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The Coming "Bull Trap" in Housing / per Conf. Call #3

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The Coming "Bull Trap" in Housing / per Conf. Call #3

Let's monitor the "Dead Cat", looking at charts, trends

--

Orig. title : Notes for Friday's Conference Call

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

 

GEIradioJpg.jpg : Link to Podcast of Conference Call #3

 

We will be talking about UK Housing, and the prospects for a forthcoming bounce in UK House prices

 

QUOTE (DrBubb @ Apr 1 2009, 12:28 AM) :

Instead of: "I got my foot on the housing ladder", perhaps you should be

saying: "I stepped into the housing precipice, hoping it would be a bungy-jump."

 

BubbMt2.gif.jpg..Bungy.jpg

 

The Crash- some saw it coming ....... The real situation of UK Home Buyers?

 

Poll on : STR, has it worked?

== ==

LINKS:

====

Clones : HPC : GHPC

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I would like to participate, but cannot make it at that time.

 

However, I am interested in the subject. Can you summarise the argument for a rally in UK House prices?

Does it also apply to Hong Kong?

 

Also, will you record it? What is the link for the podcast of the call?

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I was planning to participate too, but instead I will have to listen to the podcast version (if available). Again, thanks for pulling these together.

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Its just that we have a crazy Prime Minister who is HELL BENT on PROPPING up house prices and is throwing everything at them, including the kitchen sink to keep them up. The effects can be seen in the recent mortgage approval rates which have risen although still down YoY and Nationwides +0.9% rise for March '09.

 

Another factor is interest rates. Now I know they can't keep them this low for a long time but any ideas on when rates will rise? Q4 2009 perhaps? What sort of rates can we expect them to rise to? Double digits or 5-9%?

 

You have nailed it !

This is a very temporary fix, that is a Bull Trap, and will lead to a catastrophic fall in one or two years.

I am "all over this", and will do my best to save people for the inevitable disaster.

 

When I scheduled today/Friday's GE Conference Call, it was a glimmer of a possibility, now it has become more likely event as every day goes by !

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First, I looked at the recent price history, and saw a clear downtrend, in both the US and the UK.

 

CRASH CRUISE SPEED RULES !

In the Anglo-American world, we see falls averaging 1% per month.

 

"Crash Cruise speed" in the UK ................................... : "Crash Cruise speed" in the US .............

CrashUK.jpgCrashUS.jpg

UK prices are -20.5% from peak (Nationwide) ............ : US prices are -28.0% (Case-Schiller) /Feb.2009

Pds.147,746 / Pds.186,044 = -20.5% in 17 mos........ : $150.66 / $206.52 = -28.0% in 30 mos.

 

Many of those who bought during the "Winner's Curse period" (the last two years or so leading into the peak) are now into negative equity. Defaults are rising, and bank balance sheets are being undermined.

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

 

I was curious what others were seeing "on the ground".

So, I took a Poll on GEI, and HPC, and found THIS:

 

(The Second column, and 2nd percentage, is from an identical poll on HPC)

 

SPEED OF PRICE FALLS Poll : On GEI : On HPC

 

How are you experiencing house price declines in your area of the UK ?

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

Property price falls are speeding up ................................... [ 5 , 15 ] [16.1%, 15.0%]

Crash cruise speed - prices falling at a steady rate, 1%? [ 12, 51 ] [38.7%, 51.0%]

The rate of decline has slowed noticeably.......................... [ 2, 14 ] [ 6.5%, 14.0%]

Prices seem to be stable - have stopped falling................ [ 1, 03 ] [ 3.2%, 03.0%]

Prices are now showing a slight uptrend............................ [ 2, 00 ] [ 6.5%, 00.0%]

Prices are rising in a healthy way........................................ [ 0, 00 ] [ 0.0%, 00.0%]

The picture is very mixed. No conclusion is possible......... [ 6, 15 ] [19.4%, 15.0%]

