Thursday, February 11, 2010

Second leg down forming?

Auction prices dip - house prices to follow?

The prices of properties sold at auction versus the rest of the market widened in January - a signal of futher house price weakness ahead, says an economic forecaster today. The reading on the Fathom-Zoopla Auction Price Index (API) in January was 71.9, suggesting homes under the hammer were sold at a 28.1% discount. In December the gap was only 19%.

Posted by dill @ 08:59 PM (2139 views)
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30 thoughts on “Second leg down forming?

  • The auction house, the last vestige of the free market. The establishment are keen to let big institutions buy OUR properties at knocked down prices at auction, but will do everything they can to keep the people’s market at estate agents at levels where we must pimp ourselves to mortgage companies.

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  • You may just be right! The local property rag has Agents advising “would be sellers”
    to avoid the spring rush and put their properties on the market NOW and make
    the most of the prices before a surge in properties to market.

    We may be technically out of recession, but there seems to be a marked an increase
    in local redundancy announcements of late.

    Second leg? Maybe!

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  • gone-to-colombia says:

    In answer to the question – Yes

    Clearly, the government supported market could not continue.
    Though, we might have to wait until after the election to see the market rejoin with sanity.
    No matter what lies each political party makes, there is a shock coming.

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  • Most auctioned properties I’ve seen are run-down flats in run-down areas, Its something I kept my eye on for a whille. I’m not suprised the sale prices register a lot lower compared to properties that sell in the conventional way.

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  • fallingbuzzard says:

    Pop. Still too early though, its still a market for speculators, not for investors.

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  • Feeling Queasy? “This phenomenal ‘queasing’ is greater by far than anything Weimar Germany tried

    Remember that the government have pumped unprecedented amounts of money in. Double what Weimar Republic did. A market will collapse, but will it be the currency or asset prices. With the bailouts, it appears that asset prices have been chosen to stay up. Will we get hyperinflation? The IMF is hovering over the Western World, licking its lips, desiring the ability to enforce austerity, to enforce slavery upon the free people’s of middle earth.

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  • freemanphil: you’re scaring the sheep mate.

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  • @3 Couldn’t agree more. I’m beginning to think prices could halve in 18 months.

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  • I’d like to agree with 3, but can’t help feeling 5 may be closer.

    IE a collapse of currency as opposed to a collapse of asset prices.

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  • A fiver says its prices over currency

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  • fallingbuzzard says:

    @7, i think both come together, all assets to fall in value

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  • FMP said, “Remember that the government have pumped unprecedented amounts of money in.”
    – No, the money has not been “pumped in” – yes there will have been some leakage from the huge increase in velocity in the tight pool [Treasury <-> BoE <-> Financials] and many if not all markets will have been distorted by the knock on effect of lowering the price of risk, but the money supply has not budged up that much or we’d see it everywhere, right now – how much more is bread now than 2 years ago? Can there really be a lag of greater than this for inflationary effects?
    GTC said “Clearly, the government supported market could not continue. ”
    – Much more like it IMO.

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  • mark wadsworth says:

    As 666 says, “money” has not been “pumped in”.

    1. The government takes money OUT by borrowing (whether by issuing gilts or accepting deposits at BoE; or indeed issuing gilts and then promptly buying them back via QE, which is just swapping one form of government debt for another).

    (As it happens, total government borrowing last year was roughyl equal to the increase in commercial bank balances at BoE, so they could have simplified things by announcing that they would no longer borrow by issuing gilts, but instead would borrow only by allowing banks to make deposits at BoE.)

    2. The government puts money back IN via government spending (which beyond a certain minimum level of spending on core functions and welfare redistribution destroys wealth).

    Ergo, the more of this they do, the worse off we end up.

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  • @8 – very clever alan!

    if the currency collapses you lose your bet and have to pay a fiver which by then will be completely worthless anyway!

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  • 10. 51ck-6-51x – of course they are pumping money in without printing the hugh amount of new government debt would not be bought and the civil service would not be maintained. When you have 50% of the workforce on a pittence you know they will go out and spend. Without this spending the economy would collapse. How do you define it other than pumping money into the economy – the only difference now to the early 00’s is its borrow new money off the printing press. I don’t think its a coincidence that BOE purchases match new Gilt issues!

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  • inbreda

    you beat me to it.

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  • mark wadsworth says:

    @ MTH: ” I don’t think its a coincidence that BOE purchases match new Gilt issues!”

    It probably isn’t a coincidence, so as I said, instead of borrowing money by issuing gilts, they are (indirectly) borrowing money by taking deposits at the BoE. Now what is borrowing if it is not taking money OUT of the system? Sure, they put it back IN again in their own c4ck-handed fasion, but they have to take it out first.

    They are not “printing” anything. On the borrowing side, they are taking cash (which banks could otherwise have lent out or used to repay bonds etc) and on the spending side they are dishing it out again.

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  • MTH – As I said, the market price of risk has certainly been reduced by their actions, but there is very little increase in the supply of money.
    That is, I am not saying that the economy has not been supported – It has, and in a massive way; I am saying that they have not done anything like The Weimar Republic, as was suggested. I’m sure there will be some inflationary effect, but not like that suggested.
    The reason the gilt issues match the BoE purchases is exactly what I am talking about when I say “Tight Pool”.
    MW has laid it out pretty clearly I think.

