Property crash, just maybe it really is different this time

[JoeDavola]

30 minutes ago, sancho panza said:

Nailed on.We might buy somewhere in the Isle of Man down the line but that's because I intedn to retire there and love it there.

Mrs P always wanted to buy before she met me as 'hosues only go up in value etc'.But I showeed her how, using a hosue we looked at in SOuth Africa,that whislt it's price in Rand had gone from ZAR 600k or so to ZAR 3mn ,in dollar terms it hadn't gone up at all ie it was $150k in 2003 and $150k in 2016(figures from memory) and that actually all the gains were due to a loss of purcahsing power for ZAR.

This sowed the first seed of doubt,sterling is a different beast admittedly but the principle of price being a relative concept was clearly shwon imho.

We rent at the nicer end of the rental market.LL had to install a £1000 bath last week as the developer he bought had put one in where the waste pipe was part of the bath and it cracked.Felt sorry for him.He had to replace a £600 water pump when we moved in 6 months back.

He's hoping to shift it on once he's hived off the back garden but I think the money has moved from hsi financing point.He may offer to extend our 2 year deal or hope well buy it.

I don't like mentioning nominal figures but we currently rent it at a 2.5% gross yield,so I've shown Mrs P that our mortgage repayments would be 3 times our retn if we bought using a 100% mortgage and a 3% fixed rate.I use those figures to demonstrate,and accet at 75% LTV the repayment figures woud be different.Obviously the liabiliteis I describe above would be added to our purcahse price,likely circa £150kto £200k for roof,windows,rads,bolier etc

On top of that I would have the opporutnity cost of tying our capital up in something that will likely depreciate with sterling voer the coming years.We're currently using our incometo pay the rent and reinvesting the proceeds from our invesments

If needed,-I alwyas have plan B's,then I could use the current divi from our oilies bought 2020to clear the rent.So if the hosue is worht £75,I would need the income from £30 of BP say to pay the rent.With thsoe figures,I dont see any point in buying it

I'm far more worried about the price of oil and food going forward.I think rents will come down in terms of ounces of gold/barrel of oil tokens and Im happy to take that trade.

Sorry for the long answer but I know youre weighing your options at the minute Joe so wanted to explain

Yeah I'll reply properly tomorrow as I'm tired now but I totally get the idea that they're more trouble than they're worth and especially in parts of the UK a terrible investment at this point. The rising interest rates are particularly worrysome.

The counter argument of course being the lack of places available to rent, is that a problem you have run into?

[JoeDavola]

On the plus side, I know the house I'm thinking of buying at £190K-ish would rent for about £950 a month, which is maybe a good sign vs mortgage payments. Of course you've to add maintenance costs to that as well.

[sancho panza]

2 hours ago, JoeDavola said:

Yeah I'll reply properly tomorrow as I'm tired now but I totally get the idea that they're more trouble than they're worth and especially in parts of the UK a terrible investment at this point. The rising interest rates are particularly worrysome.

The counter argument of course being the lack of places available to rent, is that a problem you have run into?

it's definitely an issue as is security of tenure.We had to move further away from leicester to get our current place,as the choice where we'd ideally like to be was poor.But the hosue is really nice and Mrs P loves it and the kids have space to run aroind.It has a big garden and ever since @Bobthebuilder got me into growing veg/spuds,I've wanted a veg patch,It even has a full size snooker table in the basment so we really can't complain.

The real irony is that if we bought a hosue in Leicester at a sensible 2.5 times joint salary(we earn reasonable moeny between us),we'd be living on a council estate in a semi or in a small terrace in a not so nice bit of town.its insane.

One idea I would float is have you considered where you'd like to retire to?Then buy there,BTL it, and keep runing the flat where you are.Build your invesmetns and then retire early.

ref interest rate risk,I think it's a real issue,thats why I'm leaving it for my LL.

Leicester-LE2

£180k two up two down

https://www.rightmove.co.uk/properties/122568866#/?channel=RES_BUY

£200k Ex coucnil hosue-Eyres Monsell

https://www.rightmove.co.uk/properties/124416752#/?channel=RES_BUY

 

 

 

Edited July 25, 2022 by sancho panza

[Wight Flight]

8 minutes ago, sancho panza said:

One idea I would float is have you considered where you'd like to retire to?Then buy there,BTL it, and keep runing the flat where you are.Build your invesmetns and then retire early.

It's something I keep looking at.

Rent what you want now, but buy what you will need later on.

