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Has the market finally peaked? - anecdotal

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WickedLester
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Has the market finally peaked? - anecdotal

#169501

Postby WickedLester » September 27th, 2018, 2:42 pm

It looks to me like the property market has finally peaked. It's my opinion for what it's worth that it remains horribly overvalued and if interest rates finally rise to more normal levels then a hell of a lot of people that have bought on stretched multiples of income in the last 10 years or so could be in a lot of trouble.

The reason for this post, however, is anecdotal evidence that it has in London at least. I've noticed from Rightmove that 1 and 2 bed flats within a mile radius of where I live are coming down in price and also a search on these used to throw up around 3 pages of results, however it now throws up 9.

Is this an example of investors calling the top and trying to take their money off the table or is it merely a blip?

Does anyone have an opinion either way?

jofc
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Re: Has the market finally peaked? - anecdotal

#169523

Postby jofc » September 27th, 2018, 3:52 pm

I don't think I can confirm that.

But my theory is based on monthly cost:
If you have 1K a month to spend on housing - then that either pays 1K rent or a variable amount of mortgage depending on the current interest rates.

If interest rates are low(like now) - then that 1K can service a lot of debt - so house prices rise to match.
But if the interest rates are high - house prices must come down as there are no buyers able to service the debt.

So current monetary policy has trapped the country in a low interest rate situation. To raise rates will ruin all recent house buyers

Charlottesquare
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Re: Has the market finally peaked? - anecdotal

#169955

Postby Charlottesquare » September 28th, 2018, 8:24 pm

WickedLester wrote:It looks to me like the property market has finally peaked. It's my opinion for what it's worth that it remains horribly overvalued and if interest rates finally rise to more normal levels then a hell of a lot of people that have bought on stretched multiples of income in the last 10 years or so could be in a lot of trouble.

The reason for this post, however, is anecdotal evidence that it has in London at least. I've noticed from Rightmove that 1 and 2 bed flats within a mile radius of where I live are coming down in price and also a search on these used to throw up around 3 pages of results, however it now throws up 9.

Is this an example of investors calling the top and trying to take their money off the table or is it merely a blip?

Does anyone have an opinion either way?


I am not sure you can say the property market is overvalued, you can certainly say some of the markets are but others are not. Because people are not fully elastic re where they need housing , and housing cannot be moved from A to B, there really is not a market but several markets.

I have often been surprised less emphasis is not given to the relationship between prime build costs and house prices rather than earnings multiples.

If, for the sake of example, one decides that a crude normal balance is 1/3rd prime build cost, 1/3 site acquisition and infrastructure, 1/3rd marketing, planning, finance and profit for the builder, then you can get a feel where new build pricing is out of kilter by comparing prime build cost per sq metre with selling price per sq metre, on this basis you can calculate that say London and SE is likely out of kilter but parts of Fife are not.

gbjbaanb
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Re: Has the market finally peaked? - anecdotal

#170381

Postby gbjbaanb » October 1st, 2018, 12:23 am

Considering the price of land, I think its more likely to be 7/10th is site acquisition, 2/10th is build cost, and 1/10th is developer profit.

I saw a TV show about building property, set in Oxford they mentioned that an acre of land was worth £10k. Once it got planning permission it shot up to £1m. You can build 10 3-bed semis on an acre, if you cram them in. So that's £100k per house before anything else is even considered.

Meanwhile the PM has announced a hike on stamp duty on foreign buyers (to help rough sleepers, apparently). So that's going to act as a drag, particularly for investment properties.

Charlottesquare
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Re: Has the market finally peaked? - anecdotal

#170650

Postby Charlottesquare » October 1st, 2018, 10:28 pm

gbjbaanb wrote:Considering the price of land, I think its more likely to be 7/10th is site acquisition, 2/10th is build cost, and 1/10th is developer profit.

I saw a TV show about building property, set in Oxford they mentioned that an acre of land was worth £10k. Once it got planning permission it shot up to £1m. You can build 10 3-bed semis on an acre, if you cram them in. So that's £100k per house before anything else is even considered.

Meanwhile the PM has announced a hike on stamp duty on foreign buyers (to help rough sleepers, apparently). So that's going to act as a drag, particularly for investment properties.


Not really, the houses sell for what, £300k, £400k, £500k?

I suspect I can get more than 10 units on an acre if the planners permit it and the topography allows; depends on the shape of the site. And with flats far more, we have a 4,500 sq metre site, 1.08 acres, we can get 85-90 2-3 bed flats on it or over 120 really small build to rents.

Itsallaguess
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Re: Has the market finally peaked? - anecdotal

#171687

Postby Itsallaguess » October 5th, 2018, 1:44 pm

WickedLester wrote:
It looks to me like the property market has finally peaked. It's my opinion for what it's worth that it remains horribly overvalued and if interest rates finally rise to more normal levels then a hell of a lot of people that have bought on stretched multiples of income in the last 10 years or so could be in a lot of trouble.

