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The politics of falling UK home prices

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The politics of falling UK home prices

Second leg down, is ALREADY underway - see charts

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

 

"the 'burden of proof' is not on those expecting a big slide, it is now on those expecting stability or higher prices"

- post #23

 

House-prices-001.jpg

 

This discussion originally appeared on Dr Bubb's Property diary, but I thought it might be a good starting point for a wider discussion, as we head into year-on-year negative prices in the UK.

 

 

...Over the next few months, as house prices continue to drift down we should be asking ourselves the following questions:

 

1. What can the government do to prevent the second down leg?

2. What are they doing now, or have already done to prevent it?

 

Unless the answers to these two questions are broadly the same then the government is not genuinely acting to support prices and the falls will increase.

Not much can be done.... that makes political sense for those in power now.

 

When Labour was still in power, and hoping to be re-elected, it made sense to do reckless things that propped up prices like:

+ Encouraging banks to lend beyond sensible LTV's

+ Discouraging foreclosures

+ Pushing up housing benefits

Since all these things made many voters happy, and the damage that they caused was really only visible (to most) in hindsight/

 

Now the "political equation" is much different. I believe the Coalition knows that house prices need s bigger correction, and for them, it is better to get it started sooner, rather than later, so they can assign the blame for the bubble and a possible crash where in belongs: on Brown and BofE loose money. If they delay it another year or two, then Labour might escape blame.

 

So the Coalition must think it is best to "take those pins out" now and aim them at the housing bubble (and also at their Gordon Brown voodoo dolls- he's a pathetic and "abysmal" creature, well-designed for blame that he richly deserves.)

 

The crunch will come within the next few weeks, as year-on-year comparisons turn negative. Potential homeowners will step up their complaints about the lack of mortgages, but many will just see the negative comparisons, and decide it is better to simply wait for lower prices. Those who bought at high prices may ask the government to "do something." But with rates already at low levels, they cannot cut rates further, and forcing banks to "lend more" will not be sensible, since that would help delay the slide, and would not be consistent with the prudent image that the Coalition has worked so hard to portray.

 

This chart from Hometrack speaks loudly:

aa30.gif

 

Supply is exceeding demand, and properties are languishing longer and longer on the market, waiting for the vendors to cut prices to a level that buyers are willing to pay. In a market with falling prices, buyers demand a bargain - a discount to compensate them for the risk of buying in a falling market. When rates were pushed down (and they remain at ultra-low levels), buyers had the incentive to buy from the argument that low rates made it cheaper to own than to rent. But 2011 may usher in lower rents (thanks to caps on Housing Benefits), and also buyers may be worried that the period of low rates is closer to the end than the beginning, and falling prices may persuade them that the "total return" of owning is negative, and is not a smart financial move any more.

 

So will the Coalition stop the House Price Crash train once it is set in motion?

 

I think not. I think they may even say something about how lower prices are good for First Time Buyers. These are the voters of the future. Their numbers are swelling every year, and old homeowners are going "off line", or losing interest in politics. The homeowning boomers no longer sit on the thrown of political influence, it is more of a mixed electoret, and so the Coalition may actuall do what makes sense for the future of the country, and let UK and Great London houseprices slide back to more affordable levels. Second leg down, here we come.

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Interesting, I hope you're right Dr.

I also noticed coincidentally today that the contra-indicator RB has capitulated over on HPC and sees no crash.

 

http://www.housepricecrash.co.uk/forum/ind...howtopic=155638

That is amazing !:

Apart from several months in a row of small declines in prices I canot see a significant drop in house prices in this country.

 

The government is using all of its powers to prevent a crash including holding IR below prudent levels given pending inflation, maintaining a free flow of immigrants from both inside and outside the EU, maintaining a hands off approach to the return of predatory lending and focusing on the City and select exporters to keep things going. The two tiered society, rich and poor, that was accelerated under Brown will be the norm going forward and it will not impact our economy if the vast majority are priced out of owning a home. As the Balls creature would sum it up: so what?

