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The UK Property Crash - Has it been avoided, or just delayed?

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The UK Property Crash - Has it been avoided, or just delayed ?

 

(This was written to be posted on Property Tribes - but I thought it belonged here too):

 

dubai-property-crash.jpg

 

This question came up on another thread, and I thought this discussion deserved a place of its own. People may want to look back this thread in the months to come, and see how accurate my forecasts have proven to be. I offer no guarantees, but I can tell you that I have seen the type of correction that I describe in many markets. So I will say I have a strong expectation that we will see a second and BIGGER leg down in the UK, and a second and maybe smaller leg down in US real estate. The price drop we saw in 2007-2009 has not been sufficient to complete the job of correcting the huge price excesses that we have seen in both property markets.

 

The thread was inspired by a comment from PT's Nick Parkin:

 

"Not enough credit was given to Brown & Darling for avoiding the crash, but some of us believe that the new government will now remove the support, and that reality is inevitable."

 

AVOIDING a crash?

I think he must mean: DELAYING the crash.

 

The over-valuation continues. A crash is baked in the cake, it just hasn't been eaten yet.

 

By delaying the pain, Brown and Darling did the country a huge disservice, IMHO. They have made the eventual pain much worse. More debt has been piled on-top of debt. More people have been tricked into making malinvestments in property and other areas. Therefore, the losses when they come will be larger, and the required bank bailouts will be greater. The time for a genuine recovery in the economy has been pushed back by years.

 

The best thing would have been if the interest rate cut made in August 2005 had never happened. At that point, the UK property cycle looked set to roll over - just as the US residential real estate market rolled over a few months later in mid-2006. And had the UK market been allowed to correct then, it would have been accompanied with less pain, and much less damage to the overall economy and to the UK banking system.

 

My forecasting record is not perfect. In the second half of 2005, I missed the fact that the market would be saved, at that critical juncture. ( You can read more about how I have forecast the market over the last few years in my property diary*.) But Fred Harrison got it right. He said the market would have one last hurrah, and move into a two year period that he calls the "Winner Curse" period. It is part of his 18 year cycle. The "Winner Curse" is when people buy at high prices and feel like winners, but ultimately they wind up lumbered with losses. As far back as 2000, he foresaw a peak in 2008 (which ultimately came around Q4-2007) to be followed by a downturn which he expected to last for 3-5 years.

 

If you want to hear how crazy things still were in June 2007, listen to this podcast of Frisby's Bulls and Bears:

UK Housing; Moon-bound or Pear-shaped : http://commoditywatch.podbean.com/2007/07/...or-pear-shaped/

John Wriglesworth was talking about UK banks lending 6-7 times incomes. We nearly got there, but not quite. The market soon turned down, peaking within the next quarter, and property began a serious correction - the biggest in many years.

 

For Harrison, the ideal next bottom would have been: 2012-13. In 2006 or so, he even wrote a book about the coming crash, which he entitled, "Boom Bust: House Prices and the Great Depression of 2010." That's the time frame we are in now: and if Harrsion is right we should expect a deep correction in property, not the modest 20% drop we saw already.

 

The painful corrective period has been stretched out by Brown/Darling's recklessness. Low rates have brought a nice 12-18 months Dead Cat bounce. The H&N property index, which is the average of Halifax and Nationwide fell 20% from its August 2007 to make a low in February 2009, just a few weeks after rates were cut dramatically. Eventually, ultra-low rates put a floor on the market. For many who had sufficient deposits, it suddenly became cheaper to buy and pay a cheap mortgage, rather than going on renting. And hard-stretched landlords, saw their interest rates drop, and this cash flow savings took the pressure off, and allowed them to hold onto their portfolios. But the relief will not be permanent.

 

Ultra-low rates triggered a nice bounce which lasted over a year, and allowed the average UK property to recoup about half of the value that it had lost. But even with low rates continuing, the upwards momentum has been lost. The property market is running out of cash-rich buyers, and the economics for BTL investors is about to be undermined by the removal of some of the excessively-large taxpayer-financed housing benefits. With that, rents could stop rising this year, and begin a fresh descent in 2011, as rental subsidies are capped or cut.

