Property crash, just maybe it really is different this time (Part 2)

[belfastchild]

53 minutes ago, JoeDavola said:

What is more relevant is the bog standard 2.5 bed semi near a school being twice as expensive in real terms as it was 25 years ago.

 

Real terms doesnt really matter though does it. Stick 25 years ago prices into the inflation calculator and see what you come up with. Better still stick 25 years ago prices into the mortgage calculator of the time and see what it actually cost in real terms (over twice the amount). Most prices are ahead but not ahead that much.
The cheapest I saw that 160k house style go for in the crash post 2008 was 85k in 2011. Thats 117 according to the boe calculator now. Add a mortgage into that and you arent far off the 160k by now.

34 minutes ago, JoeDavola said:

So if you're thinking of slumming it and buying a house in a housing estate in East Belfast - you could well be bidding against a millionaire. Thats the world we're living in now.

Ive mentioned before thats what is driving and has driven various price rises in certain parts of NI. When I bought it was people like me on London wages outbidding everyone working on shite NI wages. There was a mini boom then a crash as redundancies kicked in. People moved home post GFA to raise kids in a 'safer' environment. Look at the threads on here about people wanting to move to somewhere out of london/shithole england etc and thats what is pushing the prices up and keeping them high. Try to buy a place on the north coast for instance, no chance. Then you get posts complaining about not being able to get spices ffs ;-)

Edited June 22, 2023 by belfastchild

[belfastchild]

56 minutes ago, JoeDavola said:

* I do get a laugh out of Dundonald being really expensive these days - especially the newbuilds - check this out near £300K and doesn't even have a garage:

https://www.propertypal.com/69-millreagh-avenue-dundonald-belfast/830770

 

Looks like a btl (not a single picture on the walls). Strange its allowed with no fence on that raised area.
Looks like another possible canary in the coal mine one to watch.

[JoeDavola]

18 minutes ago, belfastchild said:

Real terms doesnt really matter though does it. Stick 25 years ago prices into the inflation calculator and see what you come up with. Better still stick 25 years ago prices into the mortgage calculator of the time and see what it actually cost in real terms (over twice the amount). Most prices are ahead but not ahead that much.

I did do that - the house my folks bought for £82K in the late 90's would be about £280K to buy now. Maybe more.

And with these interest rates coming up, over a 25 year mortgage both parties will be paying multiples of the buying cost of the house.

Actually someone buying in say 98 will have had a long period of cheap mortgage rates while someone buying in 2023 won't.

Thankfully I should at least dodge being reamed with mortgage interest by hopefully being a cash buyer.

 

Edited June 22, 2023 by JoeDavola

[JoeDavola]

14 minutes ago, belfastchild said:

Looks like a btl (not a single picture on the walls). Strange its allowed with no fence on that raised area.
Looks like another possible canary in the coal mine one to watch.

Well spotted - this was one of the areas my parents were looking at (for some fucking reason) so ya never know the next time I see them they may well have viewed it!

[spygirl]

59 minutes ago, JoeDavola said:

Yes but there are quite a few people out there with hundreds of K in the bank who just buy houses outright.

It's a status thing and they don't really care if the return is amazing or not. They'd rather own something they can see and touch rather than cash in the bank or some stocks.

Yes IO btl is dead, but there's still the factor of the rich using houses as their store of wealth. It's a real thing.

There aare some people with svral 100k in bank.

But they are very rare.

If you think thyell buy a house then you are grasping at straws.

There are very few people with large dollops of liquid cash. They have much btter investment opportunites then housign a bunch of scratters for sub 4% yields.

There are a lot of people who are severely overstreched.

 

[JoeDavola]

Just now, spygirl said:

There aare some people with svral 100k in bank.

But they are very rare.

If you think thyell buy a house then you are grasping at straws.

But some of them will. Perhaps less likely to be buying in the shittiest BTL slum areas, I think they might be increasingly difficult to shift if there's a mass exodus.

[belfastchild]

2 minutes ago, JoeDavola said:

I did do that - the house my folks bought for £82K in the late 90's would be about £280K to buy now. Maybe more.

And with these interest rates coming up, over a 25 year mortgage both parties will be paying multiples of the buying cost of the house.

