Tuesday, September 8, 2009

Perspective from across the pond

Get Ready for Double Dip in U.K. Property Prices

It doesn’t take much to get the British excited about house prices again. Is the slump is over? Not at all. Expect a double dip in home values. Don’t be fooled by the slight recovery in house prices over a few months. Markets always stabilize for a period, both on the way up and on the way down. It is just a pause for breath -- and the second dip in the crash is just around the corner.

Posted by little professor @ 08:49 AM (2753 views)
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27 thoughts on “Perspective from across the pond

  • lp – Interesting piece. It always amazes me how much easier it is to appraise other people’s problems rather than one’s own.

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  • Fantastic Read,

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  • flintster1994 says:

    Mmmmmmmmmmm!

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  • Gold has just gone over $1,000.

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  • tyrellcorporation says:

    Sorry guys after 5 years on this site I’m starting to get the wobbles. It seems to me that central banks across the globe are hell-bent on stoking a new asset bubble. Stimulus will not be removed anytime soon and IRs will stay lower for longer. We have been wanting a crash/downturn for years now but the levers of power want the complete opposite – who’s gonna win?

    We’re printing money by the billion and IRs are at 0.5%, things that a couple of years ago we’d have scoffed at as impossible. Snouts are in the trough again and I’m beginning to think house prices will drift for 5 years or so as they let inflation accelerate covertly (ie they’ll manipulate inflation figures as before but probably more aggressively).

    Yes all the bad debts still exist but IMO these will be gradually absorbed by global QE, inflation.

    My optimism regarding a major HPC has evapourated I’m afraid. the drops we’ve seen have largely been in the city block flat developments and that has skewed the market and figures. EAs and other VIs are actively using these 20% drop figures in their marketing as they realise that it gives punters a point of price reference and act as a line-in-the-sand for the next great HP boom.

    In Exeter prices are higher now that they were at the tail end of 2007! Expecting drops of 30% or more is fanciful IMO.

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  • Theemperorhasnoclothes says:

    tyrellcorporation – even if there is high inflation – how much of that inflation will end up as pay increases – the thing that is needed to drive prices higher. The only other thing that could drive prices higher is if the government print money to give to people to buy houses. If that happens then house prices will be the least of our worries!

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  • As much as I enjoyed the article, I am still unsure as to how the interest rate bit will unravel. It seems many bears are banking on those increasing in a few months, while BoE, government et all seem hell bent on not doing it at all for a long time.

    I guess the only way for rates to move up is if some “event” forces it to go up. What could that be?

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  • tyrell @ 6: No, I reckon give it another 12 to 18 months… With credit drying up and unemployment rising, there’s only one way prices can go: DOWN! The only property changing hands will be through cash-buying and top-end movement (most of it around London no doubt). FTBs still without a prayer of raising 40-50% deposits and average income (surely frozen or declining) is still massively detached from average prices to resuscitate high LTV lending long-term (not to mention have a glimmer of hope of returning to 2007 levels). As soon as interest rates rise, the engines will cut out and the plane will start plummeting towards the ocean.

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  • @ tc, maybe !
    i think you might have a small dose of whine flu this morning ? The powers at be will try to keep pressing ahead with growth & house price rises, but they are not masters of the universe, & cannot control all..
    House prices will have to be assessable to those with a reasonable job / wage or we shall live in a very elitist country.. which will not go down well with the masses, the have’s & have not’s, will be an ugly situation later..

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  • Tyrell….. That’s what I believed until a week or two ago. We’ve had low interest rates for quite a while now but only the very keenly priced houses have been sold in my area. Now I am beginning to see a rush of houses coming to market, as Nomad said yesterday, keen to take some of the upturn in prices. Therefore in my opinion, this can only be good in lowering the selling price expectations of many. I think it will be an interesting winter….
    Are you looking to buy and feel it may be better to go in now rather than wait longer?…. I can see that, after all, I want a home too and not just a certificate on the wall to say that I got in at the bottom.

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  • tc,

    I’ve said for a long time that the route out of this mess is inflation, preferably kept at around 5% (if possible..)

    That would gradually devalue debts, and make them more affordable. It will also devalue the national debt, and make that more affordable also.

    Of course, you can’t have gain without some pain, and the value of long dated gilts would tumble if inflation expectations rose. Not good for pension funds.

    However, if the truth be told; a core issue that this nation needs to address is the excessive expectations that the older generation have of the younger, to the extent that young people are deterred from having children.

    This has come round to bite in other countries, such as Italy and Russia; where young people, unable to secure a satisfactory ‘nest’, elect either to emigrate or not have children. You then have the situation of an aging, shrinking population, and a progressive economic implosion.

