How Long Will This Bull Trap Last

[Timm]

I think the DC Bounce will be over before the summer is gone, but as for the specific TURN date, I am watching UK homebuilding stocks to give me an early warning for the Turn. So for those who want to get advance notice of the turn, I would say:

"BUILDERS - need watching"

The others are still holding up, but I note that...

Berkeley Group (BKG) ... update

...has slipped back below its 252d.MA. This shouldnt be happening if the property Low is now in place..

I would expect to see it back up above 900p very soon, but if it slips lower, that would be an early sign that the DC Bounce may be losing its momentum soon.

Bubb: Be carefull of assuming that the market knows more than you. It may, but it may know different.

The Valuation Office recently guesstimated me that land prices in my area had fallen close to 50% and developer margins were up. It does not take much of a bounce to reverse that fall in landowner expectations and destroy that gain in margin. Result: collapse in share price.

And yet that would be on the back of a rise in GDV.

[Redcellar]

However, this does not alter the underlying problem, namely that:

1. Unemployment is rising.

2. Houses are too expensive, both for FTB's and BTL's, who supported the last boom.

3. House price multiples of income are still way above the historic 3.5.

4. First time buyers cannot afford a house.

5. The banks are basically bankrupt.

6. Mortgages cannot now be packaged and sold off.

7. Markets virtually never fall in a straight line, which is why forcasting is so difficult.

8. According to Elliot Wave Analysis, a classical Bear Market is a typical 1,2,3 Wave, with Wave 2 in a bear market as a bear market rally. I believe we are now seeing wave 2 in the stock market, and the housing market.

9. If I am correct about Wave 2, the next Wave 3 will be a massive crash.

10. Warning: Elliot Wave analysis is extremely difficult, in allocating exact waves ( sadly) so please do not put to much credence on the Elliot Wave analysis!

Your points are correct and make this a unique crash compared with previous ones. Number 6 in particular and cannot be argued with. It allowed multiples to exceed 3.5 as it was effectively pooling investment into mortgages and a feeding frenzy with poor loan controls ensued. As I've said many times before, this is gone forever. So now money will seem short for quite some time as we have returned to a classical model of banks needing to raise cash through other means, which includes good old fashioned deposits.

Correct me if I am wrong but cash is always much harder to come by and once you've whored it out, sorry I mean loaned it, then you have nothing left to trade. So the banks are in no rush to loan what little they have and they are chosing to be picky and make every cent count. The competition is no longer between the banks but between the mortgage holders begging for the loan. The tide has turned and that also means the market has shifted towards a downward trend to multipliers that could well drop below 3.5. Work out the average house price on that anyone!

Add in unemployment, feel 'bad' factor, imminent increase in interest rates with no increase in salaries, increase in cost of living, excess housing stock in particular sectors, cheap build houses (the wooden frame new build ones). It all adds up to 'negative' quite literally! Doom and gloom I am afraid and I'd like to see people put a spin on that.

[D179]

Well I am glad I didn't sell to you!!! I don't agree with either party re-negotiating that late in the process. It is a stressful enough process anyway without that cr@p. Why not just negotiate the price you think is right at the beginning.

Say I offer now on something which is accepted, but then because everything takes such a long time to go through the market drops like a stone, am I going to agree to pay the same amount? of course not. Its not something that i agree with and for this very reason when I make offers I am going to make them with this voice, I will pay X for it because I dont want to have to re-neg in two months time. Its not ideal, and equally I dont agree with it and I prob would struggle to go through with it, but if the market dies in the mioddle of my transaction, equally the is no way I am going to pay the agreed price.

Edited June 9, 2009 by D179

[Sybil13]

Say I offer now on something which is accepted, but then because everything takes such a long time to go through the market drops like a stone, am I going to agree to pay the same amount? of course not. Its not something that i agree with and for this very reason when I make offers I am going to make them with this voice, I will pay X for it because I dont want to have to re-neg in two months time. Its not ideal, and equally I dont agree with it and I prob would struggle to go through with it, but if the market dies in the mioddle of my transaction, equally the is no way I am going to pay the agreed price.

This is a GOOD point ............if you put in an offer today chances are the sale is not going to finalise until September / October if you are lucky. TOM currently is about 26 weeks according to home.co.uk , so really anyone putting their property on the market today, or starting to proceed today is really looking at 3 months for buying and 20 + weeks for selling, market is going to look VERY different by then.

