Tuesday, Dec 29, 2009

Will the Silver bullet finally arrive in 2010?

Citywire: Expecting a house price collapse? It’s unlikely, think tank says

A house price collapse is unlikely next year, despite the prospects for a weak economic recovery and rising unemployment, the Centre for Economics and Business Research concludes. ‘Pundits expecting house price collapse will look like turkeys by next Christmas, unless the pound really fowls up’, the think tank’s managing economist Ben Read said.

Posted by jack c @ 10:51 AM (2801 views)
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1. paul said...

‘Pundits expecting house price collapse will look like turkeys by next Christmas, unless the pound really fowls [sic] up’

Trouble is, the pound is already doing just that.

Tuesday, December 29, 2009 11:01AM Report Comment

2. symo said...

Ah yes the CEBR who also failed to predict the effects of CDO's and SIV's. Also failed to predict pretty much anything. Economists - Scientists without valid theories or proofs.

Tuesday, December 29, 2009 11:08AM Report Comment

3. it_is_going_with_a_bang said...

So interest rates "will stay" at 0.5% and house prices will go up.
That really only delays the inevitable occurring later on - unless of course interest rates stay at 0.5% for the next 10 years which is somewhat "unlikely" also.

Tuesday, December 29, 2009 11:11AM Report Comment

4. fallingbuzzard said...

Now that the financial crisis turns into an economic crisis with rising unemployment and falling household incomes, we see house price falls starting to accelerate again. Now I wonder who said that at the start of 2009. Also the man that predicted in 2005 that a quarter of hedge funds would have to close inside a year. Balderdash or piffle?

Tuesday, December 29, 2009 11:16AM Report Comment

5. tpbeta said...

No-one knows what's going to happen, but we do know that unless there is a solid recovery or runaway stagflation interest rates will remain low, and so, therefore, will house prices. But only when valued in pounds.

Tuesday, December 29, 2009 11:30AM Report Comment

6. letthemfall said...

So we are all implicitly advised to borrow more than we can really afford to buy an expensive asset that is still way overpriced by any reasonable uncontorted measure. What a great financial position to put oneself in. Is "fowl" a seasonal spelling mistake, or should we assume the man is a turkey?

Tuesday, December 29, 2009 11:48AM Report Comment

7. estrader said...

House prices are going up because people are apparently too afraid to invest in the stock market...yet the stock market has gained more since March than property and is predicted to soar further. It is a duel between the Stock & Share VI’s and House VI’s...

Proceed with caution!!

Tuesday, December 29, 2009 12:05PM Report Comment

8. tenant super said...

There are too many variables to make a meaningful prediction about the next 12 months.

Many of the predictions made here since I’ve been reading (about 2 years) are based on the assumption that free market mechanisms are allowed to work. We no longer have capitalism, what we have is corporatism where a corporate entities (whether official bodies or social organisations) such as banks, and political classes make policy decisions which are of mutual or self-interest. The political classes being home-owners themselves and needing the home-owner vote have put in place laws and policies which supersede or block normal market mechanisms.

As it has been pointed out on the ‘repo loophole’ thread, making repos difficult may make banks return to sensible lending where they only lend what they can be fairly certain to get back. However, if existing homeowners can sit pretty and supply of new homes is choked, I am unsure this will lead to a crash. What we might see is a move from ‘average wage buys average house’ to ‘top 10% salary buys average house’ and everyone else returns to near Victorian levels of overcrowding.

Tuesday, December 29, 2009 12:16PM Report Comment

9. markj69 str05 said...

@ Tenant.. 'What we might see is a move from ‘average wage buys average house’ to ‘top 10% salary buys average house’

According to a BBC report (See: http://news.bbc.co.uk/1/hi/8151355.stm), back in July 09, the calc'd top 10% salary was £45K. At 3x salary you'll be able to borrow £135K. Hmmm nice size house for an avg' family of 4, I think not.
So even the top 10% will struggle/

5% increases salary to £59K, still marginal on a 3x ratio.

I think 'might see' should be 'are seeing'!

Tuesday, December 29, 2009 12:46PM Report Comment

10. Andy Long said...

Many people were surprised at just how effectively policy changes could support house prises. In fact this crisis has resulted in property being viewed as an even safer investment than before. The number of resent 'Buy to Leave Empty' purchases around me is testament to that.

While the majority of voters are still home owners policy will not change, no matter which political party is in power.

2008 was the time to buy as there was a lot of fear and uncertainty. I think we will not see any further nominal falls unless there is another major economic event.

Tuesday, December 29, 2009 01:01PM Report Comment

11. little professor said...

Don't bother listening to anything this bunch of clowns have to say:

Jan 2007: House prices to go on rising £1000 a month

A leading think tank says Britain's housing boom will continue in 2007, with average prices rising by more than £1,000 a month.The latest forecast from the Centre for Economics and Business Research says: 'Despite recent rate rises, house prices will continue to grow in 2007 and 2008, with annual house price inflation this year expected to hit 7.6 per cent.'

