Here in Australia interest rates are variable so you can buy in with "cheap" interest rates and get caught out as they rise. Borrowing 8 1/2 times yearly salary is nowhere near sustainable, what happens if you loose your job? Housing is simply overvalued here in Australia, but the economy relies on debt to act as a motivator rather like the whip did in the days of slaves.
maybe I should not bother commenting now on this, but the reason house prices were so high compared to incomes in July 2007 was because of a relaxation of lending criteria and an explosion of debt. Now the credit has been withdrawn back to more reasonable levels, house prices are falling back to more reasonable levels. it is not difficult to understand.
Good on you, Peter, for keeping this video up despite the critical comments. As I said when you first posted it, I thought you were wrong about housing. Still do.
Perhaps the title needs changing again, sort-term falls of 10-15% is already quite wide of the mark, since we are already at 20% (index-linked).
Ironically, and with hindsight, this video marks the top of the bubble, posted July '07.
It's a classic example of bubble mentality. All the hollow cliches and popular misconceptions are included - prices always go up, lack of supply, it's different this time (with regard to affordability)- perfect nonsense of course. The film maker even manages to lose any remaining credibility by changing the title after the event by adding a warning of short term price falls. Didn't see this coming?...hmmm
there are over 200,000 vacant property so wots he on about shortage?? also, why are there soo many people on housing waiting list if all these property are empty??
Buy to let has to be one of the most socially divisive and just plain unpleasant popular speculations ever. The participants are not content just competing with young families who(dare to)aspire to have a tiny stake in their country and security. No. They want to see their rents rise too. The fact that you think it's OK and your "friends" are "investors" (selfish and greedy)is a harsh indictment on your character, Dixon.
LONDON (Reuters) - House prices fell 1.9 percent this month alone, leaving it 10.5 percent cheaper than at the same time last year -- the biggest decline since comparable records began in 1991.
The property market is now plummeting, after 10 years in which prices trebled, as banks hit by the credit crunch have tightened their lending criteria with many now requiring a 25 percent deposit for mortgages.
Thanks - hard to say - I am not really so much interested in short term speculation on house prices. My message is that we need to take a long term view. I am certainly more pessimistic about the short term than I was a year ago. But we will reach a stage, probably within the next 12 months (I am starting to see it already with property investor friends) where people think they can drive a great bargain and want to buy. It all depends on local factors, especially in the buy to let market.
Job losses, pay-cuts, businesses that could only survive in the credit-expansion boom and who borrowed more in the expectation it would continue... now under massive pressure or going under.
I was waiting for the warning of a possible 10-15% drop. Perhaps I missed it. It has already fallen 12%, and I could easily see it falling another 20% or more. What's your latest short term and long term forecast? Patrick, you may want to tune into my video on Harrison 18 year Crash cycle. It could help improve your forecasts.
The Property market is and always has been cyclical. All that has happen is that it moved past the peak in the cycle in August 2007. If you had seen the cycle top coming, you could have sold out before the peak. And now it is likely to keep sliding until at least 2011-12, and the next several months may be particularly devasting.
The Bulls who ignored cycles, will now pay for that oversight. And those who understand them, and use them well will be the big winners.
Thanks. Most people live in their properties so selling has complex issues attached including family well-being, and most people are buying property intending to own it for a very long time. Your selling point applies mainly to retiring people looking to realise capital who may have to sit tight with equity release etc until market settles (most have no mortgage) + buy to let landlords (but their rentals have increased significantly last 12 months (>10% in some areas) as people delay buying.
A fall of only 10 to 15%, you will be lucky... my own prediction is a 12 to 15% drop in 2008 and a 15 to 18% drop in 2009 followed by a 5 to 10% drop in 2010 before levelling out in 2011... so a 32 to 43% drop over 3 to 4 years... those of you who brought during this housing boom may be in slight trouble unless purchased before 2000 that is.... the housing market is a cycle it goes up and it goes down... however this time it has got a long long way to fall.. oh dear...
You may be right - who knows. But if that happens there will be likely rebound boom the other side. Easy to lose money dipping in and out of housing market as stages in short term cycles are hard to read and costs of buy / sell huge. First time buyers may want to delay but need to be careful... life is complex. People need homes at particular times, properties they really like come up - will they again? Over 25-30y ears whether one bought at top / bottom market becomes far less significant.
You are on the right track. "The UK is an island... small, no space." Is not analysis, it is a myth. We have just come thru a Winner's Curse period. Fred Harrison called it right years ago. Click on my name to see how he did it.
Thanks - important of course to watch whole video. UK housing very complex and cannot be summarised in a 3 minute soundbite (popular YouTube length). So I recorded up to max 10 mins allowed by YouTube, but really still too short. Some people only watch first 3m of 10 so miss wider context, which is why annotations relating to content further in the video now appear in first secion. Weakness of all videos of course - with text the reader can skim read to get the whole sense of the argument.
The greedy banks and hedge funds have financed their huge bonus culture to the detriment of the working man. All foods all heating and lighting has increased very sharply. I have children and I am very scared for their future my parents are elderly and I feel ashamed that they struggle to keep themselves warm in the winter the bubble is bursting the ideas this man has are rubbish shelter, food and warmth will be the new must have commodities
Yes things are very hard for those on lower incomes right now. On "greedy banks and hedge funds", once again we need to see the whole situation. Take HSBC - 75% of all the shares of the bank are owned by pensioners or by those saving for their own pensions in future. Pension funds receive 75% of all the post-tax profits of all UK banks - and the same 75% from oil companies. The rest of those shares are owned by people saving up for things in future.
Any profits made from house price inflation will now be wiped out by general inflation, as has always been the case. The wealth is illusionary. Priced in barrels of oil (the life blood of any modern economy) property has actually fallen in value. Anyone who thinks the current situation is just a blip is dreaming.
Hmm... this has very rarely been the case in the last 50 years anywhere in the world. Reason: inflation also wipes out your debt. if you borrow £100,000 and there is 10% inflation a year, your loan halves in value in just 7 years. In such a situation interest rates of course are higher than today - I remember a mortgage on our home a couple of decades ago at 13.5%. The real cost of borrowing is difference between inflation and interest.
Inflation would wipe out debt if government would stop lying and masking the realized rate of inflation. Wage increases of 2%, or 1.9% if you are a nurse, will not erode debt like you suggest. The consumer will instead be squeezed from both ends.
It's worth realizing that although for some countries (Norway)the link between energy consumption and GDP is vague for most it is not, especially developing nations. The economic model you condone only functions in a world of cheap energy.
Yes the CPI is a convenient way for the government to talk about a lower rate of inflation than the reality which is closer to RPI - usually around 1% more than CPI. Yes government employees tend to drop behind those in companies - a universal trend over many decades. But the good news is that history shows eventually there are catch ups with larger than inflation increases. Reason is that otherwise point comes where recruitment becomes impossible. Government / NHS is in same labour market.
"recruitment becomes impossible", really? In which parallel world? We are facing stagflation - rising prices, suppressed wages and no real growth. That means unemployment, see today's news for evidence. No, we will see a fall in living standards and people will accept whatever work they can get, even a pay cut. I witnessed this is the early nineties.
Hmm...So if someone bought one of those properties yesterday for 40% less than perhaps they might have paid a year ago, do you really think they will see no increase in the value of that property for several years? As inflation (RPI) is running at 4.3% you are saying that the property bought yesterday would continue to fall in price in real terms by maybe a further 4.3% a year. Over 4 years that would be a total fall of more than 50% which seems very unlikely. Most likely would be a rebound.
Yes, i think exactly that, there will be no increase in the value of that property for several years. I think the chance of a rebound is almost zero. We've all seen it before in the late 80s and early-mid 90s. Not very long ago, but some seem to have short memories. Anyway its a waste of time arguing, lets revisit next year and see if it would have been better to wait.
Also vital to understand there are 100s of property markets in UK - different areas and types. And behaving differently. example is high rise new flats bought before being built with 2 year rent guarantees now coming to end. As you know these are doing very very badly in most places right now compared to - say- detached larger houses in some parts of London.
Look, renting is cheaper than the interest on a mortgage. If, as you say, houses are going to drop 10-15% then its better to buy when they are 10-15% cheaper. You will save tens of thousands of pounds.
Anyone who bought in July last year will have already lost thousands and will be losing more each month.
Of course rent will almost always be cheaper in day to day cash terms than owning, BECAUSE RENTS ARE PRICED BY THE MARKET ASSUMING LANDLORDS MAKE LONG TERM CAPITAL GAIN. I am not saying house prices will fall 10-15% but anyone buying should be prepared for short term falls with finance in place to be able to sweat out a dip without being forced to sell at bad time. Huge numbers over the years have lost out, missed bottom of market cycles, trying to be clever, waiting for (even better) bargains
More on actual costs of borrowing and impact of inflation on reducing mortgage debt. If inflation rises to 5% a year, half your loan will be wiped out in around 15 years in real terms. For someone on a lifetime tracker 0.45% above base taken out in September 2007, June 08 (RPI) inflation rate is 4.3% - less loan of 5.45%. Real cost = 1.15% a year. And trackers <1% above Bank of England base rate will re-appear in the market once sub-prime crisis has resolved (maybe 12-18 months).
