House prices..

[brid]

The 'its always a struggle' argument is pretty invalid these days ..... back then, we didnt have rampant globalisation and wage inflation surpression coming from lower paid economic migrants and offshoring.

Back in the 70's you could enjoy 15% pay rises that would erode the strain of any mortgages .... who can say we have the same now?

With a billion indian and chinese people all hungry to work harder, faster and better than we are .... where is this wage inflation going to come from to give us the mythical 'housing ladder' people mention all the time, but dont really understand the meaning of.

10 years ago it was possible for someone on a very low wage to buy a small property on a low income multiplier ...... THAT is the situation we need to revert back to, and not one like we have now where todays newly qualified accountants and lawyers cant even afford to buy a 2 up, 2 down in a place where a taxi driver could a decade ago (no that isnt a knock at anyone).

Theres really no point in ever getting angry about the whole thing, or wondering if you've 'missed the boat'. Its just a case of letting economic cycles play out and making your moves at the right time.

 

[MHayes]

Sorry that is total bull. When my first wife and I were FTB's we bought a 3 bedroom detached property in a large town in Kent for under £55k. It was perfect for a family and more important affordable.

Nowadays that same place would be around £200k+. Yet salaries have only risen about 8%. That was only 1997 not 40 years ago.

Exactly.

Something has gone totally wrong. Unless I start to earn twice as much money I am living in a terrace house for the rest of my life. within 5 years my parents moved up the ladder twice and bought a detached house with 5 bedrooms etc etc. No way we can expect to do something similar.


I am doing what The Mad Rapper is doing, shove the deposit in a savings account and give it a year or so, can it really get any worse, if it gets any higher people will becoming homeless!

 

[clv101]

Gordon Brown's claims on economy undermined by double dose of grim news
December 21, 2007

Claims by Gordon Brown and Alistair Darling this week that the economy is fundamentally sound and well placed to ride out worsening world conditions were badly undermined yesterday by a spate of bleak official figures.

...

In a double blow to an increasingly embattled Chancellor, the slew of worrying data showed the Government's finances in the red to a record extent last month, and the country as a whole living far beyond its means, with another record-breaking deficit on the balance of payments.

“The latest flurry of UK data painted a distinctly ugly picture of a dangerously unbalanced economy, supporting our view that the coming slowdown will be a prolonged and potentially painful period of adjustment,” said Jonathan Loynes of Capital Economics.

The biggest shock in yesterday's figures came as balance of payments data showed that the current account - the broadest measure of the country's international financial position — was in deficit by a huge £20 billion in the third quarter (Q3), the highest figure since records began in 1955.

The really scary bit is this:

The severe deterioration in the balance of payments was driven by a combination of a record £22.6 billion trade deficit in Q3, with an abrupt shift in Britain's investment income from abroad. In the past, Britain has raked in far more on income from its direct investments in companies and projects abroad than it has paid out to foreigners investing in the UK, but the position has now worsened markedly.

The nation's surplus on direct investment income in Q3 fell to £4.9 billion, from £7.5 billion in Q2, while £23 billion was wiped off a revised surplus for the past 18 months. Economists pinned the blame on a boom in foreign direct investment and takeovers in the UK, meaning the country must pay out more overseas on income on the assets that have been bought up.

Without such direct investments it's game over - we can't maintain the massive (and growing due, in no small part, to oil and gas imports) trade deficit without the direct investments.

Read the full article at: The Times

 

[Andrew_McP]

Read the full article at: The Times

This related article is also well worth a read.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/21/cnpound121.xml

It includes the interesting section...

"The domestic saving ratio, which measures how much of their incomes people are setting aside for the future, excluding pension contributions, remained deep in negative territory. At minus 1pc, it means families are borrowing in order to fund their everyday lifestyles - a highly unusual situation replicated in the late 1980s, before the last property crash."

Basically the nation is living beyond its collective means.

Andrew McP

 

[clv101]

Recession is a dead certainty in my opinion. Look at M4 money supply growth. The November figure grew at just 0.1%:

Aug 2007 +1.3%
Sep 2007 +0.9%
Oct 2007 +0.2%
Nov 2007 +0.1%

It’s that historic ~12% growth that has been solely responsible for house price inflation in the past. Remove that and the economy shrinks.