 

If there was going to be a crash it would have happened shortly after the rest of the world had theirs. The US went down 3 or 4 years ago and are still dropping. Ireland speaks for itself. Spain is sinking fast despite their denial and claims that the market is only down 20%. Portugal is similarly being rocked. But not here. We have, at best, returned to 2007-08 levels and that is where they will probably stay give or take 10% either way.

 

The return of BTL will slow down any falls as the banks are gaining confidence that the market is not going to fall by much. Hence the 95% LTVs emerging again.

 

Too many people with too much money chasing very few houses is not a good formula for a significant crash.

 

Just as the second leg down has started, he throws in the Bearish towel!

 

The fact that all the major indices are about to go yoy negative, that days-to-sell is rising, that Housing Benefit caps are about to come into force, etc... does not seem to have penetrated his thinking !

 

This chart:

aa30.gif

 

Certainly shows that this statement:

"Too many people with too much money chasing very few houses is not a good formula for a significant crash"

 

Is not true. What is shows is that buyers are standing aside, and waiting for prices to FALL FASTER.

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Personally been bearish since '05.

 

Every indicator suggests residential property ought to fall out of bed. It isn't happening. Yes the market has flatl lined but still there are buyers out there in the UK. Vendors ask silly prices and there has been a pick up in transactions in the South East of the UK. Sure there are foreign buyers purchasing sight unseen in central London with rental demand and prices on the increase.

 

We will need to wait and see what the increase in VAT to 20% does on Jan 1 2011.

 

There are additional tax (direct and indirect) increases during 2011 formulated by the Coalition and previous Labour Govt.

 

Until interest rates increase I would suggest we will see a longer flat line. Death and Divorce will see a trickle of property on the mkt. For those wanting to move the Stap Duty is onerous. Better to stay put, expand if possible and pull up the drawbridge and try and pay off debt. This is what I believe is happening. Everyone waiting for the rainy day to end.

 

The demand of the future will be small flats or converted houses into flats.

 

The UK is now so expensive and the aged now so poor the future will be to live near public transport, a shop, a safe area, a good hospital, parking place for visitor and/or owner, low council tax, well insulated, cheap to run etc etc.

 

If you want to go long residential property in the UK use the above formula. Otherwise those earning sterling, paying tax, save your money for retirement. You're going to need it.

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Whilst I can't believe RB has thrown in the towel, I think he is right and until IR's rise, there probably won't be a significant fall in prices.

 

As you know, I have been thinking this for some time and have detailed my reasons on other threads, but essentially, we are not US or Eire, we didn't have a building boom, we still have population growth, a large number of people do have money and the return of BTL will put a floor under prices.

 

Yields of 5 or 6% suddenly seem quite attractive when mortgages (and saving rates) are way less.

 

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I personally think we're just round the corner for a big massive correction or crash, too many negatives in the market to avoid this, its just the matter of time wait & see. Ireland is a perfect example.

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Whilst I can't believe RB has thrown in the towel, I think he is right and until IR's rise, there probably won't be a significant fall in prices.

 

As you know, I have been thinking this for some time and have detailed my reasons on other threads, but essentially, we are not US or Eire, we didn't have a building boom, we still have population growth, a large number of people do have money and the return of BTL will put a floor under prices.

 

Yields of 5 or 6% suddenly seem quite attractive when mortgages (and saving rates) are way less.

 

The UK has a worse problem though, the lack of mortgage credit and the decision by the regulators to finally do something about lack of due diligence by the money lenders. Does the lack of a building boom or population growth matter when people can't get mortgage funding anyway? It raises different social issues like where will people live, will they be sharing more into their 40's and 50's, can they afford to start a family, etc, but the real problem is that house prices against real income are unaffordable, hence the fact that sales are now historically low. This doesn't mean that prices will necessarily fall, but it does mean that sellers may have to wait a long time to get a buyer and some will never find one. Usually in a free market this would mean prices fall to where demand is, but in the UK the dreamworld of high prices keeps the dreamers hoping. The UK housing market lacks volume in sales, the facts speak for themselves.