No comment....................................................................... [ 3, 02 ] [ 9.7%, 02.0%]

= =

 

Based upon the results above, most seemed to think that the present "Crash Cruise Speed" trend of steady price falls, near 1% per month was likely to continue for some time. And this seemed to be what people were seeing (or maybe expecting to see) "on the ground" in their local areas. Personally, I did believe the falls would continue. Instead, I expected a typical A-B-C pathway for prices, which might look something like this:

 

DeadCatUK.jpg

 

This is a typical pattern in a housing correction. Essentially, what happens is this: After the peak in prices some potential buyers sense the market is turning down and they hold off buying. But once prices have fallen (by say 25-30%) they "smell a bargain" and jump in. This is exactly what happened in Hong Kong after the 1997 peak, and is what is happening again in HK now. After a 30% drop, the buyers are jumping in.

 

DeadCatHK.jpg

 

But will the property buying last?

 

It didnt last long in Hong Kong. After the jump in mid-1998, there was stability for a few more months, and then it began to ease off, as unemployment rose. I dont think it will last in the US or the UK either. (I am less sure that the current rally in HK will be snuffed, since HK is at a different place in its 18 year cycle than the US and the UK. More on that on the HK property cycle thread, for those that are interested.) In the US and the UK, we need to be alert for the same factors that snuffed Hong Kong's 1998 recovery.

 

Let's see what others thought about the chances for a UK bounce, and a sustained recovery:

 

My belief about a bounce, or sign of stability ?

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

There will be no bounce this year........................................ [ 12, 53] [46.15%, 53.0%]

What I am seeing, will be nothing but a Spring bounce...... [ 11, 35 ] [42.31%, 35.0%]

The stability could eventually lead to a recovery................. [ 0, 06 ] [ 0.00%, 06.0%]

This is THE LOW in the cycle............................................... [ 0, 03 ] [ 0.00%, 03.0%]

No comment......................................................................... [ 3 , 03] [11.54%, 03.0%]

 

A key thing, will be the price and availability of finance. Most seemed to think that loans of about 70-75% were available to borrowers with sufficient income to make payments.

 

Availability of finance ?

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

It is virtually impossible to borrow to buy a home where I am [ 0, 5 ] [0.00%, 5.0%]

Loans can be obtained by those who have a 40-50% deposit [ 3,22 ] [11.54%,22.0%]

Mortgage loans of 70-75% LTV are available....................... [ 9, 37 ] [34.62%,37.0%]

80-85% loans are available (tell us more)............................ [ 6, 06 ] [23.08%, 06.0%]

Loans of 90-100% can be obtained...................................... [ 0 , 05] [0.00%, 05.0%]

No comments........................................................................ [ 8, 25 ] [30.77%, 25.0%]

=======

Total Votes: ( 31, 100 )

ab1.GIF

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Is it still planned to be 7.30am UK (i.e. in about an hour or so) today?

 

I'll try to be on Skype by then, but there's a chance I may be a few minutes late.

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SAVED FOR MORE ARGUMENT

=========

 

WHAT GOT ME THINKING there could be a "Dead Cat" bounce in the immediate future?

 

About three weeks ago, I saw this chart in a NY Times article:

 

UShseMult.gif.jpg

 

Clearly, US house prices are at there "most affordable level" in many, many years. After a 20%+ fall in the UK, the same thing is just beginning to happen in the UK. The trick is, making prices even mroe affordable by driving down mortgage interest rates. And that is being done both in the US and in the UK.

 

US cycle vs. UK cycle

CTXvsBDEV.gif.jpg

The UK is being speeded up by recent Uk actions

 

US cycle

18yrcyclelj9.gif

 

(Charts and argument continue here):

xxx

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Whoops, it's 1;30pm here now- What time is it in the UK?

