Are prices shooting up where you are?

[Focusanddetermination]

Just that really. I'm in a small Midlands town, have a high amount of activity and prices shooting up in the past few weeks even.

I thought people would be more hesitant with a looming recession, but it's almost the opposite.

Wales. House next to me unsold. New build, 4 bed town house. Good area, outstanding local schools, on market at £185k now offers around £175. Sitting vacant now as was part exd against a new build.
Not much going on here in terms of house sales. Lack of employment opportunities here already.

@thequantofmontecarlo
The probability of house prices falling next 12 months is guaranteed. Anyone who tells you otherwise is clearly delusional

And yet one of the most rerspected people in the property industry says this:

"If I knew what the winning Lottery numbers were this weekend I wouldn’t share them with you
Likewise, if one really knew what was going to happen to house prices we’d be too busy buying/selling to make a prediction.
All anyone can do is speculate, model, guess or just pray"

twitter.com/HenryPryor/status/1283331379833577472

@Mildura You mean the same Henry Pryor who said these in the last few days:

"Quick - the changes made to Stamp Duty last week which might save you a maximum of £15k means according to this agent that if you hurry you’ll be able to buy a home that many think will fall in value but 5-10% by Christmas."
twitter.com/HenryPryor/status/1282601451513155584?s=20

"‘Huge demand’ apparently from people believing they might save up to 3% in Stamp Duty keen to buy a property many think could be worth 5-10% less by Christmas. If you want to sell then I should get on with it but if you want to buy get some advice from someone you trust."
twitter.com/HenryPryor/status/1283299873463336960?s=20

"Chancellor @RishiSunak requests a review of CGT. Implications for property could be significant. Expect housing lobbiests to go into over-drive in the comming weeks!"
[[https://twitter.com/HenryPryor/status/1283050740739645441?s=20]

"Lots of estate agents pushing out newsletters and updates with tales of franetic dealing. Despite forcasts of prices falling by perhaps 5-10% over the next six months apparently now is ‘the ideal time to buy’ they say!"
twitter.com/HenryPryor/status/1281562751664521218?s=20

Looks like he agrees with me.

The 'property market' is a wide and varied thing. There isn't one single property market where all properties acoss the land behave in an identical way when it come to price.

There are thousands of invidual markets that operate differently based on a wide variety of factors such as availability of credit as you have already mentioned, local employment prospects, transport links, quality of schools, accessability to open space/countryside to name but a few.

Some properties will always be in high demand, no matter what the economic outlook. Others will be far more vulnberable to price falls when confronted by nervous buyers.

The point I was trying to make was that it is disingenious to give the impression that it is guaranteed that all properties will fall in price over the next 12 months. I am not disputing for a moment that some sectors will.

Those areas where there is an oversupply of one type are likely to be hit hardest, that would mean brand new/modern 2-bed flats in my part of the world. If you're in the market for something like this it's probably wise to hold back for the time being. However, if you want a Georgian cottage on a village green you might not see prices change.

Henry Pryor also describes himself as a 'buying agent' so I'd say he has a vested interest in this.

@thequantofmontecarlo - what you say makes complete sense. I have no training in Economics/ Finance but find it very interesting. We are also looking to buy but have decided to postpone until next year now. As far as I can see if the chancellor and the BOE are forecasting a severe recession, the situation is very serious despite the current bounce in interest in property. The policy makers have been desperate to keep property prices as high as possible for many years (suits them and their cronies) and this cut in stamp duty is another effort to do so but I can't see how it will be enough with unemployment rates set to rise so much and many self employed people struggling.
I watched the video above that you kindly. linked above. Presumably, due to the Covid and lockdown we are now entering a depression so soon after the last one even though the video describes much longer cycles in a usual situation? Is it the case that, because of the QE in 2009/10, the already very low interest rates and high level of government borrowing when we entered this, the situation is even more precarious as there are less interventions available to them? How much can policy like permanently suspending the stamp duty (I suspect Rishi may extend this) do to maintain prices? How much is Brexit going to affect all of this and is it likely that all this QE will start to lead to too much inflation and potentially a rise in interest rates? Sorry for all the questions, I'm trying to understand the situation and want to make the right financial decisions wrt buying a property, etc. Thank you for posting on here. It is useful to hear from people who work in related industries.

