Does anyone think that UK house prices are overvalued?

Cantor have started a house price market at www.spreadfair.com. If you look under financial bets you'll see it.

http://news.bbc.co.uk/2/hi/business/4514207.stm........... the writing is on the wall for many and if interest rate rise after election then things will just get worse !!

tallsii

I believe house-prices to be at exactly fair market value as I write, but I expect that fair market value to fall substantially over the next 3-4 years.

I did the ananlysis for my hairdresser (who wanted to move from a 225k 3-bed to a 259k 3-bed flat) which demonstrated that the difference between the 10% of value it costs to own a house and the 5% of value it costs to rent one, plus the continuing fall in property prices, net of 2 X moving costs (once into rented then back into owned) overf a 3 year operiod would enhance his equity by about 50,000.

That said it is not always easy to plan your house (which I treat as human or life capital) along strict lines of financial capital.

SD

stockdog
you say fair value but what about the wages to morgage ratio many 1st time buyers are now using 4 time maybe 5 time their wages any rise in int rates are going to crucifie them and some are paying interest only morgages which is really dangerous to say the least !

Biffa

"even my solicitor said he is dealing with more sells than buys" - for every seller there is a buyer and vice versa!!!!!

As for the market, currently it is very regional, there are still some very strong areas where demand outstrips supply, though none of these are in the south of the country or in big cities. I am currently renovating a property south of manchester where demand is still strong (how much longer for ?) and all my friends/family down south think i am mad

As for the recent reports in the press - they have now been saying this for 3 or 4 years - these so called experts have got to get it right sooner or later

stockdog I agree with the fair value for now. Lots of alarmist reports out there about crashes, a subsequent negative equity crisis & general impending doom. I do expect a tail off but not to the degree some believe. As long as there is a shortage of housing, high employment, strength in the economy there's nothing to worry about. I just bouught my third house and plan to sell in 4 years I'd be suprised if I had't made some healthy gains on it.

I thought the Spreadfair house price market that has been created would be useful for anyone thinking of selling their house and moving into rented accomodation. By trading on the house price index they can offset the value of their house without actually selling it in the real world. So if house prices were to crash, then they would not lose out.

I use www.rightmove.co.uk http://www.rightmove.co.uk lastnight to investigate just how sales are going in my area - it's really easy to implement.

Register and then go to sold and enter the first three digits of your postcode and then search on sales for 2005 (rightmove have data up to end of march I think, this makes it mathamatically convenient at the moment as it's one quarter).
Take note of the numbers sold.
Then repeat but select "all years" - this gives all sales for the last 21 quarters.

If you divide the last result by 21 and it will give the average number that you'd expect to see sold in the first quarter of 2005 (or near enough).

My area shows

Detached 13 - normally 70
semi 16 - normally 45
terraced 28 - normally 70

however the postcode area next to mine is down rather less

28/60
20/51
21/50

I know it's a bit rough and ready and doesn't take seasonal effects into account but it seems to give a reasonable idea of what's afoot.

Couple of points guys. Basic rule of all economics is supply and demand. Demand must rise with the population (especially immigrant population as property ownership is seen as a number one aspiration). Supply must by nature remain static because God isn't making any more land!!
As for the income multiples argument. While it is true that higher multiples are being borrowed, repayments are lower as a percentage of disposable income than during other periods of growth.
These lead me to believe that the market will probably be farily static over the next 1-2 years, but if there is a correction it will be fairly gentle, and it may even be a correction in the opposite direction!!!
PS. Timing the market, any market, is notoriously difficult, and when legal costs, taxes, moving fees etc are taken into account it would need perfect timing and a drop of 5%+ to make it break even. Not confident about that at all.
Alan

hi guys, I did NOT say fair value - I said fair MARKET value - not the same thing at all, merely today's price. Out of apparent paradox of apparent fact is born - the joke!

There will be no crash - no jumping out of windows, no broken bones, no heart attacks. We are already well into a steady and significant decline (my London street down by about 30% from its peak 18 months ago) which will have further and deeper to go than we care to think. Look not at average house prices, which lag reality - look rather at average transaction prices, which we only admit to our conscious mind when/if we try to sell. It is those that do not sell that perpetuate the myth! Oh. it'll never happen to me, anyway it won't be half as bad as the alarmists say. Oh, yes it will, with a trough about 3-4 years hence, but more of a big dipper than a crash.

