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#31 Nick

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Posted 16 July 2007 - 09:15 PM

Flat prices nationally are sticking because of over supply - houses are a different matter. I know from various sources that asking prices and actual sale prices are very different today.
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#32 Dazza

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Posted 17 July 2007 - 08:29 AM

Did anyone have a mortgage in the 80's I used to work for a bank & only had to pay a 3% mortgage the bank paid me the balance over this percentage. When it hit its peak of 20+ % my subsidy paid by the bank was more than my salary !

Remember the interest rates are at a normal level now as we have had some incredible low interest rates for several years now.

I remember then people putting their door keys through the mortgage lenders letterboxes & walking away because of negative equity not thats a phrase I havent said for many a year !

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Edited by Dazza, 17 July 2007 - 08:29 AM.

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#33 moc

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Posted 17 July 2007 - 08:42 AM

Prices will keep going up in places like Crystal Palace as people have been priced out of other areas of London. Then when prices in this area catch up with the rest of London, I think they'll level off and people will have to move on to the next affordable area - wherever that may be.
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Posted 17 July 2007 - 08:43 AM

Bosie, without wanting to defend Estate Agents (oh nooo) the market has been so far driven by demand and as far as there are people ready to pay those prices then thatís the way it goes. The price does not (oh no) reflect the value of the property itself but the value at that specific time/space as driven by demand. I think the demand in CP has (finally) cooled.


Dazza, I agree but there are indicators that suggest this will not snap but cool down.
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#35 Bosie

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Posted 17 July 2007 - 09:52 AM

No I know not all estate agents will deliberately inflate prices but for example the estate agent that sold me my flat is selling the flat next door to me and i was chatting to her and asked what mine would be worth now. She had a look and said it would be worth 72k more. I only bought it last July and it is only a 1 bed flat. I have not even done that much work to it yet - I certainly wouldn't call it "in good decorative order" just yet. I just felt that she was over inflating the price, maybe as she thought she would get the business from me. I mean a 52% increase in a year - there is something not right about that. I would never have dreamed of putting it on the market for that. I know that most places are selling for less than the asking price, but occasionally someone will be mad enough to come it at asking price and then that sets the trend.

Not that I would necessarily be complaining when I come to sell, but the problem is that I will have to buy another property and you can't have it both ways.
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#36 jamesl

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Posted 17 July 2007 - 10:03 AM

I don't think blame can be laid at the door of local estate agents. Their job after all is to get the best price they can for the seller. Overpricing by agents is common and IMO prices in CP have reached peak levels but at the end of the day no Seller is going to say "errr I think that's too much"

I sympathise with LSPE but it's a tricky situation. One solution may be to sell and short term rent in thw hope that prices peak aand then come down. However as word of caution- We sold our flat 3 years ago and rented for a year gambling on the market cooling and being in a better position to bargain as chain free buyers with a big deposit- It didn't and the net result was that we effectively wasted about £12000 in rent which could have come off the mortgage and our flat was then sold two years later by our buyer for a whopping £45,000 more than we sold it.

We recouped some of this because we saw the price of the house we eventually bought go up and we took out a very low rate fixed mortgage but all in all its a gamble that proved a very expensive mistake.

Edited by jamesl, 17 July 2007 - 10:29 AM.


#37 StephenB

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Posted 17 July 2007 - 10:33 AM

Today the Guardian is saying that flats are rising faster than other properties:

"...driven by a jump in the price of flats, which increased by 1.8% during the month, while the cost of terrace houses rose by 0.9% and semi-detached homes were up by 0.6%. But detached properties and bungalows saw more modest price rises of 0.3% and 0.1% respectively."

but I assume it'll be different tomorrow.

(The article is called "Housing market 'coming off the boil'"... haven't I seen that headline before? Several times? I wonder if there's a house-price headline generator out there yet, along the lines of http://www.qwghlm.co...oys/dailymail/)

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Posted 17 July 2007 - 11:31 AM

I mean a 52% increase in a year - there is something not right about that. I would never have dreamed of putting it on the market for that. I know that most places are selling for less than the asking price, but occasionally someone will be mad enough to come it at asking price and then that sets the trend.


