Friday, December 28, 2007

Base rate reductions will not help this time as the market is all maxed out

UK house prices fall for second consecutive month - Nationwide

"Housing affordability is starting from a much worse position than in 2005, while interest rate cuts have started from a higher and more restrictive level. Therefore, this time around lower interest rates are more likely to stabilise market activity rather than re-ignite it." - Fionnuala Earley, Chief Economist Nationwide

Posted by converted lurker @ 12:15 PM (1533 views)
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15 thoughts on “Base rate reductions will not help this time as the market is all maxed out

  • fionulla is normally up beat so reading between the lines,it’s worse than it looks to her

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  • tyrellcorporation says:

    ‘Therefore, this time around lower interest rates are more likely to stabilise market activity rather than re-ignite it’

    Ahhh, the Goldilocks scenario rears it’s head again! Will these people ever learn?

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  • Watched Fionnuala Earley struggle to keep her face straight on the ITN News as she explained that although house prices fell in December they are still up 4.8% annually and that builders were building the wrong houses, the demographics are good and pent up demand is still in the system from people who want to set up home.

    In conclusion Fionnula and the Nationwide reckon that house prices will be the same as they are now this time next year because interest rates are going to drop 2-3 times in 2008!

    Somehow I think that there is an awful lot of wishful thinking being bandied around at the moment, but it’s officially bad news for BTL capital gains and Mewing for the duration of 2008.

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  • Housing is just a single part of the economy….and – it seems to me – that things are going wrong in a number of other of key areas.

    Before this is over, saving the housing ”industry” will be the last thing on Gordon Browns mind.

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  • hpwatcher – I agree. There is no way out of this for Gordo.

    “Nationwide reckon that house prices will be the same as they are now this time next year ” – if that happens, all those BTLers subsidising their tenants and waiting for capital appreciation will bail, causing prices to come down. So at best, this sentiment delays the inevitable.

    On a slightly separate note, I have seen this BTL couple on telly several times because they buy an average of 1 property a day or week or something like that and they have 300 odd. They are always introduced as “maths teachers” as if maths teachers are super-brainy, and they must have done all the right calculations and they chose to leverage up and look how much money they made I wish I was that intelligent. Well – just a thought – but if they are still able to do any calculations, I wonder if they’ve worked out how much it “costs” them every time there is a 0.5% fall in house prices (against their £400,000 portfolio) – not to mention the opportunity cost of not being invested in gold. Surely the attitude that lead to the BTL boom (why work for a living when you can do this) will equally apply now (why lose money, subsidise tenants and be responsible for maintenance when you can sell, stick the money in a savings account and make more money doing literally nothing). When will we see some anti-property porn TV shows featuring some smug ex-BTL…. “I sold all my property and sttuck the money in the bank and now I live a lovely life while doing literally fugg all”

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  • I wish someone could get a direct response from her as to why she thinks the market will or can stabilise. It never has yet because markets don’t. I can’t wait for the day that people like her have to start admitting the game is up. Mind you, her current stance will probably be her stance for most of 2008 at least, every month though the figures will be awful, that will be the month where we’re just about to turn the corner.

    Inbreda, the most recent article I read on those people (the Wilsons of Kent) was in the Guardian on 8 Dec. It said they have 800+ properties and valued their portfolio at £250million. They’ve had 4 approaches from wealthy Russians in the past year to buy the lot but the price hasn’t been right so far. Well, hopefully the price will continue to drop and then this pair can be held up as the example of BTL easy come, easy go.

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  • It would be interesting indeed to hear how Ms Earley comes to her conclusions because today The Wall Street Journal said on its Web site that U.S. and European banks including Citigroup and HSBC were mulling sales of parts of their businesses, from branches to entire units, in a nod to crunch times ahead.

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  • On Evan Davis’ blog (28/12) he says:

    “On house prices, they now appear to be falling. I expect they will continue to fall, by 5 to ten per cent over the year. This is not because of the credit crunch; it is simply that once people lose the sense that house prices are rising, they don’t want to buy them anymore and the demand for houses falls. In addition, the oversupply of city-centre flats and the inevitable sale of buy-to-let properties will lead to downward price pressure. I wouldn’t rule out the falls being much bigger, but the market tends to turn quite slowly (remember the US housing market started turning in 2006, not 2007)”.

    Sounds about right, unless the whole economy slides (which is a separate issue). Simply too much debt!

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  • ”Sounds about right, unless the whole economy slides (which is a separate issue). ”

    Well the US is almost there…the funny thing is that the UK seems far more vunerable to a downturn.

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  • On Evan Davis’ blog: Why do people ‘lose the sense that house prices are rising’? Isn’t this in some way connected to the credit crunch? Did this ‘sense’ come from out of thin air? Wondered when we’d hear from Fionualla again. “Interest rate cuts are more likely to stabilise market activity rather than (to) re-ignite it”. She counterposes two unlikely scenarios and the trick is to make it seem as though the less unlikely one will prevail. Interest rate cuts will almost certainly not prevent property prices from falling significantly. Her other trick is to smooth the downward curve by using moving averages.

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  • “once people lose the sense that house prices are rising, they don’t want to buy them anymore and the demand for houses falls.” Evan Davis

    In Scotland I’m still being told I need to get on the housing ladder because prices are still rising. Perhaps it is this belief that house prices are still rising which explains why the scottish housing market seems to be at odds with the rest of the UK.

    Incidently, some new build flats and “second-hand” new build houses are struggling to sell and several sellers have had to reduce their prices here.

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  • crash bandicoot says:

    Judith Wilson has her investment guide here http://www.jwipb.co.uk/how.asp

    Apparently you buy houses that will increase in capital value using fixed rate IO mortgages. I’m not too sure how this business model is holding up at the moment but she says that there is never a bad time to buy property!

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  • Regarding the comment from the Evan Davis blog, I think Northern Rock is a significant milestone at this point. I think for most people in this country the Northern Rock issue came like a bolt out of the blue, it showed the government and financial system isn’t well prepared for ‘shocks’, it high-lighted the fact that more than £30,000 of people’s savings in one bank isn’t safe, it showed the Chancellor and government that the public don’t believe their assurances and the actual issue of Northern Rock is still not resolved.

    For me this highlights, like a thousand suns, that we are in a totally different environment to any we have been in before. Brown and the VIs are desperately trying to pretend all is well on HMS UK and many are falling for it but many more aren’t and the number who aren’t grows daily as the cracks become more and more obvious. I don’t know what is going to occur during the next few years in this country but I firmly believe it is going to go down in history as the mother of all economic downturns. We are sailing into the perfect storm………

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  • One thing she forgets to mention is that the annual house price must be greater than the mortgage rates, to at least break even. The potential profit (from selling the house) also needs to be better than bank savings account rates otherwise it becomes more hassle than it’s worth.

    I wonder how many unsaleable, unprofitable houses will go up in flames, for insurance claims.

    I hope the greedy MPs (legally, but unethically) abusing their housing allowance, also get stung.

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  • @Wiltshire,

    Maybe Northern Rock holed the financial flagship of this country below the waterline (to continue the analogy)?

    Time will tell.

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