Just sell. sell. Sell ! I don’t care how.

[TestIcicle]

POLL RESULTS - in case it gets wiped:

 

The Royal Institution of Chartered Surveyors says house prices will fall by no more than 5% next year.

Is it right?

10.8% Yes, the worst is over for the market

89.2% No, there'll be more bad news to come

Do you think it really might get wiped?

 

Just for posterity then...

 

http://www.turboimagehost.com/p/5423976/hp2011.PNG.html

[drbubb]

(A response on a PT thread : What is the value of National statistics? )

 

John,

I don't get why you and almost everyone else on this "reassuringly bullish" thread are ignoring the reality of the Long upwards cycle the UK has experienced. You can see it here on the chart:

 

 

This represents the average of Halifax and Nationwide prices, and they have risen from Pds. 80,000 to over Pds. 190,000 from 2000 to 2007. When prices shoot up that, it is easy to make money, especially if you are geared. And the market soon bails you out from any mistakes.

 

After that huge upcycle. there was a correction of 20%, and then a "Dead Cat bounce" equal to about half the loss. And since that chart was cut, the H&N Index prices are down: -0.06%, -0.55%, +0.35%, -0.68%, -1.49%, -0.02%, -0.91%, monthly by month, since the high in April 2010 of Pds.169,287. That's a monthly average fall of -0.48%.

 

I call "crash cruise speed" a fall averaging between 0.50-1.00%. Past downturns have shown that falls like that can go on for a long time - many months, even years. When they escalate beyond a 1.0% monthly fall, they usually blow themselves out over just a few months, and you see a bounce.

 

Now some may jump in and say, "Well, prices in my area have not performed like that!" And this may be true. In Greater London, the first leg down was of shorter duration, and the fall was much less: -8% in London, versus -20% for the Nation as a whole. And since that fall, Rightmove shows prices for Greater London in Feb. 2010 (Pds.427,987), that are actually above the high of November 2007 (Pds.412,731). Now some may take comfort from that, and say that "London will go on outperforming the UK, and will never fall much." I hear that sort of tripe from estate agents, but find it no more believable than their other exaggerated soundbites.

 

There can be no guarantee that London will outperform the UK indefinitely. In fact, property values are very stretched in London, as this chart comparing prices with incomes shows.

 

 

You can just as sensibly argue that in the second leg down, which is now underway, London will fall faster than the UK as a whole since Rental caps and job losses could hit property prices in the Capitol harder than the rest of the UK.

 

Another point is: If the average property in the UK was down -20%, and London was down only -8%, then there may be many other areas which suffered drops greater than -20%, else you could not have an average fall of -20%. We are niot hearing from those landlords on this thread. They many be quietly suffering, or already out of business.

 

My feeling is that many on PT invest in or near Greater London, and think they are somehow immune from prices falls, when the reality is that price drops have simply not visited their area much UNTIL NOW. I am expected a broad and deep drop in prices in the UK and also in Greater London.

 

Landlords in the UK were very lucky that the property bubble went on as long as it did. By peaking later - in the second half of 2007, rather than in mid-2006 as the US did - it meant that with a drop of near 1% a month, prices were only able to fall by 20% by the time the financial crash hit. The Crash "allowed" the BofE to cut rates down to ultra-low levels, with base rates near zero, now from a more normal level of 4-5%. This was far below average yields, and it in effect "bailout out" reckless and overgeared landlords.

 

In the US the drop had gone on longer, so average prices were down 34% when the ultralow rates came in. A fall of that magnitude was too deep to save many property owners. And US banks were more deeply hurt by the bigger drop, and they have become more risk-averse.

 

As I have said before on another thread here: I don't think that the UK's property bust has been averted. It has merely been delayed.

 

Surely, as landlords you must be worried by the fact that ultra-low rates are still in effect, but prices have started to fall, going back into the range of "crash cruise speed." If the low rates will not stop a price drop, what will? The UK market wants another "rabbit pulled out of a hat", and I do not see where it is going to come from.

 

I recently gave my predictions for 2011 in a Podcast:

http://commoditywatch.podbean.com/2010/12/...ichael-hampton/

 

I think that a GLOBAL SLOWDOWN and DEFAULTS will be two big themes for 2011. If the Defaults hit Europe, then it will be more difficult for many sovereign borrowers to borrow. The trouble countries may include the UK, which remains as one of the most over-indebted countries in the world. Debt problems, and currency wobbles in the UK could force rates higher, and remove that important stimulus of ultra-low rates in the UK. If rates go up, at the same time as rent caps are driving down rents, many UK landlords are going to find themselves in a two-way squeeze. Whatever they may have done to "hedge" their cash flows, they may find themselves hit on one side, if not the other.

 

The hard fact is this: For many years UK savers have been robbed to make life easier for UK landlords. That has done very little to improve the UK economy. In fact, it is now starved of savings. I think we could be headed into a period which may last for years, where landlords will be squeezed for the good of the average renter, and the average saver. Those who have had it good for a long time, may think that their apparent privileges are a matter of right. I think not. The pendulum is swinging the other way, and the whole government-supported BTL industry may now be headed for a long period of downsizing.

[drbubb]

Beware, dear lemmings. Beware ! (as posted on PT's 2011 Forecast thread )

 

My, My.

Not only Rachel's remark, but the others too... suggest my Bearish point of view is not very popular here. I suppose that should not surprise me. People who post here OWN PROPERTY want to be told that "everything will be okay," and I am delivering the opposite message.

