Credit deflation and the reflation cycle to come (part 3)

[TNS]

Couple in Surrey I know just had a 6 x 4m shell extension with bifolds, 60k. Absolutely mental given it was 15k 20 years ago. Sound a little like house prices, but low interest rates and high material costs seem to be underpinning atm.

[Hancock]

6 minutes ago, TheNickos said:

Couple in Surrey I know just had a 6 x 4m shell extension with bifolds, 60k. Absolutely mental given it was 15k 20 years ago. Sound a little like house prices, but low interest rates and high material costs seem to be underpinning atm.

Or just some chancer builders putting in a high price, and they've accepted it.

Whilst the costs of materials have gone up, its still just some wood and bricks that will be a fraction of that £60,000.

[sleepwello'nights]

40 minutes ago, Shamone said:

But why can’t they just tell me?

On the development I manage all owners are obliged to become members of the Management Company. If enough become dissatisfied with the way it is maintained or the service charge costs then they can dismiss the agent and appoint someone of their choosing. 

Your title documents will give you the information you need on the structure of the method the developer have chosen to maintain the development. This has to be agreed as a condition of planning consent. I would have thought a budget is an elementary management step.

I prepare a budget each year and this is provided in the sellers pack when a sale is commenced. Why they wont tell you is down to them, there should be no reason why they cannot.

 

[TNS]

9 minutes ago, Hancock said:

Or just some chancer builders putting in a high price, and they've accepted it.

Whilst the costs of materials have gone up, its still just some wood and bricks that will be a fraction of that £60,000.

If only, that was the best of 3 quotes. Another family in Hampshire currently having a small front extension, 40k. Prices have rocketed in the SE and that’s if you can find a builder!

[Bobthebuilder]

5 hours ago, Majorpain said:

Furlough at the minimum looks completely off the table, I very much doubt people are going to willingly sit in the dark with no income for weeks on end this time around!

It is off the table for good and never coming back.

I cannot stress enough how many people got no help at all through the lockdown. I would estimate 40% of working people just carried on working as they had no choice. The MSM will paint a picture of everyone sat at home, clapping, happy as Larry. One of my wifes friends was considering going on the game as she had to pay the bills, my wife got her a job at her place a scrapyard. They worked all the way through, no help, no masks, no sanitizer, no tests, nothing just kept working. (emptying council bins).

[Bobthebuilder]

29 minutes ago, Hancock said:

Or just some chancer builders putting in a high price, and they've accepted it.

Whilst the costs of materials have gone up, its still just some wood and bricks that will be a fraction of that £60,000.

Its probably right. I had a quote for 2.5 meter concertina bifold extension doors recently, £24,000 fitted, I had to do the building prep work.

[MrXxxx]

2 hours ago, Axeman123 said:

Should we expect a dramatic market response almost instantly?

No, owner will scrape by for a while and its not in the banks interest to foreclose too early. The banks will come to payment agreements (as they will still be making profit on the interest) hoping that it is a short-term phenomena, rather than creating a 'fire sale'. As time drags on if nothing changes then things may change, but I can see this being the case for at least 12-18 months after a dramatic raise/BK.

[Democorruptcy]

4 hours ago, Cattle Prod said:

Sure, I get that, in terms of adding value etc. But the build cost is effectively a floor, and it inflates. 

Loose credit and low interest rates have upped land values, that's been the floor under UK house prices.

This is a commercial enterprise but £2.8m for 0.55 of an acre! Aye... it's prime is wet Wales!

https://www.rightmove.co.uk/properties/115232750#/?channel=RES_BUY

[Yadda yadda yadda]

12 minutes ago, Bobthebuilder said:

It is off the table for good and never coming back.

I cannot stress enough how many people got no help at all through the lockdown. I would estimate 40% of working people just carried on working as they had no choice. The MSM will paint a picture of everyone sat at home, clapping, happy as Larry. One of my wifes friends was considering going on the game as she had to pay the bills, my wife got her a job at her place a scrapyard. They worked all the way through, no help, no masks, no sanitizer, no tests, nothing just kept working. (emptying council bins).