March 2007: House price crash "off the cards"
CEBR: It is quite easy, at first, to worry that the market could crash in the next few years.

However, this ignores the fundamental problem with the housing market in the UK which will prevent a housing market bust: the demand for houses by far exceeds the supply of houses. Looking forward, as long as supply continues to fail to react to the burgeoning demand for housing, it is very unlikely that house prices will crash.

As long as these fundamentals remain unchanged, a housing bust is very much off the cards.

May 2008: Experts tell homeowners to STOP worrying as prices will rise by 30%
House prices will stop falling next year and will soar 30 per cent over the following three years, a leading economics consultancy said yesterday.The rare optimism will delight homeowners who have been worried by gloomy predictions in recent months.

Tuesday, December 29, 2009 01:18PM Report Comment

12. phdinbubbles said...

Quite agree. Mystic Meg has more credibility than the CEBR.

Tuesday, December 29, 2009 01:44PM Report Comment

13. mander said...

It has just been anounced that the demand is falling and if they keep manipulating the supply further we will have an economic disaster. Prices must not go up from here and banks should lend to people who need to leave in those houses only when it comes to already built property and investors please borrow to build as there is a so called "shortage".

Tuesday, December 29, 2009 02:01PM Report Comment

14. dill said...

Doug McWilliams, the CHIEF EXECUTIVE at CEBR wax quoted by the Telegraph as saying "If I had to bet, I would bet on the side of parity being broken" re Sterling/Euro. Various comments were made on this website, including my own, of the absurdity that House Prices could rise in this scenario.

Today we get the MANAGING ECONOMIST wheeled out to use the word "unless" re Sterling.

Put 2 and 2 together. The spin merchants are struggling.

Tuesday, December 29, 2009 02:35PM Report Comment

15. will said...

Independent Economists who provide data to the Governement?

I thought we had a Treasury department and Bank of England to do this.

Tuesday, December 29, 2009 02:41PM Report Comment

16. fallingbuzzard said...

We do. The independent economists are commissioned to prove that the Treasury is always right.

Tuesday, December 29, 2009 03:04PM Report Comment

17. alan said...

The more people ramp housing, the more I'm suspecting that something nasty is going to happen, and prices will dive.

Why doesn't anyone analyse the abnormally low interest rates, unemployment rising or Darlings budgets that defy gravity? Denial?

Tuesday, December 29, 2009 03:15PM Report Comment

18. estrader said...

@16 - I tend to agree with you, 'something' just isn't right about this whole recovery. We are told that house prices drive consumer sentiment and that confidence is growing. I saw an interview with a US analyst who was talking up the recovery and the stock market. When asked about consumer confidence and the fact that house prices in the US have fallen and predicted to fall further he said that a rising stock market will increase consumer confidence and drive up spending. There are so many mixed forecasts and reasons for a recovery (Housing, stock market and economy) that many are starting to contradict each other. It reminds me of the saying "If you tell the truth you don't have to remember what you said" ~ Mark Twain

Tuesday, December 29, 2009 03:41PM Report Comment

19. icarus said...

Governments are doing everything they can to prop up the financial 'system' by supporting asset prices. F*** supply and demand for housing, the only question is how long governments can continue along this path. The answer is partly political - political pressure could cause governments to stop propping up assets and the economy in general (e.g. because there are temporary 'green shoots') and then the economy and house prices really would nosedive.

Tuesday, December 29, 2009 03:51PM Report Comment

20. bidin'matime said...

The CEBR have (or used to have) links with firms promoting equity release schemes - I wouldn’t believe them any further than I can throw them. (A link I had to a particularly ‘incriminating’ article no longer works, but a see this from 2007.

As for the competence of economists, there seem to be 3 types of economist – there are those hired by people with vested interests, who inevitably read things the way their paymasters want them to, there are those who like to make a lot of noise, but don’t really stop to think what they are talking about (eg many journalists..) and then there are the rest of us..!

Tuesday, December 29, 2009 04:44PM Report Comment

21. bidin'matime said...

try again.. see this from 2007

Tuesday, December 29, 2009 04:46PM Report Comment

22. bidin'matime said...

Sorry - I was concentrating so hard on getting the html right, I got the text wrong - the link should read 2003, not 2007.. But at least it works..

Tuesday, December 29, 2009 04:48PM Report Comment

23. a saver said...

Thank goodness for some stats on this group of prats' credibility from LP!

Tuesday, December 29, 2009 05:05PM Report Comment

24. tenant super said...

I agree that CEBR do not have the best credentials and may have vested interests. But then people (incuding myself) scoffed at those who said that 2009 would be a broadly flat or slight decline year and look what happened. There's a temptation to rubbish any predictions which do not support our desires.

