Is it safe to buy a house right now ?

The lack of first time buyers is not the real threat to the market. In order for the market to crash there would have to widespread selling. Two things are likely to discourage owners from selling houses even if they thing the prices are going to go down.

1. Most people live in their own homes and the level of hassle involved in selling your house and rent for a period until the prices drop is just too much for most.

2. Even professional landlords recognize that the costs of selling a house and buying one back at a later date are prohibitive. And for as long as interest rates are low, the rent on most properties is appealing.

3. If house prices do start to drop by any significant amount, then the government will very quickly drop interest rates in order to deter a consumer slowdown and recession. The consumer has been supported by rising house prices and equity withdrawal for some time now. The panacia that has kept us out of the global recession that occured early this century needs to be slowly taken away from the british people if any shocks are to be avoided.

Simon.

Gentle housing market recovery
MoneyAM
Latest monthly price data from the Nationwide Building Society shows the housing market on track for a gentle recovery.

Prices rose last month by 0.3%, giving an annual increase of 5.5% against April's 7%.

The average price of a home nationally rose to 157,272 (156,128).

The 0.3% increase in May confirms a longer term slowing trend evident since the start of the year. In fact, annual house price inflation is now at its lowest level since August 1996 and the average monthly increase of 0.2% over the last 3 months contrasts sharply with last year when prices were typically roaring ahead by 1.7%. Since then the typical cost of a home has increased by 8,252.

Fionnuala Earley, Nationwide's Group Economist, makes the point that the biggest change in sentiment during the month centred on interest rates. From the earlier expectation that the Bank of England's interest rate setting committee would increase rates in response to underlying inflationary pressures, the consensus now is that rates have peaked.

In addition, another month of dismal retail sales data has led to worries that the consumer, who for so long has supported the economy, is now retrenching and that this could lead to a sharper drop in economic activity than previously expected. The Bank of England adjusted its forecast for economic growth down, but the underlying economic background remains generally favourable and all of the major housing market drivers remain firm.

Earley adds that the decision to leave interest rates on hold is clearly good news for the housing market where deteriorating affordability has held first time buyers back amidst worries about higher sensitivity to interest rates due to higher levels of household debt.

Employment, income, interest rates and confidence are still supportive, but this doesn't suggest that the market will pick up again rapidly, rather that it will continue on its gently cooling path this year. The impact on house prices is coming primarily from lower levels of activity - estate agents having reported falling sales to stock ratios since February last year. This reflects stickiness of selling prices and, more recently, the reluctance of buyers to meet these, adds Earley.

Meanwhile, the relatively buoyant economic conditions mean that sellers are still under little pressure to reduce their prices. Buyers, on the other hand, affected by deteriorated affordability and changing sentiment, are not willing to stretch themselves further to meet them. The society anticipates that this will unwind, but gradually, as sellers adjust their own expectations, rather than as a result of forced or panic sales.

Mortgage approvals, which provide a good leading indicator of transaction levels, are significantly lower than this time last year but have shown some recovery since the start of 2005 and this may signal the beginning of some unwinding. Seasonally adjusted house purchase approvals in April increased to 95,000 and the society says it expects that they will continue around this level for some months.

genius

we'll see about that wally. unless inflation has its way.

when bread is 50 quid a loaf.

ps wally.

nice to see you so busy at 8.30 on a saturday night.

LOL!!!

I went to an auction last night for a derelict cottage the size of a garage- guide price 100k, I know the auctioneer vaguely, he assured me it might go +- 10% , he had looked at all angles, knock down re-build, refurbish- sold in a few mins.for 155k.
Don`t talk to me about bubbles bursting.

Another interesting property site:



Looking at the chart, what is likely to happen next?

1. Levelling off?
2. Sharp correction downwards?
3. Property values continue to rise?

The chart would suggest a fall....but that cant happen, it's different this time!

