Britain's Secret House Price Crash

[Maddog21]

http://www.moneyweek.com/investments/property/uk/britains-secret-house-price-crash-13701

House prices have fallen by 80%, measured in gold

House prices are already down 80% in ounces of gold.

If you want to measure a market (or anything else for that matter), you need a reliable, consistent unit of measurement.

Sounds obvious. Why then do we rely on the pound, the dollar, or any government currency, when they are not constant measures? Their value is too often interfered with by governments and central bankers and their agenda.

Even that bastion of fiscal constancy, the Swiss franc, is vulnerable, as we saw with yesterday's announcement from the Swiss National Bank that it intends to cap the value of the franc against the euro.

Gold cannot be issued, printed, inflated or debased in any of the ways that dubious policy-makers find to suit the political whims of the times. So it makes for a far more honest and accurate unit of account than any government currency.

That's why I like to look at markets priced in gold. I get a truer idea of value, and of where we are in the business cycle.

Today we take our occasional look at everybody's favourite subject: the UK housing market – but priced in honest money.

House prices have fallen by 80%, measured in gold

According to the August data from Nationwide, the average UK house now costs £165,914. (That is considerably more – over six times more, in fact – than the average UK salary, which according to the Office for National Statistics, is £25,900 before tax).

Yesterday's London PM gold fix was £1,182 an ounce. So the average UK house now costs 140.4 ounces of gold. (And the average UK wage earner takes home the equivalent of 22 ounces of gold per year).

Here we see the latest charts from Tom Fischer, professor of mathematics at Wuerzberg University, which show UK house prices measured in gold since 1930. In the six weeks since 19 July when he completed this chart, UK house prices have actually fallen by about 6% (!), ie nine gold ounces.

What a bubble our housing market was. In 2005 the average house cost 720 ounces of gold. So that’s a drop of 80% already. But from today’s prices, measured in constant money, I would say we have at least another 30% to fall, (that takes us to 100 ounces) or possibly 60% (which gives us 55).Regular readers will know that one of my long-term targets is 100 ounces for the average UK house. I actually think it’ll probably go to 55, as it did in the 1930s and in 1980. But I’m saying 100 as I’m utterly confident that target will be hit and I want to bask in the glory of an inbox of congratulatory emails when it does so.

But London prices are being propped up by foreign buyers

To my considerable annoyance – as I live here – prices haven't fallen by anything like as much in central London. This is largely because of foreign buyers. For my podcast, I recently interviewed Jeremy McGivern of Mercury Homesearch, an agency which sources prime London property.

He observes that over 70% of London buyers spending £5 million or more on a property come from overseas. Whether it's from the Middle East, Russia, Europe, India or China, they're all looking for safe places to park cash outside of their own countries.

In relative terms, London property is cheap because our currency has been such a dog. To a euro holder, even if London prices are flat, they're down 20% by the time you adjust the currency. Very few of these buyers, adds McGivern, spend much more than a few days here per month. (And you wonder why Mayfair, Knightsbridge, Kensington and Chelsea are such ghost towns at night).

Interesting article , more at link..........................

http://www.moneyweek.com/investments/property/uk/britains-secret-house-price-crash-13701

Edited December 5, 2011 by Maddog21

[DustyDog]

Pointless.

All very well valuing houses in gold, but people aren't paid in gold are they?

Value the average wage in gold as well and then look at how much more affordable houses are.

[cashinmattress]

Meh.

House prices have become almost irrelevant now, whatever unit of 'money' you use to measure them with.

Real inflation is running amok, the euro-zone has falling on it's fat face, a generation of wealthy people (boomer)s are starting to die off, and Britain has reached the point where we as a population are completely uncompetitive in the world market outside of money laundering or some hi-tech.

Having somewhere to live that is warm, dry, and secure is more important than some measure of value put on that place. It rings of brainwashed, hollowed out people, weakness, and insecurity when folk talk about property like it was their gateway to self determination.

[stuckmojo]

Pointless.

All very well valuing houses in gold, but people aren't paid in gold are they?

Value the average wage in gold as well and then look at how much more affordable houses are.

I agree.

We might as well check house prices against the value of cases of Romanee Conti wine.

[dredwerker]

I agree.

We might as well check house prices against the value of cases of Romanee Conti wine.

