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Are UK House Prices about to peak?

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Mike4
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Re: Are UK House Prices about to peak?

#494769

Postby Mike4 » April 17th, 2022, 11:35 am

BullDog wrote:It has become the norm around here to list houses at "offers over". It's only this year this has become the default practise. Just one more sign along with all the others that here the market is in the final buying frenzy of a bull market. Certainly, having a queue waiting outside to view on the day a property is put on the market is something I have never seen around here before, even in 1986/87.

My guess is that this time next year, it's going to be a buyers market again.


Yes I agree a buying frenzy in a bull market, but there is no particular reason to believe it is 'final'. The market 3 and 4 years ago was artificially depressed due to uncertainty about how Brexit would pan out. I think there is every possibility of the current bull market continuing for several years before levelling out or crashing. The longer it goes on for, the more likely it will tumble back down rather than level out.

The housing market has always been full steam ahead for a while, stagnate for a while, for as log as I can remember. The occasional 20% reversal but these are few and far between and lost ground has always recovered five years later.

BT63
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Re: Are UK House Prices about to peak?

#494776

Postby BT63 » April 17th, 2022, 12:15 pm

Mike4 wrote:The housing market has always been full steam ahead for a while, stagnate for a while, for as log as I can remember. The occasional 20% reversal but these are few and far between and lost ground has always recovered five years later.


It's worth noting that the significant decline in interest rates (and expansion of permitted borrowing multiples) from the early-1990s to the early-2000s drove a large bull market for house prices in real terms, but since the early/mid-2000s, house prices in real terms haven't made much progress.

I think it will be hard for house prices to make significant real gains and if the favourable interest rate trends of the last three decades reverses, house prices could easily decline in real terms even if they continue to rise in nominal terms.

There's also a claimed phenomenon where UK housing market activity significantly increases in the early stages of an interest-rate tightening cycle and that could be what's fuelling the current frantic demand.

vand
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Re: Are UK House Prices about to peak?

#494785

Postby vand » April 17th, 2022, 12:58 pm

Lanark wrote:
vand wrote:Take your typical FTB scenario:

2021:
House is £250k
Mortgage rate 1.5%
Deposit £50k

Mortgage req: £200k
Monthly repayment on standard 25yr repayment mortgage: £1000


Fast forward to 2023 in a red hot property market:
Same house is £350k
Mortgage rate is now 2.5%
Deposit £50k (remember that real wages are falling - there is no reason why buyers should be able to raise more cash)

Mortgage £300k
Monthly repayment on standard 25yr repayment mortgage: £1567!

A 56.7% increase from £1000 to £1567 in monthly repayment!
Does the fundamentals support this?

I mean, you can pick whatever numbers you like, but clearly at some point a combination of higher prices and higher borrowing costs will make homes unaffordable.


The obvious response to this is that no they won't be able to afford it, but then the majority of 20 somethings and even 30 somethings can't afford a mortgage as things are - they are renting from a landlord.

So the question then is can landlords afford it?
Thinking tenants can pay a higher rent just because interest rates have gone up is la la land, they are already facing higher living costs and restrained wages.
Landlords can accept less in rent than the cost of servicing the mortgage if they believe someone else will pay even more for the house in future, giving them a capital gain, but who are they going to sell to?

Help to Buy will be ending in April 2023, and I expect many big house builders will drop their prices to match whatever it would have cost under HTB just to maintain sales.

Then there is this:
https://www.theguardian.com/society/201 ... -tenancies


Exactly - if you buy something fundamentally overpriced in the belief that someone else will always be willing to pay more for it regardless of the whether the underlying fundamentals support it, then you are execising the greater fool theory - and backing up the evidence of irrational bubble behaviour.

vand
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Re: Are UK House Prices about to peak?

#494786

Postby vand » April 17th, 2022, 1:14 pm

BT63 wrote:
Mike4 wrote:The housing market has always been full steam ahead for a while, stagnate for a while, for as log as I can remember. The occasional 20% reversal but these are few and far between and lost ground has always recovered five years later.


It's worth noting that the significant decline in interest rates (and expansion of permitted borrowing multiples) from the early-1990s to the early-2000s drove a large bull market for house prices in real terms, but since the early/mid-2000s, house prices in real terms haven't made much progress.

I think it will be hard for house prices to make significant real gains and if the favourable interest rate trends of the last three decades reverses, house prices could easily decline in real terms even if they continue to rise in nominal terms.

There's also a claimed phenomenon where UK housing market activity significantly increases in the early stages of an interest-rate tightening cycle and that could be what's fuelling the current frantic demand.


