othello

Excellent. I'm going to keep this post then start a thread to review it in six months time - hope you're around then. Should be fun!

Why exactly?

There are too many Corporal Jones' on here (shouting 'don't panic!' whilst running round like headless chickens). House prices have a way to fall and there is nothing surprising or contradictory about the current exuberance from the property bulls, who will always find positives, even is a weak and falling market.

+1.

I do not care if prices rise or fall, but two things are clear: After 17 months of steeps falls it is inevitable that prices will rise at some point The trend is till down The rate of decline will slow, but prices will continue to fall (as they always do), until they have dropped below the long term trend... then they will stabilize, before the next bubble in 15 or so years time. Then they will crash again. All the UNSUSTAINABLE DEBT that propped up the last housing bubble still exists and will have to be repaid, whether by individuals, banks or governments. Until that has happened there will be no recovery in house prices or the economy. Having said all that 90% of the UK population are still property bulls, hence the erratic behaviour in the market. Ultimately the market will be driven by the supply of credit and that has been reduced to a trickle. The UK economy is in a life raft and the fresh water supply has gone. Some sit it out waiting to hit dry land; others gulp down the sea water, leading to hallucinations, cramps, madness and an early demise!

IRs have historically kept in line with (or slightly below) general inflation so while not guaranteed a savings account can offer a good return in a high inflationary period. More over it is easy to switch between cash and stocks/shares which often show rising values and high returns in such periods. BTL may provide increased income but capital values will in real terms more than likely fall more than the yield rises. Historically stocks and sharesa have offered a better return long term than property.

You're taking the short term view on savings and a long term view on property. Apples and pears! Take a long term view on both and if you invest today there is no chance that property will come out on top after factoring in falls and IR increases. I would not go near property as an investment for several years at least. Every bargain today will be an ever bigger bargain tomorrow.

In the long term we're all dead.

Have you thought about a career as a politician? Don't go into property investment whatever you do!

I wouldn't go near BTL at the moment. You seem to be ignoring rapidly falling values and once they have stopped falling, substantial interest rate increases. I'd want to see 10% yield on an 8% fix to contemplate BTL again. I guess you're already in BTL and probably unable to get out of it again! What are your LTVs?

Er, why?

With respect I don't think you understand the dfference between 'real' and 'nominal' prices. Although nominal values may rise, that is against a devaluing of currency so if nominal values do not keep pace with inflation they are in effect falling. Do not kid youself that property is in some way protection against inflation. It's not. On the contrary the worst time to sell (and the best time to buy) property may well be after such a period of high general inflation.

You think property will guard against inflation? I think the opposite is true and would be interested to know what's behind your thinking.

I wish you well. Unfortunately inflation may work against you, continuing to drive down the value of your house in real terms. In years to come we may find property back not to 2004 prices but back to 1995 prices in real terms. In this kind of market, it pays to be patient. I guess you waited 5 years and that was enough. Anyway, all the best.

I have thought a lot about what will happen to house prices over the next few years. Obviously they are falling and will continue to do so for a while yet in nominal terms. I reckon they will stop falling in nominal terms when general inflation picks up. However I do not see that they will rise in line with general inflation. Why not? They will be kept low in real terms because in an inflationary environment people will not have the spare money to spend on property - they will be too busy coping with household bills and of course taxes. That is what happened in the high inflationary period of the 70s and to a lesser extent in the 80s. On top of that the inevitable rises in interest rates will bring further downward pressure on the hosuing market. No, when they stop falling in nominal terms, they will surely continue to fall in real terms for years to come. So whereas many will still buy property to live in, it makes no sense to rush into it right now. Sensible people will ignore the EA hype and sit tight. As for investing in property - my view is that it is downright dangerous to do so now. Prices falling, rental yields dropping like a stone, interest rates likely to go only one way from here on... I believe that the best hedge against inflation will be selected stocks and shares (those enterprises that are inflation-proof e.g. BP, Glaxo) and of course certain commodities - steel, copper etc. Property will become a good 'investment' again one day, it surely will, but not until the next economic cycle is on the upwave and perhaps not for a generation. That's my considered opinion. Over to the property bulls for some hilarious counter-arguments!

You have made a crucial point that I think a lot of people have not appreciated. I am fully expecting to see more widespread falls, including those relating to more desirable properties, when the market starts to unfreeze. Supply and demand is going to remain very much leaning hard over on the supply side even when transaction levels rise.

Of course. Still, think I'll sit it out for now.

Their days are numbered...

Their forecasts have always been all over the place - but no point in criticizing the one in a hundred that hits the right spot!

On a par with Mystic Meg?

Is the headline good news or bad news? Did economists fear that the market would recover quickly? Now that it is predicted to recover more quickly are they even more fearful? Is the Telegraph saying that the best thing is for a long, drawn-out recovery?

Because it suits them? By the way, you're absolutely right about the CEBR. It's just a research and advisory company trying to see it's services. So, guess what? It tells its customers what they want to hear! This is what it says about itself: "We provide analysis, forecasts and strategic advice to companies of all sizes, financial institutions, government departments and agencies, trade bodies and the European Commission. cebr is recognised as one of the UK's leading independent commentators on economics and business trends. Our forecasts are used by a diverse audience of business people, policy makers and journalists; even the Treasury publishes our predictions for the UK economy. " What it is NOT, is an independent economics research organisation. Say no more...

You're absoluytely right. I was thinking, after I posted that comment, that the effect of rising interest rates has yet to be factored in. Just when people think it is safe to go back into the water, the market will be hit by a new downward pressure in the form of rising IRs. As you say, probably 3 or so years from now.

Yes, I've posted a few of their prediction howlers in another thread!