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another article on worldwide house prices.
The last 3 paragraphs re govn support, are what I believe will be some factors affecting housing market over the next few months.
US house prices see biggest rise in 30 YEARS and are outstripping Britain's pandemic-fuelled boom: Is a global housing market bubble emerging?
"However, there are concerns about what will happen when the furlough scheme comes to an end at the end of October.
'The X factor will be unemployment,' Hewson added. 'How many people will still be in a job once the furlough scheme ends?
'How many mortgage holidays will result in quick sales? There's no getting away from the fact that the next few months will be difficult for many people once support is withdrawn.'"
https://www.thisismoney.co.uk/money/mortgageshome/article-9740915/US-house-prices-biggest-rise-30-YEARS-April-housing-market-bubble.html
Re My comment at start of this msg stream
"Worldwide house prices too high and due a correction."
Article in The Times:
"Is there a global housing market bubble?
Think the UK property market is crazy? From the US to Sweden, house prices are rising all over the world. David Smith reports"
https://www.thetimes.co.uk/article/is-there-a-global-housing-market-bubble-ns0xtgktw
The BOE will just print another 300 billion and this will not impact inflation by much, It's all about the faith and belief and trust global investors have in the UK plc, BOE will end owning most of the UK debt in time, it all a con really but as long as those global investors/pension funds, trust the UK plc then rates will not go up by much.
If/when they do go up it will be keeping up with the other trusted currencies with similar interest rates.
Slow and steady the global ship will sail and most will not stray far due to unknown risks.
I'm no macro expert but my thinking here is that rates can't really go much higher than 5%. The UK's budget for 2021-2022 is I think £1,053 billion. Of that £45 billion is debt interest payments or about 4%. Obviously that's not all paid at the current 0.1% rate or it will be much lower.
The current national debt is £2,131 billion. I don't know the exact structure of the national debt and when it comes due, I think they roll it over in bits, etc. However, if we assume that long term interest rates go back up to 5% which is what we had before 2008 and the all debt gets rolled over at that rate things look pretty ugly for our government. £2,131 * 0.05 = £107 billion. That would be 10% of the national budget. Certainly we won't go bust but unless we get hyperinflation I don't see why the UK government would do this to themselves. They will probably try to go up to half that or 2.5% which will match their current payments. And IMO it won't happen any time soon.
In this bear case scenario of course the HBs will take a hit but people shouldn't really lose their homes. I believe most banks do check that people can afford their mortgage in case they are moved to the standard variable rates. For that I think right now they assume 4.8%. So most home owners can afford a 5% rate. Of course the standard variable rates will be higher in case we have 2.5% interest rates I think they are 3.49% above the BOE rates. So they might get up to 6%, slightly higher than 5% but I don't see many people losing their homes.
I use 1%, 3% and 10% rates when looking at impact of potential rises.
A 1% interest rate rise for a person who is mortgaged to the hilt at 3% will have a far greater impact on their outgoings than a 1% rise for a person mortgaged to the hilt at 10%.
Hence why I think 95% mortgages for first time buyers is a crazy idea.
Krusty, lol...
Well it's all going to play out in front of us over the coming weeks/months/years stt1. I can't help thinking the biggest factor in all this has yet to emerge (Russia, the USA, China...??) but we'll see. I think the only thing we can be certain of is it's going to be a bumpy road ahead for sure. Thank god we're not an island nation with virtually no resources left and detested by the rest of the world. Oh, wait...
Dimi,
There's where house prices could go and where they will go...
I have no view on the latter, not being the proud owner of a crystal ball nor a regular drinking companion of Captain Hindsight...
But the former is interesting, and low interest rates can change everything...
At first glance, it would seem that house price multiples couldn't go higher for first time buyers but, actually, they could.... potentially....
I'm self-confessedly a bit of an anorak for looking at things through a spreadsheet, and I've played with the numbers on this in the past.
Take two mortgage interest rates, 10% and 1%, a bit excessive, perhaps, at each end, in order to emphasise my point, but not by that much if you look back to the '70's when I had my first mortgage.
And apologies for a lot of numbers here, but the point they illustrate, IMO, is interesting.
At 10% interest rate, annual repayments on a 25 year mortgage equate to 11.02% of the amount borrowed.
So, if you reduce payments by just 9.2%, you'll be paying for 100 years as by then you're virtually only covering interest.
In other words, at 10%, a twenty five year mortgage is right on the edge of the maximum borrowing period that makes any sense.
However, at 1%, you could reduce your payments by 65% to make it a 100 year mortgage.
Which is way different.
You could double the size of the mortgage, and it would still be do-able....
And houses are surely built to last more that 25 years, even if 100 years may be stretching it.
And in the same way that the Nationwide graph gives the big picture on house prices, so does the one on the link below when it comes to interest rates.
https://www.visualcapitalist.com/700-year-decline-of-interest-rates/
They've actually been falling overall for 700 years, long before quantitative easing was even a twinkle in Rishi's eye...
So, ignoring the huge spikes in between, can you see anything likely to get in the way of that long term trend?
Which may have a dark outcome for fiat currency, but all that's some way above my pay grade...
Hopefully you can see that I'm not making any predictions here, as I acknowledge that I live in the world of track records and likelihoods rather than one of certainties...
But track records do tend to prove quite reliable, though.... :-)
The other possibility, of course, is of rampant wage inflation.... just because we haven't seen that in decades doesn't necessarily mean it ain't about to make a comeback..?
Strictly
Krusty,
I agree to some extent. I think the 'economic boost' we've had is short term because of pent up demand. People were desperate to go shopping, go on holiday.
