Money Morning Email

[large]

I received this in my junkmail folder sandwiched between 'enlarge your *****' and 'watch me feck my sister up the ****'. I think money morning is from moneyweek, don't know their traditonal stance. Good article with some excellent anecdotal stuff in it:

Dear Dr ******,

House prices were flat in October. House prices rose 1.3% in October. House prices fell 0.1% in October.

You could be forgiven for being confused about what’s happening in the housing market. The above are all October readings from Halifax, Nationwide and Hometrack respectively.

But fear not – it’s time to reveal what Money Morning readers have been telling us about UK property. We first asked you to share your housing adventures about a month ago, and there have been plenty of takers with interesting stories to tell.

Before continuing, we would like to point out that this is by no means a scientific, statistically significant survey.

But then, almost every other piece of data on the housing market comes from a group with a vested interest in its strength – estate agents, surveyors, or the Government. So we don’t think that’s any reason to ignore our findings.

The first thing we can say with confidence is – it’s grim down South.

A reader in Newbury, near Reading, put his house on the market at £625k in September last year. He has received one offer – of £450k.

In Windsor, another reader’s home was put on the market at £580k in February. There has yet to be a single offer, despite a £30k price cut. And no takers yet for a home in Bath, which has been on the market since January, despite the asking price being slashed from £480k to £350k.

In London’s Chelsea, a one-bed flat priced at £350k in May 2004 sold for £285k in late Spring 2005. At the other end of the London market, in Sutton, a 2-bed flat for sale at £185k in November 2004, finally sold for £163k – a 12% drop – last month.

Another reader says he has been letting properties in the South East since 1995 “and I can tell you that it is not a good business”. On current values, he reckons “the return is only between 4% and 4.5% after tax…less than a buy-to-let mortgage.”

And over in South Wales, the buy-to-letters may be set to flood the market. A reader says that 85% of the couples he knows own more than two houses – and that the more financially savvy ones are looking to sell. He reckons prices have fallen 15% in the area in the past year.

Life seems less bleak up north – for now. One vendor in Grimsby talks of having to drop their price from £120k to £105k. However, another in the North East sold their home for the full asking price (in the £400k - £550k range) – but also had to pay full asking price for their new house.

And in Scotland, houses in Aberdeen are still going for over the asking price, though this is partly a feature of the Scottish home-buying system, where sales tend to be “offers over” during all but the leanest periods.

This isn’t too much of a surprise. All the major housing surveys have consistently reported house prices in the North and Scotland as holding up better than in the South, though growth rates are still well below last year’s.

But although it may be galling for those in the north of the country to read it, the truth is that where London leads, the rest of the UK tends to follow.

The North and Scotland in particular have been disproportionate beneficiaries from the explosion in public spending growth since Labour came to power. This means that when Gordon Brown finally has to deal with his complete lack of prudence in managing the public purse, they will also suffer more.

What sums it up best for us is an email received from a former estate agent turned property developer in Bournemouth. He tells us that he sold up all his property interests, “including my own home” in the second quarter of 2004. He reckons prices in the area have come off by 10%-12% since then.

He goes on: “I have always been completely against the idea of renting a property and yet now I rent a £400,000 property for £1,200 per month.

“I am, for the first time, better off by renting. An equally or more desirable property to the one I sold can already be purchased for up to £30,000 less, enough to pay the rent on my new and even better home for the next two full years.”

When a former estate agent drops the “renting is dead money” credo, you should listen. You can also read MoneyWeek editor Merryn Somerset Webb’s comments on why there are often sound reasons for renting, just by clicking here: Sometimes Buying Property Is Dead Money.

And for the more mathematically-minded among you, you can read an in-depth analysis of renting versus buying from Capital Economics, by clicking here: Renting versus Buying.

But what of all the talk of a housing market revival? Our ex-estate agent friend says: “Many of my old…acquaintances remain oddly upbeat about the current market…we saw this same denial in 1989 when the last recession started to bite.”

And as Dr Steve Sjuggerud points out in The Daily Reckoning, "A bear market 'sails down a river of hope,'”, while “a bull market 'climbs a wall of worry.'”

In other words, there are plenty of people out there thinking: “I can’t buy into the Japanese market now that it’s up over 14,000. The Japanese always disappoint.” Or: “Surely gold can’t keep going higher – it’s been a useless investment for more than 20 years.”

These same poor deluded souls are also thinking: “Wow, house prices are falling. This is my chance to get on board at a 10% discount before prices shoot back up – because you can’t go wrong with property.”

Personal bankruptcies between July and September rose 46% on last year, and are now at an all-time high. Repossession orders rose 66% during the same period. You can’t go wrong with property? We beg to differ.

Turning to the markets...

Edited November 7, 2005 by large

[Starcrossed]

Great find, large.

Merryn has always been on our side.

[non-FTBer]

Excellent piece.

Thx for sharing.