or more recently when Russia was put on its backside when oil fell to $33). China could well have a significant crash soon as could the other Brics.

 

When I was younger and Japan was growing, we were all told we’d be speaking Japanese and working for them by 2000. As it happened events didn’t go as expected.

So I like to explore the possible scenarios raised by posters here so that I (hopefully quite quickly) am able to react if facts on the ground change markedly.

 

At this point in time, I still think we might have a few years yet with low rates and inflation (albeit CPI) of between 3 and 5%, eroding debt, reducing the deficit and with real house prices falling, but in nominal terms flat(ish).

 

There was a piece on the fool today stating real house prices back to 2003 levels already.

 

Agree on the inflation to deflation crash. That would wrong foot many and hurt almost everyone.

 

[Meralti]

Yes, I could have put it better. I think over time these effects will likely take place. However, most of the time such large changes can take many many years, though sometimes with large jumps in-between stable periods.

 

Not sure we've has our jump yet. I think that it was postponed, and when it comes it will be quick.

 

We might be having (or just had) one of these jumps at present, but these thing rarely go in a straight line and can indeed sometimes reverse (Like in the Asian crisis 1997, or more recently when Russia was put on its backside when oil fell to $33). China could well have a significant crash soon as could the other Brics.

 

Agree with the China crash scenario. The crack-up boom is happening there not in the west.

 

When I was younger and Japan was growing, we were all told we’d be speaking Japanese and working for them by 2000. As it happened events didn’t go as expected.

So I like to explore the possible scenarios raised by posters here so that I (hopefully quite quickly) am able to react if facts on the ground change markedly.

 

Yes, I remember this. They got that wrong and they same sort of voices are wrong about China now. That said, the prosperty gap between them and the west will continue to close. Possibly by us getting poorer.

 

At this point in time, I still think we might have a few years yet with low rates and inflation (albeit CPI) of between 3 and 5%, eroding debt, reducing the deficit and with real house prices falling, but in nominal terms flat(ish).

 

There was a piece on the fool today stating real house prices back to 2003 levels already.

 

Is that the the new bull scenario?

 

Agree on the inflation to deflation crash. That would wrong foot many and hurt almost everyone.

 

Unless you're long cash (more accuately a surviving hard currency).

[G0ldfinger]

Yes, I remember this. They got that wrong and they same sort of voices are wrong about China now. That said, the prosperty gap between them and the west will continue to close. Possibly by us getting poorer.

You might like this then:

 

FSN In Depth: George Magnus

Uprising: Will Emerging Markets Shape or Shake the World Economy

http://www.financialsense.com/financial-se...e-world-economy

[drbubb]

Nothing is inevitable, but if inflation stays high, then there will be increasing pressure for (and eventually will be) higher wages.

The PTB would have a hard job keeping them in check if the genie is let out.

Pressure sure. But what can be done to raise incomes?

 

Cost push inflation (higher food and energy prices), will squeeze a budget and REDUCE spending on housing.

If rents do not fall, then people caught in the squeeze will be forced to downsize.

 

Only those who have genuine pricing power will be able to get higher wages, and I do not see public sector workers getting much of a wage rise, and private sector workers will only get more in those industries that are seeing rising wages.

 

Instead, wealth will fall, as more money is sent overseas to pay for imported food and energy. (Remember, the UK is running out of North Sea oil, and importing more.) Another problem, is that taxes are set to rise, and that will also put downwards pressure on disposable incomes.*

 

If you want to see the future of rents and property prices, you must track incomes - not just inflation.

 

== ==

 

*Families will have £1,000 less disposable income by 2013 (14 Jan 2010 article)

By Harry Wallop, Consumer Affairs Editor 7:05AM GMT

 

The average household in Britain will have £1,130 less money in their pocket to spend during 2013 compared with last year, according to analysts.

 

"We've shopped ourselves out", said Neil Saunders at Verdict.

