Time For The Bears To Go Neither?

[azogar]

OK - Flameproof gear now on

just some idle thinking here but........

Since Brown will most probably stay in office until 2010, since the Govt. have taken over (practically) some of the biggest lenders in the land, since they want to get back to Aug. 2007 lending levels, since IR's (BoE) are coming down and AD/GB will push everything within their means to get Libor down, etc. (I could go on)

Does this mean they might actually partly achieve their goal by preventing a full market correction probably at the expense of later inflation?

FWIW, I still think we have -10 to 20% to go from the existing -30% from peak Q3 2007 levels, but with a massive attempt at reflating housing, stock markets, economy by using debt again where do we go from here?

anyone?

edit to add - I suppose wage inflation is still key?

Edited October 13, 2008 by prophet-profit

[Traktion]

I think your last point is the important one - unless wages increase, house prices will continue to fall, now that risk is being assessed more carefully.

The new announcements will enable banks to lend, but I just can't see how they can lend like the boom times are still going. If they try, that new capital won't last long...

I put a big post in the NI economy thread, so I won't copy it all over, but it seems to me, the total capitulation of the financial may have been postponed. I say may, as we don't/won't know what the results this action will have had for a few days (weeks?).

It may stop some forced sales, as the banks may back off those struggling to pay, now they have less pressure to recapitalise. I don't see how it can help first time buyers though as the risks to create so much credit can't be made any more and I don't see how this can be changed. The huge credit in the system was from poor risk assessment and has resulted in the bust. That was while there was confidence and mugs lining up to buy that debt. The market has changed and I don't believe we'll see this sort of foolishness for a few generations now.

I think the question is more about whether we'll be eating baked beans, living in worthless houses, following a global financial melt down or not. IMO, house prices will tumble regardless, as the wages/values are way out of sync for the risk associated with loan repayment.

Neither? Nah, bearish as ever, although a little less concerned about stocking up on supplies for the time being!

[azogar]

I think your last point is the important one - unless wages increase, house prices will continue to fall, now that risk is being assessed more carefully.

The new announcements will enable banks to lend, but I just can't see how they can lend like the boom times are still going. If they try, that new capital won't last long...

I put a big post in the NI economy thread, so I won't copy it all over, but it seems to me, the total capitulation of the financial may have been postponed. I say may, as we don't/won't know what the results this action will have had for a few days (weeks?).

It may stop some forced sales, as the banks may back off those struggling to pay, now they have less pressure to recapitalise. I don't see how it can help first time buyers though as the risks to create so much credit can't be made any more and I don't see how this can be changed. The huge credit in the system was from poor risk assessment and has resulted in the bust. That was while there was confidence and mugs lining up to buy that debt. The market has changed and I don't believe we'll see this sort of foolishness for a few generations now.

I think the question is more about whether we'll be eating baked beans, living in worthless houses, following a global financial melt down or not. IMO, house prices will tumble regardless, as the wages/values are way out of sync for the risk associated with loan repayment.

Neither? Nah, bearish as ever, although a little less concerned about stocking up on supplies for the time being!

yep - best to keep a close eye on the markets this week and the next, could give us some clues as to whether we are going to go 70's style or the 1930's (or worse). If it is 70's all over again, do I get one of these:

[azogar]

food for thought:

http://www.moneyweek.com/news-and-charts/e...Money%2BMorning

edit - fixed link

Edited October 13, 2008 by prophet-profit

[Traktion]

yep - best to keep a close eye on the markets this week and the next, could give us some clues as to whether we are going to go 70's style or the 1930's (or worse). If it is 70's all over again, do I get one of these:

I used to have a purple chopper (oh err!) and it was the business!

Maybe that's the key - panic over (for at least today! haha!). Perhaps a reflective period will follow, with a considered rally, while people wait to see what happens next. I get the feeling we haven't see the last of the bad news though, even if everyone will draw a collective sigh of relief. Personally, I'm going to use the time to prepare for the worst as well as I can. Whether it gets worse slowly or quickly, it still looks like it will get worse!

[azogar]

I used to have a purple chopper (oh err!) and it was the business!

Maybe that's the key - panic over (for at least today! haha!). Perhaps a reflective period will follow, with a considered rally, while people wait to see what happens next. I get the feeling we haven't see the last of the bad news though, even if everyone will draw a collective sigh of relief. Personally, I'm going to use the time to prepare for the worst as well as I can. Whether it gets worse slowly or quickly, it still looks like it will get worse!

with you on that one trak - no quick fix will work in the long term

btw - I had a tomahawk (bro had a chopper): we then graduated onto bmx, team murray's imported from the good ole US of A. those were the days!