 

Jonathan says:

"So by your reckoning I should have last invested way back in 1994 and shouldn`t invest again till about maybe 2013?"

 

THAT is not true. Of course it makes sense to buy during the upswing - just not at the top when prices are set to plummet in a crash. Let me show you where I think we are on the cyclical clock. But before doing that, I want to make two points:

 

+ The huge upswing from 1994 to 2007-2010, when prices rose by +140%, and more than that in London, virtually guarantees a bigger than average correction before the 18-20 year cycle's corrective phase is finished. This should be obvious when you look at Price to Income indicators (shown elsewhere) which are still severely stretched at: 5.7x for London and 4.2x for the UK as a whole. And with austerity on the way, it doesn't look like rising incomes are going to bailout an overpriced property market.

 

+ A key point that no one here has acknowledged, apart from Mark who dismisses my argument as "boring" (ie he doesn't want to hear it), is that UK interest rates are now at "ultra-low" levels near zero, and this is despite rising inflation. Are people really so out of touch with history that you can think near zero rates are normal, and can somehow be sustained? These low rates have saved the property market from a deeper crash in 2009. Now here's the important bit - even though ultra low rates are still with us: UK property prices have begun to fall. It is as if the market has begun to collapse under its own weight. Can you imagine what will happen if the UK has to raise rates, and reign in LTV's in the midst of a falling market? There will be blood on the streets (for landlords), even while renters and savers may welcome the change.

 

THE CYCLICAL CLOCK - Where are we now

 

I feel a bit like odd lemming who is trying to tell the other lemmings that the cliff they are about to leap off does not have heaven on the other side. Truly, I believe that UK property prices are now on the edge of a precipice. Hence my regular warnings in recent weeks. (Why do I bother? That's a very good question that I ask myself. The mission of my website, GEI has been to "tell the truth" about the financial and other challenges the world faces. But if I think my views are deeply unpopular here, I will just disappear again, back to my GEI home, and may or may not return. So if you want me to be gone, get ready with that mud ! )

 

WE ARE HERE ! = Red circle

 

For those who want to see the current position with reference to actual price history, let's look at the US

We are here ! = Red circle on US data

 

We didn't see much of an "early bounce" in US prices, because QE and Zero Interest Policy arrived too late to "save" the market. UK property owners were bailed out by a reckless Labour government, trying to save its election chances. They also "goosed" housing benefits to help prices, and that is being undone now.

 

...and Hong Kong too...

We are here ! = Red circle on HK data

 

The HK example suggests it may be many, many years before prices return to present levels. This (strong?) possibility is why I have no interest in buying now.

 

The over-riding point here is that after a huge bubble in UK property prices there will not be just a minor correction. My premise is : the correction will be big, painful, and long-lasting, especially if the UK is forced to raise rates. And leg two down has started. Beware, dear lemmings. Beware !

 

(For those who want to feel better about this, I suggest you try a stronger and more reasoned argument than the ones I have seen so far on this thread.)

[BoldAsBrass]

PT posters stay in denial - so I am forced to elaborate:

 

" The situation UK is very different to US, Spain, Ireland."

== == ==

 

XXX, have you never heard the old saying: The most expensive four words in finance are: "This time is different."

 

The UK has followed the 18 year cycle many times - go and get a copy of Fred Harrison's book, and you can learn more about that. To say that it will not happen this time, may be the most dangerous type of complacency. Be careful.

 

BTW, no one has yet take onboard my arguments, and tried to refute my explanation that:

 

+ The UK started its downturn later than other markets,

+ So sentiment was still mostly intact, and bank losses were of a lesser amount (than in the US and Ireland) when the crisis hit,

+ The UK was the first major country to move into Quantitative Easing, pushing down rates dramatically in late 2008/ early 2009,

+ Ultra-low rates "saved" the Uk property market, and over-indebted landlords, while it came too late for the US and Ireland to save their property markets. (Sentiment was already broken, and banks were already up-to-their-ears in bad property loans.)

+ The Labour government happily supported increases in housing benefits, since they knew it would help to prop up a wobbly property market

 

In effect, the UK government and the BofE "wimped out" and refused to take the pain that other countries like the US and Ireland were taking. The time-delay was only possible because Britain had a bigger and longer-lasting property bubble than those countries. That is, it was reflective of an overlong bubble and therefore a weakness, not inherent strength.

 

The crash has not been averted, it has only been delayed, and leg two down in the property crash has now started. There will be trouble for property owners no matter what, but if rates go up in in the midst of a price slide, there will be a huge disaster in the UK - Worse than Ireland, worse than the US.

 

The UK's economy has been to dependent on financial and property speculation. Now that those sectors are under pressure, we will see that there will be years of weakness.

 

Far from "rubbing my hands with glee", I am more than a little shocked at the level of naive complacency that rules on this website. Is it really so hard to open your eyes to the problems being suffered by highly geared property speculators in other countries?

 

Even though Mr Brown and his colleagues managed to prop up the market for a few months to aid their election chances, that doesn't really mean the UK is immune to gravity. No angels in the sky have issued UK landlords a permanent pass.

 

Where to start answering this?

 

My first observation is that anyone who thinks it is not different this time is simply wrong. People often hark back to the property boom/bust in the late 80s/mid 90s. The biggest and most obvious difference is the size of the bubble and the borrowed/invented money that has been used to inflate it.

