Property crash, just maybe it really is different this time

[UmBongo]

On 18/07/2022 at 06:45, JoeDavola said:

So if you get to say 45 and your still looking to fund the house purchase mostly via a mortgage, as ridiculous as this sounds you might be too late.

Its awful that it’s come to this but this is where we find ourselves.

I am in this situation now. A few weeks away from turning 45 .

[Wight Flight]

20 minutes ago, UmBongo said:

I am in this situation now. A few weeks away from turning 45 .

Me too. Except I am 10 years older.

[sancho panza]

On 17/07/2022 at 20:09, haroldshand said:

I have got a real sneaking suspicion that the FED are going to become far less hawkish on interest rates soon and maybe even not going ahead with the next 0.75% rise, just have a feeling. 

Fed have a dual mandate,so a pivot to maintain employment is highly likely imho

[sancho panza]

On 17/07/2022 at 12:31, Bobthebuilder said:

The problem with many on HPC was they could not stop shouting and refused to see the data,I was banned just after posting I had bought a house, that alone tells you all you need to know about that place from 2013 onwards. "Badly wrong"? 

Yeah, I had a similar experience from that time on of learning to follow the days rather than the arguments. The theses were pretty good but the data and most importantly monetary policy made me learn to sit on my emotions and trade on a more data driven basis. 2009 to 2016 was our worst returns of the last 25 years.

Still didn't buy a house but then I don't I've always been driving at developing a portfolio that gives us the income to spend on rent rather than owning. 

In all honesty, for those such as @JoeDavola @Wight Flightmaybe not such a bad idea as a plan B 

 

My mrs never really got my thesis until the last year or two.now she's on board.

as lyn alden has said (and Irving fisher laid down the debt deflation thesis 80 years ago) the demand destruction that will accompany a major house price drop would mean you no longer want to buy one where you once did etc

On 18/07/2022 at 09:58, haroldshand said:

Yep,some will say it cannot happen and yet we have all witnessed various governments doing just that for 25 years now so why stop now. To allow the property market to crash now would be political suicide and take massive balls and a morality check.

I slightly favour a correction right now but that view  could change by the time 1I get home tonight it's so tight.

Think the game changer is recent inflationary trends.room to print is getting minimal.

Yield curve control seems logical but that means cost of living up if they don't raise rates 

[Boon]

Mentality might be tough to change.

Average public sector worker must be getting a c.£2k pay rise - for a dual income household that equates to another £20k of extra borrowing. 

Banks ain't gonna say shit unless they truly have to.

At what point do people feel the pain? Certainly not at 1.25% by and large. 

[JoeDavola]

9 hours ago, sancho panza said:

Still didn't buy a house but then I don't I've always been driving at developing a portfolio that gives us the income to spend on rent rather than owning. 

In all honesty, for those such as @JoeDavola @Wight Flightmaybe not such a bad idea as a plan B

Yes I have had this same thought several times over the years; that instead of buying I should just aquire a load of income producing equities and just rent my way through life. It has real merit as an idea, theres a strong argument that its a better use of resources than buying.

A £200K house here rents for about £900 a month, a 5 year fixed is now 3.5%...so take the mortgage interest you're accruing, the £90 council tax you pay as a buyer that you don't as a renter, and then the cost of house maintanance over time...how much does all of the above eat out of that £900 before you pay down the mortgage? And what if rates become 5%? 6%?

However this rent-for-life plan would require there to be a good supply of decent quality well maintained rentals at reasonable cost and for long periods i.e. you dont get chucked out after a year. And I don't think that's the case in many parts of the UK; again personally I've been spectacularly lucky with what I've rented all these years, but my experience is not typical. And if BTL-ers do exit the market it will further shrink supply in the same way that airbnb has.

I am on the verge of buying somewhere right now and the costs of buying and maintaining even a modest house vs the simplicity of renting my flat are brutal. I am not excited about the prospect and have a real fear that I am taking on a bunch of expense and hassle and complexity for no good reason; as someone who is most likely to live alone for the rest of my life I'm buying extra space that I just don't need. And this is even with a modest mortgage of double my salary since I have such a big deposit.

Ironically, both my father and brother have indicated that I'm being stingy and not investing in a big/fancy enough house. Dad came right out yesterday and basically said "what else would ever be worth putting all your money into, and really stretching yourself for, than a house?". Instead of using half my savings and a double salary mortgage, they think I should be using all my savings plus a triple salary mortgage or more. Inflation, interest rate rises and the potential for me to be skint if I stretch too much, mean nothing to them they just see housing as this invicible ever rising asset and route to wealth.