Edited October 13, 2008 by prophet-profit

[tara747]

My tuppence worth.

I am as bearish as ever too and the HPC is still on! Reasons:

1. Banks are unwilling to go back to 2007 crazy lending.

2. Recession has already started, including job losses - so people are not going to feel confident about big spending and borrowing.

3. Price inflation is high, so everyone's purses are going to be squeezed mightily in the next while.

4. Immigration is slowing and even going into reverse as all the EEs head home, those who can are delaying moving out of the family home or moving back in with the folks, struggling OOs are taking in lodgers - this will do more to kill off BTL than anything (watch those forced sales).

5. Wage inflation is going to be flat or negative for the next while, according to all available sources of information.

The housing market will continue to fall. It will only recover in the short term IF wage inflation goes through the roof. Which is highly unlikely. If wages start increasing at 10%+ p.a., then all bets are off.

Is anyone getting a 10%+ pay rise this year, apart from newly qualified professionals (who are starting from a very low base)?

Edited October 13, 2008 by tara747

[subby]

yep - best to keep a close eye on the markets this week and the next, could give us some clues as to whether we are going to go 70's style or the 1930's (or worse). If it is 70's all over again, do I get one of these:

no way!!! I had one of them in the early 80's....

....very early 80's though....

[Belfast Boy]

no way!!! I had one of them in the early 80's....

OMG me too ... excellent for wheelies

Then I got a Grifter.

[YoungFTB]

Maybe that's the key - panic over (for at least today! haha!). Perhaps a reflective period will follow, with a considered rally, while people wait to see what happens next. I get the feeling we haven't see the last of the bad news though, even if everyone will draw a collective sigh of relief. Personally, I'm going to use the time to prepare for the worst as well as I can. Whether it gets worse slowly or quickly, it still looks like it will get worse!

I feel the same Traks!

I was beginning to research ways to save money i.e. insulation etc but over the past week I dropped that completely and went straight to building up supplies (tinned food etc) Once I'm happy with what I've built up as an emergency supply I'll go back to researching ways to save money.

When I have 20% in PMs and at least a complete 3 months emergency supply of stock I'll feel a bit better about things, my gut is telling me that these interventions have only given the system a bit more time (weeks, months I do not know)

One things for certain, we are all going to have to get used to a lower standard of living (how this all plays out will determine that)

Financial Meltdown = lucky to survive

Severe Recession = Serious compromises on living standards

For a large percentage of people who have been used to this debt culture for the past decade, I can't for the life of me see how they are going to adapt.

I think most of us here have lived rather frugile lives over the past few years to build up deposits so a drop in living standard will be managable for most folks on this forum I think (assuming a recession) but for those used to a higher lifestyle than we have enjoyed over the past few years (due to MEWing or borrowing) it's gonna hit them like a brick IMO which is bound to lead to serious social unrest because I just can't see these people accepting a much much lower standard of living than they have been accustomed to.

I don't see how house prices or mortgage lending can take off again, we have a recession around the corner and 2009 is going to be a nightmare for millions of people once unemployment starts really rising.

I'm hoping for the best but planning for the worst

[VedantaTrader]

This will only create a terribly weak sterling, growth will stagnate, unemployment will rise, lending and interest rates will go up anyway. As the government creates all this money in the end, be it this year or next, probably picking up about 18months from now, but sometime in the medium run, bond yields will soar, and lending and credit will become tight anyway. The BOE can cut rates to zero if they want. The private sector will decide interest rates,not the government or the BOE...The problem is that the consumer has too much debt. The reason the banks are in trouble is because the consumer is in trouble. This bailout package does nothing to address the existing consumer debt. This ridiculous £500 billion bailout would have been better if we had divided the £500 billion amongst every mortgage holder to help with their monthly payments. Same thing in my view. This will only increase the burden on an overdebted society with higher taxes, and a higher cost of goods, food, oil, insurance, council tax, haircuts, bus fares, train fares, clothes. How can this stimulate any economy? We dont need the banks to lend more, we need the banks to contract, we need interest rates to rise leading to debt liquidation, we need to cut taxes on saving accounts, on pensions etc to encourage people to save. Higher interest rates wil lead to higher savings rates, which will overtime recapitalise the banks deposit base and tier 1 capital. Then the banks through intermediation could start to lend again. By cutting rates, and creating medium to longterm inflation, we will destory thrift and any chance to save. This talk of escaping a recession is idiotic. Higher rates would mean good rates of return in savings, it would mean a stronger currency overtime, and it would enable a chance to pay down debt. These government officials are going to cause us alot of really bad problems down the line. Assets would be cheaper for everyone. What puzzles me is why people think rising food prices is any worse than rising house prices.

