This is of great interest to any investor out there whether you're looking at bricks and mortars or the stock market. Have a go and let your comments flow.

To start off, here is an interesting article below:

Is property overpriced and due for a correction, or can the current level of house price inflation be sustained? Depends on who you listen to...
Prices-To-Earnings Ratio. If you look at the ratio of house prices to earnings it certainly seems that the market has overheated and is in need of a short sharp shock.

Viewed relative to net pay, prices, says the Nationwide, are currently 7.2 times average earnings, slightly above the 7 times earnings recorded at the height of the eighties boom.

It's this grim statistic that has seen first-time buyers priced out of the market, and according to Capital Economics the price-to-income ratio is the main reason why values are bound to fall over the next three years (by 20% in all).

Sabina Kaylan of Capital Economics says: "Property is an asset like any other. If it's overvalued there will be a correction in prices and at the moment values are high relative to incomes.

"It would be nice to believe that it will all have a happy ending but in the past that hasn't been the case - the graph shows spikes and troughs - we don't think a gentle levelling off is on the cards".


cpeck

StodkDolphin,

I can give you my personal opinion for what its worth. Homeowners who bought some years ago and have substantial equity, and multiple property owners (good luck to you all wish I'd done it a few years ago) have no idea how dire the situation is for first time buyers.

My partner and I have what a lot of people reading this would class as a very modest joint income of about 34k a year. We are also fortunate enough to have 17,000 in cash in the bank. We live in Kent, in one of the "cheaper" areas and even with that cash as a deposit are unable to get a mortgage on the worst ex-council house in an area that you wouldn't live in if the council offered it to you rent free.

Up until a few weeks ago I worked in a banking call centre for 3 years and saw the accounts of many thousands of poeple. The vast majority of people have an averge income of about 30k and thousands earn substantially less than this. Therefore all first time buyers earning this amount or less have been totally priced out of the market. We rent privately on a very nice 3 year old housing estate with 100 houses, at least 25% of them are rented. Each time one gets sold it goes up for rent - only landlords are now buying these houses no one else can get a mortgage on them - and they then stand empty for months on end.

My final point (big sigh of relief!). We read in the papers about the amount of equity homeowners have borrowed, the real situation is worse. When I first started working at the bank seeing current account/savings with 10k or more was rare. In 2003 amounts of 50k upwards on average wage earners accounts became commonplace - wow everybody suddenly got rich. Misery in store if the market crashes.

Logicaly then current house prices seem unsustainable. Who knows?

I currently work for one of the volume builders at regional director level (in the North West) so have quite a good view of the market. My recent observations are as follows:

1)We are currently booked up about 3/4 months ahead and the demand still exists though buyers are getting pickier - they want the right house, plot and location plus some extras thrown in. Most regions are in a similar position however a couple of regions have struggled a little recently
However, planning is getting much harder to obtain and the average site is taking at least 18mths to get planning and start building. Most of the councils round here actually have planning embargos in place ( a strange interpretation of the latest guidelines which will soon be legally challenged) and are not granting any planning permissions for new houses. This planning approach is artificially keeping supply low and hence supporting prices.

2)Any flats we build, we are deluged by investors intermediaries looking to take the whole lot off our hands and we can sell new flats many times over because of this

3)Any estate agents i speak too are still very bullish and have more buyers on their books than they have properties - 1 I spoke to last week had approx 13 buyers to each property (though he is probably higher than the norm)

4) The market is softer at higher prices because it is not propped up by the investor demand

5) IMHO the ratio of price to earnings is not as relative due to current interest rates - ie even at 7 times earnings mortgage payments are still highly affordable due to the interest rate. However, if you believe the press - interest rates will be between 4.5% and 5% by the end of next year. This will start to make mortgages more expensive compared to peoples net income.

i am personally looking for another property to renovate and sell on - i am currently happier turning them round for a quick profit rather than holding on and letting them. I believe the market will soften a bit more in the coming yer, but imho i would be surprised if prices crashed as per last time. For anyone currently with buy-to-let properties, work out where you will be financially if interest rates are at 5% and/or 6% and preferably at what interest rate you start making a loss. This should help aid your decision as to whether it is still a worthwhile investment.

Stockdolphin - as for selling all 6 properties, bear in mind that if you sell all at once and are making capital gains you will only use 1 years allowance against the profits. At least spread the sales over this and next financial year (ie either side of april 5th) to use 2 years allowances. Also, only sell at auction if you really need to or the properties are in a bad condition or have standing tenants. Also, if you are going for this approach, make sure you fully understand how the process works, what the minimum you are prepared to accept and make sure you know the auctioneers full commission - it will be higher than an estate agents!

StockDolphin, according to Nationwide the average house price in the U.K. was 135,444 at the end of 2003, compared to 133,388 and 131,947 one and two months earlier respectively. At the end of 2003 prices varied from 91,707 in Scotland to 219,678 in London. Nationwide reported an annual price increase on all houses of 15.6% to December, similar to the Halifax.

The Bank of England Base Rate was held at 3.75% at the January meeting of the Monetary Policy Committee, as was generally expected. In February many expect the Base Rate to rise to 4%, however, as the U.K. economy has been performing well.

