"this is unique and quite dangerous. A reversal of this trend (which is now starting to happen as 10 year bond yields have risen to the 3% level) will see interest rates and mortgage rates rise and the disposable income squeezed. Under those conditions, asset prices will fall."
But Games, you can never a taper a Ponzi, once % rates rise this will be absolutely catastrophic. If asset prices fall, this has to be built into financials balance sheets (loan to book). If they were all on the brink last time just think what it will do the next time around. It's very hard to imagine how central banks could raise % rates.
There is now only one market maker for world financial markets (central banks) but this this dysfunctional system cannot go on indefinitely. 2008, events partly unfolded because of an ever increasing oil price, the same thing is happening today. Perhaps these central bankers have artificially held down oil prices, Saudi, after all have a vested interest in the U.S. financial system, look at Russia buying physical gold, it´s unrelentless.
""And if you allow for lower interest rates , an interesting comparison is mortgage payments as % of take home pay. ""
This is partly where the risk lies. Borrowings are calculated on multiples of income and banks lend (some do) on affordability. When these calculations are performed they are based on the low interest rates, at a time when inflation is low. Under these conditions your loan is expensive, as it doesn't have the old benefit of being inflated away as it was in the 70's and 80's and part of the 90's.
My point here is that we have lived in a distorted period for over 10 years where interest rates have been artificially held below inflation - this is unique and quite dangerous.
A reversal of this trend (which is now starting to happen as 10 year bond yields have risen to the 3% level) will see interest rates and mortgage rates rise and the disposable income squeezed.
I suspect you are comparing with 20 years ago before the period when house prices rocketed. I don't think there has been massive change since 2008. Probably if you factor out London, little change at all. A point I think Malj made.
Indeed I saw this quote "Buying a home has got more affordable across 54 per cent of Britain over the past decade, says Yorkshire Building Society, which compared average wages to house prices across 32 London boroughs and 324 local authorities in England, Scotland and Wales."
And if you allow for lower interest rates , an interesting comparison is mortgage payments as % of take home pay. This has fallen from about 50pct in 2007 to 30% now. It seems somewhere near its 30 year average now.
Good graphs on https://www.economicshelp.org/blog/5568/housing/uk-house-price-affordability/
anyway enough of this.....
I acknowledge its a sorry situation for first time buyers in the south, but don't think its that bad for Barratt. Although if everyone else thinks it is, that is bound to affect the share price!
Of course Max King is very selective with his evidence. The evidence is against him. Today's young people are no less keen on owning their own homes and are prepared to make the necessary sacrifices. But for most of them, particularly those whose parents cannot provide funds, the task is a lot more difficult than it used to be.
For evidence we simply need to consider the increased numbers of people living in rented homes.
Cut n paste from Max King at Moneyweek mag...... His point - its always been hard to fund the first home.
Millennials are poorer than their parents were at their age, have worse prospects and will struggle to ever own a house. Is that true? No it isnt, says Max King.
When I started work in September 1978 as a graduate trainee at what is now KPMG, I was on the princely salary of £3,190. It didnt seem much at the time, but it included all the tuition necessary for three sets of exams, which, with no retakes, made me a qualified chartered accountant after three years. After a tax-free allowance of £965, income was taxed at the standard rate of 34% (there was a minuscule 25% band of £100). The standard rate fell to 33% before the 1979 election then to 30% following it. In addition, employees national insurance (NI) was deducted at the rate of 6.5%. So, after £955 of deductions, I was earning about £186 a month, though I got a 13% pay rise on passing graduate conversion exams in April 1979.
Graduate trainees at KPMG in London now get at least £30,450 a year, of which the first £11,500 is tax-free. Thereafter, the standard rate of income tax is just 20%, though the employee NI rate is now 12%. These deductions cost £7,644, but there are also £850 of student-loan payments to deduct at the rate of 9% on earnings over £21,000. The KPMG trainee is left with £1,830 a month. So in the 39 years since I started, gross pay has increased 9.5-fold and net pay 9.8-fold, while the retail price index has multiplied 5.4-fold. In real terms, net earnings have compounded at about 1.5% per annum. Despite student loan charges and the near doubling in the rate of employee NI, total deductions have fallen from 30% to below 28% of gross salary.
