Buying A House

[Slim]

For example, the interest free period on credit cards has only been possible because of low interest rates. Credit card "loaned" money is someone elses savings that has been getting zip all interest ove the past few years. As rates rise savings investors want to see a return. So far credit card companies have put up monthly interest rates but are still trying to offer interest free periods. That is sure to end soon. Another half point on the base rate and the screws will really start to tighten.

 

Tell me how this will provoke a crash, I dont understand your point.

 

As for house price crashes, they will not halve or anything, but around 1990 they lost 30-40%. My own house at the time went from £70k to £50k over about a year, then stayed at that level (give or take £5k) for about 5 years. It then doubled and fell back a bit, stayed static for 5 or 6 years. It has now doubled again, but not fallen back yet, but it will, I am certain of that.

 

Why? 1990's an interesting example. Base interest rate was what, 15%? 3mil Unemployment, poll tax, jitters, basically a recession. That's just not the case today.

 

I'm, again, not saying it can't happen, but there's no particular indicatation to say it's a dead cert.

[Mr. Sausages]

Nobody gets a bee in their bonnet quite like slim.

[slinkydevil]

[Slim]

Nobody gets a bee in their bonnet quite like slim.

 

Eh? I'm chilled!

[Mr. Sausages]

Chilled, but persistent.

[Cambon]

Tell me how this will provoke a crash, I dont understand your point.

 

With 0% interest incentive, credit card companies have encouraged people to spend much more and consequently borrow much more than they would have before. This is all money that has to be paid back and it will be with interest.

 

 

Why? 1990's an interesting example. Base interest rate was what, 15%? 3mil Unemployment, poll tax, jitters, basically a recession. That's just not the case today.

 

I'm, again, not saying it can't happen, but there's no particular indicatation to say it's a dead cert.

 

Actually, it is very similar. Unemployment may only be 1mln on the surface but that is because new labour took certain groups out of the equasion(e.g. 16-18 year olds), changing massively the way the statistic is calculated. If you look at the 15% interest rate in a different way, it was an increase in the base rate over a couple of years by around 80% in order to stop the boom, it than fell back over the next few years to stimulate manufacturing. Towards the end of the 90s it went up 60% for the same reason. Over the past few years it is up 50% so far. Poll tax has been replace by another exthortion tax, and people obviously have the jitters otherwise threads like this would not appear.

[Slim]

Sure I'm persistant. I've been on the other side of this argument, I'm mid 30's and didn't buy a house when many of my mates did. They're now sitting on the real boom gains from the mid 90's to now, and I really can't see any genuine evidence of an impending crash. I'd love to be convinced otherwise, but nobody seems to have a compelling reason other than 'bust follows boom'.

 

With 0% interest incentive, credit card companies have encouraged people to spend much more and consequently borrow much more than they would have before. This is all money that has to be paid back and it will be with interest.

Right, I get that, but how does that cause a crash in house prices? You've not made the link.

 

Actually, it is very similar. Unemployment may only be 1mln on the surface but that is because new labour took certain groups out of the equasion(e.g. 16-18 year olds), changing massively the way the statistic is calculated. If you look at the 15% interest rate in a different way, it was an increase in the base rate over a couple of years by around 80% in order to stop the boom, it than fell back over the next few years to stimulate manufacturing. Towards the end of the 90s it went up 60% for the same reason. Over the past few years it is up 50% so far. Poll tax has been replace by another exthortion tax, and people obviously have the jitters otherwise threads like this would not appear.

 

I dont know anyone unemployed. I'm inclined to believe that in general unemployment is lower than it was in the early 90's. I can't prove otherwise of course, I have to rely on the public figures.

 

The jitters in this thread is from people who can't afford houses, not people who own them already.

 

Anyway, this is going off the argument. I'm saying a crash *could* happen, I'm really just arguing that there's no absolute certainty of it happening as some claim.

[Juan Kerr]

It's all very well arguing the case for a crash, but if you read up on it, very few people who really know about this stuff think a crash is likely, the talk is of a slowdown, a levelling off, maybe a modest downwards correction, and then continued growth in future once earnings catch up a bit with prices.

 

I'm sorry but anyone making millions out of a market seldom knows when its going to go pop. They might believe that it will slowdown, or kick back for a while but they will never believe its going to head south big style because these things are unpredictable and arise from unforseen factors. Nobody listens to people with contrarian views until its too late.