 

Higher taxes, National Insurance, utility bills and mortgage payments will all conspire to eat into the average family's disposable income, leaving them with far less money to spend on food, clothes and non-essential products.

 

The calculation comes from Verdict Research, which specialises in analysing the retail market. It warned that shopkeepers will find life far tougher emerging from the recession than they did during the financial crisis of 2008 and 2009 because shoppers will be forced to carry on being frugal.

 

Neil Saunders, director at Verdict, said: "It doesn't matter which shade of government we have, taxes have to go up. And that will strip people's incomes.

 

"Mortgage rates, which are at a very low level, are set to increase. And utility bills are also likely to rise. This will all take money out of people's pockets."

 

The research predicts that by 2013 the average household will have 35.1 per cent of their gross income left over, after paying all the key bills. This is a sharp fall from 38.4 per cent left over as disposable income in 2009.

 

Using figures from the Office for National Statistics, and on the presumption incomes stay flat, this suggests that the average family will go from having £13,160 a year after paying all their key bills to £12,028 – a drop of £1,132.

 

Mr Saunders also pointed out that most consumers will feel compelled to pay a greater amount of their salary into a pension, once they realise how badly most company pension schemes have performed in recent years.

 

/source: http://www.telegraph.co.uk/finance/persona...e-by-2013.html#

 

(The article talks about paying the mortgage as an "essential item". Tell that to people in the US who are underwater on their homes, and have stopped paying their mortgages, and are awaiting foreclosure. Or to those who have sold their homes to rent or to downsize. Food is essential. And maybe energy for heating or for fueling a car to get to work. Housing is a flexible choice, and can be modified - though most are loath to do that, and will ask for a government handout before moving. But those handouts will be less likely to rise, and harder to get, in the future.)

 

/see NEW THREAD on UK Incomes :: http://tinyurl.com/GPC-incomes :

 

Andy Clarke, president and chief executive officer of Asda, said: "Last year disposable incomes dropped every single month, and 2011 is shaping up to be just as challenging. The cost of living continues to rise at a faster rate than people's earnings, putting a further squeeze on family finances. With government measures to reduce the deficit beginning to bite, it's unlikely there will be any let up soon."

[John Doe]

Pressure sure. But what can be done to raise incomes?

Yep, that’s the problem I referred to as the Genie.

 

The public sector are scared at the moment, but they are also starting to realise that their wages are falling in real terms. They will eventually strike for higher pay. When the public see their demands as fair (and start to support the strikes), the unions can be very strong.

 

Of course, this helps no-one as it leads to more inflation, but that's what can happen, eventually. How the gov finds money for that is another question. They have done it before, and will again if they have to. EG they might look at slowing down the deficit reduction plan if desperate.

 

Remember, with inflation at 3%, the deficit will be halved by the end of the present parliament, so actually, that could pay towards any wage rises.

 

That said, I agree that wages won't keep up if inflation stays high (relatively high that is).

 

(The article talks about paying the mortgage as an "essential item". Tell that to people in the US who are underwater on their homes, and have stopped paying their mortgages, and are awaiting foreclosure. Or to those who have sold their homes to rent or to downsize. Food is essential. And maybe energy for heating or for fueling a car to get to work. Housing is a flexible choice, and can be modified - though most are loath to do that, and will ask for a government handout before moving. But those handouts will be less likely to rise, and harder to get, in the future.)

 

That's grim. The UK is different in many ways, not least with our benefits system, but also, on the whole, we don't have the "fend for yourself" veiw that's prevalent in the US. We can't just walk away from our mortgage either. (Unless declaring full bankruptcy, which is still taboo here).

 

I thought a lot about how you said you knew London very well. I found it interesting as the majority of people in the UK see London as a totally different country. Having lived in several parts of the UK, including London for a while, I think they’re right. Generally, the attitude of Londoners varies massively with most of the country. I know it’s quite a sweeping statement, but, on the whole, people outside London seem to care about other people a lot more.

 

Is that the the new bull scenario?

Yes, I suppose it is now