I also agree,as if gold is not in a bubble as well or is not a market of its own as well.

Although it might be interesting to see what they have done against a basket of goods

Edited December 5, 2011 by dredwerker

[trippytinker]

Having somewhere to live that is warm, dry, and secure is more important than some measure of value put on that place

At last someone talking common sense

[The Eagle]

At last someone talking common sense

You probably misunderstood his post, "Having somewhere to live that is warm, dry, and secure" does NOT imply buying a property, a rental also provides "somewhere to live that is warm, dry, and secure".

[Lord Lister]

Having been moved on 3 times in the last 4 years may I say that Secure is not a word I would use for rented accommodation!

You probably misunderstood his post, "Having somewhere to live that is warm, dry, and secure" does NOT imply buying a property, a rental also provides "somewhere to live that is warm, dry, and secure".

[Saberu]

Having somewhere to live that is warm, dry, and secure is more important than some measure of value put on that place.

And in China you can get small apartments which fit those criteria for as little as 20 pounds/ month! That's in cities, not in the countryside where things are much cheaper. 40/ month you can get a newly built place. If you are living in the north of China most places have central heating too, no central heating in the south but it doesn't get very old here so not a problem.

You can get really good quality apartments in gated communities for around 200-250 / month

So paying over 100,000 pounds to own an apartment seems crazy, the prices are just as crazy here but that's because rich people buy them rather than it being due to credit.

Edited December 5, 2011 by Saberu

[Saberu]

All very well valuing houses in gold, but people aren't paid in gold are they?

The point is you were supposed to have invested in gold a few years ago when it was half the price and all the naysayers on HPC were calling it a bad investment and all the gold bulls were ridiculed but ended up being right

Gold could go to $3,000 so there's still time yet to make something out of it. Personally I'm not worried, better to concentrate on investments which grow faster than assets, like your own business. But that takes a lot of skills.

[efdemin]

You probably misunderstood his post, "Having somewhere to live that is warm, dry, and secure" does NOT imply buying a property, a rental also provides "somewhere to live that is warm, dry, and secure".

Well, two out of three ain't half bad as Meatloaf used to say.

[trippytinker]

I'm afraid to say that a rental isn't a secure as you may think, neither is a mortgaged property until the loan is repaid and never buy a flat.

There again that's just my opinion.

[exiges]

Gold cannot be issued, printed, inflated or debased in any of the ways that dubious policy-makers find to suit the political whims of the times.

I dunno, Gordon Brown did a pretty good job when he announce the date he was dumping loads of our gold.

[OnlyMe]

And in China you can get small apartments which fit those criteria for as little as 20 pounds/ month! That's in cities, not in the countryside where things are much cheaper. 40/ month you can get a newly built place. If you are living in the north of China most places have central heating too, no central heating in the south but it doesn't get very old here so not a problem.

You can get really good quality apartments in gated communities for around 200-250 / month

So paying over 100,000 pounds to own an apartment seems crazy, the prices are just as crazy here but that's because rich people buy them rather than it being due to credit.

Therein lies the difference in China's housing bubble - it was used to helo cement their low wage comeptitiveness in many ways providing some excess accommodation to prevent the second round effects of the bubble increasing rents. Over the the debt has been used to increase both captial costs and rents - bad move, more unemployment and lost jobs coming.

[The Eagle]

Having been moved on 3 times in the last 4 years may I say that Secure is not a word I would use for rented accommodation!

You need to choose your landlords more carefully. I have never been forced to move by a LL, my shortest tenancy in a flat was 3 years. No I'm not simply lucky, I made sure the LLs weren't amateur BTLers or otherwise dodgy fly-by-night operators.

[Nationalist]

That's an ancient MoneyWeek article which was comprehensively trashed by HPC and commentors at the MW site a long time ago.

[efdemin]

You need to choose your landlords more carefully. I have never been forced to move by a LL, my shortest tenancy in a flat was 3 years. No I'm not simply lucky, I made sure the LLs weren't amateur BTLers or otherwise dodgy fly-by-night operators.

How did you check that?

I'm assuming you don't have kids so don't have to worry about being near the right school, etc. Or maybe you are not that fussy about how big / where the place to rent is? The problem is when you start trying to be a bit picky, the number of decent rentals soon narrows down.