    This country MUST stop pussy-footing about, and start building a plentiful supply of decent, spacious, family houses; that ordinary people can afford on a single income

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  • mark wadsworth says:

    @ tyrell, you are perfectly entitled to get the wobbles. Maybe you’re right, maybe you’re wrong – and either you will end up feeling silly or we will.

    But taking Japan as an example, there’s no reason to assume that governments can keep asset price bubbles inflated for very long. Don’t forget that a typical UK house price crash lasts three to five years. Of course, the current govt hates the idea, as do the Tories, and whoever is in power will do their damndest to stop it. But they couldn’t do it in the 1970s or 1990s and they won’t be able to do it now. Well, fingers crossed, anyway!

    @ BlueBeach, I’ve noticed that too. When we STR’d in late 2007 and moved, the local property freebie magazine was 90% sales, 10% lets – a year later it was more than half lets and fewer sales – the one I got this morning is quite clearly three-quarters sales and only a few lets.

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  • tyrellcorporation I am as frustrated as you because we have been waiting for around five years now too, but something to give you a little cheer. I know that interest rates are low now, but if you cast your mind back a few months, the BOE were saying that rates were going to have to rise and would probably remain high for a long time. At this point we all thought great, but look what actually happened, we had this credit crunch and then rates were slashed. I have a hunch that we are being lied to again and I think that just as the BOE said rates needed to be raised and would remain high. I think they will pull a ‘swiftie’ again and jack up rates even though they are saying rates must remain low. I am not basing my argument on anything scientific or economic I just believe that we are being played for mugs and we are being lied to and what they say and do are two entirely different things.

    Also a little food for thought. As a taxpayer you are taxed on the interst that you earn. Therefore less interest for you also means less interest to tax for the Government and I don’t think they are going to let this situation go on for long. Maybe till just before the next election me thinks 🙂

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  • tyrellcorporation says:

    Thanks folks, my ‘wobble’ has been arrested for a little longer! I think also I’m in a slightly weird environment here in Exeter as 40% of the workforce are employed by the state and it’s a major target for retiring Londerners and downsizers from the SE who want babies. Basically both these factors give huge support to prices in the area.

    …but I’m not going to suddenly move to Gateshead just so i can own a house (sorry to any Gatesheadians!)

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  • tyrellcorporation certain parts of Gateshead are lovely I’m a Northerner living in South Devon. I wish I could move back there cos prices are much more affordable than down here. But I know exactly what you mean about Exeter as well, it must be really frustrating for you, as at least we have seen a few drops in prices here. However I have family on the Isle of Wight and prices there are going absolutely crazy! I think that there are a few places left that are still bucking the trend but I honestly don’t think that it can go on forever – lets hope anyway 🙂

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  • There are pockets where prices haven’t changed so much for local reasons – largish supply of cash-rich buyers. But parts of Surrey, including the “desirable” parts, have seen 20% price drops, and some good-sized houses have been for sale for a long time. Govts can only do so much to keep asset bubbles up; in the end they always go down. This is a very unusual situation at present: thanks to a near collapse of banks, gigantic debts and the obfuscating effects of the CDOs, we now have record low interest rates and QE. At the same time the fantasy over houses as a perfect investment has never been so strong and people will not let go of it until the proof of delusion is staring them in the face. Thus we can probably expect a longer hpc than in the past. In the end houses have to be paid for, and people have to earn the money to pay for them. With unemployment rising the only other place money can come from is lending. Since there is far less money to be lent (and even borrowed money has to be repaid eventually) there is nothing to prevent prices falling long term. The current conditions will not hold indefinitely. The only uncertainty is how long will they last. Possibly longer than we would like.

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  • @6. tyrellcorporation said…

    A truly outstanding and refreshingly honest post tyrell ! What happens next is anyone’s guess but there are blokes egging each other on here, probably all the way to the poor house. Yes we can all study fundamentals and laws of going up and coming down but as tyrell says there are thing going on that were not even factors a couple of years ago and if life really was that simple…..Think about it like this, as tyrell says it’s been 5 years, can some of you afford to wait another 5?

    I accept most on here are honest enough types but maybe some of you need to spend time backing a few 1/5 shots at badbrokes and maybe then you will realise there nothing is ‘that’ certain! Anyway good luck all.

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  • little professor says:

    TC – by your own account, We’re printing money by the billion and IRs are at 0.5%.

    How long can that last? Surely the fact that only these desperate measures are keeping house prices level tells your that we are in for another major fall once they come to an end and the trapdoor is opened. All we are doing is saving up the pain for a later day.