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Yields of 5 or 6% suddenly seem quite attractive when mortgages (and saving rates) are way less.

 

You can get a BTL mortgage for "way less" than 5%?

 

The best deal I see is 4% and that is variable. The thing will barely be washing its face at that rate. And that's without taking in to account maintenance costs. Typically you need a yield of approaching 10% to be safe. Record low BOE interest rates has not exactly filtered all the way thru to mortgage rates. The spread between BOE and the mortgage rate is just widened significantly. Thus helping recapitalise the banks.

 

 

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The UK has a worse problem though, the lack of mortgage credit and the decision by the regulators to finally do something about lack of due diligence by the money lenders. Does the lack of a building boom or population growth matter when people can't get mortgage funding anyway? It raises different social issues like where will people live, will they be sharing more into their 40's and 50's, can they afford to start a family, etc, but the real problem is that house prices against real income are unaffordable, hence the fact that sales are now historically low. This doesn't mean that prices will necessarily fall, but it does mean that sellers may have to wait a long time to get a buyer and some will never find one. Usually in a free market this would mean prices fall to where demand is, but in the UK the dreamworld of high prices keeps the dreamers hoping. The UK housing market lacks volume in sales, the facts speak for themselves.

Mortgage credit is reduced, but it is still available, and at extremely low rates (esp to those with a half decent deposit). LTV's are rising again (95% now available) albeit at higher rates. In fact, if it were not for the reduction in credit, the current low IR's would be fuelling a major boom.

 

As for the regulators, lets wait and see what the government actually do, not what they say. Unless the market has recovered significantly, I can't see any big changes in addition to those the lenders have already imposed on themselves.

 

Whilst not the only factor, a lack of a building booms does matter, as does population growth. Huge numbers of properties were built in US, Eire, Spain etc during the boom - way more than were ever needed - that didn't happen here. Yes supply and demand depends largely on credit availability, but massive over supply in these countries has been half the reason for the falls they have witnessed. EIRE and Spain also have huge unemployment (even US is way more than ours) and there are far easier ways to walk away from your debt in US.

 

BTL lenders are coming back aggressively and people who never considered BTL before are now seriously looking at it due to

 

* Increasing demand arising from those that can't (and who previously should never had been able to) get mortgages and are now having to rent (People will not have to share, they will rent, just like they used to, and before they get to their 40's or 50's).

* Low rates (savings and mortgages)

* A large supply of renters for the foreseeable future

* Loss of trust in bank, pensions etc etc

 

Again, I can see the possibility of a gentle decrease in prices over the next year or so, but the above points lead me to believe that we will not see a crash.

 

It's all about the rates, when they (finally) change, unless somehow the economy has miraculously recovered, everything will change. That could be a very long time to wait.

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You can get a BTL mortgage for "way less" than 5%?

 

The best deal I see is 4% and that is variable. The thing will barely be washing its face at that rate. And that's without taking in to account maintenance costs. Typically you need a yield of approaching 10% to be safe. Record low BOE interest rates has not exactly filtered all the way thru to mortgage rates. The spread between BOE and the mortgage rate is just widened significantly. Thus helping recapitalise the banks.

I never said that, and while I agree with most of what you have said, we actually currently have the lowest mortgage rates in generations.

 

All I am saying is what I hear from friends/colleagues who are considering it. I try to warn them and tell them the old 12/20 rule etc, but they have their reasons and arguments too.

 

They are considering remortgaging their own properties at fixed long term rates (they can get less than 5%) and buying 1 or 2 BTL's for cash. It was this argument I have most problems countering, especially when they point out they expect higher inflation.

 

Also, it's not just one or two, several are seriously considering this.

