Wednesday, Jun 30, 2010
Another perma-bear bites the dust
This Is Money: Property 27% over-valued, but I'm still buying
Andrew Oxlade, editor of This Is Money, and long-term bear on house prices, goes the way of Merryn Somerset Webb and jumps into the property market. Like Merryn, he still believes property is significantly overpriced in comparison to wages, but he has got tired of waiting for the promised crash, and is prepared to take the financial hit in return for a more settled lifestyle.
Will the last bear to leave please turn out the lights.
Posted by little professor @ 11:15 PM (2867 views) Add Comment
44 Comments
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1. Jrhartley said...
Ditto. Doing the same, and I think in the same area as that commentator (Crystal Palace?). The fact that I can borrow fixed from Nationwide at 3.7% whilst they pay me interest on fixed rate bonds I took out with them over the past couple of years at 4.2-4.5% is one perversity. The other is that I am going for a small place which gives me room to live with my gf without us driving each other mad (currently in a one b/r flat). The fact of the market is that you could wait for years for prices to fall, but sometimes you just need to move as any paper losses you are prepared to take as a price to pay for quality of life. My philosophy - buy a modest, unloved style of property with space in an up and coming area with good rail links, do it up, live there and be happy. If it loses 40% or £100K, well, there we go. But if property values fall 40%, I think we'll have bigger issues to worry about than our negative equity as the banking system collapses, governments default, civil servants pension obligations are not met. We'll be heading for civil war and anarchy and the total breakdown of our understanding of society.
House prices will be the least of our concerns.
2. Bob said...
when the final bear has thrown in the towel, thats usually the true end of the bull run
3. Dave said...
My comment on the article below. A fiver says it doesn't get past Moneyweek 'moderation'
"...I sold to rent in November 2009 ... I've made the difficult decision as a property bear to hold my breath (and my nose) and buy a house ... having rented for nine months..."
Is this a joke? So, what yu mean is that having bought a house for peanuts many years ago and having recently sold it for a whopping profit, you have got tired of waiting (and renting) for a colossal nine months, and have given up on your ploy to sell at the top and buy at the bottom. Plenty of us have NEVER had the chance to buy, and you're bellyaching that your little get-richer nose/trough scheme didn't come to fruition in time to stop your introspection?
And this little exercise in journalistic self-fellation is news? And someone PAYS you for such banal utterances?
Extraordinary...
4. mark wadsworth said...
As the saying goes, the bubble only bursts when the last rational person stops thinking that it's a bubble.
Add Jonathan Davies & Titanic Captain to your list of perma-bears who caved in.
5. estrader said...
IMHO: Mark there is a good reason why that saying has merit. The house 'bulls' seem to believe that everyone is sitting on piles of cash just waiting for the right time to buy. As anyone who trades the stock market knows, the hardest things to control are your emotions, namely fear and greed. This can mean many things, like fear of missing out, fear of losing, greed of gain etc Essentially all traders can afford to enter a trade at any time and therefore they must practice absolute discipline at all times to ensure that they buy (or sell) at the right time. Impatience is a deadly enemy to the trader.
In the same way, those who can afford to buy a house must have discipline and control if they believe now is not the right time to buy and many are 'cracking'. But, as I suspect, there are many more, perhaps the majority of FTB who cannot afford to buy a house. While I am not suggesting that the waiting is easy for them, they have no choice but to sit and wait. Patience is more or less imposed on them. This is why I believe in the bubble graph, you see it in ALL asset classes ALL the time and houses cannot be any different.
6. techieman said...
i really dont know if this is a special situation or if these people have some sort of misconnect in their brains.. Alternitively it could be the rental market not supplying enough security or flexibility thats the issue, or the belief that IRs will stay low for the foreseeable, which means that the monthly outgo IS less for these folks. [incidentally i have deliberately never argued with those that say IRs will increase or stay where they are... basically because i have no real view on this - nothing jumps off the page]
If you find your dream home and you can get it then fair dues, we are all motivated by stuff other than money.... sometimes. And some people more than others....
