大象传媒

but if you're a first time buyer (you cant trade up) and its probable that prices will fall it would be rational to wait and see... if you buy now youll be gambling on house prices rising but if as you say there's speculative buying at the minute you would expect prices to fall significantly in the future

Certainty always has a premium that you pay for, but who pays it varies: In computer-games, shops and companies will often add extra features to pre-ordered copies, as they can bring in stock they know they will sell. In housing it鈥檚 different, perhaps because housing is a more fundamental need. Perhaps it鈥檚 possible to see what products are truly necessary in our culture by seeing who pays the certainty premium.

For heavens sake... this is one of the worst arguments I've read in a very long time. It simply makes no sense.
First of all, it implies that the probability of house prices falling significantly is roughly the same as prices going up (further) significantly again, which is clearly not the case.
It also implies that you "must have a house by XXXX (e.g. 2010)" (or else you'll die?) and so you better buy it now, even if clearly inflated, while you can still afford it, since there is always a (small?) chance you won't be able to afford it in some years (which probably also means that no-one except the "rich" can buy a house), which again is not the case, since rent is a viable option which doesn't prevent you from increasing your net worth through other investment alternatives.
I'm sorry, but this thought process has really hurt my analytical mind... it simply makes no sense

You might like to say that if your flat fell to 50p in value you'd be happy because you could "buy Buckingham Palace".

But...

If your flat did fall to 50p in value (which is clearly unrealistic) Buckingham Palace wouldn't be available for mere pounds. Why? Because someone who hadn't borrowed money to buy a flat at 拢200,000 might still have perhaps tens of thousands of pounds saved for a deposit in the bank. Meanwhile you're paying a mortgage on (eg) 拢150,000 that you borrowed, but have only an asset worth 50p to show for it.

Guess which person gets to buy Buckingham Palace in this scenario?

Of course if property prices continue to rise you win. If they fall you lose... and some will lose very big (take a look at the US market to see where we might be in a year or so).

At last a commentator/pundit who makes sense. All my life (63 yrs.) I have heard 'experts' say investment in property is not a good long-term investment. Rubbish! My investments (I have owned eight properties and have lived in all except two, so only these two could be classed true investments) have produced excellent returns, the best being an 850% increase in value of my house in Hong Kong over an 8 1/2 year period.

In 1995 I urged my son and daughter-in-law, as they began their married life, to get into the property market in London. They have turned an initial 拢70,000 investment into a 拢900,000 home with an equity in it of 拢650,000. An increase of their initial investment in excess of 900% in less than 12 years - AND tax free. Even if the property market goes into decline they are still showing an enormous profit. More importantly their financial future had been secured by the time they reached their mid-30s.

PRUDENT property investment is the AVERAGE persons best chance of seeing a good return on their savings.

When I heard this argument on your programme, I almost choked on my tea!

If you buy a house, and house prices go down, unless you put a large deposit down, you get stuck there. This is because if you sell, you cannot cover the mortgage, and you cannot borrow more than the price of the house you want to move to. This happened to several of my friends in 1989.

If I may say so, I think your programmes could usefully be more challenging of some of the received wisdom about house prices, especially some of the "this time it's different" arguments, which seem familar from the 1980s.

Of course, by suggesting buying now as a hedge against possible price fluctuations, you are actually encouraging people to prop up prices even though the subtext of your article implies you feel the market is overpriced...

Hmm... can't see this myself. If property prices don't rise then surely it is better to have your money in savings that outstrip inflation? That way the house prices will fall relative to your savings. And if house prices really will crash like people are saying then you don't lose all of your savings that went into the deposit!

I would go further, owning a house has a great big advantage, you no longer pay rent.

Also the value of money steadily drops over the years, (ie. A pound today won't buy what it bought in 1970, or even 2000).

So as time goes by those repayments you have to make will actually become less and less in real terms, as your salary increases, so although you may struggle in the early years and be subject to the vagaries of the market, buying a house is a long term investment that should be seen as such. OK if you can also make a quick bundle of cash then brilliant but that shouldn't be the reason for buying a house. (a second/third etc. house to rent out maybe, but not your primary residence.)

If you rent that money is gone, if you buy at least you have a chance of getting some of it back somehow, and possibly generating a nice profit too.

Beautiful logic, which seems to mask one frightenly simple omission - what if you buy and house prices suffer a significant fall because of high interest rates (which many pundits believe would be the most likely cause of a crash) and financially you can neither pay the mortage nor sell the house you paid way over the odds for in the first place. Not saying this is likely, but buying a house under those (potential) circumstances must be risky.

