Tuesday, Aug 10, 2010
The price of excessive credit
Guardian: House prices fall as spending cuts see economy stall
Government austerity measures are already plunging the British economy into reverse according to figures published today which reveal sagging high street sales and renewed falls in house prices. Expectations of widespread job cuts in the public sector have begun to discourage households from moving home or buying "big ticket" items such as furniture and carpets, with spending going on essential items and replacements only, said the British Retail Consortium.
Posted by quiet guy @ 02:41 AM (3008 views) Add Comment
26 Comments
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1. mrflibble said...
Mr Reality is in the building...
Let the suckers fall...
2. paul said...
Talking to an estate agent in West London, a lot of sellers on his books bought in 2007 and are now trying to sell back into the market and finding that the valuations are well short of their expectations. For example there's a house on the Ealing/Brentford border which sold for £320k in 2007 and after substantial renovation is now being marketed at £330k.
Trouble is, its been on the market for eight months and anyone in their right mind would offer a few tens of thousands less than the asking price, plunging the current 2007 buyer instantly in nequity territory.
The EA told me that this is pretty much typical of the sellers on his books. It will take years before they break even.
3. mark said...
paul you found an honest estate agent! that must have been hard lol
THIS RECAPTCHA IS GETTING ANNOYING NOW, ENTER EMAIL, ENTER PASSWORD, ENTER NAME, ENTER CRAPTCHA, WHAT NEXT?
4. Landedgentry said...
Next wave down (fib, elliot)
5. andrew said...
I can confirm that this has been the status quo in Ealing for the last 3 years, flats are not selling here, for sale signs are staying put for months on end, some of them have been on for up to a year then they give up, they will not lower prices. So we still have a stalemate, but I can't see real first time buyers coming back into the market, not here in W London anyway.
6. sj032 said...
I agree Mr F. What we have witnessed over the last 3 years is a model of how government thinks it can tinker with any part of the economy. The effects of asset/house price tinkering however, as usual with any government tinkering, has led to disastourous unintended consequences. Central planners have destroyed savers and people on fixed incomes at the older end of the population, and made homeownership for the younger generation a distant dream. And the result of all these policy adjustments is a house price that at best is going nowhere, and at worst decreasing. I think maybe I have my worst & best in the wrong sentences, that's what too much BBC news does to you.
My first post. After 2 years of reading this stuff I think it's time to add my 2 pence worth guys.
7. Keith said...
I can confirm that the lower end of the market <£150k has stopped selling in my area (Dover) around the time of the CGT increase. Because first time buyers could not afford these properties investors were buying them, but now that has stopped houses just are not selling.
Compounding the problem is that most of the housing in this price bracket is highly leveraged from BTL and first time buyers 2005 onwards.
I think the effect of a small fall in prices will be houses withdrawn from sale.
I have been trying to get an agent intrested in selling our first house that we bought back in 2006. The agents do not want new instructions on there books as they are having issues clearing the current backlog. They refuse to even come and value our house or talk with us about it.
We have resorted to using an online estate agent for £400 which is much less than the local agents are charging (£3000 for selling a £120k house!!!!)
8. hpwatcher said...
I am seeing much cheaper properties in the areas I have been considering. Although, it isn't clear whether asking 299,000 for a house that would previously have gone for 330,000 is a serious attempt at selling or just a way of drumming up some interest in the hope of getting some way towards 330,000.
9. estrader said...
Those magnificent men in their flying machines,
They go up diddley up-up, they go down diddley down-down!
10. inbreda said...
sjo32 @5 - I don't know how you've kept it bottled up for so long ;-)
stalemate is definitely where we are. But until we see normal interest rates, stalemate is where we are likely to stay. I have two small kids and a wife that is running out of patience. I need sensible interest rates now!!
11. Hpwatcher said...
I have two small kids and a wife that is running out of patience. I need sensible interest rates now!!
I hope Mrs inbreda is a patient woman. I tend to agree with estrader, that it will be up/down/up/down....
12. str 2007 said...
Paul
Article below - an honest post from the Beb no less - bet you're surprised at that one.
Welcome sj032
Close to a stalemate down here in Hampshire, but that could be the holiday lul.
What is surprising is how daft estate agents are, they were selling houses at 20% off peak and now they're not.
15-20% off again and they'll be selling and making commissions. Unfortunately they all seem to be living in Lah Lah land and costing themselves money, by over valuing.
Homeowners need to realise that with 50% of the volume, their house needs to be the very best to get close to 2007 prices (there are still people with money).
The fact the majority cannot borrow as much as they could in 2007 and earn little more then ultimately prices should be lower.
One interesting point : between 2005-2008 about 50% of mortgages were self cert. And now they essentially don't exist the volume is about 1/2 what it was.
With forced sales unlikley at 0.5% base the long slow grind of waiting for elderly peoples bungalows to become available commences.
That sounds awful, it's not supposed to, but a new type of house hat Flashman discussed some time ago for which you could gain permission for in a road of bungalows may come to the fore.
IE remove bungalow, dig down to create garages and basement and build a chalet house on top of that.
Sounds like alot of work for a family house I know, lets hope the new incentive to councils gets some fresh building underway.
13. Paul B said...
Several articles about falling house prices around today. Anyone else notice how, for once, these do not paint lower prices as necessarily being 'bad news'. Refreshing isn't it? Has the worm finally tuned???
14. sureseam said...
sjo32 @ 5 - A first post worth waiting for - accurate on several accounts.