Actually someone buying in say 98 will have had a long period of cheap mortgage rates while someone buying in 2023 won't.

Thankfully I should at least dodge being reamed with mortgage interest by hopefully being a cash buyer.

 

Over the life of a 25 year mortgage you would expect to pay twice the purchase price, not including maintenance.
So 280k is probably on a par, maybe actually less if you include inflation, maintenance, mortgage payments.

I paid my house off early but I know if I sold it for less than 120k Id probably be making a 'loss'. If Id bought 3 years later Id definitely be making a loss right now.

[JoeDavola]

2 minutes ago, belfastchild said:

Over the life of a 25 year mortgage you would expect to pay twice the purchase price, not including maintenance.
So 280k is probably on a par, maybe actually less if you include inflation, maintenance, mortgage payments.

Yes but my point is that the person buying now will have to pay double the 280K too.

I think the point your making, rightfully, is that owning a house to live in shouldn't been seen as an 'investment' as such given the considerable amount of money that you have to pump into it beyond the purchase price.

Edited June 22, 2023 by JoeDavola

[belfastchild]

Just now, JoeDavola said:

Yes but my point is that the person buying now will have to pay double the 280K too.

I think the point your making, rightfully, is that owning a house to live in shouldn't been seen as an 'investment' as such given the considerable amount of money that you have to pump into it beyond the purchase price.

Exactly! And people will be complaining in 15 years time that the ones paying 280k in 2023 are asking half a mil in 2036-8, all those mad gains when in fact they are probably only just covering the costs.

[Wight Flight]

I don't know about other media, but Talk Radio keep using the figure of an average rise in mortgage payments of £3,000.

That is irrelevant.

BIL's mortage would have gone up by about £5 if he hadn't paid it off last year.

The issue is recent first time buyers in the SE.

Almost anyone buying in the last 5 years will have a mortgage of £250k on a £300k+ home.. This would have been easily achievable for a couple on £30k each - so a couple of newly qualified teachers for example.

Assuming they had a fix of 2%, and are now looking at about 6%, that is an increase of £10k interest per year.

They might be able to get a five year fix at less than that, but since it is highly unlikely they can afford the extra £10k they won't fix as their ONLY hope (which the media is fuelling) is for rates to drop again later this year, and tying themselves into an unaffordable fix is financial suicide.

They really will have no choice but to sell. Even interest only will be beyond their reach.

That could be a couple of hundred thousand starter homes coming on to the market. The only likely buyers will be landlords. They will, if they have learnt their lesson, expect an 8% yield. 

That £300k place will rent for £1,200 a month at best. It is therefore now worth £150k.

It is the outliers that matter, not the average.

[spygirl]

16 minutes ago, Wight Flight said:

I don't know about other media, but Talk Radio keep using the figure of an average rise in mortgage payments of £3,000.

That is irrelevant.

BIL's mortage would have gone up by about £5 if he hadn't paid it off last year.

The issue is recent first time buyers in the SE.

Almost anyone buying in the last 5 years will have a mortgage of £250k on a £300k+ home.. This would have been easily achievable for a couple on £30k each - so a couple of newly qualified teachers for example.

Assuming they had a fix of 2%, and are now looking at about 6%, that is an increase of £10k interest per year.

They might be able to get a five year fix at less than that, but since it is highly unlikely they can afford the extra £10k they won't fix as their ONLY hope (which the media is fuelling) is for rates to drop again later this year, and tying themselves into an unaffordable fix is financial suicide.

They really will have no choice but to sell. Even interest only will be beyond their reach.

That could be a couple of hundred thousand starter homes coming on to the market. The only likely buyers will be landlords. They will, if they have learnt their lesson, expect an 8% yield. 

That £300k place will rent for £1,200 a month at best. It is therefore now worth £150k.

It is the outliers that matter, not the average.

Welll .. Id guess that London/SE esp. HTB make up the bulk of mortgages inthe last ~10y.

And Im serious about that.

 

 

[InLikeFlynn]

14 minutes ago, Wight Flight said:

 

The issue is recent first time buyers in the SE.

Yes, although unfortunately not limited to the SE or FTBs. Anyone who recently stretched themselves taking on a large mortgage will really struggle, whether that's for first home or a move to something bigger.

