Friday, March 27, 2009

Roubini forcasts further 20% drop in the UK

Roubini on Home Buying its Better to Wait

Roubini advises US house buyers to wait before the buy a house as he sees another 20% drop in US house prices over the next 12-18 months. He argues that there has to be a significant improvement in the US economy before house prices stabilise. He questions why anyone would buy in this market instead of waiting as not only do they have to pay down a large deposit but this could get wiped out in the drop in prices.

Posted by britishblue @ 08:00 AM (1494 views)
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13 thoughts on “Roubini forcasts further 20% drop in the UK

  • britishblue says:

    Sorry Freudian slip. Put UK rather than US in the title. However, he may have been a little harsher about the UK

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  • happy mondays says:

    britishblue said…However, he may have been a little harsher about the UK!
    How much harsher do we think, 25% 30% 40% or as ju thinks up to 70% in London ? With things getting worse by the day, closures, job loses, repos, inflation, protest, possible riots, you do not need to be a city slicker analyst to work out there is only one way house prices can go..

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  • happy mondays says:

    Sorry guys, last lyrical posting,until the next time! must be the Glorious sunshine in me! This is an oldie again my past emotions are beginning to stir…LOL

    Things you say, Things you do sure worry me,
    When were out on the street making money for you in your society.
    It seems to me the time is right,
    for another generation and another street fight.
    Got no future, sure got a right, i got a right to live.

    I can’t stand the peace and quiet. All I want is a running a riot.
    I can’t stand the peace and quiet, Because all i want is a running…. RIOT!

    Don’t you try to understand the way we feel.
    Lush Limousines and mortgages ain’t no big deal.
    I’ve got no friends who want to be, living like you when there 33.
    Getting old sure bothers me, bothers me to death.

    Cause I can’t stand the peace and quiet.
    All I want is a running a riot.
    Cause I can’t stand the peace and quiet.
    All I want is a running …. RIOT!
    Cause I can’t stand the peace and quiet.
    All I want is a running riot.
    I want to riot!
    I can’t stand the peace and quiet,
    All I want is a running…. RIOT! I just wanna RIOT!

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  • HPC is starting to stir emotionally of late, a refreshing change from analysis paralysis!

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  • Dear Hometrack, Findaproperty, etc…

    Please read this, and maybe even think about it a little…

    “Well, at this point I would separate between quantity and prices. Housing starts and home sales have collapsed so much. They are well below trend level. These levels may be stabilizing and maybe even rising slowly, slowly but both of them fell sharply and that means that the excess inventory, unsold homes new and existing is still huge and that’s putting further downward pressure on prices.”

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  • mark wadsworth says:

    Happy Mondays, we can only guess how much house prices will fall in the UK, but we do know that prices will take years to come back to sensible levels, after the 1989 peak, prices took four or five years to bottom out, and the recent housing bubble was twice as big, so surely will take at least three years for prices to bottom out (possibly ten, who knows? who cares?)

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  • If we were talking about something liquid like shares, then the bottom can be found very quickly. With something illiquid like property – where many sellers with unreasonable expectations are causing a stagnant market for months and months – there is absolutely no hurry to jump back in. It will take years for the bottom to be reached, and the only unwise thing to do is to buy back in before everything has properly settled down. Look at the chart on the homepage – the lows are deep troughs. It will be easy to tell when things have settled down and the correct price levels have been found, and even then you will have several years over which to find your ideal home. The only problem is keeping your monsy safe (from inflation) between now and then.

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  • Inbreda – I agree, although the term Market Price is pretty self explanatory – get the price right and there is a market for what you are selling – get it wrong and the market goes away. On that basis there are deals to be done now if the seller is realistic. I reckon the collapse in the number of houses selling is as much down to unrealistic prices as it is down to the lack of mortgage availability. The credit crunch is convenient for GB etc. because they get to blame those awful Americans, rather than having to admit they duped the country into thinking they were rich.

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  • mark wadsworth says:

    @ Inbreda, “The only problem is keeping your monsy safe (from inflation) between now and then”

    Exactly. But we are comparing houses (cash price) with cash on deposit (so you can ignore inflation on both sides of the equation). When the early 1970s bubble burst (which was much smaller than the present one and a bit smaller than the 1980s one) they managed to keep nominal house prices flattish by having 20%-plus inflation.

    Imagine you’d had cash = value of a house at the top of the market in 1973. Even if interest rates were less than inflation rate (they probably were) then the nominal amount of cash you had (including interest @ 10% a year = plus 30% nominal) would still have bought you one-third more house for your money three years later.

    Ditto in the 1990s crash, nominal house prices down 15%, but you would have got plus 20% in interest for those five years, so you could still get one-third more house for your money by the mid 1990s.

    And 1970s inflation was easy to create because of currency controls. If Japan is anything to go by, now that we have practically no currency controls, all the money they print will just go abroad, so inflation won’t be so bad (OK, it might be 10% but not 20%). Seeing as this bubble is twice as big as the 1970s or 1980s one and prices are falling faster, I still think you are better off in cash.

    At least I bl**dy well hope so as I sold to rent and cash is all I’ve got left!!!!!!!!!!

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  • bidin'matime says:

    Mark W – I agree with your analysis, except dont forget the cost of renting in the meantime. Like yoursefl, I sold to rent and (for us) the interest covered the rent, but with interest rates round our ankles, if prices flatten, it will be costing money. But my prediction is that rates will have to rise before house prices pick up – fingered crossed…

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  • mark wadsworth says:

    @ Bidin, oh dear, I forgot that bit, well spotted, my bad.

    Agreed, I now have to pay rent out of my own salary (the outrage!) rather than the interest paying it for me (fun while it lasted, serves me right for not locking in last summer…). But the general principal still stands.

    IF rent minus that little bit of interest we still get (nominal) < fall in value of house you intend to buy THEN you are ahead of the game ELSE not. e.g. If rental yields are 5%, house prices are falling 20% (nominal) and interest rates zero, you are still ahead by 15% a year, after three years you get 45% more house for your money. The nominal rental yield we're paying is < 3%, so provided prices are falling > 3% a year, we are still laughing (and we are). A lot of home-owning people have stopped talking to me because I managed to get out in time, smug git that I am.

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  • @11 Mark
    You are correct but interest rates on term deposit account are not bad at present and you get around 4% over 2 years so it is not all disaster. It is the media have gone on about how little interest is paid on your savings and this spurred many cash buyers on the market thinking they can do better by buying property and letting it out. I have seen estate agents on the right move stating that the yeild on a £190000 was 4% impplying that the property will command a rental return of £7600 but did state void periods, insurance costs and other landlords costs (maintenance etc.). Anyone who does not understand finance which are lot of them out there could be lured by this.

    I saw on Bloomberg TV that Gordon Brown has said that there will be no fiscal stimulus in the budget and caution will stand. If this is the case then perhaps the threat of inflation may be limited and perhaps everyone with cash can take a sigh of relief and that common sense may prevail thanks the Mervyn King and Alistair Darling. I always thought Alistair Darling made the right noises of caution but may have been overidden by Gordon Brown until recently when so many quarters in the world questioning how Gordon Brown was going to save the world when his own country which was supposedly well placed for the downturn is going experience the worst reccession. He must surely feel pretty silly now if the reported statement on Bloomberg TV is correct. I am sure someone on this site will confirm it with a link.

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  • Correction but did NOT state ……

    4% implying that the property will command a rental return of £7600 but did NOT state void periods, insurance costs and other landlords costs (maintenance etc.).

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