Saturday, May 08, 2010
New Age for House Prices
Times: Election to mark new era for house prices
"This week’s election may yet prove to be the moment that the UK housing market finally showed that it is subject to the forces of gravity. That is not to say that a hung Parliament is likely to be uniquely bad for house prices - The simple fact is that the new age of austerity starts here and, inevitably, that will weigh heavily on the housing market". Over the next couple of years the Bank of England will gradually withdraw its special liquidity and credit guarantee schemes, which lenders have become reliant upon to fund mortgages since the effective closure of wholesale money markets in 2007. Unless an alternative source of finance is put in place, the mortgage industry faces a £300 billion funding gap, which could undermine house prices dramatically over the coming years. "
42 Comments
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1. mick rupert said...
And coming from the most "sensible" mainstream ramping publication. Will we look back and mark these days as the point where the turn really kicked in?
I get the honest feeling things aren't really going to be quite as they were for last decade or so.
And I also bet that increasing numbers of folk will, in the near future, start to remark, "Well, it was never worth that much anyway." Of course it wasn't, and of course you thought that at the time!
Aren't people funny?
2. markj69 str05 said...
' If the market falls by significantly more than 10 per cent our banking industry could once more find itself in difficulties, triggering a negative spiral of new lending restrictions and further house price falls that would put the economic recovery in great jeopardy. Nor should we forget that falling prices would trap tens of thousands more borrowers in negative equity.'
Ok, quick analysis. If avg hp = 6x avg salary, then, salary = 17% of hp.
If hp reduces by 10%, then avg hp = 5.4x avg salary. Still extremely high when compared with a long term ratio of 3.5x or 4x.
'An extended period of stable prices that allow incomes to catch up with valuations would be very welcome.'
Not sure last years 10% increase actually constitutes a period of stable prices.
House price affordability is key. The Sh1t's going to hit the fan, rather later than it should have, IMO.
3. jallan said...
I think Gordon Brown will resign in the next few days and then regardless of what happens in the next few years, support for property prices will be withdrawn. The next government doesn't have to bribe an electorate for quite a while yet. No more low interest rates and printing money, combined with tax rises, public sector redundancies, Sovereign bankruptcies and a new credit crunch; property will soon be 2.5 times the average single persons income. I think it is safe to say that the crash is back on. The next government could collapse in chaos or impotency, that would really bring down prices. I think justice will be served.
4. mick rupert said...
I will personally punch the air with a jubilant spirit the moment Brown finally leaves office. That said, I think he and the other two leaders have acted quite respectfully with regard to the election result. Except for the part where Brown's bum is still wedged into the, er, "master seat" at No. 10, despite its powerlessness.
@Mark - intriguing analysis. What about volumes of sales and lending? Do you see a threshold where the tumbles should commence? Or is it pretty much NOW?
5. amjidk said...
jallan, i hope (and pray) your right, i have waited sooo long for the crash, it will be justice alright...
6. tenyearstogetmymoneyback said...
'An extended period of stable prices that allow incomes to catch up with valuations would be very welcome.'
And where is the increase in incomes going to come from ?
People say "It's different this time". The difference is that a collegues wifes 3% pay rise becomes a big talking point,
(although the fact that she is a Public Sector employee makes it less surprising). In contrast private sector wages have
actually been falling. In the last two years where I work we have had NO pay rises and two increases in pension contributions.
I sometimes put on my sig. Bought 1989 £65500, Sold 1999 £70500.
Maybe I should add. Salary 1989 £13850, 1999 £29200. I don't believe that was all down to promotions.
I've just spent ten minutes looking for wage statistics over that period but they all seem to be hidden.
7. tenyearstogetmymoneyback said...
mick rupert
If it is like the 90s there won't be a crash. Instead a steady erosion. My bargain 3 bed house in Hampshire
bought in 1989 continued to drop for another 6 years.In 1995 in took four months to get an offer of £52000.