[exiges]

You need to choose your landlords more carefully. I have never been forced to move by a LL, my shortest tenancy in a flat was 3 years. No I'm not simply lucky, I made sure the LLs weren't amateur BTLers or otherwise dodgy fly-by-night operators.

There is no way of knowing what a landlord is going to do with the house you're renting, they may have plans of what they want to do but circumstances change. So unless you've got it in writing that it's yours for X years, then whether they be professional or amateur landlords no amount of checking will give you assurance. Even large estate portfolios change hands.

Edited December 5, 2011 by exiges

[The Eagle]

How did you check that?

I did due diligence just like landlords do with tenants.

I questioned the agency about the landlord and I did a land registry check. With one landlord I also spoke to a previous tenant.

It's not hard to recognise a amateur BTLer or a dodgy landlord when doing some checks.

This should be standard practice, in fact agencies should provide background checks on landlords too, especially when agencies charge the tenants a fee for a tenancy.

[The Eagle]

There is no way of knowing what a landlord is going to do with the house you're renting, they may have plans of what they want to do but circumstances change. So unless you've got it in writing that it's yours for X years, then whether they be professional or amateur landlords no amount of checking will give you assurance. Even large estate portfolios change hands.

Of course you can never be 100% certain, but if you weed out the bad landlords the chances that everything works out as expected greatly increase.

[Doesn't Commute Anymore]

You need to choose your landlords more carefully. I have never been forced to move by a LL, my shortest tenancy in a flat was 3 years. No I'm not simply lucky, I made sure the LLs weren't amateur BTLers or otherwise dodgy fly-by-night operators.

I agree. When viewing a rental, the suitability of the landlord is as big a consideration as the suitability of the property. Try an get yourself in a situation where you can chat to the Landlord and find out what their motives are. Easier in some parts of the country than others, depending on rental stock.

As for house prices valued in gold - it is a totally valid measure. Gold is a metal with little industrial use, so acts mostly as a currency (some jewellery demand, but thats mostly bought as a store of wealth as well). There is no advantage in always saving in your local currency, bar some minor transaction fees. In fact, people in high inflation countries have always saved in foreign currency (e.g. central America, Eastern Europe) or gold (e.g. India) for big spends like cars, houses, weddings or education costs.

[efdemin]

I agree. When viewing a rental, the suitability of the landlord is as big a consideration as the suitability of the property. Try an get yourself in a situation where you can chat to the Landlord and find out what their motives are. Easier in some parts of the country than others, depending on rental stock.

As for house prices valued in gold - it is a totally valid measure. Gold is a metal with little industrial use, so acts mostly as a currency (some jewellery demand, but thats mostly bought as a store of wealth as well). There is no advantage in always saving in your local currency, bar some minor transaction fees. In fact, people in high inflation countries have always saved in foreign currency (e.g. central America, Eastern Europe) or gold (e.g. India) for big spends like cars, houses, weddings or education costs.

What if the landlord is overseas, or at the other end of the country? Do you trust what the landlord (or agent) has told you about why they are renting out their property? Are you sure the landlord doesn't have any hidden debts or is about to go through a messy divorce? Too many ifs, buts and maybes - at least with a mortgage the number of variables is less, the law around each persons obligations and responsibilities is clearer etc. (not to mention you are more likely to get bailed out by the government).

Do I get paid gold? No, then it is not a useful measure for the average person, end of. Why not measure it in the price of tins of beans? Fine wines? Classic cars? These are all things I could invest in that potentially have done better than keeping cash but it doesn't mean they are a valid way of valuing a house.

[The Eagle]

What if the landlord is overseas, or at the other end of the country? Do you trust what the landlord (or agent) has told you about why they are renting out their property?

Simple, if in doubt avoid.

not to mention you are more likely to get bailed out by the government

False, as a tenant you get bailed out too if you lose your job (housing benefit).

[bendy]

Ah the old gold argument - great news for those that got their gold mortgage in principle.

[Sour Mash]

Having been moved on 3 times in the last 4 years may I say that Secure is not a word I would use for rented accommodation!

Sounds like you're pretty unlucky ... I've been five years in my current house, and was even longer in the place I rented before that.

When I move out of this rental property, it'll almost certainly be because I'm buying.