The reason for this post, however, is anecdotal evidence that it has in London at least. I've noticed from Rightmove that 1 and 2 bed flats within a mile radius of where I live are coming down in price and also a search on these used to throw up around 3 pages of results, however it now throws up 9.

Is this an example of investors calling the top and trying to take their money off the table or is it merely a blip?


The BBC have an article discussing the poor UK property market today -

Where have all the 'for sale' signs gone?

Fewer homes have been on the market in 2018 than in any year of the past decade, the UK's biggest mortgage lender has said. The Halifax said house-hunters have been left with relatively little choice, which means that prices have still risen as a result.

House prices rose by 2.5% in the year to the end of September, with the average home costing £225,995, it said. However, this rate of growth is slowing, down from 3.7% in August.

Russell Galley, managing director of the Halifax, said that low mortgage rates and more people in work meant that demand for homes remained steady. However, economic uncertainty and the squeeze on wages mean the rate of price rises is far from the runaway growth seen before the financial crisis.

House prices actually fell by 1.4% in September compared with the previous month. The month-on-month change is considered to be a much more volatile measure, but this is the second drop in a row.


https://www.bbc.co.uk/news/business-45757437

Cheers,

Itsallaguess

DiamondEcho
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Re: Has the market finally peaked? - anecdotal

#171828

Postby DiamondEcho » October 5th, 2018, 11:30 pm

Stamp duty has killed the market. It only takes a small knock to discretionary movers ability to move, to hit rising values.
Well done Tories for legislating a reverse-Tebbit policy of 'Get off your bike'. Fools.

Clitheroekid
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Re: Has the market finally peaked? - anecdotal

#172384

Postby Clitheroekid » October 8th, 2018, 10:07 pm

DiamondEcho wrote:Stamp duty has killed the market. It only takes a small knock to discretionary movers ability to move, to hit rising values.
Well done Tories for legislating a reverse-Tebbit policy of 'Get off your bike'. Fools.

I've never understood the logic of this assertion. When people are buying a house they allocate an overall budget. This includes stamp duty as well as the other costs like survey and legal fees.

If stamp duty increases they simply reduce their budget for the house itself. It doesn't stop them moving.

For example if they have a budget of £500k and the stamp duty is £50k they will look at houses costing £450k. If stamp duty's £10k they'll look at houses costing £490k.

And sellers will adjust their prices to match demand. A seller asking £490k when stamp duty is £10k will find buyers drying up if stamp duty increases to £50k, so will reduce the price to £450k to compensate.

I've acted for hundreds of people buying houses over the years, and although, as with every other tax, everyone hates paying stamp duty they also hate paying estate agents' extortionate fees. Yet I've never heard any client saying they decided not to move simply because of stamp duty (or, for that matter, the agent's fees).

Estate agents and sellers hate increases in stamp duty because - as set out above - sellers have to reduce their asking prices to allow for it, and lower prices = lower commission. So I would take very little notice of what they say.

If anyone has any actual evidence - as against anecdotal comments from people with axes to grind - that stamp duty of itself is a major influence on buying decisions I'd be very interested to hear it.

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Re: Has the market finally peaked? - anecdotal

#172396

Postby DiamondEcho » October 8th, 2018, 10:28 pm

Clitheroekid wrote:
DiamondEcho wrote:Stamp duty has killed the market. It only takes a small knock to discretionary movers ability to move, to hit rising values. Well done Tories for legislating a reverse-Tebbit policy of 'Get off your bike'. Fools.

I've never understood the logic of this assertion. When people are buying a house they allocate an overall budget. This includes stamp duty as well as the other costs like survey and legal fees.


I don't think about it like that CK. I tend to think:
'My home is worth X'
'X less agents fees and some legals' is going to be about Y'
So I browse particulars for a destination area and see some things that look appealing.

Only then do I do a more thorough 'soup to nuts' costing including stamp duty, for exiting one property and moving into another. This move I'm considering might be the last move up, the place I've always promised myself. The house (not flat) in a nice place outside London, with a garden. Wow a garden, that means we can have a pet, for the first time. It might perhaps be that 'last place I ever buy' if settle in there well, but we'll see :)

And it's at this full-costing stage I see the stamp duty alone on my dream-home might be £50-60k. And TBH I'd simply loath to pay that in tax to make a leap into the dark, with a discretionary move. So I stay where I am in 'prime London' where I have no need to be, rather unsure what to do...

[Yeah-yeah, I know to many this will sound like a lovely problem to have, but perhaps less so if you're in it, and I expect it must impact quite a lot of people who'd consider moving out of London 'into commutable to London distance', if it were not so damned expensive doing so....]

