Ephraim Bubble Blower

If the likely path of interest rates has moved higher, then wouldn't a rational potential homebuyer move quicker now than he would have done before Thursday to lock in a rate today which might be higher again in the future. It's a little paradoxical but the US housing market had its steepest climb when rates were clearly on an upward path month-after-month. It is now beginning to slow markedly despite the fact the Fed is 'almost done.'

I was brought up in Enfield - clearly one needs to distinguish between the nice areas that might retain their value (Brookmans Park) and the poor areas (Edmonton). However the big paradox given the price rises I've seen is that once prices reach a certain level then those developments aimed at 'city professionals' can only appeal to the types of people (high-earners) who wouldn't dream of living in Edmonton or similar. A prime example, admittedly in more salubrious Enfield, is the Tower Point development - I recall over three years ago viewing a two-bed for £250k - any sensible borrower would not buy it unless they were earning say £60k pa, and most people on this type of money who might contemplate buying there are either a) young professionals keener to live in Islington than Enfield, or young families who all other things being equal, would rather have a garden for the same money. Luckily (for him), I advised a friend not to buy in that particular development and I don't think he regrets it.

you'd be pleased if you'd paid £750k for one wouldn't you? it is really terrifying. I live in Manhattan and for that sort of money (call it $1.3m) you could get a nice 2-bed or exceptionally nice 1-bed bang in the centre of a thriving metropolis as opposed to bang in the centre of North Finchley surrounded by kebab shops (and Manhattan is not cheap believe me).

I've lost count of the number of intelligent informed people who have told me that the UK market has flattened (not fallen) and that it has even begun rising again. It seems the media and vested interests' spin has worked its magic for now. Given that this general sentiment that the crash didn't occur (true) but also won't occur (perhaps untrue), will inevitably delay the adjustment process even further. It all makes me worry that in the absence of a clear exogenous shock which the average man on the street can understand eg. interest rate rises, war etc.. then we will be in for years if not decades of false starts awaiting a crash because the public's biases and misunderstandings are too well-entrenched.

Like you, I'd be very cynical about the real crime situation and the extent of true improvements in education and healthcare outcomes. Anecdotally, and speaking as someone who has lived in New York for the past two years, on my returns to the UK I always note the general feeling of impending violence which I never feel in the US, despite their obviously higher official crime rates. You rarely run the risk of walking past a pub/bar and stumbling across a load of drunk lads looking for trouble.

I agree but it is only via the consumption of goods that 'quality of life' has increased, but all the non-financial aspects of 'quality of life' have got nothing but worse in my view.

I firmly believe that the house price bubble has not helped the economy fundamentally, and has instead produced distortions and imbalances which will become apparent in due course. However, it has clearly given many ill-advised homeowners the 'perception' that it has been good for them, and has encouraged them to take on more debt than they should, and to enjoy a lifestyle which the good old fashioned virtues of earning and saving would never have given them. I am genuinely concerned that despite the above, and despite some 70 or 80% of the country's adult population being homeowners, the bubble has not coincided with an improvement in the 'quality of life' factors which can make or break communities. Instead, the bubble has coincided with the rise of the 'chav' and the ASBO, increases in violent crime, a media that glamourises 'bling' and demonises more productive endeavours, and a general sense that a lack of respect pervades the UK. So here is my point - how BAD would it get if the house price bubble burst? I'm genuinely fearful that the country could become essentially lawless (to many people it already feels this way - witness pointless murders of mild-mannered solicitors in London streets). Picture that nightmarish family that owns the house across the road from your rented flat? Now picture them in negative equity, red bills scattered over the doorstep and bailiffs on their trail. I consider myself essentially 'neutral' on the housing market from a financial standpoint. If prices keep rising, then yields will keep falling and I will be better off renting and saving the difference. But if they fall, an outcome that most visitors to this site are hoping for, then I question whether we would really be 'winners' in any sense? We may not have the bailiffs on our trail, but we don't live in a vacuum and the circumstances of the rest of the community and their reaction to it will affect us all, invariably in a negative way.

I'm sorry but what you've written is categorically untrue. Every recent recession has indeed been preceded by an inverted yield curve, but not every inverted yield curve has been followed by a recession. That is a subtle but important difference.