 

When is a bubble not a bubble? When it has been inflated for (in my area) nearly 10 years now. I first started getting nervous about the price of property back in 2001 - I tried to sell up in 2002 and succeeded in 2003. I was convinced we were witnessing exactly the same sort of bubble as had happened in the late 1980s - and that a similar bust would follow.

 

That was 10 years ago! Since then we've had a whole universe of new money lent into the property market - to the point where we've already had a banking crisis (over 2 years ago!) and a housing market with half the transactions of normal years and a mortgage famine.

 

Yet still prices will not crash. I live in the South East and the latest figures show prices here have not fallen any significant amount over the last few years.

 

One of the reasons prices won't crash is the insane levels of rent still being paid. Unless renters somehow withdraw en-masse from the market - landlords will not sell up. Why would they? They don't think a crash is coming and the rent still pays the mortgage. And, in the long run, their property investments will be sound investments - at least, they have been throughout history.

 

Another reason prices won't crash is that, if they do, the crash will take the banking system with it. And, as everyone knows, this will not be allowed to happen. A modern economy needs a functioning bank system and anything - money printing included (as we have already seen) - will be used to maintain the housing market/banking system.

 

This thing is now too big to fail. There is only one way out of this now - and it involves moderate global inflation for a generation to pay down the debt. Then the madness can start again.

[G0ldfinger]

This thing is now too big to fail. There is only one way out of this now - and it involves moderate global inflation for a generation to pay down the debt. Then the madness can start again.

Only, I don't think it will be moderate. They think it can be contained, but it can't.

[BoldAsBrass]

Only, I don't think it will be moderate. They think it can be contained, but it can't.

 

Yes, I agree. 'Moderate' global inflation will be what 'they' all want - but once the inflation genie is out of the bottle it is always hard to get back in.

[BoldAsBrass]

The over-riding point here is that after a huge bubble in UK property prices there will not be just a minor correction. My premise is : the correction will be big, painful, and long-lasting, especially if the UK is forced to raise rates. And leg two down has started. Beware, dear lemmings. Beware !

 

I just don't understand your position. The fact is a 'big, painful and long-lating' correction will take the UK banks and the economy down with it.

 

If house prices 'correct' significantly - and the banks re-possess - their capital positions will become impossible and they will either have to be bailed out or allowed to fail.

 

It is in no-one's interest for this to happen - least of all the banks who lent the money into the bubble. The banks and the government are desperate to 'manage' this. The actions taken over the last 2 years - and the consequences of those actions (a largely stable housing market (in terms of prices)) -show that a big, painful correction is not going to happen.

 

What is going to happen is a long period of inflation. And, because most of the G20 are 'in this together' - a bout of global inflation is not going to hurt any one country in particular.

 

Endless references to America and Ireland are pointless - we don't have a huge overhang of unsold new properties here.

[drbubb]

That was 10 years ago! Since then we've had a whole universe of new money lent into the property market - to the point where we've already had a banking crisis (over 2 years ago!) and a housing market with half the transactions of normal years and a mortgage famine.

 

Yet still prices will not crash. I live in the South East and the latest figures show prices here have not fallen any significant amount over the last few years.

 

One of the reasons prices won't crash is the insane levels of rent still being paid. Unless renters somehow withdraw en-masse from the market - landlords will not sell up. Why would they? They don't think a crash is coming and the rent still pays the mortgage. And, in the long run, their property investments will be sound investments - at least, they have been throughout history.

 

Another reason prices won't crash is that, if they do, the crash will take the banking system with it. And, as everyone knows, this will not be allowed to happen.

I don't think those are valid reason suggesting that a Crash will be prevented.

- They merely explain why it has been delayed.

 

And you missed one important reason for the delay:

+ The huge an unprecedented move to "ultra-low rates" in early 2009.

 

The market was set to crash to much lower levels, but when base rates were cut to near zero, the slide stopped.

Very simply: it was cheaper to stay in a home, paying low mortgage rates, than to sell out.

 

My main argument is that ultra low rates are unsustainable. Yet here's the really interesting thing:

Prices seem to be collapsing under their own weight, despite low rates. Now that is something new,

and very ominious for property owners.

 

What is going to prevent a deeper slide?

+ Austerity measures are finally beginning to bite

+ Job losses are coming in the public sector

+ A big prop is "being kicked out", as housing benefit caps on Rents are being imposed

 

Property owning has been like a big state-backed scam, with LL's assisted by cheating tenants and taxpayers, and recently thru QE and ZIRP policy, robbing savers has been added to the mix.

 

The UK and its hard-done taxpayers and savers can no longer afford to keep feeding this hoary beast in the outrageous "style to which it has become accustomed." / see: xx

 

Hard times will fall upon UK landlords starting in 2011, I reckon. And my bearish forecasts are very likely to come true if rates start rising meaningfully in 2011 or 2012.

 

Be careful.

[drbubb]

It amazes me that UK Landlords seem to think they as a permanently-privileged class, like the aristocracy of times gone by.

 

I just don't understand your position. The fact is a 'big, painful and long-lating' correction will take the UK banks and the economy down with it.

 

If house prices 'correct' significantly - and the banks re-possess - their capital positions will become impossible and they will either have to be bailed out or allowed to fail.

 

It is in no-one's interest for this to happen - least of all the banks who lent the money into the bubble.

Banks have had their bailout. They are unlikely to get another one.

 

How is the economy as a whole hurt by lower property prices, and probably lower rents? I would have thought that reduced costs would be welcomed by most people.

 

It is in the interest of tenants, savers, and FTBers to end a highly corrupted system, and allow once-privileged UK property investors to get a few fair years of painful losses, as property prices and rents return to more affordable levels.