I worked from home but still worked. Didn't get a penny from the Government. No that is a lie, I used eat out to help out twice so got £20. Didn't even save money by working at home as I used to cycle to work so my commuting costs were minimal. Earned less as there was a lot less overtime going. People were that bored they worked long hours so it wasn't needed. Management didn't and doesn't have as good a handle on how work was progressing as they can't physically see it.

I'm putting in for 20 hours overtime this weekend though. Most on double time so 38 hours pay - nearly a full week's extra earnings. Although taxed at marginal rate. That brings me back to the next thing. Taxes are going up. Most know that it is lockdown related. If they try lockdown again there will be pushback.

[Shamone]

52 minutes ago, sleepwello'nights said:

On the development I manage all owners are obliged to become members of the Management Company. If enough become dissatisfied with the way it is maintained or the service charge costs then they can dismiss the agent and appoint someone of their choosing. 

Your title documents will give you the information you need on the structure of the method the developer have chosen to maintain the development. This has to be agreed as a condition of planning consent. I would have thought a budget is an elementary management step.

I prepare a budget each year and this is provided in the sellers pack when a sale is commenced. Why they wont tell you is down to them, there should be no reason why they cannot.

 

They couldn’t answer the question.

[sleepwello'nights]

4 minutes ago, Shamone said:

They couldn’t answer the question.

Then I would question their competence and ability to carry out the duties they are contractually obliged to perform. 

[Shamone]

Just now, sleepwello'nights said:

Then I would question their competence and ability to carry out the duties they are contractually obliged to perform. 

Not looking at new estates any more.

[working woman]

2 hours ago, Shamone said:

They have all been freehold houses so far. Literally cannot get the info from the developers.

Hi, I didn't want to derail this thread, so have started a new thread one in knowledge base - "The difference between freehold and leasehold" which I hope explains the difference.   

[Chewing Grass]

1 hour ago, Democorruptcy said:

Loose credit and low interest rates have upped land values, that's been the floor under UK house prices.

This is a commercial enterprise but £2.8m for 0.55 of an acre! Aye... it's prime is wet Wales!

https://www.rightmove.co.uk/properties/115232750#/?channel=RES_BUY

Bargain, especially if you use Rightmoves mortgage calculator.

[working woman]

3 hours ago, sleepwello'nights said:

I am puzzled....................

Hi , again not wanting to derail this thread, I will answer this in "Knowledge base" Freehold and Leasehold.

[Democorruptcy]

1 hour ago, Chewing Grass said:

Bargain, especially if you use Rightmoves mortgage calculator.

That's not enough to build on it!

[sancho panza]

On 23/10/2021 at 22:24, AWW said:

When are people on this thread planning to retire?

I'm 40 with two very young kids and want to be done by 50.  Well, actually, I want to be done yesterday, but we currently spend about £4k a month (don't judge me, I'm not Viv Nicholson - we live in London, it's dear).  The pensions part, I'm pretty well sorted, not least because I have been reading this thread for a few years, consolidated a load of crappy work pensions into a SIPP, went shopping in March last year and suddenly have what I need (as long as I can match inflation).  I can't thank the regular contributors enough, particularly that man up in Durham. But...

For those of you planning to retire before pension age, or those of you already retired before pension age, how are you going to bridge the gap to when you hit 57? (or whatever your pension age is).  Same sort of strategy you have in the SIPP, i.e. divis and drawdown?  From what?  S+S ISAs?

I'm 50.Mrs P late 30's.We've been ready to retire for a while if needs be(we'd rather not) we'd jsut cut our slack and rein in the spending,make a few changes etc.Wouldn't tbe the lifetsyle we have currently but I always have a plan B ready,I hate random acts occurring I haven't prepped for if I can.

But the longer we can keep going the better,gives me a chance to reinvest the divi's etc prep for the kids.

Having said that,given I wont be getting the shot,my retirement from the parmedicing could be looming large in the New Year,in which case we'll take a look at things.

13 hours ago, Seacrest said:

We are at a real cross roads I believe,  in 40 years of manufacturing/procurement I have never experienced the like.

