Property investors are delusional: house prices will fall

By Tom Bulford Apr 05, 2011

Tom Bulford

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Three subjects never fail to upset my readers and guarantee a sack load of abusive letters. The three are: implying that anybody with a house full of pets is mildly peculiar; claiming that inheritance tax is a good thing; and arguing that property is a bad investment.

So let me tell you about the nutter who owned a dogs' home and wanted to pass it on to his children...

I am joking. But I was not joking three weeks ago when I said that I believed land prices were certain to fall. Back came my readers with predictable ferocity. "Look at all the money I have made on my property portfolio", said one. "Tom has a poor grasp of economics", said another. So much for my University degree!

But with the annual Isa investment decision now upon us, I for one will not be putting any of my investment funds anywhere near property. People always delude themselves about this. They boast that the house they bought for £100,000 is now worth £200,000. But they forget to mention the costs of buying it, of furnishing it, of repairing the roof, paying the council tax and insurance and the £20,000 that they spent on the new conservatory.

Property investors see what they want to see

And they delude themselves in other ways too. A 2008 study by a group of academics in the USA compared people's estimates of the value of their homes with the amount they actually got when they sold. The study concluded that homeowners, on average, overestimate the value of their properties by between 5% and 10%.

"While most individuals overestimate the value of their properties", the study revealed "those who bought during more difficult economic times tend to be more accurate".

On the other hand, those who buy their homes when prices are high and rising - which applies to most UK home owners - expect that this happy state of affairs to persist and are prone to being over-optimistic. This is an instance of 'investing by the rear view mirror', by which our view of future trends in asset prices is biased heavily by recent experience.

We see what we want to see. If our financial hopes for our old age rely upon the value of the family home, we convince ourselves that property is a great investment. We convince ourselves that it is safe, even if it might not be.

Despite the collapse of house prices, another survey found that two-thirds of Americans rate property as a safe investment. This even applies to those who, having seen the value of their home fall below the liability of their mortgage, have certain evidence that it is not.

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House prices simply must come down

I don't buy any of the arguments for investing in property. In this country the housing market is artificially supported by low interest rates. I am sick of hearing house building executives and estate agents moan that if only the banks would lend more money the housing market would be fine. The housing market is under pressure not only because the banks have finally come to their senses, but because incomes are static, taxes are rising, and rises in the daily cost of living are reducing the surplus available to service the mortgage.

The point I was trying to make in my earlier article is that this will hit the value of land. The cost of building materials and builders' wages is fairly constant. But there is no reason why house prices should not be lower if builders pay less for building plots.

And a weak housing market is not the only thing pushing down the cost of land. Last week the tenpin bowling operator Essenden (AIM:ESS) said that many of its sites were 'over-rented' - meaning that the only thing preventing the bowling alleys from making money is the rent they are paying for the building. Essenden now wants the rents reduced and with the landlords having few - if any - alternative tenants, Essenden should have them over the barrel.

This type of thing is going on all over the country. House builders hate reducing asking prices - they would far rather throw in free carpets instead - and landlords hate reducing rent because this is an admission that their land values are too high. But the economic predicament of this country dictates that land values and house prices must come down.

I am sticking to shares in wealth creating companies. I suggest you do the same.

In the meantime I'll look forward to receiving the usual torrent of abuse....

• This article was first published in Tom Bulford's twice-weekly small-cap investment email The Penny Sleuth.

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  • 1. Austin

    (05 April 2011, 05:36PM)  Complain about this comment

    Absolutely spot on, property (in the joe public sense) is a wealth drainer.

    Don't let these delusional indivual's get ya down Tom!

    The more we pay for our houses (in a stagnant wage environment) the less money is spent elsewhere in the economy. The elephant in the room (there are hundreds others in this BTL development of canal-side rabbit hutch flats) is the fact that if we are in a globalised market place, paying ever increasing amounts in mortgages makes our workforce ultimately less employable for the legion of foreign based companies looking to employ.

    The UK has seriously got to consider whether it wants to tie up over 60% of its wealth in an unproductive commodity!?

    And to all those over leveraged property bulls - the party is over.

  • 2. Chris

    (05 April 2011, 05:50PM)  Complain about this comment

    'In the meantime I'll look forward to receiving the usual torrent of abuse....'

    Lol, good that you can smile about it!

  • 3. Tim

    (05 April 2011, 05:58PM)  Complain about this comment

    Tom, I agree that banks have 'finally come to their senses'.
    BUT while they and others blamed buyers for bidding too much for their homes they themselves were largely to blame for lending higher sums against incomes, which only served to increase expectations by agents and vendors alike and so prices increased way over real values.
    Thus, in good times, banks actually fed the flames.
    But those banks who bought into toxic debt failed the one mantra preached to the rest of us - Due Diligence. So they were professionally negligent but did not pay by losing out like we would. They got out of jail free.
    Yet, despite being bailed out by the taxpayers they still complain about being pressured whilst failing to recognise real responsibility to lend to many decent properly- run businesses that really do create wealth rather than skim it off the top - like the banks.