House Prices are at all time high.
These house prices have been artificially exaggerated by record low interest rates. The BOE has admitted to keeping interest rates low to encourage the UK economy which is already showing signs of slowing. Indeed the UK Economy is only supported by debt.
We are already seeing record levels of both personal and Government debt in the UK and the sub lenders are already showing signs of breaking.
Recently we have just witnessed the meltdown of the morgage market in the US.
The UK should follow on behind as inflation is increasing across all of europe and the world leading to increasing interest rates.
Another factor is the CPI rate of inflation. This is constantly rigged by Gordon Brown to stay within the 2-3% margin. The real inflation tracker, RPI shows very different results but these still dont take a number of every day inflationary measures into account.
I believe inflation is here to stay and will force up interest rates through out 2007-2008.
If you want to be in negative equity - then please go ahead and buy a house now.

Mr Evans,

Isn't the UK being the most indebted in it's history, and probably the most indebted nation in the world, a factor in the future outlook of the property market?

Especially when Lord George, former governor of the Bank of England called the consumer credit boom unsustainable a few days ago?

What Evan seems to be ignoring is the problem of negative equity and wasted interest payments. Evan may be happy to see his house drop to 50p so he can trade up to Buckingham Palace for a tenner but if his mortgage is for 100,000 where will he get the necessary 99,999.50 that he needs to be rid of his house? If you own your house outright or near enough to outright then negative equity isn't an issue. The majority of people this article is addressed at, however, are people who are not in the market right now and if they buy now will not have much equity accumulated in their homes by 2010. They are the ones with the highest risk of negative equity in the current market. Believe me, I know what it is like to be stuck with a property that you can't sell for the value of the mortgage. It is the worst burden in the world and I wouldn't recommend anyone to buy in the current market without having a long hard think about whether they are willing to face this problem.

Our 'bubble' economy, and the high house prices associated with it, are the product of currently very low real interest rates. If real interest rates move back to their long term trend, the highly mortgaged will be in trouble. But if real interest rates remain low, the bubble could expand for ever. How about an evanomics artical on likely interest rates in 2010?

In practical terms, this advice contradicts one of the fundamental tenants of good investment practice, which is to not concentrate all of your wealth in a single asset. You're also completely ignoring opportunity costs.

At this point in the cycle, any first time buyer will have to put all of their wealth and a large portion of their income into paying a mortgage. Further, with the rental yields of buy-to-let properties currently in low 3% range, current house prices have priced in the assumption that house buyers will receive a large capital gain in the coming years. This means that house prices don't need to actually go down for anyone buying at this point to lose money -- you would lose money if house prices grew by less than the capital gain already priced in to the price, which with a 3.25% rental yield is an assumption of about 10% annual growth. You would make more money by renting and investing the difference between rent and a mortgage in a more diversified portfolio than you would be buying unless house price increases actually accelerate from where they are now. And if house prices should go down, then given the leverage involved and the concentration of assets, a first time buyer could be wiped out. It would make far more sense right now to rent and invest a smaller portion of your income in real estate related assets giving you some exposure to the market but not setting yourself up for catastrophe is prices went down.

It is an interesting idea as long as your property doesn't have a mortgage. In the real world people who buy now run the real risk of having a mortgage larger than the value of the house when it is sold, good old negative equity. Imagine having to pay the bank 拢20,000-拢40,000 before you can spare that tenner for Buckingham Palace.

In the next five years whoever is in power will have to find some way to increase the housing supply, either by building more houses or setting taxes to discourage multiple home ownership (hurting all those buy to let crowd who view property as a retirement plan).

Gordon Brown must know that the economy escaped recession last time because of the rise in value of property and the spending of the additional equity, it won't happen again, so you have to feel sorry for the next few chancellors as it may become as unforgiving a job as Home Secretary.

Bingo! Now I have a roof over my head and, if there's a bout of inflation, hopefully my wage rises will be greater than the increase in interset rates (although, like many, i'm fixed for x years!) and when the dust settles, I'll have a nice place at resonable repayment rates. Ignore upkeep costs: those costs do even come close to the warm fuzzy feeling I get from not renting!
So house prices can go down. Yep, so do the shares in my retirement savings, but I don't get too bothered by that, so why worry about houses going down: I'm in for the long haul...

And how long before some enterprising house builder reads this and decides, hey, maybe what we really need is a market in house futures?

Hello Evan:
I Fully understand what your argument is, because a year ago I was in that position. Now that I bought my own house, I don't care that much about prices and I have a roof over my head, which is what I was intending in the first place. Whilst it would be nice for prices to keep going up, I have been prudent on borowing and have a 30% deposit, so if prices go down, no big deal. The only problem is that I entered the ladder several rungs up. We bought a 3 bed semi, hardly a 'starter' home. But we have 2 children so space was needed.

House prices going down! Well, when Tony Blair became prime minister, houses in his residential street in Islington went up by 拢40,000 overnight. Do you think that when he steps down, prices in his street will go down? As far as I can tell, prices have been going up and up. Those who are waiting for it to collapse need to wait much more longer. There must be 'extraneous factors' which the British economy would not be able to withstand. The Chancellor, wise man as he is, has not envisaged any such factors in his budget. Employment is at its highest level. Inflation is under control. There is no war looming on the horizon and certainly the tsunami is not coming to the UK. Even if it does arrive, Britain is better prepared than many other nations. Buy your nest now!

