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Record Low Unemployment?


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I haven't seen this mentioned this morning but The Times is running an article today about:

"Number of out of work increases for fourth month".

It talks about how the last tiem this happened was during the recession in the early 1990s and fears that the UK jobs market is on the turn etc.

This may not be any great shock as I think HPCers know that house price "corrections" tend to be followed (rather than preceded) by troubles in the jobs market.

However, this makes the prop many soft landing theorists are relying heavily on much weaker than they hope.

It all adds to the view that last June was the top of the market, when houses were priced for a perfection that was never sustainable (for example based on the past 51 quarters of economic growth rather than looking forward to whether 51 quarters of growth are ahead).

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I haven't seen this mentioned this morning but The Times is running an article today about:

"Number of out of work increases for fourth month".

It talks about how the last tiem this happened was during the recession in the early 1990s and fears that the UK jobs market is on the turn etc.

This may not be any great shock as I think HPCers know that house price "corrections" tend to be followed (rather than preceded) by troubles in the jobs market.

However, this makes the prop many soft landing theorists are relying heavily on much weaker than they hope.

It all adds to the view that last June was the top of the market, when houses were priced for a perfection that was never sustainable (for example based on the past 51 quarters of economic growth rather than looking forward to whether 51 quarters of growth are ahead).

That's the claimant count, which is subject to all sorts of distortions from changes in the benefits system, and seriously undercounts the number of people looking for work. Use the Labour Force Survey figures in order to reach any reliable conclusions -- they are much more reliable but are only updated quarterly and take a month or two to process.

The most recent Labour Force Survey showed unemployment still falling, although it does lag a bit behind the claimant count.

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TTRTR,

IMHO unemployment is irrelevant in causing a crash. There are enough triggers for prices to significantly fall irrespective of employment.

If unemployment were to rise then it could cause an acceleration of the crash, but is not needed as a prerequisite to a crash.

The following graph shows the amount of money (total spent on property) each month entering the market in my postcode area. Obviously with volumes reducing the amount of money coming into the market each month is going to be lower. But this graph serves to highlight the limited amount of money coming into the market that each vendor has to compete for (note that they now have to compete for a slice of this money by selling their house for a reasonable price).

Sprite_6.jpg

As you can see, the amount of money entering the market is falling.

As vendors compete for an ever dwindling amount of money being spent on property each month, and new instructions increase, what do you think will happen?

Ever heard of supply and demand?

What about forced sellers if unemployment does increase?

Edit to add:

Some of the money represented by the graph is cyclical. ie. the money is not new money entering the market but represents people moving within the postcode area.

With FTBers at very low numbers the actual new money entering the market is very low.

post-692-1118916247_thumb.jpg

Edited by non-FTBer
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Would it surprise HPCers to know that the only examples of this were in an economy largely free of private investors in the housing market & therefore prone to a HPC if employment dries up?

Well surprise, surprise................

Sorry TTRTR, are you seriously trying to suggest that rising unemployment is irrelevant to the housing market?

Is this perhaps based on your Australian model where losing money on property is a good thing?

Surely rising unemployment not only affects people's ability to pay their mortgage (possibly forcing them to sell) but also limits their ability to pay your rent rises. Or are we all going to live on the dole with all the rents paid by the government funded by those few of us who pay taxes?

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Just a point about losing money in property in Australia:

The national unemployment rate is stable but in the state of Tasmania it's up 4 months in a row to 6.1% now.

Tasmania also experienced the largest peak to recent trough falls in city house prices. Coincidence? I doubt it. (Source of price data: Commonwealth Bank)

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Sorry TTRTR, are you seriously trying to suggest that rising unemployment is irrelevant to the housing market?

Is this perhaps based on your Australian model where losing money on property is a good thing?

Surely rising unemployment not only affects people's ability to pay their mortgage (possibly forcing them to sell) but also limits their ability to pay your rent rises. Or are we all going to live on the dole with all the rents paid by the government funded by those few of us who pay taxes?

As you'll remember from past discussions, I'm suggesting that the UK suffered worst amoungst it's peers in the last crash because they had very few private investors to pick off the bargain properties & therefore support the market.

It was a meltdown because it was essentially a market for either buying to live in or selling to downshift. It wasn't a market for investing in because the laws weren't right for investors.

Things have changed (how many times have I told you, but you won't accept it - stubborness?) and there are thousands like me who'd love to get a bargain.

