Property Market Price Outlook

[Clariman]

What are the current thoughts (here and with forecasters who look at these things) on where property prices are heading. We have a couple of holiday lets in a coastal location where prices have risen significantly since the advent of Covid. This is due to combination of people wanting somewhere more rural and also the rising demand for staycations.

I'm trying to decide whether these remain a good hedge against inflation or whether the property market might take a serious hit if people's belts inevitably get tightened. Perhaps now is the time to cash in with one of them?

Thoughts?

Clariman

[Dod101]

What are the current thoughts (here and with forecasters who look at these things) on where property prices are heading. We have a couple of holiday lets in a coastal location where prices have risen significantly since the advent of Covid. This is due to combination of people wanting somewhere more rural and also the rising demand for staycations.

I'm trying to decide whether these remain a good hedge against inflation or whether the property market might take a serious hit if people's belts inevitably get tightened. Perhaps now is the time to cash in with one of them?

Thoughts?

Clariman

Presumably so called staycations are going to remain cheaper than the alternative, jetting off to the sun. Do you not think that that will help maintain the price of them? OTOH I do not know how they are valued. If it is on yield, the Base Rate is likely to increase and so it may be that if you cannot increase your letting charges then they might drop in value a bit. But to me it would depend on my own financial situation, whether I had any loans outstanding on them and so on. Of course in stock market parlance, you are trying to time the market. Not usually a good idea.

Dod

[Lootman]

My reason for getting out of the landlording business, which I achieved between 2003 and 2010, was not so much that I feared for future returns. it was rather that I saw the regulatory and taxation environment for landlords gradually becoming worse, and I had no desire to be stuck dealing with that when I could exit the business and be set up financially for life. It just didn't seem worth the risk any more, and I landlorded in one form or another for 32 years.

Now that said, holiday letting is a different business and not one I know much about, although my wife owns and runs one. So it may be that different factors apply there.

There was a discussion here recently how places like Scotland may benefit also from global warming. So the prospects for capital appreciation might be good there. But to me these things can often end up being political. For instance in some popular holiday areas of the UK there is a local backlash against holiday lets and part-time homes, by people who complain about the lack of affordable housing.

It's also personal. I was willing to do things 30 years ago, like fixing toilets, that I am no longer willing to do.

[Mike4]

What are the current thoughts (here and with forecasters who look at these things) on where property prices are heading. We have a couple of holiday lets in a coastal location where prices have risen significantly since the advent of Covid. This is due to combination of people wanting somewhere more rural and also the rising demand for staycations.

I'm trying to decide whether these remain a good hedge against inflation or whether the property market might take a serious hit if people's belts inevitably get tightened. Perhaps now is the time to cash in with one of them?

Thoughts?

Clariman

Well my view is as interest rate climb and cheap mortgage deals cease to be cheap, property prices are gonna slide sideways and downwards for the next few years, until inflation starts dragging them higher again.

But as with any decision to cash in an investment, what's the point unless you have somewhere else to invest the cash you think will do better. Or do you consider cash in the bank earning 1% is a better hedge against inflation than holiday homes? My own view is who cares what they are worth? Its the rental income they bring that counts.

[Clariman]

But as with any decision to cash in an investment, what's the point unless you have somewhere else to invest the cash you think will do better. Or do you consider cash in the bank earning 1% is a better hedge against inflation than holiday homes? My own view is who cares what they are worth? Its the rental income they bring that counts.

That's exactly where my head is at. I want to preserve what we have - I'm not bothered about growing it. Current inflation levels have prompted me to shift some cash ISAs into Equity ISAs. Now I'm wondering whether the property value may now be under threat, which has t concerned me before.

It's not something I've had to deal with before.

[Dod101]

If you have time on your side and they are profitable in terms of income I would be inclined to keep them assuming that is that they are in a decent and 'in demand' location. I would not be running away at the first whiff of a problem but otoh I do not know how much of your time they take nor your wider situation.

Dod

[AsleepInYorkshire]

What are the current thoughts (here and with forecasters who look at these things) on where property prices are heading. We have a couple of holiday lets in a coastal location where prices have risen significantly since the advent of Covid. This is due to combination of people wanting somewhere more rural and also the rising demand for staycations.

I'm trying to decide whether these remain a good hedge against inflation or whether the property market might take a serious hit if people's belts inevitably get tightened. Perhaps now is the time to cash in with one of them?

Thoughts?

Clariman

Hi Mr. C,

I hope you're well. I know you've had issues this year with C19 which has prevented you mixing with your family and I hope all that's behind you and you have got the family together for a game of football

Property prices expand and contract geographically at different rates during booms and contractions. I'll explain. Imagine a hypothetical city. In an advancing property market the prices on the outskirts of the city will expand as the inner city "pushes" outward. And the same is true in reverse. In this "hypothetical city" the outskirts will see gains that are robust but do not exceed the inner city. In a reclining market they will fall more than the inner city. Geographical volatility is real.