 

[Indy500]

The banks will call in their loans. People will be unable to pay them. Small and medium-sized businesses will collapse. Once again, those at the top consolidate their wealth. This has been going on for almost 100 years now...still, people will take the loans and credit, not realising that they risk their property.

 

[The Mad Rapper]

The banks will call in their loans. People will be unable to pay them. Small and medium-sized businesses will collapse. Once again, those at the top consolidate their wealth. This has been going on for almost 100 years now...still, people will take the loans and credit, not realising that they risk their property.

There's nothing wrong with credit in the strictest sense, the World wouldn't function without it. The key is ensuring that lending is reasonable given the circumstances of the applicant. The money markets have been too lax in their criteria and they are now going to have to pay the price.

 

[Indy500]

There's nothing wrong with credit in the strictest sense, the World wouldn't function without it. The key is ensuring that lending is reasonable given the circumstances of the applicant. The money markets have been too lax in their criteria and they are now going to have to pay the price.

My point was, almost all the money doled out seems to be in the form of loans. Don't get me wrong, I do use a credit card, but strictly for short-term use (I usually pay it back before the 44 days are up). However, without enough exports, there won't be any new money entering the economy, and the same thing will repeat.

 

[clv101]

And here's a 19% fall in commercial property:

There is a rush for the exit from funds invested in commercial property, as fears grow that bricks-and-mortar for commercial use will be one of the more serious casualties of the credit crunch.

The managers of property funds have reacted in different ways.

Clerical Medical, the investment arm of HBOS, the leading bank, has this week reduced the unit price of investments in its life and pension property funds by a staggering 19%.
BBC

 

[Bar]

Another factor to throw in the economic crash melting pot is to do with the bond insurers.

They have suddenly woken up to the fact that an insurer with £2-3Bn in capital has insured bonds worth in excess of £500bn. Would not take much to wipe out these insurers.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2007/12/the_next_threat.html

 

[The Mad Rapper]

Another factor to throw in the economic crash melting pot is to do with the bond insurers.

They have suddenly woken up to the fact that an insurer with £2-3Bn in capital has insured bonds worth in excess of £500bn. Would not take much to wipe out these insurers.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2007/12/the_next_threat.html

I've known about this for a few weeks, a joke really. That's how the traders have been able to say their positions are covered because they've taken insurance out to cover themselves. The problem is that if they needed to claim the insurance company couldn't possibly cover the claims.

 

[Slam62]

The banks will call in their loans. People will be unable to pay them. Small and medium-sized businesses will collapse. Once again, those at the top consolidate their wealth. This has been going on for almost 100 years now...still, people will take the loans and credit, not realising that they risk their property.

Yes, it doesn't look too good at the moment, not a good time to be in debt of any sort.

 

[Haircut]

I've known about this for a few weeks, a joke really. That's how the traders have been able to say their positions are covered because they've taken insurance out to cover themselves. The problem is that if they needed to claim the insurance company couldn't possibly cover the claims.

I see you've let the rabid hoardes at houspricecrash.co.uk loose on this thread now

 

[carpmaster]

It's going to be very interesting to see what has happened in the new year. At the moment we can't really see how bad things are but come mid January I think the brown stuff is really going to hit the fan.

 

[Slam62]

well the price of commercial property seems to be going completely downhill and with the trade deficit increasing, domestic property values beginning to go. Draw your own conclusions.

 

[The Mad Rapper]

*Taken from the following thread*

I would like to start this post by providing a link to the European Securitization Forum


http://www.europeansecuritisation.com/stan...-loan-data.html



This links to a file containing details of standardisation of data files regarding non conforming UK RMBS.

I think we can draw from the existence of this file a number of things:

i) There are a growing number of non conforming UK RMBS.
ii) Standardisation is required to assist the increased processing demands.


Well it looks like mortgage backed securities originated in the UK are likely to take the same fate as their American counterparts as is our housing sector.

It looks like the supply of capital to UK mortgage lenders is likely to slow (exactly as in the US), this means less capital will enter the housing market over 2008-2009 and perhaps beyond.


Securitisation of mortgage debt has provided property market participants with a poorly understood positive feedback mechanism. This circular phenomena is what has caused prices on the ground to increase so hastily as a marginal sales volume has vastly increased the pricing of all property. The real threat to the economy is the long tradition of securing debt against property (an illiquid, and unique asset). This has allowed consumer spending to roar ahead unabated (as the price of all housing, and thus ability to borrow, has been boosted by a doubling of capital available to home buyers) whilst unemployed personal capital (savings) have remained flat or falling. The dynamism of the economy has increased over this period and this has been recorded as economic growth.

