Are UK House Prices about to peak?

[BullDog]

If the share price keeps falling and then it pays you 16% of that a year, with the 16% drop in the share price plus the falling price, it doesn't take long to make the shares worth a hell of a lot less.

The answer lies in the free cash flow.

TJH

And they will have less of that as house prices fall.

Not necessarily, as it is the value of land that varies, not the cost of building a house on it. Just compare the price of houses with the costs of rebuilding them.

TJH

Cost of building a house will rise as the raw materials rise in price. Squeeze those profits
I saw something the other day that said the cost of manufacturing tiles in Spain has risen by over 1000% (not a typo)

Time to bring tile manufacturing back to the UK and power the kilns with wind power or wind power generated hydrogen?

[absolutezero]

Time to bring tile manufacturing back to the UK and power the kilns with wind power or wind power generated hydrogen?

lol

[scrumpyjack]

How do you feel about communism? That would surely address the inter-generational selfishness that you ascribe to those who wish to help their children.

be careful what you wish for, a lot of under 30's are quite partial to communist ideas.

Fortunately most of them grow up eventually

[1nvest]

I think the local estate agents around here haven't got the memo yet. Prices seem to have hit an even more insane high. A newly built bungalow no bigger than most double garages that has just been built on a bit of land hacked off a garden has just gone on sale for £450,000. I realise that would be dirt cheap for some parts. But around here maybe 18 months ago, that kind of money would have bought a good 4 bed detached house with a garage of similar size to this bungalow.

Owning a house is quite a good inflation hedge. Whilst higher interest rates may lower demand (first time buyers), most homes are mortgage free (around two-thirds). With a declining Pound that can also attract foreign (cash) buyers.

[vand]

Month on month falls now showing up in the HP index data.

We are well past the peak, and it makes sense too wth higher borrowing costs and falling real wages strangling the market.

https://amp.theguardian.com/money/2022/ ... et-october

[vand]

To put the bull argument forward, three things still keeping the market afloat:

Good labour market
Rising rents
Weak GBP making UK assets more attractive to foreign buyers - though personally I don't weigh this factor very highly

[TUK020]

Labour market tends to lag the economic cycle.
Monetary policy throttles economic activity ->companies contract, lay off -> mortgage defaults -. repossessions - > collapsing house prices.

A more important question than whether house prices have peaked is how much of a drop is already in the pipeline?

[vand]

Labour market tends to lag the economic cycle.
Monetary policy throttles economic activity ->companies contract, lay off -> mortgage defaults -. repossessions - > collapsing house prices.

A more important question than whether house prices have peaked is how much of a drop is already in the pipeline?

I do agree with this, but I'm also of the opinion that we will not see the unemployment levels we have seen in past downturns, due to technology increasing the flexibility of labour, and also the skill based nature of much of the economy today.

Despite the current economic soft patch the labour market remains remarkably buoyant, wth the number of job openings greater than the number of unemployed, so I would say that you have to give it the benefit of the doubt until the employment numbers start to say otherwise.

[Mike4]

Labour market tends to lag the economic cycle.
Monetary policy throttles economic activity ->companies contract, lay off -> mortgage defaults -. repossessions - > collapsing house prices.

A more important question than whether house prices have peaked is how much of a drop is already in the pipeline?

My estimate is 25% baked in.

And a corresponding rents rise of maybe 20%.

[1nvest]

but I'm also of the opinion that we will not see the unemployment levels we have seen in past downturns, due to technology increasing the flexibility of labour

High unemployment was fixed by the Tories - by the introduction of zero hour contracts.

1M unemployed
5M on Universal Credits i.e. not working a real job that pays them enough to live on
30M workforce
20% 'under-employed' and receiving state (taxpayers) aid

IIRC only around a third of houses are mortgaged, there's a large proportion of outright owned properties, such that the housing market is relatively resilient.

[servodude]

Labour market tends to lag the economic cycle.
Monetary policy throttles economic activity ->companies contract, lay off -> mortgage defaults -. repossessions - > collapsing house prices.

A more important question than whether house prices have peaked is how much of a drop is already in the pipeline?

My estimate is 25% baked in.

And a corresponding rents rise of maybe 20%.

Are you predicting any hare-brained gubmint interventions to either of those?

