Friday, June 3, 2011

“The U.K.’s housing bubble put the U.S.’s in the shade”

U.K. Housing Sits on Aspic, Not Firmer Foundations

Little more than a year ago, Jeremy Grantham, co-founder of asset-management firm GMO, said U.K. residential real estate was one of the two bubbles to survive the financial crisis intact. Fourteen months later, ballpark estimates suggest British residential property is still about a third over-valued.

Posted by dill @ 08:06 AM (4022 views)
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12 thoughts on ““The U.K.’s housing bubble put the U.S.’s in the shade”

  • A vey good analysis. Great post!

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  • Its NOT a third overvaluee by any historical means of affordability. More like 60% overvalued……..jeesus wept!!!!!!!!!!!!!!!!!!!!!

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  • All I know is that some are making a ton of money from commodities, currencies.and Qwicky Print plc.

    It’s all in the timing now. When the music finally stops, make sure you get a seat ~ Avoid the plastic ones.

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  • mark wadsworth says:

    Crikey! That article says that 43% of all mortgages are interest only (as at last summer, whenever that was).

    I also like the point that while a quick crash is bad, a slow decline is worse – the Lib-Cons have resolutely not taken this lesson to heart and are soldiering on in the same direction as Labour did.

    All in all, I think we’ll have to pencil in a slow decline over at least five years – if they can stretch it out to ten years then at least that will save me the hassle of buying a “family home” and I can skip straight to buying a retirement home for me and the Mrs 🙂

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  • MW, Is this not similar to the 1990’s crash, initially there was a panic and then things picked up a bit, then there was a slow decline until the 2002 or thereabouts. Am I wrong on this ?

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  • “At the same time, the proportion of loans shifting to variable interest rates is also worryingly high. By the end of 2010, 43% of U.K. mortgages were on variable rates or linked to the Bank of England’s base rate

    Even so, it may be that many including myself could pay off (or at least a good chunk of) the principle tommorrow, but with low rates why would you if can get low risk yield at a higher rate. Then again I seem to remember last year we were hearing that mortgage & rolling debt was being paid down at record rates.

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  • mark wadsworth says:

    House, everybody has his own tale to tell, but round my way, prices were definitely going up again by 1996 (which accords to published figures).

    Karma, the figure of 43% appears twice in the article: “By last summer, the proportion of interest-only mortgages had risen to 43% from 40% three years earlier, according to a recent report by the Daily Telegraph newspaper… At the same time, the proportion of loans shifting to variable interest rates is also worryingly high. By the end of 2010, 43% of U.K. mortgages were on variable rates or linked to the Bank of England’s base rate, while 48% were on fixed rates.”

    I’d guess there’s a big overlap between interest-only and variable rate, but that’s just a guess.

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  • You’re all missing the key sentences:
    “Another risk is that the Bank of England has left the U.K. with such a deep addiction to cheap money that it won’t be able to raise interest rates even if high inflation becomes embedded. Last month, its governor, Mervyn King, made clear that U.K. households’ burden of debt meant interest rates would stay low.”

    That’s exactly what has happened and what will happen. Rates stay low, moderate inflation (6-10%) takes hold, and eventually wages catch up with prices.

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  • voiceofreason says:

    Drewster,
    That’s why I our house maxed out on NS&I index linked certificates last week.

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  • 6. drewster said…moderate inflation (6-10%) takes hold,

    ~ Oh really, moderate? that’s OK then.

    Again.. “Hyperinflation, food shortages”. I’m getting closer by the month.

    Le Crunch.

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  • Blow me, I consider us lucky that we get +2~3% payrise year. And really thats a 7% pay reduction with MY shopping basket. Example Need a new pannier bag for cycle. was 19.95 now 24.95 in a year. Car needs tyres….how much?!

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  • Skeptical First Time Buyer says:

    @10

    I think you will be correct eventually, no fiat money system has survived the test of time, but i think looking at the next 5 years not going to happen.

    After that not sure, perfect storm of problems on the horizon, but hard to judge how far away that horizon is.

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