Latest / Merryn Talks Money / Asking Prices vs Reality: The True State of the Housing Market

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Asking Prices vs Reality: The True State of the Housing Market · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
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  Speaker 2: Welcome to Merintonks Your Money, the personal finance edison of
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  Speaker 2: Merintalk's Money at Least Bonus podcasts. We talk about the
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  Speaker 2: best strategies for making the most of your money. I'm
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  Speaker 2: Merin sums At, web Editor at Large with Bloomberg UK Wealth.
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  Speaker 3: And I'm Joined Stabek, Senior report of Bloomberg and author
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  Speaker 3: of the word winning Money to Still newsletter. Hi John,
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  Speaker 3: Hi Mail.
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  Speaker 2: Do you know I think we should talk about house prices.
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  Speaker 2: We haven't done it for a while, and it is
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  Speaker 2: so important. And my eye was caught the beginning of
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  Speaker 2: this week by an article well across the board ever
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  Speaker 2: originally saying house prices up the most in January for
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  Speaker 2: twenty years, largest months of the highest rise in house
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  Speaker 2: prices since June twenty fifteen. I looked and I thought
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  Speaker 2: that seems incredibly unlikely, and then of course I realized
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  Speaker 2: that it was the right move numbers. And this has
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  Speaker 2: nothing to do with with prices going up or with
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  Speaker 2: with Paige prices going up. It's all about asking prices
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  Speaker 2: going up. So we're talking about asking prices in January
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  Speaker 2: going up two point eight percent, which just sounds like
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  Speaker 2: a reasonably big move until you look back until it
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  Speaker 2: went down in December and in November. So if you
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  Speaker 2: combine the fall in December and the rise in January
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  Speaker 2: so far, you end up with house prices up about
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  Speaker 2: zero point nine percent. And of course, as they say,
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  Speaker 2: asking prices, not the prices anyone is actually paying or
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  Speaker 2: I suspect prepared to pay.
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  Speaker 3: Yeah, I think the bast way you think about rate
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  Speaker 3: move is as a gage of kind of market sentiment
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  Speaker 3: at best, because I mean, like to be fear if
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  Speaker 3: you compare what rate move places do to all the
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  Speaker 3: actual host place and disease, then they do generally follow
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  Speaker 3: this same kind of trend, which I just previously surprised
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  Speaker 3: me about because obviously this is the most optimistic take
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  Speaker 3: you can possibly get on house prices. But even so,
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  Speaker 3: it's also it's quite like this jump is clearly because
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  Speaker 3: everyone was so gloomy ahead of the budget and had
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  Speaker 3: basically decided not to do anything up until Christmas was done.
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  Speaker 3: So it's just a more extravagant New Year bounds than
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  Speaker 3: we normally get.
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  Speaker 2: You always get a rise in asking prices in January,
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  Speaker 2: don't you, because that's when everyone starts looking at me Christmas,
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  Speaker 2: New Year, new mean new house. Suddenly asking prices go
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  Speaker 2: up and you get a lot more activity on the
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  Speaker 2: housing websites, et cetera.
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  Speaker 3: Yeah, there are reasons, I guess for people to be
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  Speaker 3: a little bit more optimistic on house prices this year,
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  Speaker 3: or rather there's one reason, and that's the interest rates
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  Speaker 3: are slowly coming down. If you look at mortgage rates,
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  Speaker 3: they're basically the lowest they've been since September twenty twenty two,
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  Speaker 3: and interest rates shooting up. So now I was just
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  Speaker 3: checking kind of mortgage best buys this morning, and you're
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  Speaker 3: talking about you can get a kind of if you've
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  Speaker 3: got a big deposit, you can now get a two
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  Speaker 3: year effects under three point seven percent. And if you
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  Speaker 3: don't have much equity in your home, you can still
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  Speaker 3: get you know, a kind of ninety percent loan I
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  Speaker 3: value remortgage five year efects for about four point three percent.
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  Speaker 3: You can get it for under four percent, and that
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  Speaker 3: is a big, big drop compared to the you know,
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  Speaker 3: the worst that they can apeak after the interest rates
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  Speaker 3: shot up after the mini budget, et cetera, et cetera.
