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

[honk]

Let's hope so.

There is nothing more crushingly dull or terminally English then he who refers to their house price as some kind of index of their own personal wealth.

[snorky]

Obvuous question - I cant be arsed to google - how do you calculate yield here ? MY definition may be soemwhat simplistic ...

[markybwoy]

"'The UK's property market has a better chance of bouncing back before other countries because "we failed" to build enough houses, Gordon Brown has said"

What a load of cr#p!

There are 840,000 empty homes in the UK today, 4% of our total stock. If there was a shortage of homes, why is Paddington Basin pitch dark at night and why are the centres of Leeds, Birmingham and Manchester packed with blocks of empty unsaleable and unlettable flats?

The housing bubble has many causes, cheap credit, poor lending decisions, government forcing interest rates too low etc.

If you want to see where your house price is going, calculate the ED Median Multiple. Take the median household income in your area (of similar homes) and divide by median house price. The result should be about 3.

If you think you are "typical" in East Dulwich, multiply your annual salary before tax by 3 and that's the rough price range your home will be worth after the correction works itself out over the next 2 or 3 years.

In many areas of London, the MM is more than 5, meaning house prices in those areas will fall by 60% from their 2007 peak before the bubble is deflated.

Average house price yield since 1975 has been 2.4% a year, not the crazy 10-20% we have had in the years running up to the bust.

[local estate agent]

"Obvuous question - I cant be arsed to google - how do you calculate yield here ? MY definition may be soemwhat simplistic ..."

Rental Yield

Annual income (rent) divided by Price paid x 100

eg. buy a flat for ?250,000, and it rents ?1200

1200 x 12 = 14,400

14,400/250,000 = 0.0576

0.0576 x 100 = 5.76% yield

[Huguenot]

Nope, not good enough estate agent, I've seen worse but thats nuts. Where is cost of transaction accounted for?

[markybwoy]

Yes, that is the correct way to calculate yield and I expect that historically London yields have been higher than the wider UK average of the miserable 2.4% (that takes in some unpopular areas where the housing market does not work properly)

However, as Huguenot hints, your calculation does not include letting fees, maintenance, furniture, white goods, insurance, void periods.

Yields as well as multiples will return to approximately their historic averages, it is inevitable now the air pumping up the bubble has been taken away [abruptly].

[????]

or, to put it simply, Buy to let is fucked, as is "this is my pension" (aimed at your house). Marky I reckon your right a 50%ish fall and a long slow recovery (like Japan since the late 1980s) Mortgage holders could actually do with a bit of 70s style inflation...

[local estate agent]

The calculataion i provided is how to work out yield, costs on top of this will eat out your profits, but wont change the general yield.

Its just a simple way to work out basic figures.

[benmorg]

this 5 double bedroom house in East Dulwich just sold at auction for ?375,000:

http://www.auction.co.uk/residential/LotDetails.asp?A=545&MP=24&ID=545000025&S=C&O=A

It needs work and is not currently habitable (windows missing etc), but is structurally sound, has a new roof and a 50-foot garden and is a short walk from the station. Cost of work to refurb it probably ?75,000, so total cost around ?450,000. That's amazing for a house that would have achieved ?750,000 last year in top condition.

[serif]

Are you speaking from experience on the refurb front benmorg?

[Huguenot]

Hmmm, I picked up this definition... "the income produced by a financial investment, usually shown as a percentage of cost"

It seems that estate agents are being economical with their definition of cost, no?

You cannot establish yield on property without establishing the cost first, and it's underhand to limit this to the purchase price. On such corruptions are housing bubbles made...

[Jeremy]

I don't think that purchase price is as amazing as you're making out. For a start, that place would *never* have reached 750k - it's on a main road, and not a particularly smart road at that. It sold at auction, where prices are always significantly lower than regular purchase prices. And bear in mind that developers would expect to take a profit of tens of thousands (maybe 40-50k if they're lucky), after fees.

All in all, it's probably roughly in line with the 15% decline that the media have been reporting.

[local estate agent]

I have to agree with Jeremy.

[TJ]

The median multiple - does this really exist?? Surely the lack of consideration of previous assets in this means it is flawed? Surely - 3x salary is only applicable to houses where buyers have bought with a 100% mortgage.

If the 80% of the market who are remortgageing are to be considered, we have to remember they have some worth before taking out their new mortgage.

A 60% fall? - that's Daily Mail territory! Scare-mongering!

[EDOldie]

There were some bargains there today but overall people were paying a little less than they might have paid last year in line with the way prices have moved downwards over the last few months. I thought the Milton Road (Herne Hill) house for ?360K looked good, pretty house in a nice road.

