Paddles

Going ... down?

 

http://gold.approximity.com/since1968/UK_H...es_RPI-adj.html

It's uncanny the way it's tracking the classic bubble to burst lifecycle, eh? We're very lucky to be living through this time, I only hope we have an equivalent of Galbraith to document it properly in years to come.

The reslience of the almost genetic desire to own property in the UK never ceases to amaze me.

I spent last weekend sailing; crossed the channel and back. One of the crew was a self-employed builder who is currently really struggling to find jobs and when he does, his margins are being eroded by cheaper Eastern European outfits.

We noticed that the shipping lanes didn't seem very busy at all this trip, comparitively very few of the -really- big container ships crossing our path, which tallies up with what we've been seeing on the Baltic Dry Index. I mentioned that I felt that this indicated that the "green shoots" were probably not going to thrive too well.

The bloke then proceeded to tell me that the best thing to do would be to invest in property because the "yields" are good now because of low interest rates. "but what about the capital?", I asked, "last year saw the market drop 20%, it could easily drop another 10%, especially as interest rates have only got one way to go now".

His reply; "but you'll still make your 5% yield".

AAAARRRRGGGGHHHHHH!

Well, the economists' favourite joker, Anatole Kaletsky begs to differ, again.

Today's article is a classic top drawer effort from him, full of contradictions ("the UK is back on the historical trend line BUT the trend line means little because the market varies so wildly BUT we're back within 3% of the the trend line so it's time to buy"), statistics quoted without source, a comparison with the previous crash with regards to depth of drop but not duration, etc. etc.

He does however, have the humility to point out that his article of 13 months ago demonstrated the quality that we've come to associate most strongly with Moscow's finest commentator on capitalism; getting it almost perfectly wrong.

One day I will discover the real reason he is still employed, until then I will satisfy myself with inventing ever more elaborate and amusing conspiracy theories.

http://www.timesonline.co.uk/tol/comment/c...icle6329346.ece

Anatole Kaletsky

What goes up must come down. But the opposite is also true, at least in finance and economics.

 

While individual companies, share prices and investment portfolios can collapse and disappear without trace - as is all too obvious to former shareholders in Northern Rock, Lehman and Chrysler - this never happens to entire economies or financial markets. That is why a relatively sanguine approach is likely, in the end, to pay off for anyone with the patience and wherewithal to ride out the ups and downs of the crisis. Nowhere is this truer than in the most cyclical, but ultimately most reliable, of financial markets: residential property.

 

As panic at the end of capitalism ebbs away, with banking systems and economies clearly stabilising, at least outside Japan and continental Europe, confidence seems also to be returning to housing markets - with the exception of certain markets, such as the Irish Republic and Spain. In Britain, recent signs of recovery in the property market include an increase in transactions, although not yet in prices, a big rise in mortgage applications and the most positive monthly report from the Royal Institution of Chartered Surveyors since January last year.

 

Anecdotally, many properties that have been on sale since last summer, have suddenly been snapped up in the past two months. In London there are even reports of foreigners, emboldened by a weak pound and perhaps the prospect of a Tory government, gazumping local buyers.

 

But more important than such juicy anecdotal tit-bits are the dry statistics illustrated in the chart. This graph - showing the relationship between house prices and personal incomes in Britain and America - is an updated version of one that we published in April last year.

 

I argued then that the boom and bust in US housing was moderate in comparison with Britain's, so anyone who saw the American housing correction as a catastrophe, should consult the Book of Revelation for the right word to describe the prospects for Britain's housing market in the year or two ahead.

 

What I didn't know then - in fact, what I specifically denied would happen- was that the US housing correction would precipitate a generalised economic catastrophe, via the collapse of Lehman and the entire global banking system.

 

As the chart shows, Britain's housing market has moved a long way in the 13 months since my previous article (the point marked with a spot). Such has been the speed of adjustment that a collapse that was spread over three years in the 1989-92 housing crash has been squeezed into just over a year.

 

As a result, the relationship between house prices and personal incomes has returned to its long-term average much faster than expected a year ago. As recently as March last year, the ratio was 40 per cent above its long-term average, suggesting that British houses were still vastly overvalued. Today the ratio is just 3 per cent above its historic average. This means that it would take only modest growth in personal incomes - which remains likely despite the recession - to push house prices below their historic level in relation to incomes, even without any further decline.

 

I am not predicting that the property market will stabilise this month, or even next. While personal incomes are the most important fundamental influence on prices, many other factors drive them in the short term: at present, the main bearish forces are unemployment and the squeeze on mortgage financing, while rock-bottom interest rates for those able to borrow are a very powerful factor pushing the other way.

 

Although my own view is that these cyclical conditions will become increasingly bullish, macroeconomic forecasting has been a mug's game in the past year or two. There is, however, a more fundamental objection to my suggestion that it is becoming safe to invest in houses.

 

Why assume that property will simply revert to its long-term average valuation and stop falling? Given that the ratio of house prices to incomes overshot by 40 per cent on the upside, why shouldn't property values fall far below their average and stay there for many years? By the very definition of an average, valuations should be just as likely to undershoot this level as to rise above it.

 

And exactly this kind of undershooting is now happening in the US market. Shouldn't Britain expect something similar in the years ahead?

 

To judge by past experience, the answer is an emphatic - and alarming - yes. In the 1990s British property valuations fell far below their long-term average and stayed there for most of the decade.

 

I believe that this experience is unlikely to be repeated, but my main reason for this partly undermines the argument presented above. A second glance at the chart reveals a big difference in the behaviour of US and British house prices over long periods. While American property was, until the present boom and bust, rather stable near the long-term average, British valuations have fluctuated much more wildly.

