Thursday, June 25, 2009

They think it’s all over…

City says housing recovery is in sight

The housing market slump is close to ending, with prices set to bottom out later this year and begin rising again by 2011, the City is predicting. A growing majority of economists are calling the end of the housing crash that has so far wiped about a fifth off home values. The poll of economists by Reuters found a consensus that house prices will drop by 8 per cent this year, flatten out next year and start rising again from 2011. As recently as March, economists were predicting an average 14 per cent fall in house prices this year

Posted by little professor @ 11:45 PM (2553 views)
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35 thoughts on “They think it’s all over…

  • This is what economists, mostly with big or many houses, hope will happen.

    But only hope.

    Most of those polled will have made no serious attempt to compute the course of the housing market.

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  • Whilst there is Buckley’s chance of these economists being correct in my opinion, I’m a little shocked by what is happening on the ground in my area.

    A couple of months ago, our LL put our semi-detached house up for sale (we were moving at end of contract). It is a 1980s Wimpey’s semi in Oxfordshire, originally 2.5 beds (an agent would call it 3), with an extra bedroom added. On the market for 250k. For the firsth month or so, nothing except a single cash investor. Within the last week there has been 10 viewings and at least one offer for what is, in my opinion, a very unliveable house. Fine to rent, but would certainly not buy for £250k. The offer, which I thought was reasonable, was rejected as “I’m not going to give the house away” (the offer would have been 180% profit on the house that was bought in 1999). I thought, “you may regret not taking that offer.” However, last week, the house next door also came on the market – the unextended half of ours for £220k. It is already sold, and since the rejected offer on this house the viewers have been flocking in, including 2 families that MUST buy this weekend. Unbelievable! As bearish as I am, I think times are going to have to get really tough before people wake up and understand that these price to wage ratios are not sustainable. On this property, the cost of servicing the interest on a mortgage, let alone all the other costs of owning a house far outstrip the rental yield achievable, even at these low interest rates.

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  • mark wadsworth says:

    D’Oh, that is good anecdotal evidence, but … As to ‘already sold’, estate agents are always keen to put up a ‘Sold’ sign – even if there’s only been a tentative offer. And I’d still put it all down to spring bounce.

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  • bidin'matime says:

    D’Oh – it’s scary, but sit tight – it is a bounce, but it’s unsustainable – once IRs return to anything like market levels, it will all collapse.

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  • d’oh,

    Where I live, a ‘popular’ village, 15 miles south of Cambridge, only 1% of the property has changed hands in the last year, and there is not much on the market at the moment. People’s attitude is not so much that prices have fallen but that ‘there’s no point’ in trying to move at moment.

    One very historic and impressive house has been put on the market for far less than it might have commanded a couple of years ago, and despite the perception that it is ‘a bargain’, it still boasts a saleboard two months on.

    In Cambridge itself, it is clear that in the more affluent areas there are plenty of people who want to move, but are being prevented by difficulties with chain creation. My take is that those who want to upsize are unable to make adequate concession on their asking prices, as they need to protect their equity to form a deposit on their new home. This then feeds down the chain to the first time buyer, who can’t or won’t play at the price asked.

    In my village, I expect the perception that the crash ‘doesn’t affect us’ will evaporate this winter, while in Cambridge, the next price falls will quickly snuff out the little burst of enthusiasm we have seen in recent weeks..

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  • UT et al. I happen to agree with all your opinions…I’m just shocked at how many people seem to be out there and still keen to buy for £250k what is basically a slavebox. This isn’t, as far as I am concerned, a des-res.

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  • Safedisk2008 says:

    “There are none so blind as those who will no see”

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  • Volumes are very low, property is still being ramped, fears of being priced out are still live, belief that this is a temporary blip caused by “international turbulence” and housing really a one way bet being bought, belief that this is the best time to buy ever being bought, and as last line of denial its happening elsewhere.

    It is very difficult for people who have been miseducated to see the problems with house prices, or the economy. It is even difficult for those who are familiar with the arguments. The constant on site anxiety over and questioning whether HP’s will keep falling is evidence of this.

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  • Also if an also is needed, experts making predictions on the economy and on housing , keep getting it wrong. The market in 2006/2007 represented value. There would no recession. There would be a shallow recession. China will save us. Ok there is a recession but its going to be V shaped.

