Posts with tag: housing bubble

Will 2017 be the Year the London Property Bubble Finally Bursts?

Published On: January 19, 2017 at 10:18 am

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A Times survey of leading economists has predicted that 2017 will be the year that the London property bubble finally bursts, almost a decade after the last market crash.

The worrying report prompted online estate agent eMoov.co.uk to analyse the loss in value a similar London property bubble burst would have on house prices across the capital, as well as elsewhere in the UK.

With house prices once again reaching a dangerously inflated level, eMoov looked at the decline in values between the end of 2007 and beginning of 2009 (21 months), when the last property bubble burst, across each region of the UK, before applying that percentage decrease to the current average house price in each area, highlighting the loss that property owners could experience if the London property bubble bursts again this year.

The UK as a whole

At the end of 2007, when the market was on the cusp of collapse, the average UK house price was £189,424. Property values then went into freefall until 2009, plummeting by an average of 16.7% (-£31,618).

If the same 16.7% drop in values was seen today on the current average house price of £217,928, property owners would lose £36,393 on their asset, taking the average value down to £181,535.

London property bubble

Will the 2017 be the Year the London Property Bubble Finally Bursts?

Will the 2017 be the Year the London Property Bubble Finally Bursts?

Of course, it’s the capital where property owners stand to lose the largest sum should the property bubble burst this year.

During the last market crash, those with properties in London saw their assets depreciate by an average of 16.3% (-£48,421). However, since then, the average house price in the capital has soared to £481,648. Therefore, the same percentage decrease would result in a loss of £78,267 today, taking the average value down to £403,381.

Outside the capital 

Although Londoners suffered the greatest monetary loss following the last crash, the capital didn’t see the largest percentage decreases during the last collapse.

Greater declines were recorded in the South East (-17.6%), the East of England (-17.4%), the South West (-17.2%), the East Midlands (-16.8%) and the West Midlands (-16.5%), with property owners in these regions seeing their house prices drop by between £24,000-£42,000.

Although a burst in the property bubble this year would mean a smaller monetary loss than in London, these property owners would still face a substantial hit. The lowest would be felt in the East Midlands (-£29,656), taking the average house price down to £146,868, climbing to a decline of £55,146 in the South East, where the loss would bring the average property value down to £258,188.

North of the border

While the ripple effect of the 2007 crash did reach north of the border, property owners in Scotland saw the smallest depreciation across the UK, at -7.4% (-£10,000).

With the current average house price, £143,033, only marginally higher than it was in 2007, the same decrease in 2017 would result in a similar drop in values, taking the average down to £132,449.

Across in Wales

When the last property bubble burst, Wales experienced the third lowest drop in house prices, behind the North East and Scotland. However, the 15% decline still caused £22,348 to be wiped off the average property value of £148,565.

The property market in Wales has struggled ever since, with the current average house price failing to reach the peak of 2007, at just £146,742.

As a result, it is the only region where a crash in 2017 would actually result in a lower monetary loss for property owners than in the previous crash. A 15% decrease today would see £22,011 taken off the value of the typical property, resulting in an average house price of £124,731.

The Founder and CEO of eMoov, Russell Quirk, comments: “Although the UK property market as a whole is faring very well, there are signs that the London market, particularly the prime central end, is running out of steam heading into 2017.

“Even so, it is unlikely that we will witness a market crash as monumental as the one we experienced a decade ago, so homeowners should rest assured that this research acts as a warning of what the worst case scenario might look like, with London homeowners losing £858 a week in property value.”

He cautions: “However, it is a warning nonetheless, and one that the majority of homeowners should heed. A turbulent year for the property market has seen many buyers and sellers back off from their sale or purchase, and baton down the hatches to wait out the storm.

“Whilst the market itself remains resolute, it will inevitably stutter to a halt without the buyer-seller activity it needs to operate. Those considering a sale now would be wise to act before it’s too late, as a reduction in asking price of a few hundred pounds in the current market climate is a lot easier to stomach than a loss of up to £80,000 a year or so down the line, should the market crash.”

Do you think that the London property bubble could burst this year?

Agent Believes Central London Housing Bubble has Already Burst

Published On: November 13, 2015 at 9:44 am

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After warnings of a London housing bubble forming, an estate agent believes that the central market has already burst.

WA Ellis reports that transaction levels in the prime central London sector dropped by 14% in the third quarter (Q3) of this year, compared to the same period last year.

Agent Believes Central London Housing Bubble has Already Burst

Agent Believes Central London Housing Bubble has Already Burst

However, despite stating that the rate of change is an improvement on Q1, when transaction fell at an annual rate of 27%, the bubble may have already burst.

The agent says that more than one third of homes in prime central London have experienced price declines.

WA Ellis, which operates in upmarket Knightsbridge and is part of JLL, has addressed concerns raised by banks that a housing bubble may form in London and spread out to other parts of the country.

