Tuesday, Jun 23, 2009
The market succeeds in raising affordability where the government fails
Guardian: Negative equity hits one in six prime mortgages
Why don't estate agents have the sense to advertise "REDUCED" prices in their windows? Is it for the same reason that they deny house prices are falling "in their area because it's special"?
That is, because they are not very bright?
Posted by paul @ 01:45 PM (1881 views) Add Comment
36 Comments
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1. mark wadsworth said...
Round my way they have a red triangle in the corner of the listing saying "New price".
2. titaniccaptain said...
Wait until the summer is over and the dark reality of the economy sets in....asking prices will plummet.
The estate agents will have no choice except force sellers to reduce prices by removing them from their windows if their prices are unrealistic. If they don't make DRASTIC reductions in price they don't get advertised.
3. flashman said...
I ran some numbers a while ago and came to the conclusion that an unemployment total of about 1.8 million is the magic number for house price pain. I’m not entirely sure when (if at all) we are going to get there. Perhaps February 2010?
Even then, I don’t think price falls will be as evenly distributed as in previous crashes due to fast developing structural/regional problems with our economy. Last year, a government commissioned report came to the conclusion that many of our towns and cities were not economically viable. The report went so far as to say, that these towns had no justifiable reason to exist and would become an increasing drag on the nations resources. Obviously this conclusion was politically unpalatable, so it was quickly filed away. Whilst the report’s conclusions were unpalatable to many, it goes some way to explaining the robustness of house prices in some areas and the weakness in others.
4. flashman said...
hello tc: How did you get on with your idea?
5. titaniccaptain said...
Hi Flashman.....
Been a bit busy of late and I have a new idea I have posted you know where that I will post over here tomorrow lunchtime so that the debate can be viewed by as many as possible to get as much feedback as I can get. I am still banging my head against a wall trying to come up with answers......even if I fail I will fail after trying...... Plenty of pontificaters in this world and not enough doers and that is not aimed at anyone here its just a fact.
I trust your time away was as hedonistic as possible.
There could be room for a hybrid idea of my new idea and the old one....please if anyone wants to rip my ideas apart then I am most appreciative because that means I can dis guard that route and find another.
Sorry to be a pain in the @rse HPC readers but I want change in the housing market and change now and change that will result in a sustainable housing market and if you throw enough S**t against a wall some of it will stick. I don't want my kids to face this environment and my eldest is approaching that age.
6. titaniccaptain said...
@Flashman
The regional falls you speak of and robustness in some areas are defiantly what is keeping certain areas form experiencing the brunt of this crash FOR NOW....I believe that as the impact of the recession unfolds over the next few years the impact of wage deflation coupled with rising unemployment, a risk of spiraling deflation (which brings its own problems i.e. a potential lowering of minimum wage!!!), lower pension pots, the end of final pay pensions, high final pay bonus and high working bonus payouts....all this will shatter the areas that "Seem" to be immune to the crash.....that's my not very humble opinion. And as you say towns that are a drag on national resources will fall faster but eventually as the surrounding areas become affected like dominoes falling no area will survive as the dominoes reach their end.
7. flashman said...
tc: Thanks, I did have a great time but with a 1 year old and a 4 year old, it wasn't too hedonistic. I'll have a look at the EV to see your new idea.
I agree that no area will be immune but I think that the strong area/weak area spread will be approximately 30%/60% (total from peak). Areas most at risk are ones that rely heavily on public spending and where the workforce have an income entirely tied to the UK economy.
8. bluebeach said...
Anyone had the pleasure of dealing with Whitegates in Wrexham... The two fat ugly mares that run the place are just ticket.
So grumpy now that the ar$e has fallen out of the market... Worth just going in there to annoy the two old farts.... "Our houses...Our precious things"... They are the very reason that I detest feckin Estate Agents :O) Name and shame your hated EA
9. titaniccaptain said...
Would be interesting to see how London fairs in all this......with its reliance on the financial sector and service industries all taking a knock is it inconceivable that our (OK your Capital...mine is Cardiff) Capital could become a drain on public resources? IF so then the knock on areas that would other wise be immune would be catastrophic. You know more than I do on how the city is placed to weather the next few years.
10. amjidk said...
not sure about deflation after reading the following
http://cynicuseconomicus.blogspot.com/2009/06/inflation-deflation-and-money.html
11. flashman said...
tc: the city is feeling pretty good at the moment. There is aggressive recruiting going on in some sectors and optimism is sky high. I'm not sure how long this will last but there are no grey clouds visible at the moment. The feeling is that the UK could go to hell-in-a-handcart but the city would do fine because most of the business is international and there is very little competition capable of making a serious dent.
Enormous fees will be earned over the next few years from selling bonds for the world governments and from restructuring entire industries
HPC’ers, I know this will not be popular but please don’t shoot the messenger. It is what it is.
12. titaniccaptain said...
@Blue Beach
I have a list as long as my arm and I have to be a good boy now my mug is all over the net. But thanks for the tip off you just helped me with something ;-).......................................................................................................