As BLOO LOO says in her bearish moments "we live in a land of broken chains". Someone said 50% of chains break!

[grizzly bear]

This is a GOOD point ............if you put in an offer today chances are the sale is not going to finalise until September / October if you are lucky. TOM currently is about 26 weeks according to home.co.uk , so really anyone putting their property on the market today, or starting to proceed today is really looking at 3 months for buying and 20 + weeks for selling, market is going to look VERY different by then.

As BLOO LOO says in her bearish moments "we live in a land of broken chains". Someone said 50% of chains break!

Perhaps - but where I live in a NW suburb, its like the boom again. Houses going under offer within days on the market, with 2 chain free buyers competing and sellers requiring prompt exchange.

As an example, my friend bought her house for £750k early in 2006. Her neighbours house (similar condition) went on the market this week at offers over £800k and several people interested and someone has apparently bid £900k. Madness.

(And before anyone comments yes huge multiple of earnings but those who bought in London have built up a lot of equity.)

[R K]

Perhaps - but where I live in a NW suburb, its like the boom again. Houses going under offer within days on the market, with 2 chain free buyers competing and sellers requiring prompt exchange.

As an example, my friend bought her house for £750k early in 2006. Her neighbours house (similar condition) went on the market this week at offers over £800k and several people interested and someone has apparently bid £900k. Madness.

(And before anyone comments yes huge multiple of earnings but those who bought in London have built up a lot of equity.)

Do you have a a link to the house grizzly bear? PM me if you don't want to post it on here.

Cheers.

[grizzly bear]

Do you have a a link to the house grizzly bear? PM me if you don't want to post it on here.

Cheers.

No. I was told this by a friend who personally saw the house (yesterday), and they decided not to bid on it. It hasn't gone on a website yet BECAUSE they already have 2 offers well in excess of asking and its not really on the market yet. To be honest I am not even sure which agent as they didn't call us, probably as we have told them all we are not interested in overbidding. I can ask my friend which agent it is though. Its a 4 bedroom detached house needs gutting in NW4.

Meanwhile the house 5 along has been on the market overpriced for more than a year, but has been done up to the "nines" and had attic converted into 2 bedrooms plus ground floor back extention.

Here is link to overpriced on that has been on market for a year:

http://www.vebra.com/home/search/vdetails....mp;pid=15033822

Hope that helps

[The McGlashan]

There was much hoopla in the commentariat when last month's BoE and CML mortgage lending figures (for March) ticked up. Yet I noticed nothing to report that the gradient had turned down again when figures were released this month.

Source: BoE

[Alfie Moon]

We could always look at the last UK housing crash or the one before.Oh, except they didn't have a "Bull Trap".

In the 1990s crash - using the Halifax Index - there was a bull trap in 1993 when house prices were recorded as rising for 5 consecutive months. After that 5 months house prices reverted to falling again for the rest of 1993, 1994 and 1995.

You really don't know your history or much about the property market do you....... and with those attributes you could be an Estate Agent (not saying that you are, just that you have the same attributes as most Estate Agents ).

[andykn]

I understood perfectly (although I disagree on two levels).

Firstly, people understand things in nominal terms, not real.. therefore a bull trap could have the same psychological effect even in an inflationary environment where it would appear flat on an inflation adjusted graph.

Secondly, you are assuming that we will have a high inflation environment again which would give the same real/nominal falls as the last crash.

Although I am not saying that you will necessarily be wrong, you are making a fairly big assumption. (Hence my point, I look forward to a good pay rise this year )

I'm just saying, use one or the other, nominal or real.

In nominal terms it wasn't a bull trap because it was too close to the bottom. The bottom was'nt much lower in nominal terms, the top was far higher in nominal terms.

I make no assumption about future inflation, I'm just looking at the last crash in either real or nominal terms, but not both joined together to show a non existent "bull trap".

[R K]

I think the DC Bounce will be over before the summer is gone, but as for the specific TURN date, I am watching UK homebuilding stocks to give me an early warning for the Turn. So for those who want to get advance notice of the turn, I would say:

"BUILDERS - need watching"

The others are still holding up, but I note that...

Berkeley Group (BKG) ... update

...has slipped back below its 252d.MA. This shouldnt be happening if the property Low is now in place..