 

The mid-correction bounce that we have just seen, is part of the normal cycle. A brief upwards rally is common within the 3-5 years correction. In fact, to show how common the mid-correction rally is, we have also seen a bounce in the US. And now, the US has resumed its slide too after the buyers tax credit was ended just a few months ago.

 

If you haven't see this chart before, I recommend you study it closely:

001bz.jpg

 

Here's the data that goes with the cycle:

 

==== : H&N index------------ : Rightmove-UK ----- : R-Gr.London--------- :

Peak : Aug 2007 : 192,490 : May 2008: 242,500 : Nov 2007 : 412,731 :

Low1 : Feb 2007: 153,477 : Jan 2009 : 213,570 : Aug 2008 : 379,162 :

Drop : ====== : - 20.3 % : ======= :- 11.9 % : ======= : - 8.1 % :

DCat : Apr 2010 : 169,287 : May 2010 : 237,134 : Jun 2010 : 429,597 :

Drop : ====== : +10.3 % : ======= :+11.0 % : ======= : +13.3% :

Now : Sep 2010 : 165,198 : Sep 2010 : 229,767 : Sep 2010 : 399,019 :

Chg. : ======= : - 2.4% : ======= :: - 3.1 % : ======= :: - 7.1% :

 

I have reservations about using the Rightmove data, since I think it includes various distortions. But I decided to include it because it does show that Greater London prices did hold up far better than UK-wide prices during the first leg down in the property correction. Using the H&N index, UK house prices fell -20.3% before regaining about half of that drop. Meantime, Rightmove says that Greater London property dipped only -8.1% in a few months, and then gained back the full loss and then some. Rightmove's June 2010 high for GL of 429,597 was actually 4.1% above the November 2007 high of 412,731. Although London shrugged off that initial drop, it is not invulnerable, as some would have you believe. London will be hit hard by job losses in the public sector, and by the cap on Housing benefits. And if banks slide into a second crisis, there will be big job losses in the City also.

 

My own cyclical analysis is that the Dead Cat bounce (or "bear market rally") is now over, and the second leg down has begun. All three of the indices that I have summarised above showed peaks in the first half of 2010. The huge -3.6% drop reported in the Halifax index for September, has also been followed by a -1.4% drop for Nationwide in October, with a big slowdown reported in Hometracks numbers as well in recent months. Some will say that Rightmove's report of a big jump up in their October figures is a counter-indicator, but if you look closely, you will see that it is merely a rising in asking prices. This is a seasonal thing that happens every year, as vendors "try out" high prices on the market in the fall. I expect it to be retraced very quickly.

 

A very useful bellwether for UK property prices is the share prices of the major UK homebuilders. Another is mortgage approvals. Both of these are near record low levels. The builder share prices, I follow closely, especially the prices of Barratt Development (BDEV) and Persimmon (PSN.) Both share prices peaked in September 2009, months ahead of the spring 2010 top in the property indices. A lead of 6 months or so is normal. And now both stocks have slid down to new lows, or very near the low of the year in teh case of PSN. For instance, BDEV closed last Friday at 78p, after beginning the year at over 120p, after having twice spiked up to near 140p.

 

Barratt Development (BDEV) .. update

bdev.gif

 

A key signal that I look for is when prices crossover the 252d./1 year moving average. The last "sell signal" calculated in this way occurred in Feb./March 2010, just before the H&N-index peaked.

 

Many who are new to using the builders as a bellwether, think backwards - that the share prices are driven by earnings announcements, and that they should therefore lag property prices. But that is not the case. In fact, like property-buying itself, builder share prices reflect sentiment towards the sector. And upwards share movements are most positive when good feelings about property is most intense. They work as a good barometer of how people are feeling. And they are up-to-date and immediate, unlike the property indices which are reported after lags of weeks or months, depending on the index. So fresh lows for the year (in both BDEV and PSN) tell us that today's sentiment is very negative, and the property indices when they are reported in a few weeks time are likely to show that price falls have continued.