The buyer then tried to Underzump me down to £48000.
8. dbc reed said...
No way is a Tory government going to oversee a House Price Crash.With or without turncoat Liberal support.(The Mirror must be sick after printing all those "Vote Lib Dem to keep the Tories out" charts and at-a-glance guides).There's not many votes for them in places reliant on Government spending (because the private sector has n't turned up to work its economic magic).Unless PC and the DUP can extract an opt-out there will be economic devastation visited on these places but as long as Homeownerist SE England remains clamped to the teat of house price subsidies,they'll think that they can get away with it.And keep house prices up where they matter.
9. cyril said...
@7 good point. However that was under Thatcher who was a bit of an extremist it has to be said.
I can't see the modern Tories letting house prices go down deliberately (unless they can get the crash going quickly and blame it on NuLabour).
10. nomad said...
Unemployment levels and salary stagnation are key - together with "real" inflation, particularly food and energy. There will be much less money to spare for housing.
We've criticised Labour for desperately trying to keep house prices rising and return us to the borrowing and spending that has supported the economy - and the bankers - for the last decade. I don't believe that a new government will continue to push the string. Give it a maximum of four weeks, maybe much sooner, before we hear: "We never imagined it was as bad as it is!".
11. uncle tom said...
The hung parliament, and the attendant likelihood of another election within a year, is likely to prove a big dampener on consumer confidence; without which, house prices tend to stagnate or fall.
But to that has to be added the issue of the deficit; something that Labour tried to trivialise and conceal, while the opposition felt unable to spell out in graphic detail, as the full horror of the remedy was electorally un-sellable.
But the muzzles are now off, and the Tories actually have an incentive now to highlight the issue, in order to portray LibDem whinges about electoral reform as a sideshow and a distraction, something of little national importance.
And while we were focused on an election, the wheels were coming off the financial markets elsewhere in the world..
My guess is that house buyers will be in short supply now, and those that are playing will be very hawkish.
I would also guess that the confidence of sellers to hold out for high prices will be shaken, and that there will be a greater willingness to accept poor offers.
The immediate outlook for prices therefore looks firmly negative.
12. tyrellcorporation said...
DBC - 'No way is a Tory government going to oversee a House Price Crash'..
There isn't any money left to prop up this asset bubble. Gordo's spent our money, our children's money and our children's children's money trying to do exactly that. It's worked to some degree but at a catastrophic price to the UKs finances. I expect a relentless drift down in house prices from here and there is a palpable sense of reality setting in after Thursday result. Everyone knew the party was about to end and the market's reaction to events says it all. Expect a resumption of 2% monthly declines VERY soon.
All very welcome (for us at least) but I'm still pretty pi55ed off that Gordon has wasted another two years for me. I'd love to hit him with a frying pan like Rik Mayal in Bottom.
13. uncle tom said...
"I'd love to hit him with a frying pan like Rik Mayal in Bottom."
- That is just too kind..
..and for Mandelson? The means used to despatch Edward II seem somewhat appropriate...
14. techieman said...
'No way is a Tory government going to oversee a House Price Crash'.. Ahhh the power of the politicians eh? This nonsense, or moreover the fact that people believe it sickens me.
Owe your allegiance to the political persuasion that distributes the money in the way that mirrors your own taste. If the politicians were so superhuman we would never have unemployment we would never have inflation we would always have growth and we would never have boom and bust.
Forget about the power over economics. Blame Labour if you like but had the tories been in power then the pattern would likely have been the same - lack of regulation when its needed most is just the mark of a bubble.
As for Labour's vote for us and we will get us out of the recession.... I cant believe anybody fell for that. "It was a global recession"... what and we are just a bit part player in a "global" economy??
And what are we being told now.... people voted for a hung parliament... erm nope i didnt see "hung parliment with the following party having the most seats:......." on the ballot paper. Did I miss something?
15. mark wadsworth said...