John Meullbauer has written an interesting article about house prices in today's FT (26th March). It was John Meullbauer who wrote the Treasury analysis of the UK House Market when the Euro was examined. His conclusion is that UK house prices are primarily driven up by shortages of supply and that has been tested and confirmed by Kate Barker's reports. Barker proposed that shortages are a mostly a function of deficient UK Planning Law that restricts supply well below the growth in households. Consequently, prices are bid upwards by shortages rather than by inflationary bubbles. So buying a UK home is a one-way bet for as long as Planning remains controlled by local councils.

Haha :)
I think this is someone trying to dissuade you when the cat has left the bag.

Simple covering what was said in the interview with Times.

You always talk about that
there is no meaning.

all you have to do is to raise up the interest rate.

There isn't an "economics" solution to house prices, since the people who make the decisions on tax, planning etc are almost entirely home-owners, and they're not going to kill the goose that lays the golden eggs. There will be a "political" solution when the corrosive effect of housing inequality starts to lose politicians their seats.
If you're excluded from the housing market, tell your MP/councillor why you're going to vote them out!

Though many of us would like to make megabucks trading in stocks & shares, gold or diamonds, the truth is we haven't got a clue either where to buy at a good price, or how to sell at a better one. So what is the alternative for average Joe? He needs something where he knows the rules, can spot a bargain & be reasonably sure of selling on.

Property is ideal. In fact average Joe is realising he can do as well buying property & selling it on as he can buying stocks, gold or diamonds. In fact some people buy extra properties as investment & don't even bother to let them. The anticipated returns on price are very similar to stockmarket & commodity growth, so tenants are considered to be nothing more than a nuisance, unless you're so poor you have to service a mortgage on the property. But where could average Joe borrow money to invest in stocks, gold or diamonds? Probably nowhere unless he already has a very sound track record of trading, but everywhere on the high street, people are falling over themselves to try to lend him money on property. Just like the stockmarket, it can go down as well as up, but on the whole, the trend has been up.

So property has ceased to be merely the practical place to live. It has become the poor man's gold. However, unlike gold you can be sure that demand will outstrip supply as long as population increases. You see they're not making land anymore, so you're buying into a finite resource with growing demand.

But it does have an extra advantage for average Joe. even if you have wealth to invest in stocks, gold or diamonds, you can't even take a holiday in a share portfolio, a gold bar or a bag of diamonds. But you can save yourself a lot of money by living in a house.

I don't buy this argument. If prices fall you will be able to upgrade with a smaller mortgage top-up, but you may have no equity to put towards your new property, so you have to wait until you have saved this back up (for the second time). If prices rise, you have equity, but you have to wait until your salary catches up with the new price level, if ever. Even if prices simply stay put and go up with inflation, this may take a long time, as inflation is very low, and your salary will therefore also go up slowly.

What concerns me more about this view is that it chooses to ignore house prices in terms of economics, but views them simply as some kind of weird number that just goes up and down at random, and then uses estate-agent style logic to suggest that you're better off buying sooner rather than later, and thereby further inflating the prices. Yes, the human element makes it difficult to predict what will happen, but surely simple reasoning says that if you cannot afford a property or an upgrade in three years, neither can anyone else like you. Landlords can't forever keep borrowing more money to let properties for rents that don't pay the interest.

The carousel stops when we can't afford to borrow enough to keep it going. Those who bought many years ago may have a nice equity cushion to land on, and be able take the next step when prices come down, if their salaries allow it (and if they can sell their current house). Those who buy today may find that they are under water for some time.

Iain Wrote:

"I would go further, owning a house has a great big advantage, you no longer pay rent"

But you do pay rent. You pay interest on the loan so you are "renting" the money from the bank.

"If you rent that money is gone"

When you pay interest it's gone. It does not count towards the equity in the property and does not go towards improvements.

In the end all you are doing is getting your own money back when you sell, theres your "profit".(Add up all those years of interest payments, maintenance costs, mortgage insurance premiums, stamp duty, solicitors fees etc).

Evan.

If I am your bank manager and you owe 拢100,000 on a mortgage on a flat that is now worth only 50p. Do you really think I will let you transfer it to Buckingham Palace that is only worth 拢10.00.

I don't think so.

Evan, I was rather disappointed that you chose to write this article, in what can only be described as a 10-page property-buying advertorial 鈥� not a supplement.

"Why property is a good bet" by Evan Davies, shamelessly propped up by pages of property ads enticing those nervous enough about buying to part with their hard-earned money at a time when prices are obviously over-inflated.

The Times were hardly going to want you to write tentatively about the subject.

