Saturday, Dec 27, 2008
Anne Ashworth flogging a dead horse
Times: Mortgage supply is key to continuing house price decline
I beg to disagree with Anne Ashworth. The prime cause of falling prices is that houses became massively overpriced compared to rents, earnings or any other yardstick you care to name. It will take BOTH improved mortgage availability AND realistic house prices compared to these measures before the fall abates. We are a long way away from the latter even after a cumulative 20% fall from the peak, and when I see the current predictions for a further 10% fall then a levelling-off, I think, "and the rest". Who in their right mind would want to take a highly leveraged position in a single large illiquid asset that is falling in value 1-2% a month?
Posted by monty032 @ 10:22 AM (1787 views) Add Comment
24 Comments
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1. will said...
It is in the interests of the Banks to manipulate a fall in all property values. If they are too high, there are too few borrowers.
Once they are forced down to a fair value, the Banks can lend sensibly again. That is how Capitalism works.
2. enuii said...
Add in the fact that there is only one way for interest rates to go i.e. UP and net after tax wage growth to go i.e. DOWN and only a fool would stretch themselves on a house or flat in the near term.
3. drewster said...
Monty,
Spot on. Houses aren't just overvalued compared to rents though. Rents themselves are too high also, having benefitted from high employment which itself was caused by the credit boom.
Without credit, jobs are lost. The jobs that go first are the most casual, short-term, unsteady - i.e. the young people most likely to be renting. Without paying tenants, rents fall. In turn house prices must fall further.
This is already happening in commercial property: shops fail, rents fall, prices plummet.
4. mark wadsworth said...
Well said.
@ Drewster, commercial property values and rents have been sliding for nearly two years - their bubble burst before the house price bubble.
5. drewster said...
Thanks Mark. Of course, that poses a problem for LVT - falling rents and prices would mean falling land tax receipts. Would you set long term tax rates, like commercial property leases? Or would LVT still be more stable than the current situation? Tax receipts are now plummeting as companies declare zero profit and jobs are lost.
6. Mrb said...
Peston calculates that 40% of total mortgage funding has disappeared compared to the 12 months before Aug 07 (due to commercial paper etc.) so she dooes have a point.
I really despise Anne Ashworth tho, an annoying middle-class speculator, who seems to have no idea of the carnage caused to younger people due to hight house prices. Everything is from the perspective of the bingowinged & leveraged 40-55 year old age group and social set.
7. dude said...
The other point, in addition to all the above, is that the spell was finally broken. Houses never fall in price -- opps! That observation was inevitable, and has been predicted for far too long on this site. But as soon as it happened, even the most ostrich-like of buyers had to admit that their investment decision may need to be re-evaluated.
I think it is the expectation that prices can and continue to fall, more than anything else, that will delay the bottom of the market. Just as greed pushed prices up, so greed is having the latest effect. If you take purchase for investment away from the market (for example by preventing people from buying second homes, or selling them at a profit) you may normalise the market somewhat, but that may be a step too far, as it interferes with individual choice.
8. crunchy said...
Capitalism has failure built it. Simple.
I will say it again. If house prices went to "zero" we would not be compensated for the inconvenience!
We have all been had, by the few.
9. crunchy said...
Yes, Gordon Brown too!
Hes ego will not permit him to accept it. He is just happy to feast on the odd bone that is thrown to him. IMHO.
A reactionary role never leads the way.
10. Britishblue said...
Th rent bubble may have burst,but it still has some way to go. I am spending Poland in Christmas with my in-laws. The estimates over here at that mid next year over 500k Poles will have returned to their native land from the UK. The governemnt over here for some time has been trying to get back its workers. Whilst this may indirectly lessen the impact on unemployment figures, what it also does is lessen the demand for lower end overpriced rented housing. It is only 5 years ago when you could get 7 zloties to the pound. Its been as low as 4.07 in recent months and suffered a one year drop of 30% .Therefore both rents and house prices have still some way to go down.
11. uncle tom said...
I smell a vested interest in this piece..
12. crunchy said...
"Some" buyers have been "elbowing" their way into already "packed" auctions in search of repossession "bargains" which can come with a "tax break."
Homeowners who still have "considerable equity" in their properties can be "relatively sanguine" about the housing market’s "weakness."