 

 

 

 

 

 

 

 

 

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From two comments above:

"Until interest rates increase I would suggest we will see a longer flat line" - OM

"Whilst I can't believe RB has thrown in the towel, I think he is right and until IR's rise, there probably won't be a significant fall in prices." - JD

 

You guys must be having some difficulty in reading this chart:

aa30.gif

 

The upturn in Jun coincides with the downturn in UK home prices, which began a more pronounced slide in June. Since then, we have seen the H&N Index perform as follows:

 

J. : : £168,253 :- 0.55% :

Jl : : £168,839 :+0.35% :

A. : : £167,698 :- 0.68% :

S. : : £165,198 :- 1.49% :

O : : £164,828 :- 0.02% :

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

5 Months ----- :- 2.38% : Average: -0.47%

 

The average is 0.47% per month, just on the boundary of the 0.5-1.0% range, which I call "crash cruise speed." And even as prices have fallen, the "selling time" is picking up steadily, suggesting a surfeit of properties for sale, and continuing pressure on prices, just as we saw from late 2007 to early 2009, when the price fall averaged 0.xx% per month.

 

When a similar fall started in 2008, it basically continued at Crash Cruise speed until Q1-2009. It didn't really slow until rates were cut to ultra-low levels.

 

I am curious, what do you guys see that I do not see? What is going to stop this downwards momentum?

 

Everything that I can see suggests a worse market in 2011. My forecast of early 2009 has been basically right, give or take a few months, and it suggests Crash Cruise speed until 2013 or so. What do the bulls see that gives them confidence that the Bearish trend now in place, can be stalled or reversed?

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They are considering remortgaging their own properties at fixed long term rates (they can get less than 5%) and buying 1 or 2 BTL's for cash. It was this argument I have most problems countering, especially when they point out they expect higher inflation.

 

Ah I see. Yes buying outright with no mortgage changes things.

I see it could be difficult to argue that cash in the bank is better with these ultra low rates on deposits.

But they still need to worry about finding a reliable tennant, void periods, repairs etc..

Plus they may have a yield of 5% say but if houses fall by even just 10% thats wiped out 2 years

I guess the old argument of oh I am in it for the long term will be trotted out.

I think there are much less stressful and profitable ways to use your cash just now than BTL but yes I can see how you would have a difficult time convincing the average brit who is now perhaps even more obsessed with property since the BIG crash has not happened yet.

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...yes I can see how you would have a difficult time convincing the average brit who is now perhaps even more obsessed with property since the BIG crash has not happened yet.

I think what we will see is a sready erosion of confidence, as prices fall month-to-month/

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They are considering remortgaging their own properties at fixed long term rates (they can get less than 5%) and buying 1 or 2 BTL's for cash. It was this argument I have most problems countering, especially when they point out they expect higher inflation.

In my mind, this betrays a misunderstanding of how inflation operates.

 

The inflation a LL wants, is inflation in incomes and rents.

 

We are instead likely to see inflation in the prices of essentials - food and energy - with much less inflation in incomes. This will SQUEEZE people's spending power, reducing the amount they can spend on housing, including rents.

 

Also, rising inflation will tend to push up interest rates.

 

The race that matters, will be the race between rising incomes and rising interest expense. I do believe that rates will rise faster than incomes and rents do, and so the overall impact of cost-push inflation will be NEGATIVE for home prices. Afterall, house prices did very well in a decade or so of falling inflation, why should they also do well when inflation does the reverse, and goes back up.

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Mortgage credit is reduced, but it is still available, and at extremely low rates (esp to those with a half decent deposit). LTV's are rising again (95% now available) albeit at higher rates. In fact, if it were not for the reduction in credit, the current low IR's would be fuelling a major boom.

 

As for the regulators, lets wait and see what the government actually do, not what they say. Unless the market has recovered significantly, I can't see any big changes in addition to those the lenders have already imposed on themselves.

 

Whilst not the only factor, a lack of a building booms does matter, as does population growth. Huge numbers of properties were built in US, Eire, Spain etc during the boom - way more than were ever needed - that didn't happen here. Yes supply and demand depends largely on credit availability, but massive over supply in these countries has been half the reason for the falls they have witnessed. EIRE and Spain also have huge unemployment (even US is way more than ours) and there are far easier ways to walk away from your debt in US.

