UK Property - The former HPC addicts' thread

[drbubb]

Hey Dr B just read a FT report on Hong Kong - apparently you may be having inflation concerns (where hasnt ?) over there as your interest rates are dropping due to the peg with the USD?

 

Is that likely to lead to a property bull run and does it make you nervous?

 

I am nervous about the future direction of US rates.

But I realise that if US rates spike up too high, HK will just de-peg.

 

The builder charts look like the correction is nearly over, and the market may soon be

ready for anotehr run upwards. But first, current levels of support must hold- as it looks like they are doing.

 

[drbubb]

My local one told me she's dealing with offers of 10-15k under asking price every day and some even lower offers. She's encouraging "cheeky" offers at the moment.

 

What's a cheeky offer?

To me i would be something in line with 2002 prices

 

One technique that might be worth trying in Central London is to say:

"I will only look at properties PRICED UNDER PDS.300 PER SQUARE FOOT."

 

==

 

You might use a different benchmark wherever you are.

But the PER PSF that you refer to should be far below prevailing prices.

And if you see enough places in this lower price range, you may spot one that deserves

a "cheeky offer" in return.

 

// HPC thread: http://www.housepricecrash.co.uk/forum/ind...showtopic=81169

 

(the HP mods seem to have deleted the thread - what gives??)

[frizzers]

Yep. Link doesn't work.

[drbubb]

Yep. Link doesn't work.

 

It was merged into another thread (without explanantion)

 

I have revived it, with a poll:

http://www.housepricecrash.co.uk/forum/ind...showtopic=81226

[dietcolaaddict]

This is an awesome thread that I wish I'd discovered sooner! Lots of excellent commentary and some great calls ahead of the event by many contributors.

I have really enjoyed reading it through (although it’s been like watching the match highlights after knowing the final score).

 

My first contribution is only anecdotal but my message is clear - panic has not set in yet and the UK public are still firmly in the denial phase of this bursting property bubble.

 

I went on a trip back to my old research institute this week, in property-obsessed Oxford. I'm at that early 30s age where old acquaintances quickly interject into the conversation:

1 "Isn't it time you settled down and got married"

2 "Are you still renting or have you bought?"

I sidestepped no.1 nicely, but used no.2 to probe what people currently think about the UK property market. This was a useful study population as they cover a wide demographic (near-min wage to 6 figure salaries) and remain unexposed to my views unlike my current social group or work colleagues.

 

The general consensus was that this is a ‘housing blip’ not a ‘housing crash’ and that things will return to normal next year. This came from all of my ex-colleagues, including some senior staff who got into the student HMO form of BTL around the millennium are now experiencing negative cash flow and drops in capital. I heard several times that getting on the ladder as soon as possible is the way forward (“Weird that you choose to rent”) and that the best way to tackle the affordability issue is to go for an interest-only mortgage. (“Of course its not renting from the bank”). Most shockingly - one staff member was being congratulated at length on the recent purchase of a ground floor flat in the flood plain (which was underwater this time last year).

 

Denial everywhere, and tough times ahead when reality finally dawns. The walk back to the station told the real story - a “for sale by auction” sign, an unfinished housing development with no builder activity (abandoned?) and estate agent windows with 10-15% falls from last year. If 10-15% is still denial phase, then the fear and despair stages are going to see massive drops

 

 

[drbubb]

The general consensus was that this is a ‘housing blip’ not a ‘housing crash’ and that things will return to normal next year. This came from all of my ex-colleagues, including some senior staff who got into the student HMO form of BTL around the millennium are now experiencing negative cash flow and drops in capital. I heard several times that getting on the ladder as soon as possible is the way forward (“Weird that you choose to rent”) and that the best way to tackle the affordability issue is to go for an interest-only mortgage. (“Of course its not renting from the bank”). Most shockingly - one staff member was being congratulated at length on the recent purchase of a ground floor flat in the flood plain (which was underwater this time last year).

 

Denial everywhere, and tough times ahead when reality finally dawns. The walk back to the station told the real story - a “for sale by auction” sign, an unfinished housing development with no builder activity (abandoned?) and estate agent windows with 10-15% falls from last year. If 10-15% is still denial phase, then the fear and despair stages are going to see massive drops

 

They seem out of date, if they are still denying.

Supply of houses for sale is increasing quickly, and prices are bound to sag alot from here.