[cacot]

So I think it will drop here is a list

Banks are going to end up owned by Brown. He is a pillock. the End!!!

Seriously though they are back pedalling all the time. The nationalized Northern Rock has not passed on the drop. So why should the recapitalized banks do any different. The situation over here is confidence, same as shares, so until that returns no large number of purchasers will appear. Look at shares the banks fell when the government got involved. Look at the achieved auction prices they foretell the market. Winter will tell all.

I certainly do not imagine any mortgages getting offered at 2007 levels other than to offer the same number of products. But what a ridiculous undertaking "attract all the bad mortgages here!!" cries the government. I reckon more prime mortgage is needed and in a falling market it does not exist. they will wait till the market bottoms before they really get involved.

Prices are going to be decided by affordability and that is very far south of current prices. Speaking of south 66% off top price that's gotta hurt. It also shows where the market is heading with all the specuvestors up here using south money. The banks are going to hurt a lot more over the next 3 years and tightening credit and interbank lending are just the warning shots.

The important thing for NI house prices is to stop looking at it on a local level and look at it more culturally and on a global level. NI'ish are great at getting bargains but love to overpay too if it makes them look important/posh. We have run out of posh idiots and are now working with the bargain hunters. All anyone talks about now is where to get the cheapest oil. why overspend by £30 000- £80 000 if you are going to worry about spending £250 for oil instead of £220. We are talking life changing amounts of money and the more the NI'ish get the hang of this the better.

We need journo to get the affordability model looked at for a true representation of house prices, try to encourage land registry and try to encourage more open information from banks on their current and future lending criteria. Then the houses will sell as people know what they are working with.

Repossession will tell the prices of the future not FTB's or BTL's they are out of the current market. The new bank money is for the currently mortgaged and businesses and nothing else. Where will the government budget go if they spend all their money on this. Where will coownership be? It should be being saved up for the bottom to buy whole developments and bring back the council estates. Then facilities can be properly provided for those areas to improve them for those that live in them.

The politicians need to take a view for the future, Peter Robinson showed his hand. He made it clear that the future is - not so many civil servants. He described it as no way to run an economy but it would do for now if it helps. Newsflash - it made things worse!!!

Now unemployment will increase, reducing budgets and causing cutbacks, we are already starting to see this. Private sectors are always more lucrative and bring in extra money as opposed to in NI where we just recycle the money, losing a bit more in every cycle.

In total I see a drop of similar to the south but holding slightly higher. 66% drops should do it. £300k house becomes £100k, £150k becomes £50k

Try picking up those pieces?!?

[cacot]

deleted - stupid server

Edited October 13, 2008 by camthescot

[Belfast Boy]

In total I see a drop of similar to the south but holding slightly higher. 66% drops should do it. £300k house becomes £100k, £150k becomes £50k

Funny I was thinking about at rule of thumb for house prices. As everyone knows - todays prices are nearly 1/3 off - according to the latest Nationwide report.

As a rule of thumb, I think we will be able to take 2007 house prices and divide by 3 to indicate what the prices are likely to be at the bottom of the market.

Example:

2007 Q2 Nationwide average house price = £225k.

2008 Q3 Nationwide average house price = £160k.

2010-2012 average house prices = £225k/3 = £75k.

... plus or minus £10k

[ColinS]

Funny I was thinking about at rule of thumb for house prices. As everyone knows - todays prices are nearly 1/3 off - according to the latest Nationwide report.

As a rule of thumb, I think we will be able to take 2007 house prices and divide by 3 to indicate what the prices are likely to be at the bottom of the market.

Example:

2007 Q2 Nationwide average house price = £225k.

2008 Q3 Nationwide average house price = £160k.

2010-2012 average house prices = £225k/3 = £75k.

... plus or minus £10k

I have seen these sorts of figures mentioned on here many times. Do you honestly believe the average house will cost £75k?? By saying that you think that a single person on average wage should be able to walk into a 3 bedroom semi-detached house and not have to start off at the "bottom" in an apartment/flat. Similarly you think that a couple on average wage should then be able to walk into a detached house without having to work their way up the ladder (if prices go that low there will be a ladder).

