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drbubb

The politics of falling UK home prices

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Houses_15479_image001.png

 

Thanks, this is a great chart. It is interesting to look at the last 3 peaks and the periods of falls that followed. These falls were arrested by sharp upturns in the YoY figures that mark local minima. These minima correspond almost exactly to significant policy changes by the then government. The one in the summer of 2005 was when Brown/King first cut rates by, if I remember correctly about half, stimulating the lending boom even further. The second to the BoE ZIRP and QE. Using the 1st derivative shows this very clearly.

 

The gradient of the 3 periods of falls look very similar and are pretty much a straight line (constant rate of falls). This ties in nicely with my original point.

 

The government could act, as Brown and Darling did, and throw everything at it a second time. Over the next few months, as house prices continue to drift down we should be asking ourselves the following questions:

 

1. What can the government do to prevent the second down leg?

2. What are they doing now, or have already done to prevent it?

 

Unless the answers to these two questions are broadly the same then the government is not genuinely acting to support prices and the falls will increase.

 

The trend looks firmly established now, with IMO only a significant policy act able to stop it. Does anyone on here have any insight into whether this will occur. Without evidence to the contrary I thinking it won't.

 

Thanks again for making this so 'graphically' obvious.

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Have a look at the chart, and I think you will see some value in it.

 

You know what, it's actually pretty good. It's a bit spiky. I will see if I can smooth it out later this week by using SA figures or QoQ

 

I've put a GEI tag on it as it was your idea.

 

Houses_11913_image001.png

 

 

 

And "BurstBubbles" has just gone BUST, and become: http://BustBubbles.com

Funnily enough my user name was auto generated for my site as "BustBubb"

 

It kinda made me laugh (no offence, I didn't chose it and I later changed it).

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Thanks, this is a great chart. It is interesting to look at the last 3 peaks and the periods of falls that followed. These falls were arrested by sharp upturns in the YoY figures that mark local minima. These minima correspond almost exactly to significant policy changes by the then government. The one in the summer of 2005 was when Brown/King first cut rates by, if I remember correctly about half, stimulating the lending boom even further. The second to the BoE ZIRP and QE. Using the 1st derivative shows this very clearly.

 

The gradient of the 3 periods of falls look very similar and are pretty much a straight line (constant rate of falls). This ties in nicely with my original point.

 

 

 

The trend looks firmly established now, with IMO only a significant policy act able to stop it. Does anyone on here have any insight into whether this will occur. Without evidence to the contrary I thinking it won't.

 

Thanks again for making this so 'graphically' obvious.

You've caught me at a good time. I'm not often sat at my own computer while posting. I have a chart of interest rates. I produced this a while ago to show the relationship between Gilt Yields and the BofE base rate. The Base Rate was cut from 4.75 to 4.5 in 2005.

 

I should update this and get it on my site

 

13913566.png

 

Uploaded with ImageShack.us

 

 

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You know what, it's actually pretty good. It's a bit spiky. I will see if I can smooth it out later this week by using SA figures or QoQ

I've put a GEI tag on it as it was your idea.

 

Funnily enough my user name was auto generated for my site as "BustBubb"

It kinda made me laugh (no offence, I didn't chose it and I later changed it).

It actually looks better - less spiky - if you multiply the 6mos. MA x 150% (or even 145%), rather than 200%.

Have a look, and you will see what I mean

 

BustBubb. LOL

The markets do their best to do that.

I think you may know that the original derivation of "DrBubb" was as an abbreviation of DebtBubble.

It started out as DtBubb, and quickly became DrBubb.

 

DtBubb sounds like "Detective Bubb", a colleague of the clueless defective detective: Columbo.

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How we laughed over on HPC when people suggested "the Government won't let house prices crash".

How stupid we look now. They threw the kitchen sink (and continue to do so) at house prices.

Prices (ahead of further falls) similiar to where they were six years ago in my area and some amazing repos bargains to be had.

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How we laughed over on HPC when people suggested "the Government won't let house prices crash".