 

Did you see the article in today's HOME section of the Sunday Times?

 

Meet the Accidental Landlords

 

It talks about how people have given up trying to sell their empty places, and have decided to rent them out instead.

 

Why not selling?:

"Figures released by Nationwide last week showed house prices down by 0.9% in June- the eigth consecutive month of falls - while the number of mortgage approvals fell by 64% over the year."

 

That is NOT A HEALTHY MARKET. And it certainly looks like the beginning of a crash.

Here's more:

 

"Research from Abbey Mortgage shows 800,000 people are planning to sell up and rent in the hope that the market will fall further and they can buy their next house at a bargain price."

 

With so many PLANNING to become LADDER LEAVERS, there is likely to be a steady stream of fresh supply.

 

Finally:

 

"At the end of last month, Hamptons International reported a 40% rise in rental stock levels in London, and a 26% rise in in the country. At the same time, it has seen a 9% rise in the number of tenants lokking to rent in London this year, and now has seven applications for every new rental house on the market outside the capital - up from three per property last year."

 

That huge increase in rental stock suggests that rentals may soon come under downwards pressure.

 

[drbubb]

(this anecdotal story from HPC is truly astonishing):

 

I received a letter this morning informing me that a BTL client of mine was to be offered £10,300 if he redeemed his mortgage within the next 2 months.

 

Outline:

 

Takes out a 90%LTV loan on a purchase of £115k, there is a 2 year tie-in (£5400) and the rate is BBR+ 0.49%.

 

He completed in october '07 and they are now offering to waive the £5.5k + legal fees fee and give him £10,300 as long as he takes his business elsewhere (bit tricky as Edeus had loose lending criteria compared to anyone else and the loan is probably in neg equity)

 

A slight whiff of desperation from the mortgage creators I think, I'm pretty sure this is unprecedented.

 

/see: http://www.housepricecrash.co.uk/forum/ind...t=0&start=0

[drbubb]

FUTURES-forwards now predicting a BIGGER DROP in UK Property

 

 

source: http://www.housepricecrash.co.uk/forum/ind...showtopic=81808

 

[drbubb]

SEEN IT BEFORE...

 

/see: http://www.marketoracle.co.uk/Article3559.html

[littledavesab]

Some points

 

I remember quite a while ago on CWR, before the current mess got started Dr Bubb mentioned that the declines in house builders share prices were a forewarning of the problems in the US and that the same could apply in the UK. I havent heard anyone else mention this (before or since) but I would say "nuf respect" to Dr B for this observation.

 

I would also add to this bit of general genius comment from one of George Soros's books - basically that the market has a way of MAKING its PREDICTIONS come true. I added the capital's. Well the stock market certainly enforced its predictions on the UK housing market!

 

Personally I reckon a 30% drop in prices is quite a reasonable guesstimate of what might happen/perhaps a bit more to take us down to 2003 levels or under. Lets face it a 30% drop isnt much other markets ie stocks, commodities. Such a drop clearly hasnt happened yet at least not in the South East.

 

Have also listened to most of the CWR house price podcast and would agree with the Lauristons comment that house prices are downwardly sticky. In my humble opinion the crash will happen once the repossessions start and the mortgage lenders who take over will simply sell at auction - once this happens the crash will start for real and as a guess you are probably looking about six months from now?

 

Ps I may be in the process of becoming a crash convert, question is how come I still have a bank and house builders shares in my portfolio?

[littledavesab]

Ps more thanks to Dr B for taking the trouble of replying to my previous HK query above

[littledavesab]

Another point. I love Dr Bubbs example of the roadrunner character running off the edge of a cliff with nothing underneath and not actually falling until he looks down.

 

Dr B did you forget to give this example when discussing UK house prices on CWR or do you think it not applies?

 

I would guess that its quite apt right now

[drbubb]

Some points

 

I remember quite a while ago on CWR, before the current mess got started Dr Bubb mentioned that the declines in house builders share prices were a forewarning of the problems in the US and that the same could apply in the UK. I havent heard anyone else mention this (before or since) but I would say "nuf respect" to Dr B for this observation.

 

I will say more about that soon on the Fred H. 18 year thread

 

[nbarter]

A must read article from one of the UK's top economists.

 

E.g, Over the past three months prices have fallen by almost 6pc - which translates into an annualised rate of decline of over 20pc. That is the fastest on record. But how large will the total drop in prices be?....