 

From here, I expect a slide of at least 2-3 years. And during that period, I would expect prices to fall at "crash cruise speed" with monthly price falls averaging 0.5% - 1.0% per month, and perhaps more than that. 30 months of falls, averaging 0.8% per month, would be a drop of about 24%. And that would not surprise me. If interest rates push upwards, the drop could be more than that, and the fall could last longer than 2-3 years.

 

If Barratt or Persimmon shows a sharp rise during that period, then I would consider changing my forecast, But unless or until that happens, I think we could see a bigger second leg down in UK property than the 20% drop we saw in the first leg. And this time, I do not think that Greater London will be able to shrug off the falls.

 

Keep an eye out for postings in my Property Diary. If I see something dramatically new emerging, I will write about it there.

 

DrBubb - 1 Nov. 2010

 

==============

*DrBubb's Property Diary: http://tinyurl.com/GPC-Diary /

UK Property Data :: http://tinyurl.com/UKtrap

PT Clone thread.. :: http://propertytribes.ning.com/forum/topic...avoided-or-just

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Great post and review! What is Harrison saying now? I haven't heard him for a while.

Still bearish, I reckon. But I haven't spoken to him for over one year.

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I don't know if you welcome pedantry, but for the sake of good writing it might be worth noting that the question is not whether the property price crash has been "avoided" -- I've done that, for example, by not owning a house -- but whether it's been "averted".

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You are right.

But you may notice, I was picking up on another's remark - Nick P.:

 

"Not enough credit was given to Brown & Darling for avoiding the crash, but some of us believe that the new government will now remove the support, and that reality is inevitable."

 

I find it hard to give Brown & Darling credit for anything positive.

Delaying the crash only benefits landlords who manage to sell before the crash comes.

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Still bearish, I reckon. But I haven't spoken to him for over one year.

It would be very interesting to here his thoughts now, any chance of another radio show?

 

 

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We have our FIRST YoY negative index!

I present to you Hometrack.

GREAT !

Those Rightmove vendors who pushed up their asking prices so much last month are going to find it very tough to get any interest whatsoever:

 

"The number of new buyers registering with estate agents dropped by 2pc during October, the fourth month in a row in which demand has declined, but the number of people putting their homes up for sale continued to increase, rising by 1.9pc.

Richard Donnell, director of research at Hometrack, said: ''The mismatch between faltering demand and increasing supply looks set to continue, while the re-pricing process is likely to be drawn out into the first half of 2011.

 

''A stand-off is beginning to emerge between buyers waiting for prices to fall further and sellers being unrealistic on the price they're willing to accept."

 

The mismatch between supply and demand has given buyers the upper hand in price negotiations, with sellers achieving an average of just 92.7pc of their asking price, the lowest level for more than a year."

 

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(as posted on PT):

 

Vanessa : "Yee haaaaaaaaa! It's "Blue Cross" day in property. There's a sale on. Happy days. :)"

 

DrBubb:

This sale might last at least 2-3 years, with bigger discounts to follow.

 

A new bearish psychology is likely to take hold, where Buyers will want a bargain to compensate them for the "risk" of buying. They will insist on "Lower than last done." And today's bargain, will be tomorrow's market price, setting up a chain of lower and lower prices.

 

That's how things were in the first leg down. And for those who have forgotten, Dominic Frisby and I recorded a podcast which recalls the market psychology from those days...

 

Link:

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I don't know if you welcome pedantry, but for the sake of good writing it might be worth noting that the question is not whether the property price crash has been "avoided" -- I've done that, for example, by not owning a house -- but whether it's been "averted".

I think a postponement has been witnessed and falls will be inevitable and unlikely to be averted.

 

A third bailout will be of sympathy/support (the first one was the Bank of Mum & Dad or 'gifted' deposits; the second one was the banks QE1) and will burden/be a true cost to friends and families of those who succumbed/capitulated and bought at the top. Think of all the funds(silent money)/social support being given in addition which will not be reciprocated.

