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| The UK housing market: a bubble about to burst? |
other factors.
by john
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#1000507
of 3278
 06 Nov 2002
04:19 PM |
unemployment may slow down the inflation of the bubble, it will not be sufficient to burst it. There is still an expanding, and profitable economy in the UK, and whilst many "traditional" institutions are contracting, there are new vibrant companies taking their place. There are many young up and coming successful individuals not yet on the property ladder, who will soon decide to do so.
There will be pockets where there is a high demand for good schooling commutes etc and for that property, there will be no fall in demand.
I agree there are things inherant in the economic cycle which will slow the market down, but I expect continued expansion for at least the next 2 - 3 years.
Government will see the property market as their get out of gaol free card, a vibrant property market helps fuel the economy through domestic purchases. I predict the slowdown will continue in other sectors, but in an attempt to stimulate growth, the government will:
1 reduce rares aggressively,
2, reduce stamp duty;
3, give tax relief for home improvement/property purchase.
We need to reflate our economy before we enter a japan type cycle, think about it, the boyant property market is about the only area where there is sufficient confidence left for this to be achieveable. |
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FA Sage Advice?
by Rob G
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#1000506
of 3278
06 Nov 2002
04:11 PM |
FWIW, I just had a conversation with my (seemingly very experienced) FA and he is not expecting house prices to drop in the forseeable future. He's saying that because interest rates will be forced down as we move towards joining the Euro, then he thinks this will only stoke demand.
Now I don't think that interest rates tell the whole story here, but it's another opinion for the pot... |
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deja vu
by Si
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#1000505
of 3278
06 Nov 2002
03:45 PM |
John,
What if people 'perceive' that they've lost their job, their tennant (who's lost his/her job), aren't going to get the expected payrises to cover their current credit-commitments, taxation has increased, or the private lending market curtails (private rates increases - some mortgage and savings rates have crept up of the order of .1 to.2 % recently) as a response to the risky economic climate? Who's going to get bigger mortgages to inflate the property market then?
As has been reiterated time and time again, it's not just about interest rates in this economic climate, just because that was the straw that broke the camel's back last time around in the UK. |
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Catalyst for a crash
by BP
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#1000504
of 3278
06 Nov 2002
03:45 PM |
Most western economies are facing a huge rise in unemployment over the next two years. Most companies face the bleak combination of excess debt, falling profits, weakening demand for their products and services, and no pricing power. For the moment, they have slashed investment, but this is not enough. Now they are slashing jobs. Unemployment is generally a lagging indicator, particularly when it affects white-collar professions, as is mainly happening now. When all the people currently being laid off realise that they can't find another job, the impact on the unemployment figures, consumer confidence, and final consumer demand, will be dramatic.
The impact on the property market will also be dramatic.
If demand disappears, and supply rises (mainly forced sales) prices will fall. Low interest rates make no difference to the unemployed; 2% of 10%, you still can't pay your mortgage.
This is a time to envy the job security of our friends in the civil service. |
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What is likely to make it burst?
by john
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#1000503
of 3278
06 Nov 2002
03:16 PM |
property appears cheap at the moment because of low interst rates. rates are about to fall. Inflation, in the rest of the economy is dead, and there is a real risk of deflation (ask any md of a manufaturing firm)
so I ask, what will make it burst? Perception will continue to suggest property is cheap. It will continue to expand until perception changes. the only thing that will make that change is a rise in rates, which will not happen for 3 - 5 years at least. |
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Ignorance
by Rob G
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#1000502
of 3278
06 Nov 2002
01:16 PM |
I think you unfortunately underestimate the fiscal ignorance of your average punter.
The closest most people get to financial realisation is either when they or their loved-ones lose their job or they get a letter from their bank manager telling them that they have exceeded their agreed overdraft.
Following the stock market & property market is sometimes a hobby of the 'chattering classes' but I fear that they suffer from collective 'head-in-the-sand' syndrome.
The upshot of all this being that none of them is likely top be anywhere near as fore-warned of the property/economy downturn as those following this forum. Most of them are still listening to (and probably believing) the unbelievably glib statements made by lenders and estate agents who seem to be the only people ever quoted in the press on the subject. Lets face it, when a group of people all having a vested interest in the success of a sector discuss the topic, they're not likely to talk it down, are they?