No not really, but there is an unbelievable number of houses coming onto the market of the type that don't usually. We're in the NW and when we were looking for a 4 bed detached at around £300K they were a rare as hen's teeth, now there's 3 or 4 coming on the market per day!

Henry Pryor also describes himself as a 'buying agent' so I'd say he has a vested interest in this

Almost everyone has got a vested interest of one sort or another when it comes to house prices!

Things seem to have dropped about 10% here with asking prices, though have noticed a few have sold this week. Most have been on since jan/feb though

@yellowymellowy Happy to help!

Is it the case that, because of the QE in 2009/10, the already very low interest rates and high level of government borrowing when we entered this, the situation is even more precarious as there are less interventions available to them?

Yes, exactly. We didn't experience a "real" depression in 2009/2010 because of significant amounts of QE, interest rates hitting all time lows and government support schemes like Help to Buy etc. Unfortunately now, we're running out of effective interventions and what we're doing isn't going to contain or mitigate the coming recession.

How much can policy like permanently suspending the stamp duty (I suspect Rishi may extend this) do to maintain prices?
Very little and it's a measure that will fizzle out come October. The stamp duty cut was rolled out to prop up falling prices and bring some confidence back to the market. Unfortunately, a saving of 3% on a house isn't good enough when there's a recession of this magnitude.

How much is Brexit going to affect all of this
It really depends on our trading relationship with the EU. 51% of all imports are from the EU and tariffs (WTO terms) on these will mean increase in prices. If you take food as an example, the UK imports 30% of all food consumed from the EU, the British Retail Consortium said that the average tariff on food imported from the EU would be over 20 per cent. That would mean a significant increase in food prices, resulting in a significant increase in inflation.

...and is it likely that all this QE will start to lead to too much inflation and potentially a rise in interest rates?
The reason I separated this out of the Brexit question above is because this is a highly complex subject. QE can and will lead to inflation if demand remains stable, however in this instance, demand has dropped so QE won't affect it by much until demand comes back. Now, if you see my response regarding Brexit, you will see that there is a chance inflation will significantly increase depending on our trading relationship with the EU and that's because supply side pricing would have shot up. If that's the case, then in order to counteract inflation, interest rates will have to go up.

Hope that makes sense. Feel free to ask if not.

@thequantofmontecarlo - what happens to house prices if inflation goes up? will they continue to go up in line with inflation or drop as a result of wages not keeping up and people having less disposable income?

What impact would a drop in the pound have on the housing market say in London i.e. the foreign buyers debacle? Raising interests will also force lots of homeowners on the street - which of the multiple pressures is going to win out.

In the case of interest rates going up in order to bring inflation down - would getting a 'high priced' property now but fixing interest rates for say 10 years actually work out cheaper or basically more or less the same as property dropping in prices as rates are increased?

Have to say that i too have been taking in by the hysteria of the housing market and in some areas for some things people have gone nuts bidding 50k over the asking prices for two-bed/three bed places......so it is hard to get a grip that yes a recession is coming but quite a few FTB or even 2nd time buyers if they sold last year are probably getting priced out in places like London unless on a very high wage

@Greenhats10

what happens to house prices if inflation goes up?
House prices will actually go down. This is because, assuming wages are steady, the cost of living goes up and people will have less money to spend on buying a house. Also, if interest rates are increased to combat inflation, house prices will fall significantly. The Bank of England study estimated that a 1% increase in interest rates would cause house prices to fall by 20%; a 2% increase would reduce it by 33%.

What impact would a drop in the pound have on the housing market say in London
It depends. A temporary drop in the pound with a positive economic outlook might encourage foreign investors as they're now getting property at a discount. However, a drop in the pound with a negative outlook would be very bad as: 1. It would feed into inflation and 2. Dampen foreign investor confidence in the UK making them more likely to pull their investments, resulting in falling house prices.