  • 4. madseller

    (05 April 2011, 06:04PM)  Complain about this comment

    Tom is right on the money. Property is still massively unaffordable for most and this siutation simply can not last. Those that preach about there being a lack of supply in property are missing the major fundamentals here. The only reason property prices did not collapse back in 2008 was the banks keeping the whole market artificially inflated (with our money too boot!). There has to be a major correction - the only question is when.

  • 5. Martin

    (05 April 2011, 06:43PM)  Complain about this comment

    Hate to disappoint but I think you are right. Property is only worth what people will pay for it, and that is dependant on what they can afford. At the moment their ability to pay is dropping and so, therefore, will the prices of land and houses.

  • 6. Peter

    (05 April 2011, 07:00PM)  Complain about this comment

    No abuse from me agree whole heartily with the article. There is still a huge gulf between what estate agents value properties at and what buyers are able to pay/afford. The housing market has not adjusted itself to the level where affordability is there and I feel never will. Who would allow that. Banks, agents, builders, government, owners. No one actually wants it to happen so we all continue to value our homes based on over inflated estimates. Its only those that need to sell that have to take the low price. And I certainly expect we will see many more of these forced sellers in the coming month.

  • 7. James

    (05 April 2011, 07:34PM)  Complain about this comment

    I think your right Peter, no one like the government wants house prices to go down, it's bad for popularity and after all a lot of those home owners will also vote.

    Whilst I can see and understand the moneyweek argument that housing prices are reflected in credit availability more than anything else, I don't think a massive drop is in the immediate pipe line, too many interests in maintaing current price levels, or there abouts.

  • 8. Hamish McTavish

    (05 April 2011, 08:45PM)  Complain about this comment

    What a load of rot, you've been duped by Simian M. As long term trends prove, house prices always go up. By 2020 there will be another 20 million people in this country but we are only building 50,000 houses a year. I expect interest rates to stay at 1/2% until around 2018. House prices will double every 8 years. Right now is an ideal opportunity to snap up a bargain.

  • 9. Andrew

    (05 April 2011, 09:10PM)  Complain about this comment

    It is absurd, as Austin says, that so much of our wealth in this country is tied up in property. But it is understandable; the financial services industry rip off the saver, CEOs rip off the company they work for and after all that,the government takes nearly 30% of any gain. Tom does not mention the tax benefits attaching to property.

    The only solution is to tax property under Schedule A as Philippe Legrain has argued. Politically this would be a non-starter unless stamp duty on shares is abolished and cgt substantially reduced. Then it might be worth investing in wealth creating assets. We need to be encouraged to do so, if this country is to get out of the mess it is in.

  • 10. john

    (05 April 2011, 09:48PM)  Complain about this comment

    Of course property is massively overpriced, gone are the days when a young hard working couple could afford to buy the family home(also a reason for many social problems, but that subject is for another debate). The amount of properties selling is more than 50% down off peak, and of those many are being snapped up by those horrible creatures called "property developers" or BTL.

    Market forces will kick in evetually and i hope those that treated property like a piggy bank or and investment loose the lot, i am sorry for familys though.

  • 11. Tim 2

    (05 April 2011, 09:49PM)  Complain about this comment

    At last, someone who agrees (to some extent) with my thinking. I know that it would be impossible to implement, but I believe that inheritance tax should be levied at 100%, following the death of both partners in a marriage.

    This would surely lead to much lower taxes during our lifetimes,
    and give every generation the opportunity to advance, starting from a more equal level.

    I am all in favour of wealth creation, but the whole idea of inherited wealth seems to pander to people who expect something for nothing from life.

  • 12. Sibley

    (05 April 2011, 11:59PM)  Complain about this comment

    Mate I couldn't agree more, my house has dropped like a brick, thankfully Ting Tong's got somr evening work.

  • 13. Jayne

    (06 April 2011, 08:51AM)  Complain about this comment

    Spot on analysis in my book. The global economy is in a terrible state and I think we are coming to the end of a wealth cycle which can only end in tears. If they stop pumping money in and its not too late to control the money supply (which I think it is) the economy will find its own level which is massive deflation - including house prices. The alternative is more money into the system (QE3) and then hyperinflation and then CRASH! Either way property prices will go down. My plan is to buy metals - wait and buy property at the bottom.

  • 14. growler

    (06 April 2011, 10:24AM)  Complain about this comment

    Of course we know property must come down. If values are way over average salary multiples, banks are not lending negligently and the cost of living is increasing - it's a question of when, not if. It's a bit like an evolving rollercoaster. We're at the top, we know it's going to go down, but out of nowhere, a bit more track appears in front of us and we seem to delay the fall. What really will be the catalyst - this is what interests me most?

