Statistics and damn statistics - London is a bubble? but out here in the real world it is a different story - the average house price is 217,400. With London prices around the half million mark that means the rest of the country has a average house prices of £100,000? Certainly round here, not cheap by any means, you can get a good terrace/semi for 100k to 120k. If average earnings of a housebuyer is £38,200, then that is 2.2 multiple. Its all rubbish of course as the average income is around the 28k mark, the 38k figure is probably because of London salaries. This makes it about 3.5 times - a more familiar figure. Contrast London prices which have possibly risen in real terms by 50% this century, where as in the North house prices have struggled to keep up with inflation. If prices stabilise in real terms this is no problem except in London where they need to fall? I wonder why many housebuilders have pulled out of the London market? incl Barratts
I would be far more interested in an article which explained where the 5 million growth in the population over the next 10 years are going to live - in trees? (Based on the last 5 years growth)
Help to buy, was a tool used to bail out banks balance sheets (loan/book). If you remember back to 2012, most building societies where to all extents zombies apart from the Nationwide. The Chelsea was in huge trouble with its "investments" in Icelandic banks. From 2008-12 the liquidity for mortgages had dried. Banks/housebuilders were in deep trouble, don´t forget the huge write issues by TW/Barratts. Historically SP´s don´t react that great after such incidences. Help to buy had nothing to do with helping the consumer, it was a back door bail out.
This is all that most western economies are based on now, a pyramid scheme of wealth caused by inflated prices. Notice now you could be seeing the end game. Pilger, has been warning for a long time, a war between China/U.S., which starts with a trade war. Look at Russia's accumulation of gold. Afganistán, it´s a ring around China.
The next crisis will be absolute carnage. It´s consumer debt that´s the problem. Look at all these PLC´s in danger of collapsing due to sizes of debt. Let´s not forget the Galith of all of this Deutsche Bank. No one is talking but February´s account were really scary.
"Whilst interest rates are so low, clearly a higher mortgage multiple is sustainable"
ocean - of course you are bang on.
And that's exactly where the danger lies, in that because interest rates are low, borrowing is assumed cheap? - It's the other way around and more important when you stretch your salary multiple when borrowing at low rates you expose yourself to a tremendous uncertainty if inflation and interest rates rise rapidly.
What might appear as 30% of your take home pay to service your mortgage (if you are lucky enough to get in at that level) then a surge in rates could see that rise to over 50% and then household incomes will really be stretched.
Of course no one on here thinks that could happen -- and they might be correct - but then again !!
I recall when I bought my first house. A distant memory now but I put something like a 6% deposit down and the mortgage was approximately 3 x my fairly average salary.
"The average salary in the UK is [now] £26K -- The average house price £234.7K".
An equivalent 6% deposit now would be ~£14K. That doesn't seem too onerous for a first time buyer today? However, that would leave a mortgage of £221K. That's 8.5 x the current average salary. Wow!
Help to Buy has helped many first timers buy their first home, but without it I think house prices would have fallen to a point where they became affordable without H2B - the usual supply and demand dynamic. Instead what happened was H2B coupled with historically low interest rates artificially propped up the housing market and effectively kicked the can of house price affordability down the road.
And here we are several years later finding the bar raised ever higher for new first time buyers but now we're staring into the face of several interest rate rises. When, not if, interest rates rise further the shock to the housing market could be more severe than it ever was in the past as this time the starting point is artificial.
The UK housing market is akin to a pyramid selling scheme - forever needing more buyers willing to pay a higher price than the last and now incentivised to do so. But as soon as buyers become scarce, just as they have en-masse in times past, the potential for a severe crash in the housing market is there and I'd go as far as to say it's waiting to happen. All it takes is one domino in the economy to fall over and the rest will follow. If I've painted an unpalatable picture then so be it because I can't see this ending well. Don't say I didn't warn you.
The average house price / average salary ratio really needs to have average interest rate factored in too.
Average new home buyer monthly mortgage payment / average salary ratio would probably not be anything historical concerning.