Edited by Time to raise the rents.
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As you'll remember from past discussions, I'm suggesting that the UK suffered worst amoungst it's peers in the last crash because they had very few private investors to pick off the bargain properties & therefore support the market.

It was a meltdown because it was essentially a market for either buying to live in or selling to downshift. It wasn't a market for investing in because the laws weren't right for investors.

So equites, being largely bought for investment, are meltdown [email protected]!~%^&! :blink:

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No offence, TTRTR, but 'people like you' are few and far between. :-)

The reality of property investors is similar to the reality of other investors.

E.g. I now have enough cash to buy a few properties with only small mortgages.

Will I go for it, even though I would like to?

Of course not.

Why?

because the market is falling

I'll wait until prices look reasonable, and so, IMHO will the majority of these miraculous 'property investors' you pray will prop up the market.

There will be a few numpties who think a 10% fall is 'the bottom', but the majority will be FAR more wary of re-entering than that. Like myself.

Face it, swedeboner, its a LONG way down from here. Your retirement plan just got put back 12 years :-)

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As you'll remember from past discussions, I'm suggesting that the UK suffered worst amoungst it's peers in the last crash because they had very few private investors to pick off the bargain properties & therefore support the market.

It was a meltdown because it was essentially a market for either buying to live in or selling to downshift. It wasn't a market for investing in because the laws weren't right for investors.

Things have changed (how many times have I told you, but you won't accept it - stubborness?) and there are thousands like me who'd love to get a bargain.

I think there is a very real possibility we are in for a new paradigm.

We all know that at some point during property's recent meteoric price rises most FTBs got priced out of the market.

We all know that prices were then driven to historical highs (in relation to most people's accepted measures of affordability) by BTL investors.

Against the backdrop of our economy - if we hadn't had the lowest IRs for 50 years combined with a stock market crash in 2002 - with the boom in BTL this brought with it - i.e. if property had maintained its normal relationship with salaries - it strikes me that property now would only be marginally higher than it was in say 1997.

So, let's say you take away the vast majority of new BTL - I don't know anyone anymore thinking of sticking 50k on their mortgage and buying a BTL flat - and factor in a 35% increase in IRs in 2004 - it seems to me a likely scenario is a severe HPC - bigger than 89 by a long way followed by a very long period of stagnation.

If you looking for bargains - you would be well advised (I believe) to wait until you are absolutely sure we have hit the bottom.

Personally, I don't care if property goes down 20% in the next year and buying a flat locally meant I could get a reasonable yield etc. The vast majority of BTL propositions are based on the idea that although the flat might not pay for itself (might even cost a couple of hundred quid a month) - in 20 years time you will have hit the jackpot. If property does go down 20% in the next year, I will be convinced it will go down another 20% the following year - until some sort of normal equilibrium is reached so that the average person can put a roof over their head.

As I say, I think we might be in for a new paradigm. In 20 years time property might be the same price it was in 1997.

Also you mention the UK doing worst against it's peers. What peers? There was no similar boom in Europe or USA at the time. Unlike this time where the property/credit boom has a global flavour.

Biggest bust in history - coming soon. Save and be prepared to fight in the streets to protect your property.

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You're looking at this the wrong way. Low unemployment figures have certainly helped fuel the boom (despite the high number of economically inactive), but by the same token, we are at virtual full-employment now, so the upside is very limited while the downside is very large - i.e. things are only likely to get worse.

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As you'll remember from past discussions, I'm suggesting that the UK suffered worst amoungst it's peers in the last crash because they had very few private investors to pick off the bargain properties & therefore support the market.

It was a meltdown because it was essentially a market for either buying to live in or selling to downshift. It wasn't a market for investing in because the laws weren't right for investors.

Things have changed (how many times have I told you, but you won't accept it - stubborness?) and there are thousands like me who'd love to get a bargain.

But surely it is only a bargain if you can rent it out?

So back to my original question - do you really believe rising unemployment is not going to put downward pressure on house prices?

Forgive my ignorance but if the UK goes into recession and/or a lot of poeple are made unemployed isn't it fairly obvious that this will put downwards pressure on rents regardless of what you choose to call yourself?

In which case grabbing houses at current prices seems even less sensible than it does at present.

I realise that your "Australian model" sees rental yields etc as a bit of a diversion rather the core of a BTL decision but unfortunately Britain (rather than just me/HPCers) remains ignorant to your great change.

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But surely it is only a bargain if you can rent it out?