 

The minds of landlords on PT have melted. Their arguments are nothing more than puff - saying: "things will be fine, because they have been fine up until now." They ignore all of the substantive points I have raised about: the unsustainability of low rates, the likely impact of rental caps, the impact of a weak economy on housing demand.

 

And market that creates a large privileged class of brain dead investosr, by making it too easy to make money (in a bubble), is bound to eventually wipe out many in a crash.

 

Isn't it obvious that those who have had it too easy will one day get destroyed? It has happened in virtually every other country that experienced such a big housing bubble. The UK was lucky, because it's bubble was so bog that it peaked late, and was (temporarily) bailed out by ultra-low rates. What makes you think the UK is immune gravity? Isn't it obvious that excessive prices have started to collapse under their own weight - falling even in a period of ultra-low rates? What is going to save them this time?

 

Also: Here's an indication of a possible change in policy, from a thread now on Main :

 

Looks as if the British gov't are preparing some moral ground as to why the forthcoming crash in UK property values is a good thing...

 

Lord Oakeshott, a Lib Dem treasury spokesman, called high prices a "curse for the young. They transfer wealth from the young to the old and from the have-nots to the haves in society. We must end our unhealthy British obsession with owner occupation for all. We should make long-term renting, both fully commercial and in the social-housing sector, a flexible and accessible option as in Germany and Switzerland. There it is perfectly normal even for a well-off family to rent for many years, rather than buy."

Wow !

This is may be signalling a MAJOR turn in policy towards housing.

Nice to see you posting here, WA. Happy New Year to you and other lurkers from HPC.

 

Have you seen my arguments on the other thread ?:

Savers have been robbed to benefit UK landlords

UK LL may "not understand the nature of their business"

 

(I will also move THIS THREAD to Main for a few days, to give others a chance to comment.)

 

== ==

(in edit):

 

Hey, Bold -

I thought you were a visitor from PT, who joined recently.

But I checked your profile, and found this : Joined: 12-April 07.

That's a long time ago. What has motivated you to suddenly start posting now?

[drbubb]

More Food for the Bears... (From another amateurish mainstream reporter)

 

Why house prices will fall in 2011

This year will be tough for home prices.

 

John Fitzsimons, 15:44, Friday 31 December 2010

 

The new year is usually a time of optimism. You can look forward to a clean slate, to 12 months of learning from your mistakes. You will go to the gym every week, you will pay money into your pension, you will ditch that expensive petrol-guzzling people carrier for a more efficient model.

 

But there's not much optimism to be found in the property market.

 

What happened to house prices in 2010

 

2011 — a bad year for vendors?

 

Last month property portal Rightmove published its latest house price index, highlighting that five of the last six months have seen sellers cut asking prices, with the latest cut of 3% (the equivalent of nearly £7,000 on average).

 

According to the firm, prices have already fallen by 6.5% since June, with a further 5% fall expected next year, though this prediction is based on a significant increase in the number of repossessions. If repossessions do not rise sharply, then Rightmove reckons property prices will remain static over 2011.

 

Rightmove is not alone in expecting a tough 2011. Estate agents Savills, Hamptons and CBRE have all warned of, at best, moderately falling property prices in the year to come.

 

Let's take a look at why so many experts are downbeat about 2011.

 

Overpriced property

 

When the credit crunch first hit, there was talk of a sharp correction in property prices of 25% plus. Prices had reached a level where borrowers were borrowing four or even five times their annual salary in order to buy, a level the housing market sceptics declared was completely unsustainable.

 

And while house prices did drop, the drop was nowhere near as sharp and protracted as expected. (Why? Why? WHY? shouldn't you be mentioning the impact of ultra-low interest rates? And pumped up housing benefits? The clumsy incomplete reporting bothers me. - DrB)

 

While recent falls have pretty much eradicated the gains made since spring 2009, property remains far too expensive in the eyes of many — according to the latest Property Tracker Index from the Building Societies Association nearly two in five (38%) felt property in their area was over-priced, with 25% believing the property was overpriced by 10% or more!

 

Many vendors are only too aware that the prices they are trying to get for their properties are too high. That's exactly why asking prices have fallen so consistently since the summer. For many who would like to buy, they will have to fall a fair bit before they are willing to part with their cash.

 

/more: http://uk.finance.yahoo.com/news/Why-house...-475627704.html

[drbubb]

JUST THINK MORE POSITIVELY - and all will be well !

 

J. on PT said on a thread:

What will you do more of and what will you do less of in 2011... ?

 

More positive and less negative in 2011 Vanessa.

 

My only hope is that others adopt this approach too. This country has been far too good at the negative and not nearly good enough at the positive over the last couple of years but I'm positive this is going to change in 2011.

J.

 

(my response):

Ben Bernanke would love that !

He thinks that a positive attitude is all that is need to make the economy fly.

 

The many structural problems, like that fact that so many manufacturing jobs have been exported to China, and service jobs to India and Ireland, do not matter. Of course, the UK can prosper by just having people tarting up properties and selling them to each other at higher an higher prices.

 

It has worked since 1994, so it should work forever right? The excessive prices do not matter, and all those massive debts do not matter either.

I need to stop worrying and live happily in a world of high prices and high debts. Great inspiration. Thanks

[BoldAsBrass]

I don't think those are valid reason suggesting that a Crash will be prevented.

- They merely explain why it has been delayed.

 

And you missed one important reason for the delay:

+ The huge an unprecedented move to "ultra-low rates" in early 2009.