There have been some interesting divergences between London/SE and the rest of the country. After the GFC London prices recovered much faster than the rest of the country, so the spread between London and everything else was astromonomical.

https://www.plumplot.co.uk/London-house-prices.html

But London has been pretty stagnant for the last 6-7 years now and other areas are now catching up.

At some point prices reached a level where the London premium was impossible to justify, and further rate cuts were have a minimal effect, because they have become a much smaller part of the mortgage payment in relation to the capital, and it's mainly the capital you're paying down. Real prices in London have been flat since around 2016, and in many areas have fallen.

Anecdotally, our neighbours paid a handsome sum for their house in Dec 2015 and it has definitely fallen in real terms since then.. it may even not be able to fetch the nominal price they bought it for back then. We bought our home in 2020 for 6% less than the previous owners bought it for in 2016. So houses certainly haven't been a "no brainer" in our little corner of West London.

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Re: Are UK House Prices about to peak?

#494789

Postby BullDog » April 17th, 2022, 2:01 pm

All things considered, in our little corner of Northern England, anecdotally, house prices appear to have increased in the last 8 or 9 months by 35% or more. Even by historic standards that's some increase. I can't really understand where all the money is coming from to fuel this. On the many new build estates, prices seem to start at £550,000 for the kind of fairly modest place I have inhabited the last 30+ years.

To put that in perspective, the largest employer in the area is a supermarket distribution centre. I don't think many of the workers are buying at those prices?

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Re: Are UK House Prices about to peak?

#494790

Postby BT63 » April 17th, 2022, 2:07 pm

vand wrote:Exactly - if you buy something fundamentally overpriced in the belief that someone else will always be willing to pay more for it regardless of the whether the underlying fundamentals support it, then you are execising the greater fool theory - and backing up the evidence of irrational bubble behaviour.


Due to low interest rates (and related expansion of allowed borrowing multiples) property feels a bit like government bonds.

Prices high, yields low, probably limited scope for significant future real returns but considerable scope for future real losses if the current 'permanently high plateau' turns out not to be true.

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Re: Are UK House Prices about to peak?

#494794

Postby Wuffle » April 17th, 2022, 2:58 pm

The 7 year rule, 40% IHT and no CGT on the kids PPR.
Still think it is a bad investment?

W.

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Re: Are UK House Prices about to peak?

#494796

Postby Mike4 » April 17th, 2022, 3:04 pm

Wuffle wrote:The 7 year rule, 40% IHT and no CGT on the kids PPR.
Still think it is a bad investment?

W.


There is of course the world of difference between buying into the market now (not particularly shrewd, IMO) and selling an existing holding purchased many years ago at a far lower price than today's value. Frictional costs in property dealing are truly massive nowadays. And even if I sold one, as you point out I'd get a hefty CGT bill and where would I get anything like the same return on capital employed after all the costs of the trade are deducted, for near zero risk?

Edit to add the missing word.

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Re: Are UK House Prices about to peak?

#498567

Postby BobGe » May 5th, 2022, 7:28 am

High time for a healthy dose of negative equity (in some cases)?

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Re: Are UK House Prices about to peak?

#500823

Postby westmoreland9 » May 16th, 2022, 4:39 pm

a bubble is when people are knowingly overpaying because they expect future growth. the opposite end of the cycle is when parties knowingly transact below current market value because they expect prices to continue falling.

the average mortgage payer probably won't be eligible for any assistance of note when the next gas price review happens in autumn. by that time the average bill will probably be approaching £2800 and they'll switch to 3 monthly reviews. in addition, interest rates may be about 2-3% by winter.

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Re: Are UK House Prices about to peak?

#501560

Postby Tara » May 19th, 2022, 3:10 pm

Last century a single person on average wage could afford to buy a detached house in any part of the UK with about 2 or 3 years of his wages. Now that figure is over 12 years of average wages.

The only reason the UK housing market has not collapsed by over 50% is because the BOE has very foolishly kept interest rates at about zero for the last 15 years. When interest rates start to rise to stop the runaway double digit inflation we are now seeing, the UK housing market will begin the collapse.

An eventual fall in UK house prices of 50% to 60% from the current levels would not be very surprising.

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Re: Are UK House Prices about to peak?

#501562

Postby pje16 » May 19th, 2022, 3:28 pm

Tara wrote:An eventual fall in UK house prices of 50% to 60% from the current levels would not be very surprising.

In theory I agree
In practice I think unlikely

PS I also agree about BoE :roll:

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Re: Are UK House Prices about to peak?

#501577

Postby funduffer » May 19th, 2022, 4:41 pm

Tara wrote:Last century a single person on average wage could afford to buy a detached house in any part of the UK with about 2 or 3 years of his wages. Now that figure is over 12 years of average wages.