I'd suggest there are a plethora of variables to consider.

1. Have you got a source for the income produced from the sale that exceeds it's current returns?
2. Is your valuation of the home robust?
3. How far have you forecast yourself?
4. Does it impact your income?

AiY(D)

[Itsallaguess]

But as with any decision to cash in an investment, what's the point unless you have somewhere else to invest the cash you think will do better.

Or do you consider cash in the bank earning 1% is a better hedge against inflation than holiday homes? My own view is who cares what they are worth? Its the rental income they bring that counts.

That's exactly where my head is at. I want to preserve what we have - I'm not bothered about growing it.

But you don't seem to be considering 'what you have' in it's entirety...

What you have can be broken down into two distinct constituents at the moment -

1. Capital value of an owned property

2. Regular returns from that owned property

To 'preserve what you have', you need to properly consider preserving both of those aspects, and you seem to be concentrating on just the first one and perhaps not giving enough credit to the second...

In considering the second aspect, you also need to cover the risks to any potentially alternative 'returns' from both the generation side and the inflation side were you to shift that property capital somewhere else.

Given that UK holiday destinations are one of the few areas that might actually maintain strong demand over the coming years, I suggest that you think about that secondary aspect carefully before making a decision here, because good regular returns on that property capital might well mitigate much of any underlying risk to the property value itself, even if there even is any...

Cheers,

Itsallaguess

[Clariman]

But you don't seem to be considering 'what you have' in it's entirety...

What you have can be broken down into two distinct constituents at the moment -

1. Capital value of an owned property

2. Regular returns from that owned property

To 'preserve what you have', you need to properly consider preserving both of those aspects, and you seem to be concentrating on just the first one and perhaps not giving enough credit to the second...

In considering the second aspect, you also need to cover the risks to any potentially alternative 'returns' from both the generation side and the inflation side were you to shift that property capital somewhere else.

Given that UK holiday destinations are one of the few areas that might actually maintain strong demand over the coming years, I suggest that you think about that secondary aspect carefully before making a decision here, because good regular returns on that property capital might well mitigate much of any underlying risk to the property value itself, even if there even is any...

Cheers,

Itsallaguess

Thanks

I will consider that. I didn't set out my thought process in its entirety. It goes something like this ....

• I'm happy that we have enough income from DB pensions to live off day to day
• The holiday let income on top of this means we don't have to pay a great deal of attention to managing budgets/spending, which is a 'nice to have' in retirement
• We have a decent level of savings/investment which we are happy to deplete by approx £10K p.a. to pay for more holidays or major expenses (refurbishing a room, towards a new car etc.)
• I'm not bothered about growing what we have, but want to preserve what we have. That has been my objective since stopping full time work.
• During our working lives our earnings added to our wealth (as avid LBYMers and savers) and that grew it sufficiently well without putting money at risk by investing heavily in equities. Hence, being in property (for which we accepted risk) and cash. So our basic approach has been grow through earning while working and preserving in retirement.
• High inflation has changed this. Unless we take action, our savings will devalue very quickly. Hence reassessing everything.
• First stage in dealing with high inflation was to move some cash ISAs to equity ISAs (CGT and PNL funds) so they at least had a chance of matching inflation, rather than the guaranteed losses that a 1.7% ISA would give us in a high inflation environment.
• My question here was asking what the outlook is for property values. Prices have risen very sharply in the last 18 months in the location where we have our holiday lets. I suspect they are at a peak just now, so perhaps cashing one of them in might be wise. But where would we put the cash if we did so and how much would we miss the income from it.

That summarises where we are and why I asked the question.

C

[dealtn]

I want to preserve what we have - I'm not bothered about growing it.

Well at the moment you need to be growing it at around 10% just to preserve it.

[Clariman]

I want to preserve what we have - I'm not bothered about growing it.

Well at the moment you need to be growing it at around 10% just to preserve it.

I know. That's the whole point of what I am trying to do!

For the avoidance of doubt, let me rephrase what I said ...

I want to preserve [the purchasing power of] what we have - I'm not bothered about growing it.

[Mike4]

I want to preserve what we have - I'm not bothered about growing it.

Well at the moment you need to be growing it at around 10% just to preserve it.

Well given most equities seem likely to tumble at more than 10% a year, staying in property seems like quite a good bet especially given the massive frictional costs of selling up and parking the dosh in some other investment vehicle.