I would expect to see it back up above 900p very soon, but if it slips lower, that would be an early sign that the DC Bounce may be losing its momentum soon.

Snippety snip...........

Care with Berkeley - Saad offloading a large chunk of its 28.8% holding. May be due to Berkeley or may be specific to Saad.

http://ftalphaville.ft.com/blog/2009/06/09...d-goes-on-sale/

[R K]

No. I was told this by a friend who personally saw the house (yesterday), and they decided not to bid on it. It hasn't gone on a website yet BECAUSE they already have 2 offers well in excess of asking and its not really on the market yet. To be honest I am not even sure which agent as they didn't call us, probably as we have told them all we are not interested in overbidding. I can ask my friend which agent it is though. Its a 4 bedroom detached house needs gutting in NW4.

Meanwhile the house 5 along has been on the market overpriced for more than a year, but has been done up to the "nines" and had attic converted into 2 bedrooms plus ground floor back extention.

Here is link to overpriced on that has been on market for a year:

http://www.vebra.com/home/search/vdetails....mp;pid=15033822

Hope that helps

Ahhh.....By, NW suburb you mean NW Londinium. NW suburb to me, is, well, a suburb in the North West and at that price it limits the choices to a few specific areas. Crossed wires - Thanks for the reply anyway.

[Peter Hun]

I'm just saying, use one or the other, nominal or real.

In nominal terms it wasn't a bull trap because it was too close to the bottom. The bottom was'nt much lower in nominal terms, the top was far higher in nominal terms.

I make no assumption about future inflation, I'm just looking at the last crash in either real or nominal terms, but not both joined together to show a non existent "bull trap".

You might be right, this situation isn't a Bull Trap.

More like a tiny blip in a the ongoing HPC.

[andykn]

In the 1990s crash - using the Halifax Index - there was a bull trap in 1993 when house prices were recorded as rising for 5 consecutive months. After that 5 months house prices reverted to falling again for the rest of 1993, 1994 and 1995.

You really don't know your history or much about the property market do you....... and with those attributes you could be an Estate Agent (not saying that you are, just that you have the same attributes as most Estate Agents ).

Unlike you who doesn't even know much about this thread.

The much hyped lifecycle of a bubble graph has the "bull trap" near the top.

If you actually look at the figures from the times you are quoting you will se that the top of your supposed "Bull trap" was Oct '93 (after 4 consecutive months of rises Mr Schama) at 62,898, or a price/earmings ratio of 3.36. The very bottom of that market was 60,965 in Jul 95 (middle, not "rest of", although the price/earnings ration low point was 3.09 in Oct 95) - that sort of drop isn't going to kill many bulls, now is it?

Even if prices start to fall again, unless they fall more than they have to date, we're not really in a "bull trap", it becomes more of a "dead cat bounce", I believe.

[andykn]

You might be right, this situation isn't a Bull Trap.

More like a tiny blip in a the ongoing HPC.

Don't get me wrong, I'm not saying now isn't a bull trap, or even that the theoretical graph might not turn out to be true.

Just that the previous two UK housing crashes haven't shown that clear pattern.

Things are different this time, the peak was a lot higher, the recession is worse and more widespread (global), inflation and interest rates are much lower.

[Alfie Moon]

Unlike you who doesn't even know much about this thread.

The much hyped lifecycle of a bubble graph has the "bull trap" near the top.

If you actually look at the figures from the times you are quoting you will se that the top of your supposed "Bull trap" was Oct '93 (after 4 consecutive months of rises Mr Schama) at 62,898, or a price/earmings ratio of 3.36. The very bottom of that market was 60,965 in Jul 95 (middle, not "rest of", although the price/earnings ration low point was 3.09 in Oct 95) - that sort of drop isn't going to kill many bulls, now is it?

Even if prices start to fall again, unless they fall more than they have to date, we're not really in a "bull trap", it becomes more of a "dead cat bounce", I believe.

Now take into account inflation and you will find it was a 'bull trap'. Even without taking into account inflation it was a 'bul;l trap'. You are also wrong in claiming that 'bull traps' only occur near the top of a bubble ...... a bull trap is a false signal that the downward trend of an asset price has been reversed to upwards and is not restricted to being positioned near the top of the bubble. In 1993 there was a false signal that the downward trend of house prices had been reversed to upwards. There were 4 consecutive months of rises followed by a month of zero growth after which the downward trend (as the stats you provide prove) continued. I've never heard of anyone claiming that the 90s crash ended, in effect, in 1993.