    The only way house prices will not double dip is if we inflate our way out of this mess. In which case we’re all screwed.

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  • THE TRUTH:

    “A lot of lending has been taken out of the market and isn’t coming back. Almost 300 billion pounds ($492 billion) of U.K. mortgage debt was securitized and sold to the bond markets from 2005 to 2007. “That represents more than 90 percent of the growth in mortgage debt over that period,” it said. The world isn’t exactly clamoring for British securitized mortgages anymore, and won’t be for a long time.

    SECURITIZATION IS NOT COMMING BACK:

    SOLUTION: Have the tax payer funds replaced the securitization in order to keep the assets inflated?

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  • So in summary, a new source of fuel has been found to power asset inflation, tax money.

    The failure of the banks was just a smokescreen to make acceptable the unacceptable (higher taxes further fund the robbing of the taxpayer), but the real economy will continue to collapse, which will choke the supply of new fuel.

    Not sure where this will end now, it should have collapsed back in 2005 but is still chugging away, it does really look like there is too much to loose, the rich will not let go that easily.

    To think all we wanted was a cheaper place to live and we had to get caught up in the financial catastrophe of the century and it’s only 2009 🙂

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  • The sum total of UK consumer debt that is in foreign ownership has been quoted at £400bn. Around a third of Gilts are also overseas owned, and their are doubtless large commercial debts also.

    Those debts can be converted to other forms of Sterling debt, but they can’t actually be repaid while we have a trade deficit, unless we use reserves of foreign exchange (of which we have nothing like enough) or call in debts owed to us by other countries.

    No amount of money printing will remove those debts, although they can be diluted.

    What foreign lenders can demand however, is higher interest payments when the debts reset – likely, in the wake of QE

    It would be interesting to see a reset timeline graph for UK debt – a large number of resets over a short period could prove a tripping point..

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  • @tyrellcorporation – keep the faith, as this high house price nonsense cant defy gravity forever no matter how desperate the Gov get in trying to prop up the market – note today “The Government is to target areas of England with high levels of repossession with a new advertising campaign, the BBC has reported. Hotspots include: Barking and Dagenham, Corby, Knowsley, Salford, Newham, Walsall, Redditch, Halton, Sandwell, Wolverhampton, Bolton, Reading, Swindon, Northampton, and Cannock Chase. Nottingham, Birmingham, Manchester, Liverpool, Sunderland, Wigan, and Kingston-upon-Hull are some of the major conurbations”

    Not sure where the bit about Gateshead (Gatesheeed) came from however as mystie010 say’s there are some beautiful parts to this particular North East of England – I can fix you up with a viewing on a lovely property in the Whickham district of Gateshead if you wish (slightly under £1m at the mo if you are interested)

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  • ontheotherhand says:

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  • TC – take a hold of yourself!!! You can’t wobble. For the sake of my sanity, you can’t. Its folks like you and Uncle Tom and Japanese Uncle and Titanic Captain (and many others) that have kept me going over the last few years. If you guys start wobbling, there’s no hope for me!

    Admittedly, my hub and I have started nosing around properties in our area as we have managed to save enough to almost buy our 4 bed detached outright but it still sticks in our throats as the prices are crazy. We just can’t bring ourselves to do it.

    Gggrrrr to my inability to see the future!

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  • vindicated: There’s the rub: where is the sense is paying way over the odds for the most expensive purchase of your life? A recipe for financial ruin.

    For the future, ontheotherhand’s graph looks a pretty useful indicator, although this time the falls may be stretched out over a longer period.

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  • Hold the line girls and boys. I too nearly have the money (only aiming for a 3 bed terrace mind) and the other half keen to spend it. Its been tempting at times to do the dirty deed, but postings on this site put me right. That link to the book review interview the other day was excellent, showed it to the other half who was hugely impressed by the sanity of the discussion. I too feel interesting times are ahead – actually they are jolly interesting now – just not in quite the right way.

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  • Wally,

    While we have our share of entertaining nutters, conspiraloons, and grumpy old men on this site, we also have some pretty well clued guys, including some who are old enough to have a proven track record, and wise enough to see through choppy waters.

    It does not require wild guesswork or bad maths to demonstrate that current UK house prices are unsustainable; while on the other hand, it can be shown that rents are unsustainably low, relative to current market values.

    Tell your other half that you need to keep renting for now, ‘cos Uncle Tom said so…

    If she doesn’t believe you, tell her to sign on as Mrs Wally, or Wallyetta – and I’ll explain..!

    🙂

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