 

I now think that prices may drop by about 35pc from peak to trough. That may strike you as extreme, but it is not. I regard it as conservative. It is fully in accordance with past experience...

 

 

House prices could fall back a long way after their excessive rises

By Roger Bootle

Last Updated: 12:47am BST 14/07/2008

 

Last week the penny finally dropped about the housing market. The Halifax numbers were awful. A 2pc fall on the month was bad enough, but this came after earlier large falls.

 

Over the past three months prices have fallen by almost 6pc - which translates into an annualised rate of decline of over 20pc. That is the fastest on record. But how large will the total drop in prices be?

 

The place to start is with an analysis of why this is happening. The essential reason is that houses had become ludicrously over-priced, to the point where, in order to be able to afford one, you either had to own one already, to mortgage yourself up to the eyeballs or to win the lottery.

 

Many British people seem to believe that it is somehow inevitable that house prices rise by 10pc, 15pc or 20pc every year, thereby squirting money around for all who have been lucky or canny enough to position themselves under the shower.

 

You cannot shake off this sort of collective delusion without a painful adjustment. Not only Joe Soap, who can be readily forgiven, but mortgage lenders, house-builders, and estate agents, who should have known better, will have to re-acquaint themselves with the economic fundamentals.

 

GDP rises, on average, at 2pc to 3pc per year, as do real average earnings. Add 2pc to 3pc inflation to that and you have a good starting point for what you should expect for the progress of most money values over time - 4pc to 6pc per annum. So why should house prices rise by 10pc plus, year after year?

 

I saw a bubble blowing up in housing a few years ago but I seriously underestimated how much longer it would inflate. I therefore gave my warnings of the market's demise too early.

 

In my defence, if you are a forecaster, being early ought to be a forgivable fault. It is certainly much better than being late - like all those postcasters who are now jumping up and down and telling us the housing market is weak.

 

My timing may have been bad but the analysis was essentially right. I thought that what was happening in the housing market was a repeat of what we had seen several times before in the UK's history.

 

As with other bubbles, prices went up much further than was justifiable on the economic fundamentals, as the experience of past price rises caused the expectation of further price rises, and as mortgage money became more freely available on extremely attractive terms.

 

This relaxation of lending criteria was itself a reflection of the bubble psychology and it became part of the mechanism that inflated the bubble.

 

So it is ludicrous to say that it is only the dearth of mortgage money that is now undermining the market; it was the flood of mortgage money that drove prices up in the first place.

 

Since my original warning that house prices could fall by 20pc, they have risen substantially. I now think that prices may drop by about 35pc from peak to trough.

 

That may strike you as extreme, but it is not. I regard it as conservative. It is fully in accordance with past experience.

 

As so often, inflation has played tricks on our understanding. The conventional wisdom is that house prices always go up, with the early 1990s the only exception. Then, from peak to trough, average house prices fell by 20pc.

 

But in real terms the fall then was 38pc. And it was 32pc in the mid 1970s, and 16pc in the late 1970s. It has been normal for house prices to fall back a long way after excessive rises.

 

It is just that, in the past, high rates of inflation made it possible for this to happen in real terms without a fall in nominal prices, thereby sustaining the popular myth that house prices never go down.

 

By contrast, in the era of low inflation this disguise no longer works. And we are still in this era - even though inflation might this year briefly touch 5pc, before falling back next year. In these conditions, falls in real prices have to take place predominantly through falls in nominal prices.

 

Nor does the forecast of a fall of 35pc rest on a denial of the idea that the fundamental forces of supply and demand justify some increase in real prices.

 

The fact that the population has risen while rates of house building have been low implies that the equilibrium level of house prices and the equilibrium level of the house price to earnings ratio have risen.

 

In fact, if house prices were to fall by 35pc over three years, then the house price to earnings ratio would only return to its long run average.

 

In the recession of the early 1990s, by contrast, the ratio fell 25pc below its long run average.

 

Accordingly, it is readily possible to imagine falls bigger than 35pc. Indeed, it is likely that just as the boom overdid things on the upside, so prices will fall too far on the downside.

 

The possible factors that could bring this on would include a rise in interest rates necessitated by higher inflation, an outright collapse of the banks' ability and willingness to lend or an outright slump, rather than the mere recession that I am forecasting.

