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Nationwide Warns Of 'natural Correction' In House Prices


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You are an estate agent - I claim my £10

Did wageslaveX14 break the forum rules by mentioning some alternative scenario than the 50% correction that is coming tomorrow.

It would be cool if people on here were a bit more objective and didn't knock every post that is against the groupthink.

In 2009 the absolute opposite of what every sane person thought would happen happened.

Yet anyone mentioning anything other a 50% correction tomorrow gets slaughtered.

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While I'm 'shilling' - I'll bite on the BTL thing too.

If the scenario of a +30% correction happens, we get in to bank bail-in territory as the banks become insolvent and the IMF plan they trialled in Cyprus kicks-in (e.g. any deposit over £85K gets converted in to bank shares)....

Hey you got it all worked out. You sound like the guy on the Prime London thread rubbing his hands together as only savers can get wiped out. Buy away at super high prices then. Play the victim card, when you chose to buy at super high prices, for you could only see savers getting wiped out.

I don't suppose it's occurred to you that a -30% correction will, when bottomed out, lead to more housing transactions, for many a year thereafter. Sustainable transactions.

More affordable for new buyers, and upsizers. Slight tick up in mortgage rates very profitable to banks and thus revenues for Gov.

That banks aren't really earning much at all on homes owned outright/or equity rich. That not all outright owners are "home-owners who vote against HPC".

That policy-makers have been surprisingly blunt recently, their main concern is credit growth. (Credit growth = profit for the banks.). I'm on side of capitalism and choose to believe its healthier to purge bad positions - for good of the entire economy.

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There are still dozens of mechanisms they can engage to scaffold the issue (30yr fixed, MIRAS, stampduty thresholds, negative IR, HTB3, IO, 110% LTV etc.)

Outside of London commute distance the rises have been modest - if at all. Flats in Manchester look cheap and are not selling even at those prices.

Locally a 20% drop on a price sees it sell that week (based on a survey of one as I've said before). Most under-40s don't have any long-term debt right now.

Mortgage Strategy had an article on government looking at how they could enable more borrowing to over-75s ...

I'm just not seeing where a 50% fall is coming from without some black-swan event. I can see a 10-20% correction now the market is slowing - and can see a buyer/seller stand-off. So much property is held by "not selling less than it's worth" and some of them I know have had a property listed for 8 years now and still won't move on it.

The Labour government socialised support for the most unpopular group of people in the country (when it comes to sympathy for losses) - why would a Tory or coalition not socialise support for 'hardworking families' who have large debt.

When you grow up, you won't want to live in a flat in Manchester.

If you think its a good investment, fill your boots.

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I don't suppose it's occurred to you that a -30% correction will, when bottomed out, lead to more housing transactions, for many a year thereafter. Sustainable transactions.

In a normal world yes - but we do not live in normal times.

That 30% of value has probably been rehypothecated 95X over - and triggers a bunch of unintended consequences.

You don't have a 30% drop - but all the other things like mortgage rates, LTV etc. remain the same.

Which is why the government and BOE will throw the book at it not happening.

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There are still dozens of mechanisms they can engage to scaffold the issue (30yr fixed, MIRAS, stampduty thresholds, negative IR, HTB3, IO, 110% LTV etc.)

Outside of London commute distance the rises have been modest - if at all. Flats in Manchester look cheap and are not selling even at those prices.

Locally a 20% drop on a price sees it sell that week (based on a survey of one as I've said before). Most under-40s don't have any long-term debt right now.

Mortgage Strategy had an article on government looking at how they could enable more borrowing to over-75s ...

I'm just not seeing where a 50% fall is coming from without some black-swan event. I can see a 10-20% correction now the market is slowing - and can see a buyer/seller stand-off. So much property is held by "not selling less than it's worth" and some of them I know have had a property listed for 8 years now and still won't move on it.

The Labour government socialised support for the most unpopular group of people in the country (when it comes to sympathy for losses) - why would a Tory or coalition not socialise support for 'hardworking families' who have large debt.

Osborne's scaffolding isn't just holding up house prices, it's holding up the entire economy. The 'black swan' event is the compound interest due on the national debt. At current rates that becomes unserviceable circa 2018 without permanent recourse to the printing press.

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In a normal world yes - but we do not live in normal times.

That 30% of value has probably been rehypothecated 95X over - and triggers a bunch of unintended consequences.

You don't have a 30% drop - but all the other things like mortgage rates, LTV etc. remain the same.

Which is why the government and BOE will throw the book at it not happening.

nothing is going to remove the rehypothecation while they are throwing support at it..that is the issue..nothing has been fixed

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In a normal world yes - but we do not live in normal times.

That 30% of value has probably been rehypothecated 95X over - and triggers a bunch of unintended consequences.

