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The Voice of Denial - "It is not a river in Egypt"


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The Voice of Denial - "It is not a river in Egypt"

Some of the ways the Bulls fool themselves

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

 

"I made my bed, now I must lie in it."

"The lender has the risk, not the owner... and the income from rental is a bonus."

 

Truly, they take the breath away !

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

egypt_river_nile.jpg

 

The Second Leg down in the great Bear Market for UK Property ... And the First major drop in London in decades

003xsd.gif : 002lb.gif

 

The "H&N Index"*

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

The "H&N Index"* /mom:Hali/Wide :: Greater London-Rightmove

======================== :: ====================

Peak: £169,287 : Apr.10 : Cum'l . :: £421,822 :Apr.10 :

May : £169,183 - 0.06% : -0.06% :: £420,203 :May'10 :

Jun : £168,253 - 0.55% : -0.61% :: £429,597 :June10 : Cum'l.

Jul : £168,839 + 0.35% : -0.26% :: £422,248 - 1.71% : -1.71%

Aug : £167,698 - 0.68% : -0.94% :: £405,058 - 4.07% : -5.71%

Sep : £165,198 - 1.49% : -2.42% :: £399,019 - 1.49% : -7.11%

Oct : £164,828 - 0.02% : -2.63% :: £418,778 + 4.95% : -2.52%

Nov : £163,333 - 0.91% : -3.52% :: £417,279 - 0.36% : -2.87%

Dec : £162,131 - 0.74% : -4.23% :: £408,248 - 2.16% : -4.97%

====

Ave. decline for the UK since Apr'10 Peak is: -0.52%/month.

We have seen "crash cruise speed" since July 2010.

 

*(Average of Halifax & Nationwide, NSA)

More data: http://tinyurl.com/GPC-data

 

I think this may be a good time to start a thread like this - for the historical record.

Because sometime in the next 12-18 months, the Deniers may have a big moment of realisation,

that they have got it wrong. And that moment may be brief and it will be very interesting to record the transition into it.

 

(Please do not use people's actual screen names - initials will do - this thread is not designed to attack individuals, just a thought process shared by bulls.

 

... from the long property thread ;

I agree except that I also expect a "BTL tsunami" period at some point where the BTL crowd all try to get out at the same time. This may be brief but would see a dramatic plunge in prices.

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.

= = = = =

LINKS

 

Data Blog on PT :: http://propertytribes.ning.com/profiles/bl...leg-down-in-the

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A thread "rife with Denial" on PT

=========

 

+ Your House price forecast for 2011 please / Nathan Bubb on December 29, 2010

 

AB - 12/29 (part of some sensible comments):

Upward pressure will come from pent up demand, as well as pent up need-to-lend from lenders!

The Dead Cat bounce of 2009-2010 was created through a drop to ultra-low rates, and massive stimulus through rising Housing Benefits. I find it hard to imagine that there are more rabbits like that, waiting to be pulled out of the hat.

As well as irresistible returns due to rising rents!

 

JC - 12/29:

I will go for minus 7% nationwide and minus 4% London.

But of course if you never sell and invest purely for cash flow which I do it wont make a jot of different over the next year ( or any year) And if I am right then as long as you buy 7% BMV which isnt that tough then you would actually lose out by not investing in 2011.

 

MA - 12/30: (reacting to my macro forecast for 2011 on FBB):

Sorry Nathan, tried to listen to it but I was bored after over a minute and a half of intro's and 70's elevator music. I did persist but I have to admit to finding the lift music the most entertaining bit.

 

REACTION, as posted there:

Many so-called "professional property investors" lack the patience to do their homework and have simply ridden a long cycle up thinking that it was brains that got them big returns, not the luck of having a great cycle pushing their investments up. Remember that old saying: "Everyone's a genius in a bull market." I like to add the phrase: "So find a bull market." You won't find one for years in UK property. That's my considered opinion have done the homework on cycles. I offer no guarantees, but apart from a handful posters have, I haven't seen many "considered opinions" on the cyclical state of the property market on PT.