I am still fairly bearish; some of the crash was soaked up by the sterling decline but I think we will see a few years of stagnation whilst wages catch up . However, I don't think prices are going to return to 3.5 x average salary. I remain unconvinced that there will be large falls without repossessions which are gradually being outlawed.

I am watching the situation in Ireland (as that's where we're looking to buy) and am deeply concerned that State owned banks are not allowed to begin reposession orders until 12 months. The lenders are being arm twisted into extending repayment terms, allowing moratoriums, allowing switch to interest only etc. and as a result, only a few dozen of the 14,000 homes in serious arrears have been repossesed. Prices are only still falling because of a huge surplus of empty new builds.

Critics have said that if banks cannot reposses to recover debt, investors will take flight. This may be the last chance for a return to sane house prices - a realisation by the government that they have to allow banks to reposses. But if they can do so, they would let investors go and pump in current and future taxpayers money instead. Or what if the UK government introduces a kind of NAMA (this is the 'bad-bank' solution in Ireland) for home loans, buying all defaulted or high risk mortgages from the banks? They have then cleansed the banks making them attractive again to investors and the government can keep every last one of those homeowners in their houses either by adjusting repayment terms or by sale and rent back.

I am still hoping for more falls but am not holding my breath

Tuesday, December 29, 2009 05:50PM Report Comment

25. Bulboy said...

So what happens after April?

Tuesday, December 29, 2009 08:03PM Report Comment

26. growler said...

one of the best posts with comments from HPCers I've seen.

I also just don't feel convinced about this so-called recovery. I'm in long-term industry and am not seeing strategic decisions at the present day. It's all delay, de-specify or dispose.

I think we're going to see the sword of Damocles for Gordon in the shape of a sub-parity Pound. The ensuing political damage and increased debt service charges will ensure there is no chance of any Labour win - if it's not already a dead cert anyway. Mandy would do well to just shut the f up and go forth - I can't be alone and even die-hard Labour people must be sick of this "boomerang" self-serving obsequious individual.

I think that the entire City are thinking "happy days" in the stock market until the Consevatives get in. They all need them to get in, but as well as equity deals, the present period of uncertainty means the savviest of arbitrage will also make big money right now.

Once the Conservatives are in, there MUST be a budget to prune years of over-indulgence and I'm afraid I can't see anything other than increases in VAT to 19% on top of this.

In such a climate, there is going to have to be a fall in consumer spending and a lot of readjustment. How hard it will be will depend I think on how our trading partners are dealing with their economies. In the face of good returns elsewhere, capital will fly out of the UK.

All that lot will impact house prices.... how much? I don't know. But any report talking about 2-3 year gains is just total rubbish.

Tuesday, December 29, 2009 08:35PM Report Comment

27. hpwatcher said...

It simply isn't a recovery, or at the least it's a 'phoney' recovery based on debt, a huge amount of debt. It will soon be over, and we will be back to the decline.

There is no north sea oil, there is no wealth creation - to speak of - only debt....piles and piles of debt. House prices HAVE to collapse in order that the workers in this country are able to be more competitive with workers from abroad.

Tuesday, December 29, 2009 09:31PM Report Comment

28. Passingthru said...

I thought I would just add my ideas to this debate.

Firstly, whatever economic action the government takes in the next few years there will be at some point in the future, a new, and very deeply felt economic crisis.

I come to this conclusion, as it would seem that the only trick of governments to massage the GDP figures in the last 20 years (i.e. report better numbers), has to been to muck with inflationary measures (to favour lower numbers for reported inflation), thus allowing artificially low interest rates, or when on the brink of the economic "party" being interrupted (think dot com bubble of 2001, and also the recent crisis, albeit with additional extreme stimulus measures) to push interest rates artificially lower.

The bursting of the dot com bubble in 2001 should have resulted in a recession, instead the government artifically lowered interest rates, allowing the private sector to ostensibly spend the economy out of recession through cheap borrowing.

The liquidity crisis of 2008 was a direct result of the policy measures taken to stave off the 2001 recession. If the government had allowed the markets to take their course, the UK would now be in the midst of depression, as the UK private sector paid off the decade of accrued debt.

However, the government have largely pulled the same trick as in 2001, and have lowered interest as far as they can go, further they've transferred some private debt on to the public balance sheet, and taken up the slack in private sector economic activity through increased public spending, resulting in further net increases in debt for the UK.

I do not believe this current, or any future government will reverse current policies to allow the economy to correct of its own accord, the ever increasing economic imbalances will result in an inexorable, unprecedented, crisis further down the line, which despite any government policy will not go away.

The "silver bullet" (so to speak) is on its way, despite the propaganda surrounding ever increasing government interefence in the economy, no government in history has been able to bend economies to their will, as they please, without the economy evenutally acting in a completely contrary manner to policy expectation (see chaos theory), unfortunately for the bears on HPC, if the 2008 crisis took 7 years to seed, given continued government interference, the next crisis could well take as long to occur.

Tuesday, December 29, 2009 09:38PM Report Comment

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