Watch whole video: recorded July 07 warning of possible very rapid fall in house prices (10-15% over a 6 month period or less). But such a major wobble would need to be seen in context of previous 2 year gains and longer term outlook (5-10 years or more). As I have said before it is vital to take the whole picture. Real cost of borrowing may be less than you think. Average loan rate over 10years less average RPI (inflation wlowly wipes out debt). But also allow for rent saved.
Usual Vested Interest clap trap. House prices are largely governed by peoples ability to borrow money to pay for them. If mortgage multiples increase from 3.5 times to 7-8 times salary house prices will rise. And likewise when the multiples are cut as is happening now.
The housing market is in free fall, crashing, meltown. You're right, house prices will rise again; probably in 2015 after they've crashed by 60%. Dont worry about house prices - Britain is screwed as a whole, thanks to house price inflation!
The market as we all know is hugely affected right now by the fact that there are very limited mortgage funds available due to the sub-prime fall-out and need for banks to rebuild balance sheets. But that will change. More funds will be available and mortgage rates will fall much closer to whatever the Bank of England rate is at that time.
True, but surely by the same logic you must be able to see that house prices rose so quickly because there was an excess of money entering the market.
Well I am talking about the long term outlook as you can see from the conversations below. If someone buys in rising or falling market loooking to get in and out of the market in a couple of years they are usually very foolish not least of all because of major costs in buying and selling.
Well house price rise or fall? Complex question and no one on earth can reliably answer that question at each stage in the cycle - same for stocks and shares. But we can as Warren Buffet has done, look for long term trends in a business in which we understand the fundamentals eg bricks and mortar. People forget that the biggest issue in it all it the difference in cost between renting and buying (and that changes) - plus the 100% capital gains tax relief.
I totally agree. Look historically and you will see that house prices have always increased in value, with the high demand in population and us being such a small island, property prices will only go one way. But before I get beaten up over that last comment, lets put it into perspective, house prices double every 7 - 10 years and yes there may be a glitch or correction but this is normal. It may hurt you if you buy just before the correction but medium to long term you will profit.
Plus the reduction for higher interest tax payers of capital gains tax on buy to let property from 40% to only 18% in many cases. Then there is the inflation rate which gradually erodes mortgage debt, and reduces the real cost of borrowing (interest rate minus inflation rate = actual cost. Which inflation rate to use? Retail Price Index is safer as guide to inflation people "feel" - usually relates to salary increases eventually. RPI usually around 1% higher than CPI - 4.2% v 3% April 08.
It would be a key player in the EU not least for being a bridge between english speaking Asia and the Americas but being a platform from which the rest of Europe can engage in trade to such continents. USA, canada and mexico would have to merge to compete with China and India. I think this is a time of great uncertainty but great change.
Dr dixon i am a very big fan of your! unfortunately your ascertions are corrent..... unfortunate because I have made such ascertions in 2000 and will be the handicap we will be faced with during the forth-coming recession.
You did comment on another video that the UK will find it difficult to join the EU however I think that this would sooner or later be overcome as Britain has a lot of fully developed infra-structure and tangiable developments that will weather the credit crisis.
Is this not a simple case of supply and demand in the housing market? Population growth and longer living will just keep house prices high. Great video and well presented.
Is this not a simple supply and demand case where this fact dictates the prices? Population increase and less supply of homes. But do you think we're heading into a recession? Great video and well presented.
The UK market is crashing. The government and BoE are going to unprecedented lengths to try and save it. They maybe successful short term but I doubt it. No government has ever managed to save any asset market bubble. Anyone who didn't identify the UK property market bubble deserves to be taken out to sea and drowned.
Yes that is true. Also true is the property market has become the subject of popular speculation as a result of the most relaxed lending in history. And as those of us versed in the mechanics of asset market are aware, Joe public always buys near the top. And while, long term, the nominal value of property increases, timing your leveraged entry into the market is key to success or failure.
In the long term, we are all dead. Are you really willing to sit through a 30% or more loss of property value? I'm not. My money is out there earning an excellent return, while UK property prices slide.
You havent got a clue. I wonder how long before you start spouting off about the credit crunch - and making it your own?Others saw it coming years ago . . .if youre such an expert why didn't you?
So many "property experts" have been shown to be nothing more than happy speculators. You shouldnt be too hard on Patrick. he had plenty of company in the media, who were far more deserving of blame than he was.
"So despite your concerns about a speculative property bubble, you have bought property yourself - and without a mortgage...!"
One of my properties yields 16%, I have no concern for my own portfolio. Do you see prices retracing to 1996? However, I would not invest now. Why? because the yields don't even match a savings account. My friend has been in the property game for forty years and he shares my outlook.
5. Not only have interest rates been low but there has also been a systemic change in lending practice. Banks divert risk of default to third party investors by selling them securities derived from mortgage pools. This has allowed banks to relax lending standards and salary multiples to the extent that it's broken the entire global banking system.
6. As the dust settles and credit conditions tighten the moment of clarity arrives. House prices have broken all relationship with economic reality.
Yes I do own property, unleveraged though. Property functions in a similar manner to large cap stock - 1. The market is range bound based on economic fundamentals.
2.The yield rises in nominal and, one hopes, real value with time as does the capital value.
Long term, property is a great investment for retirement as the yield better reflects the realized inflation rate.
However, we have seen a market break-out beyond long term fundamentals due to short term unsustainable credit conditions.
Fascinating. So despite your concerns about a speculative property bubble, you have bought property yourself - and without a mortgage...! You clearly continue to have confidence as I do in UK real estate as a sound long term investment, particularly compared to lifetime costs of renting. Patrick Dixon
Yes, (without teaching you to suck eggs) the key with all assets is to invest before the market is hijacked by Joe public, possessed by the emotions of fear and greed. This is the time to have one foot in the door. I bought after the last property crash in 1996.
Going back to my comparison with large cap stock, would you use leverage to purchase shares in Coca-Cola? I ask because of your use of the exclamation mark with regard to my unleveraged property investment.
3. The global property speculation boom is a global monetary event. It has little to do with physical constraints.
4. House prices have reached current levels due to very low interest rates around the world, accommodated by historically low commodity prices at the turn of the decade.
Dixon u r deluded. You probably won't print this, and if you don't I will post a video exposing your incredulity.
1. The recent property speculative boom is not exclusive to the UK. Your explanations of land shortage and planning restriction don't add up. Just look to the USA, SA, Oz, NZ, EU -all speculative bubble markets
2. If there was a genuine shortage of physical property it would be reflected in rents. Rents have lagged house prices to such an extent that the yield doesn't cover finance.
Auctions are back in business at present and you won't have to look far for a bargain at the moment. The credit crisis has increased the number of forced sales and therefore the opportunities massively. With the right finance provider profitable property investments are within the reach of most people.
if people could afford a mortgage of 8xsalary, don't you think the banks would jump to it? Funny that they are reducing lending multipliers ...because people are having houses repossessed - and that is at 4 1/2 x their salary.!!! Some of what u say makes sense but some of what u say is foolish!
Utter rubbish I'm afraid. Your video is little more than a comfort blanket for bandwagon bulls. House prices are not high because there is a shortage. They are high because they are the single leveraged investment the average person will hold in their lifetime. Low interest rates after a huge stock market crash have cause a global property boom.
Thanks - the most important thing is to take a long view. People worry a lot about a fall of - say - 5-10% over a year, but stocks can fall 5% in a single day. Real estate is quite stable in comparison. But it is vital to ensure when buying that you have enough financial reserves to be able to weather a downturn. The people who lose money tend to be those that buy without thinking about what could happen to their own finances, and then have to sell at a bad time in the market. Patrick Dixon
The high demand and not enough supply, nice theory, but why is there so many houses for sale and thousands sat empty across the county. If demand was so high wouldn't they be snapped up. Of course, but they are not.
Rubbish, Do you have a lot to lose by a crash, ie invested interests, hence why you are talking up the market. You did not mention or pick up on the credit crunch which was already looming and its very real impact on house prices. Or the vast amount of unsustainable debt people have taken on with mortgages, loans, and credit cards.
Of course there may well be a correction, but even if prices fell 11% - say - in Scotland, it would only take us to a situation as if prices had more or less plateaued over the last 12 months. People get very agitated about short term wobbles, but most people invest in real estate for a lifetime.
so it seems low interest rates are key to maintaining the bubble.......higher rates for borrowers in the USA bursted the bubble there.
and you talk of income........many incomes in north america for example have plummeted as unions have been smashed and jobs shifted to asia..money doesnt grow on trees but house prices suggest it does and as governments abandon social housing more will find themselves on the streets living in a car.
A very important issue of course is the unemployment rate which remains in the UK at a historic low, and the actual numbers in employment which has never been higher. While that could change rapidly in a recession, at present it provides adds to what demand would otherwise be.
