Posted by admin
Mon, 24 Dec 2007 15:01:00 GMT
Over the past few years there appears to have been a lot of concern amongst young people that if they do not get a foothold on the "housing ladder" sooner rather than later, that they will somehow be priced out of owning a home forever, or "miss the boat" - the boat in question being affordable owner-occupied housing. But is this a genuine risk, or are they worrying unduly?
Over the past century the housing market has both risen and fallen, in both nominal terms and real terms. When the level of initial monthly payments for a mortgage on the average first-time-buyer type house is measured against wages, the peaks and troughs in the housing market are clear to see. There have been times when housing has been more affordable, or more expensive, than other times, but in the past affordability has always corrected itself to move back to reasonable levels before too long.
The main reason for this is that the housing market is fundamentally supported by new buyers entering the market. These provide the cash to support each level of the housing market, from small flats up to large family houses. If this support is removed, or weakens, then demand at all levels of the housing market is affected and prices correct downwards. Alternatively if wages are rising faster than house prices, this also has a corrective effect on affordability.
In recent times the number of first-time-buyers entering the market has fallen to record lows. In 2007, just 300,000 first-time-buyers entered the market, the lowest since 1980, according to the Halifax. Halifax also found that houses are unaffordable to first-time-buyers in 96% of towns. This has only been made possible by the recent phenomena of "buy-to-let". This is essentially a new source of demand that has been made possible by the availability of credit in the form of buy-to-let mortgages, which were not available until the mid 1990s. In the past 10 years the number of buy-to-let mortgages outstanding has risen from a base of virtually zero up to nearly 1 million today.
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Posted in Main, Market Myths | Tags affordability, buy to let, first time buyers, house prices, housing market, interest rates | no comments | 1 trackback
Posted by admin
Wed, 28 Nov 2007 17:29:00 GMT
It is often said that if you are buying a house to live in then you should think of it as a home, not an investment. In other words you should be more focused on finding a house that you like, than what is likely to happen to its value in the future. This is broadly a sensible approach - a house, after all, has to be a place that you are content to live in, and will have a considerable impact on your future happiness and well-being.
There is, however, a danger inherent in the statement. Buying a house is, for most people, the biggest financial decision of their lives, and the impact on their finances should be considered very carefully.
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Posted in Main, Market Myths | Tags buy to let, capital gains tax, empty homes, house prices, housing market, housing shortage, investment, property investment | 2 comments | no trackbacks
Posted by admin
Wed, 21 Nov 2007 12:23:00 GMT
In recent years there has been a significant rise in the number of people who are choosing to use property investment as a means of provisioning for their retirement. The growth of the "property is my pension" brigade has been marked by a massive increase in the number of buy-to-let mortgages, from 185,000 in 2001 to 850,000 in 2006 (a near five-fold increase in five years) according to the CML. The chart below shows the change in the total number of mortgages outstanding since 1998 - as can be seen, most of the new mortgages that have been added since then have been buy-to-let (there are now 900,000 more buy-to-let mortgages, but there are only around 100,000 more non buy-to-let mortgages).
To put these figures in context, there are around 11 million mortgages in Britain, so the proportion of buy-to-let mortgages has risen from 1.7% to 7.7% in five years. This has, broadly speaking, been put down to two factors:
- The loss of confidence in traditional pension schemes, particularly since the 2000 dot-com bust and 50% fall in the value of the stock market.
- The large rises in both nominal and real-terms house prices since that time, and the associated media coverage.
The increase in the number of people buying second homes to rent out, as demonstrated by the increase in the number of buy-to-let mortgages outstanding, is nothing short of phenomenal. Given these figures, it would not be an exaggeration to say that Britain (or a large number of its residents, at least) is now a property-obsessed nation. The number of house-buying programmes on television is testament to that, and there are now enough to fill entire channels dedicated to property related programming.
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Posted in Main, Market Myths | Tags buy to let, housing market, investment, pension funds, pensions, stock market | no comments | no trackbacks
Posted by admin
Mon, 19 Nov 2007 10:12:00 GMT
This is, again, a very complex question and one that is often oversimplified by the media. The average article on housing prices in the mainstream press will usually conclude that:
While short term price dips cannot be ruled out, housing is a good investment because prices always go up in the long run.
While is is true to say that, over the past century, house prices in the UK have risen at marginally above the rate of inflation, there is no guarantee that this will continue.