 

In fact, the swings in British prices have been so wide that to posit an average valuation around which prices fluctuate is probably misleading. The main reason for this difference is fairly clear. While America builds more houses whenever growing demand starts to push up prices, housing supply in Britain is limited, so changes in demand lead straight to much bigger swings in prices. But the limited supply of housing in Britain suggests that prices should rise in the long run in relation to incomes, rather than remaining fairly steady over long periods as they have in the US.

 

If this is the case, housing valuations in Britain are unlikely to revert to the horizontal line - or undershoot it - as they do in the US. Instead of a horizontal average, the long-term trend in Britain's house price-to-income ratio is likely to be an upward sloping line.

 

This is essentially the mathematical bet being made by anyone who buys a house in Britain at today's prices. It may sound obscure, but my hunch is that it will pay off.

"mortgages approved for house purchases fell to 26,097 in March, down (only) 6.8% from February"

 

the upwards rally will not come in a straight line.

but perhaps it is near halfway thru after a few months of recovery in mortgages

I can see us bouncing along at this level of approvals for many many months; lenders don't want to lend and borrowers are losing their jobs.

There's no rule that says the graph has to rise or fall significantly immediately.

A work colleague has been in the mortgage/finance industry in the UK for the past 20 years.

 

This guy is pretty smart and worked in the mortgage industry right the way through the last housing crash so i dont feel i can just dismiss it out of hand. However, it does seem wildly optimistic.

 

I mentioned that job losses havent even really begun (especially here in edinburgh)

Has he worked in the mortgage industry for 20 years in Edinburgh or was he in London during the last crash?

The reason I ask is because the last crash felt very much London and the South East focused with the rest of the UK being impacted to a much lesser degree. Am I correct in this recollection?

Capitulation is when sellers slash prices to just get out of the market and leave it behind like a bad memory. The main contenders for capitulation will be 2nd properties and these are typically 2 bedroom flats. When the average price of these gets back to somewhere close to the long term trend line (e.g. 1997/8 prices rolled forward with some inflation each year) we'll have hit capitulation. Until then, it's still to come.

Here's some ammunition for the "Might as well buy now, my (sterling) savings are earning no interest" brigade.

 

Shame it wasn't published on April fool's day to make them think twice.

 

Evening Standard

2 April 2009

http://www.thisislondon.co.uk/standard/art...ices/article.do

The Evening Standard is a truly hateful rag. I remember occasionally reading a discarded copy (I'd never pay for it) during the years of the last crash and seeing all the pages upon pages of adverts featuring an artist's impression of the utopia that would be the latest nasty development to be sold to suckers out in Zone 27b ("Only 55 minutes from St. Pancras!" - well so is bloody Charles De Gaul Airport). All pictures of happy couples eating at al fresco cafes and mothers pushing buggies and the sun is always shining.

In the meantime, prices slid for nigh on 6 years, interest rates were eye-watering and many people in previously "essential" jobs were laid off.

In the block of 8 flats where I lived, 2 were repossessed and one handed the keys back and skipped out the country because he'd become sick with worry about owing £20k more than the current value of the place. [edit: and to put it in context, those repos happened in 1993 and 1994, so at least 2 years after the prices started to fall, i.e. winter 2009 in the current crash]

And all through that time the Standard were posting headlines like today's; "House prices rise at last".

The worst thing is, if I hadn't seen it last time, I might have been a sucker this time. Who knows?

During the chair lift she not only told you of her investment and fact which brought you to the conclusion that it was her first time there but also of her sexual preferences? Maybe she just spurned your sexual advances? How long are these chair lift journeys anyway? LOL!

I work quickly.

The information was offered, I felt like I was a priest at a confessional.

I guessed the bit about her being a K. D. Lang fan. It might not be true.

Bit of an anecgloatal and relating to Bulgaria's HPC but I'm in Bansko skiing this week;

Interesting place, Bansko; they developed it as a ski resort about 5 years ago and the town has been hit by that modern of plagues - property speculation you can't move for empty and half-finished apartment blocks that look like they were thrown up by people (in the words of P. J. O'Rourke) who forgot the recipe for concrete, "Ivan, is it 2 parts cement, 1 part milk, da?".

I shared a chair lift yesterday with an Irish woman who bought a place last year some 3 miles away. After a bit of a chat, it became apparent that this was her first time in the place. Good grief! I mean, you wouldn't buy a car without seeing it, what on earth would possess someone to buy a property sight unseen? Needless to say, it's been smashed in value and the promised rental income has vapourised too. The only small mercy is that her sexual preferences reduce the risk of her contributing to the global gene pool.

actually Paddles, I thought that the LR had admitted that they didn't include repo's or auction property in their data, iirc ??

Correct. There was a bit of a kerfuffle in the press about it last month, but it shouldn't come as a surprise to anyone as the exclusions are stated on the website. I hesitated and nearly wrote "clearly stated" but that would have been inaccurate; the language used is obtuse to say the least.

http://www.landreg.gov.uk/assets/library/d...ents/221282.pdf

Land Registry speeding up nicely and they don't count reposessions or any sale that looks a bit cheap*.

* made that last bit up, but the list of exclusions is longer than Anatole Kaletsky's reasons why no-one could see this coming....

HPC have changed their layout. It looks like total sh1te now.

It's not exactly for that reason that I've posted my last time on there and signed up here yesterday, but it's shallow enough to suffice for now.

Going on from Goldfinger's point; I emailed Fionaulla a few months ago and suggested that she either knew at the time that the prediction she gave previously was incorrect (using the simple straight ruler method of forecasting) and was therefore a knave OR she wasn't very good at her job. No reply of course, but I felt better for it nonetheless.

First post. Treat me gently chaps. Is there an initiation ceremony I have to go through or what? I have a note from Mummy Paddles about allergies and a weak chest, if so...