 

BTL lenders are coming back aggressively and people who never considered BTL before are now seriously looking at it due to

 

* Increasing demand arising from those that can't (and who previously should never had been able to) get mortgages and are now having to rent (People will not have to share, they will rent, just like they used to, and before they get to their 40's or 50's).

* Low rates (savings and mortgages)

* A large supply of renters for the foreseeable future

* Loss of trust in bank, pensions etc etc

 

Again, I can see the possibility of a gentle decrease in prices over the next year or so, but the above points lead me to believe that we will not see a crash.

 

It's all about the rates, when they (finally) change, unless somehow the economy has miraculously recovered, everything will change. That could be a very long time to wait.

 

Will the regulators back down? I don't know, but even if they do I think the banks themselves are well aware of the fiddle that went on in the mortgage market prior to 2007. In fact, it was the banks that voluntarily removed all the self-cert mortgages from the market after 2007 and considering that they were around 50% of mortgages back then, you can see the massive hole this created. I don't think the banks would go back to that because ultimately it destroys them. Behavioural economics has shown that we are more inclined to cheat by small amounts and it is my belief that self cert fraud was one of those little cheats in that exagerating your income by say £5 grand would get you £20-30 grand of extra mortgage. You can easily see how house prices have been kept afloat by such fraud. The cost to those commiting the fraud in a time of low IR'S is not high. I sometimes wish that I had done it.

 

This is well worth watching if you have a spare hour.

 

From:

 

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House prices are down a lot in any currency other than GBP sterling.

 

As long as the pound is pathetically weak I can't see house prices dropping much as property would become insanely cheap with insanely cheap mortgages to boot for foreign buyers.

 

I am contrarian on the pound and think it is massively undervalued (or maybe this isn't contrarian anymore).

 

I'm not buying property just now but I own a flat in London and am renting in East Midlands.

 

There is no temptation to sell my flat as the mortgage is dirt cheap and the rent extortionate (I couldn't afford to rent it myself!).

 

I'm not sure how many people are on low rate life time tracker mortgages but I can't see them ever selling up as any capitol losses over the years will ultimately be offset by the savings on the mortgage interest.

 

 

 

 

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From two comments above:

"Until interest rates increase I would suggest we will see a longer flat line" - OM

"Whilst I can't believe RB has thrown in the towel, I think he is right and until IR's rise, there probably won't be a significant fall in prices." - JD

 

You guys must be having some difficulty in reading this chart:

Hi Dr B,

 

Well, first I should say I actually believe prices are likely to fall, just not at crash speeds.

 

Secondly, I don't consider 0.5% per month a crash, -20% YOY is a crash.

 

Apart from that, basing future movements on previous actions is not always a good idea. You of all people know this. Time on market depends on sellers need to sell quickly.

 

The events from 2007 to 2009 were extraordinary. Then, as things levelled out in mid 09, the Tories gained power, scaring the hell out of most public servants, and the end of hips meant a glut of properties came onto the market, some fearing falls, but many just to see what they could get and how the downturn had affected their properties.

 

There is also evidence (recent reports http://www.bbc.co.uk/news/business-11879051) that a growing number of sellers are in no rush to sell, so it would be risky to base all assumptions on the chart.

 

It also seems the job losses are going to be a lot less than has been expected (we were originally looking at near 30% losses, now it looks more like 10%).

 

I know all the data points to falls an overpriced market, but this has been the case since about 2003.

Again and again the market defies expectations.

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This is well worth watching if you have a spare hour.

I wish, I don't seem to have a spare 5 mins recently, and when I do I end up here ;)

 

I agree the lenders are restricting themselves (that what I posted) but that is for now. As things improve (if), their criteria will relax some.

 

As for self cert, that was always madness. However, I know a lot of self employed people that used them as it meant they didn't have to go through years of accounts with lenders and also a great many who only declare part of their earnings found them ideal.

 

I know of two people who have had to "go legit" and build up a full years books, including all their earnings, to get mortgages in the last few months.