There are several reasons for house price rises: supply is lower than demand; relatively low interest rates, steady employment, and an increase in the number of potential households through population or immigration increase demand. Supply is restricted through planning laws, land availability, and building capacity (ie skilled workers, materials,etc). Until some of these supporting factors are removed then the increse in prices will continue. IE supply will remain lower than demand. It is a personal value judgement whether renting is better than buying, in terms of quality of life, flexibility, and other emotional issues that will alter perceptions of "value", or a premium worth paying; but it is a straight forward economic analysis that says for the next year or two prices will rise, albeit more slowly.

I read John Muellbauer鈥檚 FT article differently from Andrew Dundas. It seemed to me to be more about demand than supply, especially the effect of taxes on housing use 鈥� the highlighted extract is that 鈥淏ritain is the only country where those living in 拢20mn houses pay the same as those living in 拢1mn houses鈥�.

In my opinion, demand is the 500 pound gorilla that most debates on this subject, especially involving politicians, ignore. Surely it would be sensible policy to discourage avoidable uses of the housing stock 鈥� investment above all 鈥� that add to the demand for living space. No doubt this could involve worthy but unpopular tax changes, such as those mentioned by Muellbauer (albeit before consigning them to the 鈥渢oo difficult鈥� bin), but there are some measures that might actually be popular.

For example, as dzerbj wrote, houses provide an easily understood and accessible form of saving. After the splits, Equitable Life and endowment debacles, to name just a few, the interest in saving in housing was so massive that the government backed off including housing in SIPPs. An obvious alternative would be to extend the same tax privileges to simple savings accounts as applies to investment in shares, unit trusts, life insurance etc. Apparently, cash ISAs are the only savings initiative that is very successful, so why can you save 拢7000 in an ISA per year in shares, but only 拢3000 in cash? But perhaps that is veering off topic!

Evan, a minor correction: The bank manager would have to agree to secure 拢100,009.50 against the new property, because you would need to borrow another 拢9.50 :)

That doesn't seem to matter in your example, but it would if using more realistic figures. You buy a property worth 130k with 100k mortgage and 30k equity. You aspire to a property worth 200k. Prices fall, and the properties are now worth 100k and 150k. You still need to borrow another 50k to upgrade. The bank manager is already faced with a 100% mortgage he didn't want, and you are asking him to increase it substantially. Not sure he would agree..

Evan - interesting way of looking at property prices. It's an extension of the principle that it isnt prices that count but payment levels, and all families today live on monthly affordability.
People on negative equity 16 years ago who just carried on paying the loan could argue that they didnt really notice anything.

Perhaps it would be more helpful to write about potential global economic effects on our property market and interest rates given that domestic rate rises are minimal.

The US slowdown, Japanese liquidity injections and withdrawals, Petro dollars, export dollars, Russian money, derivatives & leveraging. Economically can these factors be ignored anymore ?

Surely we need your expertise to understand the global money system we live in to then understand how our leveraged way of life might unfold ? Thank you.

If the choice is between renting money at 7% of its value and renting property at 3.5%, then it makes sense to rent the roof over your head and invest the difference.

John (posting 32). The so-called shortage of housing is limited to the owner-occupied part of the market, and is mirrored by a glut of properties for rent (and second homes) that don't earn an economic return. The rising prices started off by (partly illusionary) low interest rates has the effect of strengthening the bias towards owning over renting, as well as favouring buy-to-let investors because these can more easily recycle equity gains into further properties. The overall effect has been to misallocate housing stock so that the rental sector is too large and the owner occupied sector too small. This misallocation is masked by ever rising prices, created by the competition for the now undersized stock available for owner occupation. The ammunition used in this fight is credit, and every day house prices rise faster than rents and salaries, or interest rates rise, we get closer to the limit for how much we can borrow. When the credit "runs out", prices cannot go up any further, and the veil that obscures the misallocation of housing stock disappears. The process of reversing it means an increase in available properties at the same time as the bias will shift back towards renting, because prices are not going up any more. Rational property investors will now not only want to earn a decent yield, they will require a premium as compensation for the now apparent risks of capital loss. If prices start to slide, all these effects will strengthen and accelerate it. And the sad fact is, the credit wasn't as cheap as you thought, it is in large part an illusion created by low inflation.

To the person who says that if you're a first-time buyer it would be rational to wait: no, no, no...

The point is that as a first time buyer it's a win-lose situation, you just don't know what will happen. Evan's point - although he doesn't use these words this time - is that for most people your house is your biggest asset, and your need for housing is your biggest liability. Keep those two balanced and you've successfully hedged. That means, for most people, buy a house - but only one. If you have multiple houses, you're exposed. If you don't have a house, you're taking a gamble on being able to afford one in future. But one house, and you've got a house. If you need to sell and prices have dropped you won't get as much, but your next one will be cheaper. If they rise, you'll get more but you'll need more.

A house. That's rational.