 

There is another sector that will also burn: those who have been running large Interest only mortgages. Most of these are "have a go" landlords however there are significant numbers of owner occupiers on interest only mortgages, often predating the GFC, who are facing a squeeze.

[azzuri82]

1 hour ago, JoeDavola said:

Yes but there are quite a few people out there with hundreds of K in the bank who just buy houses outright.

It's a status thing and they don't really care if the return is amazing or not. They'd rather own something they can see and touch rather than cash in the bank or some stocks.

Yes IO btl is dead, but there's still the factor of the rich using houses as their store of wealth. It's a real thing.

Isn't this what might precisely drive deflation though?

When all of the savings are spent on food, energy and housing, there's less to spend on other stuff, ergo prices of everything have to drop to find a buyer?

[azzuri82]

30 minutes ago, Wight Flight said:

I don't know about other media, but Talk Radio keep using the figure of an average rise in mortgage payments of £3,000.

That is irrelevant.

BIL's mortage would have gone up by about £5 if he hadn't paid it off last year.

The issue is recent first time buyers in the SE.

Almost anyone buying in the last 5 years will have a mortgage of £250k on a £300k+ home.. This would have been easily achievable for a couple on £30k each - so a couple of newly qualified teachers for example.

Assuming they had a fix of 2%, and are now looking at about 6%, that is an increase of £10k interest per year.

They might be able to get a five year fix at less than that, but since it is highly unlikely they can afford the extra £10k they won't fix as their ONLY hope (which the media is fuelling) is for rates to drop again later this year, and tying themselves into an unaffordable fix is financial suicide.

They really will have no choice but to sell. Even interest only will be beyond their reach.

That could be a couple of hundred thousand starter homes coming on to the market. The only likely buyers will be landlords. They will, if they have learnt their lesson, expect an 8% yield. 

That £300k place will rent for £1,200 a month at best. It is therefore now worth £150k.

It is the outliers that matter, not the average.

Folk will skip meals/heating/holidays before they give up their home that they 'own' and have chucked a healthy deposit at.

It's seen as the ultimate humiliation in their self-image. Isn't this why we have repossessions/bankruptcies? To save people from living a self-inflicted life of penury - to give them a second chance?

[Wight Flight]

I did wonder if the best option for these people would be to give up work, go on benefits and get the interest paid via the support for Mortgage Interest scheme.

However, that caps at £200k and the current rate used to calculate what you get is 2.65%, so you are still toast.

[MightyTharg]

31 minutes ago, spygirl said:

Welll .. Id guess that London/SE esp. HTB make up the bulk of mortgages inthe last ~10y.

And Im serious about that.

 

 

Smart people - they get a nice new home and we’re stuck with the losses.

[With a crooked smile]

2 hours ago, JoeDavola said:

this is why I miss SNACR

Fucking hell, bit of a low blow mate!

[JoeDavola]

1 minute ago, With a crooked smile said:

Fucking hell, bit of a low blow mate!

I know I'm in the minority for seeing value in some of his posts!

[With a crooked smile]

Just now, JoeDavola said:

I know I'm in the minority for seeing value in some of his posts!

No I agree to an extent and I don't think it's healthy for this place to become an echo chamber set in some sort of parallel universe to reality. 

[With a crooked smile]

45 minutes ago, InLikeFlynn said:

Most of these are "have a go" landlords however there are significant numbers of owner occupiers on interest only mortgages, often predating the GFC, who are facing a squeeze.

I only know one person with residential IO. I'm surprised if there are that many out there now.

The guy I know has a decent size IO mortgage but he nearly owns 2 warehouses outright that are worth circa 600k each. He's always looked to pay off commercial mortgages first as they are higher interest rates.

He wants to get a bigger mortgage soon but because of the way he pays himself will struggle with a mainstream bank.

I recommend moving to Handlesbanken. He told me they looked at his finances and he asked if he could have a 165k personal loan rather than a mortgage and was told 'in principle no problem '.

I imagine the personal loan is secured against commercial property tho.

[Formerly]

1 hour ago, JoeDavola said:

I did do that - the house my folks bought for £82K in the late 90's would be about £280K to buy now. Maybe more.

