Tuesday, September 7, 2010

Another trend indicator

House prices: will they start falling again?

Nothing new here but another indication of softening sentiment. The usual suspects give typical comments on the state of the UK market: Ed Stansfield (Capital Economics), Ray Boulger (John Charcol) , Jonathan Davis, Martin Ellis (Halifax), Bernard Clarke (CML), Martin Gahbauer (Nationwide) and Simon Rubinsohn (Rics.)

Posted by quiet guy @ 08:33 AM (2174 views)
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32 thoughts on “Another trend indicator

  • Such mixed opinions from “Experts”…Why didn’t the BBC consult a coin?

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  • financial planner says:

    Thx for posting. I go onto BBC Business and I can’t find the page. Where is it found pls. Are BBC deliberately making hard to find?

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  • financial planner says:

    estrader – it is not BBCs job to assert views- even though they are big VIs of course. Ian has simply tried to show both sides. It is up to the reader to decide based on the backing to commentators’ views. Ian has done a good reporter’s job on this piece.

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  • “A dearth of sellers helped to push [prices] up by 10% from the spring of 2009. It was on odd thing to happen in the teeth of a recession and a drought of mortgage funds.”

    Not very surprising when interest rates are so low. It’s called a dead cat bounce.

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  • financial planner, you are right but I didn’t ask for BBC’s opinion, I implied they would have been just as well off consulting a coin. This was more a dig at “Experts” than anything else. Just like Nouriel Roubini saying there a “40%” chance of US double dip recession…a coin gives 50%.

    House predictions to summer 2011
    Ray Boulger, John Charcol: “Very little change”
    Bernard Clarke, CML: No prediction
    Jonathan Davis, financial adviser: “Prices will fall”
    Martin Ellis, Halifax: “Little change”
    Martin Gahbauer, Nationwide: “Small falls”
    Simon Rubinsohn, Rics: “Not a lot of difference”
    Ed Stansfield, Capital Economics: “Down about 10%”
    Coin toss: Prices will fall
    Dice Roll: Little Change
    Tea leaves: Depends on Economy
    Tarot Cards: You will find love

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  • financial planner said…Thx for posting. I go onto BBC Business and I can’t find the page. Where is it found pls. Are BBC deliberately making hard to find? Tuesday, September 7, 2010 09:12AM

    There is now no immediate sign of this article on the BBC site including BBC business – if it wasnt for quiet guy’s posting on here I’d be toatally unaware of it’s existance.

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  • financial planner says:

    And again I repeat the reader can decide based on what they read of the ‘backing to commentators’ views’ not just the bald price forecast. EG JD said about irs, unemployment and credit.

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  • financial planner says:

    I have asked Ian Pollock, the reporter, for update of the piece’s whereabouts.

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  • And I repeat, anyone contemplating buying or selling a house would be better off tossing a coin after reading their views (if they didn’t know any better)

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  • No problem – the link works for me.

    I think the article is a fair summary – and it leaves people with one of the greatest ingredients for a crash: DOUBT

    More please

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  • They’re all (jd excepted) playing a guessing game with a background of vested interest. IE even if most of them expected 20 percent falls over the next 12 months they’d be sacked for saying so.

    With what is likely ahead I’m amazed anything is currently selling, but it seems to be.

    Can anyone add anything to this ‘banks to pay back 300 billion next year’ item.

    I ran out of numbers on my calculator, but reverting to a spread sheet and assuming 300 billion has 11 zeros then that is 2 million £150k mortgages isn’t it.

    I clearly need help as that can’t be right, can it?

    I’m trying to work out if that pay back is a red herring or the end of the game ?

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  • estrader – just so you know financial planner is jd.

    Fp i dont know if you wish to comment on this but i have been curious as to why you thought the stock markets would go up from circa march 09, but didnt say that the housing markets would follow. to me – as i have said on here before – that (admitting that res property would prob bounce) would have greatly increased your credibility. [not to mention being able to give it to peter bolton estate agent – between the eyes].

    i can think of a few reasons:

    1. you thought they would go up but didnt think they would go up for very long. A skeleton cat bounce if you like. so thought it best to maintain your position.

    2. you thought that going to the long side would actually affect people and be a contributory factor in the bounce.

    3. you thought res property was to illiquid to have the gains.

    4. you really did believe that res property as an asset class would be different to the stock markets and that therefore they would diverge.

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  • str2007 – we discussed this this is the special liquidity scheme. its 800bn, the first 300bn tranche is due in april 2011. it is right but how they pay it back is a different story of course – eg from reserves, rights issue etc etc.

