Reply To: Vocation Vocation Vocation

#70948

Anonymous
Participant

The fact that the Uk didn’t correct in 2005 only means that when it does it will correct further. Markets always take a long time to turn.

A lot of housing demand is discretionary. How much discretionary buying is going on in the UK at any one given time is generally influenced by three key factors.

1. Do buyers believe prices are going to go up or down (not over a 10 to 20 year time frame but the few years immediately following the purchase).

2. Can they borrow money to fund the purchase (is it available in the market).

3. Do they believe that the cost (all costs) will be covered by a combination of income and capital increases on the property?

As borrowing and other costs increase (and rental yields wither relative to costs) and lending criteria tighten (UK lenders under the direction of the regulator and a sense of self interest are now taking an interest in our own sub-prime sector = interest only no repayment vehicle/lie to buy etc.) a generation of buyers are finding it less easy to find the next 2-3% 2 year fixed rate that they have become accustomed to.

Cheap money is like a drug and when it’s been available for so long your usage and dependency tends to rise. Many users are good at hiding the problem and another symptom is denial. Artificially cheap money is the super crack of the last 5 years.

It remains to be seen how much UK property inflation (sorry equity increase/new wealth) is down to supply demand/fundamentals and how much is down to discretionary buyers getting into the market in the belief that prices in the UK only ever go up, no matter how much you pay/borrow and where you get on board the cycle.

As the US, Ireland and Spain are showing nothing goes up forever. This time it will be differant as there are now 100,000’s of highly leveraged newbie landlords and prices in the north have lost all relation to wages/yeilds as they suck in debt (not that they havent in the south only that they didn’t last time).

Don’t anyone fall for good houses in good areas won’t be affected. The higher they’ve gone away from demand based on fundimentals the further they will fall back.

As the Governor of the BOE said “Property prices are a matter of opinion, debt is real”

And from the Sage of Omaha “You only find out who’s swimming naked when the tide goes out!”