House Prices Still Rising!!

Percent increase Jan to Dec - England and Wales - All properties from

2000 7.7% 2001 8.9% 2002 19.5% 2003 4.8% 2004 9.7% 2005 5.3%

Between 2000 and 2005 prices rose by 92.4%. Wish my wages had done the same:-)

My previous figures were incorrect....

Percent increase from Quarter 4 to Quarter 4 the following year - England and Wales - All properties from

04 - 05 5.3% 03 - 04 11.6% 02 - 03 12.6% 01 - 02 22.3% 00 - 01 10.3% 99 - 00 11.9% 98 - 99 15.7%

Between Q4 1999 and Q4 2006 prices rose by 99.7%. Again I wish my wages had done the same:-)

-- Adrian Smith

To the list,

Are people surprised that prices are still rising?

Employment is generally good, interest rates are stable (which really means no rapid movement and no unexpected moves), fewer house units are built than are needed and the trend lines for all the above are pretty stable for the last couple of years. Many expected a large correct so headed for the sidelines. The correction did not happen so some are deciding that their housing situation is a higher priority than market timing.

A correction can only happen when there is a fundamental shift in the prevailing conditions. Spike in unemployment, rapid rise in interest rates or a large shift in the number of new units coming into the market (or people moving out of the UK). None of the above are predicted so most people look at their personal circumstances and then decide if they want to buy rather than rent. The macro picture provides no indication that waiting on the sidelines will be an advantage. Even with flat prices many people would rather own their own home.

John Corey

A shift in prevailing conditions can come in many guises and to 'the man on the street' is usually unexpected.

Crowley is "gobsmacked".

And he hasnt seen the one from the BOE today yet either, LOL.

Sit down before you read one!

:-)

Adrian,

I agree with the point that the man in the street is largely uninformed or out of step with what matters in terms of pricing. Mostly because they lack the time to study the fine point, etc.

This seems to be the reason why the prevailing wisdom about a correction was wrong. Not that corrections can not happen. Just that they do not happen for the reasons cited 1-2 years ago.

John

Not round these parts they're not, and there's plenty slashing their prices ...... one round the corner down from £375k to £300k. Plenty more like that though not quite so big drops percentage-wise (yet)

Yes, but only by the fact that so many still believe this VI spin in the face of most of the fundamentals.

I'm sitting very comfortably thank you ;-)

"

In message , Crowley writes

In 1985 I bought a house for £20,500 and sold it in 1987 for £21995 - I didnt buy another at the same time.

In 1988, I had to pay £42,000 for a similar property... so I lost a real £20,000, by not owning a property.

After this experience, I promised myself that I would never ever be without property again.

The market has risen and fallen over the past 18 years so, when prices were low, I did whatever was necessary to avoid selling, and traded up during the recent boom.

If you dont get on the housing ladder, you will live to regret it, (not that you would ever admit it )

lets say you buy a house now, (and dont give me that bullshit about not being able to afford one..... maybe not where you want, but who ever bought their first house where they really wanted it), for £150,000. In

5, or 7 years time, it will probably be worth £250,000 or so, and its not cost much more than the rent you are paying to own it, (and you dont have to give a monkeys what it's been worth in between). Sell it, trade down your own home, (size, type or location), and use the balance to get some investments, or buy some junk and do it up - BINGO, you're on the way.

I have no axe to grind, and have nothing to gain or lose, whatever you do.

I dont actually care if the market rises or falls.

If it rises I am worth more, if it falls, I may buy more. If it falls and never rises, I'll just keep collecting the rent till I die......

I have lost count of the number of friends I have advised at various times, who have had your attitude, and who are still working 9-5 for a pittance, and who will be waving me off in June.

They aint making more land!!

One example does not make a trend. It does not even make a line on a graph.

I accept there will be someone who either is motivated to sell quickly or was over priced when they put the property on the market so slashed the price. I also expect that the averages are the averages and therefore are closer to the present reality than any one property.