 

They could easily afford the mortgage, but until they had it all on paper they were locked out of the market.

 

A side effect of the end of self cert has been a lot more earnings declared!

 

 

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From two comments above:

"Until interest rates increase I would suggest we will see a longer flat line" - OM

"Whilst I can't believe RB has thrown in the towel, I think he is right and until IR's rise, there probably won't be a significant fall in prices." - JD

 

You guys must be having some difficulty in reading this chart:

aa30.gif

 

The upturn in Jun coincides with the downturn in UK home prices, which began a more pronounced slide in June. Since then, we have seen the H&N Index perform as follows:

 

J. : : £168,253 :- 0.55% :

Jl : : £168,839 :+0.35% :

A. : : £167,698 :- 0.68% :

S. : : £165,198 :- 1.49% :

O : : £164,828 :- 0.02% :

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

5 Months ----- :- 2.38% : Average: -0.47%

 

The average is 0.47% per month, just on the boundary of the 0.5-1.0% range, which I call "crash cruise speed." And even as prices have fallen, the "selling time" is picking up steadily, suggesting a surfeit of properties for sale, and continuing pressure on prices, just as we saw from late 2007 to early 2009, when the price fall averaged 0.xx% per month.

 

When a similar fall started in 2008, it basically continued at Crash Cruise speed until Q1-2009. It didn't really slow until rates were cut to ultra-low levels.

 

I am curious, what do you guys see that I do not see? What is going to stop this downwards momentum?

 

Everything that I can see suggests a worse market in 2011. My forecast of early 2009 has been basically right, give or take a few months, and it suggests Crash Cruise speed until 2013 or so. What do the bulls see that gives them confidence that the Bearish trend now in place, can be stalled or reversed?

 

 

Dr B - Oh how I want to agree with your sentiment and yes I agree in principle to all your arguments.

 

BUT the reality is that foreign buyers are buying everything in central London and - sight unseen! The pound is soooooo weak.

 

Outside this niche area out in the 'burbs they are holding strong. Not necessarily going up.

 

The smaller units in nicer areas are being lifted fast by BTL (amateurs). Good way to avoid inheritance tax - pay cash and put in childrens name. Take out a mortgage on the main parental dwelling and die with IHT below the threshold also avoiding means testing for old age care. Clever really as the tax is so skewered toward home ownership. Madness really.

 

There are no shortage of tenants (not necessarily AAA rated)

 

Further away from the areas of work a plenty I cannot comment on, but would tend to believe they will fall out of bed value wise.

 

Here's a quick anecdotal story - today au pair's car had a flat tyre. Changed to find the spare as bald as a coot. Went ot local town to have a fix and a new. Out of 8 tyre centres , one was open.They had a 2 1/2 hr wait. Walked around prosperous market town I know well. 1/3 shops open and each one booming. 2/3rds closed for Sunday or permenantly out of business. What struck me was not the lack of potential shoppers but the sheer bloody idleness of the British. Noone could be bothered to work because their employers are in a comfort zone. The tyre guys and I laughed our heads off. They were happy and worked like hell. Good for them.

 

You want to make money? Easy, provide a service. Be nice to the customer. You will not fail provided you open when the customer wants you to be.

 

Back to houses. There is a shortage for those who don't have the money. There is no shortage of units for rent. Windows of estate agents full of for sale signs. Prices may be ambitious but they are there.

 

Moral of anecdotal story - too many still in a comfort zone. Question is how much longer? But as much as I want to agree with you Dr B I still believe eeverything will tick over whilst interest rates stay low.

 

However, perhaps when the last bear turns bull, then the market will dump!

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The events from 2007 to 2009 were extraordinary. Then, as things levelled out in mid 09, the Tories gained power, scaring the hell out of most public servants, and the end of hips meant a glut of properties came onto the market, some fearing falls, but many just to see what they could get and how the downturn had affected their properties.

