BoldAsBrass

'The end game is in sight' ... 'ftbs are priced out' ... 'market cannot defy gravity forever' ... 'banking crisis threatens housing market' ... 'mortgage rates rising' ...

Boy oh boy - it's deja vu every day for the last TEN YEARS. I find it amazing how anyone can keep it up for 10 years. Surely we really are into 'end of the world tomorrow' territory.

Just back from Chancellors in Chesham.

 

All of them on the phone doing deals, sold 10 already this month, and double figs achieved last month.

 

As Frazier would say, what is a boy to do? I am dead keen to buy but when you get Unity style construction (ie prefab) on at £179,000 and probably not mortgageable...??

Same is true here - near Guildford.

And as for the renting/buying argument - renting around here has reached stratospheric levels not seen since the .com days.

Out for my usual evening bike ride around the local area - I noticed another one had got Sale Agreed on it. A 4 bed, detached 1960s estate house - quite nice, not huge by any means and not much of a garden - it was on for £675k.

And it got me thinking along the lines of 'could I have been more wrong about the housing market?'

I was in there early - sold to rent in late 2003. Member of HPC from soon after it started.

We had a real slow down in the market in 2004/5 - houses were sitting on the market forever it seemed. Prices fell a good bit - maybe 15%. Then interest rates were dropped 0.25% in August 2005 and in January 2006 the market went mad again. Everything sold and prices went back up to 2003 levels almost overnight.

Then we had the credit crunch in 2008. Again the market slowed, prices hardened and fell about 10% to 15%. Then in 2010 they went back up again.

And all this time the HPC crowd talked incessantly about not defying gravity for ever, it was just a matter of time, you can't buck the market etc. etc. And I agreed and preached the message.

But NOW? Nearly 9 years on since I sold to rent. And still they are selling. Not that many it is true but this spring everything on the market has sold within a few weeks of going on the market. I am not aware of one single property in my area that has been on the market for months.

Where is the money coming from? For years and years now people have said that cash is moving into property. Is this pot of cash endless? It seems to be.

A block of fancy flats - up to £395k for a 2 bed flat (nice, but not THAT nice) - stood on the market for ages when new in 2008. They gave up trying to sell them and rented a load of them out. Now all long since sold.

A block of flats I used to use as a benchmark back in 2004/5. It seemed they couldn't give them away. Same thing, rented out and long since sold.

2 new builds near the golf course - best part of 900k. Both have cars on the drive now.

And now, as I say, they are bloody selling. Everything around here is selling and getting prices that are as high as they have ever been. What the hell is going on?

I must be really daft - I have been wrong about the market now for 9 years. And so has everyone else repeating the HPC mantra.

Look at Homes Under the Hammer (yes, I know the presenters make you want to puke). But the stuff on the box now was filmed in 2011 and it's still going on all over the country. They are all being bought by 'investors' who all seem to make money and are happy with the yield and are off to buy another one. Where are they all still getting the money from? I thought lending had dried up. It appears not!

I find it quite baffling given the low transaction numbers that the EAs can still turn a profit.

 

Surely something has to give soon in this Mexican standoff between buyers and sellers. At some point the EAs must ask themselves how to increase transactions? The answer is either to not overvalue a property in the first place or to convinve the sellers to meet a buyers offer.

20 transactions a month getting 1.5% of 200k

10 transactiosn a month getting 1.5% of 400k

... gives the same income.

Staff have been slashed.

Some offices have closed.

Most of them now do rentals.

No mystery as to how they are turning a profit.

One agent I know personally - resigned as a director of one of the leading agencies where I used to live until a couple of years ago - and started up on his own, about 4 years ago.

He is really good and is now the leading agent in the town and making a fortune. He sells about half the houses that get sold.

The 2007 to 2009 crash, even witnessed in London and Berks so I believe BaB.

 

A few nice places in really sought after areas have risen a bit since then, indeed some back to peak levels.

 

However, it's clear from all the surveys that the rest of the country (including the north, the midlands, the south west, wales, scotland, N. Ireland, etc etc, you know, everywhere except the south east hasn't.