Techie, I think DBC makes a very valid point.
The electorate is now conditioned to think that high house prices are A Good Thing. I have been convinced of the fact that a large part of people's residual mistrust/loathing of the Tory Party is the high interest rates and repossessions of the early 1990s. The Tories are not that stupid, and they will have to try and keep prices propped up - whether because they are genuinely Home-Owner-ist or for naked political advantage is neither here nor there (I am still undecided as to why Labour did it, I assume for naked political advantage, but it is quite possible that they too are stupid enough to believe that high house prices Make Us Richer).
And if the Tory or Tory-Lib Dem government can't manage to keep prices propped up (it is, for example, a mystery to me how they will close that £300 billion 'mortgage funding gap'), they will at least have to show that they tried, or work out how to blame the subsequent price falls on the previous government, or The Evil Bankers, or those wicked East Europeans who are all going home again, or something.
16. titaniccaptain said...
Its all going to be fine....just keep buying gold.
:-)
Brown has just lost his box with Clegg on the phone......would love to have heard that conversation!!!!!
Where is the wireless microphone when you need it?
Pah!
17. tenyearstogetmymoneyback said...
People keep saying they will never let house prices drop.
A possible scenario is that they try and manage the drops in a controlled way.
Providing that people actually pay off their mortgages rather than MEWing
small drops over a long period would be more managable. No one ever buys a car
with the expectation that it will increase in value. If house prices were 20% lower
in ten years time would it really matter.
18. techieman said...
Mark it depends what you mean by "oversee". Realistically because of discussions that we have had countless times before, no party wants to be in charge when we have a HPC, but it still happens... as you well know being a student of Harrison (for example) .
I agree that there will be blame apportioned, absolutely BUT i think the fact remains that we have had the reflation and (subject to my 2 monthly falls rule) we are about to enter the 2nd wave of the HPC. Although the tories will try to do what they can to lessen it i basically think they wont have the luxury of implementing anything that will stop it. The thing has to deflate in my view.
Of course im not saying im right, it is my view though.
19. Crunchy said...
Dear Gordon,
that was very unsporting of you not to leave any more property props for us.
Do you really think that history will see you as the lost hero. The so nearly man.
PS, Have you got a spare key.
20. mark wadsworth said...
Techie: "Although the tories will try to do what they can to lessen it i basically think they wont have the luxury of implementing anything that will stop it. The thing has to deflate in my view."
That's exactly what I think, and I don't think that DBC meant anything else, we all know the Tories will try and reflate the bubble and/or only allow it to deflate slowly, the question is how much money will they throw at it and to what extent they will succeed.
To be fair, when the HPC first kicked off two and a half years ago, I didn't imagine that Labour would manage to keep things going this long, but then again, they did throw at least £100 billion at the problem (i.e. guarantees and loans for banks, plus share capital for Lloyds, RBS, minus the money the government promptly borrowed back from the banks via QE).
21. tyrellcorporation said...
@Mark
1/ 'we all know the Tories will try and reflate the bubble' - How? No money left!
2/ 'Deflate it slowly' - what, using their teeth?
3/ 'How much money will they throw at it?' - Um, see point 1
The house price boomlet is over. New Labour has been wedded to rising house prices to fund, well, everything. With them gone (hopefully) HPI will go with them.
By any reasonable measure we will need to find savings of £70-80bn over the next few years - forget the paltry £6bn. And that's just to stabilise the situation let alone try and pay down the debt.
22. markj69 str05 said...
@tyrell.. '3/ 'How much money will they throw at it?'... Printy, printy... Money is infinately available. How this affects other influencial factors, (Deflation and UK 'AAA' status), is another issue.
HPI...Ha! Maybe HPD will become a term more regularly used!
23. voiceofreason said...
Techie @ 14, "As for Labour's vote for us and we will get us out of the recession.... I cant believe anybody fell for that. "It was a global recession"... what and we are just a bit part player in a "global" economy??".