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  Speaker 3: So they definitely have been coming down and they may
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  Speaker 3: come down a bit more. And one thing that really
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  Speaker 3: does dictate house prices on average more than anything else
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  Speaker 3: is where interest rates are.
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  Speaker 2: And this is interesting, isn't it. I mean, let's go
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  Speaker 2: back back to last year, which was bad, bad for
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  Speaker 2: a lot of people. Actually, there was a survey from
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  Speaker 2: Hampton's out earlier in the month which showed that in
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  Speaker 2: twenty twenty five, fifteen percent of Londoners fifteen pounds of
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  Speaker 2: people who sold houses in London sold for less than
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  Speaker 2: they initially paid. And the average across the country is
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  Speaker 2: about nine percent. And I think those numbers, even those
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  Speaker 2: numbers would shock a lot of people who for years
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  Speaker 2: have believed that house prices only go up, that this
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  Speaker 2: is a safe thing to do. You can buy a house,
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  Speaker 2: you can buy a flat, even if it's a new build,
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  Speaker 2: and you know you and I've railed against buying new
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  Speaker 2: bills for a long time on the basis that you
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  Speaker 2: buy with a massive premium, sort of sixteen percent or so,
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  Speaker 2: depending on where and how you buy what type of property.
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  Speaker 2: But it's around sixteen percent premium to a second town house.
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  Speaker 2: So the second you walk in the door, its value
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  Speaker 2: has fallen. You need very fast rising house prices to
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  Speaker 2: compensate you for not just that premium but also the
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  Speaker 2: costs of moving. So most people would think that if
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  Speaker 2: they sit there for a couple of years, the price
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  Speaker 2: is going to go up enough that they can get
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  Speaker 2: out at the very minimum evens. And of course that
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  Speaker 2: is we are finding again and again it is not happening.
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  Speaker 2: So this idea that it's becoming fairly common to sell
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  Speaker 2: well below the price you paid it was a bit
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  Speaker 2: of a shock last year and the year before for people.
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  Speaker 3: Wasn't it. Yeah, definitely, I thinkim I mean I think
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  Speaker 3: a lot of people if a Moyst don't actually realize
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  Speaker 3: that you pay a new bill premium the same as
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  Speaker 3: you pay a new car premium. So I think that
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  Speaker 3: that actually comes as a surprise to a lot of people.
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  Speaker 3: But also, yeah, the idea that you could have bought
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  Speaker 3: a flat or a house in London, mainly a flat
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  Speaker 3: in twenty fifteen and then actually have sold it for
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  Speaker 3: below the nominal price that you paid forget about.
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  Speaker 2: Inflation, not the rail price.
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  Speaker 3: Yeah, yeah, I mean I'm not surprised that shocked a
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  Speaker 3: lot of people. I think. The other interesting thing though,
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  Speaker 3: is that it's weird because we've been moaning, or the
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  Speaker 3: country in general has been moaning about ridiculously high house
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  Speaker 3: prices for a very long time now. But the other
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  Speaker 3: issue with London is that I don't think enough attention
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  Speaker 3: was paid to the fact that after two thousand and eight,
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  Speaker 3: really it was only London in the southeast England that
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  Speaker 3: actually recovered sharply and then went on to higher highs.
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  Speaker 3: Pretty much the rest of the country never did that.
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  Speaker 3: And so I guess north north of the m twenty
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  Speaker 3: five house prices last year went up are bet and
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  Speaker 3: particularly the kind of the areas, The areas with the
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  Speaker 3: lowest prices have seen the biggest gains. So the northwest
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  Speaker 3: of England, for example, was up about five percent is
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  Speaker 3: and so an awful lot. This is is really just
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  Speaker 3: closing the gap between the two because London had a
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  Speaker 3: lot of factors after the financial crisis that really did
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  Speaker 3: see well, a lot of global interest because lots of
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  Speaker 3: global money was flowing in to escape from other parts
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  Speaker 3: of the world, and that kind of ran out of
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  Speaker 3: steaming about twenty fourteen.
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  Speaker 2: And it's flowing out at speed now, isn't it.
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  Speaker 3: Yeah two from us, Yeah, and that's probably a big
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  Speaker 3: driver to London too.
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  Speaker 2: Now, the other relevant thing to say on the matter
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  Speaker 2: of London and elsewhere is this business of flats and houses.