Globally we have enjoyed a decade of low inflation, but the factors contibuting to that are now drying up. Indeed China may become an inflation exporter soon as opposed to a deflation exporter. Then finally we may see CPI start to converge with RPIX. Since the chancellor conveniently switched his measure of inflation we have failed to capture many of the price increases in our every day lives. The key point in this is that the housing market is extremely sensitive to interest rates, especially in the uk where many mortagages are either short term fixed or variable rate. Since rates ultimately are set according to the level of inflation if we return to a more inflationary environment, which many beleive is possible, how many home owners who are already highly leveraged could afford base rates at 10%. Then watch the forced selling and negative equity reappear.

Rob, this is basically the same "hedge" argument as Evan is putting forward, and it doesn't work. If you buy a house with a normal mortgage, and prices go down significantly, you *don't* have a house in any financial sense. It's gone. It belongs entirely to the bank, and then you owe something on top. So it will not help you take advantage of the lower prices one bit, because the bank is loathe to increase your mortgage when part of it is uncovered, they would rather reduce it. It is called the negative equity trap. You have to patiently wait until you have scratched your self into the black.

Basically Evan's palace example seems rational, but it only works because it is so extreme. The effect of a price fall on your wealth and your future "property purchasing power" are not balanced, because you have already cashed in most of your future salary through the mortgage. So your increased buying power is limited to whatever salary increases you can get in todays low inflation environment, while your loss of wealth is *not* limited to your equity. Only when you go to extremes, as in Evan's example, does the increased buying power outstrip the loss of wealth, and it seems like a good thing, but this is an illusion.

This whole line of thought is predicated on the assumption that you need a house, you need to own it, and the future is a long way away. There are obvious advantages of owning your home, but you should not be fooled into thinking that you are then somehow "immunised" to falls in the housing market.

Price falls have a positive effect, but this is minor, and vastly outweighed by the effect on your wealth, *even* if your are "upwardly mobile".

The clue lies in the text. It's a hedge against price rises (but not falls). You cannot conclude from this that buying sooner rather than later is a rational decision, unless your assumption is that prices will continue to rise. Maybe that is what shines through this?

The 50p house analogy was just an extreme example to highlight the fair point, which is that for the majority of home owners, the monetary value of the home is of small consequence if it is your only home, as you have to sell it anyway to move on.

The reality is that a 5% fall in the market would benefit those trying to trade up. If my 'next' house costs 10000 more it will then only cost 9500 more.

Negative equity only comes into play for those at the beginning of 100% or higher LTV mortgages, even after a couple of years, equity in the house grows.

Oh Tom, you poor na茂ve fool!

Whatever might be right for the economy, and whatever might be consistent with their policy 鈥渞ules鈥�, when the crunch comes, economic policymakers will act like cornered rats rather than upset the majority. Interest rates will go up enough to say they tried, but not to 10%. They will change the inflation index to include housing, or write the letter, justifying their backsliding as 鈥渁ddressing the seizing up of financial markets鈥� or 鈥渋nsurance against the risk of deflation鈥� etc and promising to be chaste in future, or if it is really, really bad, join the euro.

The arguments for buying property mentioned above are mostly based on expectations of continuing house price inflation, which have a history of proving self fulfilling. Changing these expectations will be a painful process that the politicians and their chosen central bankers will forestall as long as possible. If it happens, it will probably come about through a relatively mild, but frustratingly protracted process, as in Japan.

Am I the only person here with a sense of d茅ja vu?

In the early 90's, we were in the unfortunate position of being in negative equity by virtue of the fact that the housing market had another year to go before it hit rock bottom. In 1991, we weren't looking for a house as an "investment", we just wanted somewhere to live now that flats were finally affordable again to first-time-buyers. Eight years later in 1999, we were still in negative equity, but we could then just about still afford to move from our 1 bed 1st-floor flat into a 2/3 bed terrace house, but the problem was no-one wanted to buy our flat because they could afford houses too. If it hadn't been for my parents buying the flat from us, we'd still be there.

As it was, between our first attempt to buy in 1998, and our third and successful offer the following year, house prices had shot up so much we could no longer afford 3 bed houses and had to settle for a 2 bed terrace with a crumbling garden wall/shed and damp in the kitchen. That purchase nearly fell through on several occasions, because the person on the other end of the chain was some stroppy "investor landlord" who wanted his house sold before he went on holiday, or his profit would be dented slightly.

The point of all this rambling is to remind all you would-be venture capitalists that for ordinary plebs like me houses are primarily places to call home and bring up families in, not for people with more money than principles to make a quick buck out of. The property price boom isn't the result of a lack of affordable housing, it's because ordinary owner-occupiers have been priced out of the market by property speculation. It certainly doesn't have anything to do with immigrants.

