Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Investing in house builders

Investment discussion for beginners. Why you should invest your money, get help getting started
BullDog
Lemon Quarter
Posts: 2445
Joined: November 18th, 2021, 11:57 am
Has thanked: 1966 times
Been thanked: 1196 times

Re: Investing in house builders

#476568

Postby BullDog » January 27th, 2022, 1:52 pm

stevensfo wrote:
BullDog wrote:
scrumpyjack wrote:I suspect the market thinks the biggest risk for housebuilders in a sharp rise in interest rates reducing the amount buyers can borrow and triggering a fall in house prices. Such falls have happened in the past and sometimes even dented the 'ladder' delusion whereby people think house prices can only ever go up.

Indeed, there's massive unaffordability problem. Even in what is not an expensive part of the world here, a one bedroom apartment is around £200,000. Typical salary, sub £30,000. Add in to that student debt, imminent huge energy price increase, increased taxation, car ownership/lease, pension savings........ The numbers don't really add up. It's been a long time coming. But a big drop and/or long term stagnation in property prices has to happen. Doesn't it? The present situation does not seem sustainable to me.


But a big drop and/or long term stagnation in property prices has to happen. Doesn't it? The present situation does not seem sustainable to me.

I've been saying the same for about 20 years now! 8-)

Steve

I quite agree. But one day the government will not be able to kick the can down the road anymore. Nobody is more surprised than I am how ridiculously out of kilter wages and housing has become. As I say, even in my modestly priced area, first time buyers are looking at 6 to 7 annual salary to buy somewhere to live. I believe long term average in the area is maybe 2.5 to 3x? It's not sustainable very long term? Is it?

scrumpyjack
Lemon Quarter
Posts: 4814
Joined: November 4th, 2016, 10:15 am
Has thanked: 606 times
Been thanked: 2675 times

Re: Investing in house builders

#476581

Postby scrumpyjack » January 27th, 2022, 2:27 pm

Of course the fact that houses are priced so highly, but sell, means there are buyers willing and able to pay these crazy prices.

Unfortunately all government attempts to help first time buyers are counterproductive. By increasing the amount buyers are able to pay, in a market of high demand and limited supply, prices simply go up as a result thus making the problem even worse.

Low interest rates also make it worse because it means the size of loan, that a given monthly payment amount supports, is larger than if rates were higher.

In my youth inflation was very high and so were interest rates because of that. That was a severe constraint on loan size. Payments were oppressive in the early years of the mortgage, but with 10% inflation each year, earnings rose and soon the mortgage payments became a smaller and smaller burden in real terms. The house my brother and I jointly bought in London in 1971 is now worth about 200 times what we paid (yes, quite insane!). Sadly I sold it in the early eighties but can't complain!

Of course this all reflects the debasement of our currency as much as the increase in relative house prices.

dealtn
Lemon Half
Posts: 6072
Joined: November 21st, 2016, 4:26 pm
Has thanked: 441 times
Been thanked: 2324 times

Re: Investing in house builders

#476583

Postby dealtn » January 27th, 2022, 2:33 pm

BullDog wrote:
stevensfo wrote:
BullDog wrote:
scrumpyjack wrote:I suspect the market thinks the biggest risk for housebuilders in a sharp rise in interest rates reducing the amount buyers can borrow and triggering a fall in house prices. Such falls have happened in the past and sometimes even dented the 'ladder' delusion whereby people think house prices can only ever go up.

Indeed, there's massive unaffordability problem. Even in what is not an expensive part of the world here, a one bedroom apartment is around £200,000. Typical salary, sub £30,000. Add in to that student debt, imminent huge energy price increase, increased taxation, car ownership/lease, pension savings........ The numbers don't really add up. It's been a long time coming. But a big drop and/or long term stagnation in property prices has to happen. Doesn't it? The present situation does not seem sustainable to me.


But a big drop and/or long term stagnation in property prices has to happen. Doesn't it? The present situation does not seem sustainable to me.

I've been saying the same for about 20 years now! 8-)

Steve

I quite agree. But one day the government will not be able to kick the can down the road anymore. Nobody is more surprised than I am how ridiculously out of kilter wages and housing has become. As I say, even in my modestly priced area, first time buyers are looking at 6 to 7 annual salary to buy somewhere to live. I believe long term average in the area is maybe 2.5 to 3x? It's not sustainable very long term? Is it?


The "long term average" gilt yield is probably 2-3 times the current level too so why be surprised at property prices being where they are? That's the can that has been kicked down the road by a combination of Government and markets. Once the economy and the markets are able to sustain a mean-reversion of the risk free rates to more "normal" levels, then that adjustment in the discount rate that prices financial assets, of which property is one, will trigger that adjustment in prices you wish to see.