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  Speaker 2: So London obviously, like all big cities, has a big
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  Speaker 2: concentration of flats. Over the last decade, the price of
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  Speaker 2: flats has gone up significantly less than that of houses
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  Speaker 2: across the boat, so eighteen percent, this is about forty percent,
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  Speaker 2: and that the folds and prices in flats are particularly
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  Speaker 2: new Bilk flats down to this well, the cladding problem,
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  Speaker 2: the service charge problem, all those ridiculous businesses of escalating
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  Speaker 2: ground rents, et cetera, et cetera. All those things have
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  Speaker 2: really hit the price of flats. And if you look
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  Speaker 2: at people talking about whether they would buy a flat
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  Speaker 2: or not, a lot of nervousness around the fact that
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  Speaker 2: a flat can be a liability not an asset. Now
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  Speaker 2: then you they've been built, the more likely they are
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  Speaker 2: to be a liability because of these service charges, the
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  Speaker 2: rising service charges, the cost of common areas, costs of
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  Speaker 2: you know, gardens, around cost of roads in some places
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  Speaker 2: because they're part of the estate as a part of
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  Speaker 2: the council's responsibility. I remember the shock you had when
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  Speaker 2: we when we did remember when we did our series
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  Speaker 2: on property, how horrified you were to find out what
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  Speaker 2: these things cost. Right, So that stuff makes an awful
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  Speaker 2: lot of apartments flats into interliabilities as opposed to assets,
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  Speaker 2: which makes the difference.
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  Speaker 3: Yeah, that's mass. And I think the problem is the
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  Speaker 3: more that that story is told, the more suspicious people
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  Speaker 3: become flats in general. And it's and also it's not
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  Speaker 3: just that, I mean, lenders are very cautious about lending
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  Speaker 3: at certain properties now kind of that suffer from precisely
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  Speaker 3: those problems. So I know, it's interesting because I think
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  Speaker 3: that I do think one of the big things that's
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  Speaker 3: happened since twenty twenty two to a great extent, is
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  Speaker 3: there's been a real dive vergence in the whole property
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  Speaker 3: market has fragmented in the way that we hadn't been
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  Speaker 3: used to for a while. And so you've got this
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  Speaker 3: thing where I mean, even when we're talking about prices
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  Speaker 3: in London falling, what we're really talking about is prices
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  Speaker 3: of London flats falling. And also the very prime central
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  Speaker 3: len the really expensive stuff has fallen a lot because
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  Speaker 3: there are a few of those buyers but kind of
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  Speaker 3: bog standard lending Ish houses have probably not dropped extravagantly.
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  Speaker 3: It's probably just a bit again. You know, if you're
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  Speaker 3: talking about from an investment point of view, it'd be
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  Speaker 3: terrible because you know, inflation wise, they have all fallen
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  Speaker 3: across the UK. But I think we we're talking about
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  Speaker 3: nominal price crashes then that's mostly dodgy unsaleable flats rather
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  Speaker 3: than anything else.
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  Speaker 2: Pretty Much all predictions this year have house prices going
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  Speaker 2: up one three and a half percent. That can arrange,
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  Speaker 2: so presumably relatively flat in inflation adjusted terms. Right, And
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  Speaker 2: when we have looked at house prices over the laster
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  Speaker 2: twenty thirty years, we always look at it in terms
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  Speaker 2: of interest rates. And we've said over and over and
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  Speaker 2: over again, you can go on about supply and demand
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  Speaker 2: as much as you like. I know everyone wants a house,
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  Speaker 2: but demand is not real unless you can actually afford
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  Speaker 2: to pay the price. And the more that interest rates fall,
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  Speaker 2: the more people are going to afford to pay the price,
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  Speaker 2: and that's what postes house price up. It's the price
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  Speaker 2: of money as opposed to anything else. But I guess
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  Speaker 2: more complicated in the UK now, because I mean not
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  Speaker 2: more complicated, it's still about what you can afford. But
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  Speaker 2: there are so many different streams of taxation that come
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  Speaker 2: with a house, particularly coming with a second home and
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  Speaker 2: with a where a bite to let, etc. So there's
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  Speaker 2: lots of avenues to house purchase that used to be
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  Speaker 2: less expensive in terms of regular demands than they used
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  Speaker 2: to be. So there's the double council taxes and you know,
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  Speaker 2: all this kind of thing. And then at the same
• 10:26
  Speaker 2: time we have there's these restraints on incomes. So we
• 10:30
  Speaker 2: have and we've talked about the student loans before and
• 10:32
  Speaker 2: the extraordinary here that people take with student loans, and
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  Speaker 2: the fact that incomes have barely risen in real terms
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  Speaker 2: in the UK in the last decade. All these things
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  Speaker 2: kind of conflate together to me to say that even
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  Speaker 2: if interest rates do come off now do continue to
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  Speaker 2: come off, and mortgages are slightly cheaper than they were,
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  Speaker 2: they're still very significantly more expensive than they were before
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  Speaker 2: interest rates started to go up. So it's difficult for
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  Speaker 2: me to see anything happening rather than at best at
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  Speaker 2: best or a first time buy let's say that was
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  Speaker 2: the house prices saying flat in real terms at least.