Whilst interest rates are so low, clearly a higher mortgage multiple is sustainable - with the obvious caution of what happens when interest rates revert to mean.
Buying ones first home has always been a stretch - it was in our day with mortages at 3 (+1/2) times salary but interest rates were 8/10pct . And in our day we didnt think we were entitled to two + overseas holidays a year, eat out regularly, a new apple iphone each year and starbucks cofffee twice a day! I am not sure its any more un-affordable now, its just that there are other "essentials" for the young to pay for too!
"One off the issues here is everybody quotes 'the number's' without thinking how they're constructed. "
The numbers haven't changed - the average house price and average salary are uoted the same way as they have been for years. Fudging the method and ignoring the reality is fine but don't think "It's different this time".
One off the issues here is everybody quotes 'the number's' without thinking how they're constructed. They are not the voice of God, but the output of a man made tool. The classic flaw of statistics is so long as the market/universe ticks along on the same old same then the model output is likely (though not always) ok. Once the universe changes then the models can give spurious output (though on the face of it, it may look 'sound'). This is why most of the 'shoot from the hipsters/doomsters' on this bb have spent the past decade calling the data/market wrong.
For example: what do you mean by 'average?' A mean, median or mode? UK mean asp is ca +£200k, median price ca £165k & modal price ca £125k. The distortion arises as the UK has (had) a very long tail of v high priced property transactions - ie the distribution is not bell shaped but skewed. With the UK having most frequent transactions clustering around the £125k price point, this does not look unsustainable to me. As SDLT/brexit worries impact reduces transactions at market upper ends / central London, then hpi reduces - but this does not mean prices at other price point are flatlining.
For a mean I could also ask are you working standard, arithmetic, geometric etc etc - they all produce different answers.
As to H2B boosting house prices - er, not quite. In 06 UK completions were a 25 year record high of 230k. Post the CC by 09 UK starts fell to ca 90k, which is lower than the average build rate during the reign of Queen Victoria. What did anyone think was going to happen to hpi by running a 21st century society with a Victorian level of supply?! So hpi turned on a sixpence. If people can't buy the builders can't sell & if they can't sell they won't build. Of the current 200k completions in the UK at least 1/3 are supported by h2b. so without H2B supply would be max 120k - a late Victorian run rate. What do you think this would be doing to pricing?
Toy r us is closing down, nothing to do with the economy but because it was bought out by venture capitalists who used its capital assets to fund the take-over & then put it back onto the market with mountains of debt. Very much like what the Glazers did at Manchester United. Debenhams is the same, venture capitalists. Carrillion - There is a Spanish company just the same. When the Spanish crash happened, this company went into South American contracts, bid to low & there was no one to bail them out. Carpetright, it´s just amazing how they have lasted this long, saddled with colosal debt.
It was the late 90´s thing, when shareholders demanded that corporates sell all their assets "freeholds" & exchange them for leaseholds. Jarvis Hotels, was another if I remember correctly. Chasing shareholder value at all costs is more to blame that the state of today´s UK economy. If all these companies still held their freeholds, they still might be very much viable companies!!!!!! Remember those crazy 90´s days!
Don´t forget with houses too, they can cost hell of a lot to maintain. Electricity/gas/council tax going up by at least 10% a year.
"Starter home (new build) house prices continue to strongly rise. There are wild levels of unfulfilled housing need in the UK & this is only going to intensify for the foreseeable future."
It's a shame incomes won't be able to keep pace to support the payments on the loans , or the deposits to kick off the sales -- it's already reaching saturation point.
The average salary in the UK is £26K -- The average house price £234.7K -- that's a ratio of 9X.
The average over the long term is 3.5X to 4X first salary.
Look around you - shops are closing at a rapid rate - many are losing their jobs - ToysRUS; Maplin; New Look; Debenhams; Marks and Spencer; Carpet Right's on the brink. Corporations are screwing up big time - Carillion; Capita; Provident Financial; Microfocus - they are appearing almost one a week.
