Nationwide: "housing Market Will Suffer A Sharp Slowdown"

[munimula]

Another post where Casual Observer chases RB around the thread....zzzzzz

[Realistbear]

You said that they should sell because the rise in price of their homes would slow down. How does low HPI cause them to face bankruptcy?

You give yourself away with some of your posts, RB, and then wriggle like mad to change the meaning of what you said.

Every thing you post portrays you as a speculator rather than a would-be home owner who just wants to house his family

People have short memories it seems. Great Crash 1 was characterised by thousands of people handing back their keys to the lenders and going bankrupt. If a OO is overstretched it is better to sell NOW and hope to recover a decent price to pay off all or some of the loans before waiting too long and being forced to sell or, worse, face repossession. Great Crash 2 will bring high levels of unemployment in its wake. Negative equity is already a grim reality for many who bought in late with huge LTVs.

If you snooze you lose should be the warning for this point in the cycle. Watch the trend--its not going anywhere but down. Its a clear warning of what lies ahead. Call it what you like, speculation, anticipation, constipation--but assess the risk and act accordingly and don't count on Gordon Brown's miracle continuing much longer. Ever wonder why TB is out now?

BY staying out of the market you are exercising a judgement call that prices will fall. By staying in you are speculating that prices will not fall. If you stay in and are overgeared you are headed for disaster. What's the big deal anyway?

The point of the thread is to show that a major VI is calling a slwodown and a sharp one at that. IMO, that is significant.

Edited May 17, 2007 by Realistbear

[Mr. Gruff]

If my understanding is correct for house prices to get from 10% p.a now to 5% by year end implies no further rises over the year or very small rises i.e 1-2% ( can't be arsed to dig out the figures ) - marginally less than RPI so falls in a real sense.

When Joe Public sees that property is flat lining he/she will offload his/her BTL portfolios and 2008 is shaping up to be very interesting !

This is the third thread today with this reported! No wonder there seems to be an overabundance of bearish news.

The Nationwide figures are 4% from January to end of April. So to get 5% there needs to be tiny rises, on average, for the rest of the year, which are well below inflation. I can't see that happening. At the top end of the scale of predictions from Nationwide, 8% would mean another 4% from January's prices over 8 months, which are about 0.4% per month, which is a lot less than has happened so far.

I suspect that they are preparing us for this month's figures.

[time_and_tide]

I first heard soft landing in the 70's. When did this fellow "invent" it?

You may have heard the term in the '70s, but can you give us a historical example of one ever happening in any market?

[Realistbear]

This is the third thread today with this reported! No wonder there seems to be an overabundance of bearish news.

The Nationwide figures are 4% from January to end of April. So to get 5% there needs to be tiny rises, on average, for the rest of the year, which are well below inflation. I can't see that happening. At the top end of the scale of predictions from Nationwide, 8% would mean another 4% from January's prices over 8 months, which are about 0.4% per month, which is a lot less than has happened so far.

I suspect that they are preparing us for this month's figures.

Upbeat and optimistic bear news is like soothing balm. It adds a spring to the step and a song in the heart.

As the bard said:

"oft repeated good news is soothing balm to tortured ears."

[Converted Lurker]

This is the third thread today with this reported! No wonder there seems to be an overabundance of bearish news.

The Nationwide figures are 4% from January to end of April. So to get 5% there needs to be tiny rises, on average, for the rest of the year, which are well below inflation. I can't see that happening. At the top end of the scale of predictions from Nationwide, 8% would mean another 4% from January's prices over 8 months, which are about 0.4% per month, which is a lot less than has happened so far.

I suspect that they are preparing us for this month's figures.

strange thing is nowhere in the press release can I find the quoted fall from 10% to 8-5%. I'll mail n/wide and ask where it is, if it exists. Poetic licence by a journo/off camera (message) remark?

http://www.nationwide.co.uk/mediacentre/Pr...this.asp?ID=998

[Guest d23]

Great Crash 1 did hit rather suddenly as I recall. But the warning signs were in place at least 18 months before when the stockmarket collapsed. IIRC the MoM slowing was quite gradual and it was not until 1991 that the crash started to bear its teeth and tear into prices in a big way.

IMO, Great Crash 2 began last October with the first signs of slowing. Here we are 9 months or so later and the LR are still reporting slowing over the wider UK. I would not expect to see any negative YoY for any region until late this year. Unless, of course we get a Brown-Balls **** up on a larger scale than usual.

pretty sure you don't remember correctly RB; looking at the figures there was insane HPI right up until when there was one quarter of stagnation q3 89 before meaty drops started straight away throughout 1990 before slower steady drops continued until q1 96. 1991 was actually quite benign compared to the years before and after it so not sure that was when the teeth got beared etc etc

[Realistbear]

pretty sure you don't remember correctly RB; looking at the figures there was insane HPI right up until when there was one quarter of stagnation q3 89 before meaty drops started straight away throughout 1990 before slower steady drops continued until q1 96. 1991 was actually quite benign compared to the years before and after it so not sure that was when the teeth got beared etc etc

We bought in that year and found a huge discount on a house in Surrey that had been bought in the mid 80's for around 259k and we picked it up in early 91 for 189k. The house was being marketed for quite a bit above 200k and the EA more or less said any offer will do it. I wish I had gone in lower than I did but to be honest I thought 189 was a low-ball for which there was no counter. My bet is that Great Crash 1 was far from uniform with different areas suffering at different rates throughout the 9 glorious years that the crash lasted.