The housing-crisis myth
But surely the cost of housing has rocketed since then? No. In the days of rent controls, private-sector rentals were hard to find, while company lets or council flats were out of bounds. Available flats were of the standard later shown in the TV comedy
Men Behaving Badly. A flat share in Earls Court cost me £90 a month. The tenant below, Stuart Goddard, could have been mistaken for a stockbroker, but soon made a name for himself as Adam Ant (my former neighbour is pictured).
Those with money could have bought a small house in the up-and-coming area of Fulham for £40,000 but, for graduate trainees, this was totally unaffordable. Even with tax relief on interest payments up to a loan value of £25,000, payments on a 100% 25-year mortgage would have come out at nearly £300 a month, assuming an interest rate of 10%. Not that 100% mortgages were on offer; they arrived in the 1980s and were initially a bit of a fiction since they were based on a valuation for mortgage purposes, which was invariably 10% below the actual price. As now, buying without parental help was all but impossible, unless you worked for a bank that offered cheap mortgages to staff. This explains why smart graduates headed for the financial sector. The rest of us looked enviously at the prices our parents had paid ten or 20 years earlier for houses that had since multiplied in value.
A comparable house today might cost £700,000, so a 100% 25-year mortgage with a 3% interest rate would cost £3,350 a month. This is more than 11 times the comparable cost in 1978, but nearly half the monthly cost would be loan repayments against just 9% then. We all bought our first property at a much younger age then than nowadays, but this was not because it was any more affordable; rather, it was because we tired of our grotty flats and stretched ourselves to the limit financially.
Theyve never had it so good
What about other costs? Back then, a tube journey from Earls Court to Blackfriars cost 70p now its only £2.90. Most non-commuter train fares, the price of cars and the cost of flying have also lagged significantly. So have telephone bills and council tax. On the other hand, gas and electricity prices
I think I highlighted that clearly in my first message, in a non emotional manner in stating that the BTL market is becoming a smaller element of the overall market and that HTB was still the driver - certainly on new house sales. I guess you wanted to be a bit more emotional about it.
"""Well I've posted a few times on the almost +25% rise UK birth rate ca 2000-2012."""
You keep stating this, which is not really a relevant statistic. Just having more babies doesn't guarantee they will be in a position to afford to buy or rent a house or flat.
It's about credit availability and the ability to service debt - nothing more, nothing less.
I guess this is a circular argument and probably pointless, as only when the market takes a real hit will any agreement be reached, and by that time I suspect the board will be an even quieter one.
"What is the long term average CALCULATED YOUR SAME WAY?"
yes - calculated the same way -- the average UK house price, and average salary are pretty known measurement and consistent measurements -- trying to dance around it to justify it's different this time won't work I don't think. It's also important to be consistent in selecting the first salary as the criteria for consistent measurement, not joint salaries for a couple.
I also illustrated real life examples in the cases of my daughter and son-in law, and my son, but no one seemed to want to acknowledge that -- In their case I clearly highlighted the house price to first income was 11X.
I guess Malj1 is referring to the shouting in your bold print above. It's quiet debate as far as I'm concerned.
The BTL debate is a red herring, or political window dressing. Mom & Pop BTL investors are squeezed out & FTBs are squeezed in. So what?! This is just rearranging the deckchairs. You force a renter out & allow a FTB in. The fundamental supply-demand relationship is unchanged.
Don't tell me, I know TC is about to post on the UK housing glut! Blah blah blah.
Well I've posted a few times on the almost +25% rise UK birth rate ca 2000-2012.
Since 2010 the gov't has created/supported +80k av pa school places. Why have they had to do this? Where do these folk go when they come to leave home? (Perhaps they all go live in TC's outside lav).
