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!!

I am Irish.I suggest you research what has happened there.Property prices
virtually always keep escalating in strong economies.Your economy is enjoying
the best boom since 1800 aapprox i.e.the past 200 years.
rgds aj

True and I have a couple of Irish friends who would nod their
heads in agreement with you ajren!

The British fascination with owning their own homes is peculiar if you compare the UK with the rest of Europe. Given that private investors will always, as a class, be able to muster more capital than private individuals it is quite possible that when there is a lot of investor capital available, private ownership will be squeezed out and UK individuals will become more accustomed to renting. Ownership is not a God-given right.

Stockbunny

Personally I believe that historically the house market has been fueled by first time buyers. For obvious reasons there have always been first time buyers and I must admit until recently I have expected the market to slow down at the least or to recess, considering that a large proportion of this group are unable to afford the escalating prices. Ironically the rising prices are allowing current house owners to release equity to become secondary house owners, (replacing the first timers), for the letting market. What really interests me is what will break this particular cycle and cause the whole edifice to collapse? My best guess is that this will not happen for some time, we are short of houses, people have to live somewhere and if they cannot afford to buy they will have to rent. I have also experienced 15% interest rates, (not happy times), but no, I don't see a change in the next twelve months or even five years. We no longer have Political parties that are poles aprt, they just play different tunes on the same fiddle and are equally capable of looking after the economy. Give or take education, NHS and Defence! The massive swings we have had in the past are hopefully not part of our future.

Rgds

PTH

Good point Kayak - what worries me most is
that to many home ownership is - in their minds - a god-given
right as is the continual rise in the value of their brick investment.
Given the concerns being voiced here and there over debt, this can't
be helpful surely?

Ptholden - you make several good points and as the control over
interest rates is no longer the 'plaything' of political parties
as it was before, the rates can't be manipulated as they often were
producing even bigger boom/bust potential. But where a government might
possibly step in, seeing an out of control housing market (the old
nanny state bit) an independent bank wont, which begs the question
will it sit back and leave people to the fate of their own doing?

Your answer lies in locking in long term interest rates and whether mortgage companies in the UK adopt the same model as the US. Generally speaking a property price rise maybe viewed as relative in the sense another property usually has to be purchased in the same market conditions therefore unless the vendor is coming out of the market or downsizing to release equity no meaningful gain is made. But this can also be said in reverse therefore limiting any real term loss. Stable long term mortgage rates remain the missing ingredient to maintaining a continued upward trend for housing market as UK demand and supply conditions are set in stone.

And the first-time buyer who's not on the ladder? If prices rise
and rise when does the whole thing grind to a halt? Seriously, yes
the long term fixed rate mortgages would help as long as the
figure required for a deposit to get you on the ladder didn't
require the chopping off of limbs to finance it.

Put it this way My little sis is 30 this year and still living at home.
She refuses to rent as she says you might as well chuck your money down the loo.


:((

Price rises equate to increased wealth all be it relative which will fund further rises as Mr Greenspan has confirmed. Many first time/2nd/3rd + buyers dnt require deposits these days 100 % deposits,developer deals etc..

The concept of not wanting to rent because one is "chucking money down the loo" has only arisen because steadily rising property prices during the war have made it so that renters miss out on the capital appreciation of their property and therefore lose money, down the loo or otherwise.

If one considers an alternative scenario where property prices have reached equilibrium, whatever price level that may be, and don't rise much year on year (as indeed they didn't before the war), then the concept makes no sense whatsoever. One can assume that at the equilibrium the cost of renting and the cost of servicing a mortgage will be reasonably similar, and with ownership there will be much less likelihood of growth of one's capital and much risk in having one's capital stored in an illiquid asset.

In other words, in my view the property market since the war has been an aberration and low interest rates have brought and will bring a much more stable market.

Agree in the sense renting/buying have their advantage/disadvantages and both to a certain extent have influenced current/historic market conditions but continued demand and supply will dictate that an upward trend in price rises is firmly in place.

Golfclub12 - your sister is like many and I can't blame her,
at least if you're paying a mortgage you feel you will own something
in the end,if you have kids you think there will be something to pass on. Renting is a concept you either can accept or not, as the case may be.

i think maxim hit the nail square on the head.its all about supply and demand.people who bought a long time ago have massive amounts of equity in their properties . over the last few years many of them have bought 2nd and 3rd homes to let . as more properties came off the market demand outsrtipped supplyi and prices surged . like many others on this bb , i have been through a boom and bust and seen some of my friends having their homes repossed or declaring themselves bankrupt. painful times . when i sold 2 years ago my plan was to move into rented accomodation and wait for prices to drop , then snap up a bargain . i am so glad i didnt .with the rises over the last 2 years i would not be able to afford to buy the original house i sold .i believe prices will continue to rise over the next 2 years at least. so perhaps i too can be one of the smug smiling ones with lots and lots of equity convincing myself i have pots of money .......he he he

I help to arrange mortgages (amongst other things) so I hope I know what I am talking about. The first thing to say is that it has taken some time for the british public to come to the understanding that interst rates are low and are going to stay low. You guys have already mentioned 15% interest rates, but if you are not already aware, we are in a completely different environment now and for the forseable future we ain't going back there!!

We are in a deflationary or more accurately non-inflationary environment now. That obviously means that funding large mortgages, but not necessarily paying them, off is not expensive. For example I bought a more expensive London flat than the one I was renting.... and the mortgage payments were much less than the rent I had been paying. At that point it is a no-brainer to buy a property.