[sancho panza]

8 minutes ago, Wight Flight said:

It's something I keep looking at.

Rent what you want now, but buy what you will need later on.

I take a ten year plus view on buying,and the more the UK's inner cities get primed to blow ,the more careful I am about getting caught there.

It msut be awful being stuck in negative equity and uanble to sell and get out when you need to.

I know poeple say hosues are a great inflation hedge and in the past that has been true,but we've never started a recession with 2 up 2 downs in Liecester being 10 times the average single salary in Liecester.Diesel goes up,food goes up,thats less moeny for mortgage payments at the same time as they head north.

Tricky times,it's good to cosnider all angles imho.

[Funn3r]

3 minutes ago, sancho panza said:

It msut be awful being stuck in negative equity and uanble to sell and get out when you need to.

 

Or even if you are not in negative equity. I tried to sell in 1992 as I saw where my life was going, what a mess with tyre kickers and fake buyers. Did sell in mid 1993 at 40% off original asking and settled in with my girlfriend. First child born at end of  1993 which made it all worthwhile and life has been on the up from there. Well until divorce in 2014 but let's not spoil the story.

[wherebee]

Another heartwarming insight into estate agents withered minds, from Sydney this time:

"A real estate coach who earlier this month said he was “stressed” after almost no buyers showed up to his auctions has triumphantly declared “we’re back, baby!”, after a successful Saturday of sales he believes shows a “settling of the market”.

“Let me tell you, baby, we’re back,” Tom Panos said in a video update on Saturday afternoon.

“Seven out of ten, and some pretty good prices. This morning I started off and I had zero out of two, and I thought to myself, is this a sign of things to come? And bang, it shifted – did it shift. Strong bidding, some really big results over reserve price.”

But Mr Panos blasted “bottom feeders” offering 50 per cent of the value of the home, declaring that even when the market goes down, “it doesn’t mean a home halves in value”.

The auctioneer had previously called on the Reserve Bank to consider the impact of its aggressive rate hikes on the property market, with prices falling and buyers appearing spooked by sharply rising interest rates."

[wherebee]

Tick, tick, tick:
 

Parts of prominent Asian-backed developer Caydon, a developer of hundreds of apartments across the Melbourne suburbs of Alphington and Preston, have gone into liquidation blaming prolonged Covid-19 lockdowns, interest rate hikes, lack of labour and skyrocketing building costs.

[Axeman123]

7 hours ago, wherebee said:

But Mr Panos blasted “bottom feeders” offering 50 per cent of the value of the home, declaring that even when the market goes down, “it doesn’t mean a home halves in value”.

Similar:

[JoeDavola]

On 26/07/2022 at 04:40, wherebee said:

even when the market goes down, “it doesn’t mean a home halves in value

Except the times or does. Like in NI 07-12, and that was without high inflation and rising IR’s.

This young man’s YouTube channel is interesting lots of well summarised real data behind it, this video is similar to something that I think @spygirl posted that basically says “senior citizens own a large chunk  of the houses and will be selling them over the next decade leading to a flood of supply”:

 

Edited July 27, 2022 by JoeDavola

[Stuey]

30 minutes ago, JoeDavola said:

Except the times or does. Like in NI 07-12, and that was without high inflation and rising IR’s.

This young man’s YouTube channel is interesting lots of well summarised real data behind it, this video is similar to something that I think @spygirl posted that basically says “senior citizens own a large chunk  of the houses and will be selling them over the next decade leading to a flood of supply”:

 

I don't think red brick suburbia will be the place to be in the next two or three decades. They'll relocate the inner city scum & gimmegrants there. 

[spygirl]

40 minutes ago, JoeDavola said:

Except the times or does. Like in NI 07-12, and that was without high inflation and rising IR’s.

This young man’s YouTube channel is interesting lots of well summarised real data behind it, this video is similar to something that I think @spygirl posted that basically says “senior citizens own a large chunk  of the houses and will be selling them over the next decade leading to a flood of supply”:

 

Theres several factors.

To get HPI you need a lot of people chasing a relatively small stock.

We saw this 70s-80s when mortgages came mass market and boomers hit prime house buying age.

Having a step change of mortgages being expensive to becoming a lot cheaper too helps.

To sustain HPI you need a lot of people in the market, at all stages - 1br -> 2br -> 3brd -> 4br.

When the UK has at the mo is lots of under 45s in PRS, lots of LL with IO mortgages and lots of 65++ OO.