Oh dear. You need to get you temper under control. When things don't go your way all you're doing is shouting at people - in business experience has taught me that folk who do this are invariably wrong.
It's a pretty bald & straight forward observation that the theories put forward by yourself & HC/TC have been clearly wrong for at least the past decade. You aught to ask why so? Also why will they suddenly become right just now when they have clearly not described how the housing market has worked for a very long time?
Your use of statistics is blunt. UK 'mean' transacted asp (which is what most folk think of as an average) is ca £220k. Median asp is ca £170k & modal (most frequently occurring) asp is ca £125k. Essentially there is still a reasonably long tail of high end transactions, which affect some reported asp's, but I suspect are increasingly bought from cash & thus fall outside the reported mortgage data. In this context the wage ratios do not look stretching.
HAL are reporting their own loan book (because that's their info source) & their figs look credible to me. More to the point they're off their audited a/c. HAL are a bread & butter bottom end UK mortgage provider covering ca 20% UK retail GML. So again their figs look credible to me in this context. Of course this begs the question what's happening in the other 80% UK GML (or other 2/3 if you factor in the other bottom end provider, ie NW). Well the BBA data is far more upbeat on imputed asp dynamics than HAL, so probably some of the other banks are cherry picking some top end business indicating forthcoming hpi trends may surprise on the upside.
As ever on your ratios headline wages are arguably irrelevant - it's disposable income which is key. This is more optimistic than the ratios you quote. You're cross mix & matching data sets, without allowing for the differences in construction & coverage between them - this is why your conclusion are & have been wrong.
It's worth considering that hpi is not falling. Rather that top end completions & that part of the market is stalled (which would imply that a flat hpi indicates that bottom end prices are in fact rising). When these come back on line (which they will, I just don't know when, but I'll be interested to see what happens end of year post brexit plan) then hpi will rise sharply again. The recent LR data for Kensington-Chelsea gave a firm steer how this can play out.
But again, having had no predictive power for the past decade, why do you think your metrics are be all & end all now?
What is the long term average CALCULATED YOUR SAME WAY?
Does it mean anything? The Land Registry has the average price of SOLD houses this month (not the value of average houses). The average person did not buy the average sold house this month. And if he did, he may or may not have had a mortgage - there are far less houses mortgaged now than previously.
Its like comparing average salary to the average cost of a plane ticket to australia. It maybe a factually correct calculation - but the AVERAGE person does not buy an AVERAGE ticket to australia this month.
Barratt seem to be selling houses at the same rate as before. At a good margin. Isn't that what matters?
Taffy's Daily Mail article should read " House prices have flattened after years of above average increases. New house building carries on a rate below that needed by an increasing population. Affording houses is a struggle for young families, but enough manage it somehow (often with government or family help) to keep new house builders bubbling along ok". But more dramatic lines like interest rate hikes, property prices falling, unaffordable property, massive mortgage multiples, 100% mortgages like 2008, etc sell more stories.
I too have kids that are at first house stage. My son in Brisbane Australia has comfortably bought a first home without my help. My son in London would not be able to. Its sad - but that doesn't affect my view of Barratt as an investment.
It's not a silly statistic, it's simple mathematics.
The numbers on average salary (it's an average - not a raw or blind statistic) for the whole of the UK and the average house price (again for the whole of the UK) from the land registry (the people that have the real data).
It's 8.25X m8 and it's significant since the it's more than double the long term average.
Games -- sticking with the facts - not the rhetoric, just the facts.
You can prove anything with statistics. I dont know where Halifax get their multiple from? Is it current mortgage applications, approved mortgage applications, householders with a mortgage, all householders, all adults that own a house, all adults even if they dont own a house. All would give multiple results different to yours.
I am retired. I own a house without a mortgage. My house price to salary would be very large (or infinity!) - am I included in your calculation!!! After a period of house price inflation, you would expect your multiple to be high - but the average person pays a mortgage based on what they bought their house for, not what its now worth!