Demand has been manufactured by the government by keeping interest rates artificially low & constantly bombarding the public with property porn on state owned TV (BBC)to effectively avert recession.
My view (and it can be no more than that) is of a scenario where property will not recover today's value for many years. It took 13 years from the peak last time and I can see it taking longer - see my comment above for information.
Either way we have a mess - a priced-out generation if you are right or a financially wiped-out one if I am right - neither is a cause for celebration.
Well the same thing can happen in every other area of investment. It is really important to take a long term view and not to take on a real estate investment as a short term speculative bet, especially as the costs of buying and selling are so significant. Having said that, the fall of capital gains tax from 40% to 18% for properties held less than 3 years has made gains easier to bank if the conditions are right.
Well well well, how things are changing! A UK housing market crash is needed because so many people are living beyond there finacial ability in my opinion due to greed.
"Housing has to be seen as a long term investment."
We might be at a peak in the cycle, so let's look at what happened if you bought at the last one (Nationwide BS website). A house bought at the last peak(1989) regained its value in 2002 (allowing for inflation). 13 years, that would take us to around 2020.
There are many other factors; however, given the speculative investment this time around, inflationary pressures, the UK plc's reliance on financial services, it might just be worse.
"we have an absolute famine, shortage of housing..." you say about 1 minute in.
I'm yet to hear a response that I can accept to explain why rents have remained, at best, static compared to RPI inflation for many years. There were a few, rather half-hearted reports of rents soaring in London this summer, but on the ground you can normally squeeze them down.
Rents are affected by competitive pressures of all kinds. When landlords think they are going to make a capital gain, they are able to accept in their own minds a lower rent yield and still make their sums work. As capital gains have been strong, rent yields have remained low and still acceptable to many landlords who have piled into the market, reducing demand.
Thank you for your reply. I think that this point helps to explain the increase in UK property prices - people "piling in".
Also the phrase "in their own minds" is interesting, because in the cold light of a piece of paper (or nowadays a spreadsheet), the sums have not worked for a while now. Looks like irrational exuberance (not that any decision is truly rational).
Are you ready to admit that there is room for a big slide in UK property prices? I reckon the UK is about one year behind the US, and we will soon see similar price falls in the UK.
NO the Uk is a lot smaller than the US.. we havent run out of land but it is in short supply, where people want to live. Prices *might fall* but its really a correction before the upward trend continues. Two things can stop it.. greater unemployment and/or release of green field sites for development. Both require a strong govt, which I afraid Gordo is not. greenfield biulding. Better to make the proles loose their jobs, thus lessening immigration, both lowering housing demand
Yes in every kind of investment you can chart cycles. And they are notoriously hard to predict which is why long term investment is really important. You can lose your entire wealth with ill-timed rapid buying in and selling out of markets - whether company stocks, gold, housing or whatever. And in those short term bets you are playing against huge numbers of professional investors.
i agree - the next rate move is down. One thing that could blow everything out of kilter, and it wasnt mentioned in this video was what if unemployment rises. Another factor is that everyone live to thier means. When i was living in london i was on 30k and broke, now im on 90k im still broke, although a lot of it goes to paying off the mortgage. If inflation rose and rates had to as well id say a lot of people might be forced to sell, because everyone now days lives to thier means.....
The new reduced 18% capital gains tax rate will also mean that landlords will be tempted to reinvest profit made on rent (taxed at up to 40%), to convert their received rent into added capital value (taxed at only 18%)
Do you think investors might cash in their 18% only taxable profits in April to invest them in a more lucrative way than BTL, which I read is running out of steam at the moment,
I found your comments re the sustainability of the housing market very plausible. However your comments on globalisation and effects of, for instance the growing economic power of China. The weakening dollar. The weakening pound. Unemployment. I would be very interested on your views (and I mean this with soncerity)on these issues and also the recent issues with regard to the credit/banking markets crunch.
An excellent video Patrick, very clear, well spoken. Buy to let investors in for a rough ride I feel. CGT at 18%, perhaps, lots of sales of 2 bed flats.
first thing uk is full of furture terrorist,and if you live there most likly your neighbors wont even speak english,i can see why this guy is frantic trying to make his money before it all goes south
But the real issue is for how long? Housing has to be seen as a long term investment. That means you have to take a view about what the economics of house ownership are likely to be at least until 2012, preferably longer.
And for that you need to look at long term interest rate fixes which are already starting to fall.
Capital gains tax reduction to only 18% for buy to lets is a major gift from government and will boost buy to let investment. In past if you sold within 3 years you were taxed 40% on gain, reducing to 25% if you invested for at least 10 years. 18% flat rate will also encourage very short term buy to let investment.
would you consider buying a property, that is in a popular location, freehold with scale to redevelop and likelihood of planning permission? Given the current financial tyrbulence within this current market?
Ps Im not a developer but wonder about your opinions given current affairs.
And from that point it would be more likely that prices would increase further, whereas without a correction it is more likely that prices will at best grow slowly or be flat for a while.
Paul, I have a west london flat, mortgage of £270 and I have been offered £385! I am concerned the credit crisis in the states could affect market confidence in england, do you think whats happening stateside will start a crash here??
Well of course it is possible. But the sub-prime crisis is complex. For example central banks are already under pressure to reduce interest rates which will make things easier for home owners. But even if there is a price correction of - say - 15% that has to be seen in the wider context.... it just means prices are as they would have been if the market had been flat the last 18 months or so.
True although these things are less important in long term investing. I know many friends who have haggled over a price to try and get a few thousands off, have lost the sale, and then wasted many months trying to buy another place they like and can afford.
Patrick, so really i should keep it for a few more years then, I mean it was hard enough for me to get on the latter to begin with. I guess with the olympics coming ect, you seem to think that london is kinda sound!
Well I cannot advise you because I do not know your situation. But if you have actually managed to get on the ladder you need great care before jumping off, and may need expert advice before you make any hasty decision. History is full of people who have lost a lot of money jumping in and out of markets. Even greatest investors in the world tend to hang on to what they have - after making careful decisions. Look at Warren Buffet.
The other reason is that prices can wobble of any investment in the short term - not just real estate - and it is extremely difficult to out-guess where the next wobble will go. People who bet on short term movements can lose a lot of money very fast.
This is certainly a hot topic and your video has opened a lot of debate. I would suggest that people like yourself consider the social impact of high property prices. Houses are homes for families i.e. our future and should not be made a business of. What incentive do young people have to succeed where in there future they have visions of being shackled to enormous debt and are struggling to find real job security in a more and more competitive environment.
I agree - the social impact of costly housing is really significant, not least in making it almost impossible for families to survive without both parents working almost full time. Patrick Dixon
As an apisring economist I have to say that this video was well rounded I actually got more information than I was seeking, thanx. However I would like to see a cross reference with the US housing market
Markets are impacted by balance between supply and demand. Simple economics. Of course you may have huge numbers of homes not selling if those sellers are setting prices higher than market will stand.
Well, that was a remarkably one-sided argument! What about: the huge SPECULATIVE component of demand, the poor yield returns, and the excessively lax lending. Surely, the cycle is about to roll over. Just look what is happening in the US.
Well I am giving a longer term view. You are right that in any market we see cycles of demand and housing is no different. As I explained in the video, the tax environment in the UK encourages people to over-invest in housing beyond their personal needs, for example as an alternative to pension planning.
Good video, you didn't say much about how interest rates are going up though. In the UK rates are now about 28% higher than they were a year ago.
Also you bought when interest rates were high, then rates went down, and this is played a big part in driving up prices to the level they are at today.
Do it the other way around and it is a lot less fun.
Need to have a long view of interest rates which are probably near peak in UK, because inflation is being controlled in non political way by Bank of England with very low targets, and interest rates are usually 1-2% above the current inflation rate (arguments about how you calculate true inflation rate of course).
Hahah! 'Inflation is being controlled in a non political way'....don't make me laugh. Governments only delgate these responsibilities so that they can maintain plausible deniability when things go wrong. It's same as when private companies send arms to Saddam or whoever....the government can pretend it was nothing to do with them.
'I'd be a fool if I tried to predict'....then he does. Fool.
'The UK is an island...that means we have no space'
So what about Belgium? Can belgium expand exponentially because its not an island.
What colour is the sky on your planet?
If there were a shortage of housing in the UK where are the 'millions' of homeless people? Or, where are the houses with 3 generations of people living in them? There is NO shortage of housing in the UK.
35% of property in Liverpool, for example, is empty.
Ping pong tables and DVDs falling to zero WOW can u get me some!! Commodity prices are going through the roof and are now filtering through to our RPI. Raw materials are increasing but manufactured goods falling yeah the Chinese are going to give it to us for free!! (or maybe they will start pushing the price up? Twenty years ago mobile phones were expensive which is why nobody had them!!