 

The prudent may have avoided a property price crash by not owning but may not be able to avert the consequences-financial cost (poor savings rates/currency value) and social cost (the 'you're all right-you must help us out' expectation)

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THIS REACTION on PT - made me laugh.

And it also made me realise how many LL's are likely to get blindsided by rates, and price moves :

 

Dr Bubbs article is too long for me to read. Property prices will be depressed for about 5 years, but as wages rise, property will become less over valued.As long as you have a good rental yield so that you pay your expenses, in the long run prices will rise again.I'm not too bothered by short term price fluctuations.

As housing benefit rates fall next year I will lose about £8-9k.However, when I come off fixed rate mortgages in 2011 and 2012, my expenses will fall by £24k .My interest expenses have already fallen by £12k.

 

I might sell up in 10-20 years time and i'm sure they will be worth more then than now.In the mean time they provide with a good income for doing very little.

 

= =

 

My response was:

 

"...but as wages rise, property will become less over valued. As long as you have a good rental yield so that you pay your expenses, in the long run prices will rise again.I'm not too bothered by short term price fluctuations."

 

What makes you think wages are going to rise much?

They may rise a little, and rents could be stagnant or fall, as the pound slides, and people spend more on food, energy, and other essentials.

 

In fact, the key race will between RENTS and interest RATES. If rates rise faster than rents, Landlords will be in the soup.

 

"Is there any good news on planet Bubb?"

 

Plenty. If you check out GEI, you will find many happy people, making money. Many Sold-To-Rent, and shifted their money to Gold, and have been doing very well indeed, thanks. It has been the winning trade for years, and people use to laugh at me when I suggested it on SP years ago.

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PT CHATTER

 

(1)

"Most investors on this forum buy specific properties and many are hands-on managers. This means the success or failure of the investment tends to pivot on the skills and decisions of the investor"

 

I know you all tell yourselves that.

 

But here's reality-as-I see it:

 

1/ UK Landlords were saved by QE, ie the introduction of ultra-low interest rates in late 2008/ early 2009. The price slide that began in 2007 was putting many into trouble, but low rates dramatically improved their cash flows, and also put a floor under property prices and ultimately brought a nice fat Dead Cat Bounce, pushing average prices up by perhaps 10%,

 

2/ That rally is now over, and prices are beginning to slide back. Even "safe areas" like Central London, we are beginning to see downwards pressure on residential prices

 

3/ The price falls that are coming, are going to spare no place in the UK. There will be no "pocket hot spots" in which to hide from a slide that could bring average prices down by 20-30%

 

How many here have see a fall like this in their lifetimes in the UK? To really see how it works, you need to go abroad to Hong Kong, to Japan, or to the US. The only place "to hide" may be somewhere like Mongolia, which has much higher yields, and a vastly different economic and demographic environment.

 

 

(2)

"For the masses, the rain is nothing to be concerned about. They continue to go about their lives. When the rain stops no real damage has happened and the lack of hiding has no material impact. Rain is just part of the game and not something to be avoid as an absolute."

 

JC, there is rain, and there is RAIN !:

http://www.youtube.com/watch?v=Vp6SdHiAz4E

 

I think you under-estimate the power of the downturn that may lie ahead. There is much false value to be destroyed, and few property owners will emerge unscathed IMHO.

 

"I also do not see the point of moving from a market that I know (USA & UK) to one which I do not know (Mongolia) just so I can avoid a risk I do not have. ... The odds of missing something important increases as you move into unknown markets (country or asset class)"

 

The future is unknowable. But the RISKS in the UK property market now are enormous. The RETURNS on offer do not justify taking those risks in the UK. At least in Mongolia, you are compensated for the risks by: a yield 2-3x higher, and the prospect for rapid rental and price appreciation thanks to the favorable demographics. In the UK, you are betting that: The banking sector will somehow hold together, rents will not fall despite austerity, and rates will not rise from ultra-low levels, which are a historical anomaly. Such investments are not for me.