 

Denial is a wonderful thing. It allows you to go forward thinking everything is fine. But then you wake up one day and realise that the "flesh wound" you have from market moves is something worse than that. Here is the lesson for those in Denial :

(For someone who found the podcast "boring", you may need something like that to "get" the point. You stand your ground, and say, "None shall pass," thinking you are invincible. Then the market carves you to pieces.)

 

DB - 12/31:

When I started in 2005 I was cautious of the market cycle and afraid of a crash, however this does not concern me any more because I'm I simply will ride the market for a long time.

I will buy a property if it passes my stress test, has strong rental demand (long term) and I can finance it.

It does not matter if I could acquire it cheaper if I wait a little longer because at time i'll be putting my energy into the next deal that will strengthen my portfolio.

The best advice I'v had in property is: "its always the time to buy".

 

REACTION:

Starting "anytime" has not worked for those LL's in Ireland, Spain, and the USA who are now bust. Please explain what went wrong for them? And please explain how your techniques would have worked in Detroit, where I was born - where you can now buy a house for $100.

 

To me, what you are saying is delusional nonsense brought on by a long bull market, with no reference to what is happening in various countries right now, where the property bubble is popping. Praytell, what makes you think the UK is so special that it will avoid the fate of those other countries?

 

MA - 12/31:

I'm not a big fan of short term projections as my strategy is long term based. Having been investing in property since 1989 I've witnessed three recessions and used them all to my long term advantage. This one is unique and there is no history that I've aware of to project against. That leaves me in a position where I am trusting my instincts to make money from property, much the same as many other people here I suspect.

. . .

If the earth does spin on its access when the planets align on 21.12.2012 there is little point us worrying about a bear market in property is there? Perhaps we should all do what we enjoy? For me that's property, travel, friends and family.

As you've probably gathered, I'm not a big fan of doomsday forecasters. Given a choice of whether to be a deluded optomist or an evangelical pessamist I'll happily stick with optimism.

 

(Do you see an argument anyplace here? Or any attempt to refute the Bearish points?)

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The Denials continue on PT

=========

 

+ Your House price forecast for 2011 please / Nathan Bubb on December 29, 2010

 

RH - 12/31:

Good to hear reassuring views with a more positive angle, L.

(She was referring to this comment, from LO: "many lenders have recently indcated they are very keen on buy to let for the next 5 years as their economists see high yields, rising rents, low rates and low prices; also Santander are getting back into buy to let in 2011."

 

My head's been in a bit of a spin with all the pessimism on here concerning the outlook for property over the next few years! Some balance restored ... I'll keep reading :o)

 

DB - 12/31:

I have just checked my bank account to see my lovely cash flow (passive) from all my tenants in a day early.

Its all about cash flow and a passive one at that.Capital gains are just a bonus.

 

REACTION - at this stage, I made two points:

 

+ The huge upswing from 1994 to 2007-2010, when prices rose by +140%, and more than that in London, virtually guarantees a bigger than average correction before the 18-20 year cycle's corrective phase is finished. This should be obvious when you look at Price to Income indicators (shown elsewhere) which are still severely stretched at: 5.7x for London and 4.2x for the UK as a whole. And with austerity on the way, it doesn't look like rising incomes are going to bailout an overpriced property market.

 

+ A key point that no one here has acknowledged, apart from MA who dismisses my argument as "boring" (ie he doesn't want to hear it), is that UK interest rates are now at "ultra-low" levels near zero, and this is despite rising inflation. Are people really so out of touch with history that you can think near zero rates are normal, and can somehow be sustained? These low rates have saved the property market from a deeper crash in 2009. Now here's the important bit - even though ultra low rates are still with us: UK property prices have begun to fall. It is as if the market has begun to collapse under its own weight. Can you imagine what will happen if the UK has to raise rates, and reign in LTV's in the midst of a falling market? There will be blood on the streets (for landlords), even while renters and savers may welcome the change.