You are into 100's of thousands losing income -- the sums don't add up.
Help to buy is distorting the market - is it not obvious this is a short term measure that solidifies the prices for the builders and is making the market lopsided - with resale prices falling and the gap widening between the value of a resale and that of new build since everyone is locked out of resale without a 20% tax payer HTB loan- It's a sick situation forcing huge debts onto young people who seem oblivious as to what will happen when interest rates, quadruple or worse.
It's insane and when HTB is withdrawn surely you are looking at a pack of cards.
HC makes the point that it's all about availability of credit - nothing else matters.
It has little to do with demand, or else we'd all be driving around in whatever car we wanted. Want and Need are not funded from thin air.
Interest rates are rising and that is inevitably putting a clamp on credit assessment - as the rest of your living expenses must be taken into account.
Maybe the plates can be spun for a couple of years, who knows!
Meantime Berkeley state the obvious. The gov't has targeted lifting new build supply from ca 200k pa (at the moment in the UK) to ca 300k. If you want to jump output in one of the major parts of the economy & the most labour intensive by +50% then this begs a few questions.
Where does the money for land buying come from? This will require industry investment of £100bn (double the amount the gov't paid to recapitalise the UK banks) on land alone.
Where does the (skilled) labour come from? This will require ca 1.7m workers. Answer - not without permanent immigrants - who will also require housing whilst building your home!
Where do the materials come from? The supply industry has never supplied for more than 190k units pa over the last 35 years. There is no excess capacity.
How will the planning system cope? This is already the biggest bottleneck & wildly dysfunctional. No one gets a quart out of a pint pot.
So Pidgeley who knows the new build market inside out is stating the obvious. New build supply will stall @ 200k units pa for the foreseeable future, whilst demographic need relentlessly rises. This implies more pricing pressure.
Starter home (new build) house prices continue to strongly rise. There are wild levels of unfulfilled housing need in the UK & this is only going to intensify for the foreseeable future.
House prices are not based on simple supply & demand but on the availability and cost of credit. This is where many of you are going wrong, this is how central banks collectively in the EU/U.S. have inflated their property markets once again
Don´t forget the steal tariff thing goes a lot deeper, the cost of importation of things like cars from south/east Asia increases dramatically. I am not a Spurs supporter (anything but) but if you look at their new stadium all the steel used in construction comes from China, probably the same with the London stadium, Wembley etc. It´s more a trade war tool than you think. It´s an inflationist tool as well but this goes against what the U.S/EU has stood for since the early Regan, era Neocon free trade. What this Neocon free trade has done is move high pollution industries such as textiles/electronics over into non regulated countries. Look at AIDS soaring in Indonesia, nothing to do with the retrovirus (if you believe the HIV/AIDS theory) but everything to do with toxicity spilling out coming out of the factories into the local water supply. C4 did a good documentary with what´s going on in Indonesias rivers.
Berkeley indicate that they are at realistic capacity -- gamesmanship on both sides it seems.
According to Berkeley it's all the govmints fault :-
"The FTSE 100 company also pointed to a fall in domestic buy-to-let investors, who have been hit by increases to stamp duty, and the time and complexity of getting on site following planning approval.
""Shares in the company were down as much as 6.58pc on Friday, to £35.65, leaving it at the bottom of the FTSE 100 and dragging down peers Taylor Wimpey, Barratt and Persimmon, which each fell more than 1pc.""
"you may need to think/look deeper into what Brexit actually is and implies."
HC -- The trade war looks like it's being initiated by the Donald. Many don't like it and the steel tariff is questionable given the number employed in US steel production compared to the number employed in the US steel consumption industries.
The Donald perhaps is not a stupid as people, who are alarmist of thought, are assuming. He's using it as a negotiating ploy with the EU's protectionism and China's steel walls.
Since global QE started in 09 over $14 trillion debt has been created in the U.S. alone, so the servicing costs with a 1% rate rise go up by around $100billion. You look at banking tier 1 capital to Italian sovereign debt alone, this alone could bring down many big banks, & we haven´t even discussed Spanish sovereign debt most of which has only been sustained by the absolutely colosal ECB QE programme.