In the case of my local large large town,Scarborough, ~30% of the pop is 65+.

~30%-50% of working age depend on one form of bennies for the majority of their income - TC/UCs, DLA etc etc.

The number of of working people in prime house buying age - 25-55 is tiny.

Sales collapsed after 2007, and still bumping along the bottom. The majority of buyers would have been IO BTLers.

Further North, Whitby has ~50% of sales going to 2nd homes + FHLs. These are about to be taxed out of existence.

Weve had an entirely false market since 2002 (majority of sales were IO mortgages, resi + BTL). followed by ZIRP/QE since ~2010ish.

ZIRP is coming to aa rapid end.

All thats changed since ~2007 is that a ~50yo OO is now 65 and looking to downsize or is dead.

 

 

 

 

 

[JoeDavola]

40 minutes ago, Stuey said:

I don't think red brick suburbia will be the place to be in the next two or three decades. They'll relocate the inner city scum & gimmegrants there. 

I think the biggest danger is high density housing and houses with high numbers of bedrooms, as they are more prone to having multiple migrant families move in at once or HMO setups. I’m talking 4 and 5 bed terraces.

Edited July 27, 2022 by JoeDavola

[Stuey]

Just now, JoeDavola said:

I think the biggest danger is high density housing and houses with high numbers of bedrooms, as they are more prone to having multiple migrant families move in at once or HMO setups.

Very handy they all seem to have one bathroom per bedroom these days too. Will get a good rental markup for that. 

[JoeDavola]

8 minutes ago, Stuey said:

Very handy they all seem to have one bathroom per bedroom these days too. Will get a good rental markup for that. 

Yes - you could make big money renting one out but as an owner occupier you don’t want to be living beside one. Same risk for apartments through a mix of Airbnb’s and some blocks being migrant-heavy.

Thats an interesting indicator of  chance of overcrowding actually - the number of bathrooms in a house as it’s encouraging high numbers of people to live under one roof.

So perhaps buying a house in a development where houses came with one bathroom and not too many bedrooms mitigates this risk.

I know someone selling a modern large townhouse with 3 bathrooms and all the bidders were Indian or Chinese. A house down the street has had a large number of Chinese folk move in apparent looks like 2-3 families worth under one roof.

Edited July 27, 2022 by JoeDavola

[Boon]

@sancho panzaWhat's up with flats in Leicester city centre?
Seems to be a lot in the £100-150k range but rents are still £1k+ a month.

I don't know if that is the way we are heading; in theory much higher interest rates will reduce property prices but do fuck all for rents.

[haroldshand]

Serious question..

I have noticed many people on this thread wanting a property crash and I am not saying there is anything wrong or not wrong in that, many also seem to be in their 40's or even older. But how exactly do you think you are going to profit from that outcome when up until now you have not managed to thrive in the property market.

From what I have noticed in my decades alive and in recession and non recession times the same type of people seem to survive and do well whether they are Alpha male/female or handed it on the plate and those at the bottom of the food chain became even more bottom of the food chain during a recession/housing crash.

Like I said serious question and not a dig towards anyone, just curious

[Axeman123]

30 minutes ago, haroldshand said:

Serious question..

I have noticed many people on this thread wanting a property crash and I am not saying there is anything wrong or not wrong in that, many also seem to be in their 40's or even older. But how exactly do you think you are going to profit from that outcome when up until now you have not managed to thrive in the property market...

It is my impression that quite a few on here have middling six figures liquid, and investment positioning to gain from inflation (not intended as a brag etc). Some people don't want to thrive in the property market, they just want a house at a reasonable price and to focus their energies on bigger and better things. When I buy one I hope it never gains a penny in real terms value beyond renovations etc, rent free for life would be everything I would want out of a house. It is the mindset of making money on houses that I find odd.

[JoeDavola]

53 minutes ago, haroldshand said:

Serious question..

I have noticed many people on this thread wanting a property crash and I am not saying there is anything wrong or not wrong in that, many also seem to be in their 40's or even older. But how exactly do you think you are going to profit from that outcome when up until now you have not managed to thrive in the property market.

From what I have noticed in my decades alive and in recession and non recession times the same type of people seem to survive and do well whether they are Alpha male/female or handed it on the plate and those at the bottom of the food chain became even more bottom of the food chain during a recession/housing crash.

Like I said serious question and not a dig towards anyone, just curious

I have over £200K in cash. Others here have more.