(I was thinking 730 was two hours away, ie 330pm in HK - I may need to rethink HK time)

 

== ==

 

SAVED FOR MORE ARGUMENT

 

It's now 7am in the UK.

 

So is the call in 30 mins or not? *confused* ;)

 

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It's now 7am in the UK.

So is the call in 30 mins or not? *confused* ;)

 

Yes. I will stick to that UK time.

But I am really not 100% ready.

Please send me a PM on Skype (to "energyi") if you want to be invited on the call.

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Yes. I will stock to that.

But I am really not 100% ready.

Please send me a PM on Skype (to "energyi") if you want to be invited on the call.

 

Perhaps the question is -- when will most participants be assuming the call with begin?

 

There's less point in starting in 10 mins or so if most people are expecting it to begin in a little over an hour.

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Perhaps the question is -- when will most participants be assuming the call with begin?

 

There's less point in starting in 10 mins or so if most people are expecting it to begin in a little over an hour.

 

I'm logged onto Skype and I sent you a chat message about five minutes ago... No reply... Still confused! :D

 

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The call went well.

We had a good discussion about Uk property, and looked at some relevant charts.

 

Thanks to those who participated, and those who may listen later.

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The call went well.

We had a good discussion about Uk property, and looked at some relevant charts.

 

Thanks to those who participated, and those who may listen later.

 

Thanks for taking the time to host it. Sorry I couldn't be around till the end.

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The Halifax figures have been released this morning -1.9% The Brown Bulltrap Bounce didn't last long! :lol:

 

LOL. I saw that.

 

Of course, the Bull Trap upturn is only being signalled now, by the following indicators:

 

+ The anomolous jump in the recent Nationwide figure

 

+ The rally in the shares of "leader" Berkeley Group to above the 252d.MA : see BKG.L update

bigf.gif

 

+ Tony Pidgely (Chmn. of BKG) recently said, "the bottom is at hand"

 

+ Main UK bellwether BDEV.L looks set to breakout, above the 252d.MA : see BDEV.L update

bigx.gif

 

+ Another bellwether, Persimmon, has broken above the 252d.MA : see PSN.L update

biga.gif

 

As you may have seen in the poll, the vast majority of GEI and HPC respondents think that "Crash Cruise speed" will remain underway. I disagree. I know from past experience that markets do not fall straight down, and that often a correction takes place with aa A-B-C move - where the upwards "B wave" a mere "dead cat bounce", between a downwards A-wave and downwards C-wave.

 

The upwards B-wave appears to be underway in the stocks, and may start soon in the UK property market.

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Quite a number of builders are seeing so-called green shoots, some contractors are stating April is looking busier than for some time, it was shortly after this time last year everything ground to a halt, so i'm going with the bounce factor rather than sustained recovery.

 

As one fairly sanguine company director put it to me, any property developer thats got anything about them, will be doing something now, this is the run up to easter and the big push to generate interest for the rest of the year. In other words, if they don't do something now, they never will this year, so sites are tentively giving it a go, odd show homes,one or two there, row here, so on.

 

What happens after that is hard to predict, few have forward visibility of more than a month or so. Whatever anyone says, the trade order book never lies and it's not full by a long way yet.

 

Riggers

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Quite a number of builders are seeing so-called green shoots, some contractors are stating April is looking busier than for some time, it was shortly after this time last year everything ground to a halt, so i'm going with the bounce factor rather than sustained recovery.

 

As one fairly sanguine company director put it to me, any property developer thats got anything about them, will be doing something now, this is the run up to easter and the big push to generate interest for the rest of the year. In other words, if they don't do something now, they never will this year, so sites are tentively giving it a go, odd show homes,one or two there, row here, so on.

 

What happens after that is hard to predict, few have forward visibility of more than a month or so. Whatever anyone says, the trade order book never lies and it's not full by a long way yet.