 

The market was set to crash to much lower levels, but when base rates were cut to near zero, the slide stopped.

Very simply: it was cheaper to stay in a home, paying low mortgage rates, than to sell out.

 

And base rates will stay near zero for a long time - 'they' are not going to combat inflation by raising interest rates. 'They' want inflation for a few years as they know it is the only way out of the mess. Whereas once inflation was regarded as a country's mortal enemy, because it made that country uncompetitive in a global market, now, because virtually every developed economy is in the same 'debt/property boom' hole, inflation is everyone's friend.

 

And, of course, there is a huge disconnect between base rate and lending rates at the moment. Base rate could go up to 2% without mortgage rates moving much. Bank margins at the moment are (deliberately) enormous.

 

Prices seem to be collapsing under their own weight, despite low rates. Now that is something new,

and very ominious for property owners.

 

The use of the word 'collapsing' is surely highly inaccurate and emotional. When prices fall 5% over 3 years (which is about what has happened where I live) how can one use the word 'collapse'? Sure, a few people bought into the BTL bubble in 2007 and paid 200k for flats in Manchester, Leeds, Liverpool etc which are now selling for less than half price. Those examples are very specific and that particular little bubble has well and truly burst. The 2 bed new bulid flats that sold for £225k (where I live) in 2003/4/5/6/7 are still selling for about the same money.

 

Surely, set against the backdrop of the credit crunch, bank runs, bank bail outs etc. etc. - prices should be described as 'amazingly resilient'.

 

My basic point remains - if the scenario you foresee happens - we won't have an economy left. House prices cannot collapse without a banking system collapse. The housing market and the banking system are now inextricably linked - because the banks have lent so much money into the housing market. Their capital positions depend on the housing market not 'collapsing'.

 

With rents so high, people are still buying property as an investment (rather than as a home). You have to ask yourself why. Not everyone is an idiot. Many people doing this are late middle aged - have run businesses - have knocked around the world about and are not daft. They can see that in an island like this, with incredibly restrictive planning laws, with an open door to immigration and a rising population, with banks that are (very) fully invested in the property market - the market is not going to collapse. Correct a bit, maybe, but - the view is that in the long run, prices will go back up again.

 

Which they will.

 

Your advice to 'be careful' is interesting. I'd say 'be careful what you wish for'. If you get the property 'collapse' you predict, you'll lose any money you have in the banking system too.

 

Edit. I should make my position clear I guess - for the sake of my children I'd like to see property prices halve - and I am a property owner (just the one). I just know it isn't going to happen. My generation has sold the next one into debt slavery.

[BoldAsBrass]

Banks have had their bailout. They are unlikely to get another one.

 

IF house prices 'collapse' - another bank bail out is as certain as the sun rising tomorrow. The government cannot allow a banking system collapse. Look at the panic when Northern Rock collapsed - we were hours from the UK cash machine network being closed down.

 

This will not be allowed to happen again. The supply of mortgage credit is now being dished out as carefully as a rope holding someone who has fallen off a mountain.

[drbubb]

Do you read any of the other threads here?

And base rates will stay near zero for a long time - 'they' are not going to combat inflation by raising interest rates. 'They' want inflation for a few years as they know it is the only way out of the mess.

. . .

The use of the word 'collapsing' is surely highly inaccurate and emotional. When prices fall 5% over 3 years (which is about what has happened where I live) how can one use the word 'collapse'?

. . .

With rents so high, people are still buying property as an investment (rather than as a home). You have to ask yourself why. Not everyone is an idiot. . I just know it isn't going to happen. My generation has sold the next one into debt slavery.

Repeating (briefly) from elsewhere here:

 

1/ Ultimately rates are controlled by the market, as the UK will discover if there are sovereign defaults, and a Sterling crisis

 

2/ Since mid-2010, we have entered a period of "crash cruise speed" falls, with prices collapsing at about 0.50% per month

 

3/ They may be making a hugely expensive mistake, but not feel like idiots when they buy because everyone around them says "it is smart to buy."

[drbubb]

IF house prices 'collapse' - another bank bail out is as certain as the sun rising tomorrow. The government cannot allow a banking system collapse. Look at the panic when Northern Rock collapsed - we were hours from the UK cash machine network being closed down.

 

This will not be allowed to happen again. The supply of mortgage credit is now being dished out as carefully as a rope holding someone who has fallen off a mountain.

I disagree.

The FEARS were out there - but as Jim Rogers said, it would have been better to let them collapse, and then clean up the mess. The mess will be bigger now, and the pieces harder to pick up

[warpig]

Whilst you sound like a sensible bloke, this is wildly optimistic IMO. House prices have excluded several generations from buying a home to live in. Whilst it is fair to disagree over which word describes the rate of the decline, it will nevertheless be a decline, that is likely to take the housing market 20 years to recover from. House prices have to fall by 50-60% in real terms to make them affordable to the younger generation and we all know market prices are sustained by first time buyers. Regional unemployment will be the trigger IMO, with central London being the last to fall.

 

When all is said and done, I wouldn't be surprised if they prevent house prices from rising to such extreme values ever again...

 

The market is not going to collapse. Correct a bit, maybe, but - the view is that in the long run, prices will go back up again.

 

Which they will.

[BoldAsBrass]

Whilst it is fair to disagree over which word describes the rate of the decline, it will nevertheless be a decline, that is likely to take the housing market 20 years to recover from. House prices have to fall by 50-60% in real terms to make them affordable to the younger generation and we all know market prices are sustained by first time buyers.