Across the whole of London, Nationwide reported an increased house price growth of 2.9% for the quarter, up from 1.2% the previous quarter. The Halifax recorded a house price growth of 3.7% for the last quarter. 2003 ended rebounding from a slow first half of the year, which even saw LOCALISED PRICE FALLS due to affordability issues and uncertainty caused by the war in Iraq. Growth for the year was positive at 7.2% according to Nationwide, or 8.6% according to the Halifax. This compares to an annual growth of 21.4% in 2002 (Nationwide).

In a case of (expected) modest interest rate increases, the housing market will probably see low but stable growth. Possible future (stamp duty) tax increases could have a dampening effect on further house price increases, however. At the end of 2004 price increases will probably have slowed. If interest rates increase more strongly than anticipated prices will likely plateau even earlier. Maybe its time to do something now! It could be worse if you're buying to let.

cpeck

I live in the North East and believe the rates of increase up here are unsustainable....Northumberland has had house price growth of about 40% over the last two years, the sentiment is still very +ve though. It is inevitable, especially as the stock market recovers and interest rates rise that at some point there will be a correction.....the million dollar question is what will trigger it and when and by how much. The fact that the "will they/wont they" question is such a hot topic in the media means that they will!

Here is an interesting article from reuters.

Quoted: " debt levels were rising too fast, and setting up the economy for a possible crash in the future"


LONDON (Reuters) - House prices surged last month at their fastest rate since October 2002, the Halifax says, as the Bank of England appears set to raise interest rates this week for the second time in three months.

The country's largest mortgage lender said on Wednesday house prices jumped by 2.2 percent in January after a revised 2.0 percent gain in December.

This took the annual rate of house price inflation up to 16.0 percent -- the highest since October 2003 -- from 15.4 percent in December.

The BoE raised rates in November by a quarter percentage point, partly because it was worried that house prices and consumer debt levels were rising too fast, and setting up the economy for a possible crash in the future.

Most analysts expect the central bank to repeat November's rise and lift rates to 4.0 percent from 3.75 percent on Thursday as the economy continues to gather speed.

Halifax said housing demand should remain strong through the year though rate rises will act as a brake on the market.

"The extent of the rise is, however, expected to be modest and will, therefore, cause few problems for the majority of homeowners," said Shane O'Riordan of the Halifax.

The Halifax figures were out of line with those of the Nationwide building society which showed prices rising by only 0.7 percent over January.

But a spokesman for Halifax said the Nationwide figures were not for the full calendar month and included the traditional lull over the Christmas/New Year period.

This is scary!!!

LONDON (Reuters) - High-flying house prices could nearly halve over the next few years, a City report has predicted.

David Pannell, an analyst at investment bank Durlacher, predicted house prices will fall 30 percent from their peak, with falls "sharper but shorter than in the 1980s" and added that there was a risk prices may fall as much as 45 percent.

"Our pessimism is based on international and historic experience -- for example, the UK housing market has never experienced a soft landing," Pannell wrote in a report titled "Bubble trouble".

"Our analysis suggests a correction will take place even if interest and unemployment rates remain at their current levels," Pannell said, attacking an argument often used to explain why a sharp fall in prices is not likely.

He said the crash will be supply-driven as homeowners try to sell at the top of the market.

House prices are a closely-watched economic indicator. Many have borrowed against the value of their properties, which has helped fuel a consumer spending boom.

Analysts are concerned that rapid house price inflation, which according to the latest measure published by mortgage lender Halifax is still climbing by 16 percent, has not cooled quickly enough from rates of near 30 percent in 2002.

The Bank of England, while insisting it is not targeting the housing market, has also spelled out concerns of late that house price inflation had not slowed as quickly as it would have liked, which raises the risk in months ahead of a crash.

The BoE raised its benchmark short-term rate by a quarter point for the second time in three months earlier in February, to 4.0 percent.

Durlacher is not the only City firm to predict a sharp correction in housing.

Analysts at Capital Economics, an independent research company, are predicting house prices will fall 30 percent from a peak reached this year.

A recent Reuters poll of economists found there was a one in five chance of a crash in house prices.

Mortgage lenders and estate agents, who have profited from rapid mortgage lending and refinancings and brisk business, are predicting a cooling in house price inflation.

A separate report from housing finance company Paragon said on Monday that landlords remain optimistic about the market this year.

Durlacher, on the other hand, predicted that those buying property to rent in 2003 would receive a one percent yield for, before the cost of maintenance.

"Positive returns rely on house price inflation to remain at current levels, which is unlikely," the report said.

The Durlacher report said a tightening in lending rules by mortgage lenders, falling yields for buy-to-let, new regulation of mortage by the Financial Services Authority and rising interest rates will contribute to a fall in prices.

Hi,
I am 54 and owned a very successful property business in Dublin.
My opinion :- Stay out of investing in it.
rgds aj

Hi Ajren, havent seen you for a while. Were have you been?.

cheers Goldfinger.

Hi Gf,

America for a few weeks.Moneyam is an EXCELLENT site so still like visiting.
rgds aj