Anticipating major slowdown in UK housing market

Thoughts?  Are you holding out to buy, waiting for the market to 'correct'?  We'd like to buy but want the market here to slow down, prices to fall (and the dollar to strengthen!!)

The UK's rampant house price inflation is likely to slow down dramatically in the next year or two, according to a former government economic adviser.

The prediction comes from David Miles, the Morgan Stanley chief UK economist.

House prices have risen more than twice as fast as general inflation in the past 10 years.

But Mr Miles, a former government adviser on the mortgage market, says house prices will soon slow down so much they lag behind general inflation.

http://news.bbc.co.uk/1/hi/business/6172088.stm

House prices won't go down until people refuse to pay rididuously high house prices.

Which won't happen so fast as long as:

1. parents with substantial savings buy homes for their children (who otherwise would not be able to afford a first home)

2. Wealthy people spend money on second/holiday homes.

3. Banks offer people mortgages with extremely low downpayments/long lending terms (some are offering 40/50 year terms now), so people purchase homes at prices they could never afford based on a "traditional" mortage.

Supply and demand.

Hi,

Much is dicussed about the house price 'correction' or 'crash', and I reckon on anther news site you'll still see headlines like 'another record month of house price increases' and 'market showing no signs of slowdown'

I wanted to buy in late 2000, just after the dot.com bubble burst and the economic slowdown/ semi recession that followed. I was 'justtt' missing out on the mortgage multiplier thing for my salary to get the place I wanted, so I thought I'll wait as the recession kicks in and prices come down -

They didn't. Even after Sept 11th - when the economy already low could have really sunk - I was poised to buy, the flippin prices kept going up!

historically, yes we are 'due' a pricing correction, but rather than the crashes like 1989 and prior, the government now knows how to control it better and so the gradual interest rate rises will bite in to cuase a 'gradual' reduction.

as for the £ Vs $ - it's fantastic for us as we import and from other threads I've said this on, most importation is done in USD! so we are getting relative fantatic value for money !

From another economic specialist - the USD risks falling further in terms of value espeically over the growing economic might of China - so possibly may hit £1 = $2 soon!

but like anything it's hard to predict, and various political 'goings on' could cause it to recover or indeed dip further - who knows.. if it does dip, then I'm putting one of my 'special plans' into action quite quickly methinks!  hahaww!

DtM! West London & Slough UK!

So, Dennis (thanks for your reply), do you think there will not be a significant correction in the next five years?  The historical cycles do not apply as much, it will be gradual and less of a correction?  It is confusing at times, because it does seem other factors (steering people towards borrowing heavily to mortage, low interest rates, etc) manage the housing phenomenon and things don't change very much.

We planned to be on of the dot.com millionaires and unfortunately, our shares (in the start up) didn't vest in time (required 4 years) so our on paper wealth disappeared very quickly before we even got close to cashing in.  So I know what it is like to read the predictions, 'this cannot last' AND experience it first hand. 

Seems as the housing situation is similar and will follow the previous cycles.  But then, I'm really looking to buy in the UK.

I would not sit around waiting for a significant correction.  B/c should that occur, you'll see a corresponding slowdown in the economy - high unemployment and high interest rates, for example.

Hiya,

An update - I mentioned china but also according to this report also the Japanese yen..

http://money.uk.msn.com/Investing/Insight/Special_Features/Moneyweek/article.aspx?cp-documentid=1331883

according to this report - the US dollar has a bit of a bleak patch approaching.

Everyone is different and has differing reasons etc - personally I wouldn't buy in the UK except for a narrow band of maybe 2-3 locations - I'm looking to buy in the US or Canada - I'll be part of that 'foreign investment' needed by the US to put back some stability into the USD - im not quite in the position to 'actually' buy, but doing my research.


Expat is right, waiting around isn't going to help you - but seeing as everything i a gamble anyway, if you did wait and there was a correction and the house prices came down and you do have a good 10-20 or 25% (or more!) deposit to put down on a property all well and good! if any of those elements are lacking then you'll think WTF! on top of that our interest rates will have probably increased ( over 2007 they're likely to go up to 6%) so to borrow to buy that 'corrected' priced property might be more expensive to do than if you bought now!

crazy isnt it?!!

i do have my theories on how to best help yourself 'get' to the stage of being able to buy in the ridiculous UK property market - if I tell yer, I'll have to charge yer!!!