 

I don't know that market prices are sustained by first time buyers. I used to think that. I don't any more. I have observed the market struggle on virtually without first time buyers. Older people with access to cash and/or credit are still buying properties to rent out. We are witnessing a structural shift in the demographics of property ownership.

 

When you say 'house prices have to fall by 50%-60% in real terms' - I hope you are prepared to wait maybe 20 years for this to happen. I am not saying it won't happen - what I am saying is that the 'crash' or 'collapse' expected by some people will not happen because, if it did, it would take the banking system and our economy with it.

 

A correction - in real terms - of a few percent a year is what is going to happen. Anything else and we will be back to bartering - because there won't be a banking system.

[BoldAsBrass]

Do you read any of the other threads here?

 

Repeating (briefly) from elsewhere here:

 

1/ Ultimately rates are controlled by the market, as the UK will discover if there are sovereign defaults, and a Sterling crisis

 

2/ Since mid-2010, we have entered a period of "crash cruise speed" falls, with prices collapsing at about 0.50% per month

 

3/ They may be making a hugely expensive mistake, but not feel like idiots when they buy because everyone around them says "it is smart to buy."

 

1/ You can't get blood out of a stone. The market can demand what it likes - when the debt burden is unaffordable countries default. The willingness of governments to print money as a last resort has blunted the market's appetite for high interest - low risk returns.

 

2/ Personally I wouldn't describe 0.5% a month as a price collapse. More like a statistical variation. Set against 5% inflation - stagnant house prices would give you best part of 0.5% correction - in real terms. Allowing for the inbuilt resilience of the housing market (increasing population, planning restrictions on new build, prices set at the margin etc.) - it will take somewhere between 10 and 20 years for property to become affordable again. And, as always, the biggest and most noticeable drops will be in the areas where wages are low and no-one wants to live.

 

3/ I do think people generally have the wrong end of the stick regarding BTL investors. Sure there were idiots who piled in and build 50 property portfolios - leveraged up to the eyeballs and leaving themselves hugely exposed. There are a lot more that have bought 2 to 5 properties over the last 10 years who have plenty of equity and who have a decent cushion on the rent. I know quite a few people in this position. As I said in my original post - these people aren't idiots who have been talked into buying by Inside Track. These are people who wanted to provide for their future and have done so in a very sensible and progressive way. (I personally believe no-one should be allowed to own more than one property - but that's pie in the sky stuff).

[drbubb]

I will respond to one of these

2/ Personally I wouldn't describe 0.5% a month as a price collapse. More like a statistical variation. Set against 5% inflation - stagnant house prices would give you best part of 0.5% correction - in real terms. Allowing for the inbuilt resilience of the housing market (increasing population, planning restrictions on new build, prices set at the margin etc.) - it will take somewhere between 10 and 20 years for property to become affordable again. And, as always, the biggest and most noticeable drops will be in the areas where wages are low and no-one wants to live.

Add enough small months down, and you have a crash.

 

0.5% doesn't seem like much, but it is in what I call the "crash cruise speed' range of 0.5%-1.0% a month. Most "crashes" in property seem to consist of long periods (usually years) when prices move at around those rates of decline. In fact, it tends to be more like 1%. When prices fall faster than that, the price drop frightens people and the drop "blows itself out", and you get a bounce- look at the end of 2008.

 

But price drops averaging 0.5-1.0% a month can persist - look at Ireland, the US, HK, etc., and also what happened from late 2007 to early 2009 in the UK

[drbubb]

3/ I do think people generally have the wrong end of the stick regarding BTL investors. Sure there were idiots who piled in and build 50 property portfolios - leveraged up to the eyeballs and leaving themselves hugely exposed. There are a lot more that have bought 2 to 5 properties over the last 10 years who have plenty of equity and who have a decent cushion on the rent. I know quite a few people in this position. As I said in my original post - these people aren't idiots who have been talked into buying by Inside Track. These are people who wanted to provide for their future and have done so in a very sensible and progressive way. (I personally believe no-one should be allowed to own more than one property - but that's pie in the sky stuff).

I have just told PT's investors what I think of them, so I shall repeat it here:

 

Okay, well thanks for your explanation.

But in my view, the real problem is three-fold:

+ I am the only real Bear on this website (it seems)

+ I do not "suffer fools gladly"

+ I am genuinely convinced that most UK landlords, including most here, are deluding themselves about where their returns are coming from.

 

On this last point it seems to be outsized returns in UK property are generated from a combination of:

1/ Riding a long bull market in property prices

2/ Badgering vendors into selling below fair value

3/ Exploiting the willingness of the UK government to pay overly-generous housing benefits

4/ Benefitting from a panic reaction to the financial crisis, wherein the BofE cut rates to near zero

5/ Providing a worthwhile service (accomodation) to people that need it

 

More than one of these variables are set to go from positive to a negative influence in the near future, and I do not think that most LL's are willing to face that.

 

ANYWAY, I am sure that few here will be interesting in reading such BALD FACTS, since pretty lies are much easier on the eyes and the ego. So I will tell you I plan to take a break of month or so from posting here. I have asked Vanessa to suspend me for at least 2-3 weeks, so that I will not be tempted to defend any of the inevitable attacks which will follow on to the above comments.

 

Goodbye, for awhile, and maybe forever. ( In case anyone does appreciate my comments here, I am sure they will know where to find them.)