@amjidk
Its as long as its broad the inflation/deflation debate I have yet to find a real argument that gives a true pointer on how the money feeds into the wider economy. But bloody good article.....
13. bluebeach said...
@12
What you thinking then TC ?!? I will keep an eye on EV.. Keep up the good work....
14. bellwether said...
To better demonstrate this point we look at Mosshead Road, which is in many ways the typical Bearsden address.
Mosshead Road comprises well built 1930’s semi detached 3 bedroom homes, and has long been regarded as an ideal location for families, offering excellent schools, shops and other amenities.
Prices for a standard 3 bedroom semi detached on Mosshead Road increased steadily over a 60 year period from construction, and as recently as a decade ago could be bought for a little under £100,000. From 1999 however prices began to increase at an unprecedented rate and by 2008 prices had more than tripled, with houses in the street changing hands for in excess of £300,000
What makes this 300%+ increase worrying, rather than simply astonishing, is that in the same period wages in the area increased by a mere 30 – 40%.
At FHP while we believe that the initial surge in prices between 1998 and 2001 was justified, house prices in the area reached fair value in 2001/2002 and thereafter should have grown sustainably at around 4% annually in line with wages. Increases on this basis are shown in purple on the graph above.
What we got instead however were huge unstable increases from 2002 to 2008, increases that were way beyond incomes and increases that therefore have no solid underpinning. In retrospect these increases were of course driven by a fear of being priced out of the market for good and lending practices so disastrously lax that they led to the insolvency of Northern Rock in 2007 and RBS and HBOS in 2008.
With a sharp drop in prices between 2008 and 2009 the trend has now definitively reversed and with houses prices a precarious 25% - 30% over fair value subject to significant falls from here.
RECENT DATA INDICATING IMPROVEMENTS IN THE MARKET
It is noted that Estate agents, who have a clear vested interest in talking the market up, are reporting green shoots. With houses at historically unaffordable levels these assertions are based more on hope than real evidence. While the market is bad, it is also being held artificially high as sellers refuse to drop prices to realistic levels. This refusal to price realistically has crushed the volume of properties for sale as buyers refuse to bite. This is not a trend that can continue indefinitely.
15. bellwether said...
The previous post relates to one of Scotlands best suburbs. The story is repeated across the country. Whatever else happens prices are not supported by underlying income and must therefore fall. There are no caveats to this other than rampant wage inflation which seems highly improbable
16. bellwether said...
Flashman good to see you haven't fled these shores. Thinking that if I find your post 11 unpalable some others on here will be totured by it.
You genuinely think the optimsim is well founded?
17. flashman said...
bellwether: let's assume that there was only one area in Britain that Bertie Worcester would recognise as his beloved Blighty. It is the only area left in Britain that is crime free and full of Roses, Real Ale and gymkhanas. Let's also assume that everywhere else in Britain looks like an apocalyptic shithole from a Mad Max set. Now if you had a huge inheritance where would you live?
My point is that there will always be a lucky few with large inheritances, legacy cash and huge earnings. This is why a true economic crash will see the occasional area bid up beyond any logical income/house price barrier. The shitier and more desperate Britain becomes, the pricier these last bastions will be. The hallmark of a third world country is an astonishingly wealthy elite. Maybe this is our future?
18. flashman said...
bellwether @16: no, I find it irritating and crass but it’s a true reflection of typical sentiment.
19. happy mondays said...
@ 11 The feeling is that the UK could go to hell-in-a-handcart ...It's good the city feels like that as that will be there undoing, the people are pi**ed off enough as it is, without having a bunch off t*ssers raking it in whilst the rest of the country is on it's knees..
20. flashman said...
happy: I sympathise with your anger but how will it be their undoing? Are you thinking of something like the French revolution? By the way, I haven’t checked into the site for a month or so, but I am surprised that more fuss hasn’t been made of the huge fees being earned by investment banks for selling government bonds. There is an avalanche of cash being earned on this. The irony is that some of these bond sales are only necessary because the government had to bail out the investment banks.
21. bellwether said...
Agreed on 17 although every seller kind of thinks they live in just that kind of area and most don't.
Also in scotland at least I don't really see more shit areas than I reemember but I do see far more overpriced areas. A 300%+ increase in price is not atypical.
I was kind of forgetting myself over the city stuff, was arguing the other day it's hardly their fault and I believe that. Few here would turn down the £ and privilige if handed to them. I certainly wouldn't. Doesn't mean I'm not sitting on the sidelines cheering on the next down wave of pain. I sense it is coming too. I know you think this is not the Great Depression but I'm thinking its more of the GD than people think. Credit will contract for years exposing the real poverty and anyone who thinks China can save us needs to learn about scale.
22. flashman said...
bellwether: re forgetting yourself...I know how that goes. I often take an anti-city stance at work and end up defending it here. I do actually believe in a version of the Great Depression where the distribution of wealth will revert to 1920's patterns. Couldn't agree more about China.
By the way, I've cancelled our longs on Sterling. We're not bearish but it's time to look for new inspiration
23. shipbuilder said...