In the case of interest rates going up in order to bring inflation down - would getting a 'high priced' property now but fixing interest rates for say 10 years actually work out cheaper or basically more or less the same as property dropping in prices as rates are increased?
If you bought an £800k property today with £80k deposit at 1.7% interest rate over 25 years, you would be paying £2947 per month in repayments. If you bought the same property for a 20% discount (due to interest rates going up 1%), i.e., £640k, £64k deposit and 2.7% interest rate over 25 years, you would pay a monthly repayment of £2,642 - saving £305 (almost 10%) every month in payments.

@Greenhats10 Have to say that i too have been taking in by the hysteria of the housing market and in some areas for some things people have gone nuts bidding 50k over the asking prices for two-bed/three bed places......

As Warren Buffet said: "Be fearful when others are greedy and greedy when others are fearful."

Your time to be greedy will come soon .

@thequantofmontecarlo - true but for example, a 1% interest rate increase from where we are now will take a while so in the meantime if you are a FTB you'd be renting. Let's say 20k on rent per year is not all that unusual in London. I think that most people trying to figure out whether to buy now or not are considering postponing it say till spring 2021 - most people assume the recession will be bad but bad enough for a substantial enough drop between now and March?

Similarly, the government is going to do all they can to prop up the market and in London say - most people on furlough are already priced out because you wont raise a london mortgage on furlough pay so those people are out. Will those that can afford London property many of whom working in the city be massively affected by the recession? Or will we end up with multiple housing markets (as is already the case) with nice stuff in london continuing to go up, rubbish not selling and lots of people locked out

but i am not an econ person and deal more with social perception side of things - which is great for analysis looking back but terrible for future predictions.

you'd have thought that a pandemic would have made people fearful of 'buying' at way over the asking price but it seems to have made people just more determined and committed. it's clearly hysterical but whether the outcome that some people want i.e. a drop or at least a slowing down in the housing market will actually come true quickly enough for those same people to buy...........???

@Greenhats10

a 1% interest rate increase from where we are now will take a while
Why? Interest rates went from 5% to 0.5% in a year in 2009! Depending on the situation, it could easily be brought up by a hundred basis points (1%) overnight.

in the meantime if you are a FTB you'd be renting
So the alternative is to buy a significantly risky and depreciating asset?

most people assume the recession will be bad but bad enough for a substantial enough drop between now and March?
Why is there a time limit till March? Because of the stamp duty cut? Would you rather save 10% (price drop) or 2% (stamp duty)? Also, remember this situation is very unique because there is the double whammy of a true once-in-a-generation recession and Brexit. I'm betting we'll see the real fall by July/August next year when inflation goes up and interest rates get put up in response.

the government is going to do all they can to prop up the market
If by that it means paying unemployed people's mortgage, good luck Mr. Sunak.

most people on furlough are already priced out...
There are 9 million people on furlough. I think it's safe to assume a lot of them already own houses and some of them, unfortunately, will be forced to sell for various reasons.

will we end up with multiple housing markets (as is already the case) with nice stuff in london continuing to go up, rubbish not selling and lots of people locked out
There's always going to be regional variations but in this instance, due to a combination of recession plus potentially WTO Brexit affecting the wider economy, price drops across all regions are pretty much guaranteed.

@thequantofmontecarlo - my only point is that it's hard as an actual human to make such predictions regarding individual cases especially when you're an FTB. If you have a property then 100k up or down (and down will probably make it better) doesnt make a huge difference but if you dont have a property then 50-100k up means you are locked out.

And not everyone can wait till next summer - in our case we have a kid who will need a school and we're 40 so realistically the bank will lend us for fewer and fewer years and we have to be in place to get a primary school place.

As always macro analysis is often harder to relate to the individual cases when stakes are high for the individual concerned.

but am not disagreeing with an assumption that prices going up right now seems nuts. why people are paying over the odds when a recession is about to hit (plus Brexit) is beyond me but they are.....