GoSeigen
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Re: Has the market finally peaked? - anecdotal

#172515

Postby GoSeigen » October 9th, 2018, 11:37 am

Clitheroekid wrote:If anyone has any actual evidence - as against anecdotal comments from people with axes to grind - that stamp duty of itself is a major influence on buying decisions I'd be very interested to hear it.


I've no axe to grind but think it has a measurable effect if not major.

Stamp duty is a frictional cost of transferring a property asset, like the others you identified (conveyancing, marketing etc). Any increase in frictional costs is going to slow the turnover of sales. If frictional costs were 100% of property value sales would likely be zero.

There's nothing mysterious about this, it's simple economics.

I agree there is a certain number of purchasers to whom the frictional costs below a certain level are not a factor, but that is not the same as saying that frictional costs have no effect on the market.

Now you used the word "major': that is a fairly subjective word. I would be surprised if it doesn't have a major effect on particular sectors of the market, but you may be right that stamp duty on its own does not have a major (like more than 50%) effect on the entire property market.

GS

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Re: Has the market finally peaked? - anecdotal

#172649

Postby dealtn » October 9th, 2018, 10:00 pm

Clitheroekid wrote:


I've acted for hundreds of people buying houses over the years, and although, as with every other tax, everyone hates paying stamp duty they also hate paying estate agents' extortionate fees. Yet I've never heard any client saying they decided not to move simply because of stamp duty (or, for that matter, the agent's fees).



It may be either you have put this argument a little "clumsily", or I am missing something subtle, but doesn't this statement logically mean something like...

...Hundreds of people, over the years, have decided that the stamp duty isn't a major factor, and they are the ones I act for. I don't get to act for the ones that decided it was a major factor and therefore didn't move. Therefore based on my experience it isn't a major factor.

That would be a clearly spurious logic error.

The fact you aren't acting for such people doesn't mean they don't exist. They are not moving, or do so less frequently, or extend instead of moving, or possibly do other things too.

As has been said already frictional costs are an economic impediment to market efficiency, and that is pretty much accepted even in a dismal science such as economics where participants frequently disagree on much. Increasing frictional costs increase this impediment. This is about as close to a fact as you can get in economics.

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Re: Has the market finally peaked? - anecdotal

#172786

Postby taylor20 » October 10th, 2018, 12:44 pm

Clitheroekid wrote:If anyone has any actual evidence - as against anecdotal comments from people with axes to grind - that stamp duty of itself is a major influence on buying decisions I'd be very interested to hear it.


It's a major influence for me, not so much for my wife... :roll:

For me its due to the 'reverse leverage' situation, in that £30k in costs might not be considered a 'major' part of a £500k house move but it's quite a major hike in the £100k mortgage that I have, and the associated monthly payments.

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Re: Has the market finally peaked? - anecdotal

#172849

Postby Charlottesquare » October 10th, 2018, 6:31 pm

I see stamp duty as more gumming up the supply side re the downsizers etc, the retired, who have an inertia to overcome anyway re wanting to move/ sell (we brought the kids up here etc etc etc). Whilst they are sellers they are also likely buyers, and the stamp duty now seems relatively expensive for them, especially when they bought the house they are selling 30 years ago, paid little in stamp duty and their legal fees were in today's terms negligible. I cannot recall what I paid re duty when I bought current house in 1997 for £105,000, not that much.

Within another ten years I will likely be one of them (if I can get rid of the kids in the interim)

Re second homes additional rate it also applies an inertia to us, if we were to move home we would be hit with the additional 3% duty as we have a house abroad, the legislation does not discriminate second property location. Now the house abroad is not worth much, say £80k, if we move in UK the next UK house will be circa £500k, so holding that property abroad when we buy will cost us an extra 3% on circa £355,000, some £10.65k. So what will likely happen is we will now delay downsizing in UK until our holding a holiday house is not so important, we will then sell holiday home then sell UK house and then buy its UK replacement in that order, avoiding the £10k, but that delays our larger family property in Edinburgh coming to the market, if supply further up the chain is tricky the market gums up a bit both above and below that mark; , fewer transaction, fewer homes on the market, reduced supply.

StepOne
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Re: Has the market finally peaked? - anecdotal

#172946

Postby StepOne » October 11th, 2018, 9:53 am

Charlottesquare wrote:the next UK house will be circa £500k, so holding that property abroad when we buy will cost us an extra 3% on circa £355,000, some £10.65k.


I thought the 3% additional was applied to the full property value? It is in Scotland.

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Re: Has the market finally peaked? - anecdotal

#172984

Postby Charlottesquare » October 11th, 2018, 12:45 pm

StepOne wrote:
Charlottesquare wrote:the next UK house will be circa £500k, so holding that property abroad when we buy will cost us an extra 3% on circa £355,000, some £10.65k.


I thought the 3% additional was applied to the full property value? It is in Scotland.


You are correct, I looked up the table to check before posting but it looks like I read it incorrectly, so the current figure re my post would be an extra £15k not £10.65k

Sorry about that


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