How long can house prices rise for?

Question

For instance in my town (Witney Oxon) the house prices continue to rise even theough the average salary is too low to rent let alone buy a house. Also people are being made redundant in manufacturing and there is no new work for them.. Is it just a matter of time before we have a crash?

I am also worried about oil prices, and inflaton on the economy. then there is the fact we are loosing so many jobs to abroad as labour is cheaper. I do think we are heading for a small recession and with it lower house prices, but that is my opinion.
We should tax second homes a lot IMO. As wealthy people buying them means normal working class people cannot find a house to buy. I also don't see why I should move away from the area I was brought up just so I can afford a house when the lazy cavs and immigrants get homes from the government.

I live in the UK by the way and yes I have had a good eduction... It is just where i live it is expensive as people buy houses here as it is a country type area but is an easy commute to london.

Answer 1

There are pockets around the country that are grossly overpriced & under strain. Boston for example has had a month or two of decreasing median prices. Most areas have also seen a dramatic rise in homes available for sale & a simultaneous decrease in homes sold. However, nationally, fundamentals are not horribly & excessively off the mark.

To address your geographic area, people are obviosly making enough money to bid up the prices of houses- even if you are not. Thus, I am skeptical of your claim of the average salary being too low to rent let alone buy. Think about your claim more carefully & you should see the paradox.

In addition, while your town may have some manufacturers that are shedding jobs, I doubt that they are the only or even the biggest employers. Think about it. If everyone in your town were worried about being laid off or having hours or wages scaled back, would the the growth rate of demand outpace the growth rate of supply? (this causes prices to rise). In the picture that you paint, people should be begging to get out of their houses & no one would be willing to buy. Consequently, prices would have to fall to a new market clearing level. But you claim that they are rising.

Look at other factors that are restricting supply- zoning ordinances, impact fees, dilapidated infrastructure, poor municipal services, etc.

Your macroeconomic concerns are also ill founded. While high in nominal terms, oil is still very cheap in real terms by historical standards. Besides that, the US consumes less per unit of output now than ever before- a benefit of replacing low skill manufacturing labor for high paying service sector jobs. In addition, higher oil prices now are good for the long term. They mean more conservation (less demand), higher discovery efforts (more supply), more research into & use of alternatives (substitution). We just need to endure some short run pain to earn these long term dividends.

Inflation, again by historical standards, is very low & the new Fed chairman, ben bernake, is a bigger inflation hawk than was alan greenspan. He is therefore more likely to act sooner & with more force to head off inflationary pressure at the pass.

As for jobs, the only jobs going overseas are the low wage, low skill jobs that will soon be replaced by automation. So, the jobs can go bye-bye now or later, but they will go. While these jobs are waning, the high skill/high pay jobs such as medicine, engineering, & finance are growing- these are the people who are able to price people like you out of the housing market. The moral of this is to get yourself in school & do something that commands a premiuim from the market.

Your tax on second homes is a stupid approach to increasing affordable housing for the working class. Do you think that people who can afford vacation homes are buying them in working class neighborhoods is rust belt cities?

To address your comment "I also don't see why I should move away from the area I was brought up just so I can afford a house". Why should I have to a premium above the market price for whatever it is that you produce just so that you can afford to stay where you are? It isn't my fault, or anyone else's, that you didn't get a proper education or don't want to move to where your talents would be better used.

As for "when the lazy cavs and immigrants get homes from the government". What are you talking about? Do you honestly think that given the present anti-immigrant fervor, that such a program- if it ever existed- wouldn't get cut immidiately by some populist politician wanting to score some quick political points?

Instead of complaining & being a victim, why don't you do something about it. develop some new skills, move somewhere with more opportunities, get youself in school. I would suggest studying economics- an obvious weakpoint for you.

Answer 2

Seems like most people are expecting a slow down soon.
http://www.houseladder.co.uk/Property_News/2006/07/Banks_urge_caution_on_house_prices_177.aspx

Even Northern Rock, who are normally very bullish, are expecting a "lull". The fact is it's already happening in some of the country. I live in Herefordshire and the market has been very slow for the last 6 months, with prices coming down. It's just London and a few hot-spots that are keeping the stats going.

It's a combination of affordability and an unstable political outlook. The OECD recently warned of a 30% drop in prices but hopefully that won't happen, a lot of people would be in negative equity again.

I guess we should look at our houses not just as an investment but also somewhere to live! That should be the first priority, if it makes money then that's a bonus.

All the best.

Answer 3

At the moment, mortgage costs are on average less than renting. this will keep the market bouyant for a while. Also all of the lenders are reviewing their affordability criterea, so that the standard 3x salary is rare and many higher figures are possible.

Everyone expects a crash because it happened 20 years ago, although the economic factors are radically different, so a "Crash" is highly unlikely, although a slowdown is possible until salaries catch up. Keep your eyes on Gordon Brown and his deficit/borrowing to see how the economy is going to go though.

The biggest threat is the media. A headline saying "House prices rocketing" will make the market surge, which "House Prices Crashing" will stop the market in its tracks as it did a couple of years ago. Only thing was, because there was no substantiation to it, it only slowed growth, not reversed it.

Give my regards to Witney, I went to school there!

Answer 4

I don't think there will be a crash anytime soon as there are too many underpinning factors - low unemployment, low interest rates, good economy, etc.

Something has to be done to help the first time buyers as without them the whole market will stagnate. I think the Government should put higher tax on people buying second homes as, particularly in rural areas, they are pricing the locals out of the market.

Building companies should also stop building so many flats - most people want to live in a house. They are only building flats as they can cram more in to a space and make more money, it's all about profit for them.

I think we should also stop providing free accomodation for those asylum seekers that have been ordered to leave the country. If they want to appeal they can do it by paying for somewhere to stay or just leave.

Answer 5

The housing market fluctuates just like the stock market.
In many areas of the country today housing values have stopped rising and even dipped a bit. However, over the long run housing costs will continue to rise because banks are getting ready to introduce the 40 to 50 year mortgage. This will allow people to afford these vastly overpriced houses.

Answer 6

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Answer 7

Trends tend to last longer than you think. The housing price run-up has been a global phenomenon, I believe caused by the stock market bubble bursting and record low interest rates. Since both of those factors are well behind us now, look for house prices to fall. The only problem is they won't fall far enough fast enough.

Answer 8

Hi,i agree 100 per cent with you.My husband has to work aboard
so we can get our morgage paid off.The wealthy are buying up
property all over the country & renting property out.I feel really sorry for people trying to get on property ladder.I wish house prices would halt & i do not believe higher interest rates will help
it will cause terrible hardship for people on average incomes on top of that we are stuck with rising council taxes this country stinks.

Answer 9

Whitney is expensive due to it's locality. It will probably continue to increase in price your area. Unless you move you might find things to expensive.

A crash is unlikely but you sometimes get corrections in the market, but certain areas always seem to rise.
If you bought a House in Glasgow in the Late 50's for circa 2K, it would now be worth circa 100K, not bad in terms inflation.

Answer 10

it is dependent on the inflation. If inflation keeps dramatically rising then house prices can rise for ever but it is almost certain there will be a crash in prices soon.