The only reason the UK housing market has not collapsed by over 50% is because the BOE has very foolishly kept interest rates at about zero for the last 15 years. When interest rates start to rise to stop the runaway double digit inflation we are now seeing, the UK housing market will begin the collapse.

An eventual fall in UK house prices of 50% to 60% from the current levels would not be very surprising.


Thinking as an economist, you are absolutely right.

Except this would be political suicide for whichever government is in power, so they will take whatever measures they can to suspend gravity and keep house prices high.

FD

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Re: Are UK House Prices about to peak?

#501601

Postby BullDog » May 19th, 2022, 8:17 pm

funduffer wrote:
Tara wrote:Last century a single person on average wage could afford to buy a detached house in any part of the UK with about 2 or 3 years of his wages. Now that figure is over 12 years of average wages.

The only reason the UK housing market has not collapsed by over 50% is because the BOE has very foolishly kept interest rates at about zero for the last 15 years. When interest rates start to rise to stop the runaway double digit inflation we are now seeing, the UK housing market will begin the collapse.

An eventual fall in UK house prices of 50% to 60% from the current levels would not be very surprising.


Thinking as an economist, you are absolutely right.

Except this would be political suicide for whichever government is in power, so they will take whatever measures they can to suspend gravity and keep house prices high.

FD

In that event the eventual outcome will be all the more severe. Though I think this government will absolutely continue to find ways to delay the day of reckoning until after the next election at least.

One day something very, very bad is going to happen to the UK's housing market. I don't think gravity can be defied infinitely.

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Re: Are UK House Prices about to peak?

#501604

Postby BullDog » May 19th, 2022, 8:22 pm

Tara wrote:Last century a single person on average wage could afford to buy a detached house in any part of the UK with about 2 or 3 years of his wages. Now that figure is over 12 years of average wages.

The only reason the UK housing market has not collapsed by over 50% is because the BOE has very foolishly kept interest rates at about zero for the last 15 years. When interest rates start to rise to stop the runaway double digit inflation we are now seeing, the UK housing market will begin the collapse.

An eventual fall in UK house prices of 50% to 60% from the current levels would not be very surprising.

My first house, a 70's semi with three beds was around 2.5x my gross salary in 1982. I just looked up how much those houses sell today. The same house is about 8x my son's gross salary. And about 6x my daughter's gross salary. We do not live in an area with historic high house prices. But house price inflation has got really mad the last year or so, especially in the last 4 months.

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Re: Are UK House Prices about to peak?

#501622

Postby Mike4 » May 19th, 2022, 11:38 pm

Tara wrote:Last century a single person on average wage could afford to buy a detached house in any part of the UK with about 2 or 3 years of his wages. Now that figure is over 12 years of average wages.

The only reason the UK housing market has not collapsed by over 50% is because the BOE has very foolishly kept interest rates at about zero for the last 15 years. When interest rates start to rise to stop the runaway double digit inflation we are now seeing, the UK housing market will begin the collapse.

An eventual fall in UK house prices of 50% to 60% from the current levels would not be very surprising.


You are bialystock and I claim my five pounds.

(This is what he was saying in 1997, when he sold his 4 bed Westbourne Grove house for £300k expecting to buy it back in six months for £150k, for those who weren't on TMF when he turned up dissing everyone BTLing.)

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Re: Are UK House Prices about to peak?

#501633

Postby Lootman » May 20th, 2022, 6:43 am

Mike4 wrote:
Tara wrote:Last century a single person on average wage could afford to buy a detached house in any part of the UK with about 2 or 3 years of his wages. Now that figure is over 12 years of average wages.

The only reason the UK housing market has not collapsed by over 50% is because the BOE has very foolishly kept interest rates at about zero for the last 15 years. When interest rates start to rise to stop the runaway double digit inflation we are now seeing, the UK housing market will begin the collapse.

An eventual fall in UK house prices of 50% to 60% from the current levels would not be very surprising.

You are bialystock and I claim my five pounds.

(This is what he was saying in 1997, when he sold his 4 bed Westbourne Grove house for £300k expecting to buy it back in six months for £150k, for those who weren't on TMF when he turned up dissing everyone BTLing.)

Or go back further in time than that. I recall 40 years ago, just as I was buying my second home in London, someone telling me that house prices had become "insane" and would surely crash.

I bought the house anyway for £44,000. I no longer own it but it is now worth about a million. No doubt that is "insane" but who would bet on it being cheaper in another 40 years?

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Re: Are UK House Prices about to peak?

#501652

Postby Dod101 » May 20th, 2022, 8:38 am

Lootman wrote:
Mike4 wrote:
Tara wrote:Last century a single person on average wage could afford to buy a detached house in any part of the UK with about 2 or 3 years of his wages. Now that figure is over 12 years of average wages.