 

(My post above was in response to):

 

Kevin R. said:

Hi Nathan,

 

I think the issue is that generally speaking you seem to belittle other people for believing something different to you. To my mind it would seem people do in fact take on board what you say and most agree that times ahead will be difficult, however this simply does not mean that making money from property is IMPOSSIBLE, just becoming more of a dark art.

 

The only real downside I can see with facts and figures is that if you know the result you are looking for it is possible to manipulate stats to support your argument, this is the beauty and curse of mathematics as a language. I spent ten years of my life in software engineering writing binary code among other things and know better than most that when you know the result your looking for life is easy, when the outcome is uncertain however it becomes more about trial and error and the base data constantly changes varying the result.

 

Given that none of us has a crystal ball you cannot be certain that your predictions are correct, no matter how much you gloss it up. I don't see why you don't portray your stats as a "best guess" because this is really what it is, whilst I admire your conviction and dedication there is no need to ram your beliefs down everyone's throat!

 

Clearly you make important points and would be a shame for you not to contribute.

== ==

 

Nathan Bubb said:

The question here, sir, is: Are National house price figures a meaningful metric for analysis.

My answer is: clearly: Yes !

 

And how exactly am I meant to accept that there are "other valid viewpoints" when I have seen for personal experience that the National price data provide a valuable analytical tool. As an honest person "of mind and integrity", I stand my ground in the discussion, using facts and logic - which is loads more than what some others are contributing here.

 

As I have said, before: Throw enough mud, and I am gone. I have better things to do than waste my time with those who have no interest in a genuine debate.

== ==

 

Colin Parker said:

I don't think you understand that the UK is not HK.

 

I also don't think you understand that there are other valid viewpoints other than yours.

Colin Parker

[warpig]

First time buyers in their 20's need to save 45-60% of their salary for 5 years, to afford the deposit needed to buy an average starter home, who can afford to do this? I think you hit the nail on the head when you said the market is struggling without FTB's. The situation is simply untenable and I feel the housing market will find it's natural equilibrium, sooner rather than later. I believe what you describe as a "structural shift", is nothing more than a defiance by the baby boomer generation, refusing to accept that property as a pension [at current market prices] may soon be a thing of the past.

 

A lot of people here feel the collapse of the banking sector and the economy (depression), is inevitable. This will of course kill the housing market. The only alternative is to inflate away our debts, but this is never managed in a controlled fashion and is likely to cause unintended consequences. As Nicholas Taleb recently said, you never get mild inflation when you want it.

 

Using Ireland and the US as a partial guide, I give the housing market 2-3 years before it collapses. The linear `real term` decline you describe, seems a little idyllic to me.

 

I don't know that market prices are sustained by first time buyers. I used to think that. I don't any more. I have observed the market struggle on virtually without first time buyers. Older people with access to cash and/or credit are still buying properties to rent out. We are witnessing a structural shift in the demographics of property ownership.

 

When you say 'house prices have to fall by 50%-60% in real terms' - I hope you are prepared to wait maybe 20 years for this to happen. I am not saying it won't happen - what I am saying is that the 'crash' or 'collapse' expected by some people will not happen because, if it did, it would take the banking system and our economy with it.

 

A correction - in real terms - of a few percent a year is what is going to happen. Anything else and we will be back to bartering - because there won't be a banking system.

[drbubb]

Using Ireland and the US as a partial guide, I give the housing market 2-3 years before it collapses.

The linear `real term` decline you describe, seems a little idyllic to me.

By which I reckon you mean a steady slide (like a "crash cruise speed") towards lower levels.

Along the way to the ultimate low, a RISE in rates could speed up the price slide.

[BoldAsBrass]

First time buyers in their 20's need to save 45-60% of their salary for 5 years, to afford the deposit needed to buy an average starter home, who can afford to do this? I think you hit the nail on the head when you said the market is struggling without FTB's. The situation is simply untenable and I feel the housing market will find it's natural equilibrium, sooner rather than later. I believe what you describe as a "structural shift", is nothing more than a defiance by the baby boomer generation, refusing to accept that property as a pension [at current market prices] may soon be a thing of the past.

 

A lot of people here feel the collapse of the banking sector and the economy (depression), is inevitable. This will of course kill the housing market. The only alternative is to inflate away our debts, but this is never managed in a controlled fashion and is likely to cause unintended consequences. As Nicholas Taleb recently said, you never get mild inflation when you want it.

 

Using Ireland and the US as a partial guide, I give the housing market 2-3 years before it collapses. The linear `real term` decline you describe, seems a little idyllic to me.

 

A 'collapse' of 50% - with an intact banking system and FTBs able to buy (then) with relatively small deposits and reasonably available credit - is what seems idyllic to me. I wouldn't use Ireland or the USA as any sort of a guide myself. I can't see unsold new builds stretching to the horizon anywhere in this country. And, with our draconian planning laws, never will.

 

You describe the current situation as untenable. It has been tenable for about 7 years where I live. FTBs were priced out by BTL scum years and years ago. Even the credit crunch has barely changed house prices - just volumes. And with 48000 mortgage approvals last month - we still have 600,000 housing transactions a year. Okay, not a million, but this reduction in volume has not been accompanied by a similar reduction in price.

 

No, we are witnessing a structural shift in property ownership. I don't think it's a baby boomer thing particularly. It's a 'those that have money' thing. I know a few people in their late 30s who have built portfolios. It's a change - that's all. A cycle if you will. A hundred years ago the working class did not own property. In the post war years it became relatively common for working class people to own property. We seem to be going full circle - in 20 or 30 years the working class will all be renting again (perhaps).

