Delaying buying a house, time for a little honesty from some.

[haroldshand]

On 21/11/2022 at 19:21, gibbon said:

From what I recall took about 5 years after 2008 for house prices to reach their bottom, so could be a good call.

There is a few things I need to weigh up when I look back over the last five years, yes when just addressing prices going up it has cost me, but then I also have to bare in mind that I have been stress free and with an outstanding cashflow and was in a position where I could 100% focus on my business and today I cannot keep up with the work load  and even having to turn work away.

If prices do start falling next year then it could not have come at a better time for me personally but there has been one massive change in my plans and that is I am not even sure I want to stay in the UK even with a 35% plus drop in prices. It's really now getting close to making my mind up time, not so much falling prices in the UK because that will take care of itself and won't be over tomorrow IMO, but the Portugal plan I have had for a while now is getting picked up by loads of others in the UK and I am hearing it all the time now in the MSM and the "brain drain" etc.

I think the UK is in for a rough time for the next decade at least

[With a crooked smile]

4 hours ago, haroldshand said:

I am not even sure I want to stay in the UK even with a 35% plus drop in prices. It's really now getting close to making my mind up time, not so much falling prices in the UK because that will take care of itself and won't be over tomorrow IMO, but the Portugal plan I have had for a while now is getting picked up by loads of others in the UK and I am hearing it all the time now in the MSM and the "brain drain" etc.

I wouldn't waste your time waiting for something that could take years to play out. Live for the now get on that plane to Portugal. There will never be a right time but once you move im sure you'll question why you didn't do it sooner.

[UmBongo]

I Sold to Rent a modest flat in August 2010. Convinced that the interest rates would increase causing the housing market to tank under the Tory/ Limp Dem coalition govt. That was a big Homer Simpson "D'oh!" moment. 

[Frank Hovis]

18 hours ago, UmBongo said:

I Sold to Rent a modest flat in August 2010. Convinced that the interest rates would increase causing the housing market to tank under the Tory/ Limp Dem coalition govt. That was a big Homer Simpson "D'oh!" moment. 

 

You made the same mistake that many of us on ToS made: thinking that the government would allow the housing market to correct itself.

[MrXxxx]

On 21/11/2022 at 12:47, haroldshand said:

Realistically I have probably put off buying another house for 5 years now at least, I had good a conversation this weekend with friends and I am starting to put my hands up now and saying it was probably a mistake, maybe. Really not beating myself up about it though and with a good chance now prices will fall, maybe(yet again) and the fact it has probably even made me  wonder if I even  want to buy in the UK now.

Good and bad things came out of putting it off but weighing things up I think it was now probably a mistake.

Anyone else?

I agree with most of what others have written, and as for 'The Waiting Game' [and the folly] I have been doing it for about 12 years thinking "Prices have got to drop soon"; I assumed foolishly that we live in the proposed 'Free Market Economy' [Bull£hit!].

I now think we will see a correction in the next 1-2 years, but as so many people/banks are overinvested prices will not be allowed to drop to their natural level; the correction will bring prices to where they were 4-5 years ago....so you get a 'Second bite of the cherry' if you decide to buy.

As for how to play this one it depends on your circumstance i.e. work, family, savings etc, but I have decided

a) I do not want to 'invest' a potential lifetime of work/salary into a single property/pile of bricks; life is worth more than this!, and

b) as with all investments diversification is key. As a result I will buy the smallest property to suit my circumstances [need] rather than buying at the maximum mortgage level [desire] in a nice area. This then means excess earnings that would normally be spent on servicing higher mortgage payments can be spent on a portfolio of stocks & share [potentially including housebuilders as a hedge for further unpredictable growth in the property market [read government inteference], yet allowing easy disinvestment [unlike an expensive property] if a free market is allowed to happen...big IF!

