OK This has been 'getting my goat' for ages and just in case anyone
else feels the same, here's a thread to vent your feelings & views!!

So then...House prices currently...
1. Are they truly realistic?
2. Do you see a crash and burn possible in the next 12 months?
3. Is it lulling people into a false sense of wealth that really
is just an illusion?

My thoughts are they are not realistic and as controversial as this
may be, I hope some type of re-dress does occur sooner rather than
later - although a crash and burn scenario seems a little harsh!

This can't go on surely?? The last two booms didn't, is it different this time?
I can't see it, sooner or later be it through interest rates or
economic factors (unemployment) it has to change. The longer it goes
on the further people will have to fall financially.

It is causing an illusion of wealth?
Well when I speak to friends who are younger who don't remember
the last crash and haven't experienced
15% interest rates on mortgages (which I have) and they can't imagine
having to tone down their lifestyle to pay higher mortgages, or can't
imagine a time when thier homes wont just automatically go up every year...
YES IT'S CREATING AN ILLUSION!!!!!

Any typos please excuse - the bunny's not 100% today!!

Want to know where the crazeist place for house price inflation is at the moment.Where people are paying 10 20 30 40 50% above the asking price.Where people are camping out three or four days before a release of houses on new housing developements.Where houses are sold so quickly they have gone before you get the details.I am looking for a property there but i think i will give up.Its INVERNESS.

Wow, but possibly a really welcome boost for the city, as hasn't
it been on the quiet side for a few years after booming before that??
Mind you it is a pretty place - have driven through on the way to the
highlands and felt it looked a decent place to live - beautiful bridge!

Property prices are not going to fall drastically like the late eighties early nineties without a catalyst, ie high unemployment and high interest rates bith of which look unlikely at the moment.
Another factor that people have not mentioned is Europe, not saying we will join but if we do there is only one way house prices will go with sub 2% interest rates.
Major cities are being flooded by developers, hence yields are dropping on buy to let properties as there is too much supply, people geared to the max will struggle to rent and possibly sell.
I have been in property for 17 years and to buy 2nd, third properties 10 years ago you had to have chunky deposits at least 30/40% not now some BTL's are as little as 10% hence the increase in demand and increase in prices.
There are a lot of factors dictating that prices should keep on going up currently( shortage of properties, increasing amount of people living on their own etc) but balanced against this are FTB's not being able to get on the ladder and yields dropping on BTL's.
I live in the Midlands and prices are not rising as much as commentators make out.
Guru

Does anyone feel though there is a form of hidden agenda. While house prices have slowed or in some cases fallen in the south, prices continue to rise in the north,especially the north east.The north east is home to some very high profile companies take Sage,its new headquarter building at Newcastle is well out of this world,and stands very close to the airport.My point is that perhaps over time house prices will become uniform all over the country, to enable workers the benifit of moving anywhere in the country without the barriers of house price differentials becoming a major obsticle. Sage is going to need to recrute a lot of highly skilled people soon to fill its enormous new building if people come here knowing they can return more easily back to the south if things don t work out then people will feel more comfortable making a move north for a job.

I'd guess thats market forces rather than a hidden agenda. Maybe improvements in telecoms play a part - on the basis that it matters less where you live - or where your company is based - than it did say 20 years ago. Thats global too - I just a new pc and being deeply non technical spent about three hours on the phone to help lines. All the calls were taken in India.

A few points if I may.

There are classic bubble signs developing...I have had calls from people asking for mortgages on ludicruous multiples of income, presumably because their friends have told them that they must be mad to be renting, given how much they could have made if they owned property.

Nimbyism... could it be described as protectionism, not just because you don't want somebody building near your property, but also because more houses in the neighbourhood means the value of your own may decrease (as it's scarcity value decreases)!

Good point by brianboru about high employment rates, immigration and nimbyism keeping prices on the up. Another point that some may have missed is that the UK's massive divorce rate is a contributing factor to the requirement for a greater number of properties. As couples split up (in the case of about 40% of marriages), so the requirement for additional properties increases.

Good point by guru about EU interest rates being 2% (and maybe going down). How could the goverment agree to joining the Euro if they are so worried about house prices going through the roof. Rates of 2% in the UK are estimated to put another 25% on house prices.