Unfortunately the mechanism that caused this vast exaggeration of UK citizens ability to service debt, or indeed their ability to square in default, was a positive feedback mechanism.


These mechanisms are ever present in markets and cause strange and exciting behavior by market participants, they are often found in oversimplified market models.


Basically by sharply increasing the volume of capital available to home buyers, home buyers were able to bid more for property. They duly did. The problem was that the sharp increase in available capital was huge. So huge it caused price to jump some 20%. This inturn increased demand for securities as price jumps reduced default risks, almost to parity with US treasuries. Increasing demand for securities increased capital levels available to home buyers. And Very quickly we can see a positive feedback mechanism gathering steam.


The problem with this kind of circular investing is that it very quickly winds and winds up into a behemoth at which point it can find previously untested constraints such as affordability and demographic ceilings. These obvious constraints are not available in the minds of investors as they are usually distant theoretical restraints that are never approach under typical circumstances.

On finding just such a restraint a circular mechanism will be unable to continue expanding and at this point it can, will and does begin a process of unwinding.

Historically these mechanism unwind much much faster than they wind up. It is largely unknown why this is the case but it is often put down to very simple explanations about human emotions. And how fear and euphoria are diametrically opposite.

However fear is allegedly more powerful as evolutions has given humans our flight/fight mechanism (there being no euphoric equivalent), and spending large periods of time suffering the flight/fight choice human beings will suffer stress and pay an unbearable psychological toll.


Is this the reason we always see rapid unwinding of positive feedback mechanisms once the theoretical and untested boundaries that contain them materialise before investors in the form of poor yields?


Regardless, it now looks assured that the UK RMBS market is undergoing similar difficulties to those that caused Bear Stearns to issue oh so many press releases earlier this year.

With Northern Rock facing calls of nationalisation on the 15th, and the UK's far more leveraged property sector turning south. And the US precedent already in place, just how quickly an unwinding can be expected?

 

[aardvark]

i think what i find strange is peoples attitude to inflation and house prices.

all inflation is bad -it devalues the pound in your pocket and makes things more expensive - and yet, when it comes to houses people seem to like them to go up in price , as if its a good thing. Things getting cheaper is a good thing and houses are no different in my opinion.
In a similar way i think interest rates should be very high - it rewards savers and punishes debtors - again, the way it should be imo (if you can't afford something don't borrow to get it, work hard and save for it).

am i weird? or is it everybody else thats weird???

 

[Indy500]

all inflation is bad -it devalues the pound in your pocket and makes things more expensive

Effectively so, yes - you have to work more for the same amount of goods or services. Inflation is only good for lenders..."the borrower is servant to the lender" has never been a truer phrase.

 

[carpmaster]

well the price of commercial property seems to be going completely downhill and with the trade deficit increasing, domestic property values beginning to go. Draw your own conclusions.

"The crisis in the commercial property investment market deepened last night as Friends Provident froze its £1.2 billion flagship fund after a rush for the exit by investors over the past three weeks."

http://business.timesonline.co.uk/t.../construction_and_property/article3080701.ece

I think you'd be pretty upset about this if you were one of the unlucky investors. The "smart money" will already have left nice and quietly several months ago no doubt.

 

[sunama]

Well, amidst all this doom, gloom and end-of-the-world type predictions , I casually watch people in the shops spending money like its going out of fashion. I wonder how the shops will fair this Christmas?

Personally, I see people in this thread posting all this doom and gloom, yet life still goes on and people continue to spend (and get into debt) at record breaking rates. Ive never known consumerism to be more prevalent than it is today. It seems at Christmas time people forget all the rules and just spend spend spend.

House prices are said to have been crashing for many many years now, yet prices keep rising. I agree that the odd month there will be a decline (which you would expect), but the general trend is up and has been for the last 21 years! The graph taken from housepricecrash shows this:

Some people on this thread are coming out with very complex arguments of why houses are overpriced, debts are crippling the economy and that house prices will crash, but these people are have been consistently wrong, as has been proved by their incorrect predictions compared to the actual outcome over the last few years. I'm sorry guys but I simply cant take you doomsayers seriously anymore.