[ursaminortaur]

Labour market tends to lag the economic cycle.
Monetary policy throttles economic activity ->companies contract, lay off -> mortgage defaults -. repossessions - > collapsing house prices.

A more important question than whether house prices have peaked is how much of a drop is already in the pipeline?

My estimate is 25% baked in.

And a corresponding rents rise of maybe 20%.

Are you predicting any hare-brained gubmint interventions to either of those?

If the cost of living crisis is making purchasing a house unaffordable such that house prices are going to fall by 25% then how on earth would people be able to afford 20% higher rents ?

[Lootman]

If the cost of living crisis is making purchasing a house unaffordable such that house prices are going to fall by 25% then how on earth would people be able to afford 20% higher rents ?

Landlords are usually conscious of the rental yield on a housing unit. This is the annual rent expressed as a percentage of the market value of the property.

In my time as a landlord that varied between about 5% and 10%, so clearly the ratio between the two can vary, to the point where one may go up whilst the other goes down. They are different markets and the rent I can get is not necessarily related to my costs, but only to market demand.

However in one case I got an annual rent that was 20 times the annual income in that area. Location, location, location!

[servodude]

Labour market tends to lag the economic cycle.
Monetary policy throttles economic activity ->companies contract, lay off -> mortgage defaults -. repossessions - > collapsing house prices.

A more important question than whether house prices have peaked is how much of a drop is already in the pipeline?

My estimate is 25% baked in.

And a corresponding rents rise of maybe 20%.

Are you predicting any hare-brained gubmint interventions to either of those?

If the cost of living crisis is making purchasing a house unaffordable such that house prices are going to fall by 25% then how on earth would people be able to afford 20% higher rents ?

I think Mike's figures are not far off what I expect if the market were able to bear them - but I don't think it can.. for pretty much exactly the reason you've raised.
The "cost of living crisis" and things like markets losing confidence in those managing stuff don't hit everything evenly.
I can see one possible path where a Govt might step in to buy stock for use as social housing (or as a partial hedge because housing benefit claims are going up considerably)
- or they could legislate for abbeyance to prevent defaults leading to repossessions
- or some other "thing"
but I really doubt they're going to sit back and watch

[Mike4]

Labour market tends to lag the economic cycle.
Monetary policy throttles economic activity ->companies contract, lay off -> mortgage defaults -. repossessions - > collapsing house prices.

A more important question than whether house prices have peaked is how much of a drop is already in the pipeline?

My estimate is 25% baked in.

And a corresponding rents rise of maybe 20%.

Are you predicting any hare-brained gubmint interventions to either of those?

If the cost of living crisis is making purchasing a house unaffordable such that house prices are going to fall by 25% then how on earth would people be able to afford 20% higher rents ?

I think Mike's figures are not far off what I expect if the market were able to bear them - but I don't think it can.. for pretty much exactly the reason you've raised.
The "cost of living crisis" and things like markets losing confidence in those managing stuff don't hit everything evenly.
I can see one possible path where a Govt might step in to buy stock for use as social housing (or as a partial hedge because housing benefit claims are going up considerably)
- or they could legislate for abbeyance to prevent defaults leading to repossessions
- or some other "thing"
but I really doubt they're going to sit back and watch

Well I notice no-one has asked the obvious question, over what timescale am I making my forecast?

Well the property market moves glacially slowly so I'm imagining it will take about three years for my suggested 25% fall to occur.

Similarly the rent rise. In three years I think they will have risen by about 20%. And given inflation is currently 10% and I see no reason for that to come back under control for at least three years, just a 20% rise in rents over three years equates to a fall of approx 10% in real terms.

[servodude]

My estimate is 25% baked in.

And a corresponding rents rise of maybe 20%.

Are you predicting any hare-brained gubmint interventions to either of those?

If the cost of living crisis is making purchasing a house unaffordable such that house prices are going to fall by 25% then how on earth would people be able to afford 20% higher rents ?

I think Mike's figures are not far off what I expect if the market were able to bear them - but I don't think it can.. for pretty much exactly the reason you've raised.
The "cost of living crisis" and things like markets losing confidence in those managing stuff don't hit everything evenly.
I can see one possible path where a Govt might step in to buy stock for use as social housing (or as a partial hedge because housing benefit claims are going up considerably)
- or they could legislate for abbeyance to prevent defaults leading to repossessions
- or some other "thing"
but I really doubt they're going to sit back and watch

Well I notice no-one has asked the obvious question, over what timescale am I making my forecast?