I think it will take 4-6 months before the penny finally drops. America and Germany first, us second. |
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What's stopping the avalanche???
by Tim
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#1000501
of 3278
06 Nov 2002
12:57 PM |
We all agree wholeheartedly on the current dire economic circumstances leaving the property bubble peatering on the precipice....but why is is not happening??
I am in the Banking sector and know multitudes of people in this sector and the technology sector who are either unemployed or extremely insecure in their jobs. The lack of bonusses this year and the fall in salary levels is already discounted into peoples earnings forcasts but still they climb onto the property ladder and don't anticipate a crash!!!
I really don't understand what is supporting the property market and making those millions of people remortgage to take out 'equity' and increase consumer spending!!!
Anyone care to offer an opinion on this and when and what will actually put the crash into fruition?
Lets all start by forwarding the URL for this discussion to everyone we know and get the snowball moving!!! |
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Falling down the stairs
by rev.hk
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#1000500
of 3278
06 Nov 2002
03:08 AM |
Dear Foreigner,
Like in all markets, timing and rate of change are very hard to predict. Sometimes markets keep going up for much longer than you expect and then fall like a stone when there is a rush for the exits. Sometimes, there's a small drop, a lull and then a hair-raising plunge. Other times, it's death by a thousand steps where we go up down-up-down-down-down-up-down etc. for ages - much like the on-going equity market move towards normalised p/e levels. If the market is badly out of line, then corrections can be very violent and prices will undershoot fair value.
Don't get involved is the best advice. Attempts to explain the correction as a temporary lull will be even more far fetched than the ones currently used to predict higher prices.
Extradry: Loved the Bottom Pickers byline. Very droll. |
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A forum suggestion
by Monitor_CS
FT Administrator  |
#1000499
of 3278
05 Nov 2002
07:45 PM |
Continuing the 'off-topic' conversation in our What does it take to beat the bears? might be slightly more appropriate, and free this forum to return to the subject of the housing market.
Thanks. |
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UK Government strips
by sho_ryuken
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#1000498
of 3278
05 Nov 2002
07:27 PM |
Apologies for continuing with a bit of an off-topic thread, but I would like to venture my opinion in investing in UK government strips (so-called "zero coupon bonds").
It is correct that in times of economic volatility there is rightly a "flight to quality", ie a move to government bonds as we have been seeing for some time now.
I would argue though that anyone considering investing there now may have missed the boat somehwat, just like investing in property right now. UK gilts yields have been falling for some time (ie becoming more expensive to buy) and would have made you a lot of money - had you invested a while back. Yields have now been rising back up again (ie market value falling), now that people are starting to believe the equity market is going to pick up (which is doubtful, I admit).
Rev HK is correct that buying long-dated strips gives significantly more interest rate exposure than just buying the straight bond. The longest dated strip available in the UK market is currently 30 years on the 4.25% Treasury 2032. This has a duration (ie sensitivity to interest rates) of 30 years, while the duration of the 30 year bond itself will be somewhere around the 15 year mark or thereabouts. The strip therefore will be VERY sensitive to interest rate movements and not for the faint hearted !!!
Granted, interest rates may well move down a little in the short term, but the markets have been pricing in a rate rise for some time, and this has just shifted further back in the yield curve. As far as I am aware, the consensus is still that rates will eventually rise back up - certainly the Bank of England thinks that we are below our natural interest rate level, though not as far below it as in the States !!
Anyway, whatever happens with interest rates, in my opinion investing in long-dated strips is a very high risk move - not to be done with the proceeds from the sale of your home !!!! Maybe a more sedate fixed income fund might be safer, if less exciting !!!
To be honest, I am not convinced there are any good investments around at the moment - equities are very risky right now, so is property, bonds are probably overvalued due to so many investors buying them up, and returns on cash are pitiful. Now that people have been stung twice on equities in recent years and will be probably soon on property, I don't think we will be seeing any more asset bubbles for a while.