I returned to the UK (from the US) over Xmas and was hoping to get some very negative vibes from friends about the current state of the housing market. Instead I was somewhat taken aback by the degree to which people are still doing anything to get onto the housing ladder, quoting the usual 'affordability' argument alongside the 'rent is dead money' argument. Indeed with regard to the latter, despite me laying out in easily understood terms how in the context of a flat (or falling) market, and low rental yields, a renter 'saves' quicker than a homebuyer on a repayment mortgage, they still look at you like you're crazy. It really hammered home to me how far off the crash will be because a major sentiment change is required in my view before it can properly unravel. Interestingly, I also chatted to a couple of friends who (with hindsight) sensibly bought in 1998 and have since both moved up the ladder once. However they both moaned to me about how, despite having a lot of equity (on paper), they were unable to move onto the next rung in order to accomodate their recent new arrivals. For them, being on the ladder was a poisoned chalice since now they were stuck - it makes you wonder why they bothered. Of course what they should do (in my view) is to sell-to-rent, stick the equity in the bank, wait for a correction and then move smoothly onto the next rung with plenty of cash to spare. However in light of the mania that 'being on the ladder' generates, they are rightly concerned they'll never get back onto it again. I couldn't help thinking on my return that my hopes of returning to the UK in the next 3-4 years would see us immediately leapfrog the usual first-time buyers and buy heavily discounted property, are likely to be dashed. I was also disillusioned to read that Capital Economics had adjusted their forecast and now see virtually no nominal falls in house prices - in this context, what hope do us bears have?

Have lived in New York for the past two years, and have not missed the UK in the slightest. Unfortunately my wife doesn't feel the same which implies we will have to head back to the UK at some point. There is genuinely nothing that would take me back if I was single.

As I pointed out in my blog, http://investedinterests2005.blogspot.com one would be more inclined to believe the Halifax or Nationwide figures if they weren't being quoted in the context of such dire retail sales. If consumers are not stretched, they are certainly not spending the excess in the shops. One of them has to be wrong - either the retail figures are better than quoted, or the housing market activity/prices are worse. My inclination is that it's the latter given there are fewer flaws in the former, and many are quoted to the Stock Exchange.

The US has been roughly a year behind the UK and Australia in experiencing a slowdown, but today's stats suggest they will not and have not escaped the inevitable downturn.

Thanks to having attended the same college as Charles Bean (Chief Economist at the Bank of England), I was invited to attend a private talk at the Bank of England a couple of years ago, at the peak of the bubble. At the post-talk cocktail party, fuelled by a few too many dry white wines, I decided it was high time Prof Bean heard my rather lengthy spiel on the housing market (as the link in my signature below shows, I have quite a few views on the topic). He listened politely, occasionally (but usually unsuccessfully) stopping me in full flow to give opposing arguments, but eventually realised I was determined to get through my full speech. At the end, he said 'thanks', finished his drink and walked out, thus depriving fellow attendees of their chance to spend quality time with him. A minor victory for the bears I think. Footnote: his main argument was that although homeowner incomes/cashflows may come under pressure as the result of too much debt and rising interest rates, their balance sheets were in 'great shape' thanks to rising house prices. I pointed out that these two things were not uncorrelated and would be expected to get worse at the same time. He looked at me like I was mad. Should we assume the people making vital monetary policy decisions know what they're doing?

thanks - if you have a login, feel free to tell them I don't have a particular vested interest - I am very happily living in the US, whilst all my friends/family are homeowners and I've no desire to see them in trouble.

I've sent it to plenty of intelligent homeowning friends who tend to agree with the analysis but not the conclusion. They argue that I underestimate the extra value homeowners place on the fact that it is their own home (as opposed to a landlord's). They argue that it needs a catalyst to crash and there isn't one in sight. They argue that buy-to-let isn't a large enough part of the market to cause a large negative correction. etc. etc. etc.. I would be more than happy to write a report arguing the exact opposite - then people could read both and decide which side they fall on. It wouldn't be easy and the report wouldn't be very long, but I am aware of the arguments against what I'm saying (indeed, if you read the report you will see that on many occasions I argued in favour of the initial rises being above trend, and the structural traits of the market that may prevent a rapid correction). I suspect more bullish sites wouldn't welcome someone coming on and posting my commentary? It's a shame because having a balanced view and an awareness of the bearish arguments would be helpful. Us bears have had to put up with bullish spin in the media for a decade, so we are very aware of our counter-arguments.