Sequestor - I am not sure whether you are being ironic about the tumble down cottage!
One sure sign of a bubble is when people are paying highly inflated prices for something when common sense screams "It's not worth it!" Mind you, I was saying that three years ago so what do I know?
But, seriously, do you really think property prices are just going to keep going up and up and up when wages are not keeping pace and people are more in debt than ever - not to mention rising energy costs?
I have recently come back from Australia where everyone was being equally defiant and upbeat about soaring house prices - despite what common sense told them. Now, at last, reality is setting in Sydney prices are starting to fall.
UK house prices are completely insane right now and in two years time we will scratch our heads and wonder how it ever got this way.

Migrationwatch has recently said that mass immigration has driven up house prices and I have seen estimates that there are now over 5M immigrant households in the UK.
Elsewhere, a think tank has just come up with the solution to our our pension shortfall - they have said we need another 10m young immigrants over the next 20 years to balance our ageing population.
But I love charts and if this were a stock I was holding, I would regard this rise as unsustainable be selling the lot.

Buy land - God isn't making any more.
Finite supply + Growing demand = rising value.
To add fuel to this the Rowntree Foundation predict decling private house ownership but increasing corporate ownership as people need to be more mobile for careers.
As more properties become owned by corporate landlords, the cost price will rise.
The price vs income argument bears serious thought, but there is a leap in logic. The real comparison should be moortgage payments vs disposable income. When you do the maths these days you find that even though the debt is higher than at any time in the past, as a percentage of disposable income it is still relatively low. The reasons for this are due to larger deposits as a generation benefits from large, property based inheritances, low interests rates and historically lower taxes.
It is an area that i would argue will see continuous growth, with short term corrections along the way. For the moment the equilibrium is about right and will not move dramatically in either direction. The next real move will be either a sharp checkback, because of anything that lowers disposable income, or a sharp rise based on 2-3 years of little movement.
As an investment alternative, I am not a great fan of buying and holding property as it inevitably becomes too large a percentage of a single portfolio for comfort and is just about the least easily liquidated, if the need arose.
All IMO, of course, but I have been involved in property and finance for many a long year.
Alan

Cannot believe you guys dont discuss landbanking, the rewards can be tremendous, if a share doubles in a year you would be happy, if your tiny piece of land quadrupled you be even happier.I was sceptical at first till my 5k turned into 20k within 12 months.

BSA: Highest July mortgage lending on record

Building society gross advances amounted to 4,888m in July 2006, compared to 3,970m in July 2005, report the Building Societies Association (BSA).

Net advances reached 1,662m last month compared to 1,295m in July last year. Meanwhile, approvals totalled 5,499m, up from 4,385m a year ago.

Adrian Coles, Director-General of the BSA, said: "July was yet another strong month for the mortgage market; gross advances were up 23% year on year and net advances were up significantly, increasing by 28%. Net mortgage approvals, which give a good indication of how business will look over the next couple of months, were the highest July figure on record."
Link

3 rate rises in six months...interesting times ahead

Looks like prices have, in many areas, topped out, at least temporarily.

It doesn't matter what the housing bulls or bears say the people with the power, the surveyors, are now reported to be cutting estate agents prices when on valuation surveys.

Looks like 10% or so could be coming off previous best achieved prices and the market will need a couple of rate cuts to regain any upward momentum.

I have thought the Housing market was going to implode about 3years ago. I thought a lot of the upward movement was proportional to the "Buy and Sell at a quick profit" programmes on the TV.

People listened to the quick buck without realising the hourly rates for the "buck".

I would have been very apprehensive about buying some of those properties after the "improvements".

Also while the majority of the Buy to rent brigade were paying tax on the rents they collected many were not and the the tax man is now being organised to chase the latter.

Another part to the property "problem" as I see it, is the number of second properties bought as second homes, with hopes of letting out to cover the costs of mortgages. (To friends , still taxable.)

Another few bad summers like this one and the financial gains of this type of property will be hit on the head.

I may be wrong but I think there will be a drop of 15-20% in the market in a large portion of the market.

The knock on effects are hard to judge.