Relative to wages, in my parents generation, that £200K would have bought a massive house. Or a couple of decent houses (not that I want more than one house).

The hope among those with savings here is that if mortgage lending goes up to 5 or 7% people start to have more of an appreciation of how much £200K, £300K, £400K is.

Combine a far higher cost of living/energy with higher mortgage borrowing costs and maybe £200K-£250K will stop being spoken of as 'first time buyer' money as it often is.

Personally I don't think we will have some great win out of this. Listing levels are through the floor at the moment and what will come on in a high-infalation high IR environment will probably be mostly probate fixer upper shitholes that will cost a fortune to renovate so a lower sale price probably wont help you with the increased cost of renovation. I expect the housing market to just grind to a halt over the next few years - July seems to have been quieter than June here and it was always the summer that was meant to be the busy period. Nobody will be moving come the winter.

I also suspect the environment that might give us cheaper houses in ££'s will find numerous other ways to fuck us over anyway.

Edited July 27, 2022 by JoeDavola

[Option5]

3 minutes ago, JoeDavola said:

Transaction levels are through the floor at the moment and what will come on in a high-infalation high IR environment will probably be mostly probate fixer upper shitholes that will cost a fortune to renovate so a lower sale price probably wont help you with the increased cost of renovation.

One advantage of the fixer upper, even if there's no cash saving in the end is that you get the house done how you want it, not what the previous owners wanted.

You'd be surprised how many people's buy "a beautiful perfect home" (not house?) Then fit new kitchens, bathrooms etc and redecorate top to bottom.

I think people just want to put their stamp on their place, especially it seems women?

[JoeDavola]

Just now, Option5 said:

One advantage of the fixer upper, even if there's no cash saving in the end is that you get the house done how you want it, not what the previous owners wanted.

You'd be surprised how many people's buy "a beautiful perfect home" (not house?) Then fit new kitchens, bathrooms etc and redecorate top to bottom.

I think people just want to put their stamp on their place, especially it seems women?

Agreed - if you buy something already done it should be done in a way you're happy with.

Cost of renovation seems to be soaring and even getting a tradesman at all seems very challenging which is what puts me off renovation projects at the moment. I've also seen what a massive pain in the arse it was for my brother to renovate even a small 3 bed semi it's a massive amount of work took him 2 years of evenings and weekends to get it looking nice.

[JoeDavola]

5 hours ago, spygirl said:

Theres several factors.

To get HPI you need a lot of people chasing a relatively small stock.

We saw this 70s-80s when mortgages came mass market and boomers hit prime house buying age.

Having a step change of mortgages being expensive to becoming a lot cheaper too helps.

To sustain HPI you need a lot of people in the market, at all stages - 1br -> 2br -> 3brd -> 4br.

When the UK has at the mo is lots of under 45s in PRS, lots of LL with IO mortgages and lots of 65++ OO.

In the case of my local large large town,Scarborough, ~30% of the pop is 65+.

~30%-50% of working age depend on one form of bennies for the majority of their income - TC/UCs, DLA etc etc.

The number of of working people in prime house buying age - 25-55 is tiny.

Sales collapsed after 2007, and still bumping along the bottom. The majority of buyers would have been IO BTLers.

Further North, Whitby has ~50% of sales going to 2nd homes + FHLs. These are about to be taxed out of existence.

Weve had an entirely false market since 2002 (majority of sales were IO mortgages, resi + BTL). followed by ZIRP/QE since ~2010ish.

ZIRP is coming to aa rapid end.

All thats changed since ~2007 is that a ~50yo OO is now 65 and looking to downsize or is dead.

I think the stock is so small that there's still a decent amount of people chasing it.

But the numbers chasing housing are smaller than ever. It's basically mostly desperate FTB who fear if they don't buy they will never afford to.

In fact the more I think of it the market seems to be mostly desperate FTB and Boomers swapping houses with other Boomers.

Yes 2002 seemed to be when things went wrong; worth remembering that we did have a 50% crash in NI which bottomed in 2012 which just happened to be the time when most of my mates got married and bought. Many of them couldn't afford their house at todays prices and none of them seem to have any plans to move up any 'ladder'. The housing ladder for most isn't a thing any more without a serious injection of cash via inheritence.

I suspect many FTB's from the last 2 years will be in a very nasty position if hit by a mixture of a major IR increase in their mortgage, and higher food/fuel bills.