    The core fault as I see it has been a failure to see certain problems as things that cannot be fixed and just have to be lived through. We expanded the money supply through leverage, speculation and debt until we got to a point of peak credit. A minsky moment from where we can either contract until the debt and mispricing is expunged or we can hyperinflate and destroy our currency, economy and any hope of recovery.

    In beleiving things are under control and recovering we are tending towards the former. There will be further evidence of recovery as the stimulus throws out some artificial GDP but underlying that the engine of GDP will remain broken and can only be fixed by an ultimate rebalancing.

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  • Volumes are very low, property is still being ramped, fears of being priced out are still live, belief that this is a temporary blip caused by “international turbulence” and housing really a one way bet being bought, belief that this is the best time to buy ever being bought, and as last line of denial its happening elsewhere.

    Don’t forget the massive QE stimulus….I think once this period is out of the way, and we return to a good old fashion UK recession, house prices will continue to fall. The key issue is that so much perceived wealth is tied up in housing.

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  • Of course the city fly boys and girls predict a recovery in the housing market, what else are they going to spend their bonuses on?;(

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  • Simply take a look at the house price – average earnings ratio chart available on this web site. The P/E is falling steeply and it’s not going to stop until it is as far below the long-term average as it was above it in 2007. That’s how long-term averages are formed. Sometimes you’re above the line, and sometimes you’re below. I don’t know whether the Reuters poll is a fair sample of City economists, and whether the Times reporting of the Reuters poll is fair, but if anyone thinks house prices are going to level out while the P/E ratio is still well above this line, they are living in cloud-cuckoo land.

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  • [email protected]…. “and we return to a good old fashion UK recession”… Ha!…. like it.. What, let those suffer who took too much on without thought of how to cope when it all went tits up?!….. Bring it on I say…

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  • The recession hasn’t hit the real economy yet. We’re still living in Gordon Brown’s fantasy land where you can just keep borrowing more money and never pay anything back. The UK economy is like a giant subprime mortgage, and we all know what happens to them in the end.

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  • . . .The housing bubble is burst and on the way down..only a fool would buy a depreciating asset in the worst economic crisis since the 30’s. Sooner or later, interest rates will have to rise and then we’ll see the real “cruch”

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  • it_is_going_with_a_bang says:

    Very amusing.

    City Experts and polls.

    I wonder if these same experts had been polled in the spring of 2007 what they would have said?
    They must be hoping everyone has a very short memory. Economists are only there to act as a mouth piece for financial institutions hoping to make some money, therefore I don’t care what they ‘think’ and neither should anyone else.

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  • I think there is an even bigger bubble in evidence: The one that these analyst must live in.

    Have any of them actualy tried to secure a mortgage lately?

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  • Have been monitoring my local area using property bee for about four months.

    20-30% of the properties that went under offer in March/April have since quietly slipped back on to the market. So it seems that getting an offer is easier, but getting a sale is still elusive. My guess is that they are not valuing up, or that the the people making offers need to sell/are in a chain and that they aren’t really in a position to proceed.

    Yogi

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  • If you asked for a worksheet from one of the city economists polled by Reuters, you’d probably be met with a sheepish grin. The same can be said for the commonly touted unemployment projections. A few months ago I asked a colleague, who was confidently proclaiming the, then standard issue figure of 3.1million, for his unemployment workings. I was met with a shrug

    This lack of professionalism must be infuriating to anyone trying to work out their family’s finances but when you are trying to put together a hedging strategy for a client it makes your fists clench

    I could be described as a city economist myself but Reuters didn’t ask me. In fact I’ve never met anyone who’s been asked anything by Reuters. So who did they ask? Probably ‘economists’ who have a job title that suggests they are specialists in the property field. Now these property economists/quants will either have been savaged by their employer for not protecting them from the current outcome or they will have been newly put into the job with strict instructions not to predict anything that might suggest that their clients assets will, one day, be worth less.

    As an aside, it is impossible to predict house prices without putting interest rate forecasts into your model. Interest rates are notoriously difficult to predict. One of the reasons that interest rates are hard to predict is because there are very few reliable correlations with other metrics. However, there is a correlation (only under some circumstances) between interest rates and unemployment.