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  Speaker 3: I mean, I think that's true. I find it hard
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  Speaker 3: to disagree with that, and I think all the points
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  Speaker 3: about higher taxes, you know, in the kind of graduate
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  Speaker 3: tax and all that sort of stuff are absolutely true.
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  Speaker 3: I mean, I guess one thing where I think this
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  Speaker 3: shows itself is the fact that the further north in
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  Speaker 3: the country that you go, and also presumably the further
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  Speaker 3: out from Edinburgh that you go in Scotland, for example,
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  Speaker 3: the more competition that is for houses that are still affordable.
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  Speaker 3: And that does make me wonder if people are actually
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  Speaker 3: just ending up paying more and getting less house these
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  Speaker 3: days than they used to, because basically you've got a
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  Speaker 3: whole section of houses that are no longer affordable because
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  Speaker 3: you simply can't get the mortgage for them, and you've
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  Speaker 3: got this other category of houses where the competition has
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  Speaker 3: actually gone up because a lot of people have mentally
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  Speaker 3: traded down and it's like, well, okay, I don't need
• 12:01
  Speaker 3: a third bedroom. We can cram all the kids into
• 12:03
  Speaker 3: one bedroom and we will speak in the other bedroom
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  Speaker 3: type of thinking, because that's what you you need a house.
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  Speaker 3: You want a house. It's not as if rents have
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  Speaker 3: been particularly cheap falling. Now.
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  Speaker 2: Rent fell last year, John Rent fell last year in
• 12:17
  Speaker 2: a long time, very mildly, but they did for well.
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  Speaker 3: The other interesting but that is that's to do with migration,
• 12:22
  Speaker 3: going back to going back to the pre COVID levels.
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  Speaker 2: Is it though? I mean, you know that the population
• 12:28
  Speaker 2: of the UK is still rose sharply last year. I
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  Speaker 2: mean it rose, yeah, less than it did the year before,
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  Speaker 2: but still we're looking an enormous number of new people
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  Speaker 2: pouring into the UK.
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  Speaker 3: I said, it can't be justice, Yeah, but it was.
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  Speaker 3: Didn't we see how didn't we see a study that
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  Speaker 3: it flagged up that it was the kind of record
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  Speaker 3: levels immigration that driven it up in the first place,
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  Speaker 3: and then there's a pressure off that mmmmmm. I mean,
• 12:51
  Speaker 3: I'm not sure. I'd like to look into that in
• 12:52
  Speaker 3: more detail, but I thought that was actually quite convincing
• 12:56
  Speaker 3: and that's howpened. Yeah, I'm not I'm absolutely not saying
• 12:58
  Speaker 3: that migration has has has reversed more.
• 13:02
  Speaker 2: But you're right, Yeah, there was this very interesting study
• 13:05
  Speaker 2: that well, not interesting because it was perfetly obvious, but
• 13:07
  Speaker 2: last year is showing that high levels of immigration effect
• 13:11
  Speaker 2: rents much more than they do house prices, obviously, because
• 13:13
  Speaker 2: new immigrants aren't necessarily competing to buy houses, but they're
• 13:16
  Speaker 2: definitely competing to rent them, so it has a major
• 13:18
  Speaker 2: effect on rents, but not nicely prices. Yeah, well, there's
• 13:22
  Speaker 2: two more things I wanted to pick up on the
• 13:23
  Speaker 2: subject then. The first is that this isn't just us right.