The only reason the UK housing market has not collapsed by over 50% is because the BOE has very foolishly kept interest rates at about zero for the last 15 years. When interest rates start to rise to stop the runaway double digit inflation we are now seeing, the UK housing market will begin the collapse.

An eventual fall in UK house prices of 50% to 60% from the current levels would not be very surprising.

You are bialystock and I claim my five pounds.

(This is what he was saying in 1997, when he sold his 4 bed Westbourne Grove house for £300k expecting to buy it back in six months for £150k, for those who weren't on TMF when he turned up dissing everyone BTLing.)

Or go back further in time than that. I recall 40 years ago, just as I was buying my second home in London, someone telling me that house prices had become "insane" and would surely crash.

I bought the house anyway for £44,000. I no longer own it but it is now worth about a million. No doubt that is "insane" but who would bet on it being cheaper in another 40 years?


Of course, just like buying shares, it depends on your timescale.

Dod

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Re: Are UK House Prices about to peak?

#501654

Postby Lootman » May 20th, 2022, 8:43 am

Dod101 wrote:
Lootman wrote:
Mike4 wrote:
Tara wrote:Last century a single person on average wage could afford to buy a detached house in any part of the UK with about 2 or 3 years of his wages. Now that figure is over 12 years of average wages.

The only reason the UK housing market has not collapsed by over 50% is because the BOE has very foolishly kept interest rates at about zero for the last 15 years. When interest rates start to rise to stop the runaway double digit inflation we are now seeing, the UK housing market will begin the collapse.

An eventual fall in UK house prices of 50% to 60% from the current levels would not be very surprising.

You are bialystock and I claim my five pounds.

(This is what he was saying in 1997, when he sold his 4 bed Westbourne Grove house for £300k expecting to buy it back in six months for £150k, for those who weren't on TMF when he turned up dissing everyone BTLing.)

Or go back further in time than that. I recall 40 years ago, just as I was buying my second home in London, someone telling me that house prices had become "insane" and would surely crash.

I bought the house anyway for £44,000. I no longer own it but it is now worth about a million. No doubt that is "insane" but who would bet on it being cheaper in another 40 years?

Of course, just like buying shares, it depends on your timescale.

True, but there was never a time that house was worth less than £44,000. There were periods of time when it would triple in value in a few years. Then there were periods where the value stayed flat. But it never crashed and even the dip in prices during the 2008 financial crisis was erased quickly enough.

With over 60% of the electorate living in owner-occupied homes, it is a brave person who bets against housing.

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Re: Are UK House Prices about to peak?

#501660

Postby Mike4 » May 20th, 2022, 8:58 am

Lootman wrote:
Mike4 wrote:
Tara wrote:Last century a single person on average wage could afford to buy a detached house in any part of the UK with about 2 or 3 years of his wages. Now that figure is over 12 years of average wages.

The only reason the UK housing market has not collapsed by over 50% is because the BOE has very foolishly kept interest rates at about zero for the last 15 years. When interest rates start to rise to stop the runaway double digit inflation we are now seeing, the UK housing market will begin the collapse.

An eventual fall in UK house prices of 50% to 60% from the current levels would not be very surprising.

You are bialystock and I claim my five pounds.

(This is what he was saying in 1997, when he sold his 4 bed Westbourne Grove house for £300k expecting to buy it back in six months for £150k, for those who weren't on TMF when he turned up dissing everyone BTLing.)

Or go back further in time than that. I recall 40 years ago, just as I was buying my second home in London, someone telling me that house prices had become "insane" and would surely crash.

I bought the house anyway for £44,000. I no longer own it but it is now worth about a million. No doubt that is "insane" but who would bet on it being cheaper in another 40 years?



Well there are always plenty of wishful thinkers around, hence the launch of the website and forum housepricecrash.co.uk which is still prattling on about house prices crashing now, 25 years after the 50% fall they initially forecast back in the late 90s never happened. They have the same relentless bearishness on house prices on the front page of their website today as there was 20+ years ago.

The odd thing I notice though is the way people like you and me get characterised by the house price crashers as believing prices will only ever go up for ever, which is patently not the case. My own position is that I see are there are upward pressures on house prices (relentless population growth, government fear of allowing a price crash and planning restrictions on new building). These pressures make the 50%-60% crash suggested by Tara above, unlikely. I still think my original decision to build a property portfolio 25 years ago was a good one, and I'm keeping it as I still see the same or similar pressures so to an extent I'm talking my own book, just as the HPCers hoping to buy a cheap house are talking theirs.


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