 

/see: http://propertytribes.ning.com/forum/topic...page=3#comments

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A recent personal anecdote suggests that the pressures are building, but with slightly odd side-effects. I'm moving to a different city and was confused by the apparent lack of rental choice, after speaking to a few agents they explained that the turnover rate was much lower than they were used to, as young people were just not leaving rentals to buy as they would have done a few years ago.

 

The last letting agent I spoke to was quite candid and said that a few years ago their office would be marketing about 70 places on their books as available (or soon to be) at any one time. For most of this year she said that it had been around 30, although it had got up to 50 at the absolute peak in August, they're now down to 20.

 

Another agent also told me that it was becoming standard practice for the landlords they represent to always put the houses up for sale or to let at the same time when someone gives notice to leave.

 

Rents don't appear to be going up and the agent of the place I went for seemed surprised that I immediately offered asking price with only a 5 day void for the landlord (which I found out later through a quiet word with the current tenant is what they were paying).

 

Only 2 of the 12 or so places I viewed were unoccupied, on rental searches in previous years the proportion has been higher, and the 2 that were unoccupied were advertised at higher prices than the competition.

 

This is probably also backed up by the place I've given notice on, it was advertised at the same rent I pay and was gone within 2 days of me giving notice with zero void.

 

So my experience is; rents flat, small voids and fewer leaving rentals to buy.

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Rents don't appear to be going up and the agent of the place I went for seemed surprised that I immediately offered asking price with only a 5 day void...

 

So my experience is; rents flat, small voids and fewer leaving rentals to buy.

Thanks for that.

That does sound somewhat Bullish to me - and it makes me wonder:

 

+ Where are you? (Not in London, I think),

+ What is driving the strong demand there - Jobs or University openings or something?

+ Why aren't rents rising?

 

I am anticipating an increase in SHARING - which would tend to drive rental demand lower.

But maybe not until next year

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Thanks for that.

That does sound somewhat Bullish to me - and it makes me wonder:

 

+ Where are you? (Not in London, I think),

+ What is driving the strong demand there - Jobs or University openings or something?

+ Why aren't rents rising?

 

I am anticipating an increase in SHARING - which would tend to drive rental demand lower.

But maybe not until next year

 

I'll answer them in order;

 

+ I'm moving from a London commuter town in leafy Surrey to the areas in north Cheshire which serve as commuter towns for Manchester

+ Strong rental demand was explained by letting agents as people not leaving the rental sector to become owner occupiers at the same rate they would have done in prior years. I did wonder about the BBC move to Manchester, but I asked a couple of agents if this was a factor and they hadn't seen any people seriously looking yet as the mass move (circa 2500 people) is not going to happen until next year.

+ I can only speculate on why rents aren't rising. My take is that people who are renting have become poorer in disposable income terms over the last two years as inflation of food and fuel has eaten away at income while low base rates have little impact on reducing their costs in other areas. I also have this very vague feeling that landlords are wising up to cash flow needs now that rapid asset price growth and easy credit has stopped and are therefore more active in reducing void periods, so are less inclined to push for rent increases.

 

As for sharing, I also anticipate an increase, in fact I found that there were 3 current tenants of the 2-bed flat I am moving to (2 are a couple). The thing I've not seen yet, is families taking in lodgers on a large scale, I remember it was quite common 20 or 30 years ago, I wonder if UK society has changed too much for it to happen easily.

 

My overall view for UK property is that we're just in the calm before the storm and there are some triggers that are going to happen over the next 2 years that will kick things off;

 

1. Base rates will go up

2. Company bankruptcies will increase or large restructurings will be forced through (I was chatting tonight to someone who works in this field; she said the last 12 months have been eerily quiet, banks have been holding off because there's no-one to liquidate the assets to at prices they need, but they are building non-performing loan teams who are going in to troubleshoot/restructure)

3. Government spending cuts will bite (this might be especially interesting in the pseudo-private sector that supplies to the government)

4. Local Housing Allowance will change the threshold for a single person moving from single room rate to 1-bed flat rate from 25 to 35, this will force an increase in sharing and release units back onto the market

5. Local Housing Allowance will change from the median price in an area to the 30th percentile price in an area, interestingly, this might create a feedback loo

 

It's all going to be very absorbing from an academic point of view and is a massively required rebalancing, it's just a shame that tied up in that is an awful lot of human misery.

