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| The UK housing market: a bubble about to burst? |
The Slow Awakening
by Rob G
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#1000915
of 3278
 20 Nov 2002
09:40 AM |
Yet another article warning of the 'darker side' of low interest rates. It's only a matter of time before Joe Public finally realises that he's already spent his salary for the next 5 years...
http://www.thisismoney.com/20021120/nm55830.html
The recession is coming. Enjoy spending your Monopoly money while you can, fellas. |
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Time bombs..............
by Shareholder
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#1000914
of 3278
20 Nov 2002
08:53 AM |
We all know that a pension time bomb is ticking away, the lack of trust particularly in the Government is incredible. People are simply refusing to believe that funds they COULD save for retirment can be safe. Then again many are ploughing fundsinto the property market in the opinion they could sell and move to a smaller property in retirment freeing up a hefty cash sum.
The other time bomb ticking away ie economic; should interest rates rise, then large sums of disposable income will be swallowed up to pay mortgage interest thus accelerating the economic slowdon creating job losses and a spiral of economic downturn. This will create huge falls in house prices, that is the view being put forward by the BOE and sounds a very pessimistic view indeed.
Is it an early indication that interest rates are to rise??
Then the other time bomb is terrorism; what if Osama Bin Laden strikes again?? |
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Cats of different colours still catch mice
by Hoogstraten
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#1000913
of 3278
20 Nov 2002
08:34 AM |
At the risk of sounding like a democratic petty bourgeois capitalist, I have found a number of quotes that I have compared to rev.hk’s (does the rev stand for revolutionary?)
Rev.hk:
“…that anyone with a different opinion to his own makes that person a communist or some other name that springs to the frothy mind.”
Marx:
If anything is certain, it is that I myself am not a Marxist”
Rev.hk:
“Those that use the technology as their public portal are seeing their margins squeezed dramatically since the internet is simply a device to improve competition. There are very few barriers to entry and everyone has access to the same technology.”
Marx:
“The more the division of labour and the application of machinery extend, the more does competition extend among the workers, the more do their wages shrink together.”
Rev.hk:
“,,,companies have much of their work outs ahead of them and those that simply act as conduits for information are worth nothing… The internet simply increases competition since it reduces the barriers to competiton. This leads to downward pressure on margins which dramatically reduces a company's ability to make long term profits….”
Marx:
“Capitalist production, therefore, develops technology, and the combining together of various processes into a social whole, only by sapping the original sources of all wealth - the soil and the labourer.”
Rev.hk:
“Those listed companies that have developed the new technology have done so through massive debt accumulation that is slowly being paid, written or restructured off their balance sheets…”
Marx:
“As capital accumulates, the lot of the labourer must grow worse.”
Rev.hk:
“Go and read ' The theory of Economic Development' before wasting our time with any more of your ranting.”
Marx:
“Go on, get out. Last words are for fools who haven't said enough.”
In summary, from London to Hong Kong, I fear “an iron curtain” has descended between us. I realise that this running dog imperialist, petty bourgeois capitalist analysis is in shades of black and white, where you might prefer a more of a red coloured viewpoint.... |
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Migration into better areas.............
by Shareholder
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#1000912
of 3278
19 Nov 2002
06:30 PM |
Hoogstraten has made comments about areas!
Many are migrating into better and more expensive areas. Now this will drive up prices in those areas and pull down prices in the poorer areas.
So on average I think affordability has reached a peak and prices will stagnate, however intervention could well pull prices down. I understand there are proposals in hand to double council tax on second and holiday homes. Extremely unfair when the services are not being used, just a way to raise more money for vote buying.
If interest rates were to edge up then I believe prices will drop. In what circumstances that would happen I fail to realise at present. However in many areas prices have now peaked and are not holding with more and more property coming onto the market.
So insted of buying bigger homes I think there will be a move to quality and area. The areas vacated will I think suffer a price drop. The rental buy to let market has gone into decline as more and more realise the problems associated with letting. |
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rental yields
by john
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#1000911
of 3278
19 Nov 2002
03:54 PM |
they don't mean things are over priced. just that people do want to rent there. don't read too much into yields.
Prices wont collapse, too much support. |
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Marsbar and CT
by Hoogstraten
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#1000910
of 3278
19 Nov 2002
03:24 PM |
I would not presume to give advice to others on whether they should buy, because I don’t know enough about your personal circumstances. However, I feel I can put in my two pence worth and say what I would guess is going to happen to prices in the areas you mention, and effectively whether I would buy myself in these areas in the near future.
My view is that total prices will be reasonably stagnant over the next few years in the UK as a whole. However, I believe there will be quite big regional discrepancies in rates of growth. I think that the North of England will continue to rise, as rental yields are generally much more healthy than they are in parts of London. In my view, the poorer parts of London will also see property price rises in the coming years.
However, personally I would not consider buying in Knightsbridge, Kensington, Fulham, Putney, Chelsea, Clapham, Wimbledon or any other of the other areas of London that are the most expensive. The rental yields are the lowest in the best neighbourhoods in London. This is an indication that they are overpriced. I would agree that there is a downside risk of 10 – 20% of the price in the next 2 years in these areas, for the reasons related to the performance of the financial markets that you have mentioned.