Mine went up by 14% in 3 months and was sold overnight .... so despite I agree that EA inflate prices, as much as there is demand and therefore people who are willing to pay those prices then we cannot really blame them.

When I thought the prices of the properties were "too stretched" for my linking then I decided to withdraw from the race.

Re selling and then renting for a while, this is good if you have a short-term exchange otherwise (at this pace) is too risky ...

The article is UK focused and we know that London is a different market and as the article suggested it went up ...

Edited by LSPE, 17 July 2007 - 11:38 AM.

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#39 matt

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Posted 17 July 2007 - 11:36 AM

Without a recession or major interest rate rises, by which I mean 8% or thereabouts, there won't be a crash. Rates are still lower than they were in 2000, just about when people told me I was mad for buying at the top of the market. My 2 bed in the triangle bought then sold for nearly double in late 05.
The thing to remember about the last house price crash was that the idiot government (including a youthful Mr D Cameron, adviser to the Chancellor) were putting up interest rates to 12-15% during a recession. These days you cut interest rates during a recession, (or hopefully prior) so you don't get a double whammy - indeed in the last world economic downturn (00-02ish), we didn't even get a recession in the UK (unlike everywhere else).

Some people of course will always overborrow - and personal circumstances will always leave some people unable to pay the mortgage, but there looks little likeihood of a general downturn anytime soon. But it gives the odd journalist an excuse to write the same column every month, especially as when the cycle eventually does turn (as eventually, it always does), they pat themselves on the back for being cleverer than anyone else. Forgetting of course, that timing is everything.

So I see the odd pause perhaps when rates bite a little (thats what they are there for of course, medicine never tastes nice), but nothing more serious than that.

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Posted 17 July 2007 - 12:27 PM

Agree with Matt.

Keeping an eye on the subprime lending in the US and whatís happening here too should give some idea of how deep the bite will be.

A sudden increase to 8%+ of the interest rates will risk to put everything on a stand-still and thatís not what the government or anyone else wants.
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#41 Dazza

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Posted 17 July 2007 - 12:35 PM

If mortgage rates went above 10% I pretty sure most people would be struglling but if interest rates hit the giddy heights of the late 80's I sure a lot of people would be in trouble.

In October 1989 rates were 15% ! Ouch

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#42 Urma

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Posted 17 July 2007 - 01:17 PM

I have to admit to having absolutely no idea exactly how what happens in the US housing market affects us here, but the doom and gloom that seems to be emanating from across the pond is apparently succinctly reviewed here:

http://www.moneyweek...-crumbling.html

It seems to be at a bit of a tipping point. Crystal balls and tea leaves at the ready...

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#43 matt

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Posted 17 July 2007 - 01:42 PM

The US situation is totally different - in the US they've got record millions of unsold newly built homes gathering dust, hence weighing on house prices, that's not the case here. Speculation during their incredibly low interest rates a couple of years back caused far too many to be built whilst people were getting incredibly cheap mortgages. (and why did they have low rates? Because they had a recession).

As for the subprime thing - its not much of a sector here, and the problem is that a relatively insignificant blip in the real economy, is having a massive effect in the financial markets due to the way the markets have been financing/trading the subprime loans (not going to bore you with details!). Hence theres a lot of people losing a lot of money over it and making noises.

In Europe, this is just something that affects the markets, not anything more serious than that. For me, thats also pretty serious though!

Urma - looking at the article you linked to, it was dated mid-06 - whilst the US housing market woe has got worse & worse over the last year, the article is predicting that this would affect stock markets - as I type the Dow Jones index is a mere 6 points from passing 14,000 for the first time!

Edited by matt, 17 July 2007 - 01:46 PM.


#44 jamesl

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Posted 17 July 2007 - 01:49 PM

I'm not so sure that we will avoid some 80's like painful adjustments. Borrowers in the 80's were hit by horrendous rates (plus misselling of endowment mortgages) but the income multiples for borrowing were pretty strict at 3x single and 2.5 times joint. Now many borrwers are borrowing 5 (sometimes 6 x) income just to get on the ladder. Thus any increase in interest rates is a worry because the capital value of the debt is much larger.