Er yes they do, my child minder gave the "global economy" being at fault not Gordon as the reason she voted Labour again.
So yes... the sheeple really are that dumb. Believe it !
Which is really the Achilees heel of true democracy.
24. dbc reed said...
@ vor
Enough of this patronising "sheeple" business,too common (in both senses of the word) on this web-site."Your" child-milder is more au fait than you are and certainly very progressive to hold a political conversation with an infant.The recession started off when the banks stopped lending to each other on the inter-bank market because they suspected the commercial paper, particularly collateralised debt obligations from American sub prime mortgages,that all the banks had bought as triple A-rated securities ,were in fact worthless.American mortgages which were often no-recourse were being foreclosed at an alarming rate,though in Britain ,where the lenders did have recourse to the law in getting their money,mortgagees tended not to cut and run. All of this Brown collapsed the economy is Tory and Lib Dem Big Lie propaganda, which since they are now plotting a stitch-up (who exactly voted for a Con/Lib pact?Not even many Libs and Cons),is indicative of the type of politics (rabidly anti public sector and undemocratic )that they wish to put into effect.
25. tyrellcorporation said...
DBC. No-one denies the catalyst was American subprime but lets not kid ourselves. In the UK we had a bigger housing boom and our sub-prime lending was arguably even more bonkers. On top of this (and here's the killer) Brown ran a budget deficit every year while the good times rolled - this is stupidity on a grand scale. He really did believe he'd ended the economic cycle; ended boom and bust.
On top of this he then embarked on a scorched-earth policy to get himself re-elected. Let's wait and see just how bad things are when the new administration, whatever it's make-up, opens the accounts. My hunch is that it'll make bloody grim reading and far surpass what we know already.
I simply don't understand how you can defend Gordon Brown - his record will go down in history as possibly the worst ever in terms of fiscal responsibility and judgement.
26. fubar said...
It strikes me that Gordon Brown gets off lightly as the next few years will be "volatile". Cameron is going to be even more short lived in the top job than Brown was. There is no way the Lib's will form a coalition with the Tories, Clegg would be commiting electoral suicide if he did that. He's been handed a poisoned chalice. The likeliest option is a minority Tory govt. Which dissolves in a month when David Cameron can't get his budget through the commons. What I find myself wondering is where did the home-ownerist pro HPI vote go. I assumed it was broadly that group who handed Blair his 2005 election, at the time he was less popular than Satan. But HPI was still game-on then so people voted as always out of self interest. I personally am a fan of PR but I don't think Clegg has the cojones to really go for it. Under PR you'd never have seen the bailouts happen in the same no strings attached way. Whatever happens I think the game is up for the house price bubblistas.
27. hpwatcher said...
@16. titaniccaptain said...
Its all going to be fine....just keep buying gold.
I have been buying gold for the last 2 years and am going to continue to do so.
It isn't too late to buy gold as an investment - unlike houses!
28. letthemfall said...
Agree with dbc reed and techieman. To seriously believe that the Labour govt is responsible for the credit bubble is to allow partisanship to cloud judgement. One could say Labour did nothing to prevent it, but then the Conservatives would hardly have done so, especially as Lab was following Con deregulation (1987). Then Clinton dispensed with Glass-Steagall, and the inevitable followed. If Labour overspent, it is no worse than Con underspending during their terms. The less well off benefit from the first, the rich from the second.
On the question what Clegg will now do, he seems to be in an almost impossible position. My hope is that he will somehow stitch something together with the parties (excl Tories) that will hold long enough to introduce PR. Then at least we get rid of this metronomic alternation between the two parties that have brought us the succession of booms and busts we've known since being old enough to vote.
29. techieman said...
dbc you are confusing cause and effect . Easily done i am sorry to say . Before the s hit the fan i doubt whether gb or for that matter dc could even spell cdo or cds.