[benmorg]

serif Wrote:

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

> Are you speaking from experience on the refurb

> front benmorg?

no, just an educated guess.

[benmorg]

Jeremy Wrote:

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

> I don't think that purchase price is as amazing as

> you're making out. For a start, that place would

> *never* have reached 750k - it's on a main road,

> and not a particularly smart road at that. It sold

> at auction, where prices are always significantly

> lower than regular purchase prices. And bear in

> mind that developers would expect to take a profit

> of tens of thousands (maybe 40-50k if they're

> lucky), after fees.

>

> All in all, it's probably roughly in line with the

> 15% decline that the media have been reporting.

true, it's a noisy road. what price do you think it would have fetched last year on the open market in top condition, with 5 double bedrooms and two bathrooms?

[benmorg]

EDOldie Wrote:

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

> There were some bargains there today but overall

> people were paying a little less than they might

> have paid last year in line with the way prices

> have moved downwards over the last few months. I

> thought the Milton Road (Herne Hill) house for

> ?360K looked good, pretty house in a nice road.

I think "a little less" is a bit of an understatement...

3-bed house in Landcroft road sold for ?241,000:

http://www.auction.co.uk/residential/LotDetails.asp?A=545&MP=125&ID=545000231&S=C&O=A

new build opposite the plough for ?100K:

http://www.auction.co.uk/residential/LotDetails.asp?A=545&MP=125&ID=545000102&S=C&O=A

5 double bed in ED grove for ?375K (above)

that's a lottle less than last year!

[EDOldie]

There were some bargains there today but overall people were paying a little less Is it me?

[lard]

Even a 15% drop in prices is pretty big as a first year downturn. I would say the biggest turn ever (ie to go from rising to downwards so quickly). It's funny how people's mindsets have already changed, from "it will never go down" to "it's gone down 15% in a year"...but to suggest a 60% drop you are still seen as "scaremongering".

As we see more hardship in the real economy we will see prices continue to fall, this is the bottom line.

Strange how a 60% drop is said to be "scaremongering" when the equivalent 250% or so rise was seen as totally normal. It is the psychology of "gaining" rather than "losing".

[Jeremy]

benmorg... I am of course guessing, but considering it's on an 'A' road with not-quite-so-smart properties surrounding it, maybe 650k or so, if it was in a good state?

I'm not denying that it was a good buy... but lots of people have got good deals at auction on run down properties over the years. I don't think we can take places like this as indicitive of the market.

[serif]

serif Wrote:

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

> Are you speaking from experience on the refurb

> front benmorg?

no, just an educated guess.

- that's a shame benmorg, I was hoping you would share your contacts - I've done several complete refurbs and ?75k is well below reality.

[benmorg]

serif Wrote:

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

> serif Wrote:

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

> -----

> > Are you speaking from experience on the refurb

> > front benmorg?

>

>

> no, just an educated guess.

>

> - that's a shame benmorg, I was hoping you would

> share your contacts - I've done several complete

> refurbs and ?75k is well below reality.

how much do you reckon it would cost to refurb a 5-bedroom house if you kept the existing layout (in this case preserving the house as two flats) and did no major building work, such as extensions or loft conversions?

the house on ED grove had four or five missing windows, but all window frames were sound timber. Plasterwork throughout was sound. No sign of subsidence or damage to brickwork. Roof was new.

[benmorg]

Jeremy Wrote:

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

> benmorg... I am of course guessing, but

> considering it's on an 'A' road with

> not-quite-so-smart properties surrounding it,

> maybe 650k or so, if it was in a good state?

>

> I'm not denying that it was a good buy... but lots

> of people have got good deals at auction on run

> down properties over the years. I don't think we

> can take places like this as indicitive of the

> market.

650 sounds about right. I'm not sure I agree that auction prices are generally bargains. During the boom people often bidded up auction properties to the same level as open-market prices or even higher. Now that the boom is over, auctions prices have fallen back substantially.

Yesterday's guardian had an interesting article about property auctions arguing that the prices currently being achieved are a leading indictor telling us where open-market values are heading:

http://www.guardian.co.uk/business/2008/oct/30/house-prices-mortgages-crunch-recession

Quote: "the 28.6% average price fall of homes sold at auction gives a true picture."

I'd suggest that the three ED houses mentioned above have sold for about this much below peak value and represent the true value of property in East Dulwich at the moment.

[serif]

I bow to your wisdom and your educated guesses benmorg.