Wednesday, Aug 29, 2007
We were right - Smith was wrong
The Telegraph: US housing crash reminds us we're due a correction
Over the next year or two, we will hear in the following order the C word, the R word, the D word, and the G word.
Posted by sold 2 rent 1 @ 07:20 AM (1489 views) Add Comment
21 Comments
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1. sold 2 rent 1 said...
Just for the newbies
C - Crash
R - Recession
D - Depression
G - Gold
2. Orwell said...
It also says that flat prices may occur instead and this is actually more likely.............
3. Davros said...
Hmm, the mythical stagnation again. Ironically, for any of the so called 'investors' to make any money again, we need a crash, which makes stagnation even less likely.
Does anyone seriously believe that the 10% of the market made up by buy to letters are going to hang onto their properties for 10 years while they fail to keep up with inflation?
4. Lovingit said...
C - Crazy
R - Rash
D - Desperate
G - Gutted
Seems more likely.
5. harold said...
To which could be added the S word - silver. (Gold, IMHO, is concentrated in too few hands. For example, what happened to the gold in Fort Knox?)
6. denzil said...
Talking of Smith I'm sure I read a while back that he uses something called the "skip index". The well-being of the consumer and thus the economy is measured by the number of skips in a street.
I use the "Smith index". It is a simple instrument that is used as follows. Look at what Smith is saying will happen and then bet on it going completely in the opposite direction.
7. planning4acrash said...
The question is, when will a good time be to buy S & G?! Do you buy now or hold out a bit? Plus, I've never invested in metals, never really had any money to invest at all! But, do you go headlong into S & G or get a mixed porfolio with a bit of platinum here, a bit of uranium there, a bit of oil, some copper, a bit of steel?! Also, Fool's Gold is at a good price at the moment, I have some in my old kid's geology kit stashed away, does that have a future?! Should I head down to the Geology Museum and get myself versed in all the millions of different minerals and things shiny?! Tee hee!!
Joking aside, sounds like another bubble in the making!
8. uncle tom said...
This piece starts by smugly berating the US analysts for incorrectly predicting a soft landing - and then goes on to predict a soft landing for the UK on the basis of flawed optimism - founded on that old chestnut: 'shortage'
Where a property market has been driven forward by speculative investment, to the point where a large proportion of would-be participants are priced out, then a severe correction is ultimately inevitable.
When the property market has also been used as the nation's piggy bank (as in the UK and US) or a disproportionate source of employment (as in Spain) then it is also inevitable that a recession will accompany the downturn.
Anyone who thinks that shortage will rescue the UK market should dwell on three facts:
1) On any given night, the majority of bedrooms in the UK have no-one sleeping in them.
2) There are more houses per thousand adults in the UK than ever before.
3) When an economy goes into recession, housing demand drops sharply - foreign migrants return home, and the need to economise causes more people to live under one roof.
The US housing market is falling in the manner I predict the UK market to ultimately fall.
The last time house prices fell in the UK, it was in the nature of a slump rather than a crash - prices fell rapidly at first, then more slowly. This was because the preceding boom did not go full term - it was curtailed by massive interest rate rises (rising by 1.5% per month in the spring of '88..)
This time I expect a true crash - an inverse sine curve - slowly at first, then more rapidly. This of course begs the question 'where will it bottom out?'
This type of crash - in all fields of investment - has a long history of over-shooting, and then rebounding.
The bottom of the market could be very, very low - which may present some superb opportunities.
Do not forget though, that the worst losers in the 1929 Wall St crash were not those who invested before the downturn - but those who called the bottom of the market too soon..!
9. Tickock said...
There still seems to be a belief that the 'low supply' of houses will prevent a crash (although as usual they don't really offer anything to support this fib)
Forgive me for saying so (again) but there is no problem with supply. There are thousands of houses available on the market in every Town. The fact that building has slowed is neither here nor there because there is so much unsold property already currently for available. The problem is not supply, it is much more simple than that.
Housing is MASSIVELY OVERVALUED and even the fools that would buy at these prices can no longer afford to do so.
A 'long period of stagnation' is a real terms crash anyway, and this now seems the best possible hope for the bricks and mortar crowd.
I wonder if Krusty and Phlem might do a show to explain this to their half wit punters in the near future?
10. wage slave said...
P4C - Whatever you do don't keep your uranium under your matress !
