Has the ED housing market reached the bottom yet ( II )

[Jeremy]

Moos, you are of course absolutely right... but you should let the boys have their fun, pretending we're all hot-shots and attempting to pass off our opinions as indisputible fact.

[AcedOut]

karter - what CF21? No comment.

I should add that that it's just what I would do if I could - personally. I wouldn't necessarily recommend anyone follow me!

[nutty]

http://feeds.feedburner.com/~r/thedailymash/~3/450428687/index.php

[lard]

Another day another auction...

Lordship Lane one bed flat for ?121,000

Lordship Lane flat

[ibilly99]

Same block as the auction last week where a similar one sold for 100k. As auctions are rapidly becoming the market then as a rule of thumb new builds flats in the ED area are roughly half the price of the peak.

http://www.independent.co.uk/news/business/news/housing-market-far-worse-than-figures-suggest-1018081.html

[Jeremy]

The problem is that reposessed properties at auction traditionally go for up to 40% less than the rest of the market, so this isn't a meanigful comparison.

Is buying at auction really becoming "the norm"? Bit of a sweeping statement...

[macroban]

So a "meaningful comparison" for a one-bedroom flat is ?167K.

[benmorg]

Jeremy Wrote:

-------------------------------------------------------

> The problem is that reposessed properties at

> auction traditionally go for up to 40% less than

> the rest of the market, so this isn't a meanigful

> comparison.

>

> Is buying at auction really becoming "the norm"?

> Bit of a sweeping statement...

that's not quite accurate. During the boom, auction prices were often on a par with the open market because demand was so great, and because bidders mistakenly thought auction properties were always a bargain.

A lot of the properties that sold at auction in the boom had some kind of problem, e.g. unmortgageable short lease, structural problems, weird layout and no garden, etc. What's interesting about the current market is that even flats that are only a few years old and in prime condition are selling at silly low prices at auction, the reason being that there's so little demand on the open market.

But it's also noteable that there have been very few repossessions so far, particularly in London. The last crash was driven by mortgage rates surging, causing a tidal wave of repossessions, but this time round there have been fewer "forced sales" and the crash is being driven solely by lack of demand. In theory the gov't could rescue the situation by cutting mortgage rates so repossessions don't surge, but I don't see how they can push first-time buyers back into a falling market, no matter how cheap mortgages are.

[????]

...there haven't been repossesions yet because Unemployment is only just starting the journey upwards.....I think there will be a lot of political pressure to keep repossesions low...but they're coming

[lard]

Jeremy Wrote:

-------------------------------------------------------

> The problem is that reposessed properties at

> auction traditionally go for up to 40% less than

> the rest of the market, so this isn't a meanigful

> comparison.

>

> Is buying at auction really becoming "the norm"?

> Bit of a sweeping statement...

Sweeping statement itself??

It's the quickest and most current way of seeing a comparison against land registry prices. This IS the market.

[Jeremy]

What ratio of properties are being sold at auction vs traditional channels, at the moment?

I don't know. But unless you have those stats to hand, how can you say that auctions are the norm?

[matthew123]

At Auction, it's usually 28 days to complete, which is a pretty tough ask for someone needing a mortgage even if it's agreed in principal. I know it can be done, but you're at risk of losing your 10% deposit and not everyone has the appetite for that risk particularly with the herd mentality of the world is coming to an end as we know it....

So Auction may be the market for cash buyers but not those who need a mortgage.

[benmorg]

???? Wrote:

-------------------------------------------------------

> ...there haven't been repossesions yet because

> Unemployment is only just starting the journey

> upwards.....I think there will be a lot of

> political pressure to keep repossesions low...but

> they're coming

I'm sure there will be more, as well as rising unemployment, but I don't know if the numbers will be high enough to drive the crash further at the current rate. Bear in mind that nominal house prices didn't fall during the recessions of the 1970s and 1980s even though unemployment soared (in fact nominal house prices have only fallen twice in the last century: briefly in the 50s and for about 6 years in 1990s). Though saying that, real house prices did fall steeply in the 70s because inflation was so high.