House prices are expensive simply because of speculator landlords and criminals of the highest order. It's easy money and the banks have lent a big hand to these people.
When people could borrow as much as they want by lying, the UK becomes awash with money which causes the real inflation-not the one they claim- to go up. Everything has become expensive in the UK. Who wins ? those who made a quick buck-the very few. Who loses ? ordinary hard working people looking for a decent and affordable place to live. Some of these people have already left the country and I am one of them. These people I know are very well qualified just like me - Engineers. The UK also loses by replacing an Engineer by a plumber-a shortage of whom has always been mentioned by the media certainly encouraged by landlords looking for cheap labour. Whether house prices go up or down now is of no direct concern to me now. I really feel sorry for the decent people -and they are lots in the UK-who can neither own their place nor have a decently-rented place. Watch the social tensions caused by these absurd increases. Watch the levels of crime in the UK going up all the time. In the last decade spent the UK, I watched how middle-class people have now been dragged to the lower class and how rich people have moved to the super-rich league. My message to the latter is I hope you one day have a heart attack in the street and need the help of a nurse who has no decent place to live...
The UK unemployment is low because of the increase in public employees financed by higher taxes payed by businesses. These are folding up at a growing rate now so the UK gov. will either have to fire employees or increases taxes even further. Expect some turbulent times ahead.

Peter Verrall mentions d茅ja vu and I have had the same feeling for the past few weeks.

In the late 80s the media was full of stories about mega City bonuses, how much property prices were rising per week, people struggling to get onto the property ladder and the risks they were taking to buy any property they could by signing up to crazy mortgage deals at ridiculous income multiples. This time round the only element missing is guzzumping. (So far.)

We were badly caught out last time round. We bought a flat in December 鈥�88 and by mid 鈥�89 we were in negative equity so drastic that even when we finally managed to sell in 2001 we still didn鈥檛 break even.

Now we have a home which has doubled in value in 5 years but I feel sorry for anyone who NEEDS to buy now. Unless you are buying for the long term and buying a home not an investment.

House prices will rise as global surplus cash is looking for a home and any commodity where the supply is limited and the demand is not checked is a wise investment especially if commercial law in the host country is supportive.
How to level the playing field - abolish tax relief on all interest payments on loans pertaining to residential property so the buy-to-let are no better off than the typical buy to own mortgage bearer
Convert stamp duty to an input/output like tax where both buyer and seller pay a tax, say 3% and 6% respectively, but you can offset the tax you pay on sale against the purchase tax on your next house.
Charge a higher sellers' tax, say 12%, on new builds to reflect the VAT advantage of new builds versus renovation costs on the existing housing stock which would bear VAT.

I think most are missing the point of the article.

House prices have been going up in recent years by around 10% per annum and the ratio between house prices and earnings is widening. This is fact.

Now if you are an investor and can afford to take risks then waiting until house prices fall (if ever) may be the thing to do.

But if you are a first time buyer then NOW might be the best chance you have of ever owning your own property, even if you consider that house prices are slightly inflated. Because the cost of being wrong might mean you never get another chance, or that the next chance is a lot worse.

If you buy now, even at a premium, then you are CERTAIN that you will have a house that you want and can afford. i.e. you are paying for CERTAINTY to some degree. No one is saying negative equity is a good thing, but equally most agree over the long term that houses are an investment and likely to go up. So if you are buying to live, and are in it for the long term, then in the main, it only restricts your choices if prices go down in the short term.

After all, how many of you who think prices will go down, are so certain that you would be willing to bet your HOUSE (or chance to buy a house) that prices will go down? Because that is the gamble that first timer buyers face.

just buy if you can.. in the end espicially if your young, you will benefit, your property will go up, even if it does come down for a while, and when your kids have grown up they can take it on and own it when your pushing up daisys.
I brought before the last crash yet i still wish i brought a least two more properties, because now in my 40s i would have been pretty well off in the end.. just like those landlords now will be in years to come. NO PAIN NO GAIN IN THIS LIFE.
and as you get older you want to slow down not keep paying a land lords mortgage. if your really young
25 years will go quickly. dont lose out when you get older.

Hi Evan,
What do you think about the rampant money supply problem in this country (and the world?). Why does no-one ever mention this in the economic news reports. Surely it is inflationary and therefore a sure sign that interest rates will have to rise to combat it? Given that much of the increase in money supply is coming from MEW, and some in the BoE are explicitly targetting house price inflation, don't you think the first time house buyer of today could be in for a rocky ride?
Sorry about all the questions with no answers!
Ian

The figures published by Halifax for March 2007 indicate that despite an increase in interest rates, the rate of house price inflation is accelerating again.

Perhaps there are too many people waiting to buy, anticipating a dip in inflation that they know they can ride out. Therefore an increase in interest rates is a signal that the dip is coming, so they're getting ready to buy. If this is the case, then any further increase in interest rates will only fuel inflation.

By comparison, continental interest rates haven't jumped to the same level. In France, you can still get a mortgage at 3.8% fixed for the life of the mortgage and the lender will apologise that rates are so high! Yet despite these far lower interest rates, Euro inflation isn't double ours, it's pretty well the same.

Doesn't point to interest rates being a reliable mechanism to control inflation does it?

Maybe we shouldn't moan so much about being so heavily taxed. Taxation rather than interest seems to do most to control the money supply. The only difference between high tax & high interest is which set of fat cats get to benefit...