 

It seems from your comments that your little pocket of the world appears to be one of the areas that has returned to peak.

 

PS in real terms even these are down >10% on the fiddled CPI, and even more so if real inflation figures are used

I would say that Norfolk, Suffolk, Essex, Cambridgeshire, Herts, Kent, London, Buckinghamshire, Sussex, Surrey, Berkshire, Hampshire, Wiltshire, Dorset, Devon, Cornwall, Gloucestershire, some of Worcestershire, Avon have seen no crash in prices.

A crash in transaction numbers - yes. But prices have held up even in the grotty areas within those areas.

And what percentage of the UK population live in those areas combined? 60%? More? And you can throw in other areas too - parts of Yorkshire, Cheshire, the Lakes, Northumberland.

Here is a link to a town in Northumberland It's pretty much a straight line over the last 7 years or so.

I posted links in a post a while ago to a number of home.co.uk's price graphs showing prices since 2000 at various locations around the country - by no means just the South East. They all tell the same story. On the whole, prices are either roughly the same as they have been over the last 5 to 8 years, or a bit higher.

I believe the only thing that has crashed is the number of transactions.

Do I ever stop

 

yeah right. Prices had way more than doubled in the 7 years till 2003.

 

Where were you back in 2003 when The Economist and others (including a few names here and on HPC) were all warning about overpriced houses and bubbles??

 

http://www.economist.com/node/1812326

 

Then the EU and USA then dropped their rates through the floor, and even UK rates were are at essentially historic lows.

 

As for single issues, FFS, you are the one stating that the rise in rates (a single factor) precipitated the drop in prices. And I quote...

 

 

 

Wrong, wrong wrong!

 

By your reckoning, the drop in rates that occurred 2007-2008 should have produced a boom .

 

Guess what, it didn't because, as everyone else in the world knows, it was A full blown (and very rare) Credit Crunch!

 

Occam's razor.

 

In simple terms, it was the end of easy loans (including the 125% LTV etc) given to anyone with a pulse.

 

THAT is what that caused the crash, not a paltry 1 or 2% rate change.

 

Talk about "misunderstand or oversimplify"

 

If ever in history there was a single reason for a crash, the sudden massive restriction in the supply of credit, coming straight after the most easy credit in history was it!

 

Jees, FFS, this is basic, basic economics 101.

 

Check your facts before slinging mud Van, and then, perhaps, sling it where it belongs

When you say 'that is what caused the crash' - which crash are you referring to? Apart from some city centre over-developed new build flats in Northern cities that have gone down a lot, where else has there been a crash?

MEMORIES ARE SHORT !

 

I read this in today's SCMP :

 

Rush for tax break boosts UK home index

 

A house-price index in Britain rose to a 21-month high last month as first-time buyers took advantage of an expiring two-year stamp-duty examption, the Royal Institution of Chartered Surveyors said. The guage rose three points from February to minus 10, the highest reading since June 2010... The tac break was available on first homes costing less than GBP 250,000.

 

(Indeed. That neatly explains last month's jump in the Halifax Index):

 

Mo.: Rt'mov : London : Rest of UK %chg/ Nt'wide H-oldSA Halif.SA Hal.NSA: HNindex : mom : DelusIdx

2012

J. : : 224,060 : 438,324 : 12X,xxx - X.xx% / 162,228 = n/a = 160,907 158,879 : £160,554 : - 0.16% :139.6% :

F. : : 233,252 : 449,252 : 12X,xxx - X.xx% / 162,712 = n/a = 160,118 158,897 : £160,805 :+ 0.16% :145.1% :

M : : 236,939 : 455,159 : 12X,xxx - X.xx% / 163,327 = n/a = 163,803 163,419 : £163,373 :+ 1.60% :145.0% :

A : : 2XX,xxx

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

mom:+1.58% : +1.31 % : -Est.DI : 145.0% / +0.38% = n/a = :+2.30% :+2.85% :+1.60%

 

 

I wonder how many here can recall what happened back in 1989, when there was an important change in the tax law. I think it was June 1989 when it was the last month that two unrelated persons could buy a property together, and still get a tax break on the interest paid on a mortgage.