Lean manufacturing and just in time supply chains are decimated, its now buy at any cost to keep going, that is not sustainable.

Energy costs have more than doubled since summer, that is consumed costs only the industry levvies have increased as well, that adds 35% to the bill,  CO2 is up 500% and restricted supplies Argon has a 28% premium currently, cobalt up £17k per ton, steel costs ... the list goes on and on and on  these are not phased they are immediate.

The lag to the consumer is shorter, industry has absorbed all it can in margin reductions. I think that is why consumers have reduced spending most people know someone in manufacturing and bad news travels further than good.   

   

Great posts,what fascinating insights.Ref your other post where  builders are pulling quotes makes perfect sense given the dislocations you describe in the supply chains.

I think in terms of inflation measurements,one of the strengths of the hive mind is that it doesn't place to much emphasis on CPI/CPIH/RPI etc and there's a genereal acceptance that one measure doesn't work the same for different income deciles(a concept that eludes many of our finest academic economists looking at their output)

The George Gammon video recently posted talked a lot about how this inflation occuring now is different to before and I'd go with that.The problem is that the supply chains can't get back here quick enough.

Previously,we've seen how enrgy price rises precede/coiincide with teh start of recessions and this one looks no different.

9 hours ago, Cattle Prod said:

This is how houses hedge inflation. Every brick and pipe inflates with the replacement cost. If the 120k loft conversion sounds like stupid money, well it's just been added onto the price of houses that already have them. I get @DurhamBorns view that housing will take a big hit, but I think it's more specific than that. I think poor quality new builds, and the overpriced land a house is sitting on (the SE) will take a hit, but solid houses that are valued at building cost plus a reasonable amount for the site will continue to hedge inflation.

I realise this is an unpopular view around here, but I've seen it that way for a long time. Once I'd convinced myself that my house wasn't overpriced (by taking a pre 2000 sale price and inflating it by RPI) buying it three years ago on a 10yr fix was a no brainer. I'm in the SE, but just far enough away from London to get away with it I think.

That said, as mortgage service costs haven't increased in decades it's clear that almost all the house price 'bubble' has been driven by interest rates coming down. So prices will have to come down as rates go back up. But if it's a quality house, I think it'll probably stay flat in real terms. If you're on variable, and wages increase with inflation, service costs as a % of income will keep pace.

I've recently been playing with working out months invetory for postcodes.LE2 has 2 months of supply for semi's and 19 months for flats.New build flts re even owrse in Londinium

all hosuing isn't created equal.some will lose more than others and some will win more than others.people who levereaged portfolios of flats from 2002 made the most back in the day.

8 hours ago, Majorpain said:

Media is already starting to push for lockdown before the flu season really kicks off, but with inflation starting to surge and the lights looking like they are going off at some point this winter, there may be more important things than a virus to worry about!

Furlough at the minimum looks completely off the table, I very much doubt people are going to willingly sit in the dark with no income for weeks on end this time around!

Saw as much today.The kitty is mroe empty than this time last year.

Some of the NHS management are begging for more lockdowns on the basis that the last three didn't turn a 2 million patient waiting list into a 5.7 million waiting list.

QUite why our govt listens to these people when they've gotten everything else so wrong I don't know but they do.

[sancho panza]

8 hours ago, Cattle Prod said:

Sure, I get that, in terms of adding value etc. But the build cost is effectively a floor, and it inflates. 

and @AWW

I think there's an assumption underpinning your thesis(which I don't necessarily disagree with) and that is that the hosue will be standing when you come to sell it.

Not really a risk with a 1930's semi,you're looking to move from in 20 years.

I'm a gambler(oh boy do I like a punt() but I'd rather buy a Vcitorian flat in Leicester(even given the current a=outlook) than a new build 4 bed 2020 vintage with a 30 year selling timeline.

I know a number of people who've boguht new builds and then wehn theyve come to do extensions had to get preparatory work to get the frame up to spec to take to the new wall/roof etc.

Which brings us back to a thread theme which is buying quality matters in either shares or housing and you won't regret it.

