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bleakhouse

Uk Housing Market Tulip Mania Goes Kaput!

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http://news.goldseek.com/GoldSeek/1205128920.php

Seasonally adjusted house prices fell in February by 0.3% to £196,649 (Halifax:SA), a fall of £600. None seasonally adjusted house prices are now down £7,600 since the peak made in August 2007 which equates to an average drop of £1,266 per month in equity. This is against an interest rate implied cut of 0.5% on interest repayments on an average UK mortgage of £150,000, or just £62.50 per month (Rate cuts inline with Sept 07 forecast). Therefore housing market commentators expecting UK interest rate cuts to support the housing market need to revisit their methodology of calculating the difference between implied impact of rate cuts i.e. £62.50 per month against that of the loss of equity per month of £1,266. I say implied impact of rate cuts as the credit crisis has ensured that the spread between bank mortgage rates and the Bank of England Base Rate has widened, therefore effectively not entirely passing on the rate cut to mortgage customers.

The Market Oracle forecast as of August 2007 - Is for fall in average UK house prices of 15% (minimum) over 2 years from August 2007 to August 2009 (Data:Halifax NSA). As the below graphs illustrate the housing market remains on track to meet this target

The strong bullish trend in house prices was sustained by the tulip mania mentality of bidding up house prices to avoid missing out on future house price gains with little regard or consideration given to interest rate costs. Similarly as house prices fall, falling interest rates are not going to help support the crumbling housing market. This is something that I have re-iterated several times over the last 6 months as the articles archive illustrates.

The UK economy and Housing market has entered a downward spiral, similar to which the US market has been experiencing, which is approximately a year ahead of the UK in terms of house prices trend. During 2008 some 1.4 million UK home owners are to experience their fixed interest rate mortgages taken out under easy credit terms and at low interest rates during the housing boom, reset at higher interest rate levels and find themselves unable to fix again at favorable rates due to the mortgage banks being decimated by credit and debt market losses and in most cases unable to offer anything other than the high standard variable rates, especially to those on high multiple of earnings ratios (X3.5 salary) or those with lack of equity (less than 10%), and thus these mortgage re-setters are at high risks of repossession which are expected to explode in number to beyond 70,000 repossessions this year , which will feed the banking crisis and house price deflation cycle.

Home Owners Psychological Shock Coming - May 08

The UK Housing market's annual rate of house price inflation is on track to go negative in April 2008 for data to be released during May 2008. This is expected to act as a psychological shock to the housing market participants. The complacency that continues to exist today will turn to fear at that point as speculative buy to let investors feel the adrenaline rush and palpitations of the actual consequences of the real loss of capital of tens of thousands of pounds.

Even today the mortgage banks and estate agencies talk up the market by denying that house price inflation is about to go negative. As illustrated by Britain's biggest mortgage bank, the Halifax that continues to predict that there will be no fall in UK house prices this year. Martin Ellis, chief economist said "that strong underlying fundamentals will continue to support the market throughout 2008". "Over the past year, the average price of a home in the UK has increased by £4,390 to £196,649," he commented. "Whilst the housing market has slowed over the past six months, it is supported by sound economic fundamentals. Interest rate cuts by the Bank of England are also helping to underpin house prices,". The up beat note is reminiscence of the last housing bear market when a falling market was consistently followed by bullish announcements by those with a vested interest in keeping their jobs! ( Media Lessons from 1989)

Sitting Fat on Equity Gains ?

Home owners who bought early into the boom and are now sitting on gains of 200% or more may think that in the light a 15% drop there is nothing much to worry about need to reconsider how they calculate the impact of a 15% fall - A 15% nominal fall in house prices on a 200% gain is an effective loss of 22.5% of the gain (£200k examples) i.e. £200,000 X 15% = £30,000 house price fall; £30,000 / £133,333 Gain = 22.5% loss of gain. Add RPI inflation of 8.5% (over 2 years) and that's a real terms loss of 35% of the gain, on a £200k house that's equivalent to £47,000 (133,000 X 35%), ignoring inflation that is still a £30,000 nominal loss.

I have received several emails asking if I expect the UK housing market to bottom in August 2009. My response is that we are still at the beginning of the UK housing bear market that I expect to run to August 2009. There is no sign at this point in time to suggest that August 2009 will be a bottom as the UK economy by that time will be either in or close to being in recession. However, towards the end of this year (2008), I will be able to update the housing market forecast to beyond 2009.