  • 15. Pete

    (06 April 2011, 10:26AM)  Complain about this comment

    Well done, Tom. A statement of the bl**ding obvious. Interest rates artificially low and about to skyrocket, 100,000 public service workers in the employment firing line, universities churning out graduates who are thankful to get bar-work, mortgage lending at a low (and then only if you've got 25% deposit), public spending cuts of 20% plus, and the possibility of yet another round of quantitative easing in the future. I see property, land and rentals bottoming out at 50-60% of current values sometime in the next five years. I'm as unhappy as the next man about it, but we have to change our attitude about our property - look upon it as somewhere safe to shelter, eat and sleep and keep your family - not a nest egg!

  • 16. Roberto Birquet

    (06 April 2011, 11:23AM)  Complain about this comment

    Martin
    Property is only worth what people will pay for it, and that is dependant on what they can afford. At the moment their ability to pay is dropping and so, therefore, will the prices of land and houses.
    ---
    I disagree with that. People evidently will pay more than they can afford, in the delusional hope that prices will keep rising and they can use equity release to pay the mortgage in years 3 to 5. However, although they are willing to pay more, they can't actually buy at bubble prices if the banks do not lend the money.

    That is the difference between now and the period 2003-7 when irresponsible lending destroyed the banking system. I reckon falls will be limited to 15% in nominal terms as BoE, government, and the banks will keep interest rates low in an effort to save (keep saving) the banking system. A disgrace, but reality.

  • 17. Jon

    (06 April 2011, 11:28AM)  Complain about this comment

    "What a load of rot, you've been duped by Simian M. As long term trends prove, house prices always go up. By 2020 there will be another 20 million people in this country but we are only building 50,000 houses a year. I expect interest rates to stay at 1/2% until around 2018. House prices will double every 8 years. Right now is an ideal opportunity to snap up a bargain".......This will not happen because we are already almost bankrupt anyway. Where would the money come from to lend to new buyers ?. Quantitative easing eh ?.This country like house prises is sliding down the pan but deluded people just like this ridiculous Government find it hard to grasp the reality or more likely don't want to face the reality.

  • 18. Paul

    (06 April 2011, 12:07PM)  Complain about this comment

    Hamish McTavish, you sound like a BTL L/Lord who has bought at the peak and is seeing his "investment" fall in value. So this doubling every 8 years, do salaries double every 8 years?? I think not. You heard of earnings/value ratio??? Apart from population increases, what other factors can assist house price rises??? I have a list as long as my arm for factors that will bring house prices down to there nominal value. Before you post rubbish please do some research.

  • 19. charles

    (06 April 2011, 12:09PM)  Complain about this comment

    Well, I live in London and am still waiting for house prices to go down.
    My view is that in London, prices will be maintained at the current level. You may say that in real terms prices are therefore going down - on the other hand wage inflation in the end, will keep prices going upwards.
    What you miss is that house prices are currently being manipulated by keeping to low interest rates and the lengths to which lenders and Government will go to prevent repossesion.
    Shares and houses are the best medium term hedge against inflation. Proved in 1920's/30's Germany.
    Unlike Gold, buying a house does not involve currency risk. And it's a place to live in.
    The British are addicted to property. Economics don't come into it, unless interest rates rise and mass reposessions are allowed to take place.
    Governments are happy for the free market to work on the way up - but they will do anything possible to prevent the free market working as it should, on the way down.

  • 20. Steveo

    (06 April 2011, 01:13PM)  Complain about this comment

    All signs do point towards a crash, but it will not come. We are in a situation where our country is being manipulated by a ruling oligarchy whose interests outweigh ours .

    A fully fledged house price crash would cripple the banks at this point and QE and low IR would not be enough to keep them afloat. This will not be allowed to happen. Economic policy in the UK is currently, and will continue to be, based entirely on the prevention of such a scenario.

    Prices will be allowed to stagnate, letting inflation ease some of the pressure - to the point that inflation itself becomes the critical issue.

    Trouble's brewing...................

  • 21. Dave

    (06 April 2011, 01:16PM)  Complain about this comment

    Two major problems:-

    1) Govenrment policy
    2) low interest rates

    The first in cahoots with the BOE will ensure that the second stays low. Thus ensuring consumers continue to spend due to the maintenance of the housing wealth affect based on 10 years of price increases. Secondly protect the nationalised banks from adding more bad debts to their books.

    When will rates go up again? - when the Gov believe the banks balance sheets are strong enough to take an increase and thus extra bad debts - could be a very long wait!!!

  • 22. JohnnyC

    (06 April 2011, 01:50PM)  Complain about this comment

    Hamish - the population will not increase to 82m by 2020. It is forecast to reach 65m by 2018 so I think it unlikely to increase by 26% in two years. My feeling is that I will leave to work in Asia along with many others as that is where there is real salary growth. Trends show that house prices go in approximately 9 year cycles of rising for 9 then falling for 9. This trend is unusual solely because of the low interest rates which are delaying the certain collapse in the market - it will happen for definite in the next 12 months.