I'm not at all surprised how "out of kilter wages and housing has become".

BullDog
Lemon Quarter
Posts: 2445
Joined: November 18th, 2021, 11:57 am
Has thanked: 1966 times
Been thanked: 1196 times

Re: Investing in house builders

#476584

Postby BullDog » January 27th, 2022, 2:35 pm

All bubbles are inflated by ready buyers. Without ready buyers there can be no bubble.

For far too long, government policy has been to support insanely high property prices. It has to end sometime? The economic distortions are too powerful to persist forever? But maybe will persist for the rest of my lifetime.

Presently, I don't know how the property bubble can deflate without collateral damage. Of course, a bubble that bursts rather than deflates will be even more painful for the economy.

scrumpyjack
Lemon Quarter
Posts: 4814
Joined: November 4th, 2016, 10:15 am
Has thanked: 606 times
Been thanked: 2675 times

Re: Investing in house builders

#476586

Postby scrumpyjack » January 27th, 2022, 2:37 pm

BullDog wrote:All bubbles are inflated by ready buyers. Without ready buyers there can be no bubble.

For far too long, government policy has been to support insanely high property prices. It has to end sometime? The economic distortions are too powerful to persist forever? But maybe will persist for the rest of my lifetime.

Presently, I don't know how the property bubble can deflate without collateral damage. Of course, a bubble that bursts rather than deflates will be even more painful for the economy.


The only way, IMO, is by a high level of inflation accompanied by stagnation in nominal house prices, the same solution as for the vast Covid debt run up by Rishi.

BullDog
Lemon Quarter
Posts: 2445
Joined: November 18th, 2021, 11:57 am
Has thanked: 1966 times
Been thanked: 1196 times

Re: Investing in house builders

#476590

Postby BullDog » January 27th, 2022, 2:54 pm

scrumpyjack wrote:
BullDog wrote:All bubbles are inflated by ready buyers. Without ready buyers there can be no bubble.

For far too long, government policy has been to support insanely high property prices. It has to end sometime? The economic distortions are too powerful to persist forever? But maybe will persist for the rest of my lifetime.

Presently, I don't know how the property bubble can deflate without collateral damage. Of course, a bubble that bursts rather than deflates will be even more painful for the economy.


The only way, IMO, is by a high level of inflation accompanied by stagnation in nominal house prices, the same solution as for the vast Covid debt run up by Rishi.

I suspect you will be right, yes. The debt issue got really serious after 2008 and has got to levels where the only politically acceptable route out is as you state.

Apologies for the off topic threads. In a nutshell, invest in house building shares? Totally uninvestable.

absolutezero
Lemon Quarter
Posts: 1505
Joined: November 17th, 2016, 8:17 pm
Has thanked: 542 times
Been thanked: 653 times

Re: Investing in house builders

#476609

Postby absolutezero » January 27th, 2022, 4:35 pm

BullDog wrote:I quite agree. But one day the government will not be able to kick the can down the road anymore. Nobody is more surprised than I am how ridiculously out of kilter wages and housing has become. As I say, even in my modestly priced area, first time buyers are looking at 6 to 7 annual salary to buy somewhere to live. I believe long term average in the area is maybe 2.5 to 3x? It's not sustainable very long term? Is it?

Agree. It's crazy. But. House prices are a function of loose credit and low interest rates. If credit tightens or interest rates rise then...
Salary multiples are irrelevant in the mind of Joe Public. 'You can't go wrong with pwoperdee. Get on the ladder. House prices always go up' is the mentality.
What matters (to them) is the monthly payment.
And that is why interest rates will not rise in any meaningful way. The house of cards would fall down.

scrumpyjack
Lemon Quarter
Posts: 4814
Joined: November 4th, 2016, 10:15 am
Has thanked: 606 times
Been thanked: 2675 times

Re: Investing in house builders

#476626

Postby scrumpyjack » January 27th, 2022, 4:57 pm

BullDog wrote:
Apologies for the off topic threads. In a nutshell, invest in house building shares? Totally uninvestable.


Well I wouldn't say that. Their product is in long term demand and restricted supply. If house prices fall builders will take a hit due to the historic cost of their land banks. But land prices will fall to compensate so that after a few bad years the builders profits will recover. The important thing is that their balance sheets must be robust so they can get through that adjustment. Last time they were not and Barratt only just survived. They have learnt their lesson and will make it through next time.

Oil companies account on a replacement cost basis so falls in the oil price are masked by that in their profits. If builders did the same the market wouldn't get in so much of panic. :D

I'm happy to hold Barratt and Persimmon but am under no illusions that there may be ups and downs. I can live with that.