Well, I wish I'd bought back in 1999, but I was only on 14.5k. Now my salary has increased to 60k I was in a position to buy a 4 bed house a year ago. Why wait so long... house prices kept going up and up and we thought they must come down. We had a rule: as long as our rent was equalivent to what we would pay in interest on mortgage AND we could not afford to buy something we wanted to live in for at least 5 years then we would continue to rent. Our salaries went up so we bought a house we can to live in for the rest of our lives. So even if there is a price crash, well who cares. I think this is the point of Evans article. It isn't just about what house prices are going to do, it is about your personal circumstances that you should base your decision on.

Populaion in Britain is more or less static - not increasing. Over 200,000 Brits migrate abroad and Britain has the lowest number of immigrants compared to USA, Germany and France. In fact the population in UK may become negative when many baby-boomers retire and take up residency in Spain and other countries.
There is over crowding in cities like London due to a large influx on foriegn students - a result of large scale recruitment of overseas students by UK universities.

A pithy City trader once said鈥� everyone needs somewhere to live so if you own a house you are flat the property market 鈥� if you rent you are short.

Want to be a money market trader... if you have a variable rate mortgage you are short interest rates 鈥� if you have fixed rate mortgage you are flat interest rates.

Conclusion: risk adverse folks should buy a house and take out a fixed rate for the term of the mortgage.

Here鈥檚 the extension to this argument for upwardly mobile folks. By upwardly mobile I mean your intention is to upgrade to larger more expensive house. Okay 鈥� you own a small house so you are by our trader鈥檚 argument flat the property market for small houses. However because your intention is to upgrade to a large house (perhaps you are having kids) - you are short the difference in price between the large and small house. This means - as Evan explained - even though you own a house - the price fall works in your favour.

Here鈥檚 an example 鈥� assume you own 100k house and want a 200k house - it will cost you 100k to upgrade. Now let鈥檚 compare what happens if house prices fall/rise 10%. Let鈥檚 take interest rates out of the equation and assume you only take out fix rate mortgages you can afford.

1. house prices fall 10% - your house will be worth 90k and the large house 180k 鈥� the cost to upgrade 90k, 10k cheaper than today
2. house prices rise 10% - your house will be worth 110k and the large house 220k 鈥� the cost to upgrade 110k, 10k more expensive than right now.

This shows you are short the difference between the large and small houseprices - in this case, 100k worth of property.

Although this is seems counter intuitive to own property and want prices to fall - upwardly mobile folks should - Evan was spot on鈥�

I do not believe that property is necessarily over-valued - (as always it is dependent on where you are buying). For example in many parts of london a room in a room will be rented out at say 拢500pm. This means that a three bed home, with a reception and a bathroom could generate 拢1500pm or 拢28000 per annum. Knock off 拢2000 for expenses and the house is making (or avoiding) 拢26000. This rental can be generally aassumed to be growing at inflation (currently 2.8%). The cost of captial (with a 90% mortgage) is say 6.8%, but is hvery co-related wwith inflation. This means the capitalisaation rate is 4% (this is high when you see that 30 year index adjusted bonds are valued at just 1.2%)and the house should be valued at 25 * 拢26000 or 拢650,000. If i look at rightmove I can find plenty of houses that meet this requirement - and I get the option of additional capital growth resulting from population growth and from real income growth for free. The risks to this analysis is that rents fall (in London unlikely) or that interest rates increase - and the key there in the absense of buying a long date index-linked mortgage is to buy on a higher rental yield as possible.

I'm a first time buyer and have spent the last few months soaking up all the opinions and reports on the housing market, and a lot of time dipping my toe in and then pulling it out again. Help !

In the end of the day tenants can only afford to pay so much rent and first time buyers can only afford to borrow so much money. These are the customers in this market which is 'booming'. Wages cannot keep apace with house price rises as is clear from recent news articles. This means inflation is most definitely set to increase as wage demands go through the roof! This in turn will create a corresponding hike in interest rates. Also, levels of debt are at a ridiculous level. I hope I'm wrong, but I feel a crash is inevitable. It won't be the rich who will suffer most, however, it will be the recent first time buyer.

Post 56 demonstrates the mathematically illiterate buy-to-let mentality sweeping the country.
Still, they're only 拢10000 a year (拢250000 for the valuation) out in the calculation.
Another example: A buy-to-letter asked me a while ago how to fill in a tax form for property. I explained that she had to work out the profit from the venture after deducting expenses and pay tax on that. She answered - 'That's alright then - I don't make any money on it so I won't have to pay any tax'.

in response to Ian's comment - good point. The calculation was wrong (but not necessiarily illiterate), however the point still stands - you can still easily buy a house for 拢400k (using the conservative 4% - as opposed to say a more aggressive 3%) that enables you to avoid 拢1500 pm rent(because you live there) or to take it as an income. Rents are still increasing. The rule of thumb given was between a third and aa quarter of take home pay is earmarked for accomodation. Once people become wealthier, this proportion increases as the first priority is generally to upgraade your living circumstances.