How stupid we look now. They threw the kitchen sink (and continue to do so) at house prices.

 

True, but that was Brown's 'no more boom and bust' government.

 

After an unprecedented boom, a great strategy for any government wanting to lay the blame squarely at Browns door, would then be an unprecedented bust.

 

If that is the case, this would happen sooner rather than later.

 

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How we laughed over on HPC when people suggested "the Government won't let house prices crash".

How stupid we look now. They threw the kitchen sink (and continue to do so) at house prices.

That's why I never tried to short them (via indices).

 

In a fiat system, you have to look at real value. I still expect further nominal drops, making it a slaughterhouse in real terms (RPI-inflation at almost 5%!).

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How we laughed over on HPC when people suggested "the Government won't let house prices crash".

How stupid we look now. They threw the kitchen sink (and continue to do so) at house prices.

Okay.

But that "magic" is wearing off now, and reality is re-asserting itself.

Market manipulation can delay a downturn, but not prevent it - in this case, at least.

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Okay.

But that "magic" is wearing off now, and reality is re-asserting itself.

Market manipulation can delay a downturn, but not prevent it - in this case, at least.

That's one way of looking at it but I do believe that house prices are so ingrained in the British mentality that they simple cannot allow them to fall - at least not in nominal terms.

 

If they need to print money to prop up house prices then that is what will happen. Is happening even.

 

Falling house prices would have massive, unpleasant consequences for the UK internal economy.

 

It's got to the point where I actually no longer care about house prices. They're ridiculously over-priced and the powers that be will do everything in their power and more besides (to the detriment of everything else) to stop me having one.

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That's one way of looking at it but I do believe that house prices are so ingrained in the British mentality that they simple cannot allow them to fall - at least not in nominal terms.

 

If they need to print money to prop up house prices then that is what will happen. Is happening even.

 

Falling house prices would have massive, unpleasant consequences for the UK internal economy.

 

It's got to the point where I actually no longer care about house prices. They're ridiculously over-priced and the powers that be will do everything in their power and more besides (to the detriment of everything else) to stop me having one.

I think you might be right, anything more than a 5-10% nominal fall would be meet with further QE, (they would probably have to, as contrary to some posts suggesting banks could absorb such falls, the banks are still not marking to market their assets and are, therefore, still essentially bust).

 

A real term fall over the next few years, however, would fit ideally with their attempts to slowly inflate away the debt, with the added advantage of not alarming the general public (and thereby avoiding the confidence problems that would arise with large nominal falls).

 

edit to add "The estate Agent Translator"

http://www.lovemoney.com/news/make-good-pr...?source=1000585

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Trouble is the world isn't ideal, with CPI where it is and where it's going now and next year more QE would be a last resort and an end game for the UK, house prices would be of little concern then.

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Trouble is the world isn't ideal, with CPI where it is and where it's going now and next year more QE would be a last resort and an end game for the UK, house prices would be of little concern then.

Far from ideal.

 

However, will the rising unemployment, the cuts, the slowdown in the economy, coupled with falling house prices, which will all put negative pressure on the RPI / CPI, be enough to limit the positive pressure on the CPI from VAT rise, commodity increases etc?

 

At the moment, I would expect (guess) a lower CPI 12 months from now.

 

 

 

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How we laughed over on HPC when people suggested "the Government won't let house prices crash".

How stupid we look now. They threw the kitchen sink (and continue to do so) at house prices.

 

 

Yeah, the coalition obviously want house prices to continue to go up because they have yet to make any explicit statement to the electorate that they want them to fall.

 

But ...

 

  • The value of SMI has been halved and it ends after two years of claiming it.
  • The special Liquidity scheme hasn't been extended.
  • CGT has increased.
  • Housing benefit is being reduced.
  • 2.5 million unemployed and rising That's just the claimant count.

 

What message could I read into this - that's right; it's a bluff by a government who will maintain HPI at any cost but who want people to believe the opposite.

