Tuesday, Mar 13, 2018

The problem with a property price slowdown

Capital and Conflict: The problem with a property price slowdown

The UK’s property boom is sputtering and stuttering. You should be very worried about what happens next.
House prices fell nationally in the last three months reported Halifax. The Royal Institution of Chartered Surveyors (RICS) house price index hit zero in February. It was a bigger drop than forecast by any economist polled by Reuters and the lowest since March 2013.

Posted by cornishman @ 12:16 PM (2228 views) Add Comment


1. stillthinking said...

Nice article. The government effectively sets house prices and this was the great culpability of New Labour, imo, to allow such an unbalanced increase when there is no easy path down again. There is also the default to interest rate spiral when houses go down, interest rates must rise to cover default losses, but rising interest rates cause defaults.
I think Osbourne was aware of the dangers of house price falls (he was certainly acting very strangely otherwise..).
Property is like gold with yield. There is this magic substance that people can arrange their savings around, with the added bonus of utility, and the government of the day reset the value higher. Everybody is delighted. Imagine the horror of resetting the value lower.
Having said all that, you can have falling prices and a shortage at the same time.

Tuesday, March 13, 2018 02:01PM Report Comment

2. mombers said...

The root of the banking problem is the private collection of rent. Council housing kept rents at non-profit levels, pushing private rents down. Domestic rates collected a much larger portion of rents than council tax does. Only when the rent can be collected by a bank do capital values balloon and the land price bubble cycle begins...

Tuesday, March 13, 2018 03:35PM Report Comment

3. quiet guy said...

I was underwhelmed when I started reading this article.

"Property demand and prices outside of London are still doing well. Property demand and prices in London are languishing.

The great rebalancing of our nation is taking effect. No longer is prosperity tied to one city. The rest of

the nation has some catching up to do."

So pricing the average buyer out is prosperity?

I'd never heard of the Libor-OIS spread so that was a bit more interesting but here's some links that imply Hubble may have the wrong conclusion:

Tuesday, March 13, 2018 09:27PM Report Comment

4. britishblue said...

There is a full scale crash going on in London, but it is being media managed. As I have said before I run a removal company. Every single client i see who has accepted an offer in recent months has taken a reduction of 10% or more, some as big as 20%, Yet this is not showing in the press or the figures. There is also a change in attitude. People are more wary. more concerned, more money conscious. I don't know how long this will go on, before it becomes mainstream, but as i see it there is no magic bullet like, 'help to buy', QE, lower interest rates, new arabs, russians or chinese coming into the market that can flip an upswitch. Removal companies like mine are not in a recession, we are in a depression. It is my guess is that it will be the same for estate agents, mortgage brokers, house renovation companies, etc. I personally don't think it is anything to do with Brexit, I just think that prices should have adjusted to a far greater degree in 2008 and the boom we have had in recent years has been unwarranted.

Wednesday, March 14, 2018 08:51AM Report Comment

5. stillthinking said...

jesus my mother is trying to sell in london... Unfortunately because I have been on this site for a decade (because its kind of about economics I don't care so much about uk house prices except i suddenly do in this case) I have zero credibility in terms of saying run while you can.

Wednesday, March 14, 2018 01:42PM Report Comment

6. stillthinking said...

Sorry to double post. I am a mobile developer, its an ok salary. When you look at the vagaries of house pricing, the fact that people round to 50K on offers, that house prices in london are in the millions. It really is in your face that your actual salary for working is an irrelevance compared to asset vales. I probably also mentinoed in the past that my wife is japanese and I spend a lot of time over there. You can't even give property away in japan. Literally. People hand over ownership if you agree to pay the outstanding property taxes they owe, you don't need to give them a penny (this is extreme example for rural areas ..).

Wednesday, March 14, 2018 01:47PM Report Comment

7. britishblue said...

% @still thinking. whereabouts does your mother live in London. I might be able to give some real insight into the market there.

Wednesday, March 14, 2018 02:35PM Report Comment

8. stillthinking said...

@britishblue, thanks but I feel uncomfortable putting any details into the public domain. My opinion on house prices in the UK is like Chicken Licken, Aesops the boy who cried wolf, and the prophet Cassandra all rolled into one. So I am just going to close my eyes to it.

Wednesday, March 14, 2018 05:42PM Report Comment

9. tenyearstogetmymoneyback said...

A very good article.

The big problem with the housing market is that it has Positive feedback https://en.wikipedia.org/wiki/Positive_feedback
Interesting that the Wikipedia article uses Northern Rock as an example.

However, the time constant is huge, often longer than a term of Parliament..One of the best comments I read here (maybe a decade ago) was that "The Red, Yellow, and Blue wings of the Home Ownerist party won't ever let prices drop. However, as we saw with Black Wednesday the government sometimes runs out of levers to pull and looses control.

What would be interesting to know is how old the oldest people who remember the 1990s house price declines are. Even by the noughties I knew people talking about buying a house who weren't aware of them.

Every workday I walk past a large car dealership which specialises in 2 to 3 year old cars. You see the 66 regs arrive on transporters and the 61 reg trade ins get taken away. This made me think that unlike houses I doubt if anyone ever buys a car expecting it to go up in value. Despite most of the cars being BMWs and Mercs people mainly buy them for utility - to get from A to B and know they will loose value. A shame that the housing market is so different.

Sunday, March 18, 2018 09:29AM Report Comment

10. mombers said...

@9 a home is a wasting/depreciating asset - just see what happens if you don't spend money on maintaining it. It's the land value appreciation that drives increases in prices. No other way to explain the price movements of identical homes in Scunthorpe and London.

Tuesday, March 20, 2018 01:02PM Report Comment

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