I have told Dad several times that when he bought a house at high interest rates but low earning multiples, that is very different to nowadays at high earnings multiples and rising interest rates, but he doesn't want to hear it and doesn't even try to understand. He just sees that he bought a house in 98 for £80K, sold it for £170K 8 years ago to move into another house that was worth £170K back then, and that house is now 'worth' £270K, having earned him more money in the last year than the average NI wage. So of course that will continue.....won't it?

 

Edited July 20, 2022 by JoeDavola

[wherebee]

Crashtastic in Australia all over the place now for housebuilders...now, this is going to constrict supply BUT it's also going to wipe out a lot of equity and build the fear, depressing buyers.  Would you buy off plan after hearing this story?

Don't forget, Australia has not had a housing crash in over 30 years.

 

https://www.news.com.au/finance/business/other-industries/sydney-building-company-jada-group-collapses-owing-24m/news-story/8b5f16ea77304221c0e8ccf3c43ad458

some good analysis here on how insane Aussie property is:

https://www.savings.com.au/home-loans/australian-house-prices-over-the-last-50-years-a-retrospective

[haroldshand]

On 18/07/2022 at 06:45, JoeDavola said:

The big problems as an aging single person is you are trying to buy something in a market where two wages and 35 year mortgages are ‘the norm’ these days. Two salaries and 35 years of debt are what your competing with. So if you get to say 45 and your still looking to fund the house purchase mostly via a mortgage, as ridiculous as this sounds you might be too late.

Its awful that it’s come to this but this is where we find ourselves.

People forget so easily and events can turn on a sixpence, I remember around 1997 people snapping up cheap property after the  crash and even some using their credit cards to buy a house fully paid up for.

Not saying that will happen again, but don't rule nothing out.

[JoeDavola]

12 minutes ago, haroldshand said:

People forget so easily and events can turn on a sixpence, I remember around 1997 people snapping up cheap property after the  crash and even some using their credit cards to buy a house fully paid up for.

Not saying that will happen again, but don't rule nothing out.

I don't know.

Things have changed so much since 1997.

Can't see people being able to buy an entire house on CC; but at the same time not saying there won't be a crash.

[haroldshand]

5 minutes ago, JoeDavola said:

I don't know.

Things have changed so much since 1997.

Can't see people being able to buy an entire house on CC; but at the same time not saying there won't be a crash.

And I bet you people in 1997 would have called you nuts if you had suggested  back then that in 2022 a crappy 3 bedroom terrace would cost you £450,000 in what has been a low inflation economy until 2 years ago.

Not saying it will happen but just saying it would not surprise me at all if it did, like I said the world can turn very quickly

[JoeDavola]

3 minutes ago, haroldshand said:

And I bet you people in 1997 would have called you nuts if you had suggested  back then that in 2022 a crappy 3 bedroom terrace would cost you £450,000 in what has been a low inflation economy until 2 years ago.

Not saying it will happen but just saying it would not surprise me at all if it did, like I said the world can turn very quickly

Oh absolutlely, as I say I think that prices could fall by a huge amount, I don't see how that 450K terrace is in any way affordable in today's environment. Prices dropped 60% in parts of NI from 07-12, and that was without runaway inflation and rising interest rates.

[Plan-b]

The Magic Property ethos has been ingrained for a generation now, its all over the TV channels, constantly on peoples minds to move upward or buy another if prices fall and rent it out.

This time though whats it gonna take?

World war?

World disease and pandemic? (had that and look WTF happened)

Zombie apocalypse?

Maybe it really is different this time?

 

 

 

 

[Boon]

Thing is you could take that £450k terrace, halve its price to £225k. Let's say interest rates for mortgages are the same as the 90s, maybe 7%. House price is obviously much more than it would be then - I am guessing this type of house might have been c.£100k or less in the 90s.

But wages are more today, in fact I think minumum wage is over double since that time. So £225k for that house today might be as cheap as the 90s in real terms.

That's if it gets that far. We have factors like dual incomes buying houses, ease of getting a mortgage especially BTL, every man and his dog viewing property as some kind of pension, the previous generation having lots of money due to previous rises. You could also add some kind of belief among market participants that the government will either bail people out if things get bad, or only seek to increase affordability of homes by schemes which pump prices. None of those factors were around in the 90s.

So to me, every dip will be bought on the way down.

Edited July 20, 2022 by Boon

[marceau]

9 minutes ago, Boon said:

 

So to me, every dip will be bought on the way down.

This happens in every bear market. In a cyclical bear you lose money buying the dip, in a secular one you lose everything -  the bottom can be decades away.

Housing looks like the latter to me. Shallow crashes, false dawns, slopes of hope etc for an entire generation.