The point is rent/avoided cashflow and finance rates drive housing the same as it drives every other asset market.

Damian,
I apologise for being very harsh! You sound far more rational/informed than the average punter.
I still don't think that now is a sensible time to accept such low yields when the risk to your capital is so great.
Also remember that interest rates have been unsustainably low for the last couple years, which could throw the calculation. Plus a house is illiquid and more hassle than 'money in the bank'.

After graduating in 1997 the loss of my nearest relative left me effectively homeless in London. I now live in continental Europe. I am a saver and have remained a renter all this time. My accommodation is nice (contracts here provide greater security for the tenant, too) and the rent inexpensive. Friends in Milan bought two years ago. Their mortgage payments have since gone up considerably - with each CEB interest rate increase (another due tomorrow?) Italy also managed to work itself up a housing bubble, despite its ill-performing economy, high unemployment and (having among the)lowest ave wages in EU! Society needs to remember what homes are (not houses) and what go in them (families, lives). After moving abroad, I realised that not having got my "foot on" didn't make me an inferior being (the greed and buy to let frenzy in the UK infact has long disgusted me) Still, I remain rather partial to the idea of owning the roof over my head one day, yet I am happy to wait for the economics to change and then think about buying - if and when it's sensible and appropriate. Anything else just isn't right, financially or morally. Btw, buying now would be financial suicide - I find the article rather irresponsible - like most of what u get in mainstream media.

Hidden agendas are the Trade mark of Politicians, and Nationalism, is being used to further the cause of European segregation, into Regional Assemblies, run direct from Brussels.We are OVER half way there, Ireland , Scotland, Wales and England are independantly run already, the future is to make them regions in the "Super State of Europe." The move by politicians to impose this Super State on us is well advanced, and will be reality, in a decade.All you have to do is watch TV, Everything you see all over Europe, is a mirror image of any one country, traffic signs, roads, police riot squads, currentcy, etc, all indicate standardisation, of civilisation, Nationalism is the catalyst for this to happen."IN OTHER WORDS WE ARE THE eUROPEAN sUPER sTATE IN ALL BUT NAME."
When The Nationalists in Great Britain win, in all elections, we are there.

as a young scot i feel that scotland needs independance as a matter of pride. one of the comments sayed that many of scotlands young people would be pulled to wards the south because of the prospect of money and that is compleatly untrue beacuse the veiw of the majority of young people is that they would never walk out on their country like that.

Also many young people in scotland when asked the question would you fight for your country? answer by saying that they would fight for scotland but would never ever think about fighting for england (britan)

Scotland should be alowed to choose its own was not have to fight westminsters wars (ie Iraq)

Perhaps house prices are n't rising as quickly as it seems. Survey research companies use a quota sample to make sure that the people they ask are representative of the population as a whole. As far as I am aware those measuring house prices do not do the same. There are many reasons why the mix of houses being sold this year could be different from last year. These include:
1; fewer council house sales as the stock has declined. This would increase the average price of houses sold but not of the stock as a whole
2; Higher stamp duty might disuade people who have made less on their houses from selling. Those who have improved/extended their houses are likely to have made more money and may be more likely to sell. This would mean that houses coming to the market are more valuable although outeardly similar (size, style, location) to the stock as a whole.
3; New houses have to be built to a higher specification (building regs) and attract a premium. If there proprtion of sales and their quality change this will affect the average price of sales more than the average price of total stock

There may be other reasons but it seems to me that unless a detailed quota approach is used then the house price indices are questionable at least. Of course they do not stop the Bank of England rasing interest rates which mainly hits those who own houses, are not moving and have mortgages. These people are left with less to spend in the High Street not a lower demand for a house.

Well said but there are other implications.
We bought a flat in 2000, just before the boom. It was far smaller than we could have bought but we got a 15year mortgage with the aim of gaining capital quicker for when we later moved to a family home. We thought we were planning sensibly.
Then the boom came and we could no longer afford to buy a home in our town despite having huge gains in our flat. We decided to move house before we really wanted to, in case we later couldn't.
We bought a family home - extendable of course - in 2004 (for almost double what the previous people paid in 2001). Our house is bigger than we wanted to buy and although we have a young family and I want to work part-time, I have to work full-time to pay the mortgage. Had we bought in 2001 I would be working part-time and able to afford a second child.
But if we had bought smaller, we would probably NEVER be able to afford our present home.
Indeed, if we had bought a year later, in 2005, our present home would be out of our reach.
So property inflation and the desire for a secure long term future for our children has forced us into being speculators when we only want a family home.
It has also forced me to be a full-time working mum against my wishes - and no, I don't work for foreign holidays and meals out.
I think in the not too distant future more people are going to work out what a disaster this government has been for young families. Our future and expected standard of living has been thrown away.