Saturday, Aug 16, 2008
Conway talking cr@p
Telegraph: Property market: Word on the street
The FTB can't afford to enter the marketplace. [agreed]. This is not because prices are too high but because it is prohibitively expensive for a young, less well-off person to borrow money. [darling, where are my pills?]. Unless the Government helps, it is difficult to see this improving for at least two years. [yes, by leaving it alone]. This would be disastrous for the market.[?] I have even heard one expert predicting a 40 per cent fall in prices. [sensible bloke, then].
Posted by pendulum @ 07:06 AM (953 views) Add Comment
12 Comments
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1. jimmy_joe said...
Good find, Pendulum. I was shocked to find your summary above was the actual words of the economics editor of the country's most highly regarded (and only) broadsheet. I thought it would be a summary of the ramblings of a Rosy Millard type character.
"Banks simply do not have the cash to lend on new mortgages, since most of their money is being spent on cleaning up the mess from the financial crisis."
Hmm, was that financial crisis caused by banks lending too much money on houses they later found not to be worth as much as the loan? The sooner they start doing that again the better!
2. mark wadsworth said...
Agreed.
He's spot on with this though "But then, having lost a tenth of their value in under a year, house prices have never fallen so fast before.', thus avoiding the headline-grabbing but incorrect "since 1992" comparative.
3. taffee said...
has anyone considered that our young join gangs and take drugs and stab people because we have financially isolated them from society?...high house prices crush society
4. str 2007 said...
Edmund Conway seems to have analysed the situation then come up with a bizarre outcome.
He correctly works out that FTB's are required.
But a realistic level to lend to them is 3.5 times salary (not 6 times), they should be putting down 10% deposit as a minimum, and finally the mortgage should be repayment not interest only. (if people could fall back onto interest only for a recessionary period it would ease things, to borrow interest only in the good times is madness).
So working things out. FTB salary say £25k x 3.5 = 87.5k + 10% deposit = £95/100k for a 1 bed flat.
For a couple 3.5x25k + 1x25k = 112.5k + 10% deposit £ 125k for say a 2 bed flat.
And these aren't bad wages for FTB's.
2007 prices for South East 1 bed flat £ 165k - 40% = £96k
2007 prices for South East 2 bed flat £ 200k - 40% = 120k
There that wasn't too difficult, to reach a conclusion as to where FTB type properties should be priced.
Which I reckon is somewhere round 2001 levels.
It's low interest rates and the BTL business model that has completely screwed it all up.
Hopefully this time around the banks lending to or the BTL themselves will work their numbers properly and come to a similar value to the above ie currently 2001 price levels.
5. Eternal Sceptic said...
The author must be living on a street in cuckoo land.
Looking at the graph of boom and bust on this site suggests a 40% drop in prices is quite conceivable, especially if lending policies in the future are both restricted and far more conservative.
6. bidin'matime said...
Take it easy on Edmund - he's been a bear peeking out from the bullsh*t, sorry bullish, pages of the Telegraph property supplement since long before the credit crunch arose http://www.telegraph.co.uk/property/main.jhtml?xml=/property/2006/10/21/pword21.xml"> (see this from October 2006) – he’s just a young bloke who has to keep one eye on who pays his salary …
For months he has had to hide the facts in amongst platitudes and under a headline aimed at not drawing the attention of his ultimate paymasters to the message contained – a message that sadly has been invisible to those who didn’t want to hear / see it, but there nevertheless.
As the crash becomes obvious to everyone, he can afford to mention possible falls of 40%, but he still has to sugar coat it – now the property supplement has shrunk to a fraction of its former size, most of the loss being advertising, cut-backs can’t be ruled out...
7. bidin'matime said...
sorry – not well up on this html stuff – try this…
8. bidin'matime said...
Webmaster - I was a bit taken aback to find my comment initially rejected for containing reference to what comes out of the rear end of bulls (well, they do talk out of their arses, don’t they...?!) - then I put the radio to hear the word used on Any Questions (the Saturday repeat, so they had the opportunity to edit it out, but didn’t..) – who are you concerned not to offend – the bullshitters?
9. monty032 said...
An excellent analysis, str2007. As Warren Buffett says, the more complex the calculation, the less likely it is to be of any use in real markets. Such a back-of-the-envelope calculation is robust because there is very little to go wrong with it. And don't forget that the average house price was about 2.5 times the average wage for several years in the mid 1990s. This bust is much more vicious and the ratio might end up even lower than it was then.
10. harold said...
Conway would be better emplyed in a Tory policy think-tank. Now, how did Cameron describe them? Oh yes, "mad".
11. str 2007 said...
Apologies bidin'matime (or should I say Edmund) I see your point re: getting it past the editors and advertisers.
Thank you monty032, I'm quite a simple person really. I think there are alot more people waiting in the wings this time around and would be investors for whom numbers will work long before the ratio gets to 2.5 times earnings IMO, but you might be right, I'll have to assess the attitude and general opinion when we reach a confirmed -25% and decide if it will go the rest of the way.
12. Ianbe said...
Conway suggests that the problems faced by first time buyers are not due to prices being too high but that because it is prohibitively expensive for a young, less well-off person to borrow money.
Excuse me, but isn't that a bit like saying that Derby County didn't get relegated because they lost too many games, but because they didn't win enough?