Tuesday, Jun 29, 2010
Front page this morning
City AM: House price boom starts to crumble
HOME prices fell for the first time in more than a year in May, Land Registry data showed yesterday, sparking fears of a second downturn in Britain’s fragile housing market.
Posted by debtfree @ 08:06 AM (3085 views) Add Comment
36 Comments
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1. greenmind said...
Richard Donnell of Hometrack said: “The growing supply-and-demand imbalance spans the country and under normal market conditions this would typically result in a downward pressure on prices. However, very low transaction volumes are exacerbating the scarcity of housing for sale and this is acting as a support to prices.”
The last sentence above doesnt make any sense. He is effectively saying "Increased supply would ordinarily mean lower prices, but because there are few transactions there is a scarcity of homes for sale. Some expert!
2. estrader said...
Blah...blah...bad news... Blah...blah...bad news...ES around the 1063 level AGAIN... Blah...blah...bad news... Blah...blah...bad news... ES around the 1063 level AGAIN... Blah...blah...bad news... Blah...blah...bad news...ES around the 1063 level AGAIN... Blah...blah...bad news... Blah...blah...bad news... ES around the 1063 level AGAIN... Blah...blah...bad news... Blah...blah...bad news...ES around the 1063 level AGAIN... Blah...blah...bad news... Blah...blah...bad news... ES around the 1063 level AGAIN...etc
3. mrflibble said...
The juggernaut is finally making its way around the turning circle... And there are some out there who think now is the time to buy... Before they 'miss the boat.'
4. mark wadsworth said...
Which just goes to show that if the Home-Owner-Ists repeat a lie often enough, it becomes accepted as true, in other words this:
"Investors are concerned a double-dip retrenchment in the housing market on either side of the Atlantic would severely hit consumer spending and risk dragging on the fledgling economic recovery."
Surely, if house prices were to halve overnight, then it wouldn't much affect people 'on the ladder' (their mortgage stays the same) but for most people under 35 or so, this would be a massive boost to their spending power, so there would be a lot MORE 'consumer spending', remembering always that spending is the flip side of production and output? And those people who thought they could get rich just owning a house or three will have to go out and get a proper job and actually produce something new?
Elsewhere in today's City AM they are a bit more honest about it and admit that higher house prices only leads to more consumer spending via equity withdrawal (or underpaying mortgages) in other words high house prices just fuel the credit binge (and also are a result of the credit binge). But yet again, on Planet Home-Owner-Ist, credit card debt is something dirty and shameful but having a huge mortgage secured on a bubble is a sign of solidity and responsibility.
5. simon68 said...
“Elsewhere in today's City AM they are a bit more honest about it and admit that higher house prices only leads to more consumer spending via equity withdrawal (or underpaying mortgages) in other words high house prices just fuel the credit binge…………………….and responsibility.”
It is a choice between replying on endless house price boom and use top-up mortgage loans as cash dispensing machine to take out cash for consumption versus low house price and rentals, thus freeing up family budget for consumption.
What would you prefer?
6. uncle tom said...
One of the wisest sayings in the field on investment runs thus:
"Bubbles don't burst when sane rational people think they should; they burst when sane rational people no longer believe there is a bubble"
Which takes us to the question "Is the British housing market an investment bubble?"
My test to determine whether something is an investment bubble is to examine its sustainability.
I don't believe it is sustainable, partly because far too many people are priced out of buying, and partly because current rent levels are only economic if house price inflation exceeds wage inflation. If rents rose to levels that were economic against a market where house price inflation only matched wage inflation, far too many people would be unable to afford to rent.
Thus we have a bubble, yet sane rational people are increasingly of the opinion that it isn't.
Now the government has changed the rules on CGT, which appears to require an average of about £50/month rent increase for landlords to compensate; and is also determined to heavily reduce spending on housing benefit. Add to that, the likelihood that interest rates will increase before the year is out.
So, we have a bubble primed to pop, and the government and BoE are wielding pins...
7. timmy t said...
UT, can't fault your logic. So come on, what % falls are you predicting from here to the bottom and over what time-frame?
8. it_is_going_with_a_bang said...
It's not really rational thought thought is it. It's living in denial and hoping for the best - it is an inconvenient truth being side lined.
It is a perceived vested interest. Most people associate house price inflation with employment, filling their pockets with cash, new cars, holidays and basically earning money for doing nothing in some cases.
The fact that someone else / society has to pay for it all somewhere down the line is irrelevant - it is the instinct of survival of the fittest which is predominant is most peoples eyes.
Which gets back to the point just made - of course it is a bubble that is exactly what everyone is hoping for - they just want to make sure they are in it and profit from it.