 

Prices rose straight up, into a little surge, and then topped right with the tax change.

 

The more things change...

It was July 31st 1988 that the joint tax relief rules changed. The marked stopped on a sixpence as a result of Lawson flagging it up months ahead causing a stampede of youngsters trying to buy.

The bubble was not as inflated back in 03-04, so the market and indeed the economy was not as geared and dependent on low rates as it become only a few years later.

Depends where you live. Where I lived at the time - in Berkshire - the housing market was well and truly inflated at the time. In fact I sold to rent in the end of 2003 because, to me, it seemed exactly like 1988 all over again. The market had been inflated by the post 9/11 low interest rates of 3.5%

Throughout 2004/2005 my local market slowed right down and prices started to slide. This, clearly, rattled the powers that be and, in August 2005 rates were cut by 0.25%. This, it seemed, was enough to convince people that the increases througout 2004/5 were at an end and, in January 2006, it was as if someone had taken the cork off a bottle of lemonade. The market went mad. Houses that had been on the market for 18 months sold overnight. The whole backlog of stock was moved within 3 months and prices went back up again.

The fact is - house prices in Berkshire and Surrey (where I now live) and most of the Home Counties and much of the rest of the South and the West Country are about the same now as they were in 2003.

While we were experiencing a slow down and falling prices in the bottom half of the country, in Wales and the top half of the country, the bubble continued to inflate as investors moved away from the over priced market in the South to find higher yields further North.

Or gets waaay more entrepreneurial. Helps to redevelop rundown, and on their arse areas.

 

And chooses to live in places in the UK where houses are really cheap (25, 20, 15k and below)...

 

There are thousands of very cheap (and getting cheaper) houses etc in the UK.

 

They just happen to be in places where jobs, development and entrepreneurs are in short supply. And socialism strangles everything.

 

There are approximately 800, 000 empty properties in the UK. Most are habitable with a bit of refurbing.

 

Not all of them are in Burnley neither...

But if you've been brought up in Guildford, if your parents, siblings, grand-parents, aunts, uncles, cousins and, of course, your friends - all live in the area - why should you have to move to Burnley or Preston or Bolton to buy a run down terraced house in a crime invested area ...?

I'm pleased to say my eldest lad has recently decided he needs to make a lot of money - that a 'good job' is not enough. So he's worked his nuts off for 3 months - literally every waking moment when he has not been working - learning new skills and already has 10 clients providing him with payments each month. Not big money by any means - but if it takes him 5 years to get to a 1000 clients he will be earning serious dosh.

The reason the big builders have ridden this out is, of course, low interest rates.

In the late 80s some of the big builders went bust - because they could not service their debts as interest rates rose.

Nowadays there is a huge concerted effort between government, the banks and the big builders to keep all the balls in the air. So far, it has worked.

I do wonder if (when?) the merry go round will stop - for how much longer will investors have the money to buy gilts paying rock bottom rates.

Surely we only need interest rates to go up a little for the whole edifice to come tumbling down? Maybe not - maybe this is a 10 to 20 year correction where a generation misses out on home ownership and property gradually moves into the hands of investors.

One thing seems to be certain to me - nothing is going to change unless and until the younger generation priced out of home ownership and either forced to pay high rents or live with Mum and Dad gets angry and starts shouting the odds.

By way of an aside, anyone know when HPC celebrates its 10th anniversary? I first joined, I think, in Autumn 2003 and it had been going for a while then. Did it start in 2002?

Is there anyone posting there who was in at the beginning?

I'm not allowed there anymore and, to be honest, usernames seem to escape me. I had some good dialogue with Durch a few times but the others I have forgotten.

I'm just wondering if anyone has been posting there now who is, essentially, still predicting a crash 10 years after they first predicted the crash.

I did notice that after you asked.

 

This JD will be best know to those who came from HPC, as he has been outspoken on his bearish-on-housing view for a long time. He's been mostly right on the UK as a whole, but nit so right on London where prices are hanging up at record highs. We considered why that is the case in the discussion

I'd say he has been consistently wrong on house prices since 2002/3 when hpc started up. Interesting to think a web site called housepriceCRASH must be about to celebrate its 10th anniversary.