30. hpwatcher said...
To seriously believe that the Labour govt is responsible for the credit bubble is to allow partisanship to cloud judgement.
That statement seems to have become some kind of mantra for Labour socialists, to try and mitgate Labour's economic crimes.
I simply don't accept that the Tories would have behaved in the same way - there isn't any past evidence for it, unlike Labour. The tories have never been shy of making cuts when the economy has demanded it - unlike the labour government, who have allowed the UK to gorge itself on debt.
My hope is that he will somehow stitch something together with the parties (excl Tories)
(excl Tories) - shows your complete political prejudice.
31. letthemfall said...
Ho ho ho. Good old hpwatcher and friends, kettles calling the pans black, especially if they don't like their opinions.
If it's evidence you want (though I really don't think you do) think back to 1987 and the deregulation of the City. Recall who was in govt then, and of course the late 80s boom, early 90s bust. And the bubble in America? Are you going to blame that on Labour too?
You're right about Tory willingness to cut though, not forgetting their enthusiasm for reducing taxes on the highly paid. Yes, I have a prejudice against the rich getting richer at the expense of the poor, though Labour have managed to preside over that too (but that is hardly down to socialist policies).
That I think Clegg should form an alliance without the Tories has nothing to do with "complete political prejudice", but realism - the Tories do not want PR. I happen to think PR would be a good thing, hence my preference for a "traffic light" alliance. That would introduce a genuine change to our political system, which I think we sorely need.
Still, none of this is likely to give you pause for thought. Why don't you take a leaf out of mark w's and stillthinking's books, both politically right but both always offering arguments to support their views. Or perhaps you'll just carry on with your daily mailings and rumblings.
32. dbc reed said...
@tc
Of course,Brown presided over a huge housing bubble.But the bursting of this did not devalue all the American sub-prime securities: in fact it looks like the British bubble has swiftly re-emerged.It was the seizing up of the international market in securities that caught out Northern Rock which was unusually reliant on wholesale markets.It was not northern Rock morgagees that devalued the company by getting foreclosed.
All of this talk from Pipsqueak Clegg about rebuilding from " the rubble" of the economy left by Brown is brutal nonsense and i trust brown told him where to get off ,if this is the kind he said to him rather than to the TV cameras ( and the rapidly materialised mob of no-deal with Cameron Lib Dems) .
33. hpwatcher said...
Ho ho ho. Good old hpwatcher and friends, kettles calling the pans black, especially if they don't like their opinions.
Well at least it isn't anything personal. But I am judging political parties on what they have DONE - nothing else. You are judging the tories before they have done anything - I mean it isn't clear what they are going to be like just yet.
And the bubble in America? Are you going to blame that on Labour too?
Clinton repealed the Glass-Steagall to try and prevent Wall Street banks from moving to London, due to what Gordon Brown was doing i.e. de-regulation. However, loose monetary policy is far more responsible for the mess that the de-regulation of the banks - and Gordon Brown was a much greater influence on that.
34. techieman said...
"I simply don't accept that the Tories would have behaved in the same way" - that sounds familiar!!. Not sure how and even if we need to bother to open closed minds. I know the answer "buy gold".... :-). Intellect only surpassed by imagination eh?
Dbc - really it works like this. The CDO or CDO squared, cubed etc, was allowed to go on as long as it could, until it couldnt. When the tipping point was, no-one knew. However most of those "in the know" knew there would be a tipping point, they just hoped they wouldnt be holding the parcel when the music stopped. We know that UK banks were as involved as their US counterparts (else no bailout would have been required).
Had the tories , labour or Vince cable been in would have made no difference. Can we blame Labour? Nope we cant but similarly you cant say Labour would have been best placed to keep an imaginary recovery based on pumping the monetary aggregates and, in effect loosening fiscal policy.