[DurhamBorn]

14 minutes ago, Cattle Prod said:

Changing. They know it has to, or they'll be swinging from lampposts.

Its the tax he wants and lower welfare.Tax allowance froze means he captures a lot of it.All adding to the distribution cycle.Savings are going to get decimated unless they are in areas to leverage inflation.I think he might lower the Universal Credit taper rate as well as minimum wage uplift as that only helps workers on UC.

They are pretty much showing their cards now,they want 4% inflation.Having cooking and DIY skills are going to be crucial for ordinary people.

[Hancock]

1 hour ago, Cattle Prod said:

 Why would a physical object made of inflating commodities go down in price in the commodity inflating cycle that's coming? 

Because it spent the previous 25 years inflating to never seen before levels.

[Hancock]

10 minutes ago, sancho panza said:

and @AWW

I think there's an assumption underpinning your thesis(which I don't necessarily disagree with) and that is that the hosue will be standing when you come to sell it.

Not really a risk with a 1930's semi,you're looking to move from in 20 years.

I'm a gambler(oh boy do I like a punt() but I'd rather buy a Vcitorian flat in Leicester(even given the current a=outlook) than a new build 4 bed 2020 vintage with a 30 year selling timeline.

I know a number of people who've boguht new builds and then wehn theyve come to do extensions had to get preparatory work to get the frame up to spec to take to the new wall/roof etc.

Which brings us back to a thread theme which is buying quality matters in either shares or housing and you won't regret it.

My view is those 30s semis are now falling apart, as are the 50s ones.

Aesthetically new builds look appalling, have no gardens and are build on tp of each other .... but they've a long time of living in them without needing to spend a fortune on them.

[Hancock]

25 minutes ago, Cattle Prod said:

Changing. They know it has to, or they'll be swinging from lampposts.

I bet he goes for a round £10, if not this year then next ... that'll be his big ticket promotion, to get his comrades off their seats.

 

[Hancock]

18 minutes ago, DurhamBorn said:

Savings are going to get decimated unless they are in areas to leverage inflation.

Id say whatever ive lost on my house money savings i've made up for it in my SIPP.

Plan now is wait 6 months see if we get a BK, if not then its 120k down on a 3 bed house in York akin to this, with a 120k mortgage fixed for 10 years. (then to rent it out, it will be my 1 and only property)

Then 130K or a bit more to take a riskier punt in the stock markets, on whatever looks cheap in May 2022.

Seems the financial prosperity is want is reliant on the markets accepting the FED won't be printing anymore at some point in 2022, which is seemingly what the BK is based on.

If id been a little quicker i'd sooner have bought this is Salisbury. Kind of shows there is no difference between similar places in the North and South.

[Loki]

25 minutes ago, Hancock said:

My view is those 30s semis are now falling apart, as are the 50s ones.

Aesthetically new builds look appalling, have no gardens and are build on tp of each other .... but they've a long time of living in them without needing to spend a fortune on them.

Ex council 50s are incredibly well built, i would happily buy one. A lot of 30s places can be ropey, built with whatever was available, but survivor bias should help.

[sancho panza]

2 hours ago, Cattle Prod said:

That's why I said "good quality", not some dump that actually has to be replaced. Prices are exactly as you state, but shelter is not discretionary. And if it now costs 250k rather than 200k to build a house, the builder isn't going to swallow it. We'll see. But I've heard enough about how house prices behaved in the 70s inflation to be fairly high conviction on this. Why would a physical object made of inflating commodities go down in price in the commodity inflating cycle that's coming? The only thing that can go down is crap quality as you describe, overpriced land houses sit on, and probably apartments in stupid locations.

I havea  friend who develops new build properties,jsut small plots  2 to 4 at a time.He works on one third land,one thrid build,one third profit/contingencies.His builds are generally good quality as I understand it as hes that sort of bloke.

It has never ceased to amaze me how much he pays for land.There's a lot to cut before they cut the price of bricks

so of the 300k he sells pads for currently,100k is building land.

Now he's not Barratts who are buying land cheaper on a larger scale but it does give an idea of how much costs can inflate before the cost of a hosue moves up.