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Posted in Main, Market Myths | Tags demographics, house building, house prices, housing market, inflation, peak oil | 2 comments | no trackbacks
Posted by admin
Sun, 18 Nov 2007 23:00:00 GMT
In order to answer this question, first of all it is necessary to define what is meant by "investment". There are many definitions, but to illustrate what investment means in this context it is useful to contrast it with a few other things. Broadly speaking, there are three things you can do with your spare money (aside from spending it of course!):
- Saving. This means putting your money in a risk-free pot such as a savings account or government bond. Usually this is a long-term strategy, where money is put away for 10+ years. Of course you can withdraw money from savings accounts earlier than that, but usually you will aim to keep the bulk of your money in there for a long time.
- Investing. This means using your money to buy (hopefully) low-risk assets for the medium to long term, i.e. at least 5 years. You might expect some short term fluctuations in the value of your investment, but broadly speaking over a period of 5 years or more you would plan for little risk of losing money.
- Speculation. This is the high-risk option with potential for high short-term returns. You might double or triple your money over a few months or even days, but on the other hand you stand a not-inconsiderable chance of losing it all.
The important distinction with regards to housing is between investment and speculation. Investment means you must plan to hold onto the asset for at least 5 years, and seek to minimise risk. With housing, you can of course obtain mortgage borrowing to "leverage" the investment, but this multiplies the risk. For example, with only a 10% deposit and 90% mortgage borrowing, the risk of losing money is 10 times that of the risk in buying a house with no debt. This approach is speculative in nature, as the risk is arguably too high to qualify as investment.
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Posted in Main, Market Myths | Tags capital gains tax, housing market, investment, stock market | no comments | 2 trackbacks
Posted by admin
Tue, 13 Nov 2007 20:50:00 GMT
The short answer is yes, but not in the way that most people think, and certainly not in the way that the media describe.
The assertation that high house prices are due to "supply and demand", or "too many people" is, in and of itself, incorrect. At a very basic level, if there were "too many people" for too few houses, we would expect people to be living 10 to a room, or on the street, and this simply has not happened.
To understand this, you have to look more deeply into the issue of what "supply and demand" actually means. It is not the case that simply because there is more people who wish to buy a house than there are houses available to buy, that there is a housing shortage. To illustrate the absurdity of this argument, you can look to the example of a Ferrari and a ten year old boy. There are hundreds of thousands of ten year old boys across the world who dream of owning a Ferrari, but they do not represent "demand" for one. There is not a "shortage" of Ferraris. Similarly there are thousands of recent immigrants in Britain who would probably like to buy a house, but that does not prove there is a shortage of housing.
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Posted in Main, Market Myths | Tags empty homes, housing market, housing shortage | no comments | 5 trackbacks
Posted by admin
Sun, 11 Nov 2007 21:35:00 GMT
Welcome to housingrubble.co.uk, a new blog that seeks to cover the UK housing market and the various events and situations that are having an impact upon it. This site will attempt to bring some depth and clarity to a subject that is currently attracting much media attention, and about which there is much uncertainty and confusion amongst the general public. Over the coming weeks and months this blog will set out the situation we are all currently in, give a background to the current events in the market and related markets (hopefully with some useful detailed analysis), and set out the various possible future paths that the market may take, together with explanations of their likelihood or otherwise.
The housing market is currently a myriad of myths, grey areas and unknowns. Press coverage is often contradictory, of no practical use, or laced with vested interests and dubious sources of all persuasions. Many claim to know what is happening, but very often they disagree or provide little justification or depth to their assessments. Additionally there are a great many drivers of the market that remain almost entirely unreported, or are only covered in publications read by a particular niche audience.
Housing Rubble seeks to contribute to the addressing of those issues with "no nonsense" coverage, adding both factual information and opinions to the debate. The UK housing market is vital to the UK economy and hence to the well being and happiness of everyone in this country, renters and owners alike. Its course should not the subject of hope or faith. While very few individuals can influence the direction of the markets, and few groups can determine its course, the public collectively should be able to figure out what is going on and what is likely to happen, and assign a probability to each possible outcome. Only then can we make rational choices about our individual and collective futures. Hopefully this blog will help to inform those decisions in some small part.
This blog is also intended to be an interactive resource, with a comments section available on each post. There will always be other angles, opposing viewpoints, or simply points that have been missed or overlooked. Everything on this site is open to debate. Please add your input in the comments section, it really will help to improve the site immensely. If you are commenting anonymously, please use a consistent name so that the thread of discussion will be clear to readers and the theme of your posts comes across.
Posted in Main | Tags about housingrubble, housing market | 1 comment | 1 trackback