 

JC - 01/01: (page 5)

Nathan

It is apparent more and more as i read your posts that you simply do not appear to understand property investment

More specifically you do not appear to understand investing in property for cash flow as opposed for capital gain.

More specifically you do not appear to understand the concept of holding not selling an investment property.

. . .

House prices may drop but even if they do I invest for cash flow so it really really doesn`t matter to me

House prices may drop but even if they do I invest for cash flow so it really really doesn`t matter to me

House prices may drop but even if they do I invest for cash flow so it really really doesn`t matter to me

 

CP - 01/01:

Jonathan - great post, full of actuality and I think the 1-100 scale is an excellent way of explaining the different levels of skills/experience that someone might have in various sectors of property (or anything else for that matter).

 

Nathan draws definitive conclusions from averages and purports them to be facts when they are merely his theories. I know that last sentence is a bit of a mouthful but it sums up the difference between you and Nathan.

(Truly stunning. He dismisses loads of fact, and praises one of the worst "arguments" I have ever seen!)

 

KR - 01/05 (page 6)

Hi Wisebear,

I don't understand this idea that everyone on here is somehow deluded? I don't think anyone on here is arguing about falling prices, more the point that for genuine landlords who make money from rental income the focus is more what will happen to rental incomes as opposed to what will happen to prices in the short term.

It also depends on your view of what a "crash" is, if for example values drop by 10% then this isn't to my mind a crash unless it happens in a single month. If values drop say 30% over a couple of years then I would say this is a fairly substantial and could be labelled a "crash".

Another point that was discussed with Nathan and seemed to be ignored was that not every house out there would suffer identical falls in value, in fact what has happened over the last couple of years is that only sellers who have had to sell have been taking hits, everyone else is just sitting pretty so to speak not willing / unable to absorb the drops.

 

Another point that got missed was the fallout from a genuine crash, the majority of banks only just scrapped through the last sharp drop in values and nobody who is an avid HPC fan seems to take a cold hard view of the repercussions. Ok houses are arguably overpriced in some areas and moderation would be a good thing, but huge falls in value would be devastating to the banks and the economy as a whole. It would be pretty hard for anyone to take advantage of the falls with banks going under and the economy in free fall.

 

I think a more reasonable debate is what people want, rather than this somewhat childish approach of "your all kidding yourselves" and sensationalizing the market place. Would it not be better to try and come up with some ideas of how to balance the housing market to make things more affordable? Drops in value are not the only way to do this.

 

(??? - I think he is saying: A crash would be too painful, so we should be looking for other ways of addressing the overvaluation of property. And it is "childish" to say people are in denial. - What a marvelous feat of denial this posting is !)

 

Wisebear's counter-arguments are good: http://propertytribes.ning.com/forum/topic...page=6#comments

EXCERPT:

KR: …my understanding is that if a homeowner decides to stay in their house rather than move then in effect they haven't made a loss, back to the idea of house as an investment. The otherside of the coin is that people trading up can actually benefit from falling values.

WB: If you live in a house that you could have sold for 500k but now you can only sell for 400k then you are poorer by 100k. It really doesn’tget much simpler. It doesn’t matter that you don’t have to sell or convince yourself that your house is a home not an investment or you bought in for 50k so you’restill up. All are irrelevant rationalisations of your position.

(Amongst the bulls, it is as if many are repeating arguments that they do not understand. So quickly do they drop them.)

 

KR responds:

In your scenario house prices fall by 50% in real terms, this would leave all banks with huge exposure to debt write downs and most would probably go under in this case without government stepping in to save them. So now we would have banks with substantial loans provided by the government which need to be repaid, as we have seen so far the banks would simply increase their mortgage rates to recover their losses. At the same time getting a mortgage would be impossible for most, the sheer shock wave from a downward spiral such as this would no doubt cause un-employment to rocket.

 

So the same house may now be worth 50k but mortgage rates could easily double and wages would likely go down, so property would not be more affordable.