[Gin]

I put my house up for sale in 2007 along with thinking of renting it and buying another . I had been an avid reader of TOS for two years . I even had a mortgage agreed in principle with Northern Rock for another house .

Something told me it just wasn`t the right thing to do and then having had an offer to buy my house I got nervous and dropped out of doing anything . I am now living in the same house with no worries .

Thats the problem with what seem like great web sites about finance , housing and all manner of shite . They can lead you astray but you may not know till years later .

Information might be power . Yet ignorance can be bliss . Take your pick it can be the luck of the draw .

This site has a certain vibe about it and some of the topics can have a pursuasive way of leading readers in a direction they would never have taken if just listening to the local news  .

Of late I am retreating into ignorance is bliss mode . Probably suits me .

 

 

[MrXxxx]

Thought I would post this video [and reference within] for others to read/discuss:

https://www.researchgate.net/publication/5044829_Housing_Is_the_Business_Cycle

https://www.economicshelp.org/blog/171327/economics/housing-market-in-2023/

https://www.anderson.ucla.edu/faculty/edward.leamer/

https://www.economist.com/finance-and-economics/2022/10/20/housing-markets-face-a-brutal-squeeze

https://www.theguardian.com/business/2022/oct/13/uks-13-year-housing-market-boom-to-end-in-2023-surveyors-predict

https://edition.cnn.com/2022/11/02/economy/uk-housing-market-mortgage-rates/index.html

 

and what does Ramin think? [

 

What is apparent in the first few slides of the first video is the following:

1. @42 secs [earning ratio] - The wage x house price ratio despite falling following the crashes never drops to the original 3x ratio. It appears to drop to the previous crashes high i.e. the 2008 crash drops to 5x which was the high just before the 1990 crash, does this mean that the crash we are about to have will stabilize around 6 x [the high of 2008 [?].

2. @1min38 [affordability] - Long-term average affordability is around 30%, with an Interest rate very like to reach 5.5% this would increase this to 45%, so could we be looking at a 15% correction from the current average values?; he makes a good point here about previous 15% IR in 1990 and affordability.

Perhaps the answer to guestimate local house price drops is to do a combination of both 1 and 2 above?

[tank]

7 hours ago, MrXxxx said:

Thought I would post this video [and reference within] for others to read/discuss:

https://www.researchgate.net/publication/5044829_Housing_Is_the_Business_Cycle

https://www.economicshelp.org/blog/171327/economics/housing-market-in-2023/

https://www.anderson.ucla.edu/faculty/edward.leamer/

https://www.economist.com/finance-and-economics/2022/10/20/housing-markets-face-a-brutal-squeeze

https://www.theguardian.com/business/2022/oct/13/uks-13-year-housing-market-boom-to-end-in-2023-surveyors-predict

https://edition.cnn.com/2022/11/02/economy/uk-housing-market-mortgage-rates/index.html

 

and what does Ramin think? [

 

What is apparent in the first few slides of the first video is the following:

1. @42 secs [earning ratio] - The wage x house price ratio despite falling following the crashes never drops to the original 3x ratio. It appears to drop to the previous crashes high i.e. the 2008 crash drops to 5x which was the high just before the 1990 crash, does this mean that the crash we are about to have will stabilize around 6 x [the high of 2008 [?].

2. @1min38 [affordability] - Long-term average affordability is around 30%, with an Interest rate very like to reach 5.5% this would increase this to 45%, so could we be looking at a 15% correction from the current average values?; he makes a good point here about previous 15% IR in 1990 and affordability.

Perhaps the answer to guestimate local house price drops is to do a combination of both 1 and 2 above?

To get a crash, you typically need high unemployment. 

Even taking into account the bullshit figures the government release, we're still miles away from that.

My prediction is we'll see a minor correction or sideways movement at best in 2023 unless there is a major crisis similar to 2008. 

[MrXxxx]

2 hours ago, tank said:

To get a crash, you typically need high unemployment. 