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+ Strong rental demand was explained by letting agents as people not leaving the rental sector to become owner occupiers at the same rate they would have done in prior years. I did wonder about the BBC move to Manchester, but I asked a couple of agents if this was a factor and they hadn't seen any people seriously looking yet as the mass move (circa 2500 people) is not going to happen until next year.

+ I can only speculate on why rents aren't rising. My take is that people who are renting have become poorer in disposable income terms over the last two years as inflation of food and fuel has eaten away at income while low base rates have little impact on reducing their costs in other areas. I also have this very vague feeling that landlords are wising up to cash flow needs now that rapid asset price growth and easy credit has stopped and are therefore more active in reducing void periods, so are less inclined to push for rent increases.

Thanks for that, T. Very interesting.

 

I have heard that sort of comment before. But, frankly, it confuses me:

 

"...people not leaving the rental sector to become owner occupiers at the same rate they would have done in prior years."

 

Okay.

But that means the usual pattern is that DEMAND for rnetal properties shrink, as people become owners.

 

But is people stop gravitating OUT OF RENTING, then it means that demand is stable, not shrinking. Unless rental supply is shrinking somehow, then S/D should be stable, not tightening as your post suggests.

 

Putting it another way, those who are seeking new places to rent, must be living somewhere, and as they give their old places up, that replenishes supply.

 

Do you see why I am confused?

 

 

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Thanks for that, T. Very interesting.

 

I have heard that sort of comment before. But, frankly, it confuses me:

 

"...people not leaving the rental sector to become owner occupiers at the same rate they would have done in prior years."

 

Okay.

But that means the usual pattern is that DEMAND for rnetal properties shrink, as people become owners.

 

But is people stop gravitating OUT OF RENTING, then it means that demand is stable, not shrinking. Unless rental supply is shrinking somehow, then S/D should be stable, not tightening as your post suggests.

 

Putting it another way, those who are seeking new places to rent, must be living somewhere, and as they give their old places up, that replenishes supply.

 

Do you see why I am confused?

 

Yes, I didn't really explain it well. I find it easier to use numbers to explain things, here's a simplified explanation;

 

In a stable demand market

100,000 new people join the rental sector each year after leaving home

100,000 people leave the rental sector to become owner occupiers

Net change is 100,000 - 100,000 = 0.

 

In the example of today let's say that we still have

100,000 new people joining the sector as home leavers, but only

70,000 people leave the rental sector to become owner occupiers

so the net change is 100,000 - 70,000 = 30,000 additional renters.

 

You are also absolutely correct that those seeking places to rent must be living somewhere, but the supply is not properly replenished because the vast majority are young people who live at home with their parents and typically their bedroom does not get filled with someone else.

 

The question is what happens to the hypothetical 30,000 additional renters?

 

In all likelihood it will be a mix of;

+ Greater sharing

+ Reduced voids

+ Staying at home and not entering the sector

 

The other question is what happens to the houses that those 30,000 people who didn't become owner occupiers would have bought?

 

In all likelihood it will be a mix of;

+ Increased empty homes

+ Increased underutilised homes (current owner occupiers want to downsize)

+ Increased supply to rental sector (though not enough to fully balance)

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In the example of today let's say that we still have

100,000 new people joining the sector as home leavers, but only

70,000 people leave the rental sector to become owner occupiers

so the net change is 100,000 - 70,000 = 30,000 additional renters.

Okey, I get that.

You are saying that each year brings a NET INCREASE in household formations, and if no new properties are built and purchased, that the existing SUPPLY will eventually be overwhelmed by the DEMAND from those new tenants.

 

I'm not sure I buy this. I have some figures, and they do not necessarily confirm this. But my figures are out of date.