 

The one crumb of comfort is that prices are adjusting much faster this time. It is possible that the period of falling prices could be over much more quickly - and that would help the level of transactions to pick up, and all the activities associated with housing turnover to revive.

 

So perhaps that means that as house prices plunge over the coming months, all those estate agents should open the Champagne. Somehow, I doubt that many will.

 

But once prices have stopped falling, don't expect them to zoom up straightaway.

 

The combination of the shortage of finance, the prevalence of negative equity, the fresh memories of housing market misery and the ill-effects of the economic downturn should keep things subdued for a while.

 

But if I am right in thinking the fall will go too far, then, at some stage, houses will be under-valued and the cycle can begin again.

 

So at some point I feel I must write about what will be necessary to prevent another bout of crazy housing euphoria from breaking out.

 

I hope you will agree, though, that thinking about that just yet seems a bit too early - even for me.

[frizzers]

From Russell Hicks

Director, Barnard Marcus

To The Times

 

Sir, Your article, “Home ownership out of reach for average earners” (July 10), shows an ignorance of how prices are established.

 

House prices are more a result of the availability of loans, than of supply and demand. If lenders continually relax salary requirements, then people will borrow more and, importantly, negotiate less, thus allowing prices to increase. Growing hype and hysteria does the rest and drives prices to unrealistic levels.

 

Now that some sanity has returned to lending, it is not so much a question that people can’t afford to buy, and more that sellers will have to drop their prices to realistic levels.

 

There can be all the demand in the world and limited supply but if there’s no money, then there’s no market.

 

http://www.timesonline.co.uk/tol/comment/l...icle4326103.ece

 

That last line again, this time in bold:

There can be all the demand in the world and limited supply but if there’s no money, then there’s no market.

[Mr Pipples]

http://www.timesonline.co.uk/tol/comment/l...icle4326103.ece

 

That last line again, this time in bold:

There can be all the demand in the world and limited supply but if there’s no money, then there’s no market.

 

I guess the National Housing Federation doesn't want to think along those lines!

 

House Prices 'Will Soar by 25%'

[sonixtorm]

That last line again, this time in bold:

There can be all the demand in the world and limited supply but if there’s no money, then there’s no market.

 

Some really interesting comments from Father Fred (EA) in this thread on GHPC:

 

http://forum.globalhousepricecrash.com/ind...showtopic=35550

 

FF has always had a balanced view of the market (IMHO), and to hear him using phrases like this shows just how much impact credit tightening is having:

 

As a long time bear, but not quite as bearish as many on this site, I am utterly shocked by the speed of falls. As are many people I speak to who are agents or long term property investors who have lived through at least one crash. The only bright side to the utter carnage that I am seeing is that it is in no-ones interest for this to drag out with 3% falls a year for 10 years.

[drbubb]

The function of "overhead supply" / ie "pent-up sellers" :

======================

 

Dr. Bubb (respect as an increasingly regular GEI lurker) - can you expand, perhaps with reference to overhead supply in other contexts to illustrate how this term is understood and how it operates, such that you are able to describe it as "a killer".

 

Cheers.

 

SURE.

Many people now want to sell their homes. There might be, say, one million homes for sale

right now at above the current actual market price. Some of those sellers must sell urgently,

and those are the ones who will push down their selling prices until they can find a bid.

Those sales are driving the reported Housing index prices lower.

 

Meantime, those million homes remain for sale at just above market price. And slowly, very

slowly, the mass of sellers adjust their price ideas down. In effect, they are chasing the market

lower. And prices will not rise significantly for months and years to come, because of the weight

of those million homes for sale.

 

As prices fall, some homes that were over-financed are forced into foreclosure, adding to the

million homes of overhead supply. In fact, the foreclosure homes join the urgent sales, putting

more downwards pressure on the price.

 

Keep in mind:

A homeowner is only safe if he can rent out his home, and earn enough money to cover his

mortgage obligations. If that is true, then if he loses his job, he can move into cheaper rented

accommodation, and keep his house. That's the level prices will fall to: the level where buying

is cheaper than renting = ie Yields. net of costs, are ABOVE interest rates.

 

The overhead supply will be there, preventing any significant rise, and slowly pushing lower (at

maybe 1% per month) until the Yields are above rates, and price bottom out.