From the Daily Telegraph

Overheating sees house price downturn in Europe - Last Updated: 1:07am BST 27/08/2007


House prices in the overheated markets in Europe have begun a downturn , writes Ambrose Evans-Pritchard

House prices on the overheated fringes of Europe have begun to turn down sharply, replicating the early phase of the sub-prime property slide in the United States.

Housing booms in Romania, Bulgaria, Croatia, and even Russia are all looking stretched to extremes

Irish property has fallen for the past four months in a row as higher eurozone interest rates start to bite harder, while the speculative bubble in the Baltic states has burst.

House prices in the greater Riga region of Latvia fell 3.5pc in June, following a 1pc fall in May. Flats in the old city became more expensive than Berlin by early this year in a speculative frenzy, much of it with euro, Swiss franc, and yen mortgages that could prove disastrous if Latvia's currency is suddenly devalued - as may well happen, given the country's current account deficit has exploded to 26pc of GDP.

Similar booms in Romania, Bulgaria, Croatia, and even Russia are all looking stretched to extremes. Danske Bank has warned that much of Eastern Europe has been inflated by a "monster bubble" that recalls conditions in east Asia shortly before the crisis broke in 1997.

In Ireland, house prices dropped 2.6pc in first six months of the year to June, with falls of 3.3pc in Dublin. The slowdown is rapidly spilling across into building. House registrations are down 34pc over the first half. Roughly 15pc of housing stock lies empty, according to the Irish census.

Jean-Michel Six, chief Europe economist for Standard & Poor's, said extreme levels of household debt across large parts of Europe left the region vulnerable to tightening credit conditions. Debt levels are above 100pc of GDP in Ireland, Britain, Spain, the Netherlands, and Denmark.

Spain is heading south. Local real estate companies have reported price falls on a quarter-to-quarter basis in Madrid and several other provinces," he said.

French property prices fell 1.5pc in July - though they were still up 5pc over the year. "House price inflation could turn negative in the second half of this year," he said, adding that proposals by President Nicolas Sarkozy to allow new buyers to offset part of their interest costs against tax would help support the market.

"The spate of interest rate rises by central banks is exacting its toll on disposable incomes already weighed by rising household indebtedness," he said. The European Central Bank has doubled rates from 2pc in December 2005 to 4pc.

The recent turmoil has pushed up the effective rate of borrowing even further in some countries.

It may not have popped but there's definitely a nasty hissing noise which needs the patch of a couple of rate cuts to mend it I think!

LONDON (Reuters)Tue Aug 28, 2007 8:00 AM BST

UK Subprime mortgage borrowers are facing a sharp rise in rates as credit market turbulence adds to pressure on funding costs....

Subprime lender Kensington raised rates for its core adverse range by 0.55 percentage points last week, while Northern Rock will this week raise rates for future borrowers by as much as 1.25 percentage points....

Britain's subprime mortgage market is far smaller and far more recent than its U.S. counterpart, dating largely from the recession of the 1990s. Subprime loans accounted for around 8 percent of lending in 2006, against 20 percent of U.S. lending.....

The rating agency said borrowers would be hit by the Bank of England's five rate rises in the past year, but also by lenders' tighter criteria, as they withdraw products and re-price others by as much as 2.5 percentage points....

Northern Rock are only doing that because they failed to hedge against interest rate increases above a certain level, which have now been surpassed. They are now trying to claw back losses which they have incurred against borrowing, as most of their funds do not come from investors.
On another subject, I have a work colleague who has been offered a mortgage at 9 x salary. Absolutely crazy lending!! 'Tighter criteria' - I certainly hope so!

Blimey, I thought it was mad when they were giving 6x. Seriously, the people borrowing and the banks lending at those rates deserve to go under IMO.

My first mortgage was at 4 x salary, with an add-on of 1.5 x salary of wife. Even then it was hard work not to get in to arrears on a bog standard repayment mortgage (mind you, interest rates were at 15%!).
Now everyone is mortgaged & credit carded up to the max, with the knowledge that if you know how the system works, much of the debt will be written off if you default, as they will nearly always offer you a deal. Pay half & we will forget the rest. Crazy system imo.