Please feel free to disagree with any of the above, or even to get back onto the topic of house prices !!
sho_ryuken |
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Ha ha !
by Exrtradry Martini
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#1000497
of 3278
05 Nov 2002
03:15 PM |
Nice link Rob G – I agree, very amusing! A triumph of blind hope over sense – the stock market has at least another 40% to fall before you can start calling it cheap. I especially like the diagram – what they haven’t included is a phrase describing sentiment in the recent up-tick: “The sell-off must be overdone – isn’t it? Er…isn’t it?”! It is far more foolish to believe that a bear market is over when it has corrected a small amount than it is to show a bit of discipline and cut your losses. As for those trying to make money by picking the bottom of the market, well we need fools like them in order to make money ourselves.
There is a better phrase that could be used in the graph:
“Bottom pickers get smelly fingers”. |
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Investor Psychology
by Rob G
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#1000496
of 3278
05 Nov 2002
11:57 AM |
Take a look at this article from the Telegraph site which shows 'Investor Psychology' during a boom-and-bust cycle.
Rather amusing!
http://money.telegraph.co.uk/money/main.jhtml?xml=/money/2002/11/02/
cmmkt02.xml&sSheet=/money/2002/11/05/ixfrontperson.html
It applies equally well to the housing market as to the stock market.
(Edited by FT to break long url.)
[This message was edited by Monitor_JL on 06 Nov 2002 at 01:29 PM.] |
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Petering out in Europe/Avalanche in the UK?
by foreigner
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#1000495
of 3278
05 Nov 2002
11:46 AM |
The majority of the most-active respondents have predicted a bust. Are there any opinions on how quick a bust takes place once it has started?
As a comparison, in various countries in Europe we have seen annual price rises of 15-20% up to the beginning of this year, since when the percentage has gone down to ca. 5% (without signs of a dramatic bust yet). Isn't this exactly what the BoE are predicting/hoping for? |
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Zero Coupons
by rev.hk
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#1000494
of 3278
05 Nov 2002
12:04 AM |
John k:
Depending on your appetite for risk you might also want to look into UK govt. zero-coupon bonds.
ZCBs don't pay interest but are offered at a discount to ordinary government bonds. When interest rates fall they appreciate in value much faster. In general, a ZCB that has longer to run before maturing will make you more money.
All of the above is just an idea that would allow you to add spice to your portfolio should you want it. ZCBs are more volatile than ordinary bonds and they would fall more quickly than ordinary bonds if the bust failed to happen and rates went up. I'm convinced rates in the OECD have much further to fall, but that's your call.
It's important to remember that these are very uncertain times and the risks to company balance sheets are high. That's why Extradry has correctly told you to steer well clear of anything in the corproate sector. Keep your attentions firmly in the government sector.
Also, if you don't like bonds you might want to try putting your cash in a fixed or time deposit. The website www.moneyextra.co.uk allows you to search for the best interest rate at different sizes of deposit. It's quite a good site, although you should also be alive to the fact that small lenders offering high interest rates are doing so to attracct much needed customers. They might not be around for long in a bust.
Also, Norwegian and New Zealand offerings can give high yield with some currency risk - although I think this is stuff should be appearing in another forum.
Bon voyage.
rev. |
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Quickie on gilts...
by Extradry Martini
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#1000493
of 3278
04 Nov 2002
04:34 PM |
John k:
There is no minimum to the amount you can invest in Gilt-edged securities. The cost depends on the interest rate (known as the coupon) the individual bond pays. If it pays a high rate, then you will have to pay up to receive the high income stream, if its coupon is low, you get compensated and so on. All the bonds repay* at 100% of the face value. The common tool for comparison is a calculation called “yield to maturity” which calculates what a given price represents for a given bond as an average interest rate** over the life of the bond. There is a very liquid market in gilts and dealers quote a difference between their buy and ask prices of 0.05% to 0.15% depending on the bond. If you are dealing in small size, however, and depending on whom you are asking to deal on your behalf, you will find that there are other charges – it’s worth shopping around.
* Those bonds that do repay – there are some that are “perpetual” – i.e. only ever pay interest – but they are illiquid and can be volatile.
** It’s a little bit more complicated than that, but that’s what it does in essence.
(I know this is off-subject a little, but the natural question to follow a discussion of the coming bust is Where is one’s money safe if not in the stock market or property market?) |
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