So back to my original question - do you really believe rising unemployment is not going to put downward pressure on house prices?

Forgive my ignorance but if the UK goes into recession and/or a lot of poeple are made unemployed isn't it fairly obvious that this will put downwards pressure on rents regardless of what you choose to call yourself?

In which case grabbing houses at current prices seems even less sensible than it does at present.

I realise that your "Australian model" sees rental yields etc as a bit of a diversion rather the core of a BTL decision but unfortunately Britain (rather than just me/HPCers) remains ignorant to your great change.

Haven't we had this conversation before?

STR's don't make the market go down, they support it by renting. They just don't realise it because they don't always see that it's a market of two halves, owning & consuming. When they move out & rent, they're still consuming the asset, it's just that someone else owns it.

In the last crash, where would they go if they sold? There was very little available to rent.

All that I could agree with on this is that employment problems cause people to want to REDUCE their housing consumption. So in that case, the most vulnerable places are the most expensive ones, both in the owning & renting market.

I happen to be in the market for the cheaper rentals (per person) as you know, so I am not concerned in the least.

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Haven't we had this conversation before?

STR's don't make the market go down, they support it by renting. They just don't realise it because they don't always see that it's a market of two halves, owning & consuming. When they move out & rent, they're still consuming the asset, it's just that someone else owns it.

In the last crash, where would they go if they sold? There was very little available to rent.

All that I could agree with on this is that employment problems cause people to want to REDUCE their housing consumption. So in that case, the most vulnerable places are the most expensive ones, both in the owning & renting market.

I happen to be in the market for the cheaper rentals (per person) as you know, so I am not concerned in the least.

Not sure... but if we have we obviously didn't get very far.

STRs do not support the market - they were consuming before they sold to rent and they are consuming after they STR. They provide no net new demand for property.

This provides no net NEW support for the market... unless of course they are selling to a BTL who ignores the impact of their sale and only focuses on their demand to rent, ignores the yield and agrees to rent it back to them for less than the monthly cost of buying it... in which case there is some new support in the market and we are in a whole new paradigm (admittedly driven by people who believe that it is OK to buy a duff investment today in the hope that it will become a good investment tomorrow).

In the last crash, where would they go if they sold? There was very little available to rent.

Could this not be used as an argument for why they would not sell last time (many did of course) and why rental yields last time would have provided more support for the market?

Could it not be argued that the (relative) ease with which people can STR today would increase selling rather than reduce it?

As for the rest of your answer, it seems you do then agree that increasing unemployment is negative for the housing market as a whole (you just think it will affect other people rather than you).

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Seriously TTRTR, think about what you're saying.

If the market is bad, you'll buy. If the market is good, you'll buy more.

You need to leave this site and spend some serious time on Singing Pig. I am no expert on that forum, but the word on the street is that BTL investors are losing their rag fast.

As I've said innumerable times, with no decent response from a bull, it's not us bears you want to be looking at - it the other "investors" who will pummel prices by quitting the market. YOU might think BTL is brilliant, but if there three other guys who decide it's not, the crash is going come hard and possibly fast.

You're a good egg, so I've tried not to be patronising, but be very, very careful.

BTW, I get an average of 3 e-mails a day at the moment from Laidlow Twatson advertising obvious former-BTL properties for sale.

STC anyone? (sell to crystallise ;) )

Edited by RichM
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"As you'll remember from past discussions, I'm suggesting that the UK suffered worst amoungst it's peers in the last crash because they had very few private investors to pick off the bargain properties & therefore support the market.

It was a meltdown because it was essentially a market for either buying to live in or selling to downshift. It wasn't a market for investing in because the laws weren't right for investors."

*******Particularly :---

"Things have changed (how many times have I told you, but you won't accept it - stubborness?) and there are thousands like me who'd love to get a bargain."

========================================

1. Why are not these thousands buying property now ????

2. If they all want a bargain, then they are , effectively, driving

prices down.

N'est-ce pas ?

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Not sure... but if we have we obviously didn't get very far.

STRs do not support the market - they were consuming before they sold to rent and they are consuming after they STR. They provide no net new demand for property.

This provides no net NEW support for the market... unless of course they are selling to a BTL who ignores the impact of their sale and only focuses on their demand to rent, ignores the yield and agrees to rent it back to them for less than the monthly cost of buying it... in which case there is some new support in the market and we are in a whole new paradigm (admittedly driven by people who believe that it is OK to buy a duff investment today in the hope that it will become a good investment tomorrow).