My view is that areas like Oval, Stockwell, Elephant and Castle, Balham, Tooting etc would be a better investment in terms of price risk, and they are not located too far from Clapham. However, you may not like these areas – they are certainly not as salubrious! Good luck with whatever you decide! |
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A special message for Extradry Martini
by c
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#1000909
of 3278
19 Nov 2002
03:17 PM |
Good afternoon, Extradry! I can see that you obviously agree with the topic question: the UK housing market is a bubble about to burst. I'm forever blowing bubbles. Spread-betting in the City currently suggests that you are right, but I am pretty neutral.
It is just a hunch
After a very fine lunch
And before the credit crunch
so to speak. I therefore thought that you might be interested in Bond cocktails! James Bond currently has a total of 337 drinks (in both novels and films) which are broken down at the following link:
Shaken and stirred!
The paradox is, of course, Extradry, that although his favourite drink is champagne (57 times), James rarely knows his vintages. 1990 and 1964 remain good bets during the Bond years! Whisky (40 Scotches and 37 Bourbons) is a close runner up, although the best cocktail mix, clearly unknown to Jimmy, is distilled water!
Sláinte!
c. |
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And this is the pincher
by Knowledge is Power
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#1000908
of 3278
19 Nov 2002
03:03 PM |
In line with Martini's comments:
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/
FullStory&c=StoryFT&cid=1035873407112&p=1012571727159
There is a finite source of debt people can take on, and when that "event horizon" is reached we will go into recession and possible deflation.
Exports & a rising stock market are the only safe guard we have to prevent this, but I doubt either will pick up in time. :-(
But hey, keep spending guys it will be ok!
[URL edited by FT]
[This message was edited by Monitor_CS on 19 Nov 2002 at 03:24 PM.] |
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Delude yourself if you must....
by Extradry Martini
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#1000907
of 3278
19 Nov 2002
02:57 PM |
I now see the common denominator between the inflationists in this forum, and, as a result, the central difference that I have with them.
They say that the UK real estate market can only be affected by factors that are specific to that market. In other words, they say that “supply and demand” is all about how many houses are being built, immigration, how many people are renting (assuming of course that these people want to buy) etc. I say that although these points are valid in a very relative and micro way, the broad issue of generalised movements in real estate valuations has little to do with these factors, but a lot to do with macro economic conditions. After all, when have real house prices ever gone up during a recession?
At the same time, people’s experience of current economic conditions is nil, owing to the fact that the last time the economy was facing the same set of risks was in 1930 (i.e. not in living memory). This has led to a sense of security that leads people to believe that as long as interest rates are low then all is ok. This same sense of security has led to unprecedented levels of speculation – not only in “buy-to-let” (10% of all new purchases!), but also in “equity withdrawal” and the extreme prices that first time buyers are currently paying because they think they’ll never get in otherwise. While all this froth continues, a credit crunch has developed in the term capital markets which is getting more painful on a daily basis and is hitting banks especially hard (their costs of borrowing having gone up while the quality of their portfolios has deteriorated).
I think this last point is perhaps the most pertinent because it is a fact (the compensation for taking on term credit risk has tripled in 3 years), yet the only responses it has provoked in this forum are childish insults!
I can understand why people are afraid, but that doesn’t mean that ignoring the macro-economic forces currently at work will make them go away. There are indeed positive points to the property market (e.g. short term “affordability”) but they are all too unimportant in the bigger macro economic picture. It is classic bubble-speak to point at micro differences between this market and any other and say that they will ensure the eternal survival of the bull market. It’s happened in every bubble in history, as has the conviction that if everyone else is just as ignorant of the risks then everyone must be right.
General price direction is always in line with general macro economic conditions or outlook, and the speed and order of magnitude of price movement increases with speculation. It’s as simple as that.
Marsbar:
A word of advice: I think that your assessment of my (and others) earlier analyses of conditions as “sweeping” might be taken a little more seriously if you knew the difference between “economics” and “economical”. Buy a dictionary, read a book on macro economics, come back and tell me why you see what I have written as “sweeping statement”. Until then, I suggest you stick to what you know….
By the way, a word to those that have so little confidence in their own arguments that they believe that I am trying to “talk the market down”:
I strongly believe that the BoE should be cutting rates further. This would undoubtedly have the effect of putting another silly percentage on house prices – it doesn’t matter – without jobs there is no real estate market anyway. So, I would say that the Bank should cut to around 2% immediately – the property market will go up again and then the bubble will take slightly longer to burst and it’ll be more spectacular. In the meantime, the rest of the economy will get the monetary conditions it desperately needs to survive in the medium term. |
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Reply to marsbar
by CT
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#1000906
of 3278
19 Nov 2002
02:55 PM |
Marsbar,
I'm in a similar position although would be looking more in the 250-300K region in Clapham (ie nice 1-2 bed garden flat for those from elsewhere). I would agree with Jeff Morgan 's response of wait and see. Someone earlier on pointed out an excellent website - hometrack.co.uk - which shows that prices in Clapham and many other parts of central London have not gone up in the last three months. More interestingly, the time taken to sell properties and number of viewings have increased and while the number of new instructions is still increasing, the number of potential buyers registering is typically falling or stagnant. So (hoping no-one will question my economics) supply is now increasing faster than demand with the result that prices will stay pretty much as they are or fall, depending on how many opportunist sellers withdraw from the market.
