Friday, Dec 07, 2007
Houses in South Overvalued
BBC News Archive: Houses in South Overvalued
We have seen it all before more than 5 years ago. PWC research as well. They are going to start cutting rates like they did after the .com bubble and 9/11
Posted by maddison @ 02:42 PM (1151 views) Add Comment
15 Comments
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1. Minx_man said...
Its hilarious reading all those news articles from 2002...at least the beeb are good for some things....
Just goes to show how utterly impossible it is to call the market, not to mention how these "experts" know no better than your average Jo.
I can't see us returning to the growth that we've seen in the last 5 years, and looking at the Nationwide graph there's never been a "soft landing" or "plateau" (don't you love the BS?), and I deffo don't buy the pent up demand/shortage nonsense....but one thing you can't under estimate is human stupidity...and we have it in abundance...so although all arrows are pointing down I wouldn't be surprised if I'm proved wrong once again.
2. confused76 said...
That is a possibility, Maddison
3. dave said...
This article was written after the dot.com crash and 9/11, so what have we not seen before? We are in the tail end of the same situation - not yet concluded.
But, I agree with the first comment that no-one can call the market. It was only a few weeks ago that a buffoon in the Sunday Times business section said the usual market fundamentals, etc. nonsense would sustain the market and 'he couldn't see what could cause a correction in the market'. That's the whole bloomin' point of a correction, no-one can see it coming. Idiots everywhere. But, I be amazed at how the housing market can possibly get out of this one, it really is game over.
4. Hpwatcher said...
Clearly the BOE and G Bean are a one trick pony, when things get tough, reduce interest rates to almost nothing and stimulate growth that way. They are absolutely determined to support the obscene rises in house prices, and are quite happy to allow people to get more and more in debt.
There are two differences this time...the credit crunch and inflation - a combination that could prove deadly. The other important thing to consider is debt saturation; we simply cannot be that far off now.
5. alan said...
In May 2003, Pam Woodall was lead journalist on the Economist. She said houses would drop 20 to 25% in the "next few years". I have to say Pam called it wrong. The bubble was a little smaller in those days.
Since then I've become more interested in the possibility of an economic collapse, caused by rampant debt. I was surprised to see all the papers saying that the interest rate cut was to save house prices!
My prediction is for a drop in house prices of 0.5% in December. After that it could be a steady, slow decline or the whole economy might suddenly fall over. My other recommendation is cash and sovereigns.
6. Hightower said...
I'd be careful of comparing houses in the south to earnings and historical factors...
Times have changed, like when couples started using their dual income to earn more, rather than just the guy going out to work.
Now the rest of the world is propping up London (and then the SE) house prices, it's the world's capital. Look at America - house prices have plummeted but Manhattan's market is still healthy.
Don't get me wrong, I'd like a correction so a) my buddies can buy homes and b) so I can buy a second one. But the SE is too popular and too populated to guarantee one - personally I think earnings only count in Cornwall, NW, NE, Wales, Scotland etc where once property's not so popular it's only the locals buying.
7. Hightower said...
I'd be careful of comparing houses in the south to earnings and historical factors...
Times have changed, like when couples started using their dual income to earn more, rather than just the guy going out to work.
Now the rest of the world is propping up London (and then the SE) house prices, it's the world's capital. Look at America - house prices have plummeted but Manhattan's market is still healthy.
Don't get me wrong, I'd like a correction so a) my buddies can buy homes and b) so I can buy a second one. But the SE is too popular and too populated to guarantee one - personally I think earnings only count in Cornwall, NW, NE, Wales, Scotland etc where once property's not so popular it's only the locals buying.
8. techieman said...
Alan - just open an account with IG index and buy spot gold. (im not recommending a purchase of gold but it makes far more sense than buying sovereigns which have a collectible premium - or even krugerands....). You can but spot gold for £10 a $. minimum. So say its $800 per ounce . For example the price falls to zero you would lose £10 X 800 or £8k. if it doubles you make £8k. Of course you can get out at any time and obviously you can do a bet for more than a tenner oh and lits tax free and theres no insurance that you need from holding physicals, oh and it cant get nicked unless of course IG becomes bankrupt !!!
9. techieman said...
Yep it was pretty obvious they are going to cut rates - its just when were they going to start. Out of the two evils they will always choose inflation over deflation / depression (if thats were they believe we are in the cycle). The only problem is with a mountain of debt at some point you push on a string - JMK. Have we or will we reach that stage? Pehaps in California they already have - 10% fall in HPs in a month! 12 month inventory, etc. Its all part of a boom and bust business cycle that these folks can only prolong not change.
10. Becky said...
This was coming from PWC so I guess they had some idea what they were talking about at the time even if later events have proved them wrong. So, IF the market was overvalued by 31% in 2002 what would this translate to with todays figures?
11. drewster said...
I have to admit, I thought prices looked pretty peaky around then too. Some of you may have seen Professor Andrew Oswald's article in the Times in January 2003: Your boom is nigh: the great housing catastrophe
The article is correct in every respect except that it was written four and a half years too early. It ignores the role of speculative activity (BTL) and massive credit expansion, which have come to dominate the market far more than any fundamentals.
12. techieman said...
I think its the classic "cry wolf" "end of the world is nigh" scenario. Two sides to it. 1. If you always call for a fall at some point in time you are almost certainly gonna be right. 2. No one is gonna believe you because you are always calling a fall. The problem of timing is because if it wasnt a problem things would never extreme up or down. Everyone is right and everyone is wrong. What i find interesting is that now we have the internet the news (factual or otherwise) is much more accessible. In that way i think it will shorten (a bit) the cycle, by exasperating the falls. No I know people might consider that an off the wall remark but i stand by it. Have we hit the top - I THINK so but no-one really knows. Yes we can quote sensible points as to why things are irrational but whats irrational and how irrational can it get? Houses at 5 times incomes, 6? 10? 20? At some point in time it has to implode but we really are all speculating as to when. My BELIEF is that this is it - but I am the first to accept I could be wrong. That comes from being interested in Technical Analysis. Its an art not a science.
13. Quiet Guy said...
@drewster
"It ignores the role of speculative activity (BTL) and massive credit expansion ..."
True, but perhap the author of the article didn't understand the corruption and avarice of Wall Street who sold overrated CDOs to banks and pension schemes throughout the world. Some of the bubble was innocent hubris for sure but some was criminal. When I say 'criminal' I mean it should be treated as an offence punishable by jail. I am think of mortgage on teaser rates to people who obviously could not afford them and the like.
Back in 2002, I also failed to understand what was going on. I guess I'm not greedy enough!
14. Renting And Praying said...
Headline news in the Liverpool Daily Post. A 2 bedroom flat in Beetham Tower that sold for £206,000 in 2004 sold at auction earlier this week for £101,000. Ouch!! The flat was 1101 and as of last night was still on rightmove with a guide price of £120,000. L3 postcode if anyone is interested.
15. drewster said...
@techieman, you're right that it's all about timing. Alan Greenspan famously described the dot-com boom as "irrational exuberance" (i.e. overvalued) in 1996 - four years before the peak of the bubble! Same with the housing market - despite being clearly overvalued for the last four years, the bubble has taken on a life of its own. It was impossible to know exactly when the dot-com bubble would burst, just as it was impossible to know when the credit crunch would hit. Now though the peak has definitely passed and we're on the way down.