Director of the firm, Richard Barber, explains: “It would appear that the bubble may already have burst in prime central London, but the effect is not as decimating as reports from UBS and Deutsche Bank suggest.

“The Government’s intervention in December 2014 by raising SDLT [Stamp Duty Land Tax] has indeed cooled the very top of the prime central London [PCL] market and the continuous upward spiral has been halted – 36% of all properties currently on the market across PCL are now being marketed at a lower price than they were originally listed at, with the average reduction in price being 8.5% of the original asking price.

“Continuous capital growth in any market is an unrealistic expectation. However, we believe that the correction has already happened and the above statistics bear this out. This is supported by the minimal growth that JLL are predicting over the next two years, with much of this being accounted for by the new build sector.”1 

Another London estate agent, Douglas & Gordon, says that stock levels have dropped annually, while demand is at its highest level for 12 months.

The company does not expect a surge in stock, despite growth in valuations activity, and its Director, Ed Mead, describes its pipeline as “bad but not disastrous”.

Mead believes that the fall in sales is not likely to pick up until next spring, and while the under offer pipeline is good, it is also very lengthy.

He comments: “The issue is the absurd length of time to get from agreed to exchange; well over 12 weeks, and this will extend into the New Year.

“Rentals are at their highest revenues ever, but the slack on sales will not be taken up until the spring.”

He says that its pipeline is “about where we’d expect in this market, still bad but not disastrous”, given a lack of supply and heightened demand.

Mead insists that the agency is “lucky”1 to have offices in the capital that are outside the prime central sector.

Douglas & Gordon’s Sales Director, George Franks, reports: “The sales market is treading water, as it has done for some time.

“Valuations are up 20%, although buyer sentiment indicates that a new tranche of stock is unlikely to be released until spring 2016.

“Sales agreed are soaring when we would expect them to be falling, further signalling an upbeat prognosis for the market returning to health in both value and volume towards the end of Q1 next year.

“As we approach the next Autumn Statement, Stamp Duty receipts are forecast to be half of what they were in the last figures, which will not only damage the Treasury’s coffers, but might well trigger a rethink of the swingeing SDLT reforms, implemented almost a year ago.”1

Winkworth, also a London estate agent, has expressed concerns.

Next year, it expects market conditions to be similar to this year’s, with central London continuing to be affected by high Stamp Duty costs and buyers deterred by this when considering what to buy.

However, it states: “We believe that this added burden will be progressively absorbed over the course of 2016 – albeit with fewer transactions – with the changes having little impact from 2017 onwards.”1 

1 http://www.propertyindustryeye.com/a-better-year-lies-ahead-says-london-agent-as-valuations-soar-20/

 

 

Housing Market Forecast for the Next Five Years

Published On: November 5, 2015 at 10:39 am

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Whether you’re a buy-to-let investor, a homeowner or an aspiring first time buyer, it is vital that you’re aware of the goings on in the property market. In the last few years, Britain has developed a housing crisis. So what’s going to happen next?

Housing Market Forecast for the Next Five Years

Housing Market Forecast for the Next Five Years

JLL’s Residential Research team has published its house price forecast for the next five years. It believes that next year, property prices will rise by 5% across the UK. For the next five years, it predicts growth to average between 3-5% per year.

The JLL report states that the strength of the UK economy will help the housing market move forward. It explains: “Improved employment and wage conditions, together with a more prosperous and secure outlook, will instil greater confidence in household finances.”

It says that this will cause more people to be able to buy their first home and encourage existing homeowners to move up the property ladder.

However, it adds that affordability will have a “dampening influence” on price growth and transaction levels. It also states that the Chinese financial crisis could provide an “external threat to the otherwise steady UK economic prognosis”.

Regarding transaction levels in the UK, it claims they will increase steadily from today’s figures, reaching 1.31m by 2019. Although this is an improvement on the last few years, it is still well below the 1.67m recorded in 2006.

“Importantly, construction levels should increase, helped by Government initiatives and a resurgent house building sector,” continues the study.

Although JLL expects construction levels to rise, shortages in the sector, including a lack of labour and materials, could halt progress. However, it predicts that English housing completions will increase to 160,000 per year by 2018, a significant improvement on recent years.

Despite this expected rise in construction, JLL warns: “We continue to build insufficient housing across the UK to meet growing demand, which ultimately leads to higher house prices and a situation where fewer and fewer people can afford to own.”

It points out that the Conservative Government’s recent Housing & Planning Bill is attempting to solve the housing crisis, but “plenty more needs to be done”1.

Additionally, the University of Lancaster has conducted research, titled the UK Housing Observatory, which states that London is on the edge of a housing bubble, which could spread out to the rest of the UK.

The report believes that a housing market bubble in London could burst in 2017.

It states: “Historical evidence suggests that phases of exuberant house prices are often followed by a sudden crash, leaving homebuyers with large mortgages and negative equity.”2 

1 http://residential.jll.co.uk/en-GB/new-residential-thinking-home/research/residential-forecast-report-building-foundations-november-2015.aspx

2 http://www.lancaster.ac.uk/lums/economics/research/housing/overview/

 

 

 

 

London Property Market at Risk of Becoming a Housing Bubble

Published On: October 30, 2015 at 12:03 pm

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London’s property market is at risk of becoming a housing bubble, according to a new report.