I think you need to look at again at tables showing year on year prices of a wide range of manufactured goods over the last 2 decades. Commodity prices are rising but raw materials are only an element in manufacturing costs. New technology and productivity gains will continue to have an effect.
we can all guess what the price of hoouses will be in twenty years time (which is precisely what you are doing) but what are they going to be doing in two years time that is what we are all more intersted in and thats the tricky bit - go on make a call for 2008 and 2009 put it on video and we'll see how good you are then!!!!!
Why should housing ALWAYS been seen as a long term investment? and if you think the Chinese are going to carry on subsidising our extravagent economies then I think you are very much mistaken wages are rising and new labour is decreasing.
Prices of products may have fallen but so has the quality - not really a saving then. You are looking backwards not forwards
When you buy a home or sell you have to pay many costs which can amount to more than 5% of the value, especially when you include stamp duty, legal fees, estate agent fees and all the incidentals such as replacing curtains or carpets, and so on.
For this reason alone it makes sense to make relatively few buy / sell transactions unless you a buying a run down home and doing it up with confidence that you are going to add a lot of value rapidly.
Well we are in inflationary times at the moment, mainly because of shortage of commodities. Part of that is likely to be temporary as the world adjusts t rapid market changes. But there are still 2 billion workers available in the world at $1-2 a day (sadly), who will provide a break on inflation if Chinese coastal factory wages get too high. Quality of goods: reliability and quality of almost everything made today is better than a decade ago.
Well anyone who tries to speculate on 12-24 months of house price falls or rises is foolish in my view. One reason is huge costs of buying and selling which make short term gains harder to realise. You should not buy property except for longer term unless you have a strong reason to expect some kind of short term gain regardless of market movement eg major renovation.
In the 'long' run, property is a good bet, true. But the problem in the most recent boom is prices are so far removed from incomes, that lenders will do anything to overstretch people, to keep it all going. It's a vicious circle that won't last.
Thanks Dr Dixon. You've saved me from committing myself to debt slavery for my entire lifetime. I've decided to go to a country with more land, looser planning restrictions, and a supportable pension system. I'm sure a 'wealthy Russian buyer' will help keep the market rising forever.
This man is talking crap for his own ends. Japan is the size of the Uk with twice the population but they are still recovering from the crash of 1991.
House prices in the UK will vary as they have in the past - with over-excitement at times driving prices unsustainably high, significant corrections and so on. We need to separate that from longer term issues, especially in real estate investment which is safest to regard as a long term commitment.
I've got an idea.Why don't you start one of those companies that buys a house from someone going under, at a reduced rate, and rents it back to them? This is an emerging market that could keep big business in the game and further screw the already screwed people.
How can anyone convincingly talk property up with irrelevant theoretical fantasy talk? We've only got to see what is REALLY happening on the ground, to see that the froth has blown off. I've never seen so many squirming estate agents. Awful.
You mention your last house which you bought on a fixed rate mortgage of 11.5% (fixed rate mortgages aren't too old in the UK so I was suprised to hear this . Are you actually in the UK? as you mentioned a $50,000 salary) .
Could you afford to buy the same house now using the same deposit you put down at the time ?
and our current low level of official inflation is mostly imported due to low wages costs in Chine and India . When these countries start to suffer from inflation , as they are , we will import that inflation .
$50,000 equates to around £25,000 at the moment . You'd need an 8.8x mortgage down my street to buy a small 2 bed terraced house (last one sold in April for around £220k which is low for the area) .
Everything comes full circle . Especially markets .
Yes and perhaps 25% of first time buyers are now putting significant deposits down from... equity released from their parent's property. Patrick Dixon
In my limited experience I think a lot are/were self-certifying and getting lodgers in (without realising there is a limit they can receive in rent before tax is due) . Many parents lost penion funds during "The Brown Fiasco" , wage inflation is low , so many can't afford to give/lend a deposit .
Yes - Senior executive salaries in China are rising at up to 100% a year. But there are still many oportunities for deflation in manufacturing.... technology continues to improve eg DVD, plasma screens, mobile phones and so on. Patrick Dixon
Here in Australia interest rates are variable so you can buy in with "cheap" interest rates and get caught out as they rise. Borrowing 8 1/2 times yearly salary is nowhere near sustainable, what happens if you loose your job? Housing is simply overvalued here in Australia, but the economy relies on debt to act as a motivator rather like the whip did in the days of slaves.
pauloz386 2 years ago
OMG this guy is clueless!
numbermoney 2 years ago
maybe I should not bother commenting now on this, but the reason house prices were so high compared to incomes in July 2007 was because of a relaxation of lending criteria and an explosion of debt. Now the credit has been withdrawn back to more reasonable levels, house prices are falling back to more reasonable levels. it is not difficult to understand.
SPOILTBALLOT 3 years ago
Good on you, Peter, for keeping this video up despite the critical comments. As I said when you first posted it, I thought you were wrong about housing. Still do.
Perhaps the title needs changing again, sort-term falls of 10-15% is already quite wide of the mark, since we are already at 20% (index-linked).
kipinat 3 years ago
this video was a wonderful snap-shot...of the housing bubble mentality...GOOD RIDDANCE...
:)
sonakoya2001 3 years ago
Ironically, and with hindsight, this video marks the top of the bubble, posted July '07.
It's a classic example of bubble mentality. All the hollow cliches and popular misconceptions are included - prices always go up, lack of supply, it's different this time (with regard to affordability)- perfect nonsense of course. The film maker even manages to lose any remaining credibility by changing the title after the event by adding a warning of short term price falls. Didn't see this coming?...hmmm
MURDERyourLEADERS 3 years ago 9
there are over 200,000 vacant property so wots he on about shortage?? also, why are there soo many people on housing waiting list if all these property are empty??
tech4156 3 years ago
COME ON THE HOUSE PRICE CRASH! Go you good thing go
cam230723 3 years ago
Buy to let has to be one of the most socially divisive and just plain unpleasant popular speculations ever. The participants are not content just competing with young families who(dare to)aspire to have a tiny stake in their country and security. No. They want to see their rents rise too. The fact that you think it's OK and your "friends" are "investors" (selfish and greedy)is a harsh indictment on your character, Dixon.
dom597167 3 years ago 4
lol...the guy in this video was WAY OFF...
sonakoya2001 3 years ago
The Crash is Here / The Crash is Clear:
LONDON (Reuters) - House prices fell 1.9 percent this month alone, leaving it 10.5 percent cheaper than at the same time last year -- the biggest decline since comparable records began in 1991.
The property market is now plummeting, after 10 years in which prices trebled, as banks hit by the credit crunch have tightened their lending criteria with many now requiring a 25 percent deposit for mortgages.
BubbFromGEI 3 years ago
Thanks - hard to say - I am not really so much interested in short term speculation on house prices. My message is that we need to take a long term view. I am certainly more pessimistic about the short term than I was a year ago. But we will reach a stage, probably within the next 12 months (I am starting to see it already with property investor friends) where people think they can drive a great bargain and want to buy. It all depends on local factors, especially in the buy to let market.
pjvdixon 3 years ago
Yes sure. You heard of deflation?
Job losses, pay-cuts, businesses that could only survive in the credit-expansion boom and who borrowed more in the expectation it would continue... now under massive pressure or going under.
House price crash + Wage crash + Rent Crash.
Enjoy the education coming your way.
straydoggio 3 years ago
I was waiting for the warning of a possible 10-15% drop. Perhaps I missed it. It has already fallen 12%, and I could easily see it falling another 20% or more. What's your latest short term and long term forecast? Patrick, you may want to tune into my video on Harrison 18 year Crash cycle. It could help improve your forecasts.
BubbFromGEI 3 years ago 2
The Property market is and always has been cyclical. All that has happen is that it moved past the peak in the cycle in August 2007. If you had seen the cycle top coming, you could have sold out before the peak. And now it is likely to keep sliding until at least 2011-12, and the next several months may be particularly devasting.
The Bulls who ignored cycles, will now pay for that oversight. And those who understand them, and use them well will be the big winners.
BubbFromGEI 3 years ago
Thanks. Most people live in their properties so selling has complex issues attached including family well-being, and most people are buying property intending to own it for a very long time. Your selling point applies mainly to retiring people looking to realise capital who may have to sit tight with equity release etc until market settles (most have no mortgage) + buy to let landlords (but their rentals have increased significantly last 12 months (>10% in some areas) as people delay buying.
pjvdixon 3 years ago
A fall of only 10 to 15%, you will be lucky... my own prediction is a 12 to 15% drop in 2008 and a 15 to 18% drop in 2009 followed by a 5 to 10% drop in 2010 before levelling out in 2011... so a 32 to 43% drop over 3 to 4 years... those of you who brought during this housing boom may be in slight trouble unless purchased before 2000 that is.... the housing market is a cycle it goes up and it goes down... however this time it has got a long long way to fall.. oh dear...
duffduffbeerbeer 3 years ago
You may be right - who knows. But if that happens there will be likely rebound boom the other side. Easy to lose money dipping in and out of housing market as stages in short term cycles are hard to read and costs of buy / sell huge. First time buyers may want to delay but need to be careful... life is complex. People need homes at particular times, properties they really like come up - will they again? Over 25-30y ears whether one bought at top / bottom market becomes far less significant.
pjvdixon 3 years ago
DDBB,
You are on the right track. "The UK is an island... small, no space." Is not analysis, it is a myth. We have just come thru a Winner's Curse period. Fred Harrison called it right years ago. Click on my name to see how he did it.