• 13:28
  Speaker 2: Their house prices have had a difficult time in all
• 13:30
  Speaker 2: sorts of places that are slightly similar to the UK,
• 13:32
  Speaker 2: so Canada, New Zealand, exec I've all seen something very
• 13:35
  Speaker 2: very similar flathouse prices or falling house prices last year.
• 13:39
  Speaker 2: And also there's an interesting thing going on in Canada
• 13:42
  Speaker 2: where there are an awful lot of funds technically open
• 13:45
  Speaker 2: ended funds that invest in housing, and they are beginning
• 13:49
  Speaker 2: to be closed because they're that classic problem, classic problem,
• 13:54
  Speaker 2: right of putting illiquid assets into a fund, telling people
• 13:59
  Speaker 2: that it's liquid they can withdraw the money whenever they like,
• 14:02
  Speaker 2: finding out that suddenly the market seizes up, prices start
• 14:05
  Speaker 2: to fall, volumes on what they were. You can't sell
• 14:08
  Speaker 2: the stuff at the price that you said you can
• 14:10
  Speaker 2: sell the stuff to provide their liquidity, So what do
• 14:12
  Speaker 2: you do. You're close the thing. So that is happening
• 14:15
  Speaker 2: there and it's yet another warning, should anyone need another
• 14:19
  Speaker 2: not to tell people that ill liquid assets can provide liquidity,
• 14:25
  Speaker 2: because they just can't, and we haven't had that much
• 14:28
  Speaker 2: of that here, or that we have some.
• 14:30
  Speaker 3: I was amazed to learn that those things were still
• 14:33
  Speaker 3: on the goal in Canada.
• 14:35
  Speaker 2: I know, because.
• 14:37
  Speaker 3: You know Breton did it twice and eventually they died
• 14:41
  Speaker 3: off after they shuttled postbags that haven't been shut up
• 14:46
  Speaker 3: in the GFC. And it was always obvious that it
• 14:49
  Speaker 3: was a stupid structure.
• 14:51
  Speaker 2: I mean Mark Cannie even warned against.
• 14:53
  Speaker 3: We have in all these regulators.
• 14:55
  Speaker 2: Well yes, as I say, Mark Conney warned against it,
• 14:57
  Speaker 2: and look where we are, Look where we are. So
• 15:02
  Speaker 2: that was one thing I wanted to point out that
• 15:03
  Speaker 2: you know, if you think this isn't about interest rates,
• 15:06
  Speaker 2: look everywhere else that that has the same dynamic it is.
• 15:09
  Speaker 2: And the other thing I wanted to mention, which is
• 15:11
  Speaker 2: not quite about house prices, but it's relevant to what
• 15:13
  Speaker 2: we were talking about earlier, because of course house prices are,
• 15:16
  Speaker 2: as we say, relative to what people can afford to pay.
• 15:19
  Speaker 2: You were pointing out on Twitter this morning that UK
• 15:23
  Speaker 2: productivity is soaring, and that you and I just discussed
• 15:26
  Speaker 2: this over and over and over again. Saying, you know previously,
• 15:30
  Speaker 2: if you heavily subsidize wages and wages are very low,
• 15:33
  Speaker 2: how can you expect to have a productivity revolution. You
• 15:35
  Speaker 2: can't if labor is cheaper than investing in increasing productivity
• 15:40
  Speaker 2: via capital expenditure, machines, et cetera, et cetera. But if
• 15:43
  Speaker 2: you put up the minimum wage and you've vastly increased
• 15:46
  Speaker 2: the cost of employment, might you drive a productivity revolution.
• 15:50
  Speaker 2: We've been wondering about this. Maybe this is happening, But
• 15:54
  Speaker 2: of course, the problem with this is that if the
• 15:57
  Speaker 2: productivity revolution is by a sharp rise in the cost
• 16:02
  Speaker 2: of employing people, the productivity is compensating for the cost
• 16:06
  Speaker 2: of employment, it's not available as rising amounts of cash
• 16:10
  Speaker 2: to pay out to people an income yep, which is
• 16:14
  Speaker 2: a problem. Which is a problem because a productivity revolution
• 16:17
  Speaker 2: should lead to higher incomes for people, right, that's what's
• 16:21
  Speaker 2: supposed to happen.