I'm not betting on a crash though in such areas - as this would require a large number of forced sales - although things could get much worse in the city, but then probably I wouldn't be able to buy a flat anyway! |
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Reply to rev.hk
by Hoogstraten
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#1000905
of 3278
19 Nov 2002
02:15 PM |
I could drop the names of a large number of economists that I have actually read, if I thought it was going to further the debate. If you actually do know something about Schumpeter, and it relates to the issue at hand, I am happy to entertain you. Perhaps you would care to detail what your point is?
I suspect you feel that you have been made to look slightly silly, so you are resorting to name-dropping.... |
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Work, rest or play?
by Jeff Morgan
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#1000904
of 3278
19 Nov 2002
01:51 PM |
Marsbar, my response. First though I'm going to disclaim all responsibility for any action you or any third party may take in reaction or response to any advice I may give, or may be construed to have given.
As you can gather, I'm really confident.
If I were in your position (and I live close to your area) I would wait for at least 3 months until February, reading the magazines every week and watching the trends. That way you'll be ready if the market doesn't turn - but I think the time of fast price rises is over for now and I expect prices to reduce. |
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More of the same
by rev.hk
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#1000903
of 3278
19 Nov 2002
01:33 PM |
Dear H.
Thank you for that wonderfully emotive tour of perfect competition, which you seem to think is what most people think of as capitalism.. Unfortunately, I used the name Schumpeter for a reason. I was hoping that you might pick up on it while snarling into your a-z of philosophy. Maybe the father of Austrian school capitalism isn't there because it doesn't get on television that much. Go and read ' The theory of Economic Development' before wasting our time with any more of your ranting.
Night-night |
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Economics again....
by Hoogstraten
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#1000902
of 3278
19 Nov 2002
01:14 PM |
1. “we are treated to all that H. knows about macroeconomics”
This is not the case – I have deliberately tried to keep my macroeconomic lessons slow and simple, to facilitate you keeping up. You are correct – it is first year economics (which I have not done for a considerable time).
2. “The misquoting from my earlier postings is now reaching such a cresendo…”
All quotes were copied directly – misquoting is therefore impossible. I imagine that you are now embarrassed by some of your previous comments.
3. The fact that a communist would agree with you about the dangers of increased competition, reducing barriers to entry, and reducing profit margins does not in itself mean you are a communist. You beliefs are, however, certainly consistent with Marxist theory. There is not much I can do about this, unless you change your views, or Marx comes back from the dead and changes his.
4. You say “my comments …have everything to do with the ability to corporates to make monopoly profits over the long term and therefore justify their continued existence as highly priced listed companies in the capital markets.”
This is repeating the view expressed in your previous mails. At the risk of being called in an “angry world” again, a capitalist would not believe that making monopoly profits, thereby resulting in highly priced listed companies in the capital markets, was a good thing. To the contrary, a capitalist would want large companies on the capital markets because the companies concerned had economies of scale, and are efficient.
I apologise to you that your views do not correspond to a capitalist’s viewpoint. However, unless you change them, or what capitalism represents is changed, there is nothing I can do about this. |
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Market Complexities
by Marsbar
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#1000901
of 3278
19 Nov 2002
01:14 PM |
I have followed this debate with serious interest as I have been deciding whether to step into the property market for the past couple of years.
Not sure whether I'm your typical FTB as I'm looking at the £400k high end flat or small house in good areas such as Clapham, Putney, Fulham, Wimbledon etc. I apreciate that the market entry decision is irrelevant in the 10 year view but the volatility of entry price over the next 2-3 years apears very large.
The debate has progressed greatly from doom and gloom sweeping statements made a month ago from 'Dry Martini', 'Engineer' etc to a much more economically and statistically backed up argument by Andy B and Hoogstraten.
My current understanding is that the property price forcast in the med term is greatly dependent on the demographics and employment drivers/risks of each region of the UK, and could vary greatly by region. There are some areas where capital or income based investment oportunities still exist but these are dwindling.
If we focus our analysis on the SE (just for a moment), even if, fundamentally, property prices are at the correct level now when compared to history what are the chances of a short term correction of say 10-20% over the next 2 yrs?
I beleive quite high for the following reasons:
-High % of buyers are in it for the money...capital and income returns falling as market 'stabilises',
-Buyers sell and switch to low rentals to 'see what happens' as a result of current media scaremongering,
-Large staff cuts in the city (8mil sq ft empty office space and rising),
-Large losses in Fin Services with no bonusses forcast this year or next,
-Lemming effect of 'dinner party discussions' causes many to follow friends and sell and rent.
These effects will probably all only be short term and the market will continue on its current path in the med term but current 'bad' economic times may cause a 'blimp'.....SO is it wise to wait for the short term correction for entry to the market in London? I would very much apreciate your views. |
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