[belfastchild]

34 minutes ago, JoeDavola said:

Oh absolutlely, as I say I think that prices could fall by a huge amount, I don't see how that 450K terrace is in any way affordable in today's environment. Prices dropped 60% in parts of NI from 07-12, and that was without runaway inflation and rising interest rates.

Average house price in NI in 2007 peak was just under 250k
Average house price in NI now is about 165k. I live in the average house. This is the level it was in 2010. In 2013 it dropped to around 100k

 

[JoeDavola]

Just now, belfastchild said:

Average house price in NI in 2007 peak was just under 250k
Average house price in NI now is about 165k. I live in the average house. This is the level it was in 2010. In 2013 it dropped to around 100k

Yeah it's not quite as insane as it was in 2007.

The semi my parents owned peaked at £325K in 2007 money which the more I think of it is just utterly mental, whats that £450K-ish in todays money.

It's these interest rate rises that are going to be interesting - if the average person only has 500 quid savings, who can afford these houses in say 3 years time when most peoples fixed rates will expire on their mortgages and price inflation of everything else has continued?

[sancho panza]

7 hours ago, JoeDavola said:

I am on the verge of buying somewhere right now and the costs of buying and maintaining even a modest house vs the simplicity of renting my flat are brutal. I am not excited about the prospect and have a real fear that I am taking on a bunch of expense and hassle and complexity for no good reason; as someone who is most likely to live alone for the rest of my life I'm buying extra space that I just don't need. And this is even with a modest mortgage of double my salary since I have such a big deposit.

 

The way I look at it is this.WHat bills am I most worried about in the future-food and fuel-Thyre the ones I'd like to hedge.

If food and fuel go up then it's quite liekly that rents will come down as they're paid out of monthly outgoings.

If you have circa £100,000 then if you can get it coumpounding at circa 6%,quite possible in telecoms/oilies/tobbacco,then you can avoid the raft of ownership costs you mention.

The lifestyle takes some getting used to because of the british obsession with owning a hosue but my Mrs is now totally on board.Especially when she sees her diesel bill going up and knowing its covered.

Food for thought I hope but each person has to find the parameters for their life that suit them.

[JoeDavola]

11 minutes ago, sancho panza said:

The way I look at it is this.WHat bills am I most worried about in the future-food and fuel-Thyre the ones I'd like to hedge.

If food and fuel go up then it's quite liekly that rents will come down as they're paid out of monthly outgoings.

If you have circa £100,000 then if you can get it coumpounding at circa 6%,quite possible in telecoms/oilies/tobbacco,then you can avoid the raft of ownership costs you mention.

The lifestyle takes some getting used to because of the british obsession with owning a hosue but my Mrs is now totally on board.Especially when she sees her diesel bill going up and knowing its covered.

Food for thought I hope but each person has to find the parameters for their life that suit them.

Yeah I've got over £200K sat here and if I thought I could get a reliable compounding 6% out of it I'd never worry at all about buying a house TBH.

At the rent I pay for this flat I could add £1000 a month to those investments as well.

Edited July 20, 2022 by JoeDavola

[haroldshand]

Property articles coming thick and fast again in the Daily Telegraph and with many of the comments now bragging about how their huge mortgages will be inflated away to nothing  which to be fair is more than a possibility 

[Axeman123]

5 minutes ago, haroldshand said:

Property articles coming thick and fast again in the Daily Telegraph and with many of the comments now bragging about how their huge mortgages will be inflated away to nothing  which to be fair is more than a possibility 

Against what though?

Real terms, or commodities? Perhaps or even probably yes.

Against wages? I think not.

It just seems like the new talking point for them; my house price won't go up but...something something a "clever" person said.

At best inflating away the debt would enable those overleveraged but able to hang on long enough to have payed a sensible wage multiple for the house. The idea that would mean they would end up wealthy or be able to continue the borrowing for consumption lifestyle seems odd. Lenders aren't charities, once they see debt on their books eroded they won't be rolling it over at low rates and will be looking for any breach of terms to exploit to be rid of it.

[haroldshand]

13 minutes ago, Axeman123 said:

Against what though?

Real terms, or commodities? Perhaps or even probably yes.

Against wages? I think not.

It just seems like the new talking point for them; my house price won't go up but...something something a "clever" person said.