Can the UK consumer really afford 1%-2%-3% % rate rises. This is all what most western economies are about, house price increases as the source of wealth. Look at the video I posted on the Tesco BB about an upcoming world trade war. Is Britexit, an excuse by the UK government for a trade war? Let´s not forget its huge negative balance of trade. No wonder the likes of Germany/France are scared with retaliation against the City of London.
I think gamesinvestor, you may need to think/look deeper into what Brexit actually is and implies. Have as look at the video, it will definitely make you think.
axo -- you must be praying for Jezza to get in to start the borrow and build, as there is no way that HTB will be sustainable for ever. I mean there has to be a limit of price increases before the average wage earner just gives up completely?
"Every political party vows to increase house building - but non ever succeeds beyond a standard set of houses built each year give or take a minor variance"
Indeed games - but this is the first time we have had a Tory party in power which, if it fails to persuade more of the young to vote for it, could be pushed aside by a Marxist labour party. Building substantially more houses will not just be a nice thing to do. It will be essential.
""People have to live somewhere". They certainly do. Downtown LA!"
It's a growing problem and not just in LA -- it's almost everywhere in the western world.
It does seem impossible to correlate the discrepancy between the average earning capacity and the asset values involved in 4 walls and a roof.
My kids have just entered the property market and I helped finance it with a heavy heart, as I'm conscious of where we are in the market - it's dangerously high and I hope they can stay employed to cover the large mortgages required to get those roofs and walls.
Each bought at £276K and £230K respectively -- the first on two incomes, the second on one income, but both with large deposits from yours truly, without that it would have been impossible.
The alternative to rent was even more expensive all told -- so here we have in the first instance a combined income of £40K supporting a £200K mortgage and a house price to first income of 276/23 = 12X -- when the hundred year average is 3.5X to 4X first income.
The second is a little lower but similar exposure.
I hope I don't have to stand in and bail out the payments if the interest rates rocket and the employment situation changes.
The alternative is that they all carry on living at home -- I don't mind but they obviously want their independence.
I've never seen valuations like this - they are truly off the scale and you could look at this logically as any high school educated kid who has studied simple mathematics . You can chose to ignore it - which I think is the trend -- or or can take note and watch out.
I mean - what could possibly go wrong?
I know HC appears a harbinger of doom, but in this instance I think he is close to the mark - so close in fact it's scary.
With out the HTB program propping up the new build you would see such a fall out - BDEV and the other participating builders better hope that the political system keeps it in place or your share prices might halve from here.
Every political party vows to increase house building - but non ever succeeds beyond a standard set of houses built each year give or take a minor variance.
"History never repeats itself but it often rhymes"
Critics of of us bears often accuse us of getting this bull market wrong, perhaps to some extent they are right, we just never saw many of these central bank policies of being so much of a success. Perhaps in hindsight we never envisaged central banks wanting to inflate 2006 bubbles again.
Low volatility index (VIX). Over the last 20 years, the CBOE VIX has closed below 10 on only 21 days , 13 of which have been in the last 2 months . The current streak of 270 days plus days without a 5% drawdown on any U.S. indice is the longest since 2006. Meanwhile U.S. equities continue to diverge from earnings. Schiller´s cyclically adjusted p/e ratio (CAPE) has only been higher 2x in market history, 1929-2000.
When house prices start to fall, all those loans taken out on increases in capital start to look incredibly riskier. The crash is coming.
The moving finger wrote: 'you have been weighed in the balance and found wanting'. And that night all the house prices fell through the floor, share prices collapsed and there was universal wailing and gnashing of teeth.
On the other hand people have got to live somewhere and housebuilders are the ones who build the houses so why don't you harbingers of doom get real and stop moaning?
Yes. As it always has been. RICS = 2ndary mkt. Enquiries to sell fall far faster than enquiries to buy. Consequently demand levels actually increasingly outstrip supply levels, implying increasing pricing pressure. With stock at an all time low in the 2ndary market the only source in town if you want to buy a home is the builders who appear a favoured niche in the housing market.