15% / 20% reduction over 18months/2 years.
9. greenmind said...
Uncle Tom: do you consider yourself to be a sane, rational person? If so, according to the wisdom you quote this bubble isnt about to burst!
10. uncle tom said...
Greenmind,
Sane? Rational? Me?? ;-)
I've always avoided going with the herd, and always questioned the consensus view..
..And I've done very well as a result..!
timmy t,
The devil is always in the timing - I didn't think we'd have to wait this long..
11. greenmind said...
On average 10% fall per year over the next 4 years.
12. uncle tom said...
I still believe that when the bubble does burst, it will do in style - not an orderly devaluation of a few percent a year, but a wholesale collapse..
13. happy mondays said...
Uncle Tom you speak a language i understand & like to hear...& hope you are right, just to put some sanity & levelling in this country we live..
14. debtfree said...
Yep, well said UT.
Very rational indeed. I do hope your right.
Recently it's been like playing a fruit machine, you're still waiting for the jackpot, but it's getting more expensive to play the game.
15. Jrhartley said...
I share your concerns, but in fairness, I get the impression that a lot of people posting here are stale property bears. You might be wrong on fundamentals, but if you are working on those grounds, you would have lost a lot by selling in 2003/4 thinking the market was over-valued then. Ultimately, everything you say is right, all assets are over-valued, not just property. Simply because people like Soros, buying gold, or Mr. Smith, buying a pile of bricks and mortar realise that governments are going to do what they always do when faced with a debt crisis. Print money. So if you are long cash, short fixed assets or securities, your purchasing power will see some serious erosion. That's the flipside of the argument and clearly we are finely balanced between unemployment and double dip putting downward pressure on prices and the presses being ready to run 24/7/365 to completey erode the trillions that governments globally owe.
We've seen it so many times in the past since the break from a gold standard, I think its a brave man who bets they won't pull the same trick again. QE on acid. Brace yourselves.
16. simon68 said...
“I still believe that when the bubble does burst, it will do in style - not an orderly devaluation of a few percent a year, but a wholesale collapse..”
Wholesale collapse? It’s a bit scary.
I guess if the government won’t bail out any British bank in future, this scenario would happen. Facing mounting behind mortgage payments and bad loans the only alternative for banks to survive is to foreclose the property & put it in auction for quick sale.
17. techieman said...
Hi EST - not sure what that has to do with the post! :-). Care to enlighten?
18. hpwatcher said...
I still believe that when the bubble does burst, it will do in style - not an orderly devaluation of a few percent a year, but a wholesale collapse..
I think the Govt will try absolutely everything to stop that - because along with the bubble the banks will collapse too.
19. mark wadsworth said...
FWIW, I think we are looking at a Japan style yearly drops of 5% to 10% for a decade or so. For psychological reasons, yearly falls of more than 10% never happen, so if we expect a 40% overall fall it will take ages. Some of that may be masked by inflation but you don;t get high inflation without currency controls, so until and unless they bring those back in I ain't too bothered.
HPW, who worries about the banks? You can sort them out with debt for equity swaps. They are just middlemen or utilities. If the owner of some power station were leveraged up to the hilt and unable to repay his debts, then the lenders would put him into liquidation and take over the power station. None of the ordinary customers or employees or suppliers would notice much difference. And indeed, they sorted out NR and B&B with D4E's and nobody on the outside noticed.
20. estrader said...
Hi Techie,
It was a general ‘swipe’ at the economists, journalists and the whole media in general. Today the world economy is facing Armageddon, tomorrow things will not be as bad as everyone thunk, next week things will be as bad as everyone thunk or worse, the week after that they won’t be, rinse and repeat ad nauseam. Only the market tells the ‘truth’ even if the ‘truth’ is open to interpretation, and that is all I pay attention to.
21. techieman said...
Well must admit [yea finally right? :-)] that the 1060 level is a bit of a pivot . The patterns (and I may be wrong but money is where my mouth is) show a quick fall (maybe testing the 1040) and then to recover above the 10k dow level (we may have had that fall already). So liquidated some shorts and will add some more, if we retrace to 1090 – 1100.
After that my view is FWIW that we will start to really tank, with selling on stop below 10k – although that might need a couple of bites.
Was surprised how quickly FTSE breached 5k, which looks to be the line in the sand and the equivalent of the Dow 10k.
As for HPs we need 2 consecutive months of negative data to reinstate the bear IMO… That IS looking more and more likely
22. jack c said...
techieman - interested to see your comments on what is behind your view ie "that we will start to really tank"
23. debtfree said...