If the gov't succeed in defibrillating the housing market in time for an election (which is surely what Gordon Brown has his sights on), I think we might see a bit of a sucker's rally in the housing market next year. Followed by long-term stagnation as unemployment sets in and the recession deepens. If deflation sets in, get ready for a Japanese style 15-year house price crash. But I think the gov't's efforts to push house prices back up will fail because sentiment has been well and truly annihilated. And I don't know if we're in for a deflationary recession or rebounding inflation caused by the govt's desperate spending, IR cuts and plummeting value of sterling.

It's all guesswork at the moment, but certainly looking pretty dire for UK plc. Never seen a mess like this in my life.

[AcedOut]

You can still buy a property at auction with a mortgage.

[lard]

Jeremy Wrote:

-------------------------------------------------------

> What ratio of properties are being sold at auction

> vs traditional channels, at the moment?

>

> I don't know. But unless you have those stats to

> hand, how can you say that auctions are the norm?

I didn't say they were the norm.

I'm saying you can use them to see real sold prices...prices that will appear on the land registry in a few months time...ie they are meaningful as a guide to where the market is now.

[benmorg]

lard Wrote:

-------------------------------------------------------

> Jeremy Wrote:

> --------------------------------------------------

> -----

> > What ratio of properties are being sold at

> auction

> > vs traditional channels, at the moment?

> >

> > I don't know. But unless you have those stats

> to

> > hand, how can you say that auctions are the

> norm?

>

> I didn't say they were the norm.

>

> I'm saying you can use them to see real sold

> prices...prices that will appear on the land

> registry in a few months time...ie they are

> meaningful as a guide to where the market is now.

if you believe classical economics, then prices achieved at auction represent the true equilibrium price where supply and demand are in balance. Currently asking prices on the open market are set too high above equilibrium, with the result that (a) almost nobody is buying; and (b) prices will fall towards equilibrium, where they will stabilize. Auction prices indicate where this equilibrium might be.

but a lot of people think classical economics is nonsense, so feel free to take with a pinch of salt.

[Brendan]

Wouldn?t a good way to calculate it be to look at the market, first time buyers, people looking for a second home, buy to let landlords etc. find out what types of properties each of these groups will be interested in and on average what that group will be able to afford considering the current climate?

Surely in general nobody is going to be able to pay more than they have and nobody is going to sell for less than they can get.

[benmorg]

Brendan Wrote:

-------------------------------------------------------

> Wouldn?t a good way to calculate it be to look at

> the market, first time buyers, people looking for

> a second home, buy to let landlords etc. find out

> what types of properties each of these groups will

> be interested in and on average what that group

> will be able to afford considering the current

> climate?

>

> Surely in general nobody is going to be able to

> pay more than they have and nobody is going to

> sell for less than they can get.

there's a lot of overlap between these different groups, so it would be wrong to treat them as separate markets. But one relevant piece of info that might help you figure out value in the current market at the moment is rental yield. The kind of property investors who are buying at auction at the moment (as well as buying with cash on the open market) use yield to figure out what price they should pay. Average rental yield being achieved at Allsops auctions is 6.7% for assured tenancies and 7.4 for assured shorthold tenancies (across whole of UK). So call it about 7% on average.

You can use this average yield to work out how much you'd get at auction for a house in a state fit to rent. Say for instance that your home would rent out for ?1000 per month. The total annual rent would be ?12000. Divide this by 7% (i.e. divide by 0.07) to work out how much an investor would pay for it at auction (?171,000 in this case).

I've used this method to guess what various stuff selling at Allsop's auction would achieve and found it pretty accurate. Trickier with properties that need refurbishing though, as you have to factor in the cost of renovating the property to make it fit for rent.

edit: i should add that a property in immaculate condition would probably be worth more than this calculation implies, as the average rentable property at auction is probably not especially nice!