 

The one thing not talked about here is the risk / reward aspect of a market such as the housing market which is by far the most important thing. As prices move ever skywards the risk / reward profile of a market changes. Those piling into a market at its full height always take the biggest battering as they took all of the risk and in hindsight got none of the reward (they are the biggest losers)

 

This is the only assessment people should be doing now if they want to buy. You can't predict a crash (although it will happen at some time) but you can decide whether the risk of making the move is offset by the potential reward in terms of future growth and future stability in the market.

 

To me its neutral. Interest rates are rising, unemployment is creeping up, and here new resident numbers are slow. If I was to be a first time buyer here I wouldn't because there are three factors that might affect the market over the next couple of years, weighed against the fact that property prices are relatively flat and have been for a few years. So faced with the propsect of no growth, and the risk of less future demand I'd be sitting on my arse doing nothing.

 

Don't try to predict what will happen, just work out whether the risks presented by the market are going to be offset by the return you might expect to get over the next 5 years or more.

[Albert Tatlock]

10 years ago the typical first-time buyer spent 18.4% of their monthly income on their mortgage. By late October last year that proportion had risen to 26.8% and there have been two interest rate increases since then. Taking into account additional increased expenses such as higher rates/council tax, higher utility bills - the cost of owning and running a home is higher than it has ever been. The UK are responsible for a third of all unsecured debt in Europe, which means that people in the UK are borrowing more and more on top of their mortgages.

 

Much of this mortgage and borrowed money goes into the city of London, and the finance sector now accounts for a substantial proportion of GDP. The finance sector is doing very well at the moment because of this. However, if for example oil prices don't remain stable and there is, say, an escalation in the middle east that affects oil prices, or a row between the UK and Russia over gas etc. or general overpricing as reserves get more scarce - this in itself could cause a recession (have you seen how the shares in oil companies have varied over the past two years? - things are very jittery). This is because everyone is affected by high oil prices. Businesses start passing on their increased costs to consumers which in turn curtails consumer spending, leads to job losses, wage freezes, less people able to pay their mortgages, less people willing to risk taking out mortgages and so on - which leads to a recession and a fall in house prices. One measure of whether we were getting out of the recession of the 1990s were the number of first time buyers coming forward.

 

The danger of high house prices is that they take money out of the economy in terms of our spending power. Mortgage payments today mean that we have 8% less spending power as consumers compared to 10 years ago. Add some major fluctuations in exchange rates, increasing inflation, higher interest rates - and consumer spending may fall and then we could get into problems. This means that less money will go into the city and the finance sector will suffer too. If house prices continue to rise at a higher and higher proportion of income logic clearly dictates that it is only a matter of time before enough consumer spending money is removed from the economy to trigger a recession, before other influences such as fuel costs do so. All these factors are inextricably linked like a house of cards and should not be viewed separately.

[Roger Smelly]

Great post albert, you have basically summed up my views.

 

I know 2 people who have lived through 3 housing booms and they all said that the property market goes in 7 to 10 year cycles.

 

Basically the prices grow for 7 to 10 years then back off for about another 7 to 10 years.

 

That is why i have not gone and jumped into the housing market, i have enough in the bank to pay a chunk off a house and have a smaller mortgage than most.

 

But i intend to play the market and see how it goes, if they rise more then i personally will be moving to the UK to buy a house and settle down as i don't fancy following most on the treadmill.

 

Keep an open mind folks, look at how the stock market went after 9/11, nobody seen that coming.

 

 

Also there is a limited amount of land on the island so that also has an effect

[Slim]

Also there is a limited amount of land on the island so that also has an effect

 

Yes, an effect of keeping the price high, jeez.

[Albert Tatlock]

What Roger and Albert and co seem to be missing here is that the economic predictors of a crash just aren't there this time around.

 

The potential is certainly there for a slowdown in rises, for a levelling off, or even for a modest downwards correction, but there's no historical precedent for the situation we're in now being indicative of a crash.

That is simply not true and, sorry, but I think you are deluding yourself. I am commenting from the economic view point, I already have a house, and am less likely to be affected by many with big mortgages.

 

I wouldn't wish a housing price crash on anyone, and am certainly not 'holding out' for one. But some people are ignoring some basic economic fundamentals.

 

1. UK house prices are at their most overvalued for 15 years

2. UK residents pay more tax than ever before and have higher utility bills than ever before (highest outgoings)

3. House prices are moving well beyond the reach of many families, which means everyday there are fewer new entrants to the market (e.g. only in the last 4 years, a fifth more of the population have lost the opportunity of getting on the ladder). Houses are less affordable when prices rise faster than earnings, which they are doing. First time buyers are at record lows now.

