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Are UK House Prices about to peak?

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Nimrod103
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Re: Are UK House Prices about to peak?

#494545

Postby Nimrod103 » April 15th, 2022, 6:28 pm

Mike4 wrote:
BullDog wrote:
Mike4 wrote:
BullDog wrote:So, the market is red hot, overheating and this is surely the very peak of the market. A sustained period of house price stagnation has to be next. It always has been when it's been like this before.


I agree, stagnation could be is next but not a decline in prices. People just take their houses off the market rather than accept a price cut, most often.

We are Easter weekend, the start of massive housing market activity until the holiday season starts, then it dies on its feet until the kids go back to skool, then a brief surge of activity until thoughts turn to Xmas and it all dies down into doldrum territory again. SO for now, I predict a bit more rampant inflation.

Yes, there's no doubt currently there's a frenzy of seasonal house buying here. The last time I can remember anything quite like this was 1987 when every conversation seemed to involve a discussion about how much a person's house is worth that week. It was followed by a significant period of slowly declining or static at best house prices. I think we are likely going to see something akin to that from Q3 this year. The current buying frenzy is unsustainable.


Well of course it's unsustainable. All bull markets are unsustainable. Last time I saw it like this was 1997 to about 2007. Seemed like it would never end but the fin crash fixed that, predictably. I know that nice Mr Brown told everybody "No-one could have predicted what happened", but plenty of posters on TMF were predicting exactly what happened. The one thing they consistently got wrong was the "when" part. The crash callers started off about 1997 and they were a decade too early. As illustrated back then its easy to predict the future, predicting exactly when the future will happen is the hard part.


Just a function of inflation, interest rates, investment alternatives, and perceptions of whether the prosperity will continue unabated. If somebody had said back in the 1980s or 1990s, or 2000s that inflation would be 7%, and interest rates 0.75%, they would have thought the Central bankers had lost their minds. And indeed they have lost their collective minds. To kill this inflationary dragon, 9% will be needed. But which Central Banker who wants to keep his job and get a gong is going to suggest that?

Meanwhile British property remains probably the best hedge against inflation that there is, so more and more will invest more and more in it.

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Re: Are UK House Prices about to peak?

#494550

Postby NotSure » April 15th, 2022, 6:57 pm

Nimrod103 wrote:
Just a function of inflation, interest rates, investment alternatives, and perceptions of whether the prosperity will continue unabated. If somebody had said back in the 1980s or 1990s, or 2000s that inflation would be 7%, and interest rates 0.75%, they would have thought the Central bankers had lost their minds. And indeed they have lost their collective minds. To kill this inflationary dragon, 9% will be needed. But which Central Banker who wants to keep his job and get a gong is going to suggest that?

Meanwhile British property remains probably the best hedge against inflation that there is, so more and more will invest more and more in it.


9% UK interest rates would demolish the UK financial system IMHO. Massive defaults, dead banks, general collapse.

But would it really reduce the globally determined price of energy, wheat, metals etc.?

This isn't the 80s, 90s etc. (IMHumbleO).

It's a mess, but a BoE hike to 9% would not be the fix, IMHO.

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Re: Are UK House Prices about to peak?

#494564

Postby vand » April 15th, 2022, 7:48 pm

Never say never. We have seen craziest things when markets are concerned.

There is no fundamental reason why interest rates couldn't go to 9% or higher. 9% isn't even that high, historically. Hell, interest rates are 9% or higher in many countries around the world today, and if it was easy and painless to keep the cost of capital pinned at 1% don't you think these countries would be doing just that? Interest rates went from 10% to 20% overnight in Russia just recently... anything is possible.

As said though, our economy is so leveraged on the back of a long stretch of falling interest rates, that if rates are aggressively raised things will break well before we ever get to that level, including probably government defaults.

From a personal finance point of view, my philosophy is that while you can't stress test your personal finances for every conceivable scenario, you should aim to be more resilient that 90% of the rest of the population.

Nimrod103
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Re: Are UK House Prices about to peak?

#494572

Postby Nimrod103 » April 15th, 2022, 8:16 pm

NotSure wrote:
Nimrod103 wrote:
Just a function of inflation, interest rates, investment alternatives, and perceptions of whether the prosperity will continue unabated. If somebody had said back in the 1980s or 1990s, or 2000s that inflation would be 7%, and interest rates 0.75%, they would have thought the Central bankers had lost their minds. And indeed they have lost their collective minds. To kill this inflationary dragon, 9% will be needed. But which Central Banker who wants to keep his job and get a gong is going to suggest that?