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  • 51ck
    I certainly agree that the UK is not like Weimar (or Zimbabwe for that matter) but isn’t it the case that no one is really sure (if one listens to the experts, that is) of the effect of QE? It would seem to me that recent rises in asset prices and cost of credit has been influenced by QE, though clearly this is not inflationary of itself.

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  • LTF – That’s true, no one knows. But we can be pretty sure it’s not hugely inflationary. But distorting the market price of risk could well be extremely dangerous in other ways, which would (again IMO) lead to a wider gap between rich and poor (which is kind of worse than inflation really!) – Note I did not say QE was ‘good’ or even ‘not bad’, just that it was probably (certainly, IMO) not going to lead to massive inflation – only a little leakage from the tight pool. It seem most lay persons get the wrong end of the stick when thinking about QE.

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  • Note – maybe we are seeing the final financial effect of the distortion of the market price of risk in the dire states of some Sovereign entities? (Please reply on the next thread, posted by Devo)

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  • Of course it is Wiemar inflationary – we have had massive inflation (that’s why this site exists), if the government didn’t monetarize the debt (QE as you people like to call it) then the inflation would be cancelled out by deflation. Now they are just locking in the inflation that has happened over the last 10 years. Then they want the growth that happened over the last ten years to continue so your guess is not as good as mine as to what will happen but I think even you guys could have a good stab…

    Mark please this is getting hard work. What money are they taking out of the system, the BOE is printing money (that didn’t exist before) to buy government debt. If the government didn’t want to borrow they would be no printingt. If every institution took their deposits out of the BOE, the BOE could (and would) still print money. Thats why the BOE has interest rates at 0.05% to dicourage deposits. Come on guys you are making something more complicated than it is the King does not have any clothes on.

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  • 51ck “It seem most lay persons get the wrong end of the stick when thinking about QE.”

    I expect that’ll be the elite, mentioned a few times here lately.

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  • mark wadsworth says:

    MTH: ” What money are they taking out of the system, the BOE is printing money.”

    Nope.

    There is such a thing as literally printing money, where the government prints the notes and gives them to people in exchange for NOTHING, just hands them out willy nilly.

    There is also such a thing as BORROWING money, where the government takes your cash IN EXCHANGE FOR gilts or electronic balances or treasury bills etc etc.

    If the QE programme consisted simply of ringing up the commercial banks and saying “We’ve credited £150 billion to your accounts with the BoE, feel free to withdraw it and lend it if you wish; or leave it with us and we’ll pay you 0.5% a year interest” then that would indeed be PRINTING money.

    But that is quite simply NOT what happened.

    What happened was banks give DMO money in exchange for gilts, then two days later, banks give gilts to BoE in exchange for electronic balance. So banks have swapped cash balances elsewhere for cash balances with BoE. This is not something-for-nothing.

    As a separate issue, banks HAVE been given new share capital, cheap loans, free insurance etc etc as much discussed, that is to some extent printing money, but the banks will have to REPAY the bulk of it, so it is not a FREE GIFT.

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  • I just had the largest number of new properties pop into my inbox this morning – might be a one-off, but could be the beginning of the rush to the exit for all whose confidence has finally evaporated. Despondency on the way?

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  • MTH –
    It is not “Wiemar inflationary” due to the fact that the pool the money being “pumped” into is tight. Hence we agree on the cause, but not the direct effect. I think asset prices are supported [recent “inflation locked in”] by removing the risk of bank failures. But the government still has little more spending power, yet has far more debt – i.e. the new money does not get out into the wider pool (bar some pretty negligible leakage on either side). The effect of this decrease in the price of risk will make the money that /is/ in that wider pool (the real economy) become allocated to different things – This is what is bad IMO, even could be much much worse and could ultimately end up being inflationary by the way of sovereign defaults / IMF loans / bailouts – I’ve suggested it before on this site, and now it seems to be happening (PIIGS), so go figure.

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  • As mark w says the exchange (in which BoE buys bonds from banks and credits their reserve balances at the BoE) leaves the net financial assets in the private sector unchanged. But there may be a change in the composition of those assets regarding maturity. I think the BoE bought longer maturity assets, which would bring down long term IRs and support asset prices.

    That is the limit of the effectiveness of QE. If keeping down long-term IRs could increase demand it could equally decrease demand by reducing savers’ income. As for increasing bank reserves and liquidity – maybe it does, but the idea that such an increase will stimulate lending is moonshine (pushing string).

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  • mark wadsworth says:

    Icarus, indeed, the average maturity of UK govt debts has shortened considerably, seeing as electronic balances at BoE are more or less payable on demand, which, as you say, had kept long term interest rates down, but as with everything in economics there is a flip side – savers have less income to spend, so yet again, this is all of a bit of a damp squib.

    Plus, the UK is now collectively much more at risk of interest rates rising (whether they will or not is a separate topic)

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  • @ Alan “A fiver says its prices over currency”

    You can make that 5,000, it will be the same as a fiver in a few months time.

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  • @Mark Wadsworth – “the UK is now collectively much more at risk of interest rates rising (whether they will or not is a separate topic)” – the Silver Bullet of rising interest rates will be hotly debated when the day arives (I’ll give it 7 months maximum)

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