[drbubb]

http://business.timesonline.co.uk/tol/busi...icle4493855.ece

 

From The Sunday Times ... August 10, 2008 / Ben Marlow

 

HBOS to prop up builder

 

The high-street bank HBOS must inject about £100m of fresh cash into Crest Nicholson in the coming weeks to prevent the housebuilder from breaching banking covenants.

 

If HBOS, which owns 50% of Crest Nicholson, decides that it is unwilling to support the builder, its investment could be wiped out and the lending banks could step in and take control....

 

Crest Nicholson, led by chief executive Stephen Stone, was bought in 2007 at the height of the housing boom by Uberior Investments, the private-equity arm of HBOS, and West Coast Capital, the private-equity vehicle of the Scottish retail tycoon Sir Tom Hunter. Their joint venture valued the business at £715m. Hunter is the richest man in Scotland, according to the Sunday Times Rich List.

 

[drbubb]

FIRST or Last? 5.3% drop in London is some "catch-up"

 

What you heard first here, you can read last from Rightmove thru the mainstream press

===========

 

Owners slash prices of London homes

Press Assoc. - 59 minutes ago

Homeowners in the capital have drastically dropped their selling prices to fall in with the rest of the country.

 

A house price index report from property agent Rightmove shows that sellers in London have "recognised the need to price aggressively" in order to make London homes more affordable for potential buyers.

 

The change, Rightmove suggests, is so that sellers can avoid 'Brickor Mortis' - a recent term added to the property lexicon to describe houses that will not shift from the housing market.

 

As a result, London house prices have dropped 5.3% in the last month, according to figures, and like many other parts of the country the capital has found itself in negative territory for asking prices year on year.

 

Miles Shipside, commercial director of Rightmove, said: "Londoners have so far been largely insulated from the price falls taking place elsewhere in the country.

 

"However, sellers who choose to come to the market during the peak holiday season generally have a greater need to sell, and as a result properties coming onto the market in July were on average £21,000 cheaper than last month." He added that all but six of the 32 London boroughs had cheaper asking prices than last year.

 

However, there may be good news for homeowners who are in the vicinity of new transport links, such as the Olympic-linked East London line extension that is due to open in 2010.

 

Mr Shipside said: "Areas that are about to benefit from improved transport links appear to be avoiding the worst of the storm that is setting in elsewhere in the capital." He added that people looking for potential profit areas should "take up transport detective work as a hobby".

 

A Communities and Local Government spokesman said that the recent downturn in London asking prices was about the availability of credit. He said: "When looking at trends in the market, it is important to remember that UK house prices are significantly higher than five years ago.

 

"The current issue affecting the market is largely about the supply of credit - a very different situation to the early 90s which was about high interest rates and unemployment. The fundamentals underpinning the market remain sound with long-term demand for housing, low interest rates, and low unemployment."

 

/see: http://uk.news.yahoo.com/pressass/20080818...es-6323e80.html

[sonixtorm]

 

http://www.timesonline.co.uk/tol/money/pro...icle4629981.ece

 

Councils are to be helped to buy up repossessed and unsold homes apparently. I'd be very interested to see where the money for this is going to come from, and also who bears the brunt of further falls in the case of shared ownership schemes.

 

 

 

[Steve Netwriter]

When I read this I thought "sell gold at the bottom, buy property at the top".

 

With brains like that he should be running the country

 

[sonixtorm]

When I read this I thought "sell gold at the bottom, buy property at the top".

 

With brains like that he should be running the country

 

LOL. "Brown's bottom", and "Darling's top" perhaps?

[drbubb]

"The scale of the housing crisis was underlined yesterday with the biggest drop in prices since 1990. The latest monthly fall – the tenth in a row – means that the average property has lost 10.5 per cent of its value in the past 12 months, according to the Nationwide building society.

 

Alistair Darling, the Chancellor, and Caroline Flint, the Housing Minister, have been working for three months on measures to invigorate the mortgage market, particularly for first-time buyers, and to cushion those affected by rising repossession rates. Up to 300,000 homeowners are already in negative equity. Vince Cable, the Liberal Democrats’ Treasury spokesman, said that this figure could quadruple."

 

No doubt Caroline Flint has been working to come up with a convincing lie.

What other "work" do politicians do? - particularly this bunch in Brown's government.

[chazza]

Where is a good source for rent statistics for the UK. i.e. current trends etc.

 

Thanks