 

Riggers

 

There is a BDEV.L residential development in progress at the bottom of the estate where I live. By the increase in volume of noise and the number of people, machines and materials that have been moving around on the site the action seems to have picked up immensely in the past few weeks. In fact a sales office and what appears to be a couple of show homes have sprung up behind it in a very short space of time. Bloody annoying if you want a lie in during the week :(

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Quite a number of builders are seeing so-called green shoots, some contractors are stating April is looking busier than for some time, it was shortly after this time last year everything ground to a halt, so i'm going with the bounce factor rather than sustained recovery.

Interesting.

I have seen the same thing in HK, looking back over historical data.

A sharp drop over about 12 months, followed by a bounce.

Sometimes the bounce erodes back into a renewed slide, like after 1998, and sometimes it has led to something sustainable.

I dont think the UK bounce will last for over a year or so, if it comes.

 

THE CALL

I completely missed this, despite installing Skype. I though it was tomorrow for some reason. When is the call being posted?

No problem.

I think that Frizzers may have recorded the call. Assuming he got capture, I will try to get it up in the next few days

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Quite a number of builders are seeing so-called green shoots, some contractors are stating April is looking busier than for some time, it was shortly after this time last year everything ground to a halt, so i'm going with the bounce factor rather than sustained recovery.

 

As one fairly sanguine company director put it to me, any property developer thats got anything about them, will be doing something now, this is the run up to easter and the big push to generate interest for the rest of the year. In other words, if they don't do something now, they never will this year, so sites are tentively giving it a go, odd show homes,one or two there, row here, so on.

 

What happens after that is hard to predict, few have forward visibility of more than a month or so. Whatever anyone says, the trade order book never lies and it's not full by a long way yet.

 

Riggers

 

Wainhomes have recently completed homes on 4 separate sites within a two mile radius of where I live. Out of curiosity I looked on the web at the asking prices for the new developments I walked past this evening. Newbuild three storey 2 bed "townhouses" packed very very close together £180,000 to 5 Bed detatched £640,000!!! These are the sort of prices I saw at the peak of the market while living and working in the South East. I can't see many people in this part of the country in this economic climate being foolish enough to pay even half those asking prices. It really makes me wonder how short lived the bull trap will be and the dead cat bounce in builders shares. For the last few weekends these have been subbies working Saturday and Sunday perhaps in an attempt to finish before Easter.

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...£180,000 to 5 Bed detatched £640,000!!!

These are the sort of prices I saw at the peak of the market while living and working in the South East. I can't see many people in this part of the country in this economic climate being foolish enough to pay even half those asking prices.

People need to keep their heads and not overpay for newly built properties.

You should always compare the price (in Pounds per square foot, not in number of bedrooms!), with the nearby secondhand stock.

 

Remember, when you buy it, it is new, when you sell, it will be secondhand!

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People need to keep their heads and not overpay for newly built properties.

You should always compare the price (in Pounds per square foot, not in number of bedrooms!), with the nearby secondhand stock.

 

Remember, when you buy it, it is new, when you sell, it will be secondhand!

 

I price construction jobs in pounds per m2 or foot square at work. I will try and obtain the dims for these houses and see what they comp out at. I was astonished at the prices on the web and had to look three times to be sure I wasn't imagining it or that the site was stuck on 01/04/09. Walking round I had guesstimated the 2 bed three storey at £100,000 - £130,000 and the 5 bed detatched at £320,000 - £350,000. The more expensive houses are very close to my fathers old house and are a similar size, set out on a similar estate with double garages and smaller gardens. My guesstimates are based on my observations on http://www.houseprices.co.uk/ based on similar sized property in the same area.

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The derivitives market on UK residential property is predicting:

 

38% peak to trough in Q4 2010 (spreadfair)

42% peak to trough in Q4 2011 (tradition)

 

Spreadfair closed this market so the data's a few months old.

The tradition trough has shallowed from 45% a month earlier.