At best inflating away the debt would enable those overleveraged but able to hang on long enough to have payed a sensible wage multiple for the house. The idea that would mean they would end up wealthy or be able to continue the borrowing for consumption lifestyle seems odd. Lenders aren't charities, once they see debt on their books eroded they won't be rolling it over at low rates and will be looking for any breach of terms to exploit to be rid of it.

wages will go up and they will suffer in the mean time like everyone else and some maybe to the point they break, but the longer it goes on the better for them. I remember so many in the generation before me forever bragging about this very thing and their inflated away mortgage in the 1970's

[Heart's Ease]

3 hours ago, haroldshand said:

People forget so easily and events can turn on a sixpence, I remember around 1997 people snapping up cheap property after the  crash and even some using their credit cards to buy a house fully paid up for.

Not saying that will happen again, but don't rule nothing out.

Fellow I knew bought outright on Cobridge Road, Stoke on Trent, to let to students. £13k on credit card. Solid brick two up two down Victorian terrace; kitchen and then bathroom on ground floor at the back, little bit of a yard. Rented to three (front room also bedroom) for £29 each a week, bills not included.  Bought in 1993 or 1994, can't quite remember.

[leonardratso]

8 minutes ago, Heart's Ease said:

Fellow I knew bought outright on Cobridge Road, Stoke on Trent, to let to students. £13k on credit card. Solid brick two up two down Victorian terrace; kitchen and then bathroom on ground floor at the back, little bit of a yard. Rented to three (front room also bedroom) for £29 each a week, bills not included.  Bought in 1993 or 1994, can't quite remember.

i once bought a car on a credit card, GM card it was £10K for the car and i got thousands of GM reward points, paid it off next month and spent the reward points on some shit, cant remember was years ago.

[Axeman123]

3 minutes ago, haroldshand said:

wages will go up and they will suffer in the mean time like everyone else and some maybe to the point they break, but the longer it goes on the better for them. I remember so many in the generation before me forever bragging about this very thing and their inflated away mortgage in the 1970's

My late father actually liked to brag about his mortgage being inflated away relative to his wage, but that was a distinctly 1970s thing. I think wages lag inflation all the way through the next decade, unlike the 70s where they lead it.

The whole question of "against what?" is a good one IMO. My father valued his house against the imputed rent he was saving, with the perceived wisdom when he bought being "rents always rise with inflation, whereas the outstanding debt on a mortgage is fixed". (That little mantra of course totally ignoring the effect of inflation on interest rates, which were very relevant by the late 70s). Eroding the mortgage balance against wages enabled decades of rent and mortgage free living.

Rising house prices have historically effectively eroded the value of mortgage debt relative to house prices, which is the source of all appreciation equity. When those house prices were also running away from wages it resulted in huge equity windfalls for owners relative to wages or lifestyle costs. 

Flat house prices with rising inflation, combined with lagging but still rising wages and interest rates mean nominally stagnant equity which is itself being eroded in real purchasing power. Even those that stay the course will find themselves with a small real terms ammount of equity, but no way to access it without selling up due to tight credit and high interest rates. Best case in that scenario by the end of the mortgage they turn out to have paid off a sensible income multiple mortgage, but have no savings due to the crippling interest payments.

I don't see house prices holding up though. I think people with six and seven figure fantasy paper equity seeing it melt like an ice cube will panic sell. The financialisation of housing that drove speculation on the way up will IMO produce a cryptocurrency style capitulation. The utility of a house as accomodation is almost peripheral to the utility as a financial instrument for many newer owners, and that is something we haven't seen before.

[apples]

2 hours ago, haroldshand said:

Property articles coming thick and fast again in the Daily Telegraph and with many of the comments now bragging about how their huge mortgages will be inflated away to nothing  which to be fair is more than a possibility 

I came here to post this headline:

https://www.telegraph.co.uk/property/house-prices/why-inflation-will-disaster-house-prices/

Why inflation will be a disaster for house prices

Quote

Inflation has soared to a new 40-year high of 9.4pc in June – and this brings a dangerous triple whammy for house prices.

Plunging real wages are hitting buyers and homeowners’ pockets just as high inflation pushes the Bank of England to raise interest rates, which when combined, has drastically reduced people’s ability to afford a mortgage. The fewer people can take out a loan, the fewer there are to buy homes.

High inflation has depressed consumer spending, meaning a recession is looming – in turn bringing a risk of rising unemployment. This triggers mortgage defaults and forces people to sell their homes, normally for less than they are worth.

The housing market slowdown has already begun. New buyer inquiries in June fell at the fastest rate recorded since 2020, when housing market shutdown, according to the Royal Institution of Chartered Surveyors, a professional body.

Andrew Wishart, of Capital Economics, a research consultancy, said: “With mortgage rates continuing to rise and the economy on the brink of recession, a fall in house prices looks inevitable.”

Oh noes! People might be forced to sell their homes "for less than they are worth"