In much of the country - London, South East, Norfolk, Suffolk, Cambridge, the West Country, nice parts of the Midlands and nice parts anywhere - house prices have held up from the days in 2003 when the founders of HPC first started predicting a crash.

Saying dogmatically that house prices will crash 50% imminently - and getting a house price correction of 50%, courtesy of general inflation, over 20 years - makes him wrong. Glad he's not my financial advisor.

 

Hmm.

Is that really such a bad thing? Delaying starting families?

Well, on the one hand it would appear we have a spike in birth rate at the moment. Read that recently - saw something on the box about shortage of midwives and primary school places. So, despite FTBs being nearly 40 and putting off families etc. - it seems there are plenty of other people just having kids.

Is it a bad thing to delay a family? Yes, it's a terrible thing. The young pay the pensions and health care costs of the old (this has how it has always been - even in primitive societies - so no need to get upset about that) and we have an ageing population that is going to put a greater burden than usual on the younger generations. If we were to have a diminishing population, that would make things even worse.

"Low-deposit mortgage deals are back on offer for first-time buyers after the financial crisis left many struggling to get on the property ladder.

But there is concern that a surge in 95% loans could lead to lending spiralling out of control as it did before the crash."

This puzzles me - in the madness, money to lend was unlimited because (according to my high level take on it) banks effectively lent the same money over and over again by way of parcelling up debt into CDOs and MBSs (etc.) and using the packages as security for more loans between each other - and more lending to 'us' - the tossers.

Now the madness is over, where is the money to lend coming from? Surely a lot of cash in the banks has been spent on housing - savings rates are laughable - where are the banks getting the money from to lend 95% mortgages and for lending to spiral out of control as it did before the crash. Surely, now, the money lent is real - not 'made up'.

According to the graph in the link the detached properties have gone from over £800,000 to under £500,000. Far, far more of a drop than I have observed living pretty close to Guidford.

Not really. I have looked at the graphs for my area closely - and looked at the transaction numbers. You only need a few detached houses at a few million to skew the stats. That spike to 800k is a statistical blip - look how steep it is.

If you draw a line through the middle of the detached houses, you're looking at a fall from about 630k to 550k.

You get a much more realistic view with a bigger sample - this link is for houses in the GU postcode - which is much bigger than Guildford.

House prices in Guildford Postcode over last 11 years

Prices in Shropshire over 11 years

Prices in Nottinghamshire over 11 years

House prices in Cumbria over 11 years

They're all pretty much the same - either up a bit over the last 6 or 7 years or pretty flat. Why do the HPC nutters keep going on about this crash being like the 89 crash? In the crash that started in August 1988 prices (where they fell significantly (largely restricted to London and the Home Counties - which is where prices had gone up a lot) fell about 40% in 18 months. There was no wage inflation at the time - there was a marked increase in unemployment and people were happy to have a job and no-one asked for a rise.

This time transactions have fallen - but not by as much as people seem to think (still 780,000 last year) and it's a very slow market with no pressure on prices either way.

True, but I'm not sure if the market always overshoots as expected. For example, the low in 96 wasn't as low as the previous low (looks ~ 20% just going back to 1983).

 

If you go back in time (on the graphs) you usually see lower lows and lower highs, even in inflation adjusted terms. You also have to take into account changes in demographics and the social make up (double income households, lack of new houses, massive population growth etc) and a host of other issues that, even the most bearish agree, have had an effect over the decades.

 

For all we know, it could turn out that it's near overshot now (unlikely yes, yet it is possible).

 

Baring a serious crisis, like Van mentions, I would be wary of hoping for an overshoot to the previous low.

I know things are regional - but those charts on HPC just don't relate to my experience of the world.

Prices in Guilford over last 11 years

Their graphs tie in pretty much with my experience of the market both in Surrey, Berkshire and the West Country

My local market seems to be staggering on - the odd one is going under offer.

