Thursday, March 25, 2010

Moot Point - Thursday

So a regular reader - jaundiced buyer - sends a message asking why some posts don’t get comments, despite several thousand hits a week. J B suggests I somehow don’t welcome comments - or maybe people just don’t like estate agents. Hmm. Fact is I read every one – even the ones offering manhood enhancement – they are the reason I keep writing. Trust me it isn’t for money.

J B asks why don’t I invite comments on a particular subject? Gauge what the market is doing out there. Predict what I think it will do. It’s a similar scenario to the office discussion today.

Scanning the paper for clues as to how the chancellor’s smoke and mirror moves will manifest themselves in the real world, when the bills need to be paid, trainee F asks me what it’s all about? For a moment I think he requires illumination on a greater scale, meaning of life – particularly his. But he actually wants my view on a stamp duty holiday for first time buyers up to £250,000. Will it make a blind bit of difference?

Now I do my office budget every year, the bean-counter boss adds fifteen per cent and I’m still closer than him come Christmas. I don’t fudge the figures with such spectacular nonchalance as a Parliament number cruncher, principally because I hope to be around still a few weeks later. Facing the music.

It seems to me that £2,500 off a first time buyers costs isn’t the stumbling block, it’s finding one who is earning £60k a year and can stump up a 20% deposit before their hair is a grey as Mr Darling’s.

So do prices need to fall further? Will a pernicious housing tax holiday help? Let me know, I’m all ears. It’s easy to leave a comment - anonymously if you like.

And if nobody replies, I’m blaming jaundice…….



DrClaire said...

I usually don't comment because I read this blog for an "at the coalface" report since the media seem unable to report on property without getting hysterical. I'd say that as a 30-something married professional, I am priced out of all but the tiniest of flats in London. I have friends who did buy and are now trying to figure out how to raise a family in a 1-bedder. I don't know what the solution is, although it seems ridiculous for it to go on like this. My solution has been to take my brains and my education and flee these shores. I expect a lot of young (and not so young) people may do the same.

DeepLurker said...

Ok, I'll bite :-)
As a potential FTBer, will the new budget mean anything for me?
Well, we pay £850 rent on a 2-bed terrace, and similar houses on our street are selling for £250-300K. Based on my guesstimates of future interest rates, the interest alone on £300K would be around £1200 per month - so the choice is clear (even when we add in the frustration of dealing with idiotic parasite BTL landlords).
The stamp duty changes mean nothing to us - £250K in our area will not buy you a starter home for a family - and even if it did apply to us, the potential savings are tiny.
In summary: houses are several times too expensive.

PS In reply to JD - I love the blog, I just don't feel the need to reply to every post: "Split my sides laughing - again!"

Anonymous said...

In my opinion, the stamp duty change should make little difference. If anything it might make things worse as now the previous £125k threshold has gone you might find owners pushing up their asking prices from just under £125k as there is now no incentive to price at a level that avoids stamp duty. I've been waiting to buy for 5 years now, and although there are places in and around Bristol for the 100-125k mark they are mostly 1 bed flats and houses. A two bed house is £140k-£180k right now so I need these to drop by say £20k so they become affordable on a single income.

I worked briefly as an agent (in Oxfordshire) in the early 90's when we couldn't give studio's, 1/2 bed flats or 1 bed houses away, they were on at £30k - £45k with not a jot of interest - FTB's could afford a 2 bed house at £55k so the smaller places just got bypassed. I can see this happening again so I'd rather rent and wait than get stuck in a tiny flat that I can't sell.

At the end of the day, prices have to come down to reflect peoples incomes, without a helping hand from the bank of Mum & Dad. If borrowing had been capped at say 3.5 times income (it was either 2.5 times joint or 3 times one income plus the other when I was an "F") then we wouldn't be in this mess. More people benefit from lower prices so if people just sat down and thought about it for five minutes they might realise rising house prices are not good news!

Somethings got to give, and people are going to get hurt. Whether, if prices continue to rise, its the likes of me who'll be buying their over 55's retirement pad as a FTB or, if prices fall, the 20 somethings that have little or no equity and bought a small house or flat say 5 years ago and will be stuck with an unsaleable liability for the next decade. Only time will tell...

AndyBee said...

Blimey - an estate agent who recognises that people actually need to be able to afford their houses?!!! It'll never catch on.

I'm 100% fed up of seeing the tabloids gleefully reporting that house prices are 'improving'. They don't say that about bread, or petrol or other things we need to live.

Many seem to forget that every extra £1000 in a seller's pocket is another £1000 on a buyer's debt - or to put it another way, another £1000 they have borrowed from their own future.