• 16:22
  Speaker 3: Yeah, it's not good anyway.
• 16:25
  Speaker 2: So that's an add to our list of I mean,
• 16:27
  Speaker 2: I'm always thrilled to ze productivity rising, but what I
• 16:29
  Speaker 2: can't see is the transmission mechanism right now to people's
• 16:33
  Speaker 2: living standards. Although that may come.
• 16:34
  Speaker 3: Well, I guess the problem is so productivity is doing
• 16:37
  Speaker 3: more with less, but what's happening is that these companies
• 16:40
  Speaker 3: are either getting shut down and therefore like productivity is
• 16:45
  Speaker 3: going up because there are fewer work kills doing the
• 16:48
  Speaker 3: same amount of work. But it's not because it's because
• 16:51
  Speaker 3: either you know, those things we have been running efficiently
• 16:54
  Speaker 3: in the first place, or it's because it's a kind
• 16:57
  Speaker 3: of short term thing whereby your your over burdening your workers,
• 17:02
  Speaker 3: you're reducing the quality of the service. So actually it's
• 17:04
  Speaker 3: just a it's a productivity illusion because what's actually happening
• 17:09
  Speaker 3: is your stockpile on a whole loaded problems for probably
• 17:12
  Speaker 3: the next six months. You know, that's obviously a big issue.
• 17:16
  Speaker 3: We measured productivity and a service related economy anyway. But
• 17:20
  Speaker 3: I mean the other interesting is I think productivity has
• 17:23
  Speaker 3: also gone up in the US recently, and part of
• 17:27
  Speaker 3: this may also just be a kind of post COVID thing,
• 17:32
  Speaker 3: you know, like COVID basically the whole Python and the
• 17:36
  Speaker 3: pig analogy, where the pig moves through the python steadily,
• 17:40
  Speaker 3: and you know it did it with the supplying demand
• 17:42
  Speaker 3: of goods. It's probably done it with the supplying demand
• 17:45
  Speaker 3: of jobs. As well, because companies have arguably arguably been
• 17:49
  Speaker 3: holding labor up until maybe the last year or so.
• 17:53
  Speaker 3: So I definitely think that Rachel Reeves is driving up
• 17:56
  Speaker 3: the cost of employing people will not have helped on
• 17:58
  Speaker 3: that front. I think there was pro probably a natural
• 18:01
  Speaker 3: unwind waiting to happen anyway, much the same way as
• 18:04
  Speaker 3: no interest rates are going up globally and that's why
• 18:06
  Speaker 3: the house prices. So I think it'll be interesting to
• 18:09
  Speaker 3: see what's going on in other countries and how long
• 18:12
  Speaker 3: this productivity subje actually lasts.
• 18:15
  Speaker 2: Yeah, okay, so house prices over the next year. Should
• 18:18
  Speaker 2: people go out and buy a house now bargains to
• 18:19
  Speaker 2: be had.
• 18:20
  Speaker 3: And only if they need one? On the investment well, yeah,
• 18:25
  Speaker 3: well this is it. If you want to move house
• 18:27
  Speaker 3: or you don't own a house, then sure, buy a house.
• 18:29
  Speaker 3: Just make sure you can afford it. Blah blah blah
• 18:31
  Speaker 3: and bargain. Yeah, investment side loan. I mean, it's been
• 18:36
  Speaker 3: a long time since I thought buying a property for
• 18:39
  Speaker 3: an investment was a good idea, and I don't see
• 18:41
  Speaker 3: that changing. You know, I could be wrong, but I
• 18:46
  Speaker 3: you know, it's not something of all the opportunities out
• 18:49
  Speaker 3: there That's not one I'd be looking for at the moment.
• 18:52
  Speaker 3: No me to be honest.
• 18:53
  Speaker 2: Thanks Jim, thanks for listening to this week's Mary and
• 19:02
  Speaker 2: Talk to Your Money. If you'd like u show, rate, review,
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• 19:06
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• 19:08
  Speaker 2: and John Underscore STEPK. This episode was produced by Summersadi
• 19:12
  Speaker 2: and Moses and Questions and comments and suggestions on this
• 19:15
  Speaker 2: show and all our shows are always welcome. Our show
• 19:18
  Speaker 2: email is Merry Money at Bloomberg dot net.