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  • mark wadsworth says:

    My favourite bit of the article is this, which cannot be repeated often enough:

    A key reason for the continued mortgage drought is that the UK’s financial institutions need to repay more than £300bn between 2011 and 2014.

    That £300 billion is equivalent to about a quarter of all mortgage lending, and could only be repaid if gross mortgage lending were exactly £nil per month for a few years, i.e. net lending would have to be negative £6 billion per month for fifty months. This is just about do-able – in June 2010 gross lending was £8.6 billion and net lending was £2.1 billion, i.e. repayments were £6.4 billion. Can anybody guess what might happen to house prices if banks simply granted no new mortgages whatsoever for four years?

    I’d be interested in whether Uncle Tom thinks that the Tories will do the decent thing (for the taxpayer) and ask the banks to repay these loans, or whether they will revert to Home-Owner-Ism and just extend and pretend.

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  • mark wadsworth says:

    Techie, the £800 billion includes £300 billion Special Liquidity Scheme; £100 billion Credit Guarantee Scheme and £400 billion ordinary bank bonds due for redemption/repayment in the next five years (or whatever).

    The bondholders will have little choice except to roll over to new bonds (and the banks and the government ought to start thrashing out the terms of this right now). It’s only the £300 billion I’m interested in as this is a good gauge of how Home-Owner-Ist the current government’s policies are.

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  • growler – agreed the link works but anyone now going direct to the BBC site wont see this article – it seems to have sunk as soon as it surfaced.

    I liked this bit “All the reasons for the previous 15-year rise in prices have gone – easy credit, rising employment and falling interest rates. “Rates can now only rise, credit is rationed and unemployment will rise,” – the big question is whether prices can continue to defy gravity in such altered conditions.

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  • Hi Mark

    Has one of us ot the sums wrong ?

    You say a 1/4 of mortgage lending.

    2 million £150k ave mortgages is surely more than a full year at peak (120,000 loans per month) Never mind the current rate of £40-50,000 loans per month.

    And I was thinking it was 300 billion between 2011 and 2014 having re-read the article but according to techieman that 300 billion is in 1 year with another 500 billion over the 2012-2014.

    Can anyone explain how this is likely to play out, because over the last few minutes I’m starting to think this is the end game.

    Where do the banks get all that from ?

    Think about it – enough for 2 million £150k mortgages, and if they’re paying it back that actually has to be real money doesn’t it ?

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  • MW – UT commented on this before he said they will probably fudge it. sadly i cant find the post, but in it i did say that this is an area for you (amongst others). I actually just picked up a post from the forum verbatim.

    I think the point is – and correct me if i am wrong – they dont have to restrict any area of lending specifically to do this. eg. in your example mortgages could provide 100% of the payback but perhaps it will be other lending? commercial prop / business loans etc.

    if you think res mortgages will be most restricted area then can you explain why? i am not disagreeing i just really dont know.

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  • @mark at 14
    “If gross mortgage lending were exactly nil for a few years…”
    What are the implications of that?
    Mortgage lending accounts for between 55-65% of the credit (money) supply. If that’s how the £300bn will be repaid it means that this amount of money will be withdrawn from the economy. But does that process make any sense?
    As I understand it, according to the ‘rules of account’ governing banking, when loans are repaid the premium is cancelled, ie that amount of number money ceases to exist, and all that remains is the interest on the loan, which forms the banks’ incomes. Have you taken this into account?
    Nick

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  • financial planner says:

    Article now shown in bottom right of business page re Crystal Ball Gazing

    Re 2009 – st mkts move far quicker than property. I was far more confident of st movement in st mkt than st movement in prop. Note I prefer to forecast HPS for years rather than calendar year. twitter/jonathandaviswm

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  • Agreed – the govt is not going to sit back and watch the mortgage market go into total lockdown, just because the SLS has come to an end.

    If the mortgage lenders cannot find the necessary funds in the commercial money markets, I feel sure they will extend the scheme.

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  • fp – thanks.

    just saying it was a pity you didnt say – there could be some upward movement in property prices in the short term, but then the downward trend will – for the factors you raise and perhaps others – manifest. we have spoken before on here about a correlation between the ftse and hps – notwithstanding the volatility of the former, someone did a really good graph of this on the forum. i thought u might find it of interest.

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  • >>” “If you believe unemployment will rise it will have a dampening effect but a spill-over may not be that severe as cuts and job losses will be spread over several years,” he adds. ”

    And of course the quotation of such views right at the end of the article has nothing whatsoever to do with the BBC’s instructions to report the government’s spending cuts in a positive light. …?