I think people here get confused - Barratt build new houses. They seem to be able to sell all they can build at a very generous (20%) margin and a good return on capital. They will do fine as long as new house prices vaguely stay same or drift up (which seems the consensus) and mortgage availability remains good - there will be some cost increases (labour and materials), but against that I would hope there will be some efficiency improvements. There are "props" in place - but they seem likely to remain. Interest rates are low and seem likely to stay there for a while.
Now I think its sad that house prices are so high and unfortunately not everyone can afford the house they would like. It is a struggle for youngsters to get "on the housing ladder". But some can - often with help. And so long as there are enough people out there (and there appears to be) able to afford a Barratt house somehow - then things are ok here - irrespective of how many people cant afford to buy the same house.
To quote a silly statistic out of context, to make my point. The average person cant afford an Apple Mac laptop (world's average salary is apparently $6000 per annum - source BBC)- this laptop would be 33% of a years salary. But it doesnt mean Apple are in trouble. There are enough people that can afford an Apple laptop to make Apple a good investment.
Halifax quote the price wages ratio at * ca 5.7 & stable over the past year. ""
malj1, you can turn a blind eye as much as you like, but you know the statement above is absolute BS.
Average UK salary: £27,271
this data was taken this year by the Office For National Statistics from 21,563,000 people's earnings.
"Buy-to-let lending has fallen by a fifth over the past year as taxes on second homes, the removal of interest relief and tougher standards for lenders drained credit from the market. Lenders issued 5,500 buy-to-let mortgages for new purchases in March, a drop of 19.1 per cent on a year earlier, according to UK Finance, the umbrella organisation for banks and building societies. The value of loans fell by 20 per cent to £800 million. - The Times"
It's only 20% of probably what is now becoming a smaller part of the market. BTL has probably seen it's best days -- the Help to Buy is still in place so expect a lot more activity pumping up the prices of new build for a while yet, although the Crest Nicholson response yesterday was rather negative, and down a further 1.49% this morning.
It's all about growth in sales to manage the margins, and the growth has definitely slowed, no matter how you want to dress it up.
TC - you have done it again, linked to a poorly written article in This Is Money and then quoted bits that suit you.
Also in the article, between the scare stories, are balancing quotes like.....
"Tarrant Parsons, an economist at the Royal Institution of Chartered Surveyors, says the risk of house price falls is greatest in areas such as London, the South-East and the South-West, which have seen the most dramatic rises in the past few years. But he adds: 'I don't think the right conditions are in place for a major correction."
Howard Archer, chief economic adviser of the forecasting group the EY Item Club, says: 'I don't think house prices will fall unless the economy takes a major downturn. I suspect it's more likely that prices will tread water for a while. The fundamentals of the economy aren't too bad. Employment is high and interest rates are low.'
"....Hodge Lifetime, go even further, allowing some customers to borrow up to six times their income. So someone earning £45,000 could borrow up to £270,000. Hodge Lifetime says customers must have a minimum 40 pc deposit and that it sticks to tough affordability rules when offering loans. It said it was unaware of anyone having actually borrowed six times their income."
It's a non story - property could crash but experts say it probably wont. 6x mortgages are now available but no one has been given one. Property prices are going down except in other areas where they are going up. etc etc.
Halifax knocked £12,000 off my flat': Beware danger signs for house prices, with valuations cut and a twist on 100% mortgages
Surge in down valuations is just one of a growing number of red warning signs
Prices are falling as buyers borrow record amounts for record lengths of time
Estate agents are struggling to shift homes for their asking price
Desperate lenders have started offering risky 100% mortgages again
By Ruth Lythe for the Daily Mail
I've blocked TC because of his unremittingly useless and pointless posting but before signing on this evening, tripped over his posts earlier today.............
............self certification at its best:-)
"Not for the first time, the source of a market rally can be traced back to Donald Trump. Of a long list of controversial policies, only tariffs and the threat of a trade war with China ever took steam out of the market. This time it's the ..."