    Jon - I disagree with your comments about the government as they are making a decent fist of the dreadful finances they inherited from the previous ********. No governement will appeal to all of the population all of the time and they do anny me at times - I just think about the previous lot and then I feel a lot better.

  • 23. demonic

    (06 April 2011, 01:52PM)  Complain about this comment

    Tom you are so right re house and land prices, thank god I rent a house in London for half what thev estate agents want from the same type of houses. Only if people are real to themselves will this become the norm, or we will again have another craSH.

  • 24. Roly

    (06 April 2011, 02:25PM)  Complain about this comment

    Well on this website it seems you are largely preaching to the converted! Those of a non delusional disposition.

    However I am not holding my breath for a big collapse. Interest rates in my opinion will go up but will still be absurdly low. Inflation will temper later in the year before taking off again but that could take longer than monetary hawks like me, might anticipate. I expect to see blow outs elsewhere first, possibly gilt prices, rather than in property.

  • 25. Roly2

    (06 April 2011, 02:27PM)  Complain about this comment

    Mervyn King recommends us to read the Big Short and notes that property cannot be shorted. Property in the UK and US will continue to boom and bust as it has for generations because the market is inherently unstable, so many vested interests on the way up. It is also by far the most significant asset of most people and a large part of the 'wealth' of the nation so is never treated like a normal asset always a political one. But after all most people do not spend their time considering what asset class to be in and need a place to live.

    The net result is that we have a moribund market, buyers waiting for prices to fall, sellers holding on not wanting to realize lower gains than they had been dreaming of in 2006. This is bad for the competitiveness in our economy in terms of the mobility of labour and the amount of capital locked up in an unproductive asset.

  • 26. Roberto Birquet

    (06 April 2011, 03:05PM)  Complain about this comment

    Paul
    Hamish McTavish, So this doubling (in value) every 8 years, do salaries double every 8 years?
    ---------------------
    He presumably believes lending doubles every 8 years. This proves that people cannot even learn from very recent history.

    That for me shows that government - whether this or maybe a more radical Miliband government?? - must weigh down heavily on the banks. Both major parties have shown they are wedded to high house prices and bailing out the banks. In case anyone here is as delusional as some and think the banking sector is not a disaster, and just having had a blip and is fundamentally sound, were it not for government action, many banks would be insolvent or not even here.

    Actions include setting interest rates at 0.5% (real rates at minus 4%!!!) and releasing £200 bn into the investment and financial services community. The madness is that we are arming those who caused the crisis to now save us. It may yet end in hyperinflation.

  • 27. Roberto Birquet

    (06 April 2011, 03:16PM)  Complain about this comment

    Charles
    My view is that in London, prices will be maintained at the current level.
    ---------
    That may depend on where in London.
    Prices dropped by 30% at least in the East End in the first year or so after the credit crunch hit. Where there are very rich cash buyers, your analysis may be right. But London is a big place, and not all of it caters to the mega rich. Most still require a mortgage.

    There is a standoff. Buyers are offering what they can: their available deposit and available mortgage. Sellers are demanding the same prices as in 2006-07 and are simply refusing to accept the new reality. As rates are extremely low, and banks are holding off repossessions, sellers won’t sell.

    This will end either when sellers are forced to sell, or banks start lending at bubble levels without checking credit-worthiness of borrowers. I simply cannot see the latter happening, nor can I see it being halfway sensible.

    So, either a zombie market for years, or prices fall.

  • 28. noah j

    (06 April 2011, 04:06PM)  Complain about this comment

    money week , in view of the fact 90 percent LTV mortgages are gradually coming back into fashion, and banks are slipping back into risk taking and old habits. i doubt you will prove correct. The govt and banks will artificially manipulate the housing market , right through to the next boom. we had the housing crash, its over now. Banks are nearer to returning to their old habits than you realise. In fact this time round they will take bigger risks, as they have the tax payer to bail them out. BE AFRAID , BE VERY AFRAID.

  • 29. EKTOP

    (06 April 2011, 04:33PM)  Complain about this comment

    I agree with you 1000%. House prices will come down by 15-20%.Banks have realised that houses do not create wealth but trouble.

  • 30. Margaret

    (06 April 2011, 04:41PM)  Complain about this comment

    Jane, I'm glad you understand wealth transfers and cycles. It can be transfered from the stock market to realestate to gold/silver to commodities, etc...there are booms and crashes in every class.
    We are now in the times of great uncertainty thanks to governments, central banks and the wall street. We can never beat them but we could outsmart them. So get educated and measure each asset class, not with the currency, but against another asset class and switch to what is undervalued.
    I am like you, investing in gold/silver at the moment with the ultimate investment in real estate for passive income.
    The wealthiest people in the world made fortunes in realestate many many years ago and many many times over.
    Do all of you still think realestate is a bad investment if it's mortgage free? I don't care if it's undervalued or overvalued if I own it outright......