Meanwhile British property remains probably the best hedge against inflation that there is, so more and more will invest more and more in it.


9% UK interest rates would demolish the UK financial system IMHO. Massive defaults, dead banks, general collapse.

But would it really reduce the globally determined price of energy, wheat, metals etc.?

This isn't the 80s, 90s etc. (IMHumbleO).

It's a mess, but a BoE hike to 9% would not be the fix, IMHO.


Probably true to a certain extent. But 1970's inflation, also caused by rises in price of oil etc, maxed at 7% in Germany, but 25% in the UK. This was due to the gross mismanagement of the UK economy by both parties during the 1970's, but the much more sensible management of the German economy.
Edit to add, AIUI, the German economy sailed through the troubles of the 1970's with little sign of weakness.

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Re: Are UK House Prices about to peak?

#494585

Postby Mike4 » April 15th, 2022, 9:22 pm

Nimrod103 wrote:
Just a function of inflation, interest rates, investment alternatives, and perceptions of whether the prosperity will continue unabated. If somebody had said back in the 1980s or 1990s, or 2000s that inflation would be 7%, and interest rates 0.75%, they would have thought the Central bankers had lost their minds. And indeed they have lost their collective minds. To kill this inflationary dragon, 9% will be needed. But which Central Banker who wants to keep his job and get a gong is going to suggest that?

Meanwhile British property remains probably the best hedge against inflation that there is, so more and more will invest more and more in it.


Totally agree, which is why I'm long on property. Very long in fact.

Having bet the farm on it back in the late 90s, even a 50% crash wouldn't have me underwater, and rents would probably rocket!

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Re: Are UK House Prices about to peak?

#494597

Postby AsleepInYorkshire » April 15th, 2022, 11:55 pm

I've got a problem with the idea that increasing interest rates can reduce inflation, especially if it isn't home grown inflation. Indeed in my very simple layman's mind I see the act of raising interest rates on inflation that isn't home grown almost like a second cost.

Are we witnessing a perfect economic storm?

  1. 2007/8 Credit crunch
  2. 2016 Brexit
  3. 2020 Covid
  4. 2022 Ukraine
None of these events was or is insignificant.

I'm not convinced that raising interest rates is going to help. I'm not an economist but to me it seems that raising interest rates is not going to lower inflation. I sense, and stand to be corrected that it's going to suffocate recovery. It's also going to place an added burden on the British tax payer to pay the interest on our debts.

We need to invest now. But we need to invest in the UK. We need to repatriate some of our outsourced and offshore manufacturing. Levelling up is a good idea. But we as the electorate need to vote for whichever party will deliver that promise. We need to hold our politicians accountable.

House prices are driven by demand and availability of "credit". How can we know they are about to peak? I'd suggest we have a convoluted system allowing politicians, banks, planners and land owners all looking after their own interests. House builders are at the mercy of these stakeholders and ultimately the only party taking any risk. Macro-economic events are beyond the control of the average house builder, including the nationals.

There's a final shitty stick to this story. Houses aren't assets. They are homes. Why does anyone need more than one home? Because we are passing that stick, which is risk, to those who are most likely to accept it, without reward for doing so.

I do not believe we can increase interest rates radically without serious consequence. House prices will correct themselves, if needed. The risk has already been apportioned and any write downs already exist within the housebuilders balance sheets and ultimately the shareholders will bear that cost. If the house builders have been over-paying for land that cost cannot be reversed.

Have UK house prices peaked? No! Yes! I don't know!

However, I suspect that the national house builders are not exposed to write downs on land as they were in the 1990's. However, I stand to be corrected.

AiY(D)

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Re: Are UK House Prices about to peak?

#494605

Postby vand » April 16th, 2022, 6:55 am

Let me reiterate: housing has been the greatest beneficiary of falling bond yields over the last 40 years. People who are extrapolating the past into the fire and see house prices continuing ever higher must also assume that interest rates will continue on that trend (ie go negative), but the all the signs are that the secular bull market in bonds is over.

Mortgage rates, not just in the UK but everywhere are rising. A rise from 1.5% to 2.25%, which is the sort of move we have seen over the last few months, represents a 50% increase in the rate.On that trajectory the numbers will not support higher price much longer. Buying a house for 200k with a mortgage rate at 1.5% is may make sense in 2021; buying the same house for £250k or £300k in 2022 when mortgage rates are 3% and my disposable income has also gone down may well not make sense.