About inflation(or the lack of it), look at the evidence - Blair is desperate to join the Euro, but if he did, base rates would fall; to 2% not 4.5% that we have in the UK. And european rates are tipped to go down whilst UK rates will go up. But UK rates cannot go up far, since if they do they will choke off the consumer spending which the UK economy depends on.

On a separate point (already covered), I do believe there could be a buy-to-let conspiracy going on. In other words if buy-to let'ers take up all the available property (deliberately) and exclude the first time buyers, then those ftb's will have to rent (or like the Italians ... live with mum and dad). Also the immigrants which Labour are pushing into the UK.. they all need somewhere to stay (but Blair forgot to build houses)...and he also forgot the trend that we all want to live alone (well not me).

What could put a spanner in the works? Only higher interest rates, and the futures market is predicting @ 5% at the end of this year (not too scary). Or perhaps a vast expansion of house-building which Kate Barkers pre- budget report was encouraging....but in reality it won't take effect for 5 to 10 years.

To state the bleeding obvious, at the end of the day your property is only worth what someone will pay for it! Interestingly positive demand does not always mean rising prices. In Hong Kong prices fell over 40% despite there being a property shortage (people were just not prepared to pay what they considered to be ridiculous prices). If no one will buy, and you have to sell, then you have to drop your price!

Cheers to all

Regards
GK

Gk interesting stuff - did you too read the FT on Saturday with your
ref. to the Italians? (Article stating Italians were having less kids
due to expenses, one of which was housing)

Anyway, yes I can see a lot of where you are coming from and you have
prof. knowledge I for one don't have, so this is very much my humble opinion here....BUT.....

I remember hearing "this time its' different" before and it wasn't...
Deflation could be a problem in time to come - Japan has shown that -

It just seems too neat, too easy and too simple and with big issues
involving large amount of people and equity that can set off warning
signals for me, along the lines of
heard that before and look what happened later on...
(Tech boom/bust, endowment policies, pension schemes etc)

The simple view is for 200 years + property prices have increased in relative and real terms through boom/bust, 15 % inflation etc... Ultimately the real reason for this is an ever increasing population and property having an intrinsic value ie whether it be viewed as an asset class or other wise people must have somewhere to live.So unless healthcare suddenly takes a nose dive, buying or renting, prices may dip at some point but the overall trend can only be up.

i can see why people are saying this time its different because,unlike the last property crash, unemployments low and interestrates are low. but suely people arnt earning enough to sustain the current rate of rise in property prices? so , what goes up must come down . the question is , by how much ? i dont think there will be a crash , as such , but a correction is inevevitable.
on another point ,, being italian and having family in italy , whats so wrong in continuing to live with mum and dad? all your food is cooked , washing done , free lodgings ,ironing done for you ..... i mean , it sounds a bit good to me . truth is , in italy more people own land and self build . so plots become family plots with three storey blocks , appartments on each floor and different members of the same family living in the building.this is my experience.

Absolutely I couldn't agree more bosley, there is nothing
wrong with family staying together living-wise for longer than
tended to happen here for some time...

However as a Mum of two lads that I love dearly, both in their teens,
the prospect of their never-ending laundry,ironing, appointment sorting,
their ever-increasing appetites and their ever-growing mounds of
'stuff' until they are in their mid-30's (before they
could afford to move out due to the cost of housing)
Well..I love them..but..someday a Mum's gotta have finished
the never-ending job of being Mum BEFORE
they ask her to start the never-ending job of being Granny, which these days
seems to include a whole load of stuff my Mum certainly never did for
us...like full-time unpaid childcare for grandchildren!!

No one trusts the financial markets anymore, and many would say for good reason, so a safe pile of bricks and mortar is seen as the ideal investment.

Went round a twenty home development this a.m. - The builders son was telling me that five of the twenty had been bought by people who were not selling their own homes but were moving into the newly built ones and renting out their own.

Anyway, the financial services/pensions industry has been either crooked or incompetent for too long and most of us are no longer interested in their products (nor in financing their expensive life styles).

Late as usual but for what it's worth:

Bear points:

1: Nominal interest rates are low. Real interest rates aren't. Low interest rates combined with low inflation simply changes the shape of repayments. (i.e. high rates / high inflation = high pain early on but rapidly reducing pain as your pay increases year on year. Currently people are borrowing to the hilt (like mum and dad in the 70s) but unlike mum and dad their pay is only going up a bit each year. Not a lot of people think about that. But they will eventually.

2: The 'greater fool' bubble is driven by investors who know that the market is overheated but think that their superior market timing skills will enable them to exit the market just ahead of everyone else. (Tulips anyone ?)

3: By many measures UK housing is now more expensive than at any point in recent history.

Bull Points:

4: However, the buy to let market makes up a tiny percentage of the UK property market and can't be held to blame for current rises. Must be 'normal' home owners pushing them up.

5: Residential Property into a SIPPs - has to be a big driver.

6: We are massively short stocked on housing.

General:

7: It was only Maggie that got us into mass home ownership. (If you have a mortage to pay you're more likely to head down the pit like a good lad and not go on strike.) She really got us to buy into the fabric of society. Who said you need to buy.

8: The Europeans buy over two or three generations, if at all.

Conclusions: DYOR. (A lazy answer, but I'm off to the pub)

Personally, I reckon we're in for a thump...

But who knows.