I'm all for a healthy housing market - i.e. one where buyers and sellers are equal partners and the transfer of wealth between generations is halted. In this, there is maybe even space for estate agents to make a living!!!

Great blog - keep it up! Andy

Anonymous said...

Speaking as a prospective FTB with ample funds and hair almost as grey as Mr Darling's (due to having spent the '90s - my generation's window of opportunity to buy at a sensible price - abroad):

Yes, if you want to get the market going again, prices have to fall. I could comfortably pay £250k, and probably twice as much on a "silly" mortgage. But I have no intention of doing so while prices remain in a bubble stoked by government policy and loose credit. Instead my money chases growth and tax breaks: this year I will improve on last year's £24k tax refund from HMRC.

You (estate agents) want my business (for £250k - because I do care about stamp duty), you need to offer something that looks like value. A good start would be removal of government money and perverse incentives inflating the bubble. Rising interest rates should help too, as hoarders (e.g. people who have inherited or moved but not sold) are incentivised.

The "credit crunch" has proved that the main driver for house prices is supply and demand not of houses but of credit.

BTW, enjoy your blog. I think it's popular amongst those of us thoroughly cynical about the housing market, including your profession!

QG said...

"So do prices need to fall further?"

I'd be surprised if anybody said no apart from a troller.

"Will a pernicious housing tax holiday help?"

It probably will help a little bit. The tax break for FTBers kicks in immediately whereas the tax hike on £1,000,000+ properties won't happen until after the election. No prizes for guessing what that's about.

I expect prices to fall substantially (20%) before the 2015 election but exactly how events will unfold is impossible to predict, especially when both the main political parties want house price inflation.

Mark Seaman said...

Another Labour cock-up with a number of unintended (perhaps!) consequences.
At the lower end, prices may rise a little since there is no incentive to price below 125k - those are the properties that the majority of FTB's might actually be able to stretch to (12.5k deposit - combined income of 37.5k).
I just sold my late Mother's flat for 124,950, so I feel qualified to comment!
Additionally, it is more likely to aid seller's than buyers, in maintaining these inappropriately high property values though creating the illusion of an opportunity to grab a bargain.

Now as someone who has not owned property for 16 years, yet planning to do so with a partner who also got out of the market 5 years ago, we find we are not eligible for the FTB stamp duty relief.
The conclusion must be that it is a measure designed to grab headlines, yet will assist very few people in the real world.

The answer to the problem long term is lower property prices more in keeping with the public's genuine earnings and sensible lending policies.

It's just common sense, yet the wisdom of middle age illustrates that sense is far from common!

Anonymous said...

All I can say, is "I bought at the peak of the market, and am completely regretting it." I can afford the payments, but the market has completely changed.

Really enjoy the blog, but don't normally post, as I guess a lot of others don't.

Keep up the good work though.

Anonymous said...

I am a professional investor and read this blog not for the comfort of affermation of already intrenched views but to try and learn what the bottom up view is. On a national scale houses are currently more affordable than they have been since 2003. Affordability based on a house buyer spending 30% of their post tax income on mortgage payments, capital and interest. The government banks are (like it or not) recovering. The Government is in profit on its Lloyds stake (just), these banks will ease lending in the upcoming years. Public sector unemployment will cause problems in certain geographies however overall house prices are going up.

Anonymous said...

Serial lurker here. Regular reader for some reason fighting the flow and returning to Britain. I'll rent until it's cheaper to buy... long way off for sure.

Love this blog and your antics!

Anonymous said...

Visited two new build developments this week.

One was priced at about the same as comparible shabby detached houses in the same area.

It was an open day, it was buzzing and they reserved two of four houses on the launch weekend.

The other development was priced at about 250k over peak prices. It's been on the market 10 weeks and none have sold.

As far as I can see where I am (London N8/N10) there's a price at which stuff sells really fast, and a price where it sits and rots.

Sadly most stuff is at the sit and rot price!

Trevor. said...

Thanks for a very entertaining blog. Will house prices continue to fall? No doubt about it. The economic cycle, boombust or rowing the economy as it has been called through the ages is and always has been government policy. One of the many ways the aristocracy keep the peasants from getting above themselves. Conspiracy theories? No not really, look at the factual evidence. A good book to start with is Fred Harrison's Boombust, covering the last five centuries of house prices and economic cycles or Bill Stills film 'money masters' on google vid / youtube. Any commentary by Bob Chapman, also well worth a listen.

Anonymous said...