 

If real house prices did drop 50% housing affordability would be the least of peoples worries, it would lead to a huge deflationary cycle that would cripple the UK.

 

lausanne_hole2.jpg

Bad potential consequences mean something so bad will not happen?

 

(I suppose he is thinking that the consequences are so bad, the UK government will not allow this to happen. But isn't a disaster like this exactly what is unfolding in various other countries like: the USA, Ireland, and Spain. PT posters seem to be so UK-centric that they think their country is immune to the similar fate that occurred in other countries where property bubbles popped. An interesting comparison is between UK property investors and global banks that put all the CDO debts on their balance sheets thinking that high ratings and diversifiucation would save them from trouble.)

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Classic statements of denial... Link: PT thread

 

V : 01/05

...It's always good to hear alternative views and they are welcomed here to help us all learn and grow.

 

I am in agreement with you that there are very challenging times ahead for the housing market and property prices. However, I made my bed, and now I will have to lie in it, so to speak. :) I generally find that, in life, if you totally commit to something, whether it be a relationship or a strategy, it all comes right in the end. I will continue to strive to offer a great service to my tenants, pay down debt, and develop other income streams to weather the storm ahead. That's all I can do, unless, of course, you have any alternative suggestions?

(Alternative suggestions ??? How about: Selling down ?)

 

This exchange with Wisebear is even better !

 

MA: Look, it's really simple. If an investor has a property with gearing substantially higher than the price he paid for that property (by buying very cheap not by relying on inflation) then the lender has the risk, not the investor, who just has money in the bank! AND the bonus of an income from the rent. I don't get why you and Nathan/ Michael find it so hard to understandthis, it's a really straightforward concept.

 

WB: You really are very, very confused. The simple fact is if you borrow money to invest in an asset then the risk associated with holding that asset is YOURS. It doesn’t matter if you’ve borrow a little or a lot.

 

(A long bull market, with little need to realise losses has adled the brains of some who found it too easy to make money.)

 

MA: WiseBear - if it's credibility that you seek why would you come here? Surely your time would be better spent on a forum that focussed on investment mediums in which you actually participate? What do you hope to gain from being here? How can I/we help you?

 

(Wow! Instead of: "Of course you are right, I was being silly. What I really meant was..." )

 

RG - 01/07:

 

It’s got nothing to do with psychology and everything to do with strategy. I don’t expect you to understand because it’s not how your mind works. You like charts and graphs, they are irrelevant to me. You care what happens in the market because your model depends on it. Mine doesn’t. At the moment you see only problems. But show me a problem and I’ll show you an opportunity. That’s where we differ. And that’s why I’ll carry on growing my business in ANY MARKET and STILL make money while you’re worrying which investment is going to lose you the least.

 

(Get your "strategy" right, and you can overcome a bear market ? How's that for delusional thinking?)

 

JC - 01/07

I enjoyed Nathan`s contributions but after a while I found it tiresome and frustrating when I tried to tease out and home in on some complex issues and discovered that in laymans terms I concluded that unfortunately yes he ` just didnt get it. So with him I decided to change tack and asked him to appraise himself on his knowledge about what i do. why were our views so at odds with mine I wondered. I appraised myself on what he did in the stock world. I was on lesson 1 out of 100 on an arbitary scale. I put myself on lesson 70 out of 100 in my property world.

(The "king of delusion" chips in with more verbal diarrhea. He gives himself a 70 out of 100 on property knowledge, and he knows not what a cycle is! Poor Wisebear here is like a giant amongst pygmies. )

 

Jo - 01/08 - (chips in with a rare sensible comment):

Indeed, the property market cannot be divorced from the local, national, or world economy.

 

Ecology and economy are very similar - they are both eco-systems in that each part affects every other part. The issues of recession and deflation are relevant to us all. Many say 'Oh property values don't matter to me because I'm in it for the long term' or "I invest for cashflow so I'm ok'. But investing for cashflow is dependant on rental levels and interest rates. I agree that many are unable to see beyond their fixed preconceptions learned in the last few decades.