The sting in the tail could be that we are now so used to low interest rates that if they increase we are in trouble. For example if interest rates go up from 4% to 5%, that is a 20% increase. To somebody borrowed up to the hilt (on a non-fixed rate mortgage),that is painful. There-again you could argue that the consumer now controls interest rates. The MPC may be too scared to raise interest rates too much because consumer spending (which in the UK means by and large the economy) would come to a grinding halt. In other words the MPC are trapped by the high indebtedness of society.

And closer to home it seems quite funny that when I scrutinise my share portfolio daily, and am delighted (or at least happy) when I see by portfolio has increased in value by ?100 in a day. My property over the last 3 months has increased at a rate of ?200 EVERY DAY, and that for simply parking my arse on the sofa!

Cheers to all
gk

For what its worth I think there will be a sharp correction in house prices; my problem is I cannot predict when.

Interest rates may rise to 4.75% by the end of the year, which will be a 36% increase from their low point last year. This will make lenders reluctant to offer high salary multiples, and dodgy self-certification mortgages, as well as reducing the disposable income of existing borrowers.

This is in addition to the record levels of unsecured debt. which will be more difficult to service at higher interest rates. It may tip some BTLs who mortgaged their first house to provide the deposit for their rental house, or existing highly mortgaged buyers into difficulty.

Council tax continues to increase at above inflation, this year at some 6%.

Council tax relief on second or empty homes is being reducing from 50% to 10% from April. Which may put some of the 750,000 empty houses in the UK back on the market.

As house prices have increased, more houses are affected by the higher bands of Stamp Duty, which must deter some transactions.

The government has a budget deficit of 37.5bn this year with amounts only slightly less for the next few years always assuming that GDP growth is as the chancellor forecasts. If growth is less and the economy is nearing capacity now, then the deficits will increase. These deficits need to be addressed with either higher taxes or spending cuts. Either of which would adversely affect the housing market.

Oil prices are rising steadily because of various factors notably economic growth in China and India and the fact that identified reserves are not increasing at the same rate as consumption. This will affect petrol, electricity and gas prices and general inflation sustaining the interest rate hikes.

Yet salaries are only increasing at some 3% which after tax and NI is very close to the inflation rate. Inflation is low and appears reasonably stable, this will mean that existing mortgage debt is not being eroded by inflation, as has been the case in previous decades.

This leads me to believe that despite the demographic influences the current rate of price inflation is unsustainable and that existing levels may even be unsustainable going forward.

House buyers are rather like the Taliban. You think they are firmly entrenched and can resist any set back, but if you keep bombing them with extra costs you will eventually reach a tipping point and suddenly one day they wont be there.

Once they disappear prices will dip, everyone will hold off waiting for further price decreases, chains will increase in length, negative gazumping or price renegotiations will appear and heavily mortgaged BTL operators with poor yields will scramble to get out.

Prices must then fall.


If you are mortgaged up to the eyeballs don?t worry, I?m probably completely wrong and in any event Brown/Blair will make certain there is no crash this side of an election.

This thread has produced some brilliant responses, thanks to all
who have contributed so far, the 'vote' seems still fairly spread
on whether the correction will or will not come.

One thing that does occur to me is this:
Considering the responses on this thread, I seriously wonder if,
had the 'man/woman in the street' been running the political/financial
show on interest rates, mortgage criteria, release of land for
building etc, would 'we' ordinary folk have allowed the whole house
price/debt/mortgage situation to get to where it is now?

"House prices rose strongly again in March and are now expected to gain 15 percent rather than nine percent in 2004, the Nationwide building society says, adding pressure on the Bank of England to raise interest rates"

I find it difficult to believe but one must keep an open mind.

On the "release of land for building etc" - councils are in a no win situation - it costs them more to service a new home and its occupants than they recieve in tax or government grants so they're not too keen to pass planning. I also get the feeling that when they do have to allow building they prefer big expensive homes to a larger number of smaller homes built in the same space.

What we need is a good house price crash. Not some little pullback like we had in the early 90's, but a good 80% collapse like Japan has had over the last decade. Once that happens it could be a good time to buy to let. Prolly won't happen this year, but once GeorgeW has had his election up go US interest rates to protect the dollar and then.......

What we need is a good house price crash

And all the people that get hurt? Doesn't bother you?