Personally i cant rationalise this behaviour, and it does strike me that many experts both say one thing and do another and are absolutely awful market timers.
The buying by these people (and i thought that the jury was out on JD ? Mark?), the lack of momentum in the indices to the upside and the re-appearance (albeit briefly) of the bulls on here, strikes me as a pretty good contrarian set up....
7. Faustus said...
Amen Mr. Oxlade. I've also been a perma-bear for many years but the writing is most definitely on the wall for the whole 'housepricecrash' phenomenon. The key is interest rates, when the BoE is willing to cut them to a 300-year low of 0.5% then tolerate 3+% CPI with barely a whimper (and much spurious spiel about "short term factors") and more importantly tolerates 10% year-on-year house price inflation (with literally not a single comment on this) then it is pretty obvious that house prices are at best going to stagnate and big falls are not on the cards. Like Mr. Oxlade and Ms. Merryn I am just not prepared to wait for a lengthy 10-year "real terms" correction, life just isn't that long and so when my fixed-rate savings bonds mature next year I'll be looking for a permanent address. Things aren't helped of course by the renting situation in this country where my w*nk*r of a landlord forces me to effect any repairs to the property I rent at my expense on pains of eviction if I don't. What can you do when any landlord can evict you without justification on 2-months notice once your shorthold lease has expired and that is that. He knows that it'd cost me hundreds of pounds to move even as a renter since I'd need a removal company to get all my stuff moved and so he has me over a barrel. With the Tories cutting back on even the measly buy-to-let landlord legislation proposed by the previous Labour government then it is clear where their priorities lie, I am particularly disappointed with the Lib-Dems permitting this as a long-term Lib-Dem supporter but power corrupts I suppose. Ultimately you get sick of renting and the prospect of having a home of your own where you aren't being ripped off by a Scottish sc*m-s*cker becomes irresistable, so I will bide my time and try to not respond to my landlord's provocations and hope I can stay put until next year whereupon the housing ladder awaits, correction or no.
8. techieman said...
Hi EST : "This is why I believe in the bubble graph, you see it in ALL asset classes ALL the time and houses cannot be any different." . Yes thats really my other point, i have been banging on about the correlation of the housing market with the FTSE for some time, obviously with a bit of a lag at the turning points. The reason i do bang on about it - is for me at any rate, the FTSE is easier to read [not neccesarily to trade.. that would be a step too far :-) ]
Aside from some counter-trend moves because of oversold levels it now looks like we have exhausted the up move and are now trending down. So will this correlation remain intact?
And ive not even mentioned the D word!
9. Crunchy said...
Peace of mind. How much is one prepared to pay for it and in which form? Simples.
Recaptcha ~ the greenish
10. smugdog said...
All bow down to the graph that we earnestly worship, the one that is known as Bubbles.
Refrain from enjoyment; rejoice in misery until the Bubble speaks our language.
All await the sign of Double Dip from the almightily Bubble.
If not forthcoming, manipulate the graph as you wish in order that you may see the
demise that we oh so ache for.
Pull close the nets and continue in darkness.
11. Estrader said...
Hi Techie,
"So will this correlation remain intact?"
Have a look at the ratio of the average house price/FTSE1000 index since the mid 80's. It is very enlightening. Basically, the suggestion of property price falls of 20-30% seems accurate. Either that or they stay where they are until the FTSE100 index hits 8000, it is currently around 4853, where it was about 13 years ago. Of course this will mean nothing if you are one of those "things are different this time" people.
12. techieman said...
"and the re-appearance (albeit briefly) of the bulls on here, strikes me as a pretty good contrarian set up...." cue smuggy!
A-h-h-h-h-h-h-m-e-n
13. smugdog said...
Techie, I know now not to doubt you. All your predictions have come true and I
truly believe that they will continue to do so.