  • 31. James

    (06 April 2011, 04:59PM)  Complain about this comment

    The question I have, is why haven't house price dropped already? In this hard hitting recession, that has lasted 4 years, the effect has been minimal when you would ordinarily expect house prices to be caned. This makes me suspicious as to whether they will tumble, but, as the government cuts set in maybe that will be the tipping point.

  • 32. Nick

    (07 April 2011, 12:48PM)  Complain about this comment

    Property will probably fall, but if it doesn't it will stay around current levels. Either way with no material Capital Gains it is a lousy investment or store of wealth. Rental yields after vacancy, tax and costs (all of which property investors often ignore) are poor relative to even 'risk free' rates on 10 Year Government securities.

  • 33. KMc

    (07 April 2011, 09:33PM)  Complain about this comment

    Property is like any investment. You need to consider what dividend you get (Rent) and what increase in value they will produce over time. I have some BTL properties but haven't bought any properties for 10 years. The rent yield struck me as too low. The ones I have give me a yield of over 10% on the price I paid. Why would I sell them.
    Regarding future prices, I would expect them to fall in real terms. Never forget inflation., currently 4 or 5% at least.
    5 or 6 years of that will represent a real fall in real values if nominal values remain the same.

  • 34. Shuey

    (08 April 2011, 11:23AM)  Complain about this comment

    Yes your probably right in a vague sort of way. However what you Fail to address is that that is assuming you buy at OPEN MARKET VALUE. You don't want to do that. You want to buy property at BELOW MARKET VALUE. ultimately I'm not too fussed as your article means less competition and more deals for me ...thanks !

  • 35. James

    (08 April 2011, 12:19PM)  Complain about this comment

    The best houses in the best areas are a secure bet. They will be expensive but the upper end seems to be shooting up. London is an international market and you can not compare it to any national statistic.

    If the investors are foreign with oil money or any other form of substantial wealth wanting the best (especially as the Euro is in turmoil at the moment, thank God labour kept our currency) this enables people to tuck away wealth in the secure sterling currency compared to the US which is in a currency war with the Chinese, London is a safe bet for families wanting to 'tuck away' welath. The only problem is that most of the desirables are now so expensive that the average joe couldn't dream of affording to get on the 'golden ladder' if you do have a few bob to spare buy in London and don't be stingey buy the best.

  • 36. Nick-Almost-Redundant-Soldier

    (08 April 2011, 01:00PM)  Complain about this comment

    Tom

    This is a great article that is based in logic, and the application of knowledge and common sense. However, many insightful individuals have been predicting significant falls in house prices since around 2003. It hasn't happened and it is unlikely to do so while the BOE votes towards encouraing recovery rather than fighting inflation. Higher interest rates may precipitate the quantities of forced sales necessary for lower prices.

    Perhaps you could write a piece on what companies to invest in when interest rates starts to rise?

    Cheers, Nick

  • 37. Roberto Birquet

    (08 April 2011, 04:00PM)  Complain about this comment

    2011 - £152,000 (and currently only just under the long term mean, so may be further to go).
    --------------
    Current avg prices are at £162K not £152K. But these are on -4% interest rates. Rates can only go up, and bank financing is not rising to anywhere near the previous levels. The only way for prices to rise is for enough cash-buyers to buy availble houses.

    A shock to the system, euro crash, double dip, rates rise - any of these things - will get the market moving again. Moving down as more and more people accept offers they are currently deriding. The scale has been greater than ever before in real terms, but the trend of boom and bust has for followed the classic Nimsky curve. flat to rising, to accelerate, to "new paradigm" boom, to crash, to bounce (2o09-10) to double dip, and then the next phase is "panic" crash.

    My guess is prices bottoming at around £135K, and lower if the euro breaks up and the banking industry gets another hit.

  • 38. Ramesh

    (08 April 2011, 06:59PM)  Complain about this comment

    I agree with Tom that the lad value will come down.
    Have two plots of land for development wich is being used for my business at present.

    Before the crash of 2008 I had offers of £900,000 to 1.1m However I am now being offered between £400,000 to 600,000.
    So it seems it will take a long time for the value to restore pre 2008 level.

  • 39. Ramesh

    (08 April 2011, 06:59PM)  Complain about this comment

    I agree with Tom that the lad value will come down.
    Have two plots of land for development wich is being used for my business at present.

    Before the crash of 2008 I had offers of £900,000 to 1.1m However I am now being offered between £400,000 to 600,000.
    So it seems it will take a long time for the value to restore pre 2008 level.

  • 40. tina

    (08 April 2011, 07:49PM)  Complain about this comment

    it greeves me to have to agree with your article i must own up to being a property developer however we stated in 2008 brought up repos and renovation properties carried out refurbs and turned them qick since we started we have walked away with arround 500k our last unit is currently sold stc exchange 10
    days ( glad rates didnt change) but to support your arguement
    we r out from now on as i agree rates will rise push people over edge repos up values down ( think ill by laod of gold ) till it bottoms out

  • 41. Basil bell

    (08 April 2011, 09:05PM)  Complain about this comment

    Hmmm ok Tom you've been telling us for years now not to invest in property. I wonder why??? Self intrest? It must really hack you off that people would rather put their money into something that you can't get commission on!!!