The government are supporting prices by helping with mortgage payments to the unemployed and those on benefits. Anyone who loses their job will receive help after 13 weeks, I think it's upto 200K mortgage and I/O. Not long ago it was 6%, with some people actually paying off their mortgage as they had a low rate... i mean, that is absurd. To think that they don't work, are claiming help on a mortgage... and it's being paid off !!
That's why I don't think we will see a fast crash, if people aren't working and the government is paying off the mortgage for them or holding it afloat, then there will be no forced sale, no reposession and no bank loss.
24. uncle tom said...
"I think the Govt will try absolutely everything to stop that - because along with the bubble the banks will collapse too."
Yes, but I think their toolbox is pretty empty now..
..conjuring up new money from thin air to bail out banks when the economy was under severe contraction was a very risky strategy that may yet come back to haunt.
Attempting to repeat that strategy when the economy is in growth, static, or only lightly contracting; would be a potent recipe for inflation and increased interest rates.
What the govt would probably do is to re-write all the solvency rules for the banks, and make further efforts to slow the repo process..
..but as most of the available cards were played by the last govt., there's not a lot they can do..
..making bankruptcy much tougher is one option, thereby bullying people into paying down mortgages that are far larger than their house is worth; but there's not much else..
25. techieman said...
Hi Jack – my basic view is that the reflation has run its course but that the market needs to ebb and flow before it realises the consequences of this. My pattern work agues that there may be a bit more back and forth trading once the 1040 is hit or slightly breached.[low 1041 today]
However that may be wrong and we may just continue down now to find a new level..... As you know i dont really want to go long based on this as i am a bit of a permabear :-).
See:
http://www.housepricecrash.co.uk/newsblog/2010/05/blog-skynet-is-not-a-cameron-invention-after-all-28757.php
17. techieman said...
…. As for other ideas i would be inclined just to short the stock markets. I think the time to use options is probably past - too expensive, so its out and out futures. As i said IG do guaranteed stops and although i realise that people say the spreads are too big - in all honesty i would rather pay a bit more for relative safety myself….
Friday, May 7, 2010 06:16PM
Sensible comments from UT.
26. jack c said...
techieman - thanks for the input, the markets are a sea of red today and I have several people asking if they should get out now before it gets worse. I have resassured them with this (LOL)
www.citywire.co.uk/new-model-adviser/why-barclays-thinks-now-is-the-time-to-buy-us-shares/a410591?ref=new-model-adviser-latest-news-list
27. techieman said...
Jack - as you well know its a bit of caveat emptor. I have some skin in the game - but have got out of a fair bit today, looking for a bounce. cash S&P 1046 as i type. Basically they should of got out earlier - as i said above..... but i would be the first to admit, hindsight is a marvellous thing.
As i know being a smart ar5e often means you get yr bum bitten!
Capatcha "the rented" - omen or what?
28. techieman said...
p.s. we need to watch the dollar – short term the idea is the falls in the dollar are reversed, and then bigger falls (consistent with higher Stock markets – although there has been some de-coupling recently). Once the dollar falls (Euro increases) in a short sharp shock, then we have a reversal for the next move up in the dollar and correlated downmoves in the S&Ps which take other markets with them…..
Well that’s the theory! Of course if it doesn’t pan out like that I will modify my stance accordingly. [ flexibility and admitting when you are wrong are – as ever – the key].
Good luck Jack!
29. jack c said...
techie - thanks for the additional input. BBC Business now covering todays falls "Global stock markets have fallen sharply on renewed concerns over the European banking sector. Investors are apprehensive ahead of a deadline this week for banks to repay loans taken out a year ago at low interest rates"
Lets see what happens by close on Friday
30. techieman said...
yeah Jack - as EST says desperate to pin the moves on the news. Not sure why or how TA can work if thats the case..... maybe pure luck who knows?
"Lets see what happens by close on Friday" - actually lets see what happens in the US a bit later today....
31. nickb said...
@mark@3
A downturn in the housing market is bad news for the productive economy for a very simple reason. More than 70% of our money is currently created as mortgage debt. No mortgages, no money. No money, no transactions. No transactions, depression.
Nick
32. nickb said...
Not that I'm in favour of high house prices or anything, but it's clear why politicians are dependent on it in the current set up.
33. novice pete said...
If house prices start to head south again, I wonder if we will get the same 'it's those darned doom mongers talking the economy down'
stupidity we got last time.
34. growler said...
Novice Pete: Probably :-)
Of course if it goes North, it'll be those stupid estate agents and vested interests' fault.
In reality, everyone is looking at the relative position of the other much like a little cork on the Pacific ocean. No manner of up-talk or down-talk will reverse a tidal wave.
35. novice pete said...
Growler, I take your point.
36. Open Minded said...
Here's another point to contemplate: a broken clock is right twice a day!