However, do refrain from displaying your knack of positive predictions online (your
shorting equating to 42K!). I know you felt provoked, but it's so very unbecoming and
just not you Techie.
Otherwise, do 'Carry On'. Amen indeed!
14. peter said...
If you were comfortably ensconced in a rented place, this would be a good time to sit it out and wait for property prices to fall - as they eventually must. There wasn't much holding them up in 2007 and despite the artificially low interest rates, there is less now.
But the truth is that renting is heavy going for most people. You are never master of your own house and are perpetually messing about with mean landlords, brain dead letting agents and inefficient tradesmen, who will usually have been instructed to do the absolute minimum. Not to mention uncertainty about the lease and the fun of having strangers gawping round the place if you are moving on.
All this has a heavy cost in terms of aggravation and general inconvenience, and I can well understand people who decide that they would rather face some losses by buying now, rather than put up with all the disadvantages of renting.
Having rented three places in 2 years, I can sum renting up in two words: IT SUCKS!
15. techieman said...
fair point sd you are right !
16. Zag said...
at least he won't be a rent forever loser ;)
17. hpwatcher said...
it's so very unbecoming and just not you Techie
It is what I would have expected. Techie also made some homophobic comments too - though I still fail to see the relevance of sexuality in a discussion about inflation or deflation.......
18. titaniccaptain said...
Buying a house is not a sin lol....
The sale of my house is going through....I will be a cash buyer (I know how lucky I am so I don't need to be beaten with it).....the house I like is up for the same price but is larger and in a top area....I will be one person who will have benefited from this site...(I have already because I would not have started my own site up without it).
Like the house I am selling the house I am buying on peak was worth significantly more.
All I am doing is swapping one house for another. Now I could wait until the crash goes nuclear and buy a much larger house that would be surplus to requirements....but.....I have been waiting for a house such as this in this area for a long time.....
IF however...IF....I needed a mortgage to buy a house I would most certainly not be buying.
Actually there is more to this.....but that all starts getting a bit weird and I already have the credibility of a nun in a brothel so I won't bore you with the weird and wonderful aspect to me buying this house.
Oh yes and it has a view of the Brecon Beacons that made me slam the brakes on nearly killing my family when I drove past it....
Must go.....I am moving today and tomorrow.....
later chaps....
19. Crunchy said...
I love it. 'Then you move on.'
RECAPTCHA ~ bank dandier
20. mark wadsworth said...
Estrader, yes I know all that (which is why I am not very good at trading, I have observed that I break even in the long run so why bother!). But when it comes to housing there's not just fear and greed, there's the Her Indoors With Her Nesting Instinct.
But unlike most people, I have a fairly good memory and faith in the old saw that everything reverts to the mean, so I reckon house prices will fall about 40% from 2007 peak. Plus I quite like renting (the interest we earn covers half the rent) and to come out ahead, prices round my way only have to fall 3% or so a year (in straight cash terms - ignore inflation on both sides).
Techie, correlation between FTSE and house prices - interesting. Do you have a handy chart?
21. estrader said...
"Buying a house is not a sin"
No, it isn't. Frankly, I don't know which is worse:- A Property VI telling people now is a good time to buy or a Perma-bear telling people now is not the time to buy and doing it anyway.
22. Pooodle2 said...
We've been renting for 2 years having sold just after the top...and I've been a lurker on here for a year.
We've had 1 bad, 1 indifferent and 1 good (current) rental.
Prices dropped a little and then stabalised where we are (nice bit of Dorset).
We're buying now, madness some will say, but with a wife, 2 kids and a 50% deposit we've found a great house at what I consider 10% under current market value.
I'm sure prices will drop more, by how mush and over how long - your guess is as good as mine.
But it might take 5 years and by then my 12 year old won't want to build a hornby layout in the loft and the 7 year old will be becoming a teenager!