For hpi it matters not whether transactions are in eg the ten thousands, the thousands or the hundreds etc. It's the supply demand (im)balance which is key. Also if the the UK only sold one house & that house were Buckingham Palace, the hpi trackers will cheerfully tell that all UK housing is worth the price of BP & that prices have soared. With central London & the general upper market simply not trading (I think due to SDLT impacts) at some point in the future when they trade again hpi will 'soar.' I don't know when bite point occurs, but UK housing demand/prices are massively stoking up again.
BAR v solid steady as she goes no.s. No probs here. Prospective dy +8% net but as any fule kno theendoftheworldisnigh etc. My take remains base camp fair val +£9. No.s look a tad weak, due to one off weakening arising from fall in jv/London, that is exiting high asp & margin central London & bumping up outer London @ asp sub £600k (h2b threshold).
But the general market backdrop is sound. No stock = restoking pricing pressure. Some initial signs London starting to re-emerge from hibernation & also ditto cash buyers. In which case BFR, as Elon would put it.
Interest rates will go up because the economy is improving, which means business will be doing better. An increase in UK interest rates will lift the £, reducing costs of fuel/oil & food imports, reducing inflation, increasing real wages. Mainly a rise interest rates/gilt yields will markedly reduce pension liabilities, increasing balance sheet values, increasing company valuations. Quite a few positives there.
taffy thanks for confirming that none of your assumptions are based on a single thing from the real world or substantiated by any fact or truth. And thanks for also proving that you are not man enough to hold you hands up and be honest about the incorrectness of your so called past "opinions"
again more complete nonsense and nothing but guesswork
first how do you know i didnt sell at 700p? what about 600p?
how do you know if even bought BDEV in the first place?
where is your proof i didnt buy in at 40p and have collected even more in dividend than my original buy price since, which would mean profit is made even if i havent sold a single share..............how does that fit in with your theory "its on(ly) a profit if you sell"
again showing the real level of your intellect there taff
"The idea that everyone knew emergency rates would last 10 years and money printing and other props would continue and fuel asset bubbles is laughable"
absolute, unadulterated lies and drivel!!!!!! that shows the level of your intellect and anyway the 10 years comment is nonsense, when QE starts you go long until the central banks tell you they are going to stop, they didnt say they were going to stop after 6 months, a year, 2, years, 4 years etc......so you stay long.......only a complete simpleton would go short
"Commentators were talking of big rate rises to stem inflation from 2010 onwards"
some might have been, but the majority wasnt, and fact is the central banks didnt do it, so you stay long, again its not rocket science.........7/8 more years since 2010 of no rate rises and highs on equities so another nonsense point made taff
"Try also to argue the point not the person nothing is a one way bet bears like me did well on oil and oilers plunge and the big falls on builders shares"
people have been trying to counter your nonsense for years and even in the face of being proved wrong day after day after day after week after week after year after year you are still on here spouting the same nonsense, sorry but you used up your right not to have it somewhat personal
and also show us proof of a single short of yours on a oil share or one single bit of analysis from you that said oil should fall etc?...... so again that is almost certainly a lie, because all your posts from the last few years have been LLOY or BDEV...............and you have the audacity to talk about hindsight trading!!!!!
and "big falls" on house builders so lets see, buy BDEV at 40p when taff said sell/short and watch it hit 700p years later and take home big fat dividend too, but you want to argue that you did "well"just because it fell for a very brief time and recovered extremely quickly following brexit?
basically you are disregarding the previous 8/9 years of shorting during a near 20 fold return on investment and patting yourself on the back because it was lower after brexit for couple of months?..............and even if you did make money on it (so unlikely) the reason for the drop actually had ZERO to do with your theories about house price crashes, so it would have been pure luck and not even remotely based on good analysis?
come on taffy lets see if you are man and honest enough to admit you have been wrong for the majority of the last 8/9 years?
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