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Hey, wait a minute, Isn’t that an inverted head and shoulder pattern? :rolleyes:

Only if property prices Zoom higher from here

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Official Announcement:

 

The government today announced that it is changing its emblem from a Union Jack to a CONDOM because it more accurately reflects the government's political stance. A condom allows for inflation, halts production, destroys the next generation, protects a bunch of pricks, and gives you a sense of security while you're actually being screwed.

 

Damn, it just doesn't get more accurate than that!

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Far from ideal.

 

However, will the rising unemployment, the cuts, the slowdown in the economy, coupled with falling house prices, which will all put negative pressure on the RPI / CPI, be enough to limit the positive pressure on the CPI from VAT rise, commodity increases etc?

 

At the moment, I would expect (guess) a lower CPI 12 months from now.

 

Unemployment rising: Most of them work for the State and so are unemployed anyway - they will just get benefits for staying at home.

 

The 'cuts': There are no cuts it is just spin.

 

This looks like a 'money in peoples pockets argument' which has been debunked elsewhere. The rise in prices will come from international competition for oil and resources where the West will effectively print in order to buy the oil it needs. Oil is the key and oil is getting harder to find - and China especially, has developed a severe and growing habit for it

 

 

 

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LANDLORDS ON PT - think I am ignoring the benefits (to Property owners) of Cash Flow and Leveraging

 

EXCERPT: from UK Crash - Avoided or just Delayed?

by Jacob Mirza 2 hours ago

Nathan- That brings me to something else. The multiples of leveraging- I am in amidst of raising funds for an operating business. As you may have gathered, I am strictly a property investor.

 

Purely from leverage standpoint, as you already know, the borrowing against stocks is limited at 50% of their value and then margin calls are in place for bank to secure against any declines. In essence, by being in stock in a weird twisted way with the exception of you selling them, you are less liquid. I will explain why?

 

It being a liquid asset (assuming your positions are in fluid markets), you may or may not want to get out of your short or long position and let's say you do need the money, you are capped out at 50% if you were holding equity. In real estate, you are at 70-80% which is a significantly large margin. If I had my investments in stock, I definitely had to close my position to fund my venture because of the 50% leveraging ratio vs, the 70% being allowed o nmy property portfolio. I am an analyst by training, but I like property for it's ingenuity and what you can do with it and how it can release very large sums of monies.

 

/source: http://propertytribes.ning.com/forum/topic...58Comment101491

== == ==

 

I think the PT's debt-fuelled Landlords are missing the very important fact, that they have been operating in the favorable environment of a long cyclical upswing - lasting from about 1994 to 2007 (for the UK) and into 2010 for Greater London. But the market is wobbling and could become "very ugly indeed" starting in 2011, as Housing benefits are cut and job and debt problems look set t overwhelm many renters and homeowners.

 

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The government today announced that it is changing its emblem from a Union Jack to a CONDOM because it more accurately reflects the government's political stance. A condom allows for inflation, halts production, destroys the next generation, protects a bunch of pricks, and gives you a sense of security while you're actually being screwed.

:lol: :lol:

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LANDLORDS ON PT - think I am ignoring the benefits (to Property owners) of Cash Flow and Leveraging

 

EXCERPT: from UK Crash - Avoided or just Delayed?

by Jacob Mirza 2 hours ago

Nathan- That brings me to something else. The multiples of leveraging- I am in amidst of raising funds for an operating business. As you may have gathered, I am strictly a property investor.

 

Purely from leverage standpoint, as you already know, the borrowing against stocks is limited at 50% of their value and then margin calls are in place for bank to secure against any declines. In essence, by being in stock in a weird twisted way with the exception of you selling them, you are less liquid. I will explain why?

 

It being a liquid asset (assuming your positions are in fluid markets), you may or may not want to get out of your short or long position and let's say you do need the money, you are capped out at 50% if you were holding equity. In real estate, you are at 70-80% which is a significantly large margin. If I had my investments in stock, I definitely had to close my position to fund my venture because of the 50% leveraging ratio vs, the 70% being allowed o nmy property portfolio. I am an analyst by training, but I like property for it's ingenuity and what you can do with it and how it can release very large sums of monies.