Interest rates are not going up by 1% overnight 😂 I think your economic credibility just went out the window!

@thequantofmontecarlo- thank you so much for explaining all my questions so clearly. As I said my profession is totally unrelated to any of this but I am interested and this is, sadly, going to affect everyone to greater or lesser extent so it's worth being a little informed!

Just a couple of other things I was wondering about.

1. You mention a reduction in demand. Has there not also been a much reduced supply because of lockdown and would the response of the economy (eg in terms of price inflation, etc) not be related to the balance of these? I think what you are saying is that it is primarily a reduction in demand?

1. It seems fairly likely that the pound would fall immediately after Brexit, particularly if we resort to WTO terms and confidence is lost. Might the government respond by raising interest rates to protect the pound in these circumstances?

It's such a strange time. Everything, including Brexit, seems to have been overshadowed by Covid and all the repercussions.
Thanks you for your very clear explanations again!

@RedtreesRedtrees Interest rates did move 1.5% overnight (Nov 2008) and 1% (Dec 2008). Now if you're arguing with me that moves of this magnitude can only happen one way (i.e., down), then you're a lot more uninformed than you think.

@yellowymellowy

Has there not also been a much reduced supply because of lockdown and would the response of the economy (eg in terms of price inflation, etc) not be related to the balance of these?
The lack of supply has always existed. There was a lack of supply in 2009 but that didn't stop house prices from crashing 15%. The lockdown and upcoming recession is no different. People may anecdotally say they're going to "sit tight". Unfortunately, it doesn't work out that way for some of them.

It seems fairly likely that the pound would fall immediately after Brexit, particularly if we resort to WTO terms and confidence is lost. Might the government respond by raising interest rates to protect the pound in these circumstances?
Potentially. That is one option. The rise in interest rates will then affect the housing market but it would cushion the economy from overheating due to inflation.

Thequant ok I’m sure you can mansplain it to me

@thequantofmontecarlo- thank you again.

I meant lack of supply in general rather than just in relation to housing. I think you are saying that the lack of demand is the thing that has changed now things are 'up and running' to a greater extent.

It's a scary time and we will all have to wait and see what agreements the government come to and how this pans out.

Yes there is a massive global recession looming. If I was a FTB I’d be waiting. BUT:

1. As a FTB what is the likelihood of you being able to catch the market at the bottom? Wait too long and you miss it again.

1. When the market does hit the bottom there may not be much to choose from - how picky are you?

1. When the market is falling it may be harder to get a mortgage- that was the problem for people post 2009

I’m not a FTB and I am joining the hoards of people moving now. Had an offer accepted this week, I think the price was fair but I accept it will fall below this for maybe 5 years, or more. Our needs and priorities have changed with the new world of work, and we have to move before secondary school applications.

I am looking at the bottom end in London but am def seeing properties on Rightmove reduced.

I also agree that it is better to have higher interest rates and lower overall house price then our current situation - it works out cheaper in the long run (but my mathematician brother had to explain why to me)

@thequantofmontecarlo

I have found your responses really helpful, thank you. You are able to articulate with evidence what I instinctively know...that the worst is yet to come.

I know I need to wait but it's hard being patient. I'm on rightmove everyday, not just that but looking at home decor too. So much of buying a house especially a first house is emotional but I'm determined to be rational and hold out until next year.

It’s swings and roundabouts, isn’t it. If prices fall, then higher LTV mortgages are going to become harder to come by, which means that many FTBs with smaller deposits are going to be priced out and won’t benefit anyway. If you’re a FTB, renting, are looking for somewhere to live for the next few years and have a 15% deposit, I think buying now is a no-brainier. You’ll find it easier to get a mortgage now, will ride out a fall in the market, and whatever you currently pay in rent can essentially be “written out” of any fall in the value of your home, because you would have spend it and never seen it again anyway.

I put my purchase on hold back in March due to economic worries. I decided to pick it back up and exchanged today. I bought during the last recession, rode it out, and it paid off, and I’ll take the gamble again.