 

It's coarse data, but the liquid market doesn't see this as the bottom. It's a market that could be skewed by hedging against over exposure to property and we've no reason to believe that it's any more efficient than any other market. For me, it's the best predictor we've got and conveniently matches where my rationale would seem to lead me.

 

I expect to see relatively flat house prices for about year at the trough, so I see no reason to rush in.

 

 

Is the conference call recording available?

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A WARNING for HPC members - I may start this thread there :

(A a successor to this old thread?

A WARNING to would-be UK homebuyers, a "Dead Cat Bounce" will soon be underway!):

 

I was just reading the msnbc article in the blog about the UK property crash.

 

Reading people's stories I just kept thinking - how could you be so stupid. I am out with friends tonight who have just bought houses in the last year or so, and I told them both - don't do it.

==

 

How come most people couldn't see this coming and didn't prepare for this?

What are your stories - how did you start preparing for this and how did you see this happening?

 

I SAW IT COMING (in the UK):

I posted, back in Jan.2006:

"We are only two turns of the credit screw away from a Crash:

The first will put HP inflation into reverse, and the second will be a more severe credit tightening, which will be a reaction to all the problems thrown up by the first. When the tightening is done, BTL loans will be back down to a maximum of 60-70%, and a price slide will be well underway."

. .

"Labour's "economic miracle" has been built on lies, and one of the most dangerous is that the current rate of dent increase is sustainable- it is not. The vulnerabilities that are getting built into this debt-fuel economy are frightening. Unaffordable house prices is one important symptom, but there are many other risks that are faced when the populace becomes over-indebted.":

LINK : http://www.housepricecrash.co.uk/forum/ind...showtopic=21887

 

Buyers now, are "jumping into a precipice":

 

aaa2s.jpg.00bitmap0ob.gif

 

The real situation of UK Housing Jumpers .... - .... Some saw it coming, got out

 

Poll on : STR, has it worked?[/

 

IT WAS STILL EASY to get stuck in (elsewhere):

I bought property in Hong Kong, on the basis that it was "at a different point in its long

cycle." I still believe that, but it didnt stop property here from falling maybe 25% in the 4th

quarter of 2008. Luckily, we bought most of the properties well before the peak, so we

are probably still near breakeven overall, and are certainly at a very nice profit, if you

convert our HK$ prices back into Sterling (which has fallen by 30%)

 

ccli2.png

 

THE UK WILL BE MUCH WORSE:

A Global "dead cat bounce" in property will soon be underway, I reckon.

I make the argument for this elsewhere , we even recorded a podcast about it yesterday.

For many, this bounce may give a last chance to sell, and reduce debt before the second

leg down into a Greater Depression hits.

 

The bounce has already brought prices up maybe 10% from the lows in Hong Kong.

And I sold one of my properties at 12% more than I paid for it last week. I will probably

sell 1 or 2 more, to take my debt down, way down. I do think that property will perform

MUCH BETTER in Hong Kong than in the UK, where things look dire on a 2-3 year horizon.

 

I really want to save UK people from a probable Bull Trap, which may will fall into, if they

buy on this "Dead Cat Bounce". They will then watch with horror as prices start sliding

again, when rates begin their inevitable rise, probably 9-18 months from now.

 

aa1w.gif

 

I still expect a UK low no sooner than 2011, and very probably 2012-13, or later.

 

Study this: "The Coming "Bull Trap" in Housing" , if you want more info.

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Can I throw into the discussion mix the impact of the collapse of sterling?

 

For those of us coming from a euro perspective (or USD, etc), when coupled with price drops this has effectively made the cost of UK real estate near 50% off of what we would have had to pay just 18 months ago!

 

As a result I find myself thinking about buying in London simply on the basis that the euro/sterling currently presents a discount that one may not see in the future, and even with dead cat bounce, if euro craps, then I am still worse off.

 

Of all the predictions I've read for HPC in UK, few seem to think more than 50% off peak. Why not lock that in right now if one can?

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