There are a lot of 4 bed detacheds around here in the 400k - 500k band. For the last 6 months I have seen a number of these come on the market - haven't noticed any selling (well, one did, but it fell through - now on market with different agent, same price) - to join the several dozen that have been on the market for what seems like forever.

You would be spoilt for choice if you were in the market for such a house at the moment.

The Paratopia podcast interviewed Terrence's brother, Dennis McKenna:

 

http://paratopia.org/?page_id=10

 

I like Paratopia, it has a good mix of humour and scepticism while exploring a lot of ideas. There's an interesting episode on the subject of ayahuasca (the Brandon D one) too.

 

I had such a crazy nightmare when I fell asleep listening to that one. They mention a common theme in ayahuasca trips is a sense that there is some kind of demonic parasite always with us wrapped around our soul that we're not normally aware of, it's so familiar that we don't distinguish it from ourselves. I was asleep as I heard this but lucid and I thought if you can see this demon in altered states perhaps you can see it when asleep so I sort of turned inside my head to look for it, and there it was. I completely freaked and tried to wake up and sleep paralysis kicked in which I interpreted as this demon locking me down as some kind of demonstration of power.

 

Eventually I shook myself awake but I was still convinced it was real and that feeling just gradually faded. I'm still confused as to why I thought it was so real after I awoke. The dreams associated with my sleep paralysis episodes get more elaborate every time.

Isn't that 'demonic parasite' just the 'other' you? My other me wants to kill me - slowly - but surely nonetheless. When I eat too much (my biggest failing I guess, on the self control front) - and put on weight - the other me thinks it is great. When I diet and exercise - the other me is saying all the time 'go on, one bloody biscuit can't hurt, it's cold outside, what do want to go cycling in the dark and rain for ... etc.

My youngest brother's 'other me' talked him into drinking himself to death.

The 'other me' turns ordinarily decent people into people who will herd women and children into gas chambers - when the conditions are extreme enough.

I'm really glad in my lifetime I've never had to do the soldiering thing that most generations before me have had to try their hand at. Who knows what would pop out of you when there are no rules anymore.

But to think of the other you as a demonic parasite wrapped around your soul - well that's a bit scary - but probably a good analogy. You're born, you want to live life in a decent way, do no harm and do some good - but the other fecker constantly tries to pull you down.

I am in no way religious - but it does seem to me we all have God and the Devil in us.

Oh, not just the termanily ill, I thought they were great (I had never seen a cow smile before ), but a friend of mine ended up in hospital cos he thought his quilt was trying to eat him . Didn't have any more after that.

 

Of course, we were very young and daft at the time

I was never into drugs myself - but, being of the hippie generation, most of my mates were. I remember when I was about 15 being round my mate's house when he chopped up a banana skin into little pieces and cooked it. Quite what the process was escapes my memory, but the burnt remains ended up in a rolled up cigarette - which my mate duly smoked.

Although the exact process has, as I say, escaped my memory - but the sound of his puking afterwards lives with me yet. I thought he was going to turn himself inside out. 'Feck that' I thought to myself - mind you, I never have liked bananas.

STRANGE TALE: Terrence McKenna, the I-ching, and the Mayan Calendar

 

I listened to that, twice, admittedly while writing software ... what is he talking about?

He mentions that he arrived at the same date as a Mayan calendar's end date? How did he arrive at the date? He seemed to be going on about an amazing coincidence - that he had done something, or derived something, that came up with the same end date as a Mayan calendar - but I didn't 'get' what it was he says he did to arrive at it?

Can anyone explain?

Thanks for the responses to my friend's uncommon scenario everybody. Very much appreciated. As someone renting and saving (still considering a first home purchase though) TestIcicle finds it hard to imagine the thoughts/feelings of somebody who has a sudden £200k to do something meaningful... and responsible!

 

Interesting to see that some say in the circumstances it's not totally insane.

 

I chatted to him on the phone on my way home from work this evening to relay some of your comments.