17. flashman said...
"My point is that there will always be a lucky few with large inheritances, legacy cash and huge earnings. This is why a true economic crash will see the occasional area bid up beyond any logical income/house price barrier. The shitier and more desperate Britain becomes, the pricier these last bastions will be. The hallmark of a third world country is an astonishingly wealthy elite. Maybe this is our future?"
I think that unreasonable inequality is a sign of a failed nation/failed economic system. Ultimately the argument over which economic system is 'best' is really over which is the most efficient, or fair. In other words, which delivers rewards in proportion to effort. Of course I am not saying that everyone should receive equal reward - that is just another distortion which will also cause conflict.
The mistake is believing that the conflict will not occur if those at the bottom are comfortable - this is usually plastered over in any discussion to present our system as the best possible. Living in a gated community surrounded by slums is hardly a great option for the well-off.
There is no reason that we should accept gross inequality as inevitable - for anyone, anywhere on the political spectrum, this is an admission that their preferred economic system has failed.
24. flashman said...
shipbuilder: One of the great ironies of socialism is that it always ends up oppressing the poor and making them poorer. It's time for socialists and Labour voters everywhere to apologise. One day soon, we will be free from the yolk of their self-righteous posturing, the tyranny of political correctness and the nation corroding politics of the tax and spend left. Free at last, free at last.
Sorry ship, just having a larf before heading off.
25. uncle tom said...
The problem with socialism is that it is great in theory, and very seductive; but has never worked.
It worries me that the passage of time is making some people become misty eyed about the theories of Marx et al.. while ignoring the abject misery that those theories inflicted on countless millions of innocent ordinary people; when attempts were made to make them a reality.
No exagerration; - socialism is evil. Period.
26. shipbuilder said...
UT, Flash -with respect, you both completely missed the point of my post. What is the point of an economic system if not to deliver reward in proportion to effort? What instantly made you think of socialism and it's 'evils'? Do promoters of the free market not do so on the basis that it is in fact actually fairer than socialism? Did I really have to point out in my post that I WAS NOT saying that everyone should be equal? Jesus, take the blinkers off - are you honestly saying that gross inequality is better and inevitable? Many in the early part of the last century believed that no more discoveries could be made. Are we really that arrogant and naive to believe that we have reached the peak of the development of our systems?
27. shipbuilder said...
UT, Flash - in summary - so is inequality out of proportion to talent/effort good or bad? What is it that an economic system should deliver?
28. Hockinm said...
To be fair, anyone who associates Stalin's dictatorship or China's oppression and market orientated economy with Marx's ideas really has never read them.
In the same way that pure free markets have never been truly implemented (thatcher tried as hard as possible, pinochet got pretty close by just locking up, torturing and murdering dissenters who didnt like the social impacts), neither have real marxist ideas.
In reality, we have a total lack of ideology in the world these days, especially from a social perspective. We really should be deciding what values as a society we want and what kind of society we want, and to make the economy work for that and the people, not the other way around.
The phase/form of capitalism we are living in is unsustainable. Growth is finite. Space is finite. Resources are....
29. shipbuilder said...
If anyone can tell me, I'm really interested to know what the USP of our current economic system is if not to deliver the best result for the most people.
30. quiet guy said...
@shipbuilder,
I'm guessing that USP is short for Ultimate Supreme Purpose.
My best answer to your question is that the USP of our economic system is to acquire the maximum wealth to our country, especially those already rich and powerful for obvious reasons. I'd also say that it's not working terribly well these days for the average man in the street. Like Uncle Tom and Flashman, I'm very suspicious of collectivism and I'd like to see a much smaller government that isn't in our faces all the time. Things don't seem to be going very well for 'most people' but there is no easy way out of debt and - let's be honest - we richly deserve some of the economic problems that we inflicted upon ourselves voluntarily.
31. happy mondays said...
@ 20 Flash, it's not anger, just foresight, you do not have to that smart to see the direction we are heading ! As for french Revolution type action, no, we are to well conditioned for that, blinkered and numbed..But soon people will wake up, i'm sure in 50 -100 yrs time if we get that far, our future children will look back and ask, "what the F**k happened"
32. inbreda said...
just back to the article for a second - does anyone see the contradiction in the title?
nequity hits 1 in 6 prime mortgages?
errrmmmm - if it's in nequity then surely it aint prime!! Subprime is either mortgages people can't afford or mortgages that are risky - including those that are higher than the value of the property!
"UK has no subprime problem, nothing to see here, please move along!"
33. letthemfall said...
Uncle Tom: "No exagerration; - socialism is evil. Period."
Good to know there are still some certainties in this world. Can you tell me what the weather's going to do in 23 days time please.
34. 51ck-6-51x said...
Socialism is not evil, people are evil.
35. devo said...
34. 51ck-6-51x said... Socialism is not evil, people are evil.
Some people are predominantly evil. Most people are basically good.
36. letthemfall said...
Hate Man: love Mankind.
Or should it be
Hate Mankind: love Man