HollandParker 3 years ago
Thanks - important of course to watch whole video. UK housing very complex and cannot be summarised in a 3 minute soundbite (popular YouTube length). So I recorded up to max 10 mins allowed by YouTube, but really still too short. Some people only watch first 3m of 10 so miss wider context, which is why annotations relating to content further in the video now appear in first secion. Weakness of all videos of course - with text the reader can skim read to get the whole sense of the argument.
pjvdixon 3 years ago
What a shocker, especially from a futurist. Little more than a stitch together of the bubble theories.
Not surprised you're backtracking (with the new stickies) and trying to emphasise that these MAY be LONG TERM factors that will sustain the bubble.
YOU FORGOT CREDIT AVAILABILITY. House prices are crashing. They will most probably do so until at least 2010.
It takes something to make David Smith ($40 oil Times economist) look relatively capable of accurate economic forecasts. Well done!
fibble99 3 years ago
Thanks - see comment above. Patrick
pjvdixon 3 years ago
The greedy banks and hedge funds have financed their huge bonus culture to the detriment of the working man. All foods all heating and lighting has increased very sharply. I have children and I am very scared for their future my parents are elderly and I feel ashamed that they struggle to keep themselves warm in the winter the bubble is bursting the ideas this man has are rubbish shelter, food and warmth will be the new must have commodities
rapidset 3 years ago
Yes things are very hard for those on lower incomes right now. On "greedy banks and hedge funds", once again we need to see the whole situation. Take HSBC - 75% of all the shares of the bank are owned by pensioners or by those saving for their own pensions in future. Pension funds receive 75% of all the post-tax profits of all UK banks - and the same 75% from oil companies. The rest of those shares are owned by people saving up for things in future.
pjvdixon 3 years ago
Hi Patrick,
Any profits made from house price inflation will now be wiped out by general inflation, as has always been the case. The wealth is illusionary. Priced in barrels of oil (the life blood of any modern economy) property has actually fallen in value. Anyone who thinks the current situation is just a blip is dreaming.
dom597167 3 years ago
Hmm... this has very rarely been the case in the last 50 years anywhere in the world. Reason: inflation also wipes out your debt. if you borrow £100,000 and there is 10% inflation a year, your loan halves in value in just 7 years. In such a situation interest rates of course are higher than today - I remember a mortgage on our home a couple of decades ago at 13.5%. The real cost of borrowing is difference between inflation and interest.
pjvdixon 3 years ago
Inflation would wipe out debt if government would stop lying and masking the realized rate of inflation. Wage increases of 2%, or 1.9% if you are a nurse, will not erode debt like you suggest. The consumer will instead be squeezed from both ends.
It's worth realizing that although for some countries (Norway)the link between energy consumption and GDP is vague for most it is not, especially developing nations. The economic model you condone only functions in a world of cheap energy.
dom597167 3 years ago
Yes the CPI is a convenient way for the government to talk about a lower rate of inflation than the reality which is closer to RPI - usually around 1% more than CPI. Yes government employees tend to drop behind those in companies - a universal trend over many decades. But the good news is that history shows eventually there are catch ups with larger than inflation increases. Reason is that otherwise point comes where recruitment becomes impossible. Government / NHS is in same labour market.
pjvdixon 3 years ago
"recruitment becomes impossible", really? In which parallel world? We are facing stagflation - rising prices, suppressed wages and no real growth. That means unemployment, see today's news for evidence. No, we will see a fall in living standards and people will accept whatever work they can get, even a pay cut. I witnessed this is the early nineties.
dom597167 3 years ago
Hmm...So if someone bought one of those properties yesterday for 40% less than perhaps they might have paid a year ago, do you really think they will see no increase in the value of that property for several years? As inflation (RPI) is running at 4.3% you are saying that the property bought yesterday would continue to fall in price in real terms by maybe a further 4.3% a year. Over 4 years that would be a total fall of more than 50% which seems very unlikely. Most likely would be a rebound.
pjvdixon 3 years ago
Yes, i think exactly that, there will be no increase in the value of that property for several years. I think the chance of a rebound is almost zero. We've all seen it before in the late 80s and early-mid 90s. Not very long ago, but some seem to have short memories. Anyway its a waste of time arguing, lets revisit next year and see if it would have been better to wait.
davidbkkyt 3 years ago
Check out the Barnard Marcus auction from yesterday on their website. properties were selling for 40% off what they were selling for last year.
There will be no capital gains on property for the next few years. Renters are quids in.
davidbkkyt 3 years ago
Also vital to understand there are 100s of property markets in UK - different areas and types. And behaving differently. example is high rise new flats bought before being built with 2 year rent guarantees now coming to end. As you know these are doing very very badly in most places right now compared to - say- detached larger houses in some parts of London.
pjvdixon 3 years ago
Look, renting is cheaper than the interest on a mortgage. If, as you say, houses are going to drop 10-15% then its better to buy when they are 10-15% cheaper. You will save tens of thousands of pounds.
Anyone who bought in July last year will have already lost thousands and will be losing more each month.
davidbkkyt 3 years ago
Of course rent will almost always be cheaper in day to day cash terms than owning, BECAUSE RENTS ARE PRICED BY THE MARKET ASSUMING LANDLORDS MAKE LONG TERM CAPITAL GAIN. I am not saying house prices will fall 10-15% but anyone buying should be prepared for short term falls with finance in place to be able to sweat out a dip without being forced to sell at bad time. Huge numbers over the years have lost out, missed bottom of market cycles, trying to be clever, waiting for (even better) bargains
pjvdixon 3 years ago
More on actual costs of borrowing and impact of inflation on reducing mortgage debt. If inflation rises to 5% a year, half your loan will be wiped out in around 15 years in real terms. For someone on a lifetime tracker 0.45% above base taken out in September 2007, June 08 (RPI) inflation rate is 4.3% - less loan of 5.45%. Real cost = 1.15% a year. And trackers <1% above Bank of England base rate will re-appear in the market once sub-prime crisis has resolved (maybe 12-18 months).
pjvdixon 3 years ago
Watch whole video: recorded July 07 warning of possible very rapid fall in house prices (10-15% over a 6 month period or less). But such a major wobble would need to be seen in context of previous 2 year gains and longer term outlook (5-10 years or more). As I have said before it is vital to take the whole picture. Real cost of borrowing may be less than you think. Average loan rate over 10years less average RPI (inflation wlowly wipes out debt). But also allow for rent saved.
pjvdixon 3 years ago
There is no shortage of housing. Figures from DCLG show a large excess of dwellings, way above the number of households.
Looks like you got suckered into believing in the biggest bubble since dotcom.
davidbkkyt 3 years ago
This is the biggest house price crash of all time matey.
straydoggio 3 years ago
Any chance of your thoughts on the best way to lose money now? I'm hoping to make a packet.
takeme123 3 years ago
Usual Vested Interest clap trap. House prices are largely governed by peoples ability to borrow money to pay for them. If mortgage multiples increase from 3.5 times to 7-8 times salary house prices will rise. And likewise when the multiples are cut as is happening now.
LauraParkerSmells 3 years ago
The housing market is in free fall, crashing, meltown. You're right, house prices will rise again; probably in 2015 after they've crashed by 60%. Dont worry about house prices - Britain is screwed as a whole, thanks to house price inflation!
wantbell 3 years ago
The market as we all know is hugely affected right now by the fact that there are very limited mortgage funds available due to the sub-prime fall-out and need for banks to rebuild balance sheets. But that will change. More funds will be available and mortgage rates will fall much closer to whatever the Bank of England rate is at that time.
pjvdixon 3 years ago
lol...
the uk housing market is toast...
deal with it...;)
sonakoya2001 3 years ago 4
True, but surely by the same logic you must be able to see that house prices rose so quickly because there was an excess of money entering the market.
rick2030 3 years ago
Don't you just look like a dick now?
takeme123 3 years ago 2
Well I am talking about the long term outlook as you can see from the conversations below. If someone buys in rising or falling market loooking to get in and out of the market in a couple of years they are usually very foolish not least of all because of major costs in buying and selling.
pjvdixon 3 years ago
But then, you are right.
234566tgvb 3 years ago
Wow, no one is going to be able to afford a home, or anywhere to live. We are all going to be home less. I'll buy my bin today!!!
234566tgvb 3 years ago
Well house price rise or fall? Complex question and no one on earth can reliably answer that question at each stage in the cycle - same for stocks and shares. But we can as Warren Buffet has done, look for long term trends in a business in which we understand the fundamentals eg bricks and mortar. People forget that the biggest issue in it all it the difference in cost between renting and buying (and that changes) - plus the 100% capital gains tax relief.
pjvdixon 3 years ago
I totally agree. Look historically and you will see that house prices have always increased in value, with the high demand in population and us being such a small island, property prices will only go one way. But before I get beaten up over that last comment, lets put it into perspective, house prices double every 7 - 10 years and yes there may be a glitch or correction but this is normal. It may hurt you if you buy just before the correction but medium to long term you will profit.
