drbubb

Since when was there a 10% risk free return on savings? You need to compare rates to inflation. And do not forget that many savers pay tax. The UK government has made property investing rather low risk, but that may be about to change

MM, I am going to move this thread back to Living Arrangements, to give you access to a bigger audience (members & non-members) Also, I may have a useful clue for you - someone to contact : Roger Kerr - who supposedly develops some theories involving black holes, which then permit Time Travel in the future. This notion comes from listening to Pt.7 of the Coast-to-Coast interview with Oliver W. - talking about John Titor and Time Travel If you are interested, there's a new thread on Time Travel : http://tinyurl.com/GEI-Time

This is a common misconception. "inflation bubbling away in the background" is not going to help home prices - in fact, inflation on its own without any rise in incomes and employment would HURT home prices, since people will pay more for their essentials, like food and energy, and will seek ways to economise on their household expenses, like moving in with mon & dad, or sharing with a friend. I address this in a new thread on Main: Is there a Housing Shortage in the UK ? Also, you say: They may not want to "let them go down", but things are getting worse. The can is being "kicked down the road", but at each kick it is getting heavier and harder to move. At some point, the kicking becomes impossible, and debt defaults muct be faced. And I think that day will come in 2011 or 2012, and the result may be that the market FORCES higher rates on over-indebted countries like the UK.

Let me get this straight: UK banks own by taxpayers are going to write off debts FOR LANDLORDS ? It sounds unbelievable. If I was a Uk taxpayer, I would take to the streets about this... if it is real and widespread

A shortage of Housing? I wonder if that is true... I think this notion has some reality behind it, but it also rests on: + The UK having enough jobs (or easy benefits) to attract immigration from other countries. I see this changing in a way that will reverse the tide of immigration + A rising number of households, as the average number of people per household continues to decline - this trend can be reversed too (I have started a new thread about this topic)

updated charts and data No wonder many Landlords are so complacent! London prices remain stuck near the ceiling.

Experience has taught me: When, after a big rally, you see widespread forecasts of a further doubling, it is usually time to be OUT of the market. Haven't you guys learned anything from the Piper's silly $1650 forecast? These guys are chronic bulls, and they do not own magic crystal balls. And chances are, they benefit somehow when they can entices crowds into buying Gold.

The following was posted on my Property Diary:

That assumes no repayment has occurred. If the 80% loan was made in 2007, there should be some repayment by now. In leg two down, the wider market has so far fallen only 5%, so an 80% loan should not yet be in danger.

In my view, some sort of stress from higher rates, or sovereign defaults is IN MY BASE forecast, and is not an "all bets are off" scenario. I described it recently on PT, in response to this posting: thomas gallagher said: ... if we were to imagine a scenario where all uk home owners owned their property unencumbered then i would be first to agree with your doomsday scenario of possible 50% falls as people would panic sell due to the present bad press. i may be wrong but i just dont think that the massive collapse that you predict is possible unless they all just hand the keys back to the lender and walk away (My response): Thanks for the comment, Tom. For the record here: I still regard a 50% fall from the Pds, 192,000 top of 2007 (lets say to under Pds.100,000) as possible. But that is not my base forecast. At the moment, I would expect a low to come perhaps 25-30% under the recent high (£169,287 x 30% = £118,500) by 2013 or later as the most likely possibility. But I reserve the right to change my forecast without notice. And I will change it, if the "crash cruise speed" that we are seeing now morphs into something else. I think "the real fun" for cash rich buyers will beginning when the complacency gives way to panic when prices fall below the 2009 lows, possibly later in 2011. And, yes, I will expect many forced sellers, with banks foreclosing on many properties, and even some desperate borrowers walking away from their properties. May I ask why you think the scenario I describe WILL NOT arrive? What can stop it? A steady rate of prices falls will eventually break complacency IMHO.

THE PROJECTED END of Complacency ?? In response to a question on PT: "Agree with you that in order to sell people have to be realistic but in general it seems people still expect the market to recover and start rising again and therefore are "sitting it out"." For me, with my interest in cycles and market psychology, the most interesting thing to watch is this question: What will break the present market COMPLACENCY? Only time will tell for sure, but my firm expectation is this: People will remain complacent until until the time they see the market fall below the 2009 low. By my H&N Index, that was: £153,477 in February 2009, and as of Dec. 2010, we are now at £162,131 - that level needs a further fall of -5.3%, at a rate of 0.60% per month, it would take nine months to get there - so we may see that in about Sept.- Oct. 2011 - say after this coming summer. Ni guarantees about this, but that is my present "best guess" as to when the complacency may give way to fear and bigger prices cuts.

That is crazy. The borrower risks the first pound. And I don't think there are many 100% LTV loans these days

Very possible to see a point of recognition amongst the BTL-ers. But we are not there yet. Go to Property Tribes and read some of the comments there - they are in full blooming denial now. And they find the arguments that I have articulated "boring", whilst they are unable to refute a single point. It will be bloody.

