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Arabian Investors Warned Off Uk Property

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Text of article follows, but article includes charts. Yes, our favourite chart is there too:

Panic begins to grip UK housing market as the bubble pops

UK house prices have fallen for three months in a row while in August UK mortgage lending dropped to a 10-year low of $15 billion. It looks as though the UK housing bubble is finally bursting after a massive double top in the market, the classic technical indicator of a coming big drop back to previous lows.

The UK banking crisis of late 2007 first brought a correction in UK house prices that had risen more of less continuously from 1993. But that 20 per cent dip in prices was followed by a rebound on the back of super low interest rates introduced to combat the global financial crisis in late 2008.

That pushed UK house prices back up. The problem is that this only made prices even more vulnerable, adding an obvious future rise in interest rates to a long list of potential hazards.

Too expensive

However, the real issue for the moment is back to 2007 and affordability. House prices have lost touch with the first time buyer market and are out of reach for those crucial first timers. In short, the house price to income multiple is far too high.

Indeed, the house price to income ratio is twice its long term average. For it to revert to this long term level requires either a doubling of salaries or a halving of house prices. It is not hard to see which option is the more likely in the current age of austerity.

But this is going to be a major shock to the UK national psyche. The bubble has been forming so long it has become accepted as a new reality. Few younger property owners remember the 1990-3 house price crash. Corrections can and do happen even in a market where supply is as tight as in the UK housing market.

Estate agents like to air brush over the early 90s. But there were people who bought flats at the top of the London market for $75,000 who sold them at the bottom for $42,000, just to give one real example from memory.

New era?

Will it be any different this time? Most likely it will be worse. In the early 90s the UK was less burdened by public debt and deficits. House prices also sold on lower income multiples and were more affordable then. John Major kept interest rates too high for too long, and made it worse. Bring on Mr Cameron and his austerity coalition this time.

Optimists will reply that prices will bounce back after a modest 10 per cent correction over a year or two. That is not how the charts look to any student of market economics. It would take an inflation like the 1970s to keep nominal house prices up and this just does not seem on the cards right now.

For expatriates with property this is clearly not good news. For those considering a purchase it means that waiting a few years is a very good idea indeed. Those with even longer memories might remember when the pound hit parity with the dollar in the 70s.

That would be the best moment for expatriates to buy UK property, with prices on the floor and the pound as well. How long does it take to get there? About two to three years.

You can even trace the inflation of this housing bubble right back to the early 70s. Have a look at these two graphs and compare the bubble model with UK house prices (the double top is missing from the second graph as it stops in 2008 but it is certainly there now in 2010):

(insert favourite chart)

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Good find. It looks like it's been written using this site as a reference work :D.

These two sentences say it all though.

But this is going to be a major shock to the UK national psyche. The bubble has been forming so long it has become accepted as a new reality.

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I'm afraid "this is it."

The crash and burn.

It will hit everyone, some with catastrophic consequences. The tragedy will be for all the innocents who bought since at least 2005. Many young, starting out who bought interest only, 100% mortgage probably in 1 bed flats.

The good news will be it will wipe the faces off the greedy spivs who genuinely believed they had the midas touch at making money with all their self believed financial prowess.

For those reaching retirement hoping for a downsize to retire I worry.

For those in their 30's still living at home with their parents there is light at the end of the tunnel.

For those who waited patiently with their STV's, and hard saved for deposits euphoria

For those sensible, prudent souls dilligantly paying off their mortgages hoping to upgrade a fabulous opportunity.

In three years the young of today, the future of our country they will hopefully be able to buy a HOME to live in for themselves and families.

Since 1997 until 2002 it was a ridiculous bubble. From 2002 -2005 madness, from 2005 -2010 total stupidity.

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Linky

Text of article follows, but article includes charts. Yes, our favourite chart is there too:

Panic begins to grip UK housing market as the bubble pops

(...)

(insert favourite chart)

With both of our favourite charts included there too! :)

manias-bubbles.jpg

housing-market.jpg

Edited by Tired of Waiting

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& no mention of the chart showing the 70% fall in UK property price v Gold since 2005?

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I was just wondering, could the superprime market be more reliant on sentiment than other markets? Reasoning:

1. Buyers would be more aware of the 'real' economic situation (and all the broadsheets likely to be read by this group have become very bearish now).

2. They have no pressing need to buy now (often a london pad is a status symbol more than anything).

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There seems to be a contraction going on in my local market - houses at the bottom price range are dropping like a stone in asking price and those over 700K to 1.2 million are now beginning to take hefty chunks off... which they can easy do and still be hundreds of K too much.... but between 250K and 350K there appears to be a stagnation... some are dropping but most are just sticking.

In the areas I am looking there 250K to 300K asking price has almost disappeared with many asking prices being in the 309K to 350K - a year ago they would have been 270Kish. I guess the asking prices have all been bumped up by EAs to get business and/or because they know they are going to have to drop so they drop to what their real asking price should be.

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I'm afraid "this is it."

The crash and burn.

It will hit everyone, some with catastrophic consequences. The tragedy will be for all the innocents who bought since at least 2005. Many young, starting out who bought interest only, 100% mortgage probably in 1 bed flats.

The good news will be it will wipe the faces off the greedy spivs who genuinely believed they had the midas touch at making money with all their self believed financial prowess.

For those reaching retirement hoping for a downsize to retire I worry.

For those in their 30's still living at home with their parents there is light at the end of the tunnel.

For those who waited patiently with their STV's, and hard saved for deposits euphoria

For those sensible, prudent souls dilligantly paying off their mortgages hoping to upgrade a fabulous opportunity.