4. The average homebuyer is now borrowing 6.5 times their salary when buying property and banks are currently allowing this. Personal debt is now at £1300 billion. By not restricting borrowing by increasing interest rates, the banks are increasing the risk of a financial collapse.

5. Inflation is creeping up, interest rates are starting to rise, which means things are getting more expensive relative to earnings, which mean people have less spending power. Higher interest rates tend to trigger a reduction in consumer spending and cause the growth rate to fall.

6. Oil prices are fluctuating, and if they continue to rise this means that businesses will have to increase their costs and pass them onto customers. People will have less spending power and some businesses will start to close. If people buy less, the growth rate will fall, and again if the growth rate goes negative, we are in recession.

7. The house rental market is being artificially supported by migrant workers, many who couldn't dream of owning a house, send most of their money out of the country, and are only too willing to undercut British workers. If wages are forced down, people have less to spend.

 

Personally, I think house prices will rise for a year or more but so will interest rates (my guess is between 1% and 5% within 2 years). If people aren't restricted from borrowing such high amounts soon, the banks could risk end up losing a substantial element of the £1300 BILLION that currently represents personal debt in the UK, simply because some people will not be able to afford to pay it back. If the pound starts to fall against other currencies (likely at $2 to the £1 at present) they will have to increase interest rates anyway.

 

Instead of letting house prices rise sensibly there has been, once again, a rush to make as much money as possible by the UK banks while times are good. They are now lumbered with mega debts, which people seem to be paying back at present. However, once interest rates start rising and some people can't pay their mortgage, (and there are few fools wishing to take the risks of buying a property during a spate of interest rate rises) the housing market will start to stabilise and then fall. Remember, at any time your house is only 'worth' what people are willing to pay for it.

 

I just think high house prices add no value to the economy by taking money out of the economy. More than that it is 'money for nothing', unearned, unskilled and undeserved - and simply turns houses into 'investments' instead of homes. High house prices are lazy economics. The people who suffer from this are the ones starting out, the only ones that gain are landlords (and I have been one previously), the banks, the government and developers. By taking this money out of the economy, putting all of our eggs in one basket, high house prices put us all at risk.

 

If I had a large mortgage, now, whilst interest rates are low, I would be saving as much as I possibly could to cover the higher interest rate charges that are coming around the corner. I would also dump all my credit cards if I had any and do without luxuries (especially foreign goods). Of course it's a personal decision as to the risk of buying a house, but if I was a first time buyer I would be very wary at present and keeping a very close watch on all of these indicators.

 

All of the economic indicators for this to happen are present. Whether you wish to pretend they are not is down to you. Labour won't be bothered (in around 2009) when this starts to happen, and as a result I can see the UK getting a conservative government at the following general election, as once more we prove that 'the one thing we learn from history, is that we learn nothing from history' especially considering what happended in the 1970s, 80s and 90s'.

[ai_Droid]

All you crash doomers have been very quiet lately. What do you make of:

 

http://news.bbc.co.uk/1/hi/business/6986770.stm

 

Its latest survey shows that in July prices across the country rose by 2% to an average of £218,479.

The annual rate of house price inflation rose from from 12.1% to 12.4%, its highest since March 2005.

 

Are we still doomed, or are you talking arse?

[Cambon]

All you crash doomers have been very quiet lately. What do you make of:

 

http://news.bbc.co.uk/1/hi/business/6986770.stm

 

Its latest survey shows that in July prices across the country rose by 2% to an average of £218,479.

The annual rate of house price inflation rose from from 12.1% to 12.4%, its highest since March 2005.

 

Are we still doomed, or are you talking arse?

 

 

According to Norwich Union's Property Pension Fund there has been a fall of 3.8% over the last 3 months, 2.6% in the last month alone (sector averages). I tend to believe that over the governments manipulated figures.

 

http://services.norwich-union.co.uk/consum...72005409_EN.pdf

[ai_Droid]

According to Norwich Union's Property Pension Fund there has been a fall of 3.8% over the last 3 months, 2.6% in the last month alone (sector averages). I tend to believe that over the governments manipulated figures.

 

What does a pention fund that only invests into commercial property have to do with house pricing exactly?

 

If you don't believe the government figures, how about hbos:

 

http://www.bloomberg.com/apps/news?pid=206...hc&refer=uk