  • 42. Alec

    (08 April 2011, 10:33PM)  Complain about this comment

    Reckless lending and reckless borrowing caused the property bubble. Savers are now propping up the banks and building societies
    still stuffed with toxic debt. Sooner or later a reality check will show that the UK housing market is as bad as if not worse than Ireland, Spain and the US where 50% falls in the value of houses are now taken for granted.

  • 43. Mona Lisa

    (08 April 2011, 11:04PM)  Complain about this comment

    Tina, in three years you profited from quick turnovers of property, gaining £500,000. Was this inclusive or exclusive of your capital gains tax liability?

  • 44. Tommy Concrete

    (08 April 2011, 11:05PM)  Complain about this comment

    Hi Tom - how about an article on how estate agents and banks are encouraging and/or turning a blind eye to the manipulation of house sale prices? How many recent house sales were based on 'Vendor Paid Deposits'? No deposit required by the buyer, 'sale price' achieved on the paperwork is respectable, bank is officially only offering a 90% LTV - all the vested interests are happy. No wonder the house price indices show no fall, after everything that's happened (100% LTV, Self Cert etc) it seems the banks haven't learned anything!

  • 45. Howard

    (09 April 2011, 08:07AM)  Complain about this comment

    Politically a house price fall in the 2nd yr of government is still possible, but the opposition will do everything to blame the cut. On the other hand reducing the rent paid by the young generation would encourage spending. May be that's a more progressive taxation?
    Tax the rich who own property, fund the young to spend?

  • 46. Mike3

    (09 April 2011, 10:51AM)  Complain about this comment

    (a) Residential property is overvalued in terms of both bubble and long term average growth, but
    (b) Interest rates are held artificially low and Jo Public wants to be in something tangible, whether cans of bake beans or a house, it may half in value but it won't go to zero. So it is fear, not just hope, that maintains the market.
    (c) BoE won't raise rates to cause collapse. Fear of effects from the pro-cyclical mark-to-market stupidity
    (d) Gov't policy (e.g. see university funding) will not separate investment from consumption, so some house price is consumption
    (e) Pound is weak so London property bought by non-UK
    (f) Central London won't reduce until very many HSTs

  • 47. inmind

    (09 April 2011, 10:52AM)  Complain about this comment

    Half a century of credit expansion has been responsible for the speculative boom which has inflated our property market to current levels. Remove, or stem the rate at which credit expands and the very fuel which has powered this boom is depleted. If you believe that credit will continue to expand despite the enormous weight of debt our country carries, then go ahead, fill your boots! If however, you believe that our current and growing level of debt is unsustainable and must be reduced by whatever means, then where prey tell, might the money to fuel further house price rises be found? This is a 'no brainer' folks - expect a rough ride!

  • 48. Steven P

    (09 April 2011, 11:24AM)  Complain about this comment

    A lot of intelligent and some delightfully humorous commentary. Using the comments above as a straw poll, it is beyond doubt that there will be an effective correction in the property market. Some call it fall, some call it crash, and I call it correction as the inflated prices we see today are simply wrong. Pursuing the 'when not if' line of argument, it will certainly happen in most of our lifetimes. Makes you think. If a correction is 'right' as well as being inevitable, then more effective regulation of rented property to enforce minimum standards and stimulate supply, would certainly reduce the demand to buy and more quickly bring about the correction which is desperately needed by all but a relative few.

  • 49. Steve

    (09 April 2011, 11:43AM)  Complain about this comment

    The price fluctuation is very regional and here in the south east prices haven't really dropped a great deal. Also a lot depends on the type of property, anything in a good location and is decent, is still going for a ridiculous amount of money.
    I would love to get back into owning, but I am one of these people that think that economic conditions point to a fall and so obviously wary about buying again.
    I just wish that the market would correct itself, not only for myself, but to stop all the BTLers gloating that they have never had it so good and you can never lose with property, on sites such as Thisismoney.

  • 50. Geoffrey

    (09 April 2011, 11:55AM)  Complain about this comment

    I'd like to see Money Week comment on the BMV market. Clubs offer special access to distressed properties, e.g. "the current market value is £100,000, and we've negotiated a 25% discount so you can buy for £75,000" and BTL mortgages are available at 75% LTV. This is highly leveraged borrowing - if market value is £100k, how come it sells for £75K? - if it sells for £75k that's its market value! A key 'currency' seems to be RICS valuations. If you don't know what's going on, follow the money: the club makes immediate cash, the distressed vendor is taking an immediate asset (and maybe cash) hit, the purchaser is taking on a highly leveraged high risk investment, and taxpayers are standing behind banks who are providing the 75% LTV mortgages. Is the taxpayer the ultimate guarantor behind this very risky speculative market? Maybe it's government policy to transfer the housing stock into a much smaller number of private landlords than individual householders?

