Friday, Jun 03, 2011

"The U.K.'s housing bubble put the U.S.'s in the shade"

WSJ: U.K. Housing Sits on Aspic, Not Firmer Foundations

Little more than a year ago, Jeremy Grantham, co-founder of asset-management firm GMO, said U.K. residential real estate was one of the two bubbles to survive the financial crisis intact.
Fourteen months later, ballpark estimates suggest British residential property is still about a third over-valued.

Posted by dill @ 08:06 AM (3543 views) Add Comment


1. alan said...

A vey good analysis. Great post!

Friday, June 3, 2011 08:47AM Report Comment

2. Redtiger said...

Its NOT a third overvaluee by any historical means of affordability. More like 60% overvalued........jeesus wept!!!!!!!!!!!!!!!!!!!!!

Friday, June 3, 2011 09:02AM Report Comment

3. Crunchy said...

All I know is that some are making a ton of money from commodities, currencies.and Qwicky Print plc.

It's all in the timing now. When the music finally stops, make sure you get a seat ~ Avoid the plastic ones.

Friday, June 3, 2011 09:26AM Report Comment

4. mark wadsworth said...

Crikey! That article says that 43% of all mortgages are interest only (as at last summer, whenever that was).

I also like the point that while a quick crash is bad, a slow decline is worse - the Lib-Cons have resolutely not taken this lesson to heart and are soldiering on in the same direction as Labour did.

All in all, I think we'll have to pencil in a slow decline over at least five years - if they can stretch it out to ten years then at least that will save me the hassle of buying a "family home" and I can skip straight to buying a retirement home for me and the Mrs :-)

Friday, June 3, 2011 10:22AM Report Comment

5. house said...

MW, Is this not similar to the 1990's crash, initially there was a panic and then things picked up a bit, then there was a slow decline until the 2002 or thereabouts. Am I wrong on this ?

Friday, June 3, 2011 10:58AM Report Comment

6. karma4all said...

"At the same time, the proportion of loans shifting to variable interest rates is also worryingly high. By the end of 2010, 43% of U.K. mortgages were on variable rates or linked to the Bank of England's base rate"

Even so, it may be that many including myself could pay off (or at least a good chunk of) the principle tommorrow, but with low rates why would you if can get low risk yield at a higher rate. Then again I seem to remember last year we were hearing that mortgage & rolling debt was being paid down at record rates.

Friday, June 3, 2011 10:59AM Report Comment

7. mark wadsworth said...

House, everybody has his own tale to tell, but round my way, prices were definitely going up again by 1996 (which accords to published figures).

Karma, the figure of 43% appears twice in the article: "By last summer, the proportion of interest-only mortgages had risen to 43% from 40% three years earlier, according to a recent report by the Daily Telegraph newspaper... At the same time, the proportion of loans shifting to variable interest rates is also worryingly high. By the end of 2010, 43% of U.K. mortgages were on variable rates or linked to the Bank of England's base rate, while 48% were on fixed rates."

I'd guess there's a big overlap between interest-only and variable rate, but that's just a guess.

Friday, June 3, 2011 11:29AM Report Comment

8. drewster said...

You're all missing the key sentences:
"Another risk is that the Bank of England has left the U.K. with such a deep addiction to cheap money that it won't be able to raise interest rates even if high inflation becomes embedded. Last month, its governor, Mervyn King, made clear that U.K. households' burden of debt meant interest rates would stay low."

That's exactly what has happened and what will happen. Rates stay low, moderate inflation (6-10%) takes hold, and eventually wages catch up with prices.

Friday, June 3, 2011 11:33AM Report Comment

9. voiceofreason said...

That's why I our house maxed out on NS&I index linked certificates last week.

Friday, June 3, 2011 12:11PM Report Comment

10. Crunchy said...

6. drewster said...moderate inflation (6-10%) takes hold,

~ Oh really, moderate? that's OK then.

Again.. "Hyperinflation, food shortages". I'm getting closer by the month.

Le Crunch.

Friday, June 3, 2011 12:52PM Report Comment

11. Rob Mk said...

Blow me, I consider us lucky that we get +2~3% payrise year. And really thats a 7% pay reduction with MY shopping basket. Example Need a new pannier bag for cycle. was 19.95 now 24.95 in a year. Car needs much?!

Friday, June 3, 2011 03:02PM Report Comment

12. Skeptical First Time Buyer said...


I think you will be correct eventually, no fiat money system has survived the test of time, but i think looking at the next 5 years not going to happen.

After that not sure, perfect storm of problems on the horizon, but hard to judge how far away that horizon is.

Friday, June 3, 2011 03:44PM Report Comment

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