A crash would be more obvious by this point. What we see is very low inventories as people refuse to sell at lower prices. Until they are forced to sell (rising interest rates or job loss) they will continue to go to work and pay the mortgage rather than put the home on the market.

Prices should go up and down so examples of prices being higher or lower is proof of market forces at work. The forces are not requiring a large correction to find a new balance. There is still a shortage of housing and people with jobs looking for a place to live.

A bit of a rant and some background for why I take the position I do...

I am long property. Money where my mouth is. I have multiple units in multiple countries. I have been investing in property for over 20 years. Ups and downs are expected. What causes them is rather well understood at a macro level if you look at the data over the years. You also have to note fundamental changes which shift the rules a bit. Eviction law changes in the late 1980's and in 1996) is an example in the UK. It was only after the changes that lenders would loan to investors for rental properties. That was a bit of a shift so the data prior and the data after is not directly comparable in the full sense of the phrase.

If someone owns a rental and it is easily covering the mortgage then there is no rush to sell. The owner can just sit and let the tenant pay off the mortgage. At some point in the future the value will rise. Anyone who doubts that prices will rise again also has to believe that wages will not rise as house prices have a connection to wages. The ratio does swing around a bit so the relationship is not a strict one. History says X times income for prices. Maybe better is Y times income to the monthly mortgage or rent payment as it is more about cash flow than actual house prices. Some BTL owners are in over their head and are having issue with making the monthly payments. The smart ones are not in that camp so the smart ones will continue to collect the rents and watch the portfolio value rise with time. Similar in a strange way to the homeowner who wants a home and has no need to move just because prices are up or down. They get the utility value and own a home for that utility value and not as a way to play the market. When prices are soft they continue to own. When prices are rising the homeowner considers trading up.

John

Crowley wrote:

Richard Faulkner wrote: .

You make some good points as always Richard and I agree it's no bad thing to have your own property but timing can be important if you want the best deal. The 'property ladder' goes up aswell as down and you can get much better property and/or save yourself a packet if you put some thought into timing though I don't want to sound like I'm teaching my grandmother to suck eggs :-)

For instance, I bought a house in the north west for £135k in spring

1. In 92 I had it valued at £95k. Prices had dropped considerably in many parts of the country as you doubtless remember and continued to drift lower for a further 2 or 3 years. Eventually it regained it's original value and no doubt is now worth considerably more (I don't own it now) as the long term trend of prices is up.

I think we are at a similiar point to 1989, prices have risen considerably over the past few years but this is a bubble just waiting to burst and IMO anyone waiting patiently will benefit from a major correction in prices over the next year or two and beyond until the up-cycle starts all over again.

"

"the next year or *two* or **beyond***"??!!

Less than a week ago you said "tar and feather me if there hasnt been a major correction by the end of this year"

In message , Crowley writes

But if you are wrong, prices will keep rising, and you will never buy, (I think 5% compound doubles prices in 12 years or so).

If you buy now, you may lose in the short term, but you win in the long term. There are some deals to be had, and some properties where the rent will fund the mortgage and costs, (obviously not a 100% mortgage), or where the costs will not be much more than your rent.

Anyway - I can see that you are being rational, but cant help getting wound up by your posts.....

Tumbleweed wrote

I think we will have seen a 'major correction' within a year but it won't stop there and prices will continue the downward path for several more years to come before the cycle turns again. IMO

Richard Faulkner wrote: .

Prices round here are not rising and even after cuts upto 15% many are still not attracting buyers. I can't see anything that will get prices rising again for some considerable time to come (years) so I am confident that waiting will get a far better deal.

Mortgage, schmortgage.

Wound up by me ? Surely not ! :-)

Now if you really want to get wound up have a wade through some of these ...............

" Some of them make even a doom-monger like me appear bullish.

Crowley,

Your logic on the surface sounds reasonable. Lets leave out the prediction and the suggestions about the timing for a correct. I want to poke a bit with the bigger issues.