 

Here's where MA shows his credentials as possible "PT moron of the year" : Page 12

 

... then RG pops up, to give him a run for his money:

 

RG - 01/10 :

...Perhaps understated the case in my posts above. With a 20% yield I could argue with the above example that I'd make money even if the market fell 100%! The property pays for itself in rent every 5 years!

 

This is where Wisebear and Bubb fail so dismally, assuming that every market works like stock or commodities where you have to buy at a fixed market price, and yields are limited (stock) or non-existant (commodities).

 

AD - 01/12 :

Having read through this post, just had a few thoughts, that I'd like to share. I graduated with a degree in economic history, and am an active property developer/investor.

1. There is no such thing as business cycles, we live in a dynamic world, things change everyday. Talk of "X" year cycles, has been disproved, and if you believe it then I suggest you read some economic journals and econometric data that discusses it, it seems a shame that people are making potentially life changing decisions on outdated flawed ideas.

 

(No such thing as cycles? What sort of economic history is this? Now even history doesn't exist - it can be denied too.)

 

RG - 01/12:

Well said Adam, the problem for the whiners (Wise Bear and Nathan Bubb) is their strategies for making money are too narrow. They miss opportunities. They engage in a type of gambling based on past form, which they hope will deliver the future numbers they're betting on.

 

By contrast my strategy is based on REAL numbers NOW. No gambling, no extrapolating from past data to project possible futures. That's the difference between investment and speculation.

 

AW- 01/12:

Finally got round to reading this whole thread. Very interesting points of view on all sides.

 

I would certainly conclude that PT members are more bearish than the average person, so to imply (or say!) we are all deluded and unprepared for the worst is an unfair conclusion.

 

I also think that WB and Bubb are missing the point: Not all of us are involved in property purely to hold longterm. Some of us are trading on or using a mixed strategy. Some of us are trading on without even buying. So a falling market will continue to throw open many opportunities to the eagle eyed.

 

(More bearish than average ?? I think I choked when I read this. Overall, they look like a collection of moronic bulls, apart from myself, and Wisebear- who also stopped posting.)

 

MA- 01/12: (Moron of the year, likely winner, chips in with this classic):

If you have cheap finance at the moment (say bank base plus 2.5% or less) the last thing you should do is repay it - see this Blog. Use it to do deals like RG has done.

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BLOG : http://propertytribes.ning.com/profiles/bl...leg-down-in-the

 

The Second Leg down in the great Bear Market-

New blog begins with:

 

We are in the second leg down, but there seems to be plenty of denial about it, on PT.

Rather than arguing, herein I shall simply provide the data.

 

The "H&N Index"*

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

Peak: £169,287 :Apr.10 : Cum'l

May : £169,183 - 0.06% : -0.06%

Jun. : £168,253 - 0.55% : -0.61%

July : £168,839 + 0.35% : -0.26%

Aug : £167,698 - 0.68% : -0.94%

Sep : £165,198 - 1.49% : -2.42%

Oct : £164,828 - 0.02% : -2.63%

Nov : £163,333 - 0.91% : -3.52%

Dec : £162,131 - 0.74% : -4.23%

====

The Average decline since the April 2010 Peak is: -0.52%/month.

We have seen "crash cruise speed" since July. I define that as an average rate of decline of 0.50% per month or more.

*(Average of Halifax & Nationwide, NSA)

Data source: http://tinyurl.com/GPC-data

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RG 7/1

But EVEN IF IT FALLS 30%, I’LL STILL MAKE MONEY. That’s because I can buy property for A MASSIVE DISCOUNT

 

My Reply: Richard, you are a genius. I freely admit that I wouldn’t be able to make money buying property in a market that falls 30%. Those discounts must be enormous; I wonder why people are willing to sell so much below the market?

 

As a matter of interest does everyone here get huge discounts or it just Richard?

 

Richard took this as an insult but I meant it.

No one else appears to be getting these massive discounts however.