Here you go [https://www.youtube.com/watch?v=jFnwMT233a0] BoE forecast @ 1min15....high interest rates=low/negative growth=lower company profits/turnover=unemployment [some being 'laid off due to the money not being there to pay them]...in addition, this will lead to lower pay rises for those deemed 'non-essential'.

 

[Wight Flight]

2 hours ago, tank said:

To get a crash, you typically need high unemployment. 

Which is much closer than you think.

Small firms are on the edge.

[wherebee]

4 hours ago, tank said:

To get a crash, you typically need high unemployment. 

Even taking into account the bullshit figures the government release, we're still miles away from that.

My prediction is we'll see a minor correction or sideways movement at best in 2023 unless there is a major crisis similar to 2008. 

 

1 hour ago, Wight Flight said:

Which is much closer than you think.

Small firms are on the edge.

No, you need high numbers of people with no income to cover their outgoings.  Government support is such that this is much further away than in previous decades.  There will be house after house whether the benefits society is allowing people to stay in properties their earning power would not normally allow.

[tank]

2 hours ago, MrXxxx said:

Here you go [https://www.youtube.com/watch?v=jFnwMT233a0] BoE forecast @ 1min15....high interest rates=low/negative growth=lower company profits/turnover=unemployment [some being 'laid off due to the money not being there to pay them]...in addition, this will lead to lower pay rises for those deemed 'non-essential'.

 

I don't pay much attention to Bank of England forecasts as they tend to be wrong most of the time.

I haven't seen any real signs of a recession in my day to day life and I've experienced a couple of big ones. Many others on here have pointed out the same thing.

The reality is not matching the mainstream media hype or Youtube doom porn at present. The fiscal supports are still flowing despite the Bank of England being forced to belatedly lift rates by the hawkish Fed. They will all pivot back to sub 2% rates the moment the shit hits the fan. 

[Balding Badger]

At work we deal with a lot of consumer facing small businesses and there is no doubt that from late summer onwards the situation has been worsening for them. For those that were doing ok, things have now become difficult; for those that were overrun with work, things have slowed down. This doesn't feel like 2008, and nor should it at the moment, doesn't really feel like 2007's credit crunch phoney war either but it is closer to that. There was a lot of fear in 2007-8 and it seems on a much smaller scale so far, possibly because a significant proportion of firms still have capital to buffer them through a downturn - for now. But there is a growing minority who are in trouble and job losses will come, it always lags the beginning of a downturn.

Those of us wanting economic reality to be restored and all the spivs and chancers to get their come uppance so that decent hard working folk can afford to buy a home to live in are used to being disappointed. I understand what all those who say 'they will just print more as soon as things worsen' mean and we are definitely used to government kicking the can. The thing about the can kicking though is that eventually you do run out of road. As Liz Truss found out, there seems to be very little road left now. A decade of QE largesse, used to alleviate every problem, has left our economy bloated in the wrong places. The brutal judgement of the financial markets for the time being appears to be 'no more'. I know this could change but whilst inflation is a serious threat it is hard to see how they will be able to print much more.

[Frank Hovis]

12 hours ago, Wight Flight said:

Which is much closer than you think.

Small firms are on the edge.

 

Yes, there has been a steady drip of small businesses floding this year in the local papers.

When asked it is never a single factor but as you would expect it's the two years of lockdown draining their reserves, cost of living increases meaning people have less discretionary spend, supply chain problems.

In Plymouth it has been a run of firms associated with the building industry which is causing a slow domino effect as they usually owe money to others in the same field which then causes them to fail and so on.

In Cornwall there has been a steady closing of pubs, restaurants and smaller shops.

And all of these are only the ones who have been happy to talk to the press.  Maybe double or treble it.

Each of these is a personal tragedy but then reduces jobs, purchases from suppliers, rent for commercial landlords, business rates for the council.

And they keep coming.  It will take years to replace these lost SMEs.

