Sunday, May 6, 2007

More on the imminent UK property crash.

Watch out for the cracks

More on the imminent UK property crash......with the considerable weight of the Economist behind it!

Posted by royston @ 02:23 PM (574 views)
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16 thoughts on “More on the imminent UK property crash.

  • talking rot says:

    I used to read the Economist a few years ago. Its articles are normally well written, intelligent and fun – its leaders are excellent. I don’t bother now. I read too many times something was about to happen and the prediction was invariably wrong. The Economist’s economic editor, Pam Woodall, is clearly a very talented and intelligent woman but just too unlucky to make predictions about Busts. Her arguements were logical and insightful but irritated the pants off me for not being time-accurate! Had I ignored The Economist and bought a house in 2002, I could have afforded one.

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  • confused76 says:

    talking rot,
    sorry but I disagree… in making economic forecasts you can indicate trends and logical outcomes, but not timing
    one can highlight if a time bomb is building but not if it will end up with a bang or slowly diffuse… also because there are human decisions (e.g. by Mervyn the number wizard) that can impact the result
    I guess the only thing you can learn from the article is that prices cannot continue to grow at 10% annual rate and price inflation of the other goods and services remain at the BoE target. So you either will have UK inflation reach and stay at 8-10% levels for 10 years or a price correction in property. At the end of the day, it is rental yields that will have to revert to the mean of 8-10%, one way or another.

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  • The graph is quite interesting as I live in a semi-detached house, if I look at this same houses 1987 purchase multiple it was exactly 3x my first monthly pay (with a 10% deposit) packet as a then junior engineer. If I take the same starting pay of our current junior engineeers it would take 8x their salary (with a 10% deposit) to buy the very same house which is clearly ridiculous especially when the house in question does not benefit from the location, location, location factor!

    The whole housing situation in this country is most definately unsustainable in the long term.

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  • confused76 says:

    Dedicated to Talking Rot…

    Timing is NOT of the essence in investing (contrary to common belief!)
    Enjoy this interview with Pam Woodall back in 2005, and tell me if the US audience should have taken notice…

    http://www.npr.org/templates/story/story.php?storyId=4531732

    Situation here in the UK has worsened since… (i.e. it is now even better to rent than to buy)
    Does that mean that a crash with a louder bang is in order? Impossible to predict.

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  • speculatorone says:

    confused76, interview is very interesting, it indicates what we are all thinking.

    I keep hearing and reading all these interviews and news articles and keep doubting it will ever happen.

    I now think it will happen it’s just taking an age to start!!

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  • sold 2 rent 1 says:

    The reason why this bubble is taking so long to burst is because unlike last time the pin-prick is not sky high interest rates. The popping of this bubble will be brought on by a liquidity crisis, stock market crash and debt defaults. We have waited a long time but it might be closer than you think.

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  • The trouble with economic cycles is that when they are first recognised they are based on historical data. Once the theories are published and recognised then they become part of the economic knowledge base and thus become distorted simply because they are recognised and to some extent can be influenced by political decisions. The UK economic cycle has accordingly been extended by low interest rates, lax lending practices and massaged statistics thus delaying these very cycles. If a recession comes on the back of a falling housing market it will unfortunately be deeper than it would have been had it been allowed to its natural course. The departure of Blair in the weeks ahead may end up coinciding with the realisation that this particular bubble is about to burst!

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  • Fedupwithhouseprices says:

    Talking rot I too took notice of people who are supposed to be in the know ie Moneyweek and their predictions of a housing crash years ago – wish I hadn’t!! In fact every finance ‘predictor’ since the recession of the 90s up to today that I have taken notice of has caused my financial ruin by way of me taking notice of them – so no more!
    Enuii We should blame the government for all of the poeple who can’t afford a home of their own! What a terrible legacy to be left by a government which is supposed to be the most caring – I don’t think!! (Will not vote labour again for the first time in my whole life!)

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  • Sold2Rent1 – Bravo!

    Exactly how I would have (and do) put it

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  • Cherry_blair says:

    Property crash in the UK????????? please don’t say such things… me and my husband are going to try our had at BTL after the makes his big exit from no 10.

    I have him looking at colour charts now.

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  • talking rot says:

    confused76

    Thank you for your comments and the link to the interview. All I managed to get through the link was what appeared to be an abstract of the interview, not the interview itself but I suspect that is a function of where I am currently working and the state of the national telephony.

    You express more eloquently then I, why I am at a loss with The Economist’s [Pam Woodall’s] predictions. The Economist has made well judged comment on the housing market but persists in calling the timing – this is why I now don’t read it.

    A series of well researched, logical, readable and thoroughly entertaining articles appeared in The Economist over the period 2002 until 2004 which claimed the house market was on the brink of collapse. They didn’t, although the logic underpinning the arguement of why they should was flawless. A quote from this article: “As Mr Blair bows out, the curtain may also be about to come down on Britain’s great housing boom” gives the impression that the bust is iminent. The Economist will be equally as wrong this time as it was in 2002/2004. But no one wants to hear that a Bust will occur at some point in the future. Such comment, although true, does not sell periodicals.

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  • sold 2 rent 1 says:

    enuii

    “Once the theories are published and recognised then they become part of the economic knowledge base”

    Whilst you are correct in theory, the manias of asset price bubbles and herd mentality usually ensure that we don’t really learn from history.

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  • talking rot says:

    Fedupwithhouseprices

    Thanks for your vote of confidence. I read financial journals to try and become financially literate. It spelled my disaster too!

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  • sold 2 rent 1 says:

    The reason why the Economist and Money Week got the timing so wrong is that they mis-read the deflationary pressures and speculative manias that k-autumns bring.

    The debt levels are 70% higher than in 1929. We are in the final stages of this boom.
    Don your helmets and fasten your seat belts and hold on tight.

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  • Rocket Robbie Mtt45 says:

    S2R1

    I am considering a fixed rate mortgage for 5 years. Is this a good idea ? i am worried that if hpc happens then IR will fall sharply to get the prices rising again

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  • sold 2 rent 1 says:

    Rocket,

    You are right to fear IR crashing to the floor to save the economy. You only have to look at France, Ireland and Spain where HPC has started at IR of 3.75%

    Low IR will not save the housing market and economy this time. You only need to look at Japan for evidence of this.

    A fixed rate could trap you into a much higher rate but that could be the least of your worries.

    You need to examine the overall level of debt you have.
    Most important by far though – just how recession proof is your job?
    How long could you survive without an income? 1, 2, or 3 years?

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