Click on the link for the graphics.

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If the UK market watchers want to know what is going to happen to the UK housing market they need look no further than accorss the Atlantic. Observe what is happening there and why and then apply the same model to the UK with a slight difference. Our bubble is larger and will pop a little louder.

I love simplicity in economics. It is, after all, a very simple subject and all comes down to 3 simple truths:

1. What goes up must come down and the further it rose the further it has to fall.

2. The economy is cyclical (boom to bust and varying degress between).

3. You cannot beat the market (the posions eventualy hatch out).

Brown's folly was in thinking he had abolished all 3 of the above.

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The Market Oracle forecast as of August 2007 - Is for fall in average UK house prices of 15% (minimum) over 2 years from August 2007 to August 2009 (Data:Halifax NSA). As the below graphs illustrate the housing market remains on track to meet this target

Only 15% :o

Back to 2005 prices and in tougher credit conditions. Great. NOT

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There are still some hopefuls out there:

http://www.rightmove.co.uk/viewdetails-148...=1&tr_t=buy

effectively £435K for a building plot????

Alternatively compare

http://www.rightmove.co.uk/viewdetails-124...=3&tr_t=buy

http://www.rightmove.co.uk/viewdetails-152...=2&tr_t=buy

and finally

http://www.rightmove.co.uk/viewdetails-787...=1&tr_t=buy

These are virtually identical houses on quite a nice small estate. The most expensive has a conservatory, but what makes them think that adds £70K to the value I do not know!

Edited by cartimandua51

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Only 15% :o

Back to 2005 prices and in tougher credit conditions. Great. NOT

This breaks the second limb of Tautologous Tim's 1st rule of simple economics: What goes up must come down and the further it rose the further it has to fall.

The rules always apply.

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Only 15% :o

Back to 2005 prices and in tougher credit conditions. Great. NOT

I would add to RB's comment that to predict anything more is opening yourself up to ridicule. They will always understate the problem until it is obviously upon them and then they will revise.

I notice also they are talking about the next 2 years, and as per the last paragraph, they are not saying that this will be the bottom of the slump...

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You need to read some of the drivel they sprouted during the last crash. The meeeja and VI's constantly 'assured' everyone that the bottom had ben reached and the market was poised for upturn.

What people do not realise that as in the last crash, there is very little truth being spoken about today's housing market. The sheer drop in sale figures and a visit to ex-pats will tell you that the market is in dire straights and this is only going to get a lot worse.

I predict a severe correction in the housing market and this (IMO) will take 3-4 years minimum to get back to a level that will shock the sheeple to the very core. You will need a great deal of patience housing markets do not fall at the same speed as stock market crashes.

Only 15% :o

Back to 2005 prices and in tougher credit conditions. Great. NOT

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Only 15% :o

Back to 2005 prices and in tougher credit conditions. Great. NOT

Wrong. As explained in the article, 15% drop transpires to something more like 40% falls once wage inflation is taken into account; remember also if you were a good bear and have been saving since 2005 or before, you will have sizably reduced your prostitution to the bank Sorry, I mean mortgage, perhaps reducing it by 10 years for the same property.

Remember, If a house gains 15% then falls 15% its not the same price! This is another reason why hose price falls transpire at a much lower rate.

Back in 2005, I Worked off on the basis that for every pound I spent unnecessarity, be it luxuries that would have ended in the bin or the charity shop, or meals out, or spending a fortune on getting a hangover, was one pound extra I would have paid that fat slug of a bank manager... I have managed to get married, save 35k since then and an on track to put away 30k+ a year in savings now the missus is working, so all I am doing is saving like a b*stard, going to go long on the FTSE once it hits around 3000, and hopefully I should be laughing.

Edited by mbga9pgf

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Only 15% :o

Back to 2005 prices and in tougher credit conditions. Great. NOT

Ok I overreacted a little. Cheers guys

(is it sad to reply to your own post?)

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Ok I overreacted a little. Cheers guys

(is it sad to reply to your own post?)

if you predict anymore than that on much quoted website no one will take you seriously, watch how they'll revise that forecast month on month....suddenly, it'll be 20%, spread out over 3 years, :rolleyes: their excuse/reasoning will be the new data and their ability to use such to predict a trend. Look at the fudged answer to when will the housing market kick off again ...er...when wages catch up? Just because it's a good resource doesn't mean we should rely on it as a 'fountain of knowledge'. <_<

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  • 295 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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