TMOmedia 3 years ago
Plus the reduction for higher interest tax payers of capital gains tax on buy to let property from 40% to only 18% in many cases. Then there is the inflation rate which gradually erodes mortgage debt, and reduces the real cost of borrowing (interest rate minus inflation rate = actual cost. Which inflation rate to use? Retail Price Index is safer as guide to inflation people "feel" - usually relates to salary increases eventually. RPI usually around 1% higher than CPI - 4.2% v 3% April 08.
pjvdixon 3 years ago
It would be a key player in the EU not least for being a bridge between english speaking Asia and the Americas but being a platform from which the rest of Europe can engage in trade to such continents. USA, canada and mexico would have to merge to compete with China and India. I think this is a time of great uncertainty but great change.
Benny750 3 years ago
Dr dixon i am a very big fan of your! unfortunately your ascertions are corrent..... unfortunate because I have made such ascertions in 2000 and will be the handicap we will be faced with during the forth-coming recession.
You did comment on another video that the UK will find it difficult to join the EU however I think that this would sooner or later be overcome as Britain has a lot of fully developed infra-structure and tangiable developments that will weather the credit crisis.
Benny750 3 years ago
wonderfull presentation
maximum1991 3 years ago
Does anybody have the latest uk housing demand and supply graphs, if so please send me an e-mail, and i will be very grateful
thanks
ruleofwisdom 3 years ago
Is this not a simple case of supply and demand in the housing market? Population growth and longer living will just keep house prices high. Great video and well presented.
Miah (London)
DiamondGezzer442 3 years ago
Is this not a simple supply and demand case where this fact dictates the prices? Population increase and less supply of homes. But do you think we're heading into a recession? Great video and well presented.
Miah (London)
DiamondGezzer442 3 years ago
The counter argument to that is Japan 1990!
The UK market is crashing. The government and BoE are going to unprecedented lengths to try and save it. They maybe successful short term but I doubt it. No government has ever managed to save any asset market bubble. Anyone who didn't identify the UK property market bubble deserves to be taken out to sea and drowned.
dom597167 3 years ago 2
Credit tightenings come and go... the important issue for real estate investors is the longer term outlook.
pjvdixon 3 years ago
Yes that is true. Also true is the property market has become the subject of popular speculation as a result of the most relaxed lending in history. And as those of us versed in the mechanics of asset market are aware, Joe public always buys near the top. And while, long term, the nominal value of property increases, timing your leveraged entry into the market is key to success or failure.
By the way, thanks for engaging this debate.
dom597167 3 years ago
In the long term, we are all dead. Are you really willing to sit through a 30% or more loss of property value? I'm not. My money is out there earning an excellent return, while UK property prices slide.
BubbFromGEI 3 years ago 2
You havent got a clue. I wonder how long before you start spouting off about the credit crunch - and making it your own?Others saw it coming years ago . . .if youre such an expert why didn't you?
exxxxxxxx 3 years ago
So many "property experts" have been shown to be nothing more than happy speculators. You shouldnt be too hard on Patrick. he had plenty of company in the media, who were far more deserving of blame than he was.
BubbFromGEI 3 years ago
Pat, Japan is the most densely populated country on Earth, yet that "fundamental" hasn't turned the eighteen year bear market.
dom597167 3 years ago 3
Yes I agree. The housing market is complex with multiple factors operating which are often local.
pjvdixon 3 years ago
"So despite your concerns about a speculative property bubble, you have bought property yourself - and without a mortgage...!"
One of my properties yields 16%, I have no concern for my own portfolio. Do you see prices retracing to 1996? However, I would not invest now. Why? because the yields don't even match a savings account. My friend has been in the property game for forty years and he shares my outlook.
dom597167 3 years ago
Of course for most property investors they live in their asset and therefore also factor in the relative cost of rental.
pjvdixon 3 years ago
5. Not only have interest rates been low but there has also been a systemic change in lending practice. Banks divert risk of default to third party investors by selling them securities derived from mortgage pools. This has allowed banks to relax lending standards and salary multiples to the extent that it's broken the entire global banking system.
6. As the dust settles and credit conditions tighten the moment of clarity arrives. House prices have broken all relationship with economic reality.
dom597167 3 years ago
Thanks for the comments. I will reply in more detail later. Interesting discussion. Tell me - do you own property yourself? And if so why?
Patrick Dixon
pjvdixon 3 years ago
Yes I do own property, unleveraged though. Property functions in a similar manner to large cap stock - 1. The market is range bound based on economic fundamentals.
2.The yield rises in nominal and, one hopes, real value with time as does the capital value.
Long term, property is a great investment for retirement as the yield better reflects the realized inflation rate.
However, we have seen a market break-out beyond long term fundamentals due to short term unsustainable credit conditions.
dom597167 3 years ago
Fascinating. So despite your concerns about a speculative property bubble, you have bought property yourself - and without a mortgage...! You clearly continue to have confidence as I do in UK real estate as a sound long term investment, particularly compared to lifetime costs of renting. Patrick Dixon
pjvdixon 3 years ago
Yes, (without teaching you to suck eggs) the key with all assets is to invest before the market is hijacked by Joe public, possessed by the emotions of fear and greed. This is the time to have one foot in the door. I bought after the last property crash in 1996.
Going back to my comparison with large cap stock, would you use leverage to purchase shares in Coca-Cola? I ask because of your use of the exclamation mark with regard to my unleveraged property investment.
dom597167 3 years ago
3. The global property speculation boom is a global monetary event. It has little to do with physical constraints.
4. House prices have reached current levels due to very low interest rates around the world, accommodated by historically low commodity prices at the turn of the decade.
dom597167 3 years ago
Dixon u r deluded. You probably won't print this, and if you don't I will post a video exposing your incredulity.
1. The recent property speculative boom is not exclusive to the UK. Your explanations of land shortage and planning restriction don't add up. Just look to the USA, SA, Oz, NZ, EU -all speculative bubble markets
2. If there was a genuine shortage of physical property it would be reflected in rents. Rents have lagged house prices to such an extent that the yield doesn't cover finance.
dom597167 3 years ago
See further comments above - the commenter owns property in UK and sees it as a sound long term investment.
pjvdixon 3 years ago
I think all I put was "Did you know in advance you'd be a futurist?". I certainly didn't mean any offence. It's back there now anyway. :)
Kind regards.
capricious71 3 years ago
My apologies - thought it was something else from someone else. Yours was just stuck in system. Patrick
pjvdixon 3 years ago
I don't understand the property market and I don't understand this video....confused!
kentusmaximus 3 years ago
Auctions are back in business at present and you won't have to look far for a bargain at the moment. The credit crisis has increased the number of forced sales and therefore the opportunities massively. With the right finance provider profitable property investments are within the reach of most people.
EasyFinance 4 years ago
if people could afford a mortgage of 8xsalary, don't you think the banks would jump to it? Funny that they are reducing lending multipliers ...because people are having houses repossessed - and that is at 4 1/2 x their salary.!!! Some of what u say makes sense but some of what u say is foolish!
mutleee 4 years ago
They are doing so because of short term risks within the economy.
pjvdixon 3 years ago
Did you know in advance you'd be a futurist?
capricious71 4 years ago
I have always been interested in trends. See other videos which explain more which will be uploaded this week.
pjvdixon 3 years ago
Utter rubbish I'm afraid. Your video is little more than a comfort blanket for bandwagon bulls. House prices are not high because there is a shortage. They are high because they are the single leveraged investment the average person will hold in their lifetime. Low interest rates after a huge stock market crash have cause a global property boom.
MURDERyourLEADERS 4 years ago
True - leverage attractions is another key factor. Patrick
pjvdixon 3 years ago
Spot on
Absolutely correct in every detail
Those who dont understand the property market should watch this video
kennor123 4 years ago
Thanks - the most important thing is to take a long view. People worry a lot about a fall of - say - 5-10% over a year, but stocks can fall 5% in a single day. Real estate is quite stable in comparison. But it is vital to ensure when buying that you have enough financial reserves to be able to weather a downturn. The people who lose money tend to be those that buy without thinking about what could happen to their own finances, and then have to sell at a bad time in the market. Patrick Dixon
pjvdixon 4 years ago
I wound't tell Brown this-let the deer feel he doing a good job
Systemfailure2 4 years ago
The high demand and not enough supply, nice theory, but why is there so many houses for sale and thousands sat empty across the county. If demand was so high wouldn't they be snapped up. Of course, but they are not.
News house prices are and will continue to fall.
RobsonBW 4 years ago
Rubbish, Do you have a lot to lose by a crash, ie invested interests, hence why you are talking up the market. You did not mention or pick up on the credit crunch which was already looming and its very real impact on house prices. Or the vast amount of unsustainable debt people have taken on with mortgages, loans, and credit cards.