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Re: Are UK House Prices about to peak?

#494606

Postby Nimrod103 » April 16th, 2022, 7:08 am

I bought my first house in 1979, but I had an interest in following house prices and the economy since the mid 70’s. Since that time AIUI there have been only two periods of falling house prices. During the mid 70’s real house prices fell considerably while nominal prices flat lined. This was a time of significant inflation in the UK caused by the consequences of the Yom Kippur War oil price spike. The second period of house price fall was during the early 1990’s when gross mismanagement of the UK economy caused by trying to stay within the ERM, led to very high interest rates and a collapse of the economy.

These two periods of house price fall were both caused by rising interest rates to curb inflation. I find it hard to imagine any other reason for declining house prices. Everything now depends on the direction and magnitude of interest rate changes in the next few years.

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Re: Are UK House Prices about to peak?

#494609

Postby vand » April 16th, 2022, 7:39 am

Nimrod103 wrote:I bought my first house in 1979, but I had an interest in following house prices and the economy since the mid 70’s. Since that time AIUI there have been only two periods of falling house prices. During the mid 70’s real house prices fell considerably while nominal prices flat lined. This was a time of significant inflation in the UK caused by the consequences of the Yom Kippur War oil price spike. The second period of house price fall was during the early 1990’s when gross mismanagement of the UK economy caused by trying to stay within the ERM, led to very high interest rates and a collapse of the economy.

These two periods of house price fall were both caused by rising interest rates to curb inflation. I find it hard to imagine any other reason for declining house prices. Everything now depends on the direction and magnitude of interest rate changes in the next few years.


As well as rising interest rate usually it coincides with a spike in unemployment. One can argue if this is correlation or causation, but it is rather moot.

This was true in both the GFC crash and the 88-95 crash. Especially in that 90s crash, the funamentals for housing were improving for a long time before the market eventually bottomed, as unemployment was high during the early 90s recession.

The scars of Black Wednesday in 1992 lingered for a long time even as rates fell thereafter, but the housing market didn't really bottom until 1995-96, as people were frightened something similar could happen.

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Re: Are UK House Prices about to peak?

#494610

Postby vand » April 16th, 2022, 7:48 am

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.

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Re: Are UK House Prices about to peak?

#494612

Postby Nimrod103 » April 16th, 2022, 7:52 am

vand wrote:
Nimrod103 wrote:I bought my first house in 1979, but I had an interest in following house prices and the economy since the mid 70’s. Since that time AIUI there have been only two periods of falling house prices. During the mid 70’s real house prices fell considerably while nominal prices flat lined. This was a time of significant inflation in the UK caused by the consequences of the Yom Kippur War oil price spike. The second period of house price fall was during the early 1990’s when gross mismanagement of the UK economy caused by trying to stay within the ERM, led to very high interest rates and a collapse of the economy.

These two periods of house price fall were both caused by rising interest rates to curb inflation. I find it hard to imagine any other reason for declining house prices. Everything now depends on the direction and magnitude of interest rate changes in the next few years.


As well as rising interest rate usually it coincides with a spike in unemployment. One can argue if this is correlation or causation, but it is rather moot.

This was true in both the GFC crash and the 88-95 crash. Especially in that 90s crash, the funamentals for housing were improving for a long time before the market eventually bottomed, as unemployment was high during the early 90s recession.

The scars of Black Wednesday in 1992 lingered for a long time even as rates fell thereafter, but the housing market didn't really bottom until 1995-96, as people were frightened something similar could happen.


Although we all remember the extremely high interest rates applied in the days up to the pound being ejected from the ERM in 1992, in fact the peak of interest rates had been 15% in 1989, and that had coincided with the peak of house prices. Those high rates sent house prices and the economy into a tail spin, which continued until the mid 1990s. 1992 was just a hiccup on the way down, when everyone realised that the Lawson Deutschmark shadowing boom had been a complete and utter b****up.

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Re: Are UK House Prices about to peak?

#494617

Postby vand » April 16th, 2022, 8:11 am

Nimrod103 wrote:
vand wrote:
Nimrod103 wrote:I bought my first house in 1979, but I had an interest in following house prices and the economy since the mid 70’s. Since that time AIUI there have been only two periods of falling house prices. During the mid 70’s real house prices fell considerably while nominal prices flat lined. This was a time of significant inflation in the UK caused by the consequences of the Yom Kippur War oil price spike. The second period of house price fall was during the early 1990’s when gross mismanagement of the UK economy caused by trying to stay within the ERM, led to very high interest rates and a collapse of the economy.