What does it matter - I'm not moving? But is does affect directly demand for domestic goods and services and indirectly both spending sentiment and borrowing capacity and/or comfort and hence falling house prices is the first stage of the cycle which causes 40% increase in unemployment, falling consumer demand, lower corporate earnings, lower investment etc. At the same time, currency and balance oof payments considerations will devalue the pound, leading to import driven inflation and so the Bank of England will raise interest rates (in spite of the domestic economic depression) which will further reduce spending and earnings in a macabre pas de deux until we are all sick of the music and gradually people begin to dance to a different tune as we start the next up cycle.

And it will be the stock market that heralds the new dawn, about 18 months before the upturn of the economy when it appears to turn inexplicably cheerful, just when the word "share" makes us physically sick because we have lost so much of our pension and other investment value.

So what to do? Invest in commodities (as currency falls, commodities hold their value and thus appear to rise - oil, gold, coffee, titanium, sugar, copper etc). Also invest in gold (not only a commodity, but also a reviving store of value against the US$ timebomb which has further to tick before going pop). I see predictions of $1000 per trpy oz. by end of decade! Mind you most things will cost that many dollars by then, due to that currency's continuing decline. MoneyAM should include in its Charts the FTSE100 and other indices measured in ounces of gold - it's a very instructive chart of intrinsic value over the 30 year cycle. During the run up of the DOW from 2001 to 2004, gold rose from $235 to $435 per oz - the DOW remained pretty much flat or declining (I forget the exact shape, but you get the idea) in gold terms.

Here endeth the ramble. Eeh, but it's good to get out for a bit of a run.

SD

I agree with what you are saying Stockdog. To me gold seems like the only reliable investment at the moment. With the Chinese currency revaluation likely to hit the US quite hard, there is nothing as reliable as the shiny stuff.

Am going to put a proportion of my portfolio into it and sit on it for the next 5 to 10 years.

Tallsiii

stockdog.

Your observation about your london street being 30% down in 18 months. What area are you in, if you dont mind me asking?


Thats a hell of a drop!

MaxK

N7 Tufnell Park - nice street etc
from Land registry adjacent prices went up to 750k+ and are now around 540k.
It can happen - the higher end always more extreme than the lower/mid strata , IMO.

SD

I agree with most of what has been said. I live in Edinburgh which has the highest property prices in scotland. One thing I have found is that valuations are wildly higher at present than you could ever expect to get if you sold i.e. properties go on at a fixed price then sell for 10% or so less than that price. Problem is people are using the valuations to remove all the equity from the property and take 100% mortgages almost instantly going into negative equity. I own a flat (my first) so i have no experience of previous property bubbles but I just cant see how with such a glut of overpriced property on the market and no sign of it shifting that there cant be some kind of price correction. Unless the basic rules of supply and demand dont apply to property? I dunno. I think if people had sold at the peak of the market (in edinburgh that was about 12-14 months ago) then rented then were looking to re-buy now they could really hang the sellers out to dry. I hear "gazundering" (as they are calling it) is becomming widespread, where you agree a price with the seller then (hoping they have agreed a subsequent move) you lower the offer price substantially at the last minute leaving them in limbo. All's fair in love and war I say. In any case, as i say i aint experienced in the property world and have stretched myself as it is so could quite happily stay where i am for the next 3-4 years if need be.

PS. On another matter - my father bought property in Florida off plan a while ago and is awaiting completion. Any predictions on how the dollar will perform against the pound over the next year or two. I know this is an aside but any advice would be greatly appreciated. I am just interested. Cheers.

Property in Florida appears to be going through its final, lunatic, upward acceleration phase prior to the most almight bubble popping - I hear they are day trading properties there currently!!! Be very, very careful, if a financial investment, unless your Dad plans to enjoy its use long term (10 years +).

Dollar continues its decline for the foreseeablke, but so does Sterling and the Euro - go long on Yen, I dont think so. So it's gotta be gold.

SD

Fundamentalist
yes agree for every seller ther is a buyer but point i was trying to make is that solicitor said he was not dealing with many chains ie like myself i have sold and am now renting and he said this is happening alot this year

Shit now hitting the fan!


Personal bankruptcy hits record

28% annual rise pushes insolvencies to a fifth higher than 1990s peak

Charlotte Moore
Saturday May 7, 2005
The Guardian

The number of people going bankrupt reached record levels in the first quarter of this year, official figures showed yesterday, highlighting the economic problems facing the new Labour government.
With consumer borrowing now standing at more than 1 trillion, the recent rises in interest rates have led to a growing number of individual insolvencies. The Department of Trade and Industry said the number of bankruptcies jumped to 13,229 between January and March, up 1.6% on the previous quarter and 28% higher than a year ago.




