Saturday, Oct 03, 2009
The current stalemate is temporary
Independent: David Prosser: Blinded by housing's false dawn?
Homeowners should be thanking their lucky stars that Labour have bunged them low interest rates and legally stymied the repossession process. If normal market effects had been allowed, the house price correction would probably have been over by now. However the unforeseen and undesirable consequence is a dragging out of the crash to damage confidence in the housing market for a decade. In short, the government and Bank of England are creating the lost generation through their 'rescue' measures for homeowners which will never solve the problem, only kick it into the long grass for a few years.
Posted by paul @ 01:24 PM (1821 views) Add Comment
26 Comments
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1. devo said...
"The current stalemate is temporary"
What will break the deadlock? It wasn't clear to me from reading the article.
2. quiet guy said...
If the very worst the house market has to look forward to is a 12% dip ('fair value' according to the IMF) then the House Price Crash really has been cancelled. I'd call 12% a house price lurch. A proper crash requires at least 25%, inflation adjusted, off the 2007 peak.
3. phdinbubbles said...
Good article, but spoilt by the line: "But there aren't may reasons to be hopeful."
This is a brainwashed Country.
4. enuii said...
This snippet caught my eye; 'There is already some evidence that sellers are beginning to return to the market'.
Traveling past the same roads of somewhat upmarket housing stock every week I have recently noticed a significant increase in large detached properties coming on the market that have had large amounts of money spent on them over the last couple of years. I suspect that a good proportion of the owners of these properties are trying to shift them ASAP for some speculative reason or other!
5. wally said...
enuii@4 I agree
Its been very quiet for a couple of years on my estate, and in the last two or three weeks the for sale signs have started appearing again. Also I've been keeping an eye on another part of the country, where I would like to move. A Rightmove search has been returning 180 or so houses available for a few months for my criteria an in the last couple of weeks this has jumped to 230.
6. bidin'matime said...
Devo said "What will break the deadlock? It wasn't clear to me from reading the article."
No one can know this for sure. I always think back to the dotcom bubble - I was an IFA at the time and was telling people that I thought the 'millennium bug' (or fear of it in the US) was the most likely thing to burst the bubble - but 31/12/99 came and went and still the bubble continued to inflate at an alarming rate. Then it burst without warning in the spring of 2000 and, more importantly, without any obvious reason.
Now, I know all the arguments about property being less liquid than stocks and shares, but we’re talking about the timing of a change in direction of the market – the property market may have greater inertia as a result of illiquidity, but like a swing with a heavier child on it, it has to change direction eventually. And the lesson from the dotcom bubble is that it doesn’t actually need much of a trigger (butterflies flapping their wings, and all that stuff…).
Of course, there will be a trigger, but it is as likely to be something that no one could possibly foresee (eg a natural disaster) as something foreseeable.
7. stillthinking said...
After property prices crashed 80% in Tokyo, even at that level and today they are still out of reach for the average buyer. So deadlocks can persist for a fairly long time albeit at the expense of the economy.
For the UK a government debt crisis will break the deadlock. Like any credit card you can pretend everything is fine right up to the limit.
8. clockslinger said...
Stillthinking, agreed. But will the debt crisis occur? I would have expected it to have happened by now...pound collapsing and the appetite for UK gilts must surely be tempered by the fact that we don't make/export much like Japan and don't happen to have the currency in which the rest of the world is gives us credit, like America. Even George Sorros, who saw all this coming since Thatcher and Regan, thought the UK would take a disproportionate battering given it's economy is massively overdependent on banking and house prices...and yet... still no debt crisis. So folks, when...and why not already?
9. Burt said...
@bidin'matime
"Of course, there will be a trigger, but it is as likely to be something that no one could possibly foresee (eg a natural disaster) as something foreseeable."
Tens of thousands of deaths from swine flu could see a 5-10% increase in mortality over the next three months. Think of the forced sellers! But that's a bit on the high side if vaccinations can be adminstered in sufficient quantities quickly, to provide protection to vulnerable groups and a degree of herd immunity to limit the incidence of infection.
Black death would do it.
10. will said...
The debt crises has been transferred to every taxpayer in the UK. This will have to be paid back at some point soon, because the deficit is costing us billions of pounds in interest payments alone. All they have managed, so far, is a delay in the inevitable.
In the mean time I don't believe that house prices will rise much from here for many years, so I am content to rent.
11. devo said...
"The debt crises has been transferred to every taxpayer in the UK. This will have to be paid back at some point soon"
The debt can't be paid back. Ever.
I can't produce the figures to prove that it can't, but can you prove that it can?
12. will said...
@10 devo
QE is borrowed money from countries who are willing to lend to us for a rate of interest believed to be over 6%. The money is very real and is loaned under legal contract. Many wrongly believe that the Bank of England and Federal Reserve have simply printed this money.
The UK now owes in excess of £175 billion. If we fail to make repayments to our debtors, the IMF can bankrupt countries as we have already seen.
