So when will it be a good time for me (a previous repo sufferer) to buy?greenspun.com : LUSENET : Repossession : One Thread
I am getting over the last of the stress and paperwork from my previous property purchase and repo etc.
I can get a mortgage but how long should I wait? There is a property buying frenzy in my area, do you think prices will fall?
-- John Cartwright (email@example.com), June 03, 2002
It's a good question... I mean, there ought to be a formula that computes the answer. It would have to be based on the following logic:
"Are house prices in my area at a level that, if I were to get a mortgage, I could likely continue to service that mortgage for the lifetime of that mortgage given my continuing earning prospects, desire for x level of disposable cash and given the risk that I might lose my earning power and would need to be able to recover the mortgage debt and associated costs by selling if I do lose earning power."
There's a few variables that are pretty hard to compute in there. Eg, likelihood of maintaining earnings, likelihood of maintaining adequate disposable income, likelihood of being able to sell the house at the right price if you had to... It's that latter one that I think is the particular problem. I do not think house prices are going to maintain this level... but you may disagree.
Each of these things is about "risk of x happening".
You can't compute the exact risk but you can say that circumstances make the risk look high or low.
My own view is that the faster house prices rise, the more likely they are to fall. I also think that if the economy has been doing very well for a few years - as it has - you can expect it to be carrying wage costs that it will want to cut if things turn down, and that a turn down is more likely than a turn up or even of continuing as they are. So I think there's two high risk factors there. When you add in the dismal outlook for the US economy and the effect that will have on nations that just lurv exporting to the US (like Britain), then you have a third high risk.
Three high risk factors like those would be enough to keep me out of the housing market - even if I could get a mortgage!
But high house prices alone would keep me out of the mortgage market. You know what stockbrokers say: "Sell high, buy low". I'd modify that for house-buying to: "If you can't buy low, don't buy high. Rent."
Luckily, I'm probably *the* most mortgage blacklisted person in the UK, so it's all academic for me - but you can have all the above risk analysis for free!
-- Lee (firstname.lastname@example.org), June 03, 2002.
I would advise you to wait for a few months and save some money.
1. It is obvious that in London and the SE house prices are unsustainable at their present levels. There will be a, hmmm shall we say "adjustment" in house prices in a downward direction as soon as Mr Gordon Brown realises that the market has been overheating for a while and he raises interest rates by at least 2% this will have the effect of increasing mortgage payments by a great deal.
2. The market is being artificially assisted by the "buy to let" scam and when the likes of John Major join the scam, it is obvious that the scam is over, rental revenues are dropping like a stone due to a glut of overpriced accommodation. The smart money will be getting out and soon the rest of the herd will too, causing a stampede to sell, this will cause prices to drop even further.
3. The people that are buying now are in their early twenties and have no knowledge of the 1990's double interest boom OR the crash that followed. Whats that line about a sucker being born every day ??
4. Joining the Euro will also cause an adjustment in interest rates as we have to "join" at the right time, how long will it take for europe to match economic cycles with the UK.
John, I would advise you to wait and watch, build up cash and pick up a bargain.
-- John (email@example.com), June 04, 2002.
All of the above may be true. To the predictions of gloom you can add what if India and Pakistan go to war? Oil price goes through the roof, immediate stock market crash, interest rates rocket, housing boom stops dead in it's tracks, economy goes into recession, job losses spiral, repossessions start to explode as mortgage defaults increase....all the potential ingredients are there for a spectacular collapse.
Alternatively, the right to let boom being effectively over, more houses could come onto the market as investors try to get out at the top, and this will redress to some extent the shortage of property that is fuelling the present boom.
Personally I think we are in for a crash of some kind, because we are now into a self propelling market where people looking to sell their houses are spurred on by irresponsible index makers like Nationwide and Halifax telling them house prices have risen by 2 or 3% in a month, so that they think they can add on thousands to the asking price.
The effect of these inflated and greedy prices is that the fear of being left out then rises as people not on the property ladder begin to panic, and rush to buy before (as they imagine) they are priced out. Interesting that amid all the programmes on TV about house hunting, interior remodelling, and garden design, there seem to be none about the downside of the market and the repossession nightmare. History teaches that we are doomed to repeat the mistakes of the past doesn't it?
-- Gordon Bennet (firstname.lastname@example.org), June 05, 2002.
What has been said above seems to reflect what could happen in the market if certain factors take place. In the early 1990's crash prices fell by 30% on average. If prices were to fall by say 10% there would be a que of buyers wanting to buy the property because although we have seen huge rises the current price is still affordable at an income multiple of up to 4 times income. Also if prices fell there would be buyer ready to buy rental properties as the yeilds would become alot better. As people sell they need to live somewhere so they will rent - demand for rentals will increase and rental prices will stabilise - making it more appealing for wealthier landlords to increase their portfolios. So the rich will get richer ... off the backs of the poor.
I am not a rich landlord but to protect my pension and for my kids future I would buy a few properties if prices fell.
So although I really do wish to see prices fall the scope for the fall in my opinion is very limited.
In addition there is a great pressure on the government to subsidise affordable housing this will make the demand for housing stronger and will push prices further.
Brown could raise rates and probably will but then by how much if will need to get closer to joining the euro....
Manufacturing in the North is really struggling so a massive rates rise will harm more working class people by increasing the companies cost of doing business and causing job cuts. The harm caused by an overheating property market does not cause thousands of job cuts. Hmm, which shall we choose....
In my opinion there are really onlt two options:
1. Increase the taxes on the income generated from a second, third etc property (and halving the interest allowed as tax deductible)
2. Increase the amount of houses built. Use greenbelt land for building. I heard that only 15% of britain has any kind of development on it - well lets increase it to 20%. That way we will see a sustainable property market where families can prosper rather than both parents having to work. I personally would rather habve my kids being able to afford to live rather than have a huge open feild in the middle of no where.
Don't get me wrong, I do want to keep the beautiful countryside but humand have to live too.
Those against the developement of more greenfield sites probably have huge homes in the the countryside. They are also the MP's who will be agaist the use of the land.
Anyone out there interested in forming a party/group to action for the development of more greenfeild sites?
More housing is the only way out of the misery of the boom and bust property cycles.
I wouls love to hear your thoughts...
-- Max (email@example.com), June 15, 2002.
Max - impressed with the economic merits of your argument but I think you'll find that your statistics on developed land are wrong. Having driven the length and breadth of the UK many many times, I would say that less than 30% of the country remains undeveloped (but I will get the accurate stats because I am a total Doris about that sort of stuff). Why oh why would you want to squeeze more houses onto fragile greenbelt land? It's already been plundered to the most awful extent and there just is no more room in the UK (particularly the South) for large housing developments. Schools are already overcrowded and the health service is collapsing - it isn't the needy working class/young families who benefit from raiding the greenbelt, because they can't afford the housing in the first place. Subsidised housing complexes are the long-term answer; stable families (of whatever structure) spend money which stimulates the local economy.They should never be allowed to buy the stock - if they can afford do that - vacate the house and let someone who needs it live there. What happens in England at least (not the whole of the UK) is that rich and often absentee landlords buy up properties - repo's especially and then rent them out at extortionate rents. I couldn't find a house in a non- slum area to rent which cost less than a thousand quid a month. How on earth could I afford that on one income? I couldn't and now another country has a skilled worker because I can afford to raise my kids here and won't be harassed daily for a non-existent shortfall. Oooh I sound bitter....
-- Too scared to say (firstname.lastname@example.org), June 15, 2002.