Mike4
Lemon Half
Posts: 7084
Joined: November 24th, 2016, 3:29 am
Has thanked: 1637 times
Been thanked: 3793 times

Re: Investing in house builders

#476663

Postby Mike4 » January 27th, 2022, 7:42 pm

stevensfo wrote:
BullDog wrote:
scrumpyjack wrote:I suspect the market thinks the biggest risk for housebuilders in a sharp rise in interest rates reducing the amount buyers can borrow and triggering a fall in house prices. Such falls have happened in the past and sometimes even dented the 'ladder' delusion whereby people think house prices can only ever go up.

Indeed, there's massive unaffordability problem. Even in what is not an expensive part of the world here, a one bedroom apartment is around £200,000. Typical salary, sub £30,000. Add in to that student debt, imminent huge energy price increase, increased taxation, car ownership/lease, pension savings........ The numbers don't really add up. It's been a long time coming. But a big drop and/or long term stagnation in property prices has to happen. Doesn't it? The present situation does not seem sustainable to me.


But a big drop and/or long term stagnation in property prices has to happen. Doesn't it? The present situation does not seem sustainable to me.

I've been saying the same for about 20 years now! 8-)

Steve


And people have been telling me ever since 1978 when the Building Society manager I had been saving with explained to me the three-bed Victorian terrace I wanted to buy in Englefield Green, Surrey for £7,000 was badly built and would only ever go down in value so no, he would not approve my loan application.

Probably worth about £1/2m now.

Still grates.

TUK020
Lemon Quarter
Posts: 2039
Joined: November 5th, 2016, 7:41 am
Has thanked: 762 times
Been thanked: 1175 times

Re: Investing in house builders

#477115

Postby TUK020 » January 29th, 2022, 5:17 pm

stevensfo wrote:
BullDog wrote:
scrumpyjack wrote:I suspect the market thinks the biggest risk for housebuilders in a sharp rise in interest rates reducing the amount buyers can borrow and triggering a fall in house prices. Such falls have happened in the past and sometimes even dented the 'ladder' delusion whereby people think house prices can only ever go up.

Indeed, there's massive unaffordability problem. Even in what is not an expensive part of the world here, a one bedroom apartment is around £200,000. Typical salary, sub £30,000. Add in to that student debt, imminent huge energy price increase, increased taxation, car ownership/lease, pension savings........ The numbers don't really add up. It's been a long time coming. But a big drop and/or long term stagnation in property prices has to happen. Doesn't it? The present situation does not seem sustainable to me.


But a big drop and/or long term stagnation in property prices has to happen. Doesn't it? The present situation does not seem sustainable to me.

I've been saying the same for about 20 years now! 8-)

Steve

Been a constrained supply - building too few for many years.
Therefore property prices in most of the country are a fundamentally driven by what people can afford - a function of Earnings growth and interest rates. Things like "Help to Buy" just exacerbate the issue.
Won't change until either Earnings growth drops - await a big recession and significant unemployment rates, or we get a major hike in mortgage interest rates. If both of these happen, then prices will overshoot on the way down.

Cornytiv34
Lemon Pip
Posts: 98
Joined: November 8th, 2016, 12:36 pm
Has thanked: 18 times
Been thanked: 60 times

Re: Investing in house builders

#477614

Postby Cornytiv34 » January 31st, 2022, 5:56 pm

I think an added problem is going to be the speed and cost of “Going Green”. Here in Devon there are numerous extensive building sites that were planned some time ago and are still in the process of getting planning approval for further expansion.

Apart from the usual planning problems it now appears that builders had not allowed for the speed or extent of the “Greening”. When first the greening emerged builders planned on having only 50% of the plots being provided with car charging facilities. Now the councils are requiring all plots have them. Planned gas may also not be possible.

This tidal wave of “Greening” is having unexpected consequences at a time when inflation is likely to increase mortgage cost and builder’s borrowing costs so affordability will become a problem for house buyers. The prices may not be able increased because of the inability of buyers to borrow more. This may mean a reduction in houses sold which with with the increased building cost will cause and reduction in builder’s profits.

Local electrical supply utility now has unforeseen added demand. This larger electric load demands better mains supply to the site and plans are having to be altered to allow for the mains improvement.

More cycle paths demanded add to traffic complexity on site and further planning battles. Sewage capacity in local facilities are similarly challenged.