11. sold 2 rent 1 said...
Well said UT,
Regarding silver and gold.
Gold has virtually no industrial use and its primary function is store of value and jewelrey.
Silver has quite a few industrial uses and is prone to a sell-off with base metals in a recession/depression.
Its store of value is not as potent because you need much bigger vaults.
Just because silver did well in the 1970s it does not mean it will do great over the next few years.
Silver fell 50% from 1929-1932
http://thelongwaveanalyst.ca/downloads/US_Economy_1910-1940.pdf
Uranium would be my second choice if I had to pick anything else other than gold.
We do not know if we will have inflation or deflation - with gold we do not care.
12. The Capitalist said...
To get exposure to metals buy the big miners - BHP Billiton are a favourite with the ever-canny and wise Merryn Somerset-Webb...also try ETF funds for gold and silver.
13. denzil said...
UT.
Are you sure fact 2 is correct?
"There are more houses per thousand adults in the UK than ever before."
I looked at some official stats some time back regarding property population growth etc and I wasn't looking at the fact you mention but my findings implied the above fact was unlikely. Can you link the above to an official source?
14. mrmickey said...
100 years ago there was a massive housing boom in this country just look at all the terrace houses there are from that period and houseprices hardly moved. That building boom was caused by real economic growth as the economy created wealth from exporting goods around the world. This boom is false it's been created by destroying the currency plus the population has hardly moved in comparison to the Victorian/Edwardian era.
15. cyril said...
Denzil - the English House Condition Survey gives statistics on occupancy rates and that sort of thing, and they've recently issued a new one.
I have heard before that housing space per person is going up (nothing wrong with that I guess) and also there are more vacant flats bought purely for investment but the stats on this are dodgy I think. Someone also told me that more housing space is created by extensions than new dwellings. Sounds a bit unlikely to me but you never know.
16. uncle tom said...
I did my own sums a couple of years back using ONS data as source material. Comparing net population change with house building (net of demolitions) resulted in an occupancy ratio that was slightly less than that of the overall population.
Add in home extensions, and you realise that living space per capita is on a firmly upward path, and has been for many years now.
The Polish influx is difficult to quantify as an influence, mainly because the numbers are uncertain. As many of them seem to be living four to a room above kebab shops, I'm not convinced that they are that big a demand factor. In any event, many are likely to move on when the economy goes sour.
17. denzil said...
Thanks UT!
I used ONS data too. Wish I had kept my calculations but based on house building and estimated migration into the UK house building slipped considerably in comparison to the adult population. It's a difficult one to gauge as high house prices could quite likely mean that people will stay with their parents longer hence less demand from that group.
Regarding living space new builds these days are tiny in comparison to their 60's and early 70's counterparts. There used to be a standard measure used for minimum room sizes (can't remember the name) which was dropped in the 80's hence these pathetic little coups that have been built in the last 25-30 years.
18. inbreda said...
As regards the 'flat house prices/stagnation' argument, I think he completely misses the factthat so much of the market is speculative BTL - vastly morethan ever before - and many of these are only in it for the capital gains. When they go, so do the speculators.
As for the supply shortage argument - much of the demand (even 10 to a room demand) has been driven by an influx of european workers. A bit of an economic jolt and they will be gone. Supply shortage could disappear in a very short time.
19. Ihopeitgoeswithabang said...
There is no shortage of actual housing is there really? Just affordable housing! and in the right place!
I would think that the people who want a property are ... oh yes living in one right now! Do you see them on the streets!?
It does not really matter in what way or form really does it. The fact is they can probably manage.
If someone renting wants to buy a property, once the mainstream media reports a drop they are going to steer well clear of it. I mean who wouldn't! You would have to be mad!
Unless you already have a house and good equity and just moving location etc in which case a house price change makes no difference.
Due for a correction is an understatement.
20. Hako80 said...
I'm Polish. I bought a small flat in UK. I could afford it having not such a huge mortgage. I'll tel you one thing, the same kind of flat in very similar/comparable location in Poland would cost about 40-50% less but my earnings in Poland for the same work do, would have been 20% of my current UK salary. N/C.
21. Pandyhead said...
Denzil Said, Look for a book called the metric hand book gives the living space for private and public housing. PS public housing is larger than private (not that they build any council houses anymore), they are half buy half rent