House prices drop £7,000 in biggest monthly fall since 2010, as Britain's property market stutters
Halifax said average UK house price stood at £220,962 in April
Annual price growth slowed to 2.2% from 2.7% the month before
Housing demand has softened in the early months of 2018, says Halifax
hardcore..............sorry I haven't responded to your drivel before now
I notice you haven't been able to respond to any of my posts directed to you on the BP board, but instead opt for the quieter BDEV board so that your faux bravado is a little more well hidden
the fact you of all people have called others "clowns" is nothing short of staggering, mind blowing irony
the facts speak themselves, you and taffy have been wrong for longer than I care to remember. if anyone had followed your calls they would be bankrupt, it really is that simple
your "contributions" (if we can call them that) on the BP board display that you are several sandwiches short of a picnic and offensive to boot, you come across as a rather odious individual that has very little social skill and intellect. hopefully that is just you online persona and in real life you are a bit less of a cockroach?
Halifax quote the price wages ratio at * ca 5.7 & stable over the past year. The % mortgage payments vs net disposable income is just under 30%, stable over the past 15 years & the lowest for the past couple decades. But what do Halifax know compared to HC (aka Coco?!)?! After all they're only providing ca 20% UK GML & are the definitive bread & butter bottom end of market mortgage provider. Perhaps this is why none of HC & co 'predictions' etc ever come true.
The 8x is still excluding that they haven't got any other finance debts. Adding up all the other liabilities is when it gets even more complicated. How many people are able to live within their means? This is what makes many of these comments by the bulls very slapstick in nature. They just see consumers as ever ending cash machines.
In context, UK house prices are just another asset bubble created by central banks QE programmes.
malj1 -- I guess your whole argument is based on the number of people and demand.
I think the issue is affordability, by way of credit, that determines the ability to finance continued purchases. If interest rates rise, that credit will be squeezed, you must acknowledge that.
I guess a good test is to look at your kids, if they are ready to buy, or some friends children who are getting on the housing ladder and ask what their salaries are, and how much they expect to buy a house for in their vicinity.
Mine, daughter and husband, earn £25K +£18K -- The property is £276K for which they have a £200K mortgage.
As HC points out clearly, the ratio of the property price average to the average first salary has never been so stretched. In this example it's 11X on the total value of the property and 8X on the mortgage.
They both can not leave work, and they are totally reliant on childcare from us - for free.
This example alone tells you that there are limits to who can now enter the property market. Yes repayment rates are low because interest rates are low - and even given that fact, there is a slowing in demand - double or treble interest rates and it'll crucify the affordability argument.
It's hard to understand why this is not understandable.
I fully accept that my daughter and son in law might see a period of falling asset price on their house.
I only have two comfort factors, apart from the fact it's not practical to have them living in our house forever, nor would they want that.
1. The price we paid for the resale property is 12% lower than the exact same new build on the same complex. When help to buy is abandoned, that gap should start to narrow - not that the resale will rise of course, just the opposite.
2. They have a massive deposit as a buffer in case of difficulty.
in Japan's credit bubble they tried to raise rates to around 2/2.5% at which point real estate prices started to fall hard they then cut rates back to zero/near zero but it was too late the bubble had burst and reality kicked in
Prices fell for over 20 years and are still half what they were in early 1990s I believe
UK turnover of house sales is on par with 1991-92, around those sort of levels, recessionary levels if this was about supply over demand we should see 2006-07 type turnover, when there was a mad frenzy to buy. There is no real big "demand" (affordability) for UK houses. The average UK house price is now 9x to average salary, in 1990, you could buy a house with an average 3x one person´s salary (that was with 14%!!!). I personally would like to see some of the applicant's income when applying for a mortgage these days, you would reasonably think there could be widespread fraud going on.