 

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RG 7/1

But EVEN IF IT FALLS 30%, I’LL STILL MAKE MONEY. That’s because I can buy property for A MASSIVE DISCOUNT

 

My Reply: Richard, you are a genius. I freely admit that I wouldn’t be able to make money buying property in a market that falls 30%. Those discounts must be enormous; I wonder why people are willing to sell so much below the market?

 

As a matter of interest does everyone here get huge discounts or it just Richard?

 

Richard took this as an insult but I meant it.

No one else appears to be getting these massive discounts however.

 

I had a read of that thread and if what he says is true, then it must be uncomfortable reading for those that aren't able to get similar discounts. Here's a guy who appears to have a decent niche of buying problem properties and turning them around with a little effort and his reward is ~50% less than 2003 prices!! If this is true, this is the guy who is going to undercut you to get a tenant in. It sounds like he'd probably be better off trading than holding, but I guess the opportunities are very limited, so it isn't really scaleable. TBH he's helping the market to slide by turning unhabitable stock around and adding to the supply side.

 

It also helps the psychology that they seem to do accounting on cash terms and not marking assets to market.

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RG 7/1

But EVEN IF IT FALLS 30%, I’LL STILL MAKE MONEY. That’s because I can buy property for A MASSIVE DISCOUNT

 

My Reply: Richard, you are a genius. I freely admit that I wouldn’t be able to make money buying property in a market that falls 30%. Those discounts must be enormous; I wonder why people are willing to sell so much below the market?

 

As a matter of interest does everyone here get huge discounts or it just Richard?

 

Richard took this as an insult but I meant it.

No one else appears to be getting these massive discounts however.

 

The more I think about it, the more I think it's just a different way of looking at how to do the accounting.

 

If it were me, I would split property investment accounting into 3 categories;

 

1) Buying & Renovation - The process of purchasing a property and adding value to it, this includes what they term BMV which is basically buying a property that is in a distressed sale situation and removing it from that distressed situation. The proceeds from this are roughly the value of the property when the renovation / remedial work is complete minus the costs and initial purchase price.

2) Landlording - The process of making a spread between the cost of owning/running an asset and the income that can be derived from it, this should not include asset value changes, but should include changes to cost of capital / opportunity cost due to changes in asset value.

3) Price Speculation - The process of holding an asset in the expectation that it's future value will be higher. Roughly equal to the change in asset price minus the cost of holding and eventually selling the asset (don't double account if also landlording).

 

It would seem that this chap is adding all his value in the first stage, at the end of his remedial work he has an asset that is worth much more, so his calculations should really be based on this new higher asset value.

 

I think that's why we view it as slightly odd because the landlording and price speculation incomes are likely to be negative over the next couple of years, so we'd tend to sell if we were able to add value in category 1.

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PROPERTY TRIBES........................

 

youcouldntmakeitup.jpg

 

PROPERTY TRIBES FORUM GET TOGETHER GROUP PHOTO.......................

 

denial.jpg

 

PROPERTY TRIBES HOLIDAY PHOTOS.................

 

imagesCA6TANZK.jpg

 

headinground.jpg

 

PROPERTY TRIBES BEST SELLING MERCHANDISE....................

 

imagesCA5GMYYI.jpg

 

imagesCA3XUR74.jpg

 

PROPERTY TRIBES SITE MASCOT.............................

 

imagesCAUDWT1M.jpg

 

 

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PROPERTY TRIBES FORUM GET TOGETHER GROUP PHOTO.......................

 

denial.jpg

LOL.

The best of friends - they also ask of one another:

"Does my bumm look big in this." "Of course not, Darling."

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PROPERTY TRIBES........................

 

youcouldntmakeitup.jpg

 

PROPERTY TRIBES FORUM GET TOGETHER GROUP PHOTO.......................

 

denial.jpg

 

PROPERTY TRIBES HOLIDAY PHOTOS.................

 

imagesCA6TANZK.jpg

 

headinground.jpg

 

PROPERTY TRIBES BEST SELLING MERCHANDISE....................