Add to that equity to debt ratios which are much smaller and economic growth that has been massively funded by credit card debt and people borrowing more against equity and I can see trouble ahead.

Matt's right of course that the market is cyclical and to an extent dips in prices/rises in rates is inevitable but I question the perceived wisdom that the main victims will be those who "overstretched" themselves. I have enormous sympathy for anyone trying to get on the ladder (or up it) who may have borrowed more than they could realistically afford - the whole market and financial services industry leans over backwards to encourage borrowing as much as possible and the idea of generating personal wealth through owning property is deeply ingrained in our society (and indeed is now promoted as government policy). I get sick of hearing about borrowers being blamed for "overstretching" themselves when all they've tried to do is follow a societal norm. If there is an 80's style crash (and I sinecrely hope there is not) the Banks have a lot to answer for - for the subprime market read self-certificated mortgages and ridiculous income multiples - all of which are encouraged by a government who has raised more money in stamp duty than any other adminstration in history.

Edited by jamesl, 17 July 2007 - 01:51 PM.


#45 matt

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Posted 17 July 2007 - 02:17 PM

Good points Jamesl, though the multiple changes are partly down to the increasing sophistication of lending these days. - back in the 80s, there weren't the sorts of credit risk management tools that mortgage providers have now - information was rather opaque (less credit information - and certainly less ability to store & use the info you had - you couldn't easily offload the mortgages you had lent etc. Now banks can be more sophisticated about all this, they are more prepared to relax their lending rules as they are less exposed.

Thats part of the reason, though of course competition for mortgages is also a major issue.

But also, the way of looking at debt versus income multiples isn't comparing apples & pears - in a time of interest rates less than half what they were in the 80s, and also now people have far more disposable income (as things such as car-ownership are far cheaper in real terms now, as is food, travel, entertainment etc). The risk to any lender (or from the other point-of-view, the borrower), is not necessarily related to income/debt multiples, - its related to disposable income/mortgage payment multiples - as long as disposable income levels are growing, we can afford to service more debt - there's a far greater buffer than the average Mr & Mrs Mortgage had in the 80s - if there wasn't then UK GDP would be in serious trouble and the UK retail sector would be an large hole (and inflation would be deflation). And whilst credit cards allow people to get into greater debt problems if they are undisciplined - it does allow people more flexibility if they have a bit of a temporary financial crunch, which they didn't in the past.

All of which mean that income multiples SHOULD be higher than they were 20 years ago - from both the perspective of the borrowers and the lenders. Which of course means, that they inevitably have grown, hence people can pay more, hence prices have shot up - more liquidity in investors pockets always = higher prices, in whatever market it is.

Many of these financial innovations are irreversible, the one that isn't is the disposable income / mortgage payment multiple - However - one of the 2 things that can disturb this is a recession - and in a recession, the Bank of England will cut rates, which will reduce the pressure on borrowers.

The other thing that can disturb it is rampant inflation taking away disposable income, which will lead to rate rises and so a double whammy on the ability of homeowners to service their debts. But as inflation is explicitly watched and targeted on a monthly basis, this is very unlikely excluding some kind of major oil shock (and as we've already had a tripling of oil over the past decade, the economy looks like it can cope with that).

So having weighed all that up, I'm still a bull on the housing market. And whilst people may be stretching themselves to buy bricks & mortar, its probably better than drinking and holidaying it all away - housing at least is a form of saving, of which other types are rather out of fashion these days.

Anyway, Dow now over 14,000 for the first time, so even the US equity investors aren't too worried about subprime. Unfortunately in the markets I trade, thats not the case!

Further thought - As for subprime in the UK. the typical UK subprime borrower now has a reasonable minimum wage and large tax credits, which it didn't have 10 years ago and doesn't have in the US. Subprime borrowers in the US also don't have free health care (or indeed health insurance)- and the #1 cause of financial distress leading to repossession in the US is unpaid medical bills (as they are large, generaly unscheduled and unavoidable).

Edited by matt, 17 July 2007 - 02:24 PM.