Tuesday, August 21, 2007

Don’t crack open the champagne just yet…

Is the credit storm passing?

The pundits are already dismissing recent market volatility as a storm in a teacup. But it's worth remembering that, unlike other recent financial crises, this one has its roots planted firmly in the 'real' economy.

Posted by mary @ 10:31 AM (1170 views)
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11 thoughts on “Don’t crack open the champagne just yet…

  • I get the impression that the Feb IR cut has done the job for keeping things going, at least for a while. I can’t help but feel that it has allowed some to hide their problems; the truth of their exposure to the sub-prime collapse.

    In the mean time, the banks still have to tighten up their lending criteria. Then the recent highlighting of scams (such as Thamesmead and Artex declaring higher than the truth values for their properties)…

    The easy money to buy property at inflated prices just is not there anymore, the tap is running dry. I don’t think there can really be a sudden crash in the housing market though, in the U.K. More of a lurching stop followed by period of little activity, then followed by a significant drop perhaps more of a slide. I can’t see it happening quickly as the lurching stop is likely to be reflective of all those unfortunate people coming to terms with their plight; their house is no longer worth what they paid for it.

    Scary times ahead for many people, but the real brunt of it I would guess won’t be seen until sometime 2008. Still, I’m going to start keeping a particular eye out for properties going on the market now to see how long they stay on the market before and if indeed they are sold. Should give an inidcation of when the drop/slide will start.

    Anything positive to say David90210?

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  • C'mon Correction says:

    I agree MoonGlum. The fall-out from this extreme credit tightening won’t affect house prices for another 5-6 months and it’ll start very slowly. But just as a rising prices start slowly at the beginning of the spiral and get faster over time until you enter the speculative phase (which has happened in the UK since about 2003), the same can be said for falling prices. Banks will tightening and tightening because the security backing the loans is falling.

    Rent, save, be happy and buy in about 3-5 years time is my advice to anyone first-time buyer!

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  • The house deals being completed this week were probably negotiated in April/May, at a much calmer time. I think a number of UK SubPrime mortgage companies are re-examining their forms at the moment and these will make an appearance in 6 or 7 weeks along with new procedures for checking evidence. Better late than never.

    The UK hasn’t had a big drop in house prices, so defaulters can still sell their houses and get themselves out of trouble in most cases.

    In coming weeks I think the vulnerable mortgage companies are those offering 120% mortgages, where asset backing does not exist.

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  • david20040_0 says:

    Moonglum101 you are kidding yourself.

    “””Scary times ahead for many people, but the real brunt of it I would guess won’t be seen until sometime 2008. Still, I’m going to start keeping a particular eye out for properties going on the market now to see how long they stay on the market before and if indeed they are sold. Should give an inidcation of when the drop/slide will start.”””

    Funny that the crash ia ALWAYS one to two years in the future but in reality never actually happens then all you guys put your doomsday scenarios back.

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  • Well said David,

    You bring balance here.

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  • Who is this VI David?

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  • No Dave you are kidding yourself, there are many factors all coming together at once in the UK, inflation will go up, the value of the pound will fall, earnings will not keep in pace with inflation, taxes and the price of goods will rise along with unemployment. All these effects may well be small in their own right but when they are in conjunction as the will be shortly the house prices will fall.

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  • Steady , steady…. remember its only Tuesday…..

    Mondays & Tuesdays everything rebounds (ish) as people persuade themselves it aint so bad and the job and skill they have built up over 10 years are still valid. Like anybody in a rut – its back to business.

    Wednesday: the next damning admission occurs.

    Thursday & Friday: The next stage of bail out and emergency action commences and we all get poorer as the central banks print money.

    This IS crashing. In not-so-slow motion. There is no re-adjustment of the doomsday scenario.

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  • Just seen this on the BBC –

    “Surge in US home repossessions

    The number of home repossessions in the US soared in July, figures suggest, underlining the woes facing the sector. There was a 93% jump in filings for repossessions on the same month a year ago, and a 9% rise on June’s figure, property firm RealtyTrac said”.

    http://news.bbc.co.uk/1/hi/business/6957738.stm

    David, would you say that there is no crash in the USA? Would you say it’s unlikely to be exported to the UK?

    Yesterday, you said you weren’t going to post here anymore. Can’t believe a word you say anyway. (Do you wear a beret too? http://www.welovetheiraqiinformationminister.com/index_archived.html )

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  • There is a crash in the United States, that is obvious.

    However, in Canada there isn’t.

    And I doubt there will be in the UK, small stock of houses, population rising rapidly.

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  • Well David you are most certainly entitled to your opinion as I was merely expressing mine.

    I think the reality is that over the long term it is not possible for people to buy at 5 or 6 times their salary and be able to keep up payments for 25 years. Especially with other factors such as rising energy costs and the inevitable rising taxes – I can’t see the government doing anything to stop Council Tax rising at 5% or more per year forever after. And who here has a job that has a guaranteed 5% pay rise every year? Not me.

    And that is another thing David, I have a well paid job, probably significanrlt above average and yet my family cannot afford to buy a property because I am realistic about it. The unrealistic people bought already and will feel the pinch with interest rate rises. They may also have at risk jobs. I would not like to be in their shoes.

    Be a Bull by all means, its fun to have your input here and I am beginning to wonder if you and planning4acrash should tie the knot after all. But I am happy that in a few years time I will be able to finally be able to buy a place for my family to live and grow in.

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