Sunday, Nov 25, 2007
Thousand good reasons the crash is now!!
Guardian: Buy-to-let brings the global credit crunch home to roost
1. UK property longer-lasting and more extreme than US + evidence rapidly accumulating that it has passed its peak. Been given an extra boost in recent years by a borrowing binge, as banks cut-throat competition caused interest rates unusually low. 2. BTL investors have been relying on hefty capital gains to generate their profits, but confidence in ever-rising starts to fall away, they are left with little rationale to hang on to their portfolios. 3. Premiums between prime locations and shabbier neighbours narrow in fast-rising markets and reopen when normality returns." How many reasons have now replaced the "immigration, divorces, single household" mantras for a good, 90's style crash!! AHAH
Posted by confused76 @ 07:50 AM (743 views) Add Comment
7 Comments
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1. confused76 said...
i give you a few more reasons for a crash in 2008:
4. Rigth-pricing of default risk: IR spreads between mortgages and BoE base rate are now at their long term average of 70 basis points for prime and in the region of 200 basis point (and more) for questionable creditors. No more insanity of the 20 bps or so for just any credit rating that we saw back in april
5. Banks ask for larger deposits and more realistic collateral valuations to considerably cut their value recovery risk
6. Mortgage benchmark rates track longer terms swap rates, that means that the market is already working on risk-free rates of 5.25%, any upcoming change to the BoE repo rate (that arouses the Times journalists more than sex with Jessica Alba) is already in the current mortgage offers
7. Banks are on a path of purging their books from subprime (there will be a stock market valuation prize for the first banks that come clean) which means they have all cut on "heavy" and "medium-adverse" lending
the above are the financial reasons. but on a demand trend the following is happening:
8. Scores of BTL properties are on the market today, and are NOT SELLING. If you wonder where the largest absolute and percentage price drops in the UK were recorded from July to October (see yesterday's FT) it was not in North England, it was in SW3 -- the heart of Chelsea!! That is in BTL-heartland!!
9. As a result of so many BTL property being on the market for sale (void because tenanced properties trade at a discount) there is a corresponding lack of properties to rent. However that is changing big time after Christmas. Deluded/disappointed BTLetters - not able to sell at the price Foxtrot has promised them - are withdrawing properties from the market under the expectation that an upcoming interest rate cut (which like I said above will bring no benefit for them) can improve the market in six months. So a glut of rental homes are now coming to the market at A HEFTY DISCOUNT if tenants accept short break notices in the first year (say 2 months). UUHHHUUUUUUU it's Christmas time for tenants, all over again like in 2004/5
2. confused76 said...
More on BTL misery
A storm is brewing in bedsit land
http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2007/11/25/do2506.xml
3. Sold My Soul To The Never Never Never said...
Confused 76 - you are just loving this! Mind you I wouldn't mind if my house fell in value by 50% - back to where it was in 2001 - at least then we would be able to move up the next rung of the ladder. It's not just FTB's that are hurting.
4. the reaper said...
having had years of being looked down on by some pretty smug BTL's-property will never go down etc and then havign the cheek to tell you rents dead money(yes it's happened to me in the space of five mins by the same guy)-I too am going to enjoy watching them lose their shirt.If they'd been humble in victory I wouldn't but humility is something your average BTL er only acquires on the way down.
A devaluation will help everyone who sees a house as a home.The only people who will lose out are recent FTBs and the BTLs.For the former I feel sorry but thats life(they should have visited this site) for the latter-let'em burn..
commercial is already deep in the mire
http://www.ft.com/cms/s/0/0a63610e-99fb-11dc-ad70-0000779fd2ac.html?nclick_check=1
5. confused76 said...
Reaper
great article on commercial property
"Capital Economics predicted that the correction in commercial real estate would be sharper than it had previously forecast. “We now expect property to revert to fair value as early as mid-2008, with peak-to-trough falls in capital values of 15 per cent,” said analyst Manjit Mora."
One thing i did not consider before, and is mentioned in the FT piece, is that unit fund redemptions cause FORCED SALES of property!! My my my... I just love this!!
This will happen with residential property funds selling flats even before the small ByToLosers can get their acts together and instruct the estate agents.
Now I can see why big property investors like Tchencszy (whatever) sold large positions at the beginning of the year... these markets can become illiquid all of a sudden and the illiquidity discounts are quite steep (10%-20% easily)
6. bidin'matime said...
A client with 5 BTLs came to see me about the tax implications of selling one. I suggested she sold more than one, but she has tenants in all of them, with ASTs on the other 4 lasting to between April and October next year. One thing that she said interested me - she said "It's no fun anymore". She's made peanuts in profit from it, even on the ones she has owned for years (that now subsidise the more recent ones) and presumably the ‘fun’ has been seeing them leap in value, but now that values look shaky and they are starting to need work doing on them, it’s not fun anymore.
I was speaking to a friend the other day who has 3 rental houses – she said she used to enjoy DIY, but not any more.
If it stops being fun at this stage of the game, how’s it going to feel when prices are plummeting?? It reminds me of why I never bought a BTL – we looked at several around 2000/2001 and, with hindsight, it would have been a good short term investment, but I decided that the rental profit would not warrant all the hassles of owning and maintaining the property - and that was when prices were half what they are today! Clearly, rising prices have made it all feel worthwhile for landlords, but as they see that all drain away, they will become extremely miserable. The ‘Great Depression’ could take on a whole new meaning…
7. wdbeast said...
A wise owl has continually tells us;
"If it seems too good to be true, it probably is"
I feel genuinely sorry for all the pain that is about to hit the small time investors in the BLT sector.
Greed and ignorance are very bad partners!