[BoldAsBrass]

I have just told PT's investors what I think of them, so I shall repeat it here:

 

Okay, well thanks for your explanation.

But in my view, the real problem is three-fold:

+ I am the only real Bear on this website (it seems)

+ I do not "suffer fools gladly"

+ I am genuinely convinced that most UK landlords, including most here, are deluding themselves about where their returns are coming from.

 

On this last point it seems to be outsized returns in UK property are generated from a combination of:

1/ Riding a long bull market in property prices

2/ Badgering vendors into selling below fair value

3/ Exploiting the willingness of the UK government to pay overly-generous housing benefits

4/ Benefitting from a panic reaction to the financial crisis, wherein the BofE cut rates to near zero

5/ Providing a worthwhile service (accomodation) to people that need it

 

More than one of these variables are set to go from positive to a negative influence in the near future, and I do not think that most LL's are willing to face that.

 

ANYWAY, I am sure that few here will be interesting in reading such BALD FACTS, since pretty lies are much easier on the eyes and the ego. So I will tell you I plan to take a break of month or so from posting here. I have asked Vanessa to suspend me for at least 2-3 weeks, so that I will not be tempted to defend any of the inevitable attacks which will follow on to the above comments.

 

Goodbye, for awhile, and maybe forever. ( In case anyone does appreciate my comments here, I am sure they will know where to find them.)

 

(My post above was in response to):

 

Kevin R. said:

Hi Nathan,

 

I think the issue is that generally speaking you seem to belittle other people for believing something different to you. To my mind it would seem people do in fact take on board what you say and most agree that times ahead will be difficult, however this simply does not mean that making money from property is IMPOSSIBLE, just becoming more of a dark art.

 

The only real downside I can see with facts and figures is that if you know the result you are looking for it is possible to manipulate stats to support your argument, this is the beauty and curse of mathematics as a language. I spent ten years of my life in software engineering writing binary code among other things and know better than most that when you know the result your looking for life is easy, when the outcome is uncertain however it becomes more about trial and error and the base data constantly changes varying the result.

 

Given that none of us has a crystal ball you cannot be certain that your predictions are correct, no matter how much you gloss it up. I don't see why you don't portray your stats as a "best guess" because this is really what it is, whilst I admire your conviction and dedication there is no need to ram your beliefs down everyone's throat!

 

Clearly you make important points and would be a shame for you not to contribute.

== ==

 

Nathan Bubb said:

The question here, sir, is: Are National house price figures a meaningful metric for analysis.

My answer is: clearly: Yes !

 

And how exactly am I meant to accept that there are "other valid viewpoints" when I have seen for personal experience that the National price data provide a valuable analytical tool. As an honest person "of mind and integrity", I stand my ground in the discussion, using facts and logic - which is loads more than what some others are contributing here.

 

As I have said, before: Throw enough mud, and I am gone. I have better things to do than waste my time with those who have no interest in a genuine debate.

== ==

 

Colin Parker said:

I don't think you understand that the UK is not HK.

 

I also don't think you understand that there are other valid viewpoints other than yours.

Colin Parker

 

Errr, I'm just an occasional visitor here. Have I spoken out of turn? I certainly didn't mean to upset anyone. I thought I was just posting my view of what's going on at the moment.

 

I'm as big a bear as anyone - in that I'd like to see property correct to give my kids (and everyone else's) a chance of a decent life without being in massive debt to a bunch of see you next Tuesdays in the city for the whole of their adult lives.

 

My problem is that I've realised it isn't going to happen - at least not without the sort of economic and social upheaval that will do no-one any good. What I'd like to see is young people withdraw from the rental market en-masse - but, again, it's pie in the sky stuff. Although ....

 

My eldest son was heading into town on New Year's Eve and was leaving his car at home. Usually when he does this he sleeps at one of his mate's places. But, this time he said 'don't know how I am going to get home tonight' and I said; 'why aren't you sleeping at ... and reeled of the names of a few people he often stays with' and he said 'they've all moved home - no-one can afford to live away from home any more'. So, maybe, this is being repeated up and down the country. One can only hope. The scum will stop buying property as an investment if no-one will rent it.

[bobbyald141]

A 'collapse' of 50% - with an intact banking system and FTBs able to buy (then) with relatively small deposits and reasonably available credit - is what seems idyllic to me. I wouldn't use Ireland or the USA as any sort of a guide myself. I can't see unsold new builds stretching to the horizon anywhere in this country. And, with our draconian planning laws, never will.

 

Totally disagree.

A 'collapse' of 50% will not leave an intact banking system.

FTBs WILL NOT be able to buy (then) with relatively small deposits and reasonably available credit.

Humans are not rational but rationalising. Unsold new builds and draconian planning laws along with small island, immigration etc. are all irrelevant rationalising points. The only thing that matters is the psychology of buyers, sellers and lenders.

 

 

 

No, we are witnessing a structural shift in property ownership. I don't think it's a baby boomer thing particularly. It's a 'those that have money' thing. I know a few people in their late 30s who have built portfolios. It's a change - that's all. A cycle if you will. A hundred years ago the working class did not own property. In the post war years it became relatively common for working class people to own property. We seem to be going full circle - in 20 or 30 years the working class will all be renting again (perhaps).

 

 

Totally disagree again.

We are not witnessing a structural shift in property ownership - It's just a bubble.

I expect those people in their late 30s who have built portfolios during the boom will be very poor in a few years.