 

What amazes me is that work continues on the big new build housing estates as these SME owners comprise much of Cornwall and Devon's middle classes and they're the house buyers.  In 1989/90 I saw housing estates stop dead with unfinished properties shuttered for the next ten years or so.

I know people bang on about there being "High housing demand" but demand without the ability to raise a mortgage is like a schoolkid wanting a Ferrari.  Want it all you like you can't buy one.

 

The true state of the housing market is revealed by any housebuilder's share performance.

Persimmon has more than halved in the past year and has a lot further to fall IMHO.

 

[MrXxxx]

1 hour ago, Frank Hovis said:

The true state of the housing market is revealed by any housebuilder's share performance.

Persimmon has more than halved in the past year and has a lot further to fall IMHO.

Agree in part @Frank Hovisbut the recent [last 12 months] drops with the house builders has been partly due to the cladding issue and setting aside money for this.

What is interesting is the point you make about middle income. In the second PensionCraft video I posted above the guy states that the property crash will on be at the bottom of the market, as FTB won't be able to fund higher mortgages/higher property prices, whereas those who have paid off their mortgage will still be able to pay higher prices on the properties they will be buying.

[Frank Hovis]

3 minutes ago, MrXxxx said:

Agree in part @Frank Hovisbut the recent [last 12 months] drops with the house builders has been partly due to the cladding issue and setting aside money for this.

What is interesting is the point you make about middle income. In the second PensionCraft video I posted above the guy states that the property crash will on be at the bottom of the market, as FTB won't be able to fund higher mortgages/higher property prices, whereas those who have paid off their mortgage will still be able to pay higher prices on the properties they will be buying.

 

The idea of the two tier market has been raised before on here as in the "nice" houses will circulate around a pool of "equity swappers" who have made substantial HPI gains and live in houses valued at levels which they would not now have any chance of buying on their current or previous salaries.  Instead they sell their high HPI gains house to someone in the same position and buy from someone else in the same position.

The massive new estates in Cornwall are going to contain a high proportion of houses marketed at FTBers and they'll have such problems selling those that I expected to hear some mumblings by now about their trying to retrospectively drop the number of affordable / social housing because of viability problems.

Nothing yet though.

[MrXxxx]

For thought/discussion:

 

[roundhouse]

45 minutes ago, MrXxxx said:

For thought/discussion:

 

Thanks. Can't really contribute to a discussion, but it did help me understand a bit more how bonds, treasury yield curves, fx and more are relevant to house price changes (downwards) - for the US at least.

[MrXxxx]

Nationwide latest...should soon see -ve annual change if interest rates stay high.

 

Quote from Robert Gardner, Nationwide's Chief Economist [bold is mine]:

"The outlook is uncertain, and much will depend on how the broader economy performs, but a relatively soft landing is still possible. Longer term borrowing costs have fallen back in recent weeks and may moderate further, especially if investors continue to revise down their expectations for the future path of Bank Rate. Given the weak growth outlook, , labour market conditions are likely to soften but they are starting from a robust position with unemployment still near 50-year lows.

 

Borrowing costs may have fallen back a little, but if people have 'stretched' themselves at 2%, they are still having a great impact at the current rates [https://www.forbes.com/uk/advisor/mortgages/mortgage-rates-02-12-22/], and why will they moderate further when inflation is still high/needs to be 'controlled' by higher rates?....and higher rates=lower GDP=Higher unemployment [well he got this bit right!].

 

Moreover, household balance sheets remain in good shape with significant protection from higher borrowing costs, at least for a period, with around 85% of mortgage balances on fixed interest rates. Stretched housing affordability is also a reflection of underlying supply constraints, which should provide some support for prices. "

 

Household balance sheets are currently being stressed by the impact of higher fuel prices directly [heating; about to increase now winter is starting properly in the UK], and indirectly [impact on cost of consumer staples/transportation]. Add to this those people on a two year fix in early 2021 [not that long ago] when rates were low who will need to remortgage next year and things get challenging. To quote Andrew Wishart senior property economist at Capital Economics:

 “Even though we are unlikely to see widespread financial distress among existing homeowners, we think that the impact of rising interest rates on mortgage affordability for new purchases will weigh on demand enough for prices to fall.  