    These same economists will doubtless be forecasting unemployment of circa 3 million, which enables them to predict low interest rates. This will help their models to predict that house prices will not fall. Of course they have to omit the unemployment forecasts, they used to get their interest rate forecasts from their models because that will give them the wrong answer. Joseph Heller would be proud.

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  • Flash one qualification to this we look to be in or heading into a liquidity trap where interest rates cease to have an impact in property prices.We become immune to interest rates being low. It’s what famously happened in Japan of course.

    Also I sense things might be worse for us than the Japansese because for cultural reasons their private sector continued to maintain employment even when it was uneconomic to do so. Our private sector will howevr look to cut costs and inventories and thereby undo the impact of the QE.

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  • bellwether: yes, we are most definitely in a liquidity trap. Anytime you have super low interest rates combined with high or growing unemployment then it is defined as a liquidity trap. Mind you, saying we are in a liquidity trap is a bit like saying we are fucced because we are fucced, if you catch my drift.

    Interest rates will always impact house prices but it is a matter of degree. In other words low interest rates might cause property to only fall 39% instead of 40%. The relationship is there but very elastic

    For so many reasons Japan cannot be used to predict the UK path. Different time, different place, different people, different economy.

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  • only a fool would buy a depreciating asset

    You have to get over the idea that a house is an asset. It is a place to LIVE. That is why people are not obsessed with calling the exact bottom of the market, they want a home. Given that you either pay rent or a mortgage, people really don’t save much by hanging on waiting for prices to stabilise. Profit maximisation is what got us into this mess.

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  • Interesting comments and the conclusion from this is that majority of people who do not understand Economics and Business cycles will carry on making the mistakes of thinking that they are getting a bargain and that prices are going to up in a very near future. This is no different when the supermarket says the product is half price and people think that they are getting a bargain. What surprises me is that they do not question who set the original price. If it was set by the producer or supermarket then how can it be a bargain.

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  • “For so many reasons Japan cannot be used to predict the UK path. Different time, different place, different people, different economy.”

    I agree – too many factors are different to draw parallels

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  • george monsoon says:

    There are some very interesting takes on wheither house prices will rise or fall..

    My take is this.. I have a shining credit rating, I am in a good job, My wife is in a good job. I can’t get a mortgage becasue I cannot save a 25k deposit and fund the moving costs.

    Banks are not lending
    housess are overpriced
    I don’t care if interest rates are historically low, oil prices, hedge funds and all the other financial twiddle twaddle… facts are facts…

    end of !

    =================

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  • george monsoon says:

    and I can’t spell..

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  • “and I can’t spell..”

    Neither can I sometimes, and it annoys me that this blog lacks an edit tool..!

    How many couples are in the same boat as George, and not only have no savings, but also have massive student debts to clear first?

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  • George, what area do you live?, how old are you and what rent do you pay?…. Just trying to build a picture of how well off you really have to be to be comfortable with a heafty mortgage…. or how stupid one can be to take one out if the sums don’t add up to allow you to live life and not just exist.

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  • george monsoon says:

    Bluebeach.
    I live in the Ribble Valley in Lancashire
    I am 42, my wife is 37
    I pay 450 pounds a month on a 2 bed semi (good price i know, but this doesn’t help me save up with current living costs.)
    I have 1 loan of 1400 for musical equipment, which has 3 months left.
    No credit cards..
    No other debt.

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  • George, with you both in good jobs and little or no debt, what has this country come too when the likes of you can’t just get a decent roof over your heads and live a comfortable life… shame on this country and those who run it.

    They don’t seem to understand that the PRICE of homes is the problem, not the unavailability of loans or mortgages.

    This government looks after those who contribute feck all and take it in abundance… Triple A???!? This country lost that title years ago…

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  • Recovery in sight??? What……. via the Hubble Telescope???

    Not on my planet folks.

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  • george monsoon says:

    The economy is dead. It just hasn’t realised it yet.

    “like the chicken that just lost its head to the axe, it has one last run around the farmyard before falling over”
    We are currently having that last headless run around….

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  • Might I point out that the Hubble telescope sees the past and not the future.
    For that reason, it might be adopted by the bulls as the new indicator of house price movement.

    😉

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  • people buy now willbe in negtive equty in 2-3 months

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