I think with the furlough scheme still in place, millions currently have a lot of time and money. This i think, gives a 'false' sense of security and hope that all is fine.
The real test will be later after furlough has completely ended, repossessions are in full swing.
Yes, HBs have done well but that is primarily due to the govn schemes and the demand to move to bigger homes.
However, govn can't support the housing market forever. SD hol ending, new Help to Buy is only for First Time Buyers and has price caps. FTBs are needed to keep the supply chain going. Affordability problems is likely to prevent FTBs from joining the supply chain.
Strictly, thanks for that. Super helpful. I feel with investing one has to look past the narrative and dig into the numbers and that chart does exactly that.
It also confirms my suspicion that house prices have been suppressed since the Brexit vote. If you look at the chart they were in trend before 2016 and since then they have been below trend. With Brexit now done and dusted, Covid hopefully being less of a problem and people's savings account having grown during lockdown I think the housing market might stay white hot for a little longer than people expect.
For anyone interested in the longer term historical perspective on this, to see where we are as a nation on house prices relative to the price trend since 1983, go on to the Nationwide's website and, in the "UK Series", click on "UK House Prices Adjusted for Inflation".
The graph there clearly shows that average house price growth has been 2.5% a year net of inflation and that, right now, house prices are quite substantially below the trend line.
In other words, if the Nationwide's graph (which is, after all, based purely on the numbers rather than upon the idle speculation of pundits...) is anything to go by, houses are due to go up in price from here not down.
Though that does not, of course, preclude the possibility that they may still go down in the short term.
Oh that life was so easy...!
https://www.nationwide.co.uk/about/house-price-index/download-data#xtab:uk-series
Strictly
stt1, that all makes sense in the context of the central premise, "the period of economic downturn we currently face". In my view, we've had our Covid-induced economic downturn, particularly in this country, and we can now look forward to a period of strong recovery and growth. Having said that, the government faces years of struggle trying to pay down the debt, it's to be hoped that the current inflationary pressures are only short-term, as forecast by the BoE amongst others.
So the challenges remain, but there's no doubt the HB's have proven resilient when facing the most challenging period in economic history since WWII, no reason to believe they won't ride this out too.
Rogue,
Thanks for those definitions.
How can you tell if there is a house correction or price crash, as per your definition? Given when the prices start to fall, nobody knows how far they will eventually fall.
A crash and correction can only be defined in hindsight.
As the extent of the fall is never known when prices begin to fall, HBs would be impacted in either case.
Plus house prices falls in other countries would impact the UK.
This article refers to Correction/Crash as the same thing:
"While the housing market itself is not the catalyst of the period of economic downturn we currently face, as it was in 2008, investors and homeowners alike find themselves caught between this data and warnings from market experts that a “correction”, aka a price crash, could be creeping up on the horizon."
"This trend is not exclusive to Britain. It is replicated across Europe, particularly in Germany where there have been sharp house price rises. The same has been seen in the Netherlands, Portugal and Poland. Similarly, in Russia, prices have soared despite the country’s GDP contracting, helped by state subsidies, which has prompted fears of a “coronavirus bubble”.
"
https://inews.co.uk/opinion/house-prices-uk-rising-worrying-trends-government-higher-bigger-fall-786789
stt1 said:
"What's your definition of a 'healthy correction' and how does it differ from a crash?
Any correction or crash, will have an impact on HBs."
My understanding accords with the definitions below. A correction would probably have a minimal and temporary impact on HBs, while a crash would most likely cause a steep and sustained fall.
What is a property price correction?
This is when there is a minor drop in the market, usually when the home price index falls by not more than 10% from the highest price within a year. They happen more frequently than you might expect and are actually a good thing as they help to restore balance to the market and prevent over-inflation of prices.
What is a crash?
A crash, on the other hand, is much less common than you might think and is when the price index falls by more than 10% from the 52-week peak value. They are relatively rare and are usually accompanied by a strong decline in other economic areas, such as an overall recession.
The cost of materials has rocketed
Rogue,
"There may be a healthy correction in house prices in the next couple of years, but a crash? "
What's your definition of a 'healthy correction' and how does it differ from a crash?
Any correction or crash, will have an impact on HBs.
house prices will move higher with inflation in the longer term. sometimes overshoots sometimes undershoots. this is the case over the last 100 years. it wont change. the housebuilders are all going to have a great next 12 months at the very least. the vaccine news took the shares to a reaction high of 150p and there is a swing low at 145p. i wouldnt expect the shares to move below there unless we have another major event. there is a gap to fill at 155p which is retty close to the 200dma. i am presently mkt weight these but will begin moving overweight from the mid 150's.
I may be bearish on TW, but I do not agree with your conclusion, stt1. There is a shortage of housing in the UK, which shows no signs of abating. People are living longer and the number of single-person households is rising exponentially. There may be a healthy correction in house prices in the next couple of years, but a crash? I very much doubt it.
I think we're now in the period where things should start getting interesting.
As govn support schemes, SD hol & Furlough wind down, I see the following as challenges for HBs:
SD Hol ending.
Furlough ending in Summer.
H2B now first time buyer only, with local price caps.
House prices too high compared to avg incomes, so affordability problems.
Several providers not providing the govn guaranteed 95% mortgages for new builds.
Ongoing Leasehold scandal redress.
Ongoing cladding redress.
Inflationary pressures, so increases in interest rates.
Worldwide house prices too high and due a correction.
I'm expecting a house price crash...
Anything else??