You don't have a 30% drop - but all the other things like mortgage rates, LTV etc. remain the same.

Which is why the government and BOE will throw the book at it not happening.

They are hardly throwing the book at keeping prices up as they allowed the new MMR stress testing to 7% repayment interest rate + Carney is openly talking capping wage multiples.

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Osborne's scaffolding isn't just holding up house prices, it's holding up the entire economy. The 'black swan' event is the compound interest due on the national debt. At current rates that becomes unserviceable circa 2018 without permanent recourse to the printing press.

Which is why they need an excuse for more 2010 style austerity - but this time some real austerity. Basically the Conservatives are not required if everything is going well.

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I can see the pound taking a hit again, which will soften the drop in sterling terms. If I'd held my savings in dollars leading up to 2009, then it would have been happy days, but the BOE kindly let my savings absorb the shock last time instead of nominal house prices. We are back up at $1.67:£1, so there's room for that to slide again.

We clearly don't have room for rate cutting this time around, but the printing press remains on standby, and as soon as there are a couple of months of price falls, I expect that all talk about the need for 'action on prices' and 'worrying house price bubbles' will magically disappear from the press again.

Don't get me wrong, in many places in London I don't see how prices can stay this high without general price inflation. We never did get the hyperinflation I was predicting, and the lack of any obvously bad consequences in the eyes of central banks (asset price rises = an unambiguously good thing for central bankers), they will have judged their experiment a success, and I doubt they will have any qualms about Ctrl+P if the recovery turns out not to be 'locked in'.

Just my thoughts.

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They seem to think the trigger will simply be a 'just say no' buyers' strike.

I have again joined this group after spending the last year looking. Taking some time abroad etc.

The number of emails from EAs I've received in the last week has gone up 4-fold..

Looks like buyers are retreating.

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There are still dozens of mechanisms they can engage to scaffold the issue (30yr fixed, MIRAS, stampduty thresholds, negative IR, HTB3, IO, 110% LTV etc.)

...

Without wanting to be unnecessarily brusque, you've not really been paying attention have you! The last three on your list are things that have been REMOVED by the government between 2008 and today, so the idea that they are the things that they will now do to protect all this fictional bubble equity is bananas. It's about the banks and the economy proper - and that does not include a bunch of leveraged clowns with massive mortgages on crap houses.

It's a bubble. Bubbles burst.

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Without wanting to be unnecessarily brusque, you've not really been paying attention have you! The last three on your list are things that have been REMOVED by the government between 2008 and today, so the idea that they are the things that they will now do to protect all this fictional bubble equity is bananas. It's about the banks and the economy proper - and that does not include a bunch of leveraged clowns with massive mortgages on crap houses.

It's a bubble. Bubbles burst.

My view on this is that Osborne/Carney want to scaffold a top for while.

Prices in London are above the top they want and they are below the top in the regions.

We are seeing tighter controls come in on 500K+ loans whilst at the same time state support for below 600K via HTB.

If they can hold this position, get more under-40s taking on debt, whilst boomers exit - long enough for business investment to provide the required GDP forecasts - they can start to intervene less.

There is every chance 110% LTV can come back just like 95% LTV has come back in last few months - for the brackets they want to push.

As I often say these things have unintended consequences - but I believe they have enough fuel available that they can hold this position for longer than we imagine.

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Would be good to see a journo asking Marx Carney why he doesn't believe there's a 'bubble' when one of the biggest lenders he regulates calls it a bubble in their risk assessments.

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In a normal world yes - but we do not live in normal times.

That 30% of value has probably been rehypothecated 95X over - and triggers a bunch of unintended consequences.

You don't have a 30% drop - but all the other things like mortgage rates, LTV etc. remain the same.

Which is why the government and BOE will throw the book at it not happening.

You totally misunderstand how this works. Bank solvency is threatened by two mechanisms.

On the one hand if those who extend credit to it refuse to continue extending credit. Tthis is what happened when suspicions regarding the underlying quality of the RMBS being used as collateral shut down repo markets and thus cut the banks off from a major source of their funding, and likewise this is why we have the new £85k limit on the FSCS so that retail savers don't pull out their money and switch it into notes as opposed to bank credit, both of which then go under the bed). Both of these problems are solved. If you look at the thread on the various M4-like measures you can see that the 'funding gap' has gone, and the banks' reserve accounts at the Bank of England are phat with a capital ph.

On the other hand a failure of bank borrowers to honour their commitments as they fall due can undermine solvency as they have to call in the loans and book the losses. However, the new very low rate environment means that even in this weak economy a healthy dose of forbearance has alleviated this problem too.

Finally because of recourse lending in the UK falling house prices do not in and of themselves lead to losses on the mortgage book. That only happens when you have falling prices and people who can't pay their mortgages.