So we've decided that there's more to life than waiting for a house to be that bit cheaper, and with a cheap 5 year fix the mortgage will be £400 less than the rent, so we get a better lie and no worries about rates going up.
I've enjoyed the banter from all angles and it's been very useful.
I'll keep an eye on what's happening, and wish everyone success.
And remember, ' A home is for life, not just an investment.'
23. estrader said...
Mark, just yesterday I was looking at the ratios of the two and interestingly, 30% property price falls seems to fit nicely. Either that or the FTSE100 needs to rise to around 30-40% and property prices stay the same. The FTSE 100 is currently at a level it was around 13 years ago. If I remember rightly, during the last bubble the ratio was around 57 and then dropped to 19. It is currently around 29. Draw your own conclusions. I just found it interesting.
24. techieman said...
"Techie, correlation between FTSE and house prices - interesting. Do you have a handy chart?" - no i dont, but i remember i brought this up before and someone had posted one somewhere on the forum. I think Drewster gave a link.
As for other comments about my behaviour, as i said above i apologised for the money based comment (that was stupid - although i have been provoked on that before by the watcher). Aside from that i stand by those comments...
"homophobic" ? my ar5e :-). Subject closed.
25. techieman said...
The actual correlation i meant was as an overlay on the charts of the two. It was a hunch but it seems to be supported by the movements. Maybe Drewster can help?
26. cyril said...
Quite an intersting debate...
I am a great believer in the bubble graph but the problem is that you can only see where you are with the benefit of hindsight. Personally I think we're in the return to normal phase. The other problem is that it applies to REAL house prices so a lot of the crash is being absorbed by savers not homeowners. If house prices crashed, the banks would be in trouble again....
27. mark wadsworth said...
Re FTSE vs House Prices, a quick Google gives us this and this.
28. techieman said...
Mark found it...... i think .... although there was another that looked better (that would have to be Drewsters version)
http://www.housepricecrash.co.uk/forum/index.php?showtopic=124082&st=0&p=2111955&hl=ftse%20correlation&fromsearch=1&#entry2111955
29. mark wadsworth said...
Techie, ta, but I don't think he did the two to scale - they appear to overlap perfectly, but the ratio house price divided by FTSE goes between 30 and 40.
I'll have to see if I can knock something up.
30. estrader said...
You don't need anything fancy:
I used the chart on the US Yahoo finance site for the FTSE100 and the house price chart from this site, picked different periods and calculated the ratio. It is simple to do.
http://finance.yahoo.com/echarts?s=%5EFTSE+Interactive#chart1:symbol=^ftse;range=1d;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
31. titaniccaptain said...
@Estrader
"I don't know which is worse:- A Property VI telling people now is a good time to buy or a Perma-bear telling people now is not the time to buy and doing it anyway.".........
I am afraid the comment I would like to leave would be pulled due to it being of an offensive nature....
As I have said ....I have chosen to buy because the house I am buying has been priced below the crash as was mine....40% less than on peak.
I fail to see your point.......
If anyone else can get a bargain like me after putting his money where his mouth is then fine........plenty of other people are pricing now below the "VALUATION PRICE" (Which is unachievable) in order to sell....my house on peak 360K...just sold for 180k.
And guess what.....the same applies to the house I am buying.
Estrader maybe myself and the other bears who have found such bargains should watch these bargains get snapped up by someone else because someone one a property blog doesn't think its the bottom.
Well neither do the bears but if you find a house priced below 40% of original asking price for a quick sale then what are you going to do?
People who NEED to move WILL make their house very affordable....
I have put my money where my mouth is and any insinuations of hypocrisy are quite misplaced......
The only thing I am annoyed at is having to explain myself to you........
Time for me to get a life........
32. techieman said...
TC - i for one wish you all the best with your move. There will be areas which lead the falls and those which lag. Per your south eats comment, i think if prices were 40% below peak here (in the south eats) then i would be very seriously considering a purchase. There is always a balance to be struck.
No defence of your position is required.