 

Yes, they were extraordinary. And those events have passed and the most of banks survived and some prospered. The UK banks are now approaching a level of capitalisation where they will be able to withstand a property downturn. The measures taken by the old Labour government were aimed at saving the financial system from collapse. Yes, property was part of the equation and was used shamelessly by Brown purely for electorial purposes. Lets face it it nearly worked - labour came back form around 24% to the 33% in the 12 months after spring 2009 property prices started to rise. When the banks are safe and enough risky mortgages been cleared by selling properties on to a new owner at 30% or greater deposit, then they will be no longer any extraordinary need to maintain ultra low rates. The bull argument always ignores this. It was always about saving the banks, keeping property prices high is a means to an end, not an end in itself. Once the end has been reached the means become irrelevant.

 

It also seems the job losses are going to be a lot less than has been expected (we were originally looking at near 30% losses, now it looks more like 10%).

 

You are only considering those people directly employed by the government in some way. The real effect of cutbacks will be on those indirectly employed by the government. Many Firms with government contracts are already finding things difficult. It is in this sector that the major job losses will occur.

 

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Mortgage lending unbelievably tight at present.

 

two tier market ... those with large deposit and high income can negotiate loans at very cheap rates.

 

Those without both cannot secure debt.

 

I have a friend with £175 k deposit and roughly 20k annual income, she can't get a mortgage!

 

But a lot of people on salaries are sitting very pretty and have been for 2 yeas. Low repayments mean lots of surplus cash ... What if they rush to spend it all at once?

 

Higher rates will screw everything. But rates won't rise in a depression.

 

Unless ... all those with surplus cash start spending all at once or euro panic increases and spreads to UK causing run on pound or what?

 

 

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My view is that with interest rates at 0.5%, currency weak but with rising unemployment I think the outlook over the next 2-3 years is a flat market with cross currents pushing the market up and down.

 

It will only be once we have high inflation and IR's have to rise to >10% to tame inflation and the currency rises will we get significant house price falls. I predict this will be out in 2017-2020 time frame and this will be the bottom. Thats when I plan to move to a larger house with the proceeds of my precious metals investments.

 

Until then I think there will be arguments on both sides for house price rises and falls, but the market will stay broadly flat....at least in nominal terms.

 

Until then we will stay put in our 3 bed semi and then rent it out at the bottom of the market. At the moment, we are paying 1.49% above base rates which is fixed for the life of the mortgage. We have reduced the term from 25 to 15 years, so any falls in house prices are easily recovered by the huge amounts of capital i am repaying on the mortgage.

 

My only issue is my family is getting larger (we had our first child in August) and therefore will our house be able to accomodate us all before the market hits rock bottom?

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"the "burden of proof" is not on those expecting a big slide, it is now on those expecting stability or higher prices."

- see below

 

Hi Dr B,

 

Well, first I should say I actually believe prices are likely to fall, just not at crash speeds.

 

Secondly, I don't consider 0.5% per month a crash, -20% YOY is a crash.

 

Apart from that, basing future movements on previous actions is not always a good idea. You of all people know this. Time on market depends on sellers need to sell quickly.

-0.5% can give you a crash if it continues long enough. But normally, it would pick up pace as the surplus supply increases and confidence erodes.

 

Look what happened in from mid-2007:

Mo'Yr Hali.ns Na'wide M Ave.H&N AveHN AyoY%

 

Jul'7 200,578 184,270 J 192,424 +0.34% 10.84%

Aug'7 201,081 183,898 A 192,490 +0.03% 10.36%

Sep'7 200,168 184,723 S 192,446 -0.02% 9.09%

Oct'7 197,817 186,044 O 191,931 -0.27% 8.10%

Nov'7 194,258 184,099 N 189,179 -1.43% 5.00%

Dec'7 195,333 182,080 D 188,707 -0.25% 5.60%

(2008)