13. will said...
UK Government Debt was £796.9 billion as of March 2009 according to National Statistics.
14. Fra Paolo said...
Ever since the crisis exploded a year ago, I've said that the real parallel to it is the financing of the Second World War. Britain disposed of much of its overseas assets to finance two world wars, and eventually only was able to stay in the struggle on the credit of the United States. I'm assuming Britain still has a lot of overseas assets, built up over the postwar period, and that the view of the financial markets is that this is what makes the UK economy a viable proposition still.
Commentators on this site are obsessed with Britain's problems (which are indeed almost obsessively large), but financiers are supposed to measure assets and liabilities. As long as they think the gap between the two isn't too large, they'll be inclined to give Britain time to work its way out of its problems, simply because they already have too much invested in the kingdom as it is. The question for them then becomes, how to solve the problems? If financiers don't like the government's solution, that's when any crisis storm will break.
As I've said here before, the next election is going to be a good one to lose, like 1992 turned out to be. Britain is playing a weak hand, and it is going to take a lot of talented leadership to stay in the game with it.
15. tenyearstogetmymoneyback said...
@ 6 bidin'matime wrote about the Dot Com bubble,
I reckon what burst the Dot Com Bubble was when people realised there were better, more realistic and
more profitable returns in Buy to Let and property speculation.
Back in 1999 I used to avidly read Dairy of a Day Trader in the Sunday Times, about the investment "genius"
who downsized from a Four Bed to a Two Bed to release money for his Sharedealing activities.
Back then houses were considered to be as much as an investment as cars.
So personally I reckon what will burst the housing bubble is a bigger more attractive one appearing in
a different sector. If we really want a HPC we should cheer on every rise of the FTSE as it diverts money
away from housing.
16. mdmick said...
@13
That makes perfect sense to me.
17. Brightonrentfodder said...
Well perhaps tenyears..... it'll be the stock market itself that causes the Housing crash proper: judging by the doom and gloom journalism about the uncertain foundations to the current boom in this market, if it fails badly, it could reduce a lot of the confidence and wealth available to the housing market, despite the Govt's contrived attempts at hiding inflation and freezing the low interest rate.
18. str 2007 said...
Sorry, I think you're both wrong there.
Man in the street has lost all faith in pensions and ivestments. DOn't forget they've seen housing bounce back after he last crash.
Just like the last crash, the only thing that will make someone sell a house below 2007 (less maybe 10%) is being forced to through either death, divorce etc. Or because they get made redundant and they money stops coming in (but there are various safety nets to rescue this situation, at least in the short term).
Or if this country is somehow forced to put interest rates up significantly and by that I mean base above 5% and banks maintaining current margins so mortgage rates approaching 8-10%.
No boom in the stock market will make house prices fall.
A serious collapse will make people realise all is not well, whilst in equal measure remind them what a good investment bricks and mortar are (or should I say a small patch of land with planning permission).
19. mander said...
Some want the Ponzi scheme to keep going where hardwork will not be needed but only wise investment however houses have reached astronomic levels for working people and the Torries will have to sacrifice quick the house prices by 40-50% to have a fully fuctional economy.
20. tenyearstogetmymoneyback said...
str 2007 @ 15
How many landlords would be tempted to sell up if there was something else offering a much
higher return year on year ?
How many tennants would be prepared to buy the properties they are in if the landlord offered it to them
at a sensible price ?
The thing that is completely different from the last crash is Buy to Let, Mortgage Finance etc.
It wasn't that long ago when the only way to own two houses was with a bridging loan at a
horendous rate of interest.
21. devo said...
"If we fail to make repayments to our debtors, the IMF can bankrupt countries as we have already seen."
So what?
22. alan said...
Paul, (or anyone else...)
"....only kick it into the long grass for a few years".
Don't you think that things will change after the election? (I'm assuming there isn't a crisis forcing a change in the meantime).
23. devo said...
"Don't you think that things will change after the election?"
Things will change soon, but not necessarily because of the election.
s2r1 used to refer to a fast approaching singularity. It struck a chord with me, though at the time it seemed an abstract concept.
The most obvious manifestation of his theory is the debate that we are now in a new Depression. You would have been laughed at for suggesting this a year ago.
24. quiet guy said...
devo asked "What will break the deadlock?"
Good question! I scratched my head a bit but couldn't come up with anything I considered blogworthy.
Then I came across this (please ignore all talk of gold and just read what it has to say about currencies):
http://seekingalpha.com/article/164512-why-gold-if-deflation-is-the-threat
What? A currency crisis.
When? Dunno.
25. devo said...
21. quiet guy said... "What? A currency crisis."
Which currency will be in crisis first?
Is there such a thing as a currency crisis domino effect?
26. tenyearstogetmymoneyback said...
A final thought in this thread from me.
Lots of people have commented about Spains problems and the fact that Satander is a Spanish bank.
Can you imagine the fall out if they went the same way as HBOS ?