Mike

vand
Lemon Slice
Posts: 758
Joined: January 5th, 2022, 9:00 am
Has thanked: 174 times
Been thanked: 350 times

Re: Investing in house builders

#477999

Postby vand » February 2nd, 2022, 11:18 am

Well it seems that despite all the potential headwinds we have discussed, the latest figures show UK housing market continues to advance with little sign of any slowdown, never mind the threat of a full blown crash. Bull markets tend to climb the wall of worry, after all.

I have to say that at the moment I don't consider UK housing market to be as silly as it was in 2005-07. There was a lot of stupidity going on back that that made it all unsustainable - eg x5-6 times self cert mortgage. Lenders are still being quite well behaved, and in my own particular neck of woods in London house prices have hardly moved in the last 6 or 7 years. My neighbours paid more for their home next door to us in 2015 than we paid in 2020, and prices haven't really moved since then. I appreciate that London has been the worse performing area, but still, if there was a bubble you would expect it to be the epicenter of all the silly speculation, not the laggard. A market that has gone nowhere since 2016 is not at all frothy imo.

Most of what I see is completely rational behaviour, given where interest rates are right now - that is the big question for me. If the inflation problems continue to grow such that dealing with the inflation becomes more of a political priority than protecting house prices and the BoE actually returns interest rates to non-stimulatory level then the market will crash hard.

BullDog
Lemon Quarter
Posts: 2445
Joined: November 18th, 2021, 11:57 am
Has thanked: 1966 times
Been thanked: 1196 times

Re: Investing in house builders

#478020

Postby BullDog » February 2nd, 2022, 12:05 pm

Cornytiv34 wrote:I think an added problem is going to be the speed and cost of “Going Green”. Here in Devon there are numerous extensive building sites that were planned some time ago and are still in the process of getting planning approval for further expansion.

Apart from the usual planning problems it now appears that builders had not allowed for the speed or extent of the “Greening”. When first the greening emerged builders planned on having only 50% of the plots being provided with car charging facilities. Now the councils are requiring all plots have them. Planned gas may also not be possible.

This tidal wave of “Greening” is having unexpected consequences at a time when inflation is likely to increase mortgage cost and builder’s borrowing costs so affordability will become a problem for house buyers. The prices may not be able increased because of the inability of buyers to borrow more. This may mean a reduction in houses sold which with with the increased building cost will cause and reduction in builder’s profits.

Local electrical supply utility now has unforeseen added demand. This larger electric load demands better mains supply to the site and plans are having to be altered to allow for the mains improvement.

More cycle paths demanded add to traffic complexity on site and further planning battles. Sewage capacity in local facilities are similarly challenged.

Mike

I was reading only a couple of days ago in the Telegraph, apparently, with car chargers and heat pumps, some houses are expected to require a three phase electrical supply!

scrumpyjack
Lemon Quarter
Posts: 4814
Joined: November 4th, 2016, 10:15 am
Has thanked: 606 times
Been thanked: 2675 times

Re: Investing in house builders

#478051

Postby scrumpyjack » February 2nd, 2022, 1:24 pm

BullDog wrote:I was reading only a couple of days ago in the Telegraph, apparently, with car chargers and heat pumps, some houses are expected to require a three phase electrical supply!


Our house certainly would. I can't have the car charger and pool heat pump on at the same time. Many houses, as I understand it, already have 3 phase wiring to the supply box but not wired further. Ours doesn't and it would be very expensive to install as we are over 100yds to the road and it would need trenches, heavy duty cable etc.

BullDog
Lemon Quarter
Posts: 2445
Joined: November 18th, 2021, 11:57 am
Has thanked: 1966 times
Been thanked: 1196 times

Re: Investing in house builders

#478054

Postby BullDog » February 2nd, 2022, 1:30 pm

scrumpyjack wrote:
BullDog wrote:I was reading only a couple of days ago in the Telegraph, apparently, with car chargers and heat pumps, some houses are expected to require a three phase electrical supply!


Our house certainly would. I can't have the car charger and pool heat pump on at the same time. Many houses, as I understand it, already have 3 phase wiring to the supply box but not wired further. Ours doesn't and it would be very expensive to install as we are over 100yds to the road and it would need trenches, heavy duty cable etc.

Indeed, the article went on to say that some houses share a supply. I interpret that as saying perhaps three houses have a connection to one phase of the three phase cable. Perhaps I am wrong on that, but the article said local distribution companies are being faced with a huge bow wave of issues heading their way as some houses need well in excess of a 100amp supply installing. One wonders whether in some cases the local sub station and local grid supply are going to need uprating too? For sure, we are not even at the beginning of understanding the full consequence of government green policies.

scrumpyjack
Lemon Quarter
Posts: 4814
Joined: November 4th, 2016, 10:15 am
Has thanked: 606 times
Been thanked: 2675 times

Re: Investing in house builders

#478058

Postby scrumpyjack » February 2nd, 2022, 1:37 pm

BullDog wrote:
scrumpyjack wrote:
BullDog wrote:I was reading only a couple of days ago in the Telegraph, apparently, with car chargers and heat pumps, some houses are expected to require a three phase electrical supply!