Good luck !

DtM! west london & slough UK!

PS wanna buy my apartment?!!
PPS - I'm just looking at the amount of Gold my mum has tucked away in the banks & safety deposit boxes!! wanna buy a bar two's worth?!!!

People have been predicting a crash in the market for the past 5 years, a significant crash is just unlikely to happen these days.  Unfortunately, a stable economy means house prices have the stability to grow unhindered.

we are planning to buy a house within the next 6 months. I don't see that changing b/c the market "might" slow down. We just plan to buy a little further away from Leeds city centre to afford a bigger, nicer place. We have grown out of our flat to the point that it just can't wait.

We're planning on buying as well but I'm not counting on the market slowing down one bit. I've been reading that the UK is soon to be facing an extreme housing shortage and real estate is expected to double over the next while

I've jsut gotten used to the fact that we will never be on the bottom of an upswing.  it will all  be relative to now. 

woulda coulda shoulda  bought in San Diego in 1998.   By the time we left in 2004, our investment would have more than tripled!

House prices won't go down until people refuse to pay rididuously high house prices.

Which won't happen so fast as long as:

1. parents with substantial savings buy homes for their children (who otherwise would not be able to afford a first home)

2. Wealthy people spend money on second/holiday homes.

Can we be screwed any more by the generation ahead of us?  It's going to take at least another generation for policy to catch up with reality and then it will be too late for us.  I can't help but feel resentful.  But that is an argument for another day and another thread.

Well, the 2BR terraced house next door to us just went on the market yesterday, for £185 K-- significantly more than we paid for ours this summer.  If he gets that sort of price, it means our own will be worth more, I guess. 

Whoever buys it is going to be the filling in a US sandwich, LOL --there's myself and my GB partner on one side and an American couple moved into the end-of-terrace on the other side a short while ago.

We're planning on buying as well but I'm not counting on the market slowing down one bit. I've been reading that the UK is soon to be facing an extreme housing shortage and real estate is expected to double over the next while

I've jsut gotten used to the fact that we will never be on the bottom of an upswing.  it will all  be relative to now. 

woulda coulda shoulda  bought in San Diego in 1998.   By the time we left in 2004, our investment would have more than tripled!

Can we be screwed any more by the generation ahead of us?  It's going to take at least another generation for policy to catch up with reality and then it will be too late for us.  I can't help but feel resentful.  But that is an argument for another day and another thread.

Hiya, I'm REALLY interested where you've been reading the UK real estate/property prices are expected to double over the next few years/while ?  I'm pretty skeptical of that, it would mean that around here a Studio currently at around £90-100K would go up to £180-200K?!  who in their right mind would pay that for what basically amounts to a single room? and all the other property pricings would be double too? it doesn't make sense in terms that average salaries would need to increase to around £60K just to get a studio? and up to around 80-100K to live in London?  Average salaries will NEVER rise to that amount (unless theres some sort of ridiculous or unprecendented change in the economy)  - which means first time buyers would cease to exist (average salaries across the UK is £23K) and the whole property 'ladder' would collapse or at the very least become extremely shaky.

Now I'd think that 'certain' pockets of properties in certain areas may be 'expected' to double - that sounds more plausible/likely/possible - but again, I'll bet that they already are out of the reach of first time buyers or first time upgraders - those areas would be for those who want to invest, have capital to invest, 2nd or even 3rd homeowners etc.

One easy way for the UK to help with the housing shortage seeing as we have hardly any space is to simply build upwards (just like the US has known for the best part of 80 years!) but of course, the UK isn't as switched on as that!! 

Cheers! DtM! West London & Slough UK!