The more I think of it one of the big reasons my parents generation were able to pay off mortgages quicker was due to periods of high wage inflation, which we've not had over the last 20 years but may be coming now who knows. I do wonder if the 'housing ladder' is only possible if there's periods of high wage inflation to erode the debt value.

I don't actually know how EA's are paying the bills these days given how low transaction levels are - they must make most of their money from rentals.

Edited July 27, 2022 by JoeDavola

[AWW]

1 hour ago, haroldshand said:

I have noticed many people on this thread wanting a property crash and I am not saying there is anything wrong or not wrong in that, many also seem to be in their 40's or even older. But how exactly do you think you are going to profit from that outcome when up until now you have not managed to thrive in the property market.

It's not about making a profit, it's about not losing one's shirt in what's coming and has already started around me.

I've never felt the need to own a house as I've always been a contractor and liked the flexibility and ease of renting. However, now that we have a couple of kids and have just been served an eviction notice from our rental, and are staring at a barren rental market, I am  looking at owning. However, I've also never seen a more risky time to buy in my lifetime. IRs have already effectively doubled, landlords are rushing for the exits, but prices have only just started to react.

I can easily see prices in my bit of north London coming off 30% - which would be more than my deposit and a life changing mistake when we're talking about £1.25m for a decent family home.

It's not a "bottom of the food chain" thing. Without wishing to post numbers, I'm an additional rate taxpayer, which is not uncommon around here and I won't be the only mug on this site funding five fat fucks to sit on their arse.

[Frank Hovis]

1 hour ago, haroldshand said:

Serious question..

I have noticed many people on this thread wanting a property crash and I am not saying there is anything wrong or not wrong in that, many also seem to be in their 40's or even older. But how exactly do you think you are going to profit from that outcome when up until now you have not managed to thrive in the property market.

From what I have noticed in my decades alive and in recession and non recession times the same type of people seem to survive and do well whether they are Alpha male/female or handed it on the plate and those at the bottom of the food chain became even more bottom of the food chain during a recession/housing crash.

Like I said serious question and not a dig towards anyone, just curious

 

It's not, primarily, that I would profit from it though I would welcome it.

Personal / social reasons - I live in coastal Cornwall.  Where houses were previously expensive they are now astronomical and beyond the pocket of nearly all local working people to rent let alone buy.  This means that houses which twenty years ago were being bought by local people to live in and maybe raise a family are now denied them.  Either they accept substandard accommodation - cramming into a flat in a subdivided house - or they up and move out to somewhere inland that they can afford.

I genuinely can see no local buyers for my house or my neighbours' houses so then I question who will be buying and living there?  The likeliest sadly is going to be a second home, meaning nobody for most of the year, or a FHL meaning noise and rubbish.  This is very much a case of "there goes the neighbourhood" because I'm not living next to a second home or FHL so my house would go up for sale and inevitable go the same way.  Ironically it would probably mean a further increase in price.

If these houses halved in value then local buyers would again be in the picture and I would not dread the "For Sale" sign going up next door.

 

Minor personal financial reasons - I have a notion to buy, in about ten years, a much more expensive house.  Maybe three times the value of my current one. 

If my current one is worth £100k and the expensive one £300k (obviously more than that in reality) then it costs me £200k to move.  If there is a 50% drop in prices they are £50k and £150k respectively then it costs me £100k to move.  Every fall in house prices reduces my notional paper property wealth but actually makes my next move cheaper.

[wherebee]

6 minutes ago, AWW said:

It's not about making a profit, it's about not losing one's shirt in what's coming and has already started around me.

I've never felt the need to own a house as I've always been a contractor and liked the flexibility and ease of renting. However, now that we have a couple of kids and have just been served an eviction notice from our rental, and are staring at a barren rental market, I am  looking at owning. However, I've also never seen a more risky time to buy in my lifetime. IRs have already effectively doubled, landlords are rushing for the exits, but prices have only just started to react.

I can easily see prices in my bit of north London coming off 30% - which would be more than my deposit and a life changing mistake when we're talking about £1.25m for a decent family home.

It's not a "bottom of the food chain" thing. Without wishing to post numbers, I'm an additional rate taxpayer, which is not uncommon around here and I won't be the only mug on this site funding five fat fucks to sit on their arse.

you could always look into short term hotel living, 4-5 star, if you think the market is in for a collapse.  find a good hotel (no refugees), and talk to the manager about a long stay agreement.  They love a good client.  Stick all your stuff in storage.

Film stars, rock stars, and minor royalty have done this for years.