This divide between those who believe governments can and should manipulate any part of the economy at will and those who don't is the _crucial_ one. It explains the how and why of Gordon Brown destroying the nations finances. The American delusion in this area goes some way to explaining the global nature of current mess (despite their rhetoric of free markets).
Until these delusions have burnt themselves out we will be obliged to watch civilisation and society dragged to the brink. Of course this article comes from the Guardian and so their perception is that public sector cuts (from the highs of recorded history) will endanger civilisation and society as we know it.
15. growler said...
sj032 -> hope you contribute some more.
I think the house price market is more connected to the economy than people realise. Particularly that inspite of low interest rates, banks forced to lend by the court of public opinion etc etc, there has only been a delay in House Price Deflation over the last 12 months or so.
Whilst a lot of people are attempting to describe lulls in in exhorable inflation, the reality sets in. People simply cannot afford houses at the current price versus earning. The only way they can is with money shoved down their throats. We've been there and putting aside the idiotic who hope and pray for a better day, people realise that they have in fact been prey.
It's now obvious to more and more people that spending your life repaying a mortgage you ought not to have got decreases your life quality. Your disposable income takes a huge dip. You find it hard to move location due to the cost versus benefit.
People will soon work out that if it costs less in rent than the interest element of the capital borrowed for the same house (putting cost of ownership aside) - that you will be better off renting.
Since interest rates MUST go up at some point, it's got to be obvious to most people that this will create opportunity for those that wait. Now that the press are starting to write about these things more and more, even your dyed in the wool HPInflationist can see that there can be no everylasting virtuous circle for everyone all of the time.
16. Ringing Roger said...
str2007 notes that "between 2005-2008 about 50% of mortgages were self cert. And now they essentially don't exist the volume is about 1/2 what it was."
In fact, in Q1 2010, 43% of mortgages were self-certified (source: BBC). Bannning self-cert mortgages should cause a severe contraction in the economic demand for buying homes, one that we've yet to experience.
17. growler said...
And if my point about disposable income needs an example, see
http://www.bbc.co.uk/news/business-10922947
which is a story about how the holiday industry in particularly the UK and also the Netherlands (also suffering property bubbles) took a hit. TUI is a German company, and here HPI does not exist. Holidaymakers there are not so cautious.
"In the UK, the market has slowed markedly following the recurrence of airspace closures, the emergency budget and subsequent austerity measures, and the better than average UK weather, combined with quiet trading during the World Cup," the company said.
Bookings in the Netherlands were also lower than a year earlier, but those in other key European markets increased.
18. sibley's love child said...
The Guardian comments page is as predictable as the Mail's. So ingrained is their mistrust of all things blue that they just don't see their irony:
"...this lot are taking us into recession...this time one of their making as distinct from the global one with which Darling and Brown were doing a good job"
Were I ever to become a comedian, I know where i'd source my material...
19. nod2glod said...
If the public and MSM opinion shift to expecting lower house prices, what price decline will any potential FTB consider the market is fair value. Or will they think that they will be trying to catch a falling knife. Falling prices and failing demand with such a high leveraged market will cause forced sales.
If prices to decline significantly, there will be even more political pressure to be seen to support the people by keeping rates low. The UK's economic model is based on HPI, only a significant economic shock will change this. until that time, don't expect any help from the government to reduce the maddess that is the UK housing market. Protect your saving, i.e. invest in real stuff with intrinsic value, and let nature, so to speak, take it's course, the game will soon be up.
20. hpwatcher said...
If prices to decline significantly, there will be even more political pressure to be seen to support the people by keeping rates low. The UK's economic model is based on HPI, only a significant economic shock will change this.
The problem is that we can't handle the shock.
21. nod2glod said...
[I]The problem is that we can't handle the shock.[/I]
So will the social order collapse if a shock occurred? Or would the public be able to change their expectations, however unpalatable, and take one for the team, to use a cliché.
Personally as a tax payer, saver and a renter, i have no interest in contributing more then i already do to this society. selfish, yes, but it's the way i feel. The people who had seen huge gains through property should contribute more. But then i guess i didn't/don't understand the game.
22. clockslinger said...
How many of you thought that voting Tory was a good idea? Come on, hands up. Surely, the public sector has been asking for it for years (or such I seem to recall was the sentiment of many posters on here pre election). Didn't we all think that Spotty and Dave would sort it out? There was even a posting giving us a link to that nice John Redwoods site ..."a man who will take your concerns about HPI seriously"!
Perhaps the possibility that eliminating one of the largest sectors of UK employment in a five year period might have a knock on effect and a few unintended consequences didn't occur us?
High house prices are likely to be the least of your worries, HPC Tory voters! No, there won't be armageddon or anarchy in the streets, unfortunately, just the mundane sadness of millions of lives thwarted as the Murdoch supermarket banking plutocrats retake every hard won piece of welfare that our fathers and grandfathers struggled to win. At least they are acting in their own self interest unlike the benighted masses that voted in their political lackeys.
23. crash bandicoot said...
clockslinger, I voted Tory and I'm glad that I did. I've read your post three times and I'm still not sure what point you are trying to make. Are you suggesting that we should have continued to fund non-jobs with our taxes because without them wider society will be sadly thwarted? Do you envisage no future for this country beyond state supported jobs and house prices?
24. mr g said...
Clocksinger, I voted Tory and I'm also glad that I did.
Please tell us how Labour would now be dealing with the sh*t that we're in.
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26. crash bandicoot said...
mr g, I think that they would have just carried on trying to pretend that there wasn't a problem, but you didn't need me to tell you that did you?