Its just time thats all - was time the markets imploded and time they retraced back when they did. Who was holding the reigns at the times made little difference. The tories would have definitely saved the banks and they would have been villified too. Thats my only point. Thats why its a con for GB to say "vote for Labour we are best placed to secure the recovery".
The sad thing is that his smug grin will probably come back to haunt us. The recession (at best) in my view (and i could be wrong) will reassert itself [whoever had won] but GB will be saying aha ! See i told you so....Bigot!
35. letthemfall said...
hpwatcher
I'm glad it's nothing personal.
As for judging the Tories, I'm going by their 79 - 97 record (and Cameron has said little to make me think they have undergone a great transformation). Again, the real deregulation was the so called Big Bang (87).
By loose monetary policy I assume you mean low interest rates & high public spending. The Bank had responsibility for this (you could blame GB for that if you like), and of course globalisation was the main force behind low rates. Spending was certainly higher under Labour, but then it needed to be (holes in school roofs, etc). As I've already said, this is a good thing for those who are not rich; the rich, on the other hand, prefer low public spending and low taxes.
36. hpwatcher said...
"I simply don't accept that the Tories would have behaved in the same way" - that sounds familiar!!. Not sure how and even if we need to bother to open closed minds. I know the answer "buy gold".... :-). Intellect only surpassed by imagination eh?
Put your handbag away, you might hurt yourself.
Had the tories , labour or Vince cable been in would have made no difference.
I disagree. Shame you just simply can't accept the fact that someone has chosen not to agree with you. Moreover, the evidence of how another party may have acted is against you.
37. hpwatcher said...
I'm going by their 79 - 97 record
Actually Thatcher is no longer the leader of the party, sure there may be an influence but it's run by different people now. I judge Labour by the last 13 years, which I think are going to turn out to be pretty disasterous.
Spending was certainly higher under Labour, but then it needed to be (holes in school roofs, etc).
I worked for the NHS a few years ago, and I have never ever seen so much money needlessly being wasted in all my life.
the rich, on the other hand, prefer low public spending and low taxes.
I'm not sure that anyone prefers high public spending and high taxes.
38. techieman said...
hpw - ouch you Biatch!!!!
39. letthemfall said...
There've been a few leaders since MT, one a PM. I don't think the Cons have changed that much eg. euroscepticism, planned inheritance tax break.
Low earners rely more heavily on public services. They prefer well funded services.
I can accept that money is wasted in the public sector, but so it is in the private, and specious arguments about taking custom elsewhere don't change that.
Anyway, enough for one day. What's a biatch techieman?
40. techieman said...
LTF - its just disrespectful gangsta slang for Bitch. Because HPW is being a bit bitchy about my Marc Jacobs h/bag!
My point is actually not political at all. Whoever was in power the same thing would have happened - it would have just been the timing that may, i concede, have been slightly different.
Still in a way HPW (a true Bigot) has a point. I can accept he has a different view, as of course we have no way of knowing what would have happened had the Tories been at the helm. I actually don't favour any of them as regards the economy, as i believe there are much stronger forces at work and that whichever government are in power can only tinker round the edges or extend a trend, but not thwart it.
Its actually him that cannot open his mind to the fact that his view as to who is in power really does make such a huge difference, is more than likely plain wrong. To be fair i could concede that historically a vote for the parties did make a difference. The election of old mother Thatcher for example was in line with a trend to lessen union powers which was at the time what the country probably needed, and was implicit in the vote and mandate for her, whether you like that or not.
Now you can get a couple of rizlas between the main parties - why wonder why we have a hung parliament? And why get so uptight about one over the other?
41. hpwatcher said...
Still in a way HPW (a true Bigot) has a point
You have now become the self appointed spokesman for this website - the mark of an absolute bigot.
42. techieman said...
Merci mon amie..... But i think you need to look up yr definitions..... I was expecting a bit more from you :-). But then again addressing the real issues never was yr strongest suit!
BTW - where is the yellow stuff this am? Time to buy some more d'you think?