Well the property market moves glacially slowly so I'm imagining it will take about three years for my suggested 25% fall to occur.

Similarly the rent rise. In three years I think they will have risen by about 20%. And given inflation is currently 10% and I see no reason for that to come back under control for at least three years, just a 20% rise in rents over three years equates to a fall of approx 10% in real terms.

Fairy nuff.
I don't disagree with the time scales (and I did mean to ask earlier ) or amounts, but I think that the drop throughout that period might not be smooth (not constant, linear or continuous - there could well be abrupt changes)
Can you see the (or next) gubmint "taking steps"?
Or can you see them fronting it out?

[tjh290633]

Labour market tends to lag the economic cycle.
Monetary policy throttles economic activity ->companies contract, lay off -> mortgage defaults -. repossessions - > collapsing house prices.

A more important question than whether house prices have peaked is how much of a drop is already in the pipeline?

My estimate is 25% baked in.

And a corresponding rents rise of maybe 20%.

Thinking back to the 1970s, House prices round here* did not fall, but stayed level, while inflation caught up with them. There waqs a big rise then a levelling off, but no great fall.

TJH

*Mid Sussex

[TUK020]

Labour market tends to lag the economic cycle.
Monetary policy throttles economic activity ->companies contract, lay off -> mortgage defaults -. repossessions - > collapsing house prices.

A more important question than whether house prices have peaked is how much of a drop is already in the pipeline?

My estimate is 25% baked in.

And a corresponding rents rise of maybe 20%.

Thinking back to the 1970s, House prices round here* did not fall, but stayed level, while inflation caught up with them. There waqs a big rise then a levelling off, but no great fall.

TJH

*Mid Sussex

In housing 'crashes', prices tend to be sticky in nominal terms, as people become reluctant to move and realise negative equity. Transactions tend to drop. Higher inflation will clear the market faster. A 3 year 'flat in nominal terms' and significant inflation (25% over 3 years) outcome seems quite plausible.

[gryffron]

High unemployment was fixed by the Tories - by the introduction of zero hour contracts.

The Tories didn’t invent zero hours contracts, merely tweaked the benefits system to make them more attractive. Under the old system temporary/flexible hours were VERY unattractive to the unemployed, as your benefits would be frozen and take weeks to catch up. Which meant it was more appealing to remain totally unemployed. Not good!

Though I agree the Tories/coalition have used the benefits system to massage “unemployment” figures. E.g. The benefits cap only applies to the truly “unemployed”. Work 16 hours per weeek and you can get more benefits, and now you’re not “unemployed”. But IMO this is a good change. People working a bit is better than them not working at all. Better for society, govt figures, and the individuals involved. The govt have proved this social engineering works. The balance of hours could now be tweaked some more to encourage the under-employed to work a bit more.

Gryff

[Mike4]

Labour market tends to lag the economic cycle.
Monetary policy throttles economic activity ->companies contract, lay off -> mortgage defaults -. repossessions - > collapsing house prices.

A more important question than whether house prices have peaked is how much of a drop is already in the pipeline?

My estimate is 25% baked in.

And a corresponding rents rise of maybe 20%.

Thinking back to the 1970s, House prices round here* did not fall, but stayed level, while inflation caught up with them. There waqs a big rise then a levelling off, but no great fall.

TJH

*Mid Sussex

In housing 'crashes', prices tend to be sticky in nominal terms, as people become reluctant to move and realise negative equity. Transactions tend to drop. Higher inflation will clear the market faster. A 3 year 'flat in nominal terms' and significant inflation (25% over 3 years) outcome seems quite plausible.

This is true, and suggests my 25% fall won't happen. On the other hand in the 92 crash prices slid a bit in cash terms over perhaps three years - about 15% - but started IIRC from a low-ish earning multiple of about 3.5 x joint incomes. Similarly in the 2009 crash but now we have a load of froth on house prices whipped up by the massive earnings multiples the lenders have felt comfortable offering. 5 or 6 x joint salaries was not uncommon until recently.

I dunno what earnings multiples are available now since the Trussquake but I bet it isn't 5x joint income, and once base rates finish the climb back to normality they are now embarked upon, I can't see any way for current house prices to hold up.



Image actually found here:
https://www.economicshelp.org/blog/8733 ... ices-high/