  • 51. Stephen

    (09 April 2011, 12:26PM)  Complain about this comment

    I broadly agree with many of the comments made; that house prices are too high, but also that there has been a collective effort by the housing industry and government to ensure that a crash does not happen - for all the economic reasons that will be obvious to all. My personal view is that prices will be 'managed' downwards by years of both flat (sub-inflation) or actual small falls in prices.

    It remains, however, a very different question as to whether this approach is ultimartely the worst option for the long tem economy.

    Stephen

  • 52. Fishy

    (09 April 2011, 01:41PM)  Complain about this comment

    It would be great if house prices were a lot lower, especially for the young potential buyers. we all need somewhere to live the cheaper the better. Why is it the British love property as an investment so much and above all others, it would be great if people took a more balanced approach to investment ie shares, pension,property, cash. the only people who really gain from high property prices are the Estate agent, solicitors,builders. For most people a more balanced investment approach would probably mean less debt (more disposable income and savings), and a better retirement. Houses and where you live perpetuate our class ridden society eg schools ,socialising. Get out there and make some money ,it's not all about that pile of bricks (a high percentage of homeowners have very little savings all goes on the mortgage) ,some to spend and a few bob in the bank is great security.

  • 53. Chris

    (09 April 2011, 02:51PM)  Complain about this comment

    Actually of these three:

    "implying that anybody with a house full of pets is mildly peculiar; claiming that inheritance tax is a good thing; and arguing that property is a bad investment"

    I don't have an opinion on the first one, I definitely agree with the second one and I would agree with the third one in general- with the particular exception perhaps being much of London (central and outskirts of central- say anywhere that is in a tube zone).

  • 54. Andrew

    (09 April 2011, 07:10PM)  Complain about this comment

    I believe that there will not be any major crash in the housing market, currently houses are vastly over priced and the government have subsidised this by keeping the base rate of interest low. The market for houses is not liquid at the moment due to the banks being more responsible with lending. I feel sorry for the current generation trying to get onto the proerty ladder. I know for a fact that Icould not raise the deposit for the average mortgage these days and think the government scheme tohelp is going to cause some misery. The most plausible scenario will be that rental market will benefit considerably and children will be residing with their parents for longer! Expect the market to revive in about 10 - 15 years time after a long period of stagflation and artificial base rate!

  • 55. Nick

    (10 April 2011, 12:26AM)  Complain about this comment

    House prices may or may not fall, but that does not make it a bad investment. Yields after vacancy, costs and Tax make it a bad investment.

  • 56. Jack

    (10 April 2011, 03:46AM)  Complain about this comment

    Gordy the Klepto said that nobody saw it coming. House prices were 6x average earnings and 120% mortgages were on offer (whatever happened to the 2.5 times a single salary plus 1 times an additional one, which for all of my youth was deemed to be the maximum borrowing for a house?) House prices are well out of wack with affordabillity. The sooner they fall to a sensible level, the sooner the country will did its way out of the mountain of effluent it's currently burried under. The economy needs to be rebalanced, made realistic again. The sooner this occurs, the better for all.

  • 57. Ian

    (10 April 2011, 10:09AM)  Complain about this comment

    Some people seem to assume that more people means higher house prices withoout considering the money issue (i.e. ability to pay). There are plenty of places in the world where lack of housing leads to young people sharing with parents to a much later age than is common in the UK, without soaring property prices as a consequence.

    I agree with Tom that property isn't going to be a good investment over the next ten years - either prices come down or we have inflation and prices stay level (i.e. fall in real terms)

  • 58. David

    (10 April 2011, 06:06PM)  Complain about this comment

    Zombie Mortgage Holders. Given we'be had two years of rock bottom interest rates, how can it be that there are mortgaged households who would go under if interest rates were to rise to normal levels? Should the bank of England be protecting these short sighted people from the inevitable raise in borrowing costs? I don't see pay rises or a surge in house prices riding to their rescue. They should act to reduce their exposure to rate rises and the boe shouldn't act as their guardian.

  • 59. Nick

    (11 April 2011, 11:15AM)  Complain about this comment

    Why do property investors calculate the Yield on the price the paid for the property and not the current valuation. Imagine a Apple stockholder claiming 100% Dividend yield on stock bought in the 80's or a bond investor claiming to own Gilts at 10% Yields because that was the coupon on the bond!!!

  • 60. Simon

    (11 April 2011, 11:26AM)  Complain about this comment

    Oh dear - the broken record continues to play and the weekly Money Week Cassandra like predictions of impending collapse receive their latest airing.

    I believe in the wisdom of the crowd being more reliable than the wisdom of "experts". And if the crowd says that a house is currently worth £200,000 today that is probably the best estimate of what it will be worth in 6 months. And 6 months after that as well .......

