Thursday, November 13, 2008

Cyclical thinking – well done!!!!

The good news - house prices will rise again (and then they'll fall)

"Yolande Barnes is head of research at the property company Savills, which publishes its house-price forecast today" .....says it all really!!!!

Posted by bystander @ 10:43 PM (852 views)
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7 thoughts on “Cyclical thinking – well done!!!!

  • they’re at it again, shortage of land, massive demand blah blah blah….

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  • Amazing. She seems to justify the whole lot on the basis of limited supply and therefore owners-occuiers willingness to secure property by using “all the purchasing power”. What she fails to understand is that purchasing power also has a limit… and that we had reached that limit long ago, and even surpassed it via 6-7 x wage loans and 100% LTV. A strong correction is inevitable, the only question remaining is how low we will go…

    Also…a commenter at the news site posts the following:

    http://www.savills.co.uk/news.aspx?category=residential&id=9551&page=0

    She predicted a 6% only (wait… for the next 2 years!!!) back in April

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  • If this woman is the best logical thinker Savills can put up, they are in big trouble.

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  • “Those home-buying pioneers have been paying off their mortgages and house-price inflation has increased their purchasing power in competition with new entrants. So it has always been inevitable that, in the face of finite land and property supply, the relationship between incomes and value (the basis of having a mortgage) would become disconnected as owners became less mortgage-reliant.”

    Is she suggesting that because homes are finite* and people pay off their mortgage** and kids inherit parent’s property*** that we will inevitably move back toward a landlord-class system, with no new buyers****?

    * Yes, as are all asset classes. however, the number of homes generally increases. If the values go up relative to land & build cost, there is more incentive to build new homes – yeah, land is also finite, but we not running out of non-marginal land, let alone marginal land (and if incentives are enough the govt would move away from farming subsidies towards housing ones)

    ** Major flaw, especially in the current environment where we are seeing more losing their jobs (how many are not insured / effectively not insured?), more being stuck on their lenders SVR and finding it hard to switch away?

    *** Well, except for inheritance tax.

    **** The crux. No new buyers implies values will no longer rise and implies downward pressure on rents. Those that own excess properties (i.e. investments rather than places to live) will see the top and try to realise their profits.

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  • What she fails to note is that the boom-bust oscillations have been getting progressively more severe, and that the medicine needed to cure the patient before is no longer sufficient.

    There is also a large element of uncharted territory here. The options for those living in the UK to emigrate is far greater and far less traumatic than ever before – why commute in an over-crowded train from an expensive, dismal suburban semi to an office in London – when you could do the same work from home in a cheap sunny flat in Spain?

    There is also the issue of so much of the money supply (both here and elsewhere) now existing in a virtual form that is not backed by actual bank notes or bullion, a situation that throws a lot of the traditional principles of economic management into doubt..

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  • “The story of the Lower East Side of New York at the end of the 19th century demonstrates that there has never been a rule that says that people will spend only a quarter of their income on housing”

    Oh my. So do people buying houses there still pay 4/5ths of their income on mortgages, or is there now a landlord class? Or do most people who buy there buy outright, or use equity from previous homes?!

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  • The UK is only 5% urbanised. So the lack of land argument doesn’t fly. There is an artificial restriction caused by the government to do with planning. This restricts not only greenfield development but brownfield sites as well. Also the uk has fallen short of government targets for new-builds.

    If you ask me, all the professionals know exactly what the state of the market is. And many home-builders should really call themselves land-bankers, as they haven’t been building homes during the speculative period. Since the bubble is popping, this reduces the risk of building a home on speculatively overvalued land, so the builders will start building again, when we near the bottom of this bubble.

    It is true that more renters are entering the market but only because of home repossessions. There are many immigrants leaving. There are homes becoming available to the rental market that could not be sold. There are homes that are exiting the market as they enter foreclosure.

    I was looking at the studio apartments available for rent on rightmove this morning. The dismal broom-cupboards that are available for rental for 1000 pounds is unbelievable. I’m seriously wondering what I’m doing here.

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