Zoltar

So what if the dollar strengthens ? Granted that may mean sterling falls (although the two currencies to a certain extent still move together). That would be great news for exporters. The MPC do not target sterlings value in setting interest rates, inflation is the main focus. They may take notice of it (like they do of house prices, wage increases, consumer spending etc) but it is only one factor of many. It does not necessarily mean that interest rates will rise in the UK.

Infact if higher interest rates in the US choke off economic recovery there, the world economy will slow and this could lead in turn to falls in world (and UK interest rates). I think your point is a bit of a red herring!!

brianbro,

If you were a first time buyer like me and my wife I think you'd be wishing for a crash.

My wife is a secondary school teacher and I'm a design engineer for a consultancy. We both earn average salaries. We are currently renting a semi house approx 12 miles outside York. The house we are in are selling for 155,000. They were 70,000 3 years ago. Say no more! If we paid that amount we'd be living to pay the mortgage.

It's got to the stage now where based on sensible multiples of salary you'd need to be a company director just to buy a terrace house. Amatuer buy to lets have fuelled much of the market at these prices. A friend of mine as huge debt 250,000 (he earns around 35,000) on rental property. If rates rise too much he's shagged. It's a precarious situation I feel.

Rate rise in April next...maybe if they raised it by 1% it might
bring a bit of sanity back, create a bit of a reverse in prices
but not enough to create a complete crash - it sounds horrible
I know but there's a lot of people out there who need shock
tactics before they will stop accruing more and more debt.

stockbunny,

Agree with your last sentence!


GALLICK,

If your stocks are making 100 per day, and your house 200 per day, not much point in working then?

Bingobingham, makes a valid point on affordable housing, and the fact that we do appear to be in a housing boom bubble. A 1% increase in general interest rates from here increases mortgage interest payments by 20-25%.

Is there agreement on this board that we are in fact in a price bubble, or is this a sustainable, inevitable rise?

Can it really be controlled by the blunt instrument of the Bank of England's monetary policy? Should fiscal policy be used to tax buy-to-let more heavily, or are stamp duty & income & capital gains taxes sufficient?

Is it a supply side issue or have investors attitudes changed wholesale from the "cult of the equity" to "bricks and mortar" investing, so making life difficult for ordinary working families/individuals to buy homes?

Are personal debt levels sustainable, given the uncertainties of the economic cycle? ie. (un)employment, interest rates, general taxation, world economy.

Answers on a postcard! Fascinating discussion!

TSQ.

Brianboru
It would bother me if people got hurt.....but I think it will happen!
Average wages are suppposed to be circa 30k, but look in the Evening Standard and there's lots of jobs that pay half that or less, and that's in London!!! People are borrowing huge multiples of their income that they really can't afford because the newspapers tell them to buy or they'll miss the titanic...so they lie about their wages. When rates head north as they will eventually, they will be forced to sell. Companies like Ocean Finance will realise how appropriate their company name is when they see how many people are drowning in debt!
Most buyers of bigger houses are greedy buy to let gannetts who are buying up the supply of houses making them so expensive....they'll all sell together when the top has passed creating the crash....and if they lose they'll get no sympathy from me! Those that want to buy a house to live in are being priced out by selfish people who want to own many houses, which creates the shortage which pushes up prices.
Interest rates must rise in the US as they can't let the dollar collapse completely. If they do, the 'value' of America compared to the rest of the world will dive and so will Americans' wealth....it's a prime function of a central bank to protect the country's currency!
If US rates rise ours will as well to protect the pound against the dollar. Rates usualy rise and fall together for currencies where the economic cycle is in harmony.....like the US and UK.
All my opinion, and probably wrong!

>>

Andy my stocks are not making 100 per day, but on some days they do (like today), but on most they do not, and on some days it is very nasty indeed.

Property prices have rise by 2% over each of the last 3 months (apparently). If you have a property worth 300K that means that is has risen in value by 200/day. Do the maths.

Unfortunately I have things called mortgages, expenses and a wife!! One day though, before I die !!!

Regards
gk

Zoltar,

Thank you for pointing out that very important fact about wages in London and the South East - they are not fantastic for the ordinary working person. My partner and I are in the fortunate position of having 20k in the bank but as we only earn average wages this is not a big enough deposit to secure an affordable mortgage. Yes we could get a mortgage to buy the cheapest house available but would most certainly be repossesed if the interest rates went up by 2% - who wants to live with that thought hanging over their heads.

www.fool.co.uk are running a property section.
rgds aj