RobsonBW 4 years ago
Of course there may well be a correction, but even if prices fell 11% - say - in Scotland, it would only take us to a situation as if prices had more or less plateaued over the last 12 months. People get very agitated about short term wobbles, but most people invest in real estate for a lifetime.
pjvdixon 4 years ago
so it seems low interest rates are key to maintaining the bubble.......higher rates for borrowers in the USA bursted the bubble there.
and you talk of income........many incomes in north america for example have plummeted as unions have been smashed and jobs shifted to asia..money doesnt grow on trees but house prices suggest it does and as governments abandon social housing more will find themselves on the streets living in a car.
capnvideo2006 4 years ago
A very important issue of course is the unemployment rate which remains in the UK at a historic low, and the actual numbers in employment which has never been higher. While that could change rapidly in a recession, at present it provides adds to what demand would otherwise be.
pjvdixon 4 years ago
Demand has been manufactured by the government by keeping interest rates artificially low & constantly bombarding the public with property porn on state owned TV (BBC)to effectively avert recession.
maddohartlepool 4 years ago
Lack of housing has nothing to do with the current HPI.
quinndexter 4 years ago
My view (and it can be no more than that) is of a scenario where property will not recover today's value for many years. It took 13 years from the peak last time and I can see it taking longer - see my comment above for information.
Either way we have a mess - a priced-out generation if you are right or a financially wiped-out one if I am right - neither is a cause for celebration.
kipinat 4 years ago
Well the same thing can happen in every other area of investment. It is really important to take a long term view and not to take on a real estate investment as a short term speculative bet, especially as the costs of buying and selling are so significant. Having said that, the fall of capital gains tax from 40% to 18% for properties held less than 3 years has made gains easier to bank if the conditions are right.
pjvdixon 4 years ago
Well well well, how things are changing! A UK housing market crash is needed because so many people are living beyond there finacial ability in my opinion due to greed.
lasercat10cc 4 years ago
"Housing has to be seen as a long term investment."
We might be at a peak in the cycle, so let's look at what happened if you bought at the last one (Nationwide BS website). A house bought at the last peak(1989) regained its value in 2002 (allowing for inflation). 13 years, that would take us to around 2020.
There are many other factors; however, given the speculative investment this time around, inflationary pressures, the UK plc's reliance on financial services, it might just be worse.
kipinat 4 years ago
"we have an absolute famine, shortage of housing..." you say about 1 minute in.
I'm yet to hear a response that I can accept to explain why rents have remained, at best, static compared to RPI inflation for many years. There were a few, rather half-hearted reports of rents soaring in London this summer, but on the ground you can normally squeeze them down.
No absolute famine around here.
kipinat 4 years ago
Rents are affected by competitive pressures of all kinds. When landlords think they are going to make a capital gain, they are able to accept in their own minds a lower rent yield and still make their sums work. As capital gains have been strong, rent yields have remained low and still acceptable to many landlords who have piled into the market, reducing demand.
pjvdixon 4 years ago
Thank you for your reply. I think that this point helps to explain the increase in UK property prices - people "piling in".
Also the phrase "in their own minds" is interesting, because in the cold light of a piece of paper (or nowadays a spreadsheet), the sums have not worked for a while now. Looks like irrational exuberance (not that any decision is truly rational).
kipinat 4 years ago
Patrick,
Are you ready to admit that there is room for a big slide in UK property prices? I reckon the UK is about one year behind the US, and we will soon see similar price falls in the UK.
BubbFromGEI 4 years ago
NO the Uk is a lot smaller than the US.. we havent run out of land but it is in short supply, where people want to live. Prices *might fall* but its really a correction before the upward trend continues. Two things can stop it.. greater unemployment and/or release of green field sites for development. Both require a strong govt, which I afraid Gordo is not. greenfield biulding. Better to make the proles loose their jobs, thus lessening immigration, both lowering housing demand
BlagDAD 4 years ago
"NO the Uk is a lot smaller than the US" .
BlagDAD , would you have said the same about the Japanese housing market 10 years ago ?
paul4444 4 years ago
Clearly, you do not understand cycles. Wait, watch, and learn... or do a search here on "UK, Property, Cycle"
BubbFromGEI 4 years ago
Yes in every kind of investment you can chart cycles. And they are notoriously hard to predict which is why long term investment is really important. You can lose your entire wealth with ill-timed rapid buying in and selling out of markets - whether company stocks, gold, housing or whatever. And in those short term bets you are playing against huge numbers of professional investors.
pjvdixon 4 years ago
i agree - the next rate move is down. One thing that could blow everything out of kilter, and it wasnt mentioned in this video was what if unemployment rises. Another factor is that everyone live to thier means. When i was living in london i was on 30k and broke, now im on 90k im still broke, although a lot of it goes to paying off the mortgage. If inflation rose and rates had to as well id say a lot of people might be forced to sell, because everyone now days lives to thier means.....
clintepps 4 years ago
The new reduced 18% capital gains tax rate will also mean that landlords will be tempted to reinvest profit made on rent (taxed at up to 40%), to convert their received rent into added capital value (taxed at only 18%)
pjvdixon 4 years ago
Do you think investors might cash in their 18% only taxable profits in April to invest them in a more lucrative way than BTL, which I read is running out of steam at the moment,
arbarados 4 years ago
I found your comments re the sustainability of the housing market very plausible. However your comments on globalisation and effects of, for instance the growing economic power of China. The weakening dollar. The weakening pound. Unemployment. I would be very interested on your views (and I mean this with soncerity)on these issues and also the recent issues with regard to the credit/banking markets crunch.
Thanks again
maxineorourke 4 years ago
An excellent video Patrick, very clear, well spoken. Buy to let investors in for a rough ride I feel. CGT at 18%, perhaps, lots of sales of 2 bed flats.
leafygardens 4 years ago
you are speaking about 7x salary, in northern ireland people are borrowing up to 12 times ther salary
alfaspiderdave 4 years ago
first thing uk is full of furture terrorist,and if you live there most likly your neighbors wont even speak english,i can see why this guy is frantic trying to make his money before it all goes south
WhiteJewDevil 4 years ago
No more cheap credit....no more demand !!!!!!!
maddohartlepool 4 years ago
But the real issue is for how long? Housing has to be seen as a long term investment. That means you have to take a view about what the economics of house ownership are likely to be at least until 2012, preferably longer.
And for that you need to look at long term interest rate fixes which are already starting to fall.
pjvdixon 4 years ago
The general feeling is that we are looking at a slump in 2008 with house prices falling by as much as 30% over the next few years.
If the buy to let market pull out there really is no-one left to prop the whole thing up
what do u think?
karmicreward 4 years ago
Capital gains tax reduction to only 18% for buy to lets is a major gift from government and will boost buy to let investment. In past if you sold within 3 years you were taxed 40% on gain, reducing to 25% if you invested for at least 10 years. 18% flat rate will also encourage very short term buy to let investment.
pjvdixon 4 years ago
would you consider buying a property, that is in a popular location, freehold with scale to redevelop and likelihood of planning permission? Given the current financial tyrbulence within this current market?
Ps Im not a developer but wonder about your opinions given current affairs.
Many thanks
maxineorourke 4 years ago
the uk housing market is about to crash...IF YOU ARE PLANNING ON TAKING OUT A MORTGAGE...DONT DO IT...wait for house prices to fall...
sonakoya2001 4 years ago
Cheers, really enjoyed that!
karmicreward 4 years ago
And from that point it would be more likely that prices would increase further, whereas without a correction it is more likely that prices will at best grow slowly or be flat for a while.
pjvdixon 4 years ago
Cheers!
karmicreward 4 years ago
Paul, I have a west london flat, mortgage of £270 and I have been offered £385! I am concerned the credit crisis in the states could affect market confidence in england, do you think whats happening stateside will start a crash here??
karmicreward 4 years ago
Well of course it is possible. But the sub-prime crisis is complex. For example central banks are already under pressure to reduce interest rates which will make things easier for home owners. But even if there is a price correction of - say - 15% that has to be seen in the wider context.... it just means prices are as they would have been if the market had been flat the last 18 months or so.
pjvdixon 4 years ago
Not much good to those that bought at the higher price though eh!
kenticehurst 4 years ago
True although these things are less important in long term investing. I know many friends who have haggled over a price to try and get a few thousands off, have lost the sale, and then wasted many months trying to buy another place they like and can afford.
pjvdixon 4 years ago
Patrick, so really i should keep it for a few more years then, I mean it was hard enough for me to get on the latter to begin with. I guess with the olympics coming ect, you seem to think that london is kinda sound!
karmicreward 4 years ago
Well I cannot advise you because I do not know your situation. But if you have actually managed to get on the ladder you need great care before jumping off, and may need expert advice before you make any hasty decision. History is full of people who have lost a lot of money jumping in and out of markets. Even greatest investors in the world tend to hang on to what they have - after making careful decisions. Look at Warren Buffet.
pjvdixon 4 years ago
Buffet sold his own residence he rents
kenticehurst 4 years ago
The other reason is that prices can wobble of any investment in the short term - not just real estate - and it is extremely difficult to out-guess where the next wobble will go. People who bet on short term movements can lose a lot of money very fast.
pjvdixon 4 years ago
Part1:
This is certainly a hot topic and your video has opened a lot of debate. I would suggest that people like yourself consider the social impact of high property prices. Houses are homes for families i.e. our future and should not be made a business of. What incentive do young people have to succeed where in there future they have visions of being shackled to enormous debt and are struggling to find real job security in a more and more competitive environment.
riflemaster 4 years ago
I agree - the social impact of costly housing is really significant, not least in making it almost impossible for families to survive without both parents working almost full time. Patrick Dixon
pjvdixon 3 years ago
As an apisring economist I have to say that this video was well rounded I actually got more information than I was seeking, thanx. However I would like to see a cross reference with the US housing market
Jetta2006 4 years ago
well presented.
unkie888 4 years ago
Markets are impacted by balance between supply and demand. Simple economics. Of course you may have huge numbers of homes not selling if those sellers are setting prices higher than market will stand.
pjvdixon 4 years ago
House prices are impacted by the supply of easy cheap credit fact
kenticehurst 4 years ago
Well presented recital of the same old arguments. I just don't buy all of them, and can't be bothered to do a point-by-point breakdown.