I admit that occasionally I indulge in a guilty pleasure of reading some of the posts at housepricecrash.co.uk. Some of those people are just loony (and 1 or 2 BNP racists who think foreigners are the problem! ) but sometimes it is interesting. Anyway, I think it is possible that at this point some people have overmortgaged themselves; and not given themselves any breathing room. In the next few years if something happens; an injury or a redundancy, or interest rate rises, they may have trouble making the mortgage and will be forced into foreclosure. If this happens to enough people, then prices will stagnate or drop. I have read that UK consumer debt is getting to US levels, which is not good.

I am not sure there is an actual housing shortage in the UK. There may be a shortage of houses that we would actually want to live in, but (correct me if I'm wrong), haven't huge pseudo trendy apartment blocks been built in every city and town centre? They may be overpriced now, but certainly they must be in over supply, and I doubt there are enough wannabe yuppie trendy types to fill them, so that should drive down prices of basic accommodation eventually.

I just don't think it is sustainable for house prices to be 6 or 8 times the average income of an area. Even if you buy a house on 2 incomes (as most probably do), you can't count on both of those incomes to be steady all the time, and you also can't count on interest rates to stay low forever either.

We won't be able to buy for 2 or 3 years anyway, and I am hoping that there will be a gradual correction that might equalise things and even the playing field a little by then. If not, I guess we have to wait for our inheritance.

JMO

I think a large part of the problem is the buy to let market. There are a lot of new flats being built in our area....they would be great for 20 somethings but no....its the buy to let folks that scarf them up and rent them out. I know that this is a free market economy but I do believe that folks that own more than one BTL propriety should be taxed big time in order to stop this OTT market! Anyway you look at it, salaries can not support this overblown market. There is a housing shortage in many areas. The builders build rabbit hutches and the BTL'ers are in heaven. Its sad really!

As for us, we bought a small terraced house because we didn't want to be over mortgaged. Its small but its cute and cozy. Would we have liked more and could we have gone further up the ladder....yes....but no way would we spend an absurd amount.  We bought in September and a house three doors down just sold for £20k more than what we spent (same nice condition but one less bathroom). Its crazy! 

PS - Sorry to the multiple BTL folks....but that is how I feel. I feel more for the folks that can't even get on the ladder.

I agree with you, Jules.  The people who own a second residence should be taxed to death.  Right now, they get a tax break. 

Hiya Mrs Pink & Jules!

Whilst I understand frustrations are running quite high when it comes to buying a place in the UK - extra or higher tax for those in the BTL or second/investment market isn't the way forward. Targetting a specific group based on their relative success isn't the way it should work - knee jerk reaction to that argument is 'if I pay more tax becuase I've been successful in my market, it should mean I get more in benefits if/when I need it - like jumping the NHS queue or getting 50% prescription discounts, or free public transport' etc etc.

And we all know THAT isn't going to happen!

I like my 'idea' or 'theory' that all these new builds, and trendy places etc etc should have 2-3 maybe even 4-8 more stories - i.e build UPWARDS! Same footprint of land which is so scarce here, but 50% more tennants/occupiers there - makes sense to me - rather than the current practice of sticking in a 3 story apartment block in any old nook and cranny they can find right now! (example of which is one end of slough high street, they knocked down an area of shops and have built a 3 story apartment block, just down the road is a little nook where another block has sprung up and also quite a few little crevices too)

Next thing I say is 'relatively controversial - In the UK, to currently have that 'nice place' you've got to be working in the financial or Law industries (the 2 major areas which hold up the UK's economy) or make money by playing with stocks, running a successful business or playing in the property market. I'm still trying to dig out the statistic of where the UK's workforce, only 4% are in the higher tax bracket (I fleetingly remember reading that, and now I can't find where to reference to it and see if it's actually true or plausible) if that is a good representation, then is it any wonder the vast majority of people here simply cannot get even on the bottom end of the property market based on their income ?

More to it of course, Multi income families, inheritances, windfalls, consortiums etc etc all play a part in todays property market , I just don't think 'taxing' extra would be good, in fact I see it as a challenge in order to think of ways to make more money to offset that extra tax i'd have to pay!

I'll shutup now, been having a discussion with a good friend of mine about a possible 'idea' I have to make some dosh and been comparing the UK, US and Canadian markets....

Cheers for now! - DtM! West London & Slough UK!