These two periods of house price fall were both caused by rising interest rates to curb inflation. I find it hard to imagine any other reason for declining house prices. Everything now depends on the direction and magnitude of interest rate changes in the next few years.


As well as rising interest rate usually it coincides with a spike in unemployment. One can argue if this is correlation or causation, but it is rather moot.

This was true in both the GFC crash and the 88-95 crash. Especially in that 90s crash, the funamentals for housing were improving for a long time before the market eventually bottomed, as unemployment was high during the early 90s recession.

The scars of Black Wednesday in 1992 lingered for a long time even as rates fell thereafter, but the housing market didn't really bottom until 1995-96, as people were frightened something similar could happen.


Although we all remember the extremely high interest rates applied in the days up to the pound being ejected from the ERM in 1992, in fact the peak of interest rates had been 15% in 1989, and that had coincided with the peak of house prices. Those high rates sent house prices and the economy into a tail spin, which continued until the mid 1990s. 1992 was just a hiccup on the way down, when everyone realised that the Lawson Deutschmark shadowing boom had been a complete and utter b****up.


Your historic recollection is accurate .. but this again reaffirms that the housing market is probably driven more by perception, unemployment and sentiment than it is by the current rate of interest. 15% interest rates, while it sounds horrendous to us viewing through the lens of sub-2% rates of today, in the context of the late 1980s it was only a 40-50% or so jump above the level of rates that were very typical at the time.

I don't think it can be underestimate what a 80-90% fall in borrowing costs since that era have done to reprice houses in relation to incomes and other assets classes

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Re: Are UK House Prices about to peak?

#494620

Postby Nimrod103 » April 16th, 2022, 8:29 am

Most pundits are beginning to see parallels between today, and the oil price shock of 1973.

https://www.ft.com/content/ae07d163-33b ... d3f90bf9c9

It is time to relearn the painful inflation lessons of the 1970s
Calibrating policy to avoid recession will require as much luck as judgement

Inflation in the US and the UK is therefore both a demand-pull and a cost-push phenomenon, just like it was in the 1970s, requiring us all to relearn the lessons of that decade.
Given the history and the current circumstances of excess demand, it is evident that the Federal Reserve and the Bank of England need to tighten monetary policy considerably, removing much of the stimulus that currently exists. The difficulty, as Issing himself noted, was knowing how much to remove and how quickly.

The risk of recession on both sides of the Atlantic is now very high. Perhaps it is already too late, the inflation genie is out of the bottle and monetary policy needs to generate a recession to drive it out of the system. Alternatively, policymakers will be too cautious, too slow and allow inflation to persist and embed itself in the economy with the same ultimate consequences.

The path we all desire is narrow and sits in between these economic disasters. It is possible we will eradicate high inflation without a deep economic downturn, but the odds on this favourable outcome are now low indeed.


You should be able to get the FT article from Google using the first line to search with, but it seems it is also possible to get a non paywalled version of the article here:
https://jnews.uk/it-is-time-to-relearn- ... the-1970s/

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Re: Are UK House Prices about to peak?

#494628

Postby Wuffle » April 16th, 2022, 9:56 am

We are 3 times further out from the broke, bombed out state we were in post WW2 (see Ukraine) now than in '73.
A benign period of progress and accumulation.
Scare mongering aside, I can't see how we aren't in an OK position to deal with this now compared to then.
That's as a society. Lifestyle and distribution issues will cause pockets of difficulty but overall I don't think it will be like the 70's.

W.

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Re: Are UK House Prices about to peak?

#494647

Postby Lanark » April 16th, 2022, 11:29 am

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

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Re: Are UK House Prices about to peak?

#494721

Postby Itsallaguess » April 16th, 2022, 9:55 pm

There's an interesting chart in a Telegraph article today that I thought might be pertinent to this thread -

Image

Source - https://www.telegraph.co.uk/business/2022/04/16/gove-paves-way-council-housing-explosion/

Interesting times...

Cheers,

Itsallaguess

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Re: Are UK House Prices about to peak?

#494744

Postby Wuffle » April 17th, 2022, 4:46 am

There are some powerful forces behind the scenes that are shaping that chart.
Mostly this is about who is buying the houses and who is being increasingly excluded.
And exclusion is the point. This is about the instinct to lift your children above the others.
Cash buyers show up when no mortgage is applied for but the additional cash element from the bank of mom and dad is completely distorting the earnings ratio.