Could this not be used as an argument for why they would not sell last time (many did of course) and why rental yields last time would have provided more support for the market?

Could it not be argued that the (relative) ease with which people can STR today would increase selling rather than reduce it?

As for the rest of your answer, it seems you do then agree that increasing unemployment is negative for the housing market as a whole (you just think it will affect other people rather than you).

When people rent they tend to go for smaller places and/or share houses. So STR tends to make more property available.

But in some ways it highlights a good point. Everybody is always living somewhere.....its just who owns the property that really changes. The point is that many "owners" be it OO or BTL cannot afford to keep the property. They may be forced to sell or REALLY REALLY want to sell and this drives down prices and shifts the wealth to other portions of the population.

In a stock market crash no true devaluation of companies occurs....they still have the same debts and assets. Its the the owners of the shares that change and depending on who was smartest dictates who the winners and losers will be.

One thing to remember....property markets and huge inertia and momentum....once they start moving in one direction they tend to keep going until something quite large causes them to stop. In our case low FTB's and the average buyer priced out of the average home in 90% of towns has finally caused the hault. The downturn has undeniably started and it will take something big to stop it. Tinkering with IR's will only speed up or delay the inevitable.

There's a whole host of reasons why prices are likely to come down and almost nothing to suggest they will start rising again in the short/medium term.

To be honest I wouldn't mind IR being dropped for a while. This would mop up the last of the hovvering FTB's and give a mini boom. IR's would then be raised a bit again and we could get on with the crash good and proper and then get on with our lives again.

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"As you'll remember from past discussions, I'm suggesting that the UK suffered worst amoungst it's peers in the last crash because they had very few private investors to pick off the bargain properties & therefore support the market.

It was a meltdown because it was essentially a market for either buying to live in or selling to downshift. It wasn't a market for investing in because the laws weren't right for investors."

*******Particularly :---

"Things have changed (how many times have I told you, but you won't accept it - stubborness?) and there are thousands like me who'd love to get a bargain."

========================================

1. Why are not these thousands buying property now ????

2. If they all want a bargain, then they are , effectively, driving

prices down.

N'est-ce pas ?

Because although they will TELL you everything's fine, I'm buying etc... they aren't quite dumb enough to actually do it?

In the same way that TTRTR insisted last December was absolutely the best time for US to buy but didn't actually buy himself.

Or perhaps they are already as geared into the market as possible?

Or perhaps they are going to wait until the numbers stack up again?

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Not sure... but if we have we obviously didn't get very far.

STRs do not support the market - they were consuming before they sold to rent and they are consuming after they STR. They provide no net new demand for property.

This provides no net NEW support for the market... unless of course they are selling to a BTL who ignores the impact of their sale and only focuses on their demand to rent, ignores the yield and agrees to rent it back to them for less than the monthly cost of buying it... in which case there is some new support in the market and we are in a whole new paradigm (admittedly driven by people who believe that it is OK to buy a duff investment today in the hope that it will become a good investment tomorrow).

Could this not be used as an argument for why they would not sell last time (many did of course) and why rental yields last time would have provided more support for the market?

Could it not be argued that the (relative) ease with which people can STR today would increase selling rather than reduce it?

As for the rest of your answer, it seems you do then agree that increasing unemployment is negative for the housing market as a whole (you just think it will affect other people rather than you).

Come on LL. Support isn't new money, it's old money staying in. An STR is old money staying in.

What the old market needed to crash was a withdrawal of support in the form of people selling & moving to their relatives home - therefore withdrawing from the market.

In the last crash, that's all they could do if they wanted to stay out. In this market, we all know there's places available at reasonable rents.

So what this market really needs to crash, is a withdrawal on a large scale of support by investors.

Mark my words that it's been talked about for years now & hasn't happened. The only thing that can make it happen as you & I both know and have discussed before, is MUCH higher IR's.

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Because although they will TELL you everything's fine, I'm buying etc... they aren't quite dumb enough to actually do it?

In the same way that TTRTR insisted last December was absolutely the best time for US to buy but didn't actually buy himself.

Or perhaps they are already as geared into the market as possible?

Or perhaps they are going to wait until the numbers stack up again?

Perhaps your lack of understanding is whats put you so far from the pack.

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I would have thought any savvy BTL investor would only want to jump in at the moment HP's had reached their absolute minimum in the current cycle (assuming that prices are falling?).

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