“A lack of forced sales should prevent the correction we expect turning into a crash, unless there is a more severe deterioration in the labour market.”

and it could be argued that he may have a vested interest in 'painting a rosy picture'

 

[MrXxxx]

Just to add to my post above are some figures I wanted to find the other day i.e. the number/% of people having to refix in the near future:

[https://www.thisismoney.co.uk/money/mortgageshome/article-11481167/Mortgage-rate-rises-mean-half-borrowers-face-potential-hike-5.html]

So 55% of people have a fix that will need addressing in the next two years. Lets assume that these people would have got a low interest rate [otherwise they would have went for a longer fix period] of say ~2%. This means that 55% of people will see their interest payments at least double; BoE predict interest rates of 4.7 for 2024 and 4.4, whilst OBR predict mortgage rates will be 5% for both 2024/2025.

So what does this mean financially with two examples, a £150k [to represent The North] and £300k mortgage [to represent The South], both with 10% deposit over 25 years:

£150k 

Before [2%] - £572 per month

After [4.5%] - £750 per month - extra £2136 PA, SO increased earnings of ~£2777 PA before tax [assuming tax/NI=30%]

After [5%] - £789 per month - extra £2604 PA, SO increased earnings of ~£3385 PA before tax [assuming tax/NI=30%]

 

£300k

Before [2%] - £953 per month

After [4.5%] - £1250 per month - extra £3564 PA, SO increased earnings of ~£4633 PA before tax [assuming tax/NI=30%]

After [5%] - £1315 per month - extra £4344 PA, SO increased earnings of ~£5647 PA before tax [assuming tax/NI=30%]

 

Now lets assume the Median wage in The North is ~£25-26k PA [lets say £26k], and The South is ~£30-35k [lets say £35k] [see ref below]. This means to 'stand still' mortgage-wise [and not accounting for other inflationary commitments i.e food/heating etc] the following:

'The Northerner' will need a 10.7% pay rise for this two year period to meet the 4.5% rate [OR two consecutive yearly increases of ~5.35%].

'The Southerner' will need a 16.1% pay rise for this two year period [OR two consecutive yearly increases of ~8.05%].

'The Southerner' on £30K PA will need a 18.8% pay rise for this two year period [OR two consecutive yearly increases of ~9.4%].

 

What are the average wage increases?

The ONS reports that the average salary increase in 2022 are currently 6% (August 2022 figures). The private sector is seeing larger than average increases of 6.2% whereas public sector, facing funding squeezes, falls behind at 2.2%

 

Looks like 'The Northerners' may be OK as long as they haven't bought recently/overpaid...as for 'The Southerners', a bit of belt-tightening may be required!

NOTE: this is based on a single salary, obviously with two salaries in a household its more affordable. This said, it does demonstrate two things, a) that 'Singletons in The South' are now priced out of the market/will struggle, and b) The idea of any couple in The South having a child and then one staying at home and/or paying for childcare is limited.

[https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/placeofresidencebylocalauthorityashetable8]

 

[Noallegiance]

14 hours ago, MrXxxx said:

Just to add to my post above are some figures I wanted to find the other day i.e. the number/% of people having to refix in the near future:

[https://www.thisismoney.co.uk/money/mortgageshome/article-11481167/Mortgage-rate-rises-mean-half-borrowers-face-potential-hike-5.html]

So 55% of people have a fix that will need addressing in the next two years. Lets assume that these people would have got a low interest rate [otherwise they would have went for a longer fix period] of say ~2%. This means that 55% of people will see their interest payments at least double; BoE predict interest rates of 4.7 for 2024 and 4.4, whilst OBR predict mortgage rates will be 5% for both 2024/2025.