As you say at the end - "We'll see".
kipinat 4 years ago
Well, that was a remarkably one-sided argument! What about: the huge SPECULATIVE component of demand, the poor yield returns, and the excessively lax lending. Surely, the cycle is about to roll over. Just look what is happening in the US.
BubbFromGEI 4 years ago
Well I am giving a longer term view. You are right that in any market we see cycles of demand and housing is no different. As I explained in the video, the tax environment in the UK encourages people to over-invest in housing beyond their personal needs, for example as an alternative to pension planning.
pjvdixon 4 years ago
Good video, you didn't say much about how interest rates are going up though. In the UK rates are now about 28% higher than they were a year ago.
Also you bought when interest rates were high, then rates went down, and this is played a big part in driving up prices to the level they are at today.
Do it the other way around and it is a lot less fun.
downwiththenwo 4 years ago
Need to have a long view of interest rates which are probably near peak in UK, because inflation is being controlled in non political way by Bank of England with very low targets, and interest rates are usually 1-2% above the current inflation rate (arguments about how you calculate true inflation rate of course).
pjvdixon 4 years ago
Hahah! 'Inflation is being controlled in a non political way'....don't make me laugh. Governments only delgate these responsibilities so that they can maintain plausible deniability when things go wrong. It's same as when private companies send arms to Saddam or whoever....the government can pretend it was nothing to do with them.
maddohartlepool 4 years ago
'I'd be a fool if I tried to predict'....then he does. Fool.
'The UK is an island...that means we have no space'
So what about Belgium? Can belgium expand exponentially because its not an island.
What colour is the sky on your planet?
If there were a shortage of housing in the UK where are the 'millions' of homeless people? Or, where are the houses with 3 generations of people living in them? There is NO shortage of housing in the UK.
35% of property in Liverpool, for example, is empty.
needle2 4 years ago
very good video about all the reasons for house price inflation.
jayangli 4 years ago
Ping pong tables and DVDs falling to zero WOW can u get me some!! Commodity prices are going through the roof and are now filtering through to our RPI. Raw materials are increasing but manufactured goods falling yeah the Chinese are going to give it to us for free!! (or maybe they will start pushing the price up? Twenty years ago mobile phones were expensive which is why nobody had them!!
WHO IS THIS BLOKE ANYWAY?
kenticehurst 4 years ago
I think you need to look at again at tables showing year on year prices of a wide range of manufactured goods over the last 2 decades. Commodity prices are rising but raw materials are only an element in manufacturing costs. New technology and productivity gains will continue to have an effect.
pjvdixon 4 years ago
we can all guess what the price of hoouses will be in twenty years time (which is precisely what you are doing) but what are they going to be doing in two years time that is what we are all more intersted in and thats the tricky bit - go on make a call for 2008 and 2009 put it on video and we'll see how good you are then!!!!!
kenticehurst 4 years ago
Actually less relevant since housing should always be seen as a long term investment.
pjvdixon 4 years ago
Why should housing ALWAYS been seen as a long term investment? and if you think the Chinese are going to carry on subsidising our extravagent economies then I think you are very much mistaken wages are rising and new labour is decreasing.
Prices of products may have fallen but so has the quality - not really a saving then. You are looking backwards not forwards
kenticehurst 4 years ago
When you buy a home or sell you have to pay many costs which can amount to more than 5% of the value, especially when you include stamp duty, legal fees, estate agent fees and all the incidentals such as replacing curtains or carpets, and so on.
For this reason alone it makes sense to make relatively few buy / sell transactions unless you a buying a run down home and doing it up with confidence that you are going to add a lot of value rapidly.
pjvdixon 4 years ago
Well we are in inflationary times at the moment, mainly because of shortage of commodities. Part of that is likely to be temporary as the world adjusts t rapid market changes. But there are still 2 billion workers available in the world at $1-2 a day (sadly), who will provide a break on inflation if Chinese coastal factory wages get too high. Quality of goods: reliability and quality of almost everything made today is better than a decade ago.
pjvdixon 3 years ago
why?
kenticehurst 4 years ago
Well anyone who tries to speculate on 12-24 months of house price falls or rises is foolish in my view. One reason is huge costs of buying and selling which make short term gains harder to realise. You should not buy property except for longer term unless you have a strong reason to expect some kind of short term gain regardless of market movement eg major renovation.
pjvdixon 3 years ago
In the 'long' run, property is a good bet, true. But the problem in the most recent boom is prices are so far removed from incomes, that lenders will do anything to overstretch people, to keep it all going. It's a vicious circle that won't last.
yerauntywendy 4 years ago
Thanks Dr Dixon. You've saved me from committing myself to debt slavery for my entire lifetime. I've decided to go to a country with more land, looser planning restrictions, and a supportable pension system. I'm sure a 'wealthy Russian buyer' will help keep the market rising forever.
takeme123 4 years ago
This man is talking crap for his own ends. Japan is the size of the Uk with twice the population but they are still recovering from the crash of 1991.
michaelsark 4 years ago
House prices in the UK will vary as they have in the past - with over-excitement at times driving prices unsustainably high, significant corrections and so on. We need to separate that from longer term issues, especially in real estate investment which is safest to regard as a long term commitment.
pjvdixon 4 years ago
Nice sales pitch, now when where exactly is the next seminar for Inside Track? Will a cheque be OK.
SimpleSimon2 4 years ago
Britain was a small Island with finite land during the last two house price crashes as well....so how do you explain that?
This sounds like a government shill trying to ramp prices on behalf of UK PLC.
maddohartlepool 4 years ago
you might prefer my commentary of today's date on my channel...
usenetposts 4 years ago
Interesting, the money we save on all products lets us spend more on houses.
Nkatsikanis 4 years ago
I've got an idea.Why don't you start one of those companies that buys a house from someone going under, at a reduced rate, and rents it back to them? This is an emerging market that could keep big business in the game and further screw the already screwed people.
yerauntywendy 4 years ago
How can anyone convincingly talk property up with irrelevant theoretical fantasy talk? We've only got to see what is REALLY happening on the ground, to see that the froth has blown off. I've never seen so many squirming estate agents. Awful.
yerauntywendy 4 years ago
You mention your last house which you bought on a fixed rate mortgage of 11.5% (fixed rate mortgages aren't too old in the UK so I was suprised to hear this . Are you actually in the UK? as you mentioned a $50,000 salary) .
Could you afford to buy the same house now using the same deposit you put down at the time ?
paul4444 4 years ago
and our current low level of official inflation is mostly imported due to low wages costs in Chine and India . When these countries start to suffer from inflation , as they are , we will import that inflation .
paul4444 4 years ago
$50,000 equates to around £25,000 at the moment . You'd need an 8.8x mortgage down my street to buy a small 2 bed terraced house (last one sold in April for around £220k which is low for the area) .
Everything comes full circle . Especially markets .
paul4444 4 years ago
Yes and perhaps 25% of first time buyers are now putting significant deposits down from... equity released from their parent's property. Patrick Dixon
pjvdixon 4 years ago
In my limited experience I think a lot are/were self-certifying and getting lodgers in (without realising there is a limit they can receive in rent before tax is due) . Many parents lost penion funds during "The Brown Fiasco" , wage inflation is low , so many can't afford to give/lend a deposit .
paul4444 4 years ago
Yes - Senior executive salaries in China are rising at up to 100% a year. But there are still many oportunities for deflation in manufacturing.... technology continues to improve eg DVD, plasma screens, mobile phones and so on. Patrick Dixon
pjvdixon 4 years ago
You'll find as tech. improves the price actually goes up as a new product is released , only to come down as supply due to demand increases .
paul4444 4 years ago
Should have been "supply , due to demand , increases" :-)
paul4444 4 years ago