I am not sure EST was having a go at you in particular, but thats not for me to say really - whoops i said it!
33. mystie010 said...
@ mark wadsworth - Has Jonathan Davies bought? The traitor!
34. garch said...
The comment on the rental market tightening in his area is very important. The rental market in my area (SW12) has tightened dramatically in both supply and price, making securing a decent rental place alarmingly stressful. This does dramatically change the utility in the buying equation. Of course it's still only for those who can afford it though...
35. mark wadsworth said...
To be fair to TC, if prices round my way were 40% or 50% below peak and rental costs unchanged, the calculation would flip round and it would be better buying, because getting Her With The Nesting Instinct off my case would be worth the annual capital loss I'd suffer from having bought.
She'll be really miffed when I'm Prime Minister and slap Land Value Tax on everything :-)
36. Threesixty said...
To me it seems that a fall in house prices in this country is more a political than a market based issue. In reality the property prices should
have fallen significantly ages ago. Even before 2007, but the UK government has always changed the rules to keep asset prices high.
Witness the issue with interest rates. If it was really about keeping funding flowing to UK business and getting consumers spending why are so many UK businesses complaining?
The low interest rates and the bail out have been desperate attempts by the UK to keep property prices high because frankly, it's given them a leg to stand on in terms of maintaining covenants with overseas debtors and so on. It's keep the political property flippers happy with their million pound tax-payer financed homes as well.
The last few years have shown me that it doesn't matter what the markets, or rational common sense tell you. The game is completely rigged. You'd be better of going down the bookies and putting money on a horse than betting on "when" the government decide to let property prices drop. (Hopefully Cameron will see sense and "pop the zit" allowing the economy to function normally again instead of for the few monied bankers and foreign "entrepreneurs").
37. estrader said...
TC, The title of the article reads "Property 27% over-valued, but I'm still buying"
What made you think I wanted you to explain anything to me?
38. drewster said...
Sorry guys, I can't remember such a graph. I'd post more, but tbh what with this recession I'm having to work twice as hard just to keep my job!
39. techieman said...
Hi Drewster - sorry mate, its actually part of that thread by that clever chap i.e. (http://www.housepricecrash.co.uk/forum/index.php?showtopic=124082&st=0&p=2111955&hl=ftse%20correlation&fromsearch=1&#entry2111955) and the following pic:
http://www.sierrachart.com/userimages/upload_2/1251640884_61_UploadImage.png.
That is what Mark is referring to above.
Maybe it wasnt you though, but i thought it was!
40. techieman said...
Mark - this correlation may also be of interest - particularly the last graph!
http://www.houseprices.uk.net/articles/house_builders_index/
recpt : jonathan chart [!!!]
41. mark wadsworth said...
Techie, thanks but that one is all over the place, I think the house price/FTSE thing makes more sense.
42. techieman said...
MW - i just meant the last one on that page "Correlations after 2005 - Prices and Transaction Proxies"
43. mark wadsworth said...
Techie, indeed, but that just shows more or less perfect correlation so no arbitrage opportunity.
I preferred the house price divided by FSTE (assuming one point = £1) from the first link I found by Googling. It never goes lower than ten, and the long run average is maybe twenty but we are currently at nearly forty. So either house prices will go down by half or the FTSE will double to restore this. The FTSE in turn has its own long run p/e average (I think we are currenytly well above it) so the latter seems unlikely, doesn't it? And to paraphrase Sherlock Holmes "Once we have ruled out the highly unlikely, whatever we are left with, however unlikely, is more likely than the highly unlikely".
44. techieman said...
"So either house prices will go down by half or the FTSE will double to restore this. The FTSE in turn has its own long run p/e average (I think we are currenytly well above it) so the latter seems unlikely, doesn't it? "
Well you know where i stand on the FTSE... in short the answer is Yes unlikely, and in fact IMO we have more downside to negotiate - i think to text the March 2009 lows.