Edited June 9, 2009 by Alfie Moon

[Hip to be bear]

We could always look at the last UK housing crash or the one before.Oh, except they didn't have a "Bull Trap".

There is little point in comparing this scenario with the last 2 "corrections". In the early 80s and 90s the driving factor was an over heated market and a huge increase in interest rates that precipitated the collapse. Rates went from around 8-10% to up to 14% both times. That is what caused house prices to drop.

This time we have a massive bubble driven by historically low rates and criminally negligent and terrifyingly imprudent lending. THis time prices have fallen by 20% despite IRs falling from the low starting point of 5.5% to its current record of 0.5%. THe magnitude of the shitstorm that awaits if / when rates return to traditional long term averages of 6-8% or above is trully terrifying. It will make previous crashes seem like speed bumps next to mountains.

Lets hope the Government isn't doing anything that might encourage high inflation like printing money!

[Kazuya]

Lets hope the Government isn't doing anything that might encourage high inflation like printing money!

[Austin Allegro]

IMO the real pain is likely to start after the 2011 Budget. Assuming Labour get knocked out next summer, the incoming government will have to make the big cuts/tax increases (Labour won't do it, so that they can play the 'evil tory' card which most dimbos in this country always fall for)

[Hip to be bear]

Okay. I hear your point.

I dont know WHY this indicator works, but the Builder shares have an excellent track record of forecasting market turns before they happen. The indicator has worked well in the past, so i will continue to use it.

Real life Example:

Are the Builders signaling a 2008 UK Property Crash

I would expect all three of the main builders I follow (BDEV, PSN, and BKG) to turn down before the DC Bounce in property runs out of gas. And so, weakness in a single one may be a useful Warning, but it isnt the trigger I am looking for.

Why does it work?

I have a guess about that. Well, insiders cannot buy their own company's shares without reporting it, But they can buy the shares of competitors. So I reckon that someone who works for Persimmon might be buying the shares of, say, Barratt when he sees signs of improvement in demand. And clever fund managers may begin to load up in Builders (and stop selling) when they see that early stage indicators are positive.

Similarly, when an up move is getting tired, and the leading signs (like on-the-ground househunting, and interest rate moves) are getting negative, those really in-the-know will see it, and begin to take profits on their Builder shares.

The real point is that stock prices are an immediate, real time price measure and sentiment indicator. They are not reported with a lag of several weeks, like the house price indices released by Halifax and Nationwide.

So here's the chain of events that I can imagine:

+ Interest rates are moved lower, eventually hitting a "trigger point"

+ Sentiment, and On the ground buying interest picks up

+ Insiders start buying builder shares

+ Deals closed pick up, and Loan applications shoot up

+ House prices begin to rise on stronger demand

+ Data is compiled by Halifax and Nationwide

+ House price indices are released to the public

+ The mainstream press and EA's get busy talking about the "signs of recovery"

+ Naive buyers "follow the bandwagon", thinking the move up will be sustained

The smart people will watch the early part of this chain, not the final 2-3 steps.

It irritates me that so many here on HPC are focussed on the tail-end of this chain, and dont realise how completely foolish and dangerous it is to react to lagging indicators. There's an old saying: "Fools and their money..."

Given that the site is HOUSEPRICECRASH, you can hardly criticise those who obsess about the house price indices. THe only indicators that deal with actual house prices are lagging ones and we discuss them on here. Sorry but discussing the Persimmon share price doesn't give me the horn. I can't live in the Persimmon share price, I don't want to invest in the Persimmon share price and I don't want to discuss the Persimmon share price. I will keep a sneaky eye on how the sector is doing as an indicator of likely future movement in the housing market. That is all!

THe Persimmon share price only goes up and down. The Haliwide figures are much more fun: They converge and diverge. They have seasonal adjustments and regional variations. They get spun in the media and get bulls and bears hot under the collar in equal measure. Who cares if they are lagging.....House prices move slowly. THey are not as volatile or as reactive to speculation as equities. I for one will not be joining you at www.housebuildersharesareabetterindicator.com I am happy here thanks!