Singing Pig

cbs7:

Hi Roofman some ideas to consider:

1. Estate agents have run out of wall space for sales and renting details in my areas where I have BTL's. So where have all the residents gone leaviing leaving dozens (if not hundreds of empty properties - they must be living somewhere.
Yes when things get bad economically (i.e. recession) people cut back so they may move back in with family, share with others, try and get into governement housing, if they are migrants they may go back home or if they are British they may leave in search of better opportunties in other countries. Of all this = LESS DEMAND for housing

2. If there are all these empty houses and flats why does the Government insist that it needs to build 200000 + houses each year ?

Because governements are by and large stupid and take years before they understand things have changed. They also don't like to believe (admit?) that they are wrong so they persist in bad ideas.

3. I don't see house prices dropping all that much around my part of the world despite an abundance of properties for sale.

Reality has not yet set in to seller's minds. Everything will come in time and prices will fall to the highest bid available. For example if there are 10 properties on the market around £200K and there is one 1 person willing to buy and that person only bids £170K, then it only takes 1 of those sellers to need to accept a sale at that price. That £170K then becomes the new market values for all those properties which were £200K previously. At this point it is still very unlikely that market conditions will be much better, and there will be still be 9 properties on the market plus any new ones which come along. Now as the new market value is £170K the next lonely buyer who comes along will maybe only make a bid at £150K, and so on it goes. The drops may be harsher or more gradual depending on market conditions but they will slowly grind down prices over a period of many years. This is the EXACT OPPOSITE of what happened on the way up where bids over the market value became the new market value.

4. The Lenders HAVE to lend mortgages in order to survive so what is the fuss about - OK ,I know that they will ask for larger deposits. But with BTL properties with tenants already in place and reasonable equity I should have thought that BTL landlords would be well placed.

The lenders are currently in a competition bewteen themsleves to stay alive and not go under. One way they will stay alive is by drastically cutting back on mortgages and if they do make them they will require either much much bigger deposits or much higher interest rates. It is by continually expanding that lenders like B&B and Northern Rock are on the verge of bankruptcy. The banks know this and they are hoarding cash, because they fear a bank run when the public finds out about the huge losses they have made and still have to come, so they are not lending their cash out except in the very very safest of circumstance. Houses are now a much riskier proposition due to falling values which is why they aren't keen to lend for people to buy houses any longer.

5. Why do the Gurus keep pressing us to buy below market value. I reckon that there is no such thing. If a property is marked at £100000 but you can get it at 10% BMV then £90000 IS the market value.

Because that is their business. Do you think an estate agent would ever suggest it was a bad time to buy property?

The best time to buy property will be when everyone thinks you are mad to, and my guess/expectation is that this will be around 3-5 years from now. At that point you will be able to make offers at around 40-50% of what you would need to make now.

Conserve your capital in safe investments until then and you will do very well.

CBS,

1st ... i don;t think you appreciate that it is only an option for a small % of tenants to move in with mum and dad or to get a council house.  i would say 90% of my tenants (no .... 99%!) would not consider that option except in the most dire circumstances.  in fact, a tenant of mine recently did this ... 2 kids and pregant mum plus boyfriend, moved back in with her mum and dad ... called me a week later to move back in!  no problem i say, exept the rent is now £595, not £520.  no problem she says!  it simply isn't an option for the majority of my family tenants to bunk up with another family / move into mum and dads / move country!

2nd ... you have a view that price will fall 40-50% in 3-5 years.  personally i feel that is not going to happen.  each person on this forum needs to think about how likely THEY feel it is, and then make their decisions based on that view.  clearly, if 40% falls are imminent, buying houses at anything less then 40% less than what they are worth NOW is madness.  however, what if prices fall only 10-15%, and you are able to buy at 25% BMV with +ve cashflow ... why not?  it depends on your view. 

3rd ... (gurus) every house has a value at a point in time, plus or minus (say) 5% after taking into account location/condition etc.  it is nonsense to suggest because the best offer is £20 that the prop is worth £20 ... utter tripe.  at the minute, there are lots of willing buyers, but not many able buyers. there is a world of difference between the two.

4th ... banks are rationing funds becasue they have little to lend.  not becasue they fear a house price crash.  (read that again!)

5 ... er, thats it>!

wizhard:

Conserve your capital in safe investments until that time (3-5 years)

where is that exactly? under the matress? are there any really safe investments today, except maybe gold?

and if the property market does fall by 40-50% as you predict, it will be just as well, because that is what your money will be worth by then

Very good point wizhard, you are absolutely right. Gold bullion is probably the safest investment until that time. You could also throw in government bonds, but they run the risk as you say that the purchasing power will be worth 40-50% less, however I wouldn't expect this in terms of property. There are some interesting gold-house price historic ratios which suggest that the price of an average house in ounces of gold will fall much faster than in nominal prices. If you are interested I will post them but I don't want to come over all gold-bug on a property forum

SpeedyThing:

What's wrong with a 6-7% savings account? May barely be keeping up with inflation but beats the hell out of negative investments... Seriously - there are SO many ways to invest money in this world and in the age of the internet it is getting easier to partake in them.

And Pete. Do you really expect monetary inflation to total 100% over the next few years? I predict official statistics (not that I believe em!) to say about 12% total over the next three years. If that is the case (and property drops by a more modest 30%) then it would indeed have been better to put the money under a matress.