 

/source: http://propertytribes.ning.com/forum/topic...58Comment101491

 

Hi Jacob,

Thanks for that explanation of the apparent "safer" leverage of property. What you say is normally true, Mortgage lender cannt normally force you to sell at the"wring" time, so long as you are keeping your debt payments up-to-date. But I think this is only true if the bank does not have a collateral maintenance clause. If they do (and this does exist in some Mortgage agreements, I am told!), then they may be able to force you to sell after prices are drop, forcing you to lock in a big loss.

 

WARNING : I know there are many true professionals on this website, who have far more hands-on experience with UK property than I have, but I hope you can forgive me for what I am about to say as a long term student of cycles.

 

At the risk of making myself even more unpopular on PT, I am going to tell you what i really think about the present moment in the market, and the risks that UK landlords are facing.

 

I think the debt-fuelled Landlords in the UK are missing the very important fact, that they have been operating in the favorable environment of a long cyclical upswing, starting back in 1994 or 1995. In effect, property investing has been like a government supported industry, where those investing in the sector have been assisted by loose lending, plus generous and rising housing benefits. The result is that something like 42% of private landlords are renting their properties to housing benefit recipients, and those payments were not handled in a discipline way by the state. That is now changing, and credit is tightening too. Moreover, interest rates are probably at or near their cyclical low point.

 

From where we are, the UK is going to find itself capital-starved, along with many other western countries. Britain cannot afford the luxury of having so much of its scarce capital tied up in a "non-productive" sector, financing mere property investment. My view is that landlords are going to have to pay more for their debt, and they will also find the state much less generous with housing benefits. The days of wine and roses are over. Property-owning is going to be a tougher business for years to come. Landlords are going to be on the receiving end of many of the painful changes in the market. Some will object and say: "I will not be adversely effected, because I do not rent to "publicly assisted" tenants. But such thinking misses the point. The rental market for private tenants is not hermetically sealed. If rents are forced down by a cap on benefits, then then rents in the entire market will be lower. As an example: if assisted tenants move out of "more desirable" areas of London, then that will increase vacancies and supply in that area. Rents will be likely to fall, especially if this change is accompanied by job losses. This sort of "crunch" looks very possible in 2011, and I do not think that most landlords are adequately prepared for it. Longer voids, will probably mean cash flow pressures, and more forced property sales.

 

I find it tough to be optimistic about UK property prices in 2011-13, especially is the downwards momentum in prices has already started, even though rates have been maintained at ultra-low levels. The market is already wobbling and could become "very ugly indeed" starting in 2011.

 

For me, the right side of this chart presents the likely path for UK property prices:

 

propcycle.jpg

 

The UK may catch up with the US and Ireland, and maybe Greater London will fall faster this time:

 

== == COUNTRY COMPARISONS == ==

 

Leg1: Ireland-== : UK-======== : GreaterLondon : USA-======:

High: 139.5-1/07 : 192,490 -08/07 : 412,731-11/07 : 206.52-07/06

Low : 90.3- Q2'10 : 153,477-02/09 : 386,653-01/09 : 139.26-04/09

=== -35.3% === : -20.3% ===== : - 6.3% ===== : -32.6% ==== :

Bounce:

High Ireland-none: 169,287 -04/10 : 429,597-06/10 : 148.91 -07/10

=== -N/A% === : + 6.4% ===== : +11.1% ===== : + 6.9% ==== :

Now: 90.3- Q2'10 : 163,333-11/10 : 408,248-12/10 : 147.49-09/10

chg. :-35.3% === : - 3.5% ===== : - 5.0% ===== : - 1.0% ==== :

Vs.Peak

chg. :-35.3% === : -15.1% ===== :- 5.0% ===== : -28.6% ==== :

 

Note that:

London is now 5.0% off its "bounce high" and is falling faster than the UK has a whole,

which is only -3.5% off its onw bounce high. Will Leg 2 down be more destructive for

Greater London landlords, than for the UK as a whole?