The insolvency figures follow the publication last week of record numbers of mortgage repossessions.
Personal bankruptcies are now more than a fifth higher than during their peak in the early 1990s, when the economy was emerging from recession and almost a million households were in negative equity. Economists warn that there is worse to come.

Vicky Redwood, a UK economist at Capital Economics, said it was unlikely that the numbers had peaked. "We estimate households are paying the equivalent of 21% of their disposable income on interest and debt repayments, the highest since 1990," she said.

Since interest rates are likely to be very close to their peak, household debt servicing costs are unlikely to rise much further. However, in the early 1990s, bankruptcies continued to rise for a full three years after debt servicing costs hit their peak, Ms Redwood said. Even though interest rates 15 years ago were higher than they are now, the cheaper cost of borrowing has encouraged consumers to take on record levels of personal debt.

UK economist John Butler, at HSBC, said: "[The rise in bankruptcies] seems to support our analysis that households' high level of indebtedness has made them more sensitive than in the past to small changes in interest rates."

Economists were also concerned about the high level of bankruptcies, despite employment being at record levels. Only a third of those declaring bankruptcy were unemployed, suggesting that even those with a regular income are running into financial difficulties.

In recent years, consumers have been cushioned from the reality of high debt by rising pay and a strong housing market, allowing them to withdraw equity. But rising tax and fuel costs have put a dent in disposable income and a flat housing market has led to drop in equity withdrawals. As a result, people are now struggling to pay back their loans.

"The data support our view that with households suffering under record indebtedness and the delayed effects of higher interest rates, on top of a weakening housing market, the recent slowdown in household spending growth is here to stay," said Ms Redwood.

Mr Butler agreed: "The vulnerability of the household sector is acting like a timebomb which will ultimately cast a shadow over the UK's medium-term outlook."
http://www.guardian.co.uk/business/story/0,3604,1478530,00.html

Fundy, I may be a seller (want to sell), but just like for a while before the bottom of the market, there are not enought buyers to keep the price up.

"I" am told that "we" need a bigger house, but again I am waiting for a drop in prices before I buy again.

The talk on houses for the last 4-5 months is similar to the talk before the Tech share bubble burst in March and Sept 2000. Half saying it wouldn'd happened and half saying it would. The MMs narrow the NMS and chaos reigned for a while.

I notice that, in my area, the new official owners of repo'd property i.e. The Halifax or LloydsTSB etc. aren't knocking them out in auction as they used to do. Instead they seem to be carrying them and feeding them through normal channels (i.e. estate agents) at the same price as others in their range. Remember, the insurance company will pay off the difference between what they are owed and the selling price so there's no direct financial benefit to the lenders (Lloyds etc.) in doing this.

I'm guessing but suspect they're scared of spooking the market as a modern, 4 bed detached would almost certainly fetch 15 to 25% less at auction than in an agents window at this moment in time.

i heard from a mate today who works in the morgage industry that there is a lot of worry within the industy about the amount of personal debt and that alot of morgage payers do not have any personal savings to fall back on in case of emergency which is prob why the halifax etc are doing their best to talk up the market and not send propertys to auction etc which would only push the prices down !!

I'm not sure how they collect their data but...

LONDON (AFX) - Fears of a sharp slowdown in the UK's housing market may ease
with news today that house prices rose in March.
The Office of the Deputy Prime Minister reported that house price inflation
rose to an annual rate of 12.6 pct in March from 10.5 pct in February.
It added that the mix-adjusted average house price in March stood at 183,346
stg compared with 179,491 stg the previous month.
In addition, it said the annual rate of house price inflation in London rose
to 9.8 pct in March from 7.1 pct in February.
The government's findings echo those from the Halifax, the UK's biggest
mortgage lender, and the Nationwide, the UK's largest building society.
Today's news may ease concerns on the rate-setting Monetary Policy Committee
that a sharp fall in house prices may prompt an equivalent drop in consumption.
It is unlikely to prompt another rate hike later today though.
The MPC has not raised interest rates since last August as evidence emerged
of a slowdown in the growth of consumer spending, particularly in the housing
market, and the economy appeared to come off the boil.
Between November 2003 and August 2004, it raised its key repo rate a quarter
point on five occasions, taking the base rate up to 4.75 pct.