And with these interest rates coming up, over a 25 year mortgage both parties will be paying multiples of the buying cost of the house.

Actually someone buying in say 98 will have had a long period of cheap mortgage rates while someone buying in 2023 won't.

Thankfully I should at least dodge being reamed with mortgage interest by hopefully being a cash buyer.

 

If you enter the 98 salarly into that calculator, the problem becomes clearer. We've had the best part of 20 years of wage deflation during which time asset prices doubled.

The problem is not house prices per se, but rather the relationship between them and wages.

Taking into account the highest tax burdens since the 50's and that exacerbates the problem.

[HousePriceMania]

the MSM are going full on crash mode now

 

 

[InLikeFlynn]

1 hour ago, JoeDavola said:

I know I'm in the minority for seeing value in some of his posts!

I liked his input - there's a definite "groupthink" in the forum these days.

[Frank Hovis]

3 hours ago, belfastchild said:

Real terms doesnt really matter though does it. Stick 25 years ago prices into the inflation calculator and see what you come up with. Better still stick 25 years ago prices into the mortgage calculator of the time and see what it actually cost in real terms (over twice the amount). Most prices are ahead but not ahead that much.
The cheapest I saw that 160k house style go for in the crash post 2008 was 85k in 2011. Thats 117 according to the boe calculator now. Add a mortgage into that and you arent far off the 160k by now.

 

I would say that real terms absolutely does matter because people tend to just think in nominal "I bought this for £100k and it's doubled in value in fifteen years!" - oh no it hasn't, it has doubled in price.

I accept that for the great mass of people who think that cash is an investment then a nominal rise is as important as a real terms rise but if you are holding an investment portfolio which rises with inflation then you can cut through this by unindexing a house price in order to see whether it has increased in real terms or fallen.

If RPI is 150% in the period when a house has doubled in price then it represents far better value now and your investments will buy a better house.

The kind of house I might move to is about £1.5m now (not that I want to pay that as I think the SW market is significantly overpriced and heading for a chunky correction) so would have been roughly £420k in 1987 if such house had only moved with inflation.  I would therefore say that to expect it to fall back to the 1987 price of £400k is unreasonable and I won't hold my breath waiting for that, leaving the remaining question as "At what price level would I detect value?".

Well if inflation keeps storming away at 10% for the next five years then my answer would be £1.5m in five years' time.

House prices don't have to fall in order to become a bargain, as long as you are not holding your house purchase / upsizing fund in cash.

[belfastchild]

1 minute ago, Frank Hovis said:

 

I would say that real terms absolutely does matter because people tend to just think in nominal "I bought this for £100k and it's doubled in value in fifteen years!" - oh no it hasn't, it has doubled in price.

 

Agreed but my point was that even including the real terms of the purchase price it never includes the servicing the debt costs adjusted for real prices or the maintenance adjusted for real prices.
Thats the true price and as Ive said by the time you add all the costs in, unless you bought for cash (and included opportunity costs in that) then you never get the real real figures.

Talking about headline or nominal figures and using that as examples of the 'highest prices ever' or words to that effect that posters like to use is just nonsense.

As Ive mentioned before the 2 year fixes I had when I bought 27 years ago are about the same rates (or will be later this afternoon). Yes the house nominal price was less but I was above median/average salary for NI by a long way at 20k. IIRC average salary back then for here was about 13k. I earned more than my mum and dad put together at the time. No way could they have afforded the house Im in. Problem is that many people see the house Im in as a starter home, not the 2 beds that are going for around 100k at the minute.

11 minutes ago, Frank Hovis said:

leaving the remaining question as "At what price level would I detect value?".

Value is a personal thing. Its the key to above all, if you can afford a decent house now, can afford a doubling of rates on any mortgage then you can afford it.
I can spend another 200k cash without even worrying about it and get a bigger house in the country but the extra costs including rates, power, travel would probably cripple me on my ever dwindling background income. Even if that house was 'value' because nobody is buying half a mil houses in the country at the minute it wouldnt be value to me.
I dont give a monkeys to the cost, value, price of my house, its paid off and as of this week has pretty much had everything done to it I ever wanted. Thats where the real value is. My biggest expense of the year is rates/property tax.Thieving bastards ;-)