The "direction" of the market will depend on "mortgage supply."
The Government is under "increasing pressure" to guarantee mortgage lending by the banks in "2009",............
You are not kidding UT and there is more. Anne Ashworth, what a role model she is. Talk about hedgeing ones bets.
13. it_is_going_with_a_bang said...
"Would-be buyers who have been waiting in rented accommodation are sizing up what’s on offer, proposing to pounce in January."
lol.
Pounce? Why would any sane person do that then? Where is the logic?
If you were renting why oh why would you be prepared to pounce in January?
Just where does this evidence of renters pouncing in January come from????
I guess she thinks somebody might actually think that she knows what she is talking about ....
( ... complete silence ... )
It is a little early for April fools though?
I wonder how her BTL portfolio is suffering these days.
14. mark wadsworth said...
Drewster, our only vague hope for introducing LVT is at the bottom of the price cycle, i.e. in a few years' time.
From there on in, if values and rents stay low and stable, then great. If rents and prices go up, well so do tax receipts meaning we can pay off the national debt that much quicker, also great.
15. Just Interested said...
lol
I'm ready to 'pounce' in January & have a deposit ready....
only it will be in 2011, 2012 or maybe in 2013.
16. Dezy said...
Sadly i know 2 couples who think that now is the time to buy in North London and no amount of persuasion from myself will convince them otherwise, i fear there is many others out there who do not fully understand the situation our economy is in.
17. Puppee said...
why does it take so long for prices to fall, when prices are rising they seemed to leap up each month now they are falling its only a dribble each month , WHY ?
18. Game Over said...
Monty:
You're wrong. The psychology of property porn and money for nothing via HPI is still deeply ingrained in the nation's collective psychology. If the credit came back, so would much of the demand for housing. Do not underestimate the stupidity of the average Brit. Most don't know how to spell economics, let alone understand it.
19. mytimeisnigh said...
@17, house prices are falling as quickly as they rose, ten to fifteen percent a year. If memory serves me right in 2002 and 2003 there were annual rises of around twenty percent respectively, I expect to see a fall of twenty percent in 2009. Also, don't forget that inflation has to be penciled in which makes nominal falls more pronounced.
20. Morpheus said...
@17 - i agree. Where is this 15-20% reduction in asking prices ?? Even new instructions in Leeds are going on at near 2007 levels !! Bizarre. I have yet to see any real difference in asking prices - of course you get the odd divorce/repossession case where a good house comes down by 20% because they realise that's what's needed to sell it but the majority are just holding out at near 2007 levels. One agent in Leeds told me just knock 75k anything over 400k most people haven't shifted their asking prices - can you get them to accept it though, now interest rates are so low - they're hanging out for the spring bounce. I just pray for the Tsunami to take hold and that this recession really kicks in quick and deep !!
21. drewster said...
@17,
It's a mathematical trick. If the price goes up from £100,000 to £150,000 then it's a 50% increase. However when the price falls back to £100,000 it's a 33% drop. So the numbers look bigger on the way up. Prices are falling incredibly fast really, faster than ever before I think!
22. mytimeisnigh said...
@20, according to Rightmove asking prices are ten percent down from their peak, asking prices will be higher than sale prices.
23. crunchy said...
18. Game Over said...Monty:
You're wrong. The psychology of property porn and money for nothing via HPI is still deeply ingrained in the nation's collective psychology. If the credit came back, so would much of the demand for housing. Do not underestimate the stupidity of the average Brit. Most don't know how to spell economics, let alone understand it.
Sunday, December 28, 2008 09:13AM
Aint gonna happen. The cause has ran it's course. We are now waiting for the effect. ?????????????
24. Enoughalready said...
I agree with Mrb @6. The oldies are having it all their own way, and not just the 40 - 55 yr olds either. Many (public sector) pensioners living near me are btletters and are sooo wealthy you would not believe it. (Hope they spent their 'winter fuel payment' wisely.) The press should distinguish betweent these rich oldies and the really poor people - of any age. As far as I can see it is the young -mainly private sector workers - who are being stiched up royally, but no-one seems to speak up for them at all. I am so mad by the injustice in all this I feel like chaining myself to the railings near No. 10 or something. But I'd probably be tazered!