Global financial services firm UBS warns that based on previous experiences, the bubble is 95% likely to burst within three years, bringing house prices down by 30%.

London Property Market at Risk of Becoming a Housing Bubble

London Property Market at Risk of Becoming a Housing Bubble

The group states that London’s house prices are currently the most over-valued of any major city in the world.

It is one of two cities, the other being Hong Kong, where there is a risk of a bubble forming, says the UBS Real Estate Bubble Report.

The study analyses property prices in 15 major cities in the world. It believes that London risks a significant price correction, as house prices have decoupled from local incomes.

UBS reports that London is less affordable for local people to buy homes than anywhere else, except Hong Kong.

London has the second highest price-to-income (PI) – a calculation of the number of years a skilled service worker needs to work to be able to buy a 60 square metre flat near the city centre. In the capital, it would take 14 years.

London’s PI has reached an all-time high and is only behind Hong Kong’s.

Due to the capital’s cheap financing costs and “bullish expectations”, there is a real danger of the market decoupling from the whole economy, warns UBS.

The UBS’s index rates London at 1.88.

The study found that between 1985-2009, whenever the index exceeded 1, “a real price correction of an average 30% began within three years 95% of the time”1.

It expects London house prices to drop by more than 10% by the end of 2016.

UBS also believes that homes are over-valued in Sydney, Vancouver, San Francisco, Amsterdam, Geneva, Zurich, Paris, Frankfurt, Tokyo and Singapore. However, it found that prices are fair-valued in New York City and Boston, and properties in Chicago are under-valued.

Claudio Saputelli, Head of Global Real Estate at UBS, says that in the world’s leading financial centres, house prices are now “fundamentally unjustified”.

He adds: “While it is not always possible to prove conclusively the existence of a bubble, it remains essential to identify the signs of one early one.”1 

1 http://www.propertyindustryeye.com/bank-warns-that-londons-property-market-is-worlds-biggest-bubble/

Oil Prices and the Property Market

Published On: February 6, 2015 at 4:09 pm

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During housing bubbles, shocking statistics can prove just how bad things have become in the market.

In the 1980s, during Japan’s bubble, the land around the emperor’s palace in Tokyo was reportedly worth more than the whole state of California.

In Britain today, the value of London property is higher than Brazil’s GDP, says estate agent Savills.1

Now, people are wondering what will burst the housing bubble, and consequently how far prices will fall.

Foreign money

London house prices have been fuelled by foreign investment. Almost 70% of property sold in central London in the past few years has gone to residents outside of the UK. For the whole of London, this number is about 20%.1

The biggest group of buyers is said to come from Russia, with one in five property sales worth £10m or more coming from there.1

For those who are not British citizens, there is a generous tax system for buyers. For rich Russians, putting money into London may be favourable to keeping it in Moscow.

It is not just Russian’s buying into the market. The Eurozone crisis has brought a lot of money into the UK.

Oil Prices and the Property Market

Oil Prices and the Property Market

Oil prices

A lot of wealth driven by $100 per barrel oil has gone into the London property market.

With the decline of oil prices, there is a lot less money going around. Furthermore, President Putin is attempting to get Russians to bring their money back home. 

Additionally, Britain has also been made less of a safe haven for foreign investors, due to sanctions.

There has been a general sense of anger towards the area of London dominated by second homes, adding more pressure to tax wealthy and foreign property owners. Depending on the result of the general election in May, there may be a mansion tax introduction.

This is causing overseas buyers to think twice about property in the capital.

Quantitative easing

The London housing market could also experience pressure from the recent move from the European Central Bank’s (ECB) decision to introduce quantitative easing (QE).

Money Week’s John Stepek expects this to affect the value of the euro. The currency has already dropped against the sterling. However, JP Morgan’s Strategic Bond Fund’s Nicholas Gartside believes that it could decrease by a further 10%.1

This would make London homes more expensive for Eurozone buyers. Importantly, the ECB has also begun printing money. Signs of a wider recovery could see money leave London and go back into cheaper Eurozone assets.

Dropping prices

For now, interest rates seem likely to stay low. Also, whoever wins the election will need to keep prices high. The British housing market is considered too big to fail.

It is thought that UK property prices will remain the same as they are currently; particularly steady in London, and rising slightly outside of London.

Money Week’s Merryn Somerset Webb believes now to be a good time to downsize from the capital into the country.

However, this could be an idyllic viewpoint.

Rarely, overvalued markets remain static. They are more likely to jump from high to low.

Paul Hodges, demographics expert, predicts that prices could fall by a lot more, as much as 50%.1

1 http://moneyweek.com/the-oil-price-crash-and-european-qe-will-pop-londons-property-bubble/