Sunday, July 27, 2008

Gathering pace

House prices to plunge a third by 2010

In a report released today, leading accountancy firm Deloitte says: 'We now expect UK house prices to fall by about a third by the end of 2010 with severe adverse effects on household spending and investment.' Roger Bootle, economic adviser to Deloitte and Touche, predicts that interest rates will have to be slashed to 3.5 per cent by the end of next year to tackle rapidly weakening growth.

Posted by little professor @ 11:52 AM (2927 views)
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11 thoughts on “Gathering pace

  • beartil2010 says:

    Finally a household name has voiced what we know to be true – 33% reductions – and that’s nominal, not real terms, so may actually be correct making it 45% ish over 2.5-3 years including inflation.

    The only thing I don’t like is the assumption that inflation will ease – is the chinese, in fact all of BRIC, economies just goingto stop expanding? We’ve had our race to the bottom for cheap goods – it’s a return to 5-6% inflation as standard from here on in. We’d better get used to it, start learning to save and produce and stop expecting cheap credit.

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  • dohousescrashinthewoods says:

    JD, looks like the estimate you’ve always stated in interviews is going mainstream.
    Good on you for sticking to your guns.

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  • dohousescrashinthewoods says:

    I almost missed the glaring implicit statement: in the UK economy, the appearance of growth was in fact consumers spending credit secured against a housing bubble.

    If falling house prices leads to rapidly weakening growth, then the claimed growth were actually just inflating house prices.
    House prices are driven by credit, whether in owners MEWing or in the buyer borrowing and handing the cash to the seller.
    So the expanding housing and credit bubbles are where the apparent money came from for consumer spending.

    But, surely, if house prices were going up 10% a year (i.e. credit expanding at that rate) but economic growth was only 2-3%, UK Plc must have been shrinking 7-8% a year in terms of actual money?
    A silent recession, or stealth taxes? Who knows, but no wonder the country feels run down and drained if our economy has been shrinking like that for the best part of a decade.

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  • beartil2010 says:

    same thing has been happening in America.

    Difficult to tell whether we have been expanding or shrinking… does anyone know the manufacturing industry numbers over the last decade?

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  • dohousescrashinthewoods,

    No. What house prices do has no direct bearing on the rest of the economy, though it does have indirect effects.

    If you buy a house for £100,000, and it increases in value to £500,000, you still have the same house that you had before. Nothing changes. If you sell it, then someone has just given you £400,000 for nothing. That money is money that someone might have otherwise invested in a pension, which would have gone to creating wealth generating business assets. That’s where the indirect effects come in.

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  • dohousescrashinthewoods says:

    I think that’s my point – money for nothing.

    That money is not money someone would have spent on something else, it is credit expansion.
    No one would borrow 400K to invest in a pension, or anything else really – unless it’s a bubble.

    The interest payments do eat into what you would have spent on other things, so it’s a double whammy – a shrinking economy, (masked by credit expansion) plus falling incomes due to extra interest being paid to the bankers.

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  • ‘plunge a third by 2010′

    My botty, I don’t care what desperate measures Broon and the dirty rotten, war mongerin’ guv’mint take between now and next year, If prices aren’t 33% down almost across the board (bar a few anomolies) by this time next year I will personally eat Kurtsies hat for the bee-atch!

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  • There are still plenty of simple souls out there who think that the market will find its sustainable level, and then level out.

    Slowly but surely, my forecast for the eventual sustainable level (- c. 45% from peak) is falling into line with the ever changing predictions of the ‘experts’.

    What they have not taken on board is the inevitable overshoot. It barely happened in the 90’s because that was a slump, not a crash.

    But this time we have a crash proper; one that will see prices over-correct before levelling out.

    At the bottom we will see bargains..!

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  • Mytimeisnigh says:

    Well, I’ve waited a long, long time for this, so I’m holding fire until we’ve reached the bottom.

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  • Tippingpoint says:

    …. allowing for inflation … more like 50%. I do however agree that 2010 will be the bottom. If labour have any sense they’ll do everything they can to get prices own fast, so the feel good factor of price rises and come in in time for the 2010 election.

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  • nooneo,

    As I have said in previous posts, I believe a drop of around 60% is needed to get back to sustainable levels. However, I’m not sure that prices will be 33% down by next year. We are still in the denial phase where sellers aren’t willing to drop their prices to get a sale, and buyers aren’t prepared to buy because they believe (correctly) that if they wait, they can get it cheaper. Even auction properties aren’t selling at the moment as either they don’t get any bids at all, or the winning bid is less than the reserve price.

    Auction properties will be the first to get through the denial phase, but I’m not sure how that will impact the house price stats. The Land Registry figures exclude reposessions, which is most of the auction market. These are the figures used for the FT index as well. Halifax & Nationwide’s customer base is underweight on auction purchases. Rightmove will include the guide prices, which as with the rest of the index, does what it says it does, but is not an accurate guide to final selling prices.

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