People on here complain about people making money on the housing market etc etc but I dont think FTB have the right to expect to get an average house without starting at the bottom if they are on average wage.....

I guess it depends what you think an "average" house is

PS - I stupidly bought near the top of the market at end 2006 so perhaps Im just bitter....

[Belfast Boy]

PS - I stupidly bought near the top of the market at end 2006 so perhaps Im just bitter....

You were not stupid. We were all conned :angry: I very nearly bought a house in early 2007. I really wanted to buy that house, but I was caught in a bidding war and out bid.

Do you honestly believe the average house will cost £75k?? By saying that you think that a single person on average wage should be able to walk into a 3 bedroom semi-detached house... without starting at the bottom if they are on average wage.....

I am only guessing where prices will fall to.

However, I bought a new 3 beadroom semi-detached bungalow for just over 3 times my (below average) single income in 1993. My brother bought a new 3 bedroom semi-detached house for just over 4 times his (below average) single income in 2002.

So do I honestly believe that the average 3 bedroom semi will be 3-4 times the average income in the next 2-4 years? Yes!

[md23040]

This bailout package does nothing to address the existing consumer debt. This ridiculous £500 billion bailout

They have trashed the economy and the stockmarket now the Ponzi Leader Brown and his Duke of disaster Darling are trying to reflate, that what caused are the trouble in the first place. Shame on them, hanging is to good for them. And to top it all Nic Brown on BBC claiming them to be saviours.

Is the world all on drugs??

[tara747]

I too think that property will fall very dramatically and will probably undershoot its long term average as well. Thanks to the recession we are already in, which is likely to worsen. Thanks to the govt's economic mismanagement. :angry:

Welcome, ColinS.

Out of interest, what sort of place did you buy in late 2006? Did you compromise on size/location as many peak buyers had to do?

MD, I couldn't agree more.

[ColinS]

I too think that property will fall very dramatically and will probably undershoot its long term average as well. Thanks to the recession we are already in, which is likely to worsen. Thanks to the govt's economic mismanagement. :angry:

Welcome, ColinS.

Out of interest, what sort of place did you buy in late 2006? Did you compromise on size/location as many peak buyers had to do?

MD, I couldn't agree more.

Didn't compromise on location, but yes got a 2 bedroom apartment which I now see was way overvalued (I hadn't found this website and wanted to get onto the ladder before it was too late etc etc). I now have my apartment on the market for less than I bought it, so hence I am desparetly hoping that prices dont fall too much or I am stuck in it for a while. Its very frustrating knowing I can afford somewhere far nicer and can do nothing about it. Time will tell I guess.

[Traktion]

Hi ColinS and welcome to the forum!

I have to agree with BelfastBoy on this one. You have to take a step back and view why houses are priced at the levels they are. Are conditions really much different to 2002 (as the UK as a whole) in BB's example? I would say not and the only thing which was different between 2002 and 2007 was the crazy risks the banking sector was making in order to offer very risky mortgage multiples.

You have to remember that the housing market is almost completely dictated by mortgage supply and sentiment. On the way up, while the mortgage sizes are increasing, this means house prices go up. On the way down, both aspects force the prices down in the same way, until sanity returns to the market.

2-4 multiples have long been considered appropriate mortgage sizes, as governed by reasonable risk assessment. We're now seeing a return to conventional risk assessment, now that the banks see the error in their ways (the hard way!). As a result, deposit sizes will increase, as both a hedge against the property falling in value and to gain a level of financial commitment from the buyer. This, in turn, will pull the prices back down to where they should have remained (within reasonable variance) all along, if greed/foolishness by the lenders hadn't set in.

Look not at what prices are now and how much they may fall, but at what conventional risk assessment dictates prices should be. If you concentrate on the former, it's easy to convince yourself that further big falls aren't conceivable. However, look at it from the latter angle and it seems obvious that this will happen.

Remember, just a year ago, "experts" were saying "soft landing", "low positive growth" etc, yet they were wrong. The real fundamentals are based around earnings and reasonable lending multiples. This is reflected in the 30% drops we have seen in NI already and I see no reason for these falls to stop until we are closer to 2x multiples - you have to pass through the mean on the way down to maintain it. In other words, the reverse swing could be as shocking/ridiculous as the up swing. Either that, or it will be a very long time before house prices approach positive growth again.