 

What is happening in the US can happen over the next few years in the UK, and even in London

 

median-home-price2.jpg

 

/source: http://www.dailyfinance.com/story/housing-...allin/19202847/

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Unemployment rising: Most of them work for the State and so are unemployed anyway - they will just get benefits for staying at home.

 

The 'cuts': There are no cuts it is just spin.

 

This looks like a 'money in peoples pockets argument' which has been debunked elsewhere. The rise in prices will come from international competition for oil and resources where the West will effectively print in order to buy the oil it needs. Oil is the key and oil is getting harder to find - and China especially, has developed a severe and growing habit for it

While there is a debate to be had regarding just how big the cuts are (or will be), there are definitely cuts happening here.

 

I know a few that have lost their jobs already (before the bigger cuts, we have just been told will be occurring in the early part of next year). The bosses sent a nice xmas email this week, explaining the voluntary redundancy package. It’s even worse in some civil service depts. >30% for the dept. For Transport!

 

The "pound in your pocket" speech was actually relating to the devaluation of the pound and trying to convince UK citizens that it wouldn't affect their spending power, obviously it did.

However, the effect actually drops out of the CPI/RPI a year later (assuming no further devaluation) and it was this which was I was referring too.

 

PS I noticed that you never backed up any of the accusations you made on a previous thread? (You can PM me if you like, so we don't disrupt this thread)

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While there is a debate to be had regarding just how big the cuts are (or will be), there are definitely cuts happening here.

 

I know a few that have lost their jobs already (before the bigger cuts, we have just been told will be occurring in the early part of next year). The bosses sent a nice xmas email this week, explaining the voluntary redundancy package. It’s even worse in some civil service depts. >30% for the dept. For Transport!

 

The "pound in your pocket" speech was actually relating to the devaluation of the pound and trying to convince UK citizens that it wouldn't affect their spending power, obviously it did.

However, the effect actually drops out of the CPI/RPI a year later (assuming no further devaluation) and it was this which was I was referring too.

 

PS I noticed that you never backed up any of the accusations you made on a previous thread? (You can PM me if you like, so we don't disrupt this thread)

 

When did the Pound start to devalue this time Sep 2008, shouldn't this already be filtering out of the figures, instead the latest release is showing another up swing. The BOE need a commodity bust and quick, with the Pound coming under further pressure this week, more price increases coming even before we get the VAT hike.

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When did the Pound start to devalue this time Sep 2008, shouldn't this already be filtering out of the figures, instead the latest release is showing another up swing. The BOE need a commodity bust and quick, with the Pound coming under further pressure this week, more price increases coming even before we get the VAT hike.

That's right, but it takes several months to work through, especially when people were running down inventories during that first year (from sept 08 to sept 09) (ie not re-ordering at the new higher price).

 

There were some things which were hit quickly of course (oil etc).

 

The pound has actually gone up against the euro since this time last year, but down against the dollar. There have been some big swings and the effects can take a good many months to work through.

 

(I think everyone needs a commodity bust).

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While there is a debate to be had regarding just how big the cuts are (or will be), there are definitely cuts happening here.

 

I know a few that have lost their jobs already (before the bigger cuts, we have just been told will be occurring in the early part of next year). The bosses sent a nice xmas email this week, explaining the voluntary redundancy package. It’s even worse in some civil service depts. >30% for the dept. For Transport!

 

The "pound in your pocket" speech was actually relating to the devaluation of the pound and trying to convince UK citizens that it wouldn't affect their spending power, obviously it did.

However, the effect actually drops out of the CPI/RPI a year later (assuming no further devaluation) and it was this which was I was referring too.

 

PS I noticed that you never backed up any of the accusations you made on a previous thread? (You can PM me if you like, so we don't disrupt this thread)

 

 

I said 'money in peoples pockets' and was referring to the argument had elsewhere about inflation not about Harold Wilson's speech.

 

What accusations? Please use the thread where they were made to comment.

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