[Jeremy]

You need to be very organised to buy at auction... valuation (and maybe survey) completed, mortgage agreed before the auction. Before you even know if you're the winning bidder. And as someone said, there's a risk of losing your 10% deposit if you can't get conveyancing completed in 3-4 weeks. So it isn't really an option if you have a property to sell. It's more suitable for investors (who naturally will be willing to pay a lower price than someone actually looking for a home).

[benmorg]

Jeremy Wrote:

-------------------------------------------------------

> You need to be very organised to buy at auction...

> valuation (and maybe survey) completed, mortgage

> agreed before the auction. Before you even know if

> you're the winning bidder. And as someone said,

> there's a risk of losing your 10% deposit if you

> can't get conveyancing completed in 3-4 weeks. So

> it isn't really an option if you have a property

> to sell. It's more suitable for investors (who

> naturally will be willing to pay a lower price

> than someone actually looking for a home).

yes all true. But auction prices are still probably a useful guide to true equilibrium value, even if they're somewhat below open-market equilibrium, because they're based on a much more efficient way of determining value. The gap between open-market asking prices and auction prices has widened massively over the last year, and that suggests asking prices on the open-market will fall as the market readjusts.

[lard]

In a perfect world everyone would use auctions to buy and sell....

No gazumping, no gazundering, no underhand sales techniques, no chains falling through. True market value for buying and selling. No estate agents required. Pretty low costs for sales. 10 auction houses across the country once a month should just about cover it.

[Brendan]

It is all a load of cobblers isn?t it. Makes you wish they would take this opportunity to rationalise and overhaul the whole system.

[AcedOut]

I'm very surprised that online property auctions haven't taken off actually.

[macroban]

Consider this differentiation of the East Dulwich housing market:

(1) New-builds from 1997-2007

(2) The rest

An example new-build is Altima Court. I chose it as an example, not because it is any worse than any other new-build, but because it is in a prominent position, and many of you will have seen it put together.

Ignoring lay persons' comments while it was being put together such as "That's flimsy", "How long will that last?", "When will it fall down?", and having regard to a civil engineer's opinion that these sort of properties have a 30-year design life at which point they are due to be demolished and the site redeveloped, it seems that the market for these sort of properties is like the used car market where the final market price is zero.

[snorky]

macroban Wrote:

-------------------------------------------------------

> Consider this differentiation of the East Dulwich

> housing market:

>

> (1) New-builds from 1997-2007

> (2) The rest

>

> An example new-build is Altima Court. I chose it

> as an example, not because it is any worse than

> any other new-build, but because it is in a

> prominent position, and many of you will have seen

> it put together.

>

> Ignoring lay persons' comments while it was being

> put together such as "That's flimsy", "How long

> will that last?", "When will it fall down?", and

> having regard to a civil engineer's opinion that

> these sort of properties have a 30-year design

> life at which point they are due to be demolished

> and the site redeveloped, it seems that the market

> for these sort of properties is like the used car

> market where the final market price is zero.

An interesting perspective - under the system of capital we have at the minute, there is actually no reason why housing should be different from any other product- i.e. built in Obselescence/ incompatability with future needs - indeed, it makes sense that for a developer to make money, having a product that will degrade in a remarkably short space of time is sensible/profitable

Who was it that said of late, that the rash of new development/luxury urban living developments , were the slums of the future ?

A new build prefab in a bad area of the thames estuary is always going to be risky if the surroudning area is still a deprevation rich shithole

there is a lot of shit in ED, most of which has been lapped up by the gullible victims of the past decades boom. Objectively, some of this is terrible , terrible opportunistic toss - the SE15 Grove vale development is a prime example of something that may be acceptable /OK for a decade or so, but would you really want to live there long term ?

Being gullible isnt a character fault - its human nature, but sadly, people have been sucked into this vortex of home ownership, fuelling the whole situation .

Nothing short of a fundamantal change on the property market economics is going to change this - something along the lines of the German system of rental security & long term landlord accountbility would flatten out the peaks & troughs of the housing market.

maybe