 

imagesCA5GMYYI.jpg

 

imagesCA3XUR74.jpg

 

PROPERTY TRIBES SITE MASCOT.............................

 

imagesCAUDWT1M.jpg

 

:lol::lol:

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Hmm.

Some good comments and questions are now coming forward on that PT thread:

 

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.

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Reality is creeping in, even on PT, the landlord's website:

 

What is interesting, is that the discussion on the PT thread has now moved on from breast-beating denial towards pondering the realities.

 

Here's a post just made there:

 

TAM, your:

"most homeowners simply cannot sell below what they paid for their homes as they owe the banks more than they paid for them"

 

I expect many forced sales, with banks that "overlent", offering loans of more than 75%LTV facing many foreclosures, and then maybe putting those properties up for sale. That is exactly what is happening in the USA, Spain, and Ireland. What makes you think the UK will escape this? It is a common thing after the bursting of such a massive bubble.

 

"if the scenario you predict did occur then the banks would take another severe beating and it would probably make the credit crunch look like a picnic..."

 

Yes. That is exactly right. The UK whimped out in late 2008/ early 2009 and was the first to more to ZIRP, delaying the inevitable. The crash was delayed, not averted. Uk property owners were given a marvelous "dead cat bounce" to sell into- and I have been recommending that people do just that. My wise advice (if it is that?) has been rubbished by many here, but in 2-3 years, if not sooner, I reckon virtually everyone on PT will wish they had taken the advice.

 

... another poster there, JM, says this:

 

Currently, I am super cautious. IMO, the mindset that if I am not planning to sell, it does not matter what happens to property values is flawed logic. It's like owning a bond that is loosing its OMV, but is still providing coupon or rent but is still an asset that will break your back and teeth if you DO have to sell. The problem is that life changing events can force a sale and property has become an overly cash intensive business. In the days of 100% finance, I bought a lot and knew that I won't loose hard cash if $hit hits the fan. There is always bankruptcy and I invested in other asset classes through SEP's that have bankruptcy protection. It was almost a riskless proposition with the exception of tarnishing my credit which can be easily rebuilt with couple of good deals. I got wiser in my later years and offloaded before the titanic.

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The "Coming Squeeze" on UK Landlords...

 

"most have a long term view so the short term corrections dont concern them"*

What makes you think "the long term view" is positive?

 

I see the market dropping 30% more or less, and then not rising much. Meantime, UK landlords may get squeezed by:

+ Rising rates

+ Falling rents

+ Increased headaches from "tenant problems", taxes, and maintenance.

 

Even if you buy 25% BMV, if the market fall takes that away (and more!), and your cash flow gets squeezed, where's the "long term attraction" in a business like that. Poor John Clark, has just had a shocker of a problem with one of his properties, and Jacob had one too not long ago. Frankly, I am happy to sidestep such headaches, and simply "wait out" this correction.

== == ==

 

 

*thomas gallagher said:

"i reckon virtually everyone on PT will wish they had taken the advice."

hi nathan i doubt that, most on here are already commited to property investing and are still making money whether it be from rental income or buying and selling , also most have a long term view so the short term corrections dont concern them , i agree with your sentiments to an extent , as in if a friend asked me if they should start investing today , buying a 100k property that was valued at 100k that merely washed its face in the hope of profiting solely from capital appreciation then i would advise them against this...

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CHART Work

 

002y.gif

 

Do you see any important support levels here ?

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Continuing the theme of denial.

 

Compare 2008 National Housing Federation said average house prices in England were set to rise by 25% by 2013. :blink:

 

"As soon as the economic outlook improves, house prices will resume their previous upward trajectory," said the Federation's chief executive David Orr.

 

Mid 2010 David Orr, chief executive of the National Housing Federation, says:

“For those who bought at the peak of the housing boom, there’s a strong possibility that they will have to wait another four years before their home is actually worth what they paid for it.

 

“But house prices will inevitably increase in the long term because of huge under-supply of housing. Even though price rises look sluggish for the next few years, affordability is not improving for many low-to-middle income households - as banks continue to restrict their mortgage lending and house prices remain historically expensive in relation to salaries.”