[ColinS]

Hi ColinS and welcome to the forum!

I have to agree with BelfastBoy on this one. You have to take a step back and view why houses are priced at the levels they are. Are conditions really much different to 2002 (as the UK as a whole) in BB's example? I would say not and the only thing which was different between 2002 and 2007 was the crazy risks the banking sector was making in order to offer very risky mortgage multiples.

You have to remember that the housing market is almost completely dictated by mortgage supply and sentiment. On the way up, while the mortgage sizes are increasing, this means house prices go up. On the way down, both aspects force the prices down in the same way, until sanity returns to the market.

2-4 multiples have long been considered appropriate mortgage sizes, as governed by reasonable risk assessment. We're now seeing a return to conventional risk assessment, now that the banks see the error in their ways (the hard way!). As a result, deposit sizes will increase, as both a hedge against the property falling in value and to gain a level of financial commitment from the buyer. This, in turn, will pull the prices back down to where they should have remained (within reasonable variance) all along, if greed/foolishness by the lenders hadn't set in.

Look not at what prices are now and how much they may fall, but at what conventional risk assessment dictates prices should be. If you concentrate on the former, it's easy to convince yourself that further big falls aren't conceivable. However, look at it from the latter angle and it seems obvious that this will happen.

Remember, just a year ago, "experts" were saying "soft landing", "low positive growth" etc, yet they were wrong. The real fundamentals are based around earnings and reasonable lending multiples. This is reflected in the 30% drops we have seen in NI already and I see no reason for these falls to stop until we are closer to 2x multiples - you have to pass through the mean on the way down to maintain it. In other words, the reverse swing could be as shocking/ridiculous as the up swing. Either that, or it will be a very long time before house prices approach positive growth again.

I agree with what your saying and yes prices are clearly going to fall. I just felt BB's example of an average house (which I view as a 3 bedroom semi) being worth £75k. A single person on an average wage could pay that off in 20 years (based on 10% depsoit and 6% interest). That doesnt really seem the norm to me. Also taking into account the efforts of the government to attempt to restart HPI, along with joint incomes and help from parents (which I would say would be greater than in the past) I dont think they will fall that low. Perhaps starter homes will fall back to the £75k mark (if that happens Im still fooked) but not average houses.

Anyway, that just my personal view and a slightly different viewpoint than normally posted on here. As I say for my own personal reasons I hope you guys are wrong, but I fear that wont be the case.

[yadayada]

I can't be the only one who doesn't know what "bears go neither" means.

[md23040]

I too think that property will fall very dramatically and will probably undershoot its long term average as well. Thanks to the recession we are already in, which is likely to worsen. Thanks to the govt's economic mismanagement. :angry:

The government in my opinion are going to try and inflate their way out of this crisis whilst and the same time deflate asset wealth and debt. It is the strategy all central governments are engaged in. The present summary of the situation in my opinion is as follows

Too much debt with consumers that was coupled to asset inflation caused the problem, the government borrowed to fix the problem, and the problem is fixed by trying to refloat the consumer debt and prop asset inflation that caused the problem. And then……

Answers please? Mine - that core inflation will charge over the hill like a bull on acid.

Intervention never works and Vedanta is 100% correct, let the markets find their true balance. Without intervention, with shorties etc this can happen quickly and create true equilibrium.

An example of intervention gone wrong - Yellowstone Park was losing its squirrel population. The national park rangers decided to intervene and squirrel population was increased tenfold. All was dandy until the squirrel decided to populate and build dams, which led to the drying up of all the little streams and ultimately starved tree life. Many parts of the park could not be salvaged and are still dead today.

What's happening with this intervention is a short term fix that does not solve the problem, and like Yellowstone creates a bigger mess longer term. Inflation is a disease and Ponzi schemes are still alive and kicking today.

[yadayada]

An example of intervention gone wrong - Yellowstone Park was losing its squirrel population. The national park rangers decided to intervene and squirrel population was increased tenfold. All was dandy until the squirrel decided to populate and build dams, which led to the drying up of all the little streams and ultimately starved tree life. Many parts of the park could not be salvaged and are still dead today.

What a fantasy. Pretty unconvincing.

[FrustratedFTB]

I can't be the only one who doesn't know what "bears go neither" means.

Could it be your Profile status? Bear, Bull or Neither ( is it possible be a neither?)

Or was there something else meant by that question?