Our house certainly would. I can't have the car charger and pool heat pump on at the same time. Many houses, as I understand it, already have 3 phase wiring to the supply box but not wired further. Ours doesn't and it would be very expensive to install as we are over 100yds to the road and it would need trenches, heavy duty cable etc.

Indeed, the article went on to say that some houses share a supply. I interpret that as saying perhaps three houses have a connection to one phase of the three phase cable. Perhaps I am wrong on that, but the article said local distribution companies are being faced with a huge bow wave of issues heading their way as some houses need well in excess of a 100amp supply installing. One wonders whether in some cases the local sub station and local grid supply are going to need uprating too? For sure, we are not even at the beginning of understanding the full consequence of government green policies.


I don't think the government understands the full consequence either!

BullDog
Lemon Quarter
Posts: 2445
Joined: November 18th, 2021, 11:57 am
Has thanked: 1966 times
Been thanked: 1196 times

Re: Investing in house builders

#478069

Postby BullDog » February 2nd, 2022, 2:32 pm

scrumpyjack wrote:
BullDog wrote:
scrumpyjack wrote:
BullDog wrote:I was reading only a couple of days ago in the Telegraph, apparently, with car chargers and heat pumps, some houses are expected to require a three phase electrical supply!


Our house certainly would. I can't have the car charger and pool heat pump on at the same time. Many houses, as I understand it, already have 3 phase wiring to the supply box but not wired further. Ours doesn't and it would be very expensive to install as we are over 100yds to the road and it would need trenches, heavy duty cable etc.

Indeed, the article went on to say that some houses share a supply. I interpret that as saying perhaps three houses have a connection to one phase of the three phase cable. Perhaps I am wrong on that, but the article said local distribution companies are being faced with a huge bow wave of issues heading their way as some houses need well in excess of a 100amp supply installing. One wonders whether in some cases the local sub station and local grid supply are going to need uprating too? For sure, we are not even at the beginning of understanding the full consequence of government green policies.


I don't think the government understands the full consequence either!

I would banish any doubt you have about that. It's self evidently a fact. It's such a shame that with around 1% of total global carbon emissions, we seem to be headed in the UK into an era of real fuel poverty. And globally, for likely no really good reason because those who need to do the heavy lifting climate wise just aren't doing so.

vand
Lemon Slice
Posts: 758
Joined: January 5th, 2022, 9:00 am
Has thanked: 174 times
Been thanked: 350 times

Re: Investing in house builders

#478088

Postby vand » February 2nd, 2022, 4:09 pm

Apparently 31% of houses sold for over asking price in 2021. It doesn't sound like a market that is in trouble - or maybe it's a sign that it's in danger of going over the cliff! I mean, that's crazy.. I've never paid over asking price for any of the 3 properties that I've bought, but I've always ended up around the 97-98% of asking price.

Image
https://www.ft.com/content/9294ae50-76e ... 57cdc4123b

scrumpyjack
Lemon Quarter
Posts: 4814
Joined: November 4th, 2016, 10:15 am
Has thanked: 606 times
Been thanked: 2675 times

Re: Investing in house builders

#478115

Postby scrumpyjack » February 2nd, 2022, 5:22 pm

I suspect that partly that is due to the increasing use of 'guide prices', which usually means you have to bid above that. Guide price is not an asking price. My daughter recently bought a period house in north Norfolk. She had to pay 30% over the guide price to beat the large number of other bidders. There were so few really good properties and she had seen so much overpriced rubbish that, on a 30 year view, it made sense to pay over the odds to make sure she got the house she wanted. No mortgage was involved, which I suspect was the case with many of the other bidders.

vand
Lemon Slice
Posts: 758
Joined: January 5th, 2022, 9:00 am
Has thanked: 174 times
Been thanked: 350 times

Re: Investing in house builders

#489807

Postby vand » March 28th, 2022, 5:25 pm

The housebuilding sector slump is continuing.. surely it's indicating that tougher times are ahead..?

With interest rates rising & wages failing to keep up with the increase in cost of living I don't see how housing market isn't affected.

If we enter a good old fashioned recession things may be very nasty for the housing market and builders in general.

I'm holding PSN and BDEV in my HYP but I won't be adding to my position in them.


Return to “How Do I Invest”

Who is online

Users browsing this forum: No registered users and 13 guests