In three years the young of today, the future of our country they will hopefully be able to buy a HOME to live in for themselves and families.

Since 1997 until 2002 it was a ridiculous bubble. From 2002 -2005 madness, from 2005 -2010 total stupidity.

Amen

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I'm afraid "this is it."

The crash and burn.

It will hit everyone, some with catastrophic consequences. The tragedy will be for all the innocents who bought since at least 2005. Many young, starting out who bought interest only, 100% mortgage probably in 1 bed flats.

The grand opening of the crash&burn season will take place on the 20th of October with the spending review.

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The grand opening of the crash&burn season will take place on the 20th of October with the spending review.

After seeing the trailer, I can't wait for the main event.

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I think MoneyWeek has been right for sometime that the top end of the housing market is just as vulnerable, if not more. The great UK house price bubble that started back in 1975 now seems to be finally coming to an end, after a classic double top. Not surprisingly ArabianMoney.Net has seen a huge spike in traffic to read our analysis of the bubble, see: http://www.arabianmoney.net/global-economics/2010/09/21/panic-begins-to-grip-uk-housing-market-as-the-bubble-pops/

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You recommended this

A comment made by Arabian Moneys twitter feed on the Times article about Prices of luxury London homes drop for first time in 18 months.

"Huge spike in traffic"

I rekon the Arabian Money article is the one that calls it.

And all the BTL's who went all in are looking at their hand and suddenly remembering that ace's are low not high.

Edited by Stickleback

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Arabian money had an article earlier in the Summer about the UK and Australian housing bubbles which was written by Jeremy Grantham of GMO (don't know how to do links on this forum, but here's article: http://www.arabianmoney.net/global-economics/2010/06/16/housing-an-obvious-investment-bubble-in-the-uk-and-australia/).

For as long as I've been following various investment markets (not that long - since 2006), Grantham has called everything right, and he's not perpetually bearish - for example, he called the bottom of the Western stock markets in March 2009, and advised people to buy back in at that point. He's also a UK expat living in the States (I think), so he is likely to know how the UK housing market works, but also likely not to have a vested interest in UK property (maybe true, maybe not).

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Arabian money had an article earlier in the Summer about the UK and Australian housing bubbles which was written by Jeremy Grantham of GMO (don't know how to do links on this forum, but here's article: http://www.arabianmoney.net/global-economics/2010/06/16/housing-an-obvious-investment-bubble-in-the-uk-and-australia/).

For as long as I've been following various investment markets (not that long - since 2006), Grantham has called everything right, and he's not perpetually bearish - for example, he called the bottom of the Western stock markets in March 2009, and advised people to buy back in at that point. He's also a UK expat living in the States (I think), so he is likely to know how the UK housing market works, but also likely not to have a vested interest in UK property (maybe true, maybe not).

Your link is not working

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Well from that article I'd like to point out the following graph ...

housing-market.jpg

Kind of blows the premise that the London market won't be affected, nominal prices fell over 25% and that's before you include inflation!

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Well from that article I'd like to point out the following graph ...

housing-market.jpg

Kind of blows the premise that the London market won't be affected, nominal prices fell over 25% and that's before you include inflation!

But doesn't it also show that the UK as a whole did not fall so much and Scotland kind of just carried on regardless?

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But doesn't it also show that the UK as a whole did not fall so much and Scotland kind of just carried on regardless?

It seems to show the bigger the bubble, the bigger the fall

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Arabian money had an article earlier in the Summer about the UK and Australian housing bubbles which was written by Jeremy Grantham of GMO (don't know how to do links on this forum, but here's article: http://www.arabianmo...nd-australia/).

For as long as I've been following various investment markets (not that long - since 2006), Grantham has called everything right, and he's not perpetually bearish - for example, he called the bottom of the Western stock markets in March 2009, and advised people to buy back in at that point. He's also a UK expat living in the States (I think), so he is likely to know how the UK housing market works, but also likely not to have a vested interest in UK property (maybe true, maybe not).

All those Arabic & Asian "Investors" will cut 'n run as fast as they bought in - exacerbating the crash as they won't hold out for a higher price, coz they don't care, as it's not a main home!

20% drop off a Million quid house is far larger than 20% off £250,000 - that's why anything below a million in London will plummet back down faster than terraced/flats - just as they are first to go out of reach when prices rise.

People didn't bother with starter home/flat after last crash - they skipped them & bought a three bed semi or stretched to a detached!

Flats/terraced became stripped out drug dens sold off for less than a grand.

Edited by erranta

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...thought it was interesting when someone asked in the comments why the sudden rise in the UK HPs from '96 ..and correctly another adivised this was the year BTL took off ....in fact the first product appeared '95....and it is proof how this element has been underpinning much of the HPI in this country since then....and with the withdrawal of many product offerings including Lloyds cut back to only 3 per investor max £2,000,000 from 10 properties and £10,000,000 this should accelerate HPC.... :rolleyes:

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I was just wondering, could the superprime market be more reliant on sentiment than other markets? Reasoning:

1. Buyers would be more aware of the 'real' economic situation (and all the broadsheets likely to be read by this group have become very bearish now).

2. They have no pressing need to buy now (often a london pad is a status symbol more than anything).

I think you have a point. Buyers who depend on banks are being held back. But buyers that rely less on bank's financing will be more independent, and decide for themselves.

The top of the market could have more of it.

But some BTL may also have large deposits, and also have some independence. I think in this case the reductions of Housing benefits may have helped to "curb their enthusiasm". :)

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  • 245 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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