I wonder if anyone could produce a list of alternative investments Mr C might consider, which can be reasonably expected to grow at more than 10% a year for the next few years.

Here's my own list of suggestions:

[dealtn]

I want to preserve what we have - I'm not bothered about growing it.

Well at the moment you need to be growing it at around 10% just to preserve it.

Well given most equities seem likely to tumble at more than 10% a year, staying in property seems like quite a good bet especially given the massive frictional costs of selling up and parking the dosh in some other investment vehicle.

I wonder if anyone could produce a list of alternative investments Mr C might consider, which can be reasonably expected to grow at more than 10% a year for the next few years.

Here's my own list of suggestions:

Well I don't disagree frictional costs are important, and in property these are a larger percentage than other markets - and more so Capital Gains Tax given the "risen very sharply in the last 18 months" comment.

Less obvious is your "most equities seem likely to tumble at more than 10% a year". On what basis would a forward looking daily priced market have such an obvious path? Why wouldn't that already have happened? A simple UK equity proxy such as FTSE 100 is up on the last 12 months throughout this period of inflationary build up, for instance.

If it were me I would (and am) remain fully invested in my portfolio that contains both property and equities, both of which I think will be better inflation hedges than cash.

[Tara]

What are the current thoughts (here and with forecasters who look at these things) on where property prices are heading. We have a couple of holiday lets in a coastal location where prices have risen significantly since the advent of Covid. This is due to combination of people wanting somewhere more rural and also the rising demand for staycations.

I'm trying to decide whether these remain a good hedge against inflation or whether the property market might take a serious hit if people's belts inevitably get tightened. Perhaps now is the time to cash in with one of them?

Thoughts?

Clariman

UK house prices may fall by 30%/40% or more over the next few years as house prices are absurdly overvalued now due to almost zero interest rates for the last 15 years. This is all changing now and UK interest rates will continue to rise much higher.

Average UK house prices are about 10x or 12x average UK earnings now, and so you can see how far they have to fall to get back to a reasonable multiple of 3x or 4x average earnings.

So you need to decide if you are ok with UK house prices falling by up to 50% over the next few years. Most people with no mortgage are probably ok with this, but if you have high borrowings then the situation is completely different.

[richlist]

There have been people suggesting property prices will fall significantly for at least the last 20 years. Fortunately I always ignored them and carried on buying & selling them. I've made a small fortune in that time.

We always used to laugh at the media who would run an article on impending property price falls every few months when they had run out of any real news to fill the pages.

I have met people all my life who have put off buying property because they thought a price collapse was around the corner........it didn't happen !

[CliffEdge]

I can't see why property prices will fall.

[absolutezero]

I can't see why property prices will fall.

I suggest you aren't looking very hard then!
Unless you are going to cling on to the 'demand isn't falling' argument.
Though punters can demand what they like but if the bank won't lend, then their demand ain't worth tuppence.

Interest rate rises. --> Higher mortgage payments --> Lenders tightening up what they are prepared to lend.
Less disposable income (from higher mortgage payments and higher bills) --> less money spent in the wider economy --> job losses --> lower demand for buying houses.

Don't forget house prices are set at the margin. I.e. By the comparatively small number that are bought and sold.

House building shares are a good two-year forward indicator.
They have lost about a third to 40% of their value from peak.
The market sees what is coming and has discounted the builders accordingly.

House price growth is a function of loose availability of credit and low interest rates.
If one or the other or both of those props are kicked away then...

[absolutezero]

There have been people suggesting property prices will fall significantly for at least the last 20 years. Fortunately I always ignored them and carried on buying & selling them. I've made a small fortune in that time.

We always used to laugh at the media who would run an article on impending property price falls every few months when they had run out of any real news to fill the pages.

I have met people all my life who have put off buying property because they thought a price collapse was around the corner........it didn't happen !

This sounds like the 'they tell me I'm going to die but it's not happened yet so I never will' argument...

[richlist]

I can't see why property prices will fall.

House building shares are a good two-year forward indicator.
They have lost about a third to 40% of their value from peak.
The market sees what is coming and has discounted the builders accordingly.

.....and what occoured to prices when that happened in the past......a slight hiccup & then......onwards and upwards.

[scrumpyjack]

I think it more likely that there will be moderate falls in nominal house prices whilst inflation roars away. ie the overall effect is a significant fall in real house prices (perhaps 20% over a couple of years). There is still a significant imbalance in supply / demand, many houses are bought for cash without mortgages, sellers tend to have anchored their price expectation and refuse to sell for less than they think their house is 'worth', and so on and so on. As for builders, their profits will fall but from a very very high level. A 30% margin leaves a lot of leeway and though costs may rise, land costs will fall. Their balance sheets are strong. They are on a much better base than in 2008.