OK, the BoE has printed incredible amounts of money & reduced % rates to near enough 0% although you will not get a mortgage anywhere near this. There has certainly been an increase in the supply of credit from the banks. But is QE really responsible for this? The MoneyGPS on youtube appears to think so. Statista, measure inflation by a BigMac, which is going up by 4.5% the same as UK house prices last year but UK GDP at a static 0.2%. Right to buy can only go so far.
At what point do you get a saturation of debt? We must be getting very close. % rates cannot rise, it would be too catastrophic for banks balance sheets to even contemplate. You cannot taper a Ponzi. It's going to mask & manipulate much of the data.
First I gave a solid explanation of h2b a few posts ago. TC fails to address that.
But of course I missed the point that TC has the UK's entire 5m foreign born residents living in his outside lav. Lol. TC rather scraping the barrel (or more accurately cistern & toilet bowl) with those comments.
It's also worth noting a further couple points that challenge the historic wage/hpi assumptions that keep being trotted out ad nauseum.
A/ with the collapse in inflation then wages service a far greater level of debt. Most historic wage norms are not likely to become relevant again unless general inflation returns back to 12%/13%. Unlikely says I.
B/ pre the CC house cash buys were about 10%-15% max of transactions. Today they are min 35% total transactions. There is no wage info on these buyers - & indeed it is irrelevant as they're buying out of savings not salary.
Yes total housing transactions are stalled at ca 1.2m pa - & have been for about 5 years. New build clearly is a favoured growth niche within this. Yet despite this stall hpi continues to build (pun!). Again the wage constraint looks old hat. The stall occurs I think for 2 reasons. First a general lack of confidence due to the whole 'house prices are gonna collapse doncha kno' incessant routine. But sooner or later everybody needs a roof over their head. Latterly due to the massive ramp up in SDLT on all but the most basic properties. Moving costs on £1m property will be min £60k (of which 3/4 = SDLT) which has to be funded out of savings. In swathes of the UK £1m is not a palace, but just a pleasant say 4 bed family home.
In central London, where the stall mainly occurs, it is not so much that hpi is falling, but rather that top end transactions aren't happening. All are sitting on their thumbs (from which some businesses do very well - there's money to be made on understanding that insight). Unreported was that though central London prices fell, in Kensington + Chelsea they latterly rose +30% due to the impact of 7 transactions. So when confidence returns or SDLT is scrapped/further reduced, then hpi will rise sharply. As ever I just don't know when.
Of course there could be an external bonkers event causing hpi to implode. I have no idea what/when that may be (but certainly neither do those who have spent the last decade being wrong). But if hpi implodes then the banks are financially disembowelled & the CC is fully reinstated. So I can't see that as gov't policy.
You pays your money & you takes your choice. For my part it currently looks as if the next HAL hpi will be v strong, that come 2018 y/e the ONS will again show hpi ca +5%. Time for HC & TC to state how much they expect hpi to fall, rather than theendoftheworldisnigh routines.
Why do house prices (or indeed the price of anything) change? Economics 101 = the law of supply & demand. In short we build/supply far too few houses for our demographic size & mix (ie need). The population dynamic also means that this need will start to further exponentially accelerate from about now. Demographics are the closest you can come to a sure thing prediction of the future (have great sex today & in about 21 years you'll have a 20 year old). The UK supplies/builds at best a static number of houses to a reducing % of the population, who happen consequently to be the wealthiest. In short the demand side is growing far faster than the supply side. That's just the current run rate & at no point in the UK has the cumulative undersupply ever been addressed, thus accentuating pricing pressure even further. As I've pointed out before at the nadir of the CC we were running a 21st century population with a sub Victorian level of supply. What did anyone think was going to happen to prices at that point (well you thought they were going to keep falling! - LOL). The UK is barely off that position now, so pricing pressure still grows.
Rather than throw toys out of cot & whinge that everyone else is a clown(!) when facts never reflect your theories, it might be better to ask yourself why everything you've said on this bb over the past decade has turned out to be wrong. As has been observed: that's quite some track record.
You're not the CEO of TSB are you? He too seems detached from reality.
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