The banks are ready to deal with what is coming. A small number of households are not, but this country has never made policy on the basis of what the weakest borrowers can and can't deal with.

If you think the banks still have skin in the game defending these prices, you're just plain mistaken. They make more money churning loans. For that you need transactions and for transactions you need lower prices.

Edited by ex nihilo de novo
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We clearly don't have room for rate cutting this time around, but the printing press remains on standby, and as soon as there are a couple of months of price falls, I expect that all talk about the need for 'action on prices' and 'worrying house price bubbles' will magically disappear from the press again.

Don't get me wrong, in many places in London I don't see how prices can stay this high without general price inflation. We never did get the hyperinflation I was predicting, and the lack of any obvously bad consequences in the eyes of central banks (asset price rises = an unambiguously good thing for central bankers), they will have judged their experiment a success, and I doubt they will have any qualms about Ctrl+P if the recovery turns out not to be 'locked in'.

You can't print capital. Any time a central bank monetizes an asset by buying it, in essence with printing press money, it also creates a liability. And there are limits to a country's credit-worthiness when overdone, reflected in bonds and currency. Only the market can create capital by valuing assets above liabilities.

And there are two sides to the lending equation. It requires lenders positioned to lend. And it requires willing borrowers who meet lenders qualifying criteria for loans.

Look at what Nationwide stated: > "At some point buyers just start saying no," he added. < In otherwords, it's possibly would be buyers don't want the debt on offer, even if they qualify for it. And at a later point, it may switch to not wanting the debt, as ever better value emerges.

It's amusing. On US blogs that are very HPC, loads of smart younger HPC types complaining about super high silly prices for houses in SoCal/Santa Monica, San Fran etc (with same arguments as here re stimulus), but those prime spots look cheap or at least comparable against that £450,000 ($753,818 on exchange rate I just did), standardish fairly ordinary family house in Sheffield, on just a street of many such homes that one well known "HPI fo-ev-ah" VI probably bought early 2012.

In the UK where house prices are only in a bubble in London and SE. :rolleyes:

My position is they do not feel that way, but they may be a necessarily evil whilst banks rebalance their own positions. Although HTB and other stimulus suggests I could be wrong. If I am wrong I accept it - always have. Yet other side here is buyers can pay any silly price, at any time in higher and higher silly peaks, and "innocent."

Edited by Venger
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I believe the government has done what it set out to do in their minds, and that is to give time, six years now, to enable banks to steal more money ready for a severe (they hope soft) correction. Whether it is enough to stop the banks crashing totally only time will tell. This is the end of the line. When thing like price corrections are spoken of openly in the media then it means it is now time for the show to start..

ps..Natural sounds so warm and cuddly doesn`t it.?

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Would be good to see a journo asking Marx Carney why he doesn't believe there's a 'bubble' when one of the biggest lenders he regulates calls it a bubble in their risk assessments.

To be fair, surely the Governor of the Bank of England is only allowed to say that an asset price is 'toppy' a decade after it has gone to zero. I think it's their version of the "First Rule of Fight Club", (imagines Mervyn King stripped to the waist smoking a ciggy in classic Brad Pitt Fight Club pose).

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"Osborne/Carney want to scaffold a top for while.

Prices in London are above the top they want and they are below the top in the regions." That's my view as well.

The idea that loans above half a million are only now being 'restricted' to a max of 4X salary makes my mind boggle.

I've seen politicians on TV recently making statements that suggest they either don't understand or are wilfully ignoring the state of the problem. Dianne Abbott on Question Time recently lamented that "there's now no way ordinary families can afford houses in zones 1 and 2", blithely ignoring that in order to afford a 3-bed terrace near a tube station in Zone 3, you now need to be within the top 0.5% of earners, at least without a liar loan.

Vince Cable also said that it was worrying that people were now having to borrow more than 3X salary to buy a house. In his own constituency, ordinary terraces now cost around 30-40 times the national average wage.

In the run up to an election, however, they are not going to take any realistic steps to pop a bubble. Price rises are now becoming a vote loser, but price falls, especially steep ones, are still definitely bad for re-election prospects, especially when the incumbent party only put HTB in place last year.

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The banks are ready to deal with what is coming. A small number of households are not, but this country has never made policy on the basis of what the weakest borrowers can and can't deal with.

If you think the banks still have skin in the game defending these prices, you're just plain mistaken. They make more money churning loans. For that you need transactions and for transactions you need lower prices.

My view is that the UK banks are far more on the hook if valuations retreat than they are admitting.

I strongly believe investment funds backed off to UK banks and pension funds are more involved in the London ramping than is visible and are more leveraged on it than is visible.

I believe the 'cash buyer' situation that keeps being mentioned is not 'cash' in the sense you or I think of it as cash - it is just not traditional mortgages.

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