Art and antiques aren't bought because anybody needs them (IKEA can do that) or return (there is no 'rent'), they are bought at the exclusion of others at almost any price.
Houses are bought by wealthy parents to elevate their children and exclude the others and that knows no bounds.

W.

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Re: Are UK House Prices about to peak?

#494749

Postby Eboli » April 17th, 2022, 8:13 am

On the wider point of house price bubbles, I would only comment that bubbles always go on for far longer than anyone ever imagines and usually to the point that all those believing there's a bubble withdraw in exhaustion. It is also worth noting that unlike many countries around the world the UK hasn't really had what I would term a 'proper' property crash - you know the sort, like in the Costas where prices in some places are still lower today than they were over 15 years ago. Instead, the UK has had periods where prices have stagnated.

As pure observation from my own area (Essex and NE London), if it is of interest, prices are crazy (to my view) with many agents having 'open days' designed to make buyers panic and offer well-over the asking price. A friend who works in a local agency in Walthamstow says that this Spring it it not unusual for buyers to offer 25% above the asking price as an opening salvo. Indeed, as one who has lived in that part of London I am truly shocked that grotty little two bed flats are going for £750,000 - £900,000. Interestingly, there are many young cash buyers - or buyers who require < 40% mortgages, which in the absence of other things would suggest that the current mini-boom is wholly sustainable. Of course, this might be just a reflection that those who require 80/90% mortgages have already been priced out of (at least) this local market. The other factor is how far agents are willing to go to get property on their books. In some streets, owners have been persuaded to become vendors by agents offering new cars to have the property on their books. How times have changed.

Eb.

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Re: Are UK House Prices about to peak?

#494756

Postby Mike4 » April 17th, 2022, 10:07 am

Eboli wrote:A friend who works in a local agency in Walthamstow says that this Spring it it not unusual for buyers to offer 25% above the asking price as an opening salvo.


There has been a fundamental shift in the way agents list properties too, around here at least. At auction, it is normal to see a "guide price" quoted, often unrealistically low in order to suck in 'hopefuls' to fill the auction room. I remember attending one auction with a view to buying a house just up the road from me and the auctioneer actually opening the bidding by asking for bids at the guide price and forest of hands going up.

On the other hand EAs usually list an asking price and if you offered the asking price it was widely expected the EA would consider it sold and stop the marketing. I was rather taken aback recently looking on RightMove to get e feel for the value of a one bed starter home I have and finding there are no 'asking prices' quoted in that area any longer. All prices are quoted as either "guide prices" or "offers over", so anyone trying to buy must now feel very much at sea over what price to offer to get a definite sale. when I bought my current hovel two years ago i negotiated close to 15% off the asking price as it had been on the market for ages and I felt reasonably pleased with the deal. Today, I have the feeling the asking price would have been been 'offers over' and I'd have been competing with many other would-be buyers.

Point being, this shift from fixed asking prices to offers over could be masking an even bigger rise in house prices around here.

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Re: Are UK House Prices about to peak?

#494762

Postby BullDog » April 17th, 2022, 11:12 am

Mike4 wrote:
Eboli wrote:A friend who works in a local agency in Walthamstow says that this Spring it it not unusual for buyers to offer 25% above the asking price as an opening salvo.


There has been a fundamental shift in the way agents list properties too, around here at least. At auction, it is normal to see a "guide price" quoted, often unrealistically low in order to suck in 'hopefuls' to fill the auction room. I remember attending one auction with a view to buying a house just up the road from me and the auctioneer actually opening the bidding by asking for bids at the guide price and forest of hands going up.

On the other hand EAs usually list an asking price and if you offered the asking price it was widely expected the EA would consider it sold and stop the marketing. I was rather taken aback recently looking on RightMove to get e feel for the value of a one bed starter home I have and finding there are no 'asking prices' quoted in that area any longer. All prices are quoted as either "guide prices" or "offers over", so anyone trying to buy must now feel very much at sea over what price to offer to get a definite sale. when I bought my current hovel two years ago i negotiated close to 15% off the asking price as it had been on the market for ages and I felt reasonably pleased with the deal. Today, I have the feeling the asking price would have been been 'offers over' and I'd have been competing with many other would-be buyers.

Point being, this shift from fixed asking prices to offers over could be masking an even bigger rise in house prices around here.

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.


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