Summary The mix-adjusted average Asking Price for homes on the market in England and Wales has fallen by a further 0.4%. -0.4% is on the edge of Crash Cruise speed

Exactly. That's suicidal for the economy, and in a post-Brown era, I think the government is capable of seeing that, whatever their rhetoric

My gawd man, you are far too UK centric ! Take a look outside the UK and see what happens when a Property bubble bursts ! Stay out of debt, and do not squander your precious equity on Houses, and you will be left standing to pick up the pieces when the homeowners and BTL investors fall over. "people who took on too much risk - as long as they keep paying their mortgages - will be unaffected" ?? / They will lose equity, lose flexibility, and be trapped with no money to take advantage of lower prices. I suggest you travel to Ireland sometime, or the USA, so you can see how that works.

Sure. Remember, I bought in HK 10 properties in 2007-8. So I am not without the nerve to buy. For most of those years, Gold and Gold mining shares have been a FAR BETTER BUY than UK property, so I think renting in the UK, and putting my capital to work in Mining shares and HK property was a far smarter way to play it, than putting my capital in work in overpriced UK property. Having said that.... Dancing on the edge of the precipice and buying now, is not like 2003 - it is more like buying in 2007. Except that this time, if the slide picks up momentum, there will not be a big drop in interest rates to save the property buyers. That trick has been exhausted. So comparing today with 2003, is like comparing 1929 with 1922 - I reckon the big drop is dead ahead. And every month you see a "crash cruise speed" drop should reinforce the wisdom of waiting to buy.

I am not interested in constructing "rosy scenarios" - I want realistic ones. Under my scenario, and most scenarios I believe are realistic, the UK property bubble bursts, as it has in virtually all other Western countries. The losers will be those who were too optimistic (believing in rosy scenarios), and failed to prepare and took on too much risk. I recommend that people stay realistic and avoid the high risk / low reward scenarios. You are hardly winning a prize by buying overvalued properties in the desperate HOPE that things will work out. It matters greatly that risk and reward are not symmetrical outcomes, and betting on property and getting it wrong may ruin your finances for a lifetime. Whilst getting it right, is merely a halfway decent outcome. Heads: you lose big time... Tails, you have to repay debt on an expensive property. Leave those terrible odds to the mad bulls, while sane people stay away, happy to wait for lower prices.

This post from Meralti on another thread ... puts into perspective the risk that a FTBer taking that 90% LTV deal is taking: Shame on the bank that creates such a trap. (I hope the management winds up canned.) It reminds me of the deals being offered in the US a few years ago, with low "introductory" interest rates in years 1 and 2.

I think you need to reverse that: "there is absolutely no guarantee that rates will STILL BE ULTRA-LOW in two years." Here's why: The homebuyer gets "business as usual" if rates stay low, and probably a negative equity disaster if rates jump. He/she takes a huge risk of financial disaster, against the opportunity to buy an overpriced home today. In effect, he is betting on continued financial recklessnes by banks and the country, at a time when other over-geared countries are 'getting found out" and suffering a sudden jump in their borrowing costs. The risk/reward is all wrong for prudent investing. I know, some will say, " But if rates jump, many people will be in a mess, and the government will not allow that to happen." Can he not see that the decision is no longer with the BofE? The UK's fate is in th hands of the market. And there are many examples around the world of how disaster visits countries in such circumstances.

I think you need to reverse that: "there is absolutely no guarantee that rates will STILL BE ULTRA-LOW in two years." Here's why: The homebuyer gets "business as usual" if rates stay low, and probably a negative equity disaster if rates jump. He/she takes a huge risk of financial disaster, against the opportunity to buy an overpriced home today. In effect, he is betting on continued financial recklessnes by banks and the country, at a time when other over-geared countries are 'getting found out" and suffering a sudden jump in their borrowing costs. The risk/reward is all wrong for prudent investing. I know, some will say, " But if rates jump, many people will be in a mess, and the government will not allow that to happen." Can he not see that the decision is no longer with the BofE? The UK's fate is in th hands of the market. And there are many examples around the world of how disaster visits countries in such circumstances.

Hmm. But they will still be mired in massive mortgage debts

To be honest, I have studied it long and hard. So my interest has morphed into a true curiousity, like trying to take apart a clock and understand what makes it tick. I want to observe it right through to the low, and see how predictable it is. Understanding the long property cycle in the UK helps me to understand it everywhere. Though I think the Uk is somewhat unique in the way that the government was so determined to avoid a crash, and by taking so many actions to delay it, has created the conditions for such a painful disaster. Also, the characters are larger than life. Can you find bigger or more deserving villains than Gordon Brown and the UK banks ?

It could easily be that long. However, I am reluctant to forecast a number of years, since there are inflationary scenarios of reasonable likelihood that could cause a forecast to "miss" by miles. I think it is better to stay alert than gamble on a forecast. So long as we stay in the range of "crash cruise speed", with UK builders weak, I think I know what path we are in, and where that leads. If prices meander off the path, than I will be alert to the alternatives.

After 2 years, it is what % over base?