 

http://www.mortgagestrategy.co.uk/economy/...1017599.article

 

This guy is lauded for campaigning for affordable housing, yet comments in 2008 show just how irresponsible he has been.

 

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  • 3 weeks later...

SIMPLE OPTIMISM cannot Prevent a Crash In Property

 

University College Dublin professor Morgan Kelly, in Hogans pub, in Dublin.

He predicted the Irish Crash in 2006.

 

“Around the middle of 2006 all these former students of ours working for the banks started to appear on TV!” he says. “They were now all bank economists, and they were nice guys and all that. And they were all saying the same thing: ‘We’re going to have a soft landing.’ ”

 

The statement struck him as absurd: real-estate bubbles never end with soft landings. A bubble is inflated by nothing firmer than expectations. The moment people cease to believe that house prices will rise forever, they will notice what a terrible long-term investment real estate has become and flee the market, and the market will crash. It was in the nature of real-estate booms to end with crashes—just as it was perhaps in Morgan Kelly’s nature to assume that, if his former students were cast on Irish TV as financial experts, something was amiss. “I just started Googling things,” he says.

. . .

Their real-estate boom had the flavor of a family lie: it was sustainable so long as it went unquestioned, and it went unquestioned so long as it appeared sustainable. After all, once the value of Irish real estate came untethered from rents there was no value for it that couldn’t be justified. The 35 million euros Irish entrepreneur Denis O’Brien paid for an impressive manor house on Dublin’s Shrewsbury Road sounded like a lot until a trust controlled by the real-estate developer Sean Dunne’s wife reportedly paid 58 million euros for a 4,000-square-foot fixer-upper just down the street. But the minute you compared the rise in prices to real-estate booms elsewhere and at other times, you re-anchored the conversation; you biffed the narrative. The comparisons that sprung to Morgan Kelly’s mind were with the housing bubbles in the Netherlands in the 1970s and Finland in the 1980s, but it almost didn’t matter which examples he picked: the mere idea that Ireland was not sui generis was the panic-making thought. “There is an iron law of house prices,” he wrote. “The more house prices rise relative to income and rents, the more they subsequently fall.”

/source: http://www.vanityfair.com/business/feature...3?currentPage=2

 

== ==

 

The ‘We’re going to have a soft landing.’ crowd is alive and well and still investing in property ... in the UK !

 

Look at this amazing feat of denial from the ever-optimistic founder of Property Tribes.

 

This comes in response to my recent posting showing that Nationwide has reported yet another month of falls within the "Crash Cruise speed"* range:

 

QUOTE

I don't regard that as a "crash"!

 

There is plenty of good news. What do you choose to believe? I have seen one newspaper with "crash" headlines that, 2 months later, had the headline "house prices continue to rise"!

When things are half price in the supermarket, people see the value and buy! They don't go "Oh my God, there's been a strawberry crash".

I just tend to get on with the business in hand and not pay too much heed to headlines

UNQUOTE

 

Does she really want to shut her eyes tight, and walk happily into disaster? It seems so !

How many UK property investors think prices are expensive (versus incomes and a faltering ability to pay ever-rising rents), but also think that all that is needed to maintain prices is simple optimism !

 

*Note:

Crashes in property markets, are not like in stock markets, they do not happen suddenly in a blink of an eye (except perhaps in Hong Kong in 2008). Instead, they crawl in on cat's feet, with slow steady falls, averaging in the "crash cruise speed" range of 0.5-1.0% per month. Sustained long enough, this can easily clip 10-20% from property prices. A sign that a leg of a crash is moving towards an end may be when the rate of decline accelerates, and drives a government to take desperate action - as did the UK in late 2008/early 2009 when it led the world into Quantitative Easing, and near Zero Interest Rate Policy (ZIRP.)

 

I don't think there's another rescue to be derived from ZIRP, because the UK is still (more or less) in that phase.

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