    Yes - I do have an interest in the sector - but that doesn't mean I am wrong - and certainly does not mean I am blinkered.

  • 61. Simon

    (11 April 2011, 11:30AM)  Complain about this comment

    Oh dear - the broken record continues to play and the weekly Money Week Cassandra like predictions of impending collapse receive their latest airing.

    I believe in the wisdom of the crowd being more reliable than the wisdom of "experts". And if the crowd says that a house is currently worth £200,000 today that is probably the best estimate of what it will be worth in 6 months. And 6 months after that as well .......

    Yes - I do have an interest in the sector - but that doesn't mean I am wrong - and certainly does not mean I am blinkered.

  • 62. Elvis Presley

    (12 April 2011, 05:00PM)  Complain about this comment

    I wonder what the tax implications are for the Bank of Mom and Dad when they give their kids money for a deposit on a house? Is it income for the kids (in which case they should pay income tax), and aren't you not allowed to give more than 3k /yr away (unless it's in a brown paper bag)?

  • 63. colin wicks

    (13 April 2011, 09:11AM)  Complain about this comment

    Dear Tom,

    I am a Landlord with 11 properties that make a very good profit, but you are right to say that the real money to be made is investing in the stock market. Over the last years I have invested my profits from my rents into the AIM stock market and to date I am 60% up on my original investment.

    Keep up the good work Tom,

    Colin.

  • 64. Jim

    (14 April 2011, 05:00PM)  Complain about this comment

    Interesting article.

    To add, I watched Rip off Britain, couple of weeks ago. It featured about pensions and mentioned property as a good investment towards a pension. The person interviewed said yes it is a good investment but we cannot sell at the moment because its not worth it.

    Er, so does that mean that its not a good investment for pensions.

    Granted property will rise over the years, question is how long to wait, we are getting older so it may come to crunch time on how long to hold on, or not!

  • 65. phil

    (20 April 2011, 10:19PM)  Complain about this comment

    I have long been of the opinion that until and unless UK house prices are directly related to incomes, no-one will ever be able to make proper sense of this Country's economy. The average wage MUST be able to afford the average house - simple! A good way to achieve this would be to restrict mortgages to 20% of the purchase price AND a maximum of 3 times the higher wage-earner in the case of a couple.

  • 66. Margaret

    (27 April 2011, 04:32PM)  Complain about this comment

    Very interesting comments which continue...
    One more to add is that the banks control the housing affordibility. So the financial crisis continues... enabling some to transfer the wealth into physical precious metals at the moment.
    No asset class in the history rose forever without some correction (or being overvalued) so be smart, educate yourself, and switch between the asset classes, rather than try to anticipate the crystal ball....

  • 67. TonyE

    (24 May 2011, 01:52PM)  Complain about this comment

    Hi guys,

    I agree that it seems to make sense that UK house prices are destined for a fall... I lived in the USA for 30 years and came back to the UK for family matters in 2006, I struggled to understand the valuations here, I couldn't and I still can't get my head around it... But I do know this: We have been through the worst bankster / government perpetuated crises, We average guys are now paying for bailing out all the fat cat investors in these failed banks, and even that has not crashed the UK real estate market!... So I would not bet my money on prices falling drastically at all... maybe 10 or 15% but I would not bet on any major USA style drops in values, I just don't see any reason for it, especially if it hasn't already happened after the big crash. But hey, what do I know?.. Or what does anyone really know for that matter! Lol.

  • 68. TonyE

    (24 May 2011, 02:07PM)  Complain about this comment

    Hi again guys,

    Just a little PS.

    Don't forget that before the "crisis" interest rates were higher and house prices were at an all time high, and everyone was happy and still buying!
    Therefore, Interest rates or house prices are not the issue here... Its availability of easy low down payment mortgages!... They no longer exist - That is the only thing that has truly changed. As long as there is more demand for housing than there is supply in the UK, the market will adjust and accommodate... That may mean house prices remain high and fat cat investors own and rent them to us.

  • 69. 2 TonyE

    (02 June 2011, 10:18AM)  Complain about this comment

    "Therefore, Interest rates or house prices are not the issue here... Its availability of easy low down payment mortgages!... They no longer exist - That is the only thing that has truly changed."

    No! What changed is unemployment situation, belief in rosy future, rising income and rising house prices, home buying mania is gone, advertisement are gone.

    Easy low down payment will not change anything, when you are not sure will you still be employed tomorrow.

  • 70. parpwebby

    (03 December 2011, 04:28PM)  Complain about this comment

    dont know what will happen all the people who cant afford a house rant and rave about a crash all the landlords rant and rave about no crash its just people argueing really because theyre in different positions, quite amusing to read though
    Ive got 32 properties I couldnt rteally care less if they go up or down theyre still making money everymonth and im never going to sell them in fact i hope they do go down then ill buy some more

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