    N

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  • mark wadsworth says:

    @ STR2007, 17. Big picture wise, there are about 11 million mortgages outstanding with an average balance £120,000 = £1,300 billion (or approx one times GDP). Are you confusing gross o/s mortgages £1,300 billion with monthly advances of currently £8 billion?

    @ Techie 18, I do not know whether the govt. will fudge it or ask banks to repay, neither do I know whether banks will raise more money privatety (yeah right) or shrink borrowing and repay it. BUT… if we can assume the last option, they have to reduce residential mortgage lending because all their other kinds of lending (commercial property £250 billion, credit cards £100 billion and unsecured business lending £not much) just isn’t enough, unless they reduced those last three categories by nearly 100% in a couple of years (highly unlikely).

    @ Nick19, don’t worry about the banks’ net interest margin, that’s small change in comparison. And yes, when mortgages are repaid, the money supply shrinks – i.e. all the debits and credits net off and cancel out. Big deal. This does not affect the real wealth in the economy (houses, cars, education, business goodwill, roads etc) one iota.

    @ UT 21, thanks. That’s my rather pessimistic view as well.

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  • it_is_going_with_a_bang says:

    It’s not as simple as tossing a coin and waiting for it to land.

    In the the last couple of years there have been plenty of people out there determined to catch that coin and make you see what they want you to see.

    The so called “Experts” are no better than any one off the street who takes a mild interest in economics.
    After all – surveyors primarily get ther “valuation” from Estate Agents. They merely adjust it for the more technical aspects.

    That just about says it all.

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  • mw – cheers for those numbers interesting but do we know if they have already been “saving” money towards this payment, with rationing to date? if so do we know how much they have “saved”? surely if they know that they have to pay money they will put some by already unless they know they dont have to?

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  • MW

    OK I see you were referring to total outstanding mortgages.

    I was really (for my own benefit) trying to break down £300billion into mentally manageable chunks to get some idea just how big that number, that trips off the tongue, really is.

    2 million mortgages at £150 is an awful lot.

    And then trying to figure out how paying that back actually effects things.

    But I see how you cam eup with 1/4 of mortgage lending when you were discussing ALL mortgages outstanding.

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  • sorry
    2 million mortgages at £150 K is an awful lot.

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  • mark wadsworth says:

    @ Techie 26, clearly the banks have not been “saving”, as net lending (residential mortgages + credit cards + commercial lending) is still positive (or at least plus minus nothing).

    I’d assume that they are, quite rationally, gambling on being able to force the government’s hand when the time comes (it’s a choice between insolvency now or going cap in hand later) – and NR, Lloyds, RBS are more or less state controlled anyway, so what do they care? It’s just another paper shuffling exercise from their point of view.

    So our hopes rest on that ‘other’ £400 billion odd that needs to be refinanced or repaid to private investors over the next few years.

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  • mw…. and just to end this point…. the profits from the banks have been distributed as dividends / bonusses so they havent been held back to potentially contribute either. – even if they had they would be a drop in the ocean…. yes?

    i think its good to try to look at this from all angles, since, as you say, this makes the analysis that they will “default” or do a re-financing deal, more likely. is there anything that we have missed?

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  • Mark,
    >@ Nick19, don’t worry about the banks’ net interest margin, that’s small change in comparison. And yes, when mortgages are repaid, the money supply shrinks – i.e. all the debits and credits net off and cancel out. Big deal. This does not affect the real wealth in the economy (houses, cars, education, business goodwill, roads etc) one iota.

    Sorry but I think history (not to mention common sense) contradicts this. If there is less money around, how do people earn enough to transact, how do businesses maintain their incomes? It takes TIME for prices to adjust and if there is deflation debtors owe more in real terms. This is how the Great Depression worked.

    Also the banks can’t just pay the government money they would have shelled out in mortgages – this ignores what I said about the rules of account earlier.

    Nick
    Nick

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  • mark wadsworth says:

    Nick B: Sorry but I think history (not to mention common sense) contradicts this. If there is less money around, how do people earn enough to transact, how do businesses maintain their incomes?

    History and common sense show that what I say is correct. It is possible to imagine a world with very low house prices where people buy them for cash. No debts, no borrowings, minimal bank balances to see you through the month. What’s so terrible about that? People are buse earning money and spending money for the sheer fun of doing so.

    Hey ho, along come the Home-Owner-Ists and house prices quadruple and mortgage debts (and hence bank liabilities) rise to approx. one times GDP. Money supply goes through roof. Does this help people to “transact”? Does this help businesses “maintain their incomes”? Have we become richer in aggregate? No of course not.

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