Who knows what Great Crash 2 will bring regionally. If you apply the golden rule the SE and London will see the biggest percentage drops. As far as timing goes--IMO the areas with the highest concentration of BTL/unemployment will go first as they are doing on the W Coast in California. The top end sinks last as wealthier owners have more back up. Thus, the current stats from the LR which are probably showing continuing HPI, albeit at a greatly reduced pace, due to fewer and more expensive homes being sold.

Bottom line for most crashes is that they are bottom up. Kill the bottom feeder and the big fish eventually die off.

You may have no recollection of the years of GC1 as you may have been too young? I can still recall the Big Crash of the early 80's and the Big Drop in the 70's.

Edited May 17, 2007 by Realistbear

[notthereyet]

Local rag headline states (House prices may fall due to amount of houses for sale due to HIPS "Says local astate agents") It,s getting more and more front line headlines of possible price reductions on property,Hopefully people will see this and stop panic buying.

[Casual Observer]

Hello CO,

Has there EVER been a soft landing though in the British housing cycle?

Any examples would be appreciated.

Cheers.

Depends on your definition.

Mine is a non-nominal fall correction, of which there have been many, many examples.

[munimula]

Depends on your definition.

Mine is a non-nominal fall correction, of which there have been many, many examples.

...in periods of much higher inflation which we don't have now

[silver surfer]

Depends on your definition.

Mine is a non-nominal fall correction, of which there have been many, many examples.

Bear though I am I'd have to agree with this.

According to the Nationwide figures, over the last fifty years there's only been four instances where UK house prices ended the year lower in nominal terms than they started, 1990, 1991, 1992, and 1995. In all the other forty-six nominal prices ended the year higher than they started. Doesn't change my view that the rollcall of decline is about to get a few more additions (2008, 2009, and 2010 for example), but facts are facts and we should look at the data as it really is.

[kilroy]

You said that they should sell because the rise in price of their homes would slow down. How does low HPI cause them to face bankruptcy?

You give yourself away with some of your posts, RB, and then wriggle like mad to change the meaning of what you said.

Every thing you post portrays you as a speculator rather than a would-be home owner who just wants to house his family

I think that at high HPI, BTLers can MEW more easily and stash the cash away to subsidise the negative carry a lot of them are undeniably experiencing (i.e. rental income less than mortgage outgoings). At low HPI, MEW becomes a lot trickier/not possible which will lead to en masse cash flow problems with BTLers, especially as rates continue to rise. Only choice for them is to then sell.

[Casual Observer]

...in periods of much higher inflation which we don't have now

... and because we don't have them now, IRs won't need to be as high. And multiples can be higher than the norm. So property isn't as over-priced as the traditional price to earnings would lead you to believe. And if tyhey were, wages would be rising.

You actually put your finger right on the reason why prices haven't fallen.

[Margret Thatcher]

Nationwide are very optimistic IMO--or they are presenting a "best case" scenario. If you remove London and the SE from the mix we should see some negative by the end of the year. At 5% and adjusting for inflation it does not look good for the millions of BTLers. Especially if IR rise another .25%.

Bottom line: Big VI goes bearish.

Don't forget--the beginning of a long term trend is characterised by slowing. Once momentum to the downside begins it won't stop until the market corrects its years of irrational exuberance.

Nationwide predicted a 3% rise in 2006 and it ended up around 10%. So if they are 200% out again for this year then we will see hpi of 15-24%.

It's just a guessing game really.

[tippingpoint]

Yes I'd agree with your post RB. Annual HPI of about 5% for 2007.

I'd have preferred something around 2-3% but I think we'll all have to wait another year for that. Q2 2008 I reckon.

I think you'll find that in the hot spots around the SE had all the HPI growth for this year now. By July current prices will be unaffordable to all those other than the rich. End of story.

[frugalista]

Great Crash 1 did hit rather suddenly as I recall. But the warning signs were in place at least 18 months before when the stockmarket collapsed. IIRC the MoM slowing was quite gradual and it was not until 1991 that the crash started to bear its teeth and tear into prices in a big way.

It might seem that way from a London perspective but if you look at the regional figures (I saw them here at some point) then you can actually see some regions still rising even after rates had gone up to 14.5% and started to go back down again. Some regions' prices didn't even peak until 1991 or later, well after interest rates had peaked.

frug.

[numpty]

I was actively in the property market in the early 1990s and my experience was that studio flats and 1 bed flats took as massive hit in London. I was buying horrible little studio flats for sub £25k and the rents were paying me an income after paying highly geared mortgages service charges etc. Some of the flats I bought were less than a 1/3 of the value they had sold for a few years earlier.

Therefore I hope my example illustrates is that the bottom end of the market showed 60-70% falls whilst the more normal type of property will take much less of a fall and hence explain why the figures produced by the BS and Land Registry show more modest overall falls.

Studio and small one bedroom flats will only appeal to investors in a falling market and therefore will only be bought where the rental income produces an acceptable return. No HPI is there so these flats have to yield circa 11% to justify the agro in buying and renting them. Hence an orrible little studio renting back in 1993 in London for £300 per month would only justify a purchase price of £25k max.

A studio flat today which rents for £500per month in Croydon produces say £6000 per annum less expenses (excluding interest) of £1,000 leaves £5,000. At 7.5% yield this suggests its value (when there is no HPI around) of around £65-£70k. At the moment such a flat would cost you £125k .....very nasty fall ahead

[EmpiricalBear]

Ok, Nationwide and Halifax have been appallingly bad predictors of HPI.

But, assuming that NW are right in saying that HPI is about to drop to 5%. Remember that is an average and will include the serious boom regions that are still running at 14%+

5% HPI could mean that a number of 'coldspots' are in decline, with the average just held up by the boom areas.