So what does this mean financially with two examples, a £150k [to represent The North] and £300k mortgage [to represent The South], both with 10% deposit over 25 years:

£150k 

Before [2%] - £572 per month

After [4.5%] - £750 per month - extra £2136 PA, SO increased earnings of ~£2777 PA before tax [assuming tax/NI=30%]

After [5%] - £789 per month - extra £2604 PA, SO increased earnings of ~£3385 PA before tax [assuming tax/NI=30%]

 

£300k

Before [2%] - £953 per month

After [4.5%] - £1250 per month - extra £3564 PA, SO increased earnings of ~£4633 PA before tax [assuming tax/NI=30%]

After [5%] - £1315 per month - extra £4344 PA, SO increased earnings of ~£5647 PA before tax [assuming tax/NI=30%]

 

Now lets assume the Median wage in The North is ~£25-26k PA [lets say £26k], and The South is ~£30-35k [lets say £35k] [see ref below]. This means to 'stand still' mortgage-wise [and not accounting for other inflationary commitments i.e food/heating etc] the following:

'The Northerner' will need a 10.7% pay rise for this two year period to meet the 4.5% rate [OR two consecutive yearly increases of ~5.35%].

'The Southerner' will need a 16.1% pay rise for this two year period [OR two consecutive yearly increases of ~8.05%].

'The Southerner' on £30K PA will need a 18.8% pay rise for this two year period [OR two consecutive yearly increases of ~9.4%].

 

What are the average wage increases?

The ONS reports that the average salary increase in 2022 are currently 6% (August 2022 figures). The private sector is seeing larger than average increases of 6.2% whereas public sector, facing funding squeezes, falls behind at 2.2%

 

Looks like 'The Northerners' may be OK as long as they haven't bought recently/overpaid...as for 'The Southerners', a bit of belt-tightening may be required!

NOTE: this is based on a single salary, obviously with two salaries in a household its more affordable. This said, it does demonstrate two things, a) that 'Singletons in The South' are now priced out of the market/will struggle, and b) The idea of any couple in The South having a child and then one staying at home and/or paying for childcare is limited.

[https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/placeofresidencebylocalauthorityashetable8]

 

Then chuck in rising energy, fuel, food, services and, well, everything.

[MrXxxx]

1 hour ago, Noallegiance said:

Then chuck in rising energy, fuel, food, services and, well, everything.

Although these have been uplifted with the recent inflation/Ukraine surge, I can't see them dropping significantly now they have risen. Put this fact alongside interest/mortgage rates that are modelled by a number of organizations [including BoE/OBR] to remain at ~4% for the rest of the decade, I can't see properties being held/bought by those with a mortgage rising at any significant rate/the rate they have been in the last 10 years, especially at the bottom of the market. As for those OO/at the top end, as they a) have capital in their property, and/or b) are not dependent on rates, this might be a different story in that area of the market.

[MrXxxx]

Think a lot of sense/sensible observations is/are spoken from this former 'estate agent' in this article:

https://www.thisismoney.co.uk/money/markets/article-11498045/Housing-guru-Prices-set-fall-FIFTH.html

[MrXxxx]

https://www.msn.com/en-gb/money/homeandproperty/home-sellers-urged-to-sell-now-before-rot-sets-in-5-areas-where-prices-have-dropped/ar-AA154PMU?ocid=mailsignout&pc=U591&cvid=693766abfa47418681fadbcb01e0b134

[MrXxxx]

https://www.msn.com/en-gb/money/other/bank-of-england-predicted-to-hike-interest-rates-further-to-3-5/ar-AA155HtI?ocid=mailsignout&pc=U591&cvid=d110ca3ef30149a0a2e520bb7582f8a2

 

"Bring it on!"