 

I will share some figures with you later that will try to elucidate this.

 

 

 

 

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NASTY FALLS coming, as the momentum goes Red

 

The Turn is in place

asking_price_being_achi1010.gif

Days on market shows rising supply glut

time_on_the_market1010.gif

Weakness is spreading

percent_postcodes_direct1010.gif

 

Implied by these charts from Hometrack, on a thread created by Tired of Waiting :

http://www.housepricecrash.co.uk/forum/ind...howtopic=153851

 

UK-house-prices-march042010.jpg

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OPTIMISTS still live out there...

 

Property Price Predictions Week .. Nov 02, 2010

 

First in Cluttons:

 

Small falls in early 2011, then stabilising in the second half. 2011 prices will end just 0.1% off their starting point;

2011 +0.1%

2012 +4%

2013 +5%

2014 +5%

 

I think that's quite optimistic - 14% over 4 years. But it doesn't have too much meaning unless you know what general inflation is doing at the same time. The BoE target over those 4 years is inflation of 8% so that would mean a gain in real terms of 6% which I would think would make everybody very happy.

 

/source: http://www.pimlico-flats.co.uk/forum/viewt...443&start=0

 

Is this the kind of cotton candy that the average LL is feeding upon?

What strange notions of interest rates and rental rates will this require in a time of austerity?

Aare they not looking at the new trend in motion, as shown by the Hometrack charts?

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You are right.

But you may notice, I was picking up on another's remark - Nick P.:

 

"Not enough credit was given to Brown & Darling for avoiding the crash, but some of us believe that the new government will now remove the support, and that reality is inevitable."

 

I find it hard to give Brown & Darling credit for anything positive.

Delaying the crash only benefits landlords who manage to sell before the crash comes.

 

What! What!

 

IMHO not enough was done to denounce and castigate Brown and Darling for pouring oil onto a burning fire...

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Okey, I get that.

You are saying that each year brings a NET INCREASE in household formations, and if no new properties are built and purchased, that the existing SUPPLY will eventually be overwhelmed by the DEMAND from those new tenants.

 

I'm not sure I buy this. I have some figures, and they do not necessarily confirm this. But my figures are out of date.

 

I will share some figures with you later that will try to elucidate this.

 

I didn't mean to say that there will be a net increase in household formations, because in the stable model there are also 100,000 people in owner occupied housing who die every year, these are where the 100,000 people who would normally leave the rental sector to become owner occupiers would get their constant supply from (not directly, probably through chains).

 

What I'm suggesting is that there is a rebalancing going on between people fulfilling housing need through rental or owner occupier methods and for every net increase in one sector, there is a corresponding decrease in the other one.

 

So in my example we have the owner occupier housing

 

100,000 people leave owner occupier housing (because of death)

70,000 people leave rental to become owner occupiers

Net change in owner occupier = 70,000 - 100,000 = -30,000

 

This is the situation I think we have now, the houses that these 30,000 people occupied either become rentals (like we're seeing with reluctant landlords) or they stay empty if the owner can afford it. I think the last bit is the key point, at the moment some people think that they can afford to sit on an unutilised asset rather than clear it at market price in the expectation that market prices in the future will be higher.

 

None of this is bullish for landlords in the mid to long term because eventually that supply-side will be realised and rather than 70,000 or 100,000 people leaving rentals for owner occupied, it will be 130,000 and then there will be a net decrease in rental demand and a net increase in owner occupier demand.

 

PS - John Doe, can you copy the FT article text as I'm not signed-up to view?

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Do the UK Property Bulls never look across the Irish channel?:

 

In 2006 BMW sold more cars in Ireland (population 4 million) than they did in Germany (population 80 million). It was all funded with massive massive debt generated by a property boom on steroids. And just like in the UK now, the experts predicted a "soft landing" for the property market. If a nearly 50% fall in the price of an average house is a soft landing, I'd hard to see a hard one.

 

Has there ever, in the history of mankind, been a soft landing following a bubble?

What makes them think they can be spared such a fate?

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