 

Borassic's suggestion to split it up into things like PMs, blue chip companies and stuff like Personal Assets Trust (ticker PNL), which was "up 10% this year", was met with a blunt response:

 

 

 

The background here is that his uncle has traded privately for yonks, and trading is/was his prime source of income I believe. My mate tells me of the time he went round their house when he was 11, and was overawed by what he saw in the study room: he counted no less than 13 CRT monitors. His uncle has been very successful in the past, but also experienced some major "bad luck" in the late 90s (not sure what/how - Asian crisis??) led the family to downsize their house and move to a rather less spectacular part of town. They survived, but their nephew (my mate) is not attracted to the level of intellectual application to the discipline, and even then dealing with the seemingly wild risks involved.

 

Contrary 50sQuiff's assertion that zone 2 is out of reach pricewise, the £200K will definitely get a 1 or 2 bed flat in the zone 2 and 3 areas he's been looking at. Perhaps not prime in the traditional sense, but he's looking at places like New Cross and Brockley and beyond, focusing on the East London Line extension (London Overground) to Canada Water (rats' paradise!) - he explained to me he wants to pitch these places to graduate bankers, who are building their career before they earn enough to buy their own places outright (lol - how this country disturbs me).

 

He's less than chuffed about the practical stuff of being a landlord, and says he has already been looking at various insurances, but hasn't yet looked into the detail of agency fees etc. He's got a full time job so he is basically keen just to grow the capital with minimal risk and effort (don't we all!!).

 

Trouble is though I'm doing the worrying about this for him. He's one of my best mates, was the best man at my wedding. I'm just trying to watch out for him without wanting to give him any dumb advice. For where I am on the investing front, I have put a modest amount into PMs but am worried if gold is at a sort of peak (yes, I'm familiar with the arguments). I remember thinking this way in 2003 re: property - how well did that thinking play out for me, eh?! I'll give you a clue: I continue to rent and save and try not to have too many more moves forced upon me by incompetent dumbarse landlords.

 

Perhaps it's the dumbarse landlords that cause me to be biased against my mates becoming another "flea" even if he IS aiming at bankers' money.

 

Anyway, thanks again. I might be still very early on in my own investment education, but I don't think I'd be being as gung-ho as my mate if I was in his situation!

I would go along with your mate's blunt response.

The only people that make money from the stock market - CONSISTENTLY - are stock brokers.

The days of making a fortune from the stock market - like Buffet - buy and hold forever - seem to be behind us for now. The market has flatlined now for 15 years. Pension returns are crap. Endowment returns are crap. The big returns in the past were based on inflation and massive market dominance - and growth - by companies like Coca Cola (one of Buffet's favourites as I recall). Nowadays you just have to get lucky. If you bought Google you're doing well - but if you have a portfolio of 10 shares over the last 15 years - I bet you've made nothing. Who is to say if Google will be around in 20 years. The rate of change since the leaps in technology is now exponential.

http://uk.finance.yahoo.com/news/FSA-announce-relaxation-tele-1597872151.html?x=0

Same thing happened in the early 90s. A couple of years after the housing crash - the cries about negative equity trapping people in their homes finally reached the powers that be and some scheme was put in place then to allow you to carry your negative equity forward. Bless the bankers eh? Generous, as always, to a fault. I love them!

Try living in a Market Town.

This idea fits in with what I have just posted on another thread...

 

 

I've got a better idea:

 

Don't be a car-driving target at all!

Live in s small town, where you can walk down Main street, and wave to your neighbors,

and buy your food from a farmer whom you know by name !

 

 

I think JH Kunstler may have the right idea in living someplace like Saratoga Springs, NY - where he can get to know his neighbors.

 

Try Totnes (or somewhere like it in the UK)

Totnes is a great place (seriously) - with some of the highest house prices in the UK - outside London.

Everyone with a few bob that visits Totnes says to themselves 'I'd like to live here' and sell up their homes in London and the Home Counties and off they go. Finding a Devonian in Totnes is a rare happening.

FreeTrader's HPC charts:

 

 

 

As calculated by me a few posts earlier, prices hit a new real low 30.4% below peak.

 

This time next year I reckon we'll be talking about another 5% off in real terms... and possibly more.

What, the price of bread goes up 5% and you think a house goes down 5% - in 'real terms'?