The danger the way I see is more that the bank you have your savings with will go bust. The FSA compensation scheme has ZERO reserves to pay and only the mandate to levy a restricted amount from all the other banks - it will be fun to see them try this at a time when the banks are desperately trying to scrape new cash together through rights issues. So when the FSA can't pay out for the bank which has gone bust it will be up to government to step in, at which point they will have no option but to print off brand new money to compensate the depositors. Printing this money will be hugely inflationary, so yes there is a great danger of very high inflation during this period.

"Safer" (assuming you don't believe the governement will go bust) are National Savings and Investments index-linked government bonds which pay out tax-free amounts linked to the Retail Price Index. Or gold or silver bullion. These are the safest investments in my view for the coming 3-5 years, but there are also riskier possibilities such as energy, mining and commodity-related shares which could give you greater rewards but also greater risk.

millionaire:

Indeed Pod!

 One of my mortgages SVR is +1.25% over  base so I won't be re mortgaging
 

Same here. I naturally started to look at my re-mortgage options then realised there was no need.

Pod:

CBS,

1st ... i don;t think you appreciate that it is only an option for a small % of tenants to move in with mum and dad or to get a council house.  i would say 90% of my tenants (no .... 99%!) would not consider that option except in the most dire circumstances.  in fact, a tenant of mine recently did this ... 2 kids and pregant mum plus boyfriend, moved back in with her mum and dad ... called me a week later to move back in!  no problem i say, exept the rent is now £595, not £520.  no problem she says!  it simply isn't an option for the majority of my family tenants to bunk up with another family / move into mum and dads / move country!

2nd ... you have a view that price will fall 40-50% in 3-5 years.  personally i feel that is not going to happen.  each person on this forum needs to think about how likely THEY feel it is, and then make their decisions based on that view.  clearly, if 40% falls are imminent, buying houses at anything less then 40% less than what they are worth NOW is madness.  however, what if prices fall only 10-15%, and you are able to buy at 25% BMV with +ve cashflow ... why not?  it depends on your view. 

3rd ... (gurus) every house has a value at a point in time, plus or minus (say) 5% after taking into account location/condition etc.  it is nonsense to suggest because the best offer is £20 that the prop is worth £20 ... utter tripe.  at the minute, there are lots of willing buyers, but not many able buyers. there is a world of difference between the two.

4th ... banks are rationing funds becasue they have little to lend.  not becasue they fear a house price crash.  (read that again!)

5 ... er, thats it>!

Pod

I'm not saying tenants will want to move back home/share, etc. It's just that they may not have any other option when they lose their job, can't take out another credit card. Many will do everything they can to avoid this, which includes looking for lower rents again putting downward pressure on rents. This is what happens in a severe recession - it isn't very nice - but people don't tighten their belts through choice but because they have to.

Remember we are only just starting into the coming recession and things do not look pretty. Of course I could be wrong and like the government says there is nothing to worry about, we have a strong economy, low inflation, low interest rates, low unemployment, blah blah blah

I don't know exactly what % house prices will fall by - those figures are my best guess at this point in time. The best thing is to review every 6 months and see where things are at that point. My guess is prices in 6 months time will be 5-10% lower than where they are now. 6 months after that I don't know, but if pushed to guess I would say another 5-10% lower again.

I didn't say there would be offers of £20, you are putting words into my mouth. I said that actual sales whether below or above the current market value generally end up becoming the new market value after a period of time. How else did house prices move upwards? Simple because prices were paid over asking prices during the boom years, so gradually these paid prices became the new market value, until they were bid up again over that price and these even higher prices became the market value, and so on. Exactly the same applies on the way down. How do you define market value otherwise? Is is a price which only moves upwards and can't fall?

Yes I said banks don't have many funds, and they won't do for a very long time, because there are so many losses they still haven't disclosed. But the fact that house prices are falling will make them even more reticent to lend. How much money would you lend to someone who wanted to go out and buy something that (without taking an extreme view) is likely to be worth 10% less in a year's time?

speedything:

I don't think I suggested that monetary inflation would be 100% over the next few years any more than our friend CBR7 suggested that house prices would drop 100% over this period.

but anyone who really believes that inflation is running at 3-4% really needs to get out more. like to the supermarket. or the petrol station.

CBS7:

not sure I understand your point about historicgold-house price ratios. I would be interested to see the figures you mention.

wizhard:

CBS7:

not sure I understand your point about historicgold-house price ratios. I would be interested to see the figures you mention.

There are some good ones at http://gold.approximity.com/gold_vs_property.pdf (this a pdf download). You have nominal prices, prices adjusted for RPI (the governments Retail Price Index), the Gold Price (nominal and RIP-adjusted) and the ones you are after are on pages 4 and 5.

My interpretation of these is that average house prices will eventually fall back to being worth somewhere between 100 and 300 ounces of gold rather than the approximately 400 ounces currently or 700 ounces at the peak. The practical point being that say you had £175K (the average Nationwide house price) of capital right now, 3 possible options (among others) could be:

1. Buy a 175K value property. In my view this would be a fairly bad idea given declining prices.

2. Stuff it under the mattress, in government bonds, the bank, etc and purchase a better than average property in 3-5 years when property prices are lower

3. Current spot price for an ounce of gold is £467.49 so you could get about 370 ounces of gold. In 3-5 years you might be able to swap that gold for anything between 1 and 3 houses plus have some gold left over. Because gold adjusts its price to monetary conditions it will probably buy that much house regardless of what the price of gold is.