Jan'8 191,275 180,473 8 185,874 -1.50% 4.05%

Feb'8 193,448 179,358 F 186,403 +0.28% 2.45%

Mar'8 190,619 179,110 M 184,865 -0.83% -0.14%

Apr'8 190,952 178,555 A 184,754 -0.06% -2.38%

May'8 186,482 173,583 M 180,033 -2.56% -5.46%

Jun'8 181,765 172,415 J 177,090 -1.63% -7.65%

Jul'8 178,440 169,316 J 173,878 -1.81% -9.64%

Aug'8 175,408 164,654 A 170,031 -2.21% -11.67%

Sep'8 173,350 161,797 S 167,574 -1.45% -12.92%

Oct'8 168,158 158,872 O 163,515 -2.42% -14.81%

Nov'8 162,848 158,442 N 160,645 -1.76% -15.08%

Dec'8 158,437 153,048 D 155,743 -3.05% -17.47%

(2009)

Jan'9 159,818 150,501 9 155,160 -0.37% -16.52%

Feb'9 159,208 147,746 F 153,477 -1.08% -17.66%

Mar'9 157,066 150,946 M 154,006 +0.34% -16.69%

 

In the early stages of decline, the mom changes bounced around, as they are bouncing around now. They settled into a hard-down condition beginning in May 2008, two months after the yoy change went negative. Perhaps yoy negative change is what is needed to destroy people illusions.

 

Those who are paying attention to mom changes should not need to wait for a you negative reading to understand what is happening. It is already clear from the monthly data that we are headed towards negative reading, and it will take something like a "bullish miracle" to avoid that.

 

With prices now falling, and about to pierce into yoy negative, and time-to-sell rising, the momentum is clearly down, and the "burden of proof" is not on those expecting a big slide, it is now on those expecting stability or higher prices. The sentiment is still too bullish, but that will erode over time under the drip-drip-drip of lower prices.

 

Of course, I could be wrong, and if we now get 3-6 months of stability, the burden of proof will shift to the Bears. But I think that RB has been foolish in throwing in the towel just as the Bear case is winning through. It is as if he is showing himself to be a weather vane of sentiment, and not a man of conviction and careful analysis.

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I have a friend with £175 k deposit and roughly 20k annual income, she can't get a mortgage!

 

But a lot of people on salaries are sitting very pretty and have been for 2 yeas. Low repayments mean lots of surplus cash ... What if they rush to spend it all at once?

Is it strictly true that "she can't get a mortgage", or that:

she can't get the mortgage she want - ie 70 - 80% or whatever.

 

If she asked for a 40-50% mortgage, would she have trouble getting that?

 

Personally, I think the banks are mad beyond belief, to the extent that banks need big changes in their thinking, and if they go to the wall the existing management should be fired and replaced with people who have some intelligence.

 

On mortgages, here's the discussion that I have had with some bankers:

 

"I don't have a job, but I have loads of cash and assets - something like 25-30 years worth of the income that you are asking from me.

 

The young 30 year old banker who you are happy to finance, has no cash, and only his job. Well, guess what: he can lose his job, and then your loan will be in trouble. In fact, if you have a bearish view of the future, some high percentage of those young bankers WILL lose their jobs. and where is your lending security then?

 

It is far better to lend 40-50% to someone who has the wherewithall to pay you off, job or not - and also has plenty of "skin in the game" in the way of major equity."

 

Is there any intelligent response to this argument, apart from making the loan? With it, I was able to get 10 loans. But not every banker bought it. Some just said: But our policy is: we cannot lend to those who havent got sufficient income. Banks and bankers who think that way, really deserve to be put out of business.

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There are a lot of people retiring at the moment (demographic bulge), and most will be aware of the banking/soveriegn debt crisis unfolding. Many will look at property investment as a way of "inflation proofing" their capital, while deriving a better yeild than is available through saving accounts or annuities.

 

Also because of the building restrictions in the UK, there may well not be an oversupply of housing despite the bubble. That rents are proving "sticky" would support this. Banks own estate agency/lettings agency chains and could simply rent out reposessed homes rather than become glutted with decaying houses as in America/Spain.

 

A return to an overt form of economic Feudalism, rather than the crash you might expect in a more egalitarian environment?

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