1. Housing for many people is more about a home than it is about market timing an investment. A home had utility value to the occupants. Hence it could be priceless in some ways as a home even if the financial value is going up or down. In a typical year almost everyone stays put so almost everyone has not real connection to the possible value their home might fetch in the market.

1. If someone is investing they are not just trying to buy the average if they are intelligent. Hence they look for a bargain. A bargain can mean different things. I know one guy who pays retail but then changes the use or the utility of the property so that it now has much greater value. A simple example is he purchases a 3 bedroom home at full price knowing it would not cash flow as a BTL. He then proceeded to convert one living room into a bedroom, fitted the place out with everything you can imaging a university student would want and has a place that is in high demand. The property produces a high yield and provides something 1.5 to 1.6 debt coverage (income greatly exceeds the debt service).

2. Professional RE investors know that property is not a short term game most of the time. The transaction costs are high (stamp duty, other selling costs, time delays). Hence a property that is purchased for a medium to long term hold which covers all the running costs including maintenance reserves means that the investor can just wait for the market to come to the investor. The investor does not need appreciation. Over time rents will generally rise (wages tend to do the same all things being equal). Over time the property can be paid off from the surplus cash flow. If appreciation kicks in every 10 years or so then the game would be to have as many properties as possible with the tenants covering the running costs.

In conclusion.

House prices are largely determined by the owner occupant. The BTL investor is on the margin compared to the number of owner occupant sales out there. The behavior of the owner occupants is the key. If they are buying prices will rise. If they are not buying they are likely renting so the investor has a hedge. When prices are soft of falling the owner occupant will want to stay rather ran recognize the loss if at all possible. As the market has changed since 1989 (the last major correction) more owner would consider renting a place before selling compared to then (legal differences related eviction makes this a better option than in 1989). Hence housing markets tend to have a floor based on people staying put and continuing to pay the mortgage.

Remember that in 1989 the interest rates spiked over 15%, inflation was very high (higher than 15% I believe) and unemployment was high. Now we have historically low interest rates, full employment about 10 years of building less housing that is needed and a low inflation outlook.

Corrections happen all the time. They come from changes in the market. The housing market is not facing negative factors other than low affordability. Low affordability is almost the definition for housing in London for a very long time so affordability is not the main driver of house prices.

John

Think again. Close, pero no puro.

In message , Crowley writes

As I said - I respect your decision - it could be right.

Where are you? I'm sure you've told us, but I cant remember.

John wrote: .

I wouldn't necessarily agree with any of that John. Property is a fairly complex market in which factors other than investment/money-making potential come into play, and I don't disagree that it can be a sound long-term investment for someone who has not over-leveraged himself in order to buy.

My point is that timing is important particularly at the present time when IMO the cycle is changing. The massive house price increases in the UK in recent years are not simply down to demand, popularity of BTL, shortages of homes, or whatever. The bubble has largely been caused by the easy availability of ralatively cheap credit which has enabled people to take out and service levels of debt way above the old

3.5 loan to wage ratio and has pushed up house prices as a consequence. Hence the record debt hangover now at £1.2 trillion and rising.

The credit explosion cannot last forever and there are increasing signs it's now coming to an end with interest rates on the rise worldwide, even in Japan where they are reigning in the cash they churn out which has fed the carry-trade market enabling western banks to borrow low in Japan and lend high in the west. All that easy money is coming to an end.

Global liquidity is tightening, there is probably a credit crunch on the way. Asset bubbles of any kind, including house prices, cannot survive in such an environment.

Give it 6 or 7 years of price falls and stagnation and the whole merry-go-round will start all over again.

That's all IMO of course. If I turn out to be wrong then I hope to still be around here to humbly admit it and to undergo a verbal 'tarring and feathering' from Tumbleweed and Richard.

I'm a manc (like yourself ?) but now based in the Glos/Worcs area.