Based in Ireland but enjoy the blog. The government here got rid of stamp duty for FTBs a few years ago, and it definitely contributed to the reckless spending and inflated the bubble. Between that and 100% mortgages, no one had to have any savings before saddling themselves with 40 years of debt. Obviously without a tradition of saving behind them, many FTBs ended up living paycheque to paycheque and never got around to developing a substantial rainy day fund. The rainy days are here, unemployment is rising, and people are defaulting on their mortgages. I can't see why the UK government would want to try to reinflate the bubble by encouraging this kind of behaviour.

Apologies for any spelling mistakes, using phone.

pedro said...

'I am a professional investor .......however overall house prices are going up.'

I presume you're taking the piss.

Anonymous said...

For me, ultimately, the problems all stem from availability of credit.

Sure, the main people really to profit from this were the banks: since we have had to borrow more and more from them to pay for any given house. Oh, and maybe estate agents.... but even bankers and estate agents have to live somewhere. I'm guessing senior EA staff aren't quite on the same salary scale as senior bankers?

But lots of us (and I include myself) profited from this, too. No savings, no pension, want that new car, an exotic holiday? Never mind, borrow against your house, which has toned up those flabby financial muscles effortlessly, while you slept. The value of your house'll fix it.

I have come to believe that is insane and even slightly shameful that it has been so convenient for us to sleepwalk our way into this situation which is so grossly out of kilter with what future generations need.

I too am an entrenched supporter of the free market, but when the aspiration to own a modest home near their place of work is either put out of the reach of all but the comparatively wealthiest, or entails taking on colossal debt, then I think some form of control is needed.

The bank of Mum and Dad is a sticky plaster, favouring a lucky few (or unlucky few, depending on your view of the future) and patching over the hole in the previous bubble, enabling an exploitative situation to continue. I don't see how it can hold things together in any but the short term.

Other than that we should never again have such reckless and pandered access to staggering amounts of credit, I don't know what the answer is.

As to the here and now, I agree with Anon@8.24: someone has to get hurt. We are nationally and individually up to our eyeballs in debt, and something is going to give.

I think the stamp duty holiday will prove irrelevant, but jolly useful as a political soundbite.


And this isn't even touching on the 'London; and everywhere else' topic.

S's Left Boob said...

What’s an FTB?.

Have there really been many of those around for the last few years?.

I can only speak from my own experience of Greater Manchester, but it seems the only buyers of typical FTB homes have been the BTL and investment brigade for a long long time.

Even now after 2 years of recession the only bog standard 2 bed terraces that genuinely do sell seem to be left empty for months afterward (asset brigade) or suffer a couple of weeks of bargain basement refurbishment then have a To let sign slapped on.

Prices are in a totally different dimension to real world earnings. This didn’t matter when credit was being spunked in people’s faces as soon as they set foot in the bank. The massive HPI would easily cover up the fact that they were taking on more debt than they could ever hope to sensibly repay. For the first time in years though, the gap between prices and earnings actually matters. Unfortunately that’s all irrelevant when prices are being artificially sustained by low interest rates and mortgages paid for by the government.

Ho-hum. Like everyone else in my priced out generation I’ll just have to carry on renting til something gives and I can finally afford a home without having to sign up to a lifetime of debt. I think most people below 35 who didn’t buy are exhausted by it all and have simply lost interest.

As another reader commented the cycle of boom and bust has long been an intentional policy. It’s the best way to keep the plebs in check. But this time they’ve overcooked it.

Anonymous said...

Firstly, I really enjoy reading your blog, please keep up the good work.

Secondly, I may be insane but I am buying. I sold to rent in 2008 due to a change of job and have been renting ever since. I now want to get back to paying off my own horrendous debt rather than keeping my landlord from bankruptcy and ensure my second child will end up at the same school as the older one. If prices drop 20% all I will have lost is the money I made from the 2001 to 2008 HPI. More than that and it is a "real", but still paper, loss.


RichB said...

Similar boat to DrClaire and Deeplurker.

Could but won't. It's just not in me to buy something for 490k that I can look up online in 20 seconds and see the parasites selling it only spent 250k on it less than 7 years ago.

Bollocks to giving them 10 years of median pretax salary for the sake of having lived in a flat for 7 years. Rather go and blow that on a beach for 10 years.

Anonymous said...

Enjoy the blog, how's the book draft going?

secret agent said...

Book should be available for the autumn all being well. Further news will be posted on Blog.
Thanks to everybody for the interesting comments on the market. And I thought I was a pessimist!

Anonymous said...

Common sense suggests that you cannot have £250 million of QE without at least some leaking into the wider economy via bankers bonuses. That coupled with significant numbers of cash buyers, desperate to escape low interest paying accounts, leads to another property bubble.The next few years are going to be interesting.....