|
|
| The UK housing market: a bubble about to burst? |
Hot air
by The Dark Lord
|
#1001238
of 3278
 03 Dec 2002
10:27 AM |
I continue to find it vastly amusing that the bulk of posts from people calling price falls of 40%+ are also those with no grounding in economics.
Instead they seem to be people who believe that because they missed out on the property boom, some cosmic justice will reward them by dropping prices to levels which would return yields of 12-15%.
This is obviously rubbish.
If base rates are 4%, why will the risk premium on property balloon to 6-11% ? - It won't.
You can make as much noise as you want, but reality is not influenced by the bleating of sheep.
If you wish to place your faith in fantasy and miracles, go to church ... this is the real world.
*Bubbles* |
|
Who can give you an un-biased account - I think the Oxford Economist is about the best you'll get.
by Knowledge is Power
|
#1001236
of 3278
03 Dec 2002
10:13 AM |
Hoogstraten,
If the market has risen 25 - 30% in a single year, clearly a decline of 40 - 50% isn't (in proportion) a massive drop? e.g:
HP 2000 = 100k
HP 2001 = 125k (25% rise)
HP 2002 = 75k (40% fall)
the drop from 2000 - 2002 is only 25k or 25% on 2000's figure. throw in inflation & the figure IMHO is not ARMAGEDON, but a realistic adjustment. Put your blinkers on if you like, but that's what I belive.
Lets face it, the government, the CML, the banks & building societies, the BoE, Estate Agents, the IMF, Insurance Industry, and every home owner wants the boom to keep going.
If this is the case (you can argue this if you like but you're a fool if you do), can we really expect a balanced open view on what will happen.
Let's face it folks, there is a vested interest for the market to keep rising/stagnate. Anything to eliminate the possibility of a drop in prices.
This is pure arrogance & unbelievable naivety. |
|
25.5% year-on-year increase.
by spindrift
|
#1001235
of 3278
03 Dec 2002
09:39 AM |
Nationwide figures out today;
" Nationwide said the average price of a home shot up by two per cent to £115,761 in November following a 1.4 per cent increase in October.
The year-on-year rate of increase surged to a breakneck 25.5 per cent - the first time it has risen above 25 per cent since the height of the late-Eighties housing frenzy. "
http://www.thisislondon.co.uk/news/articles/2298473?source=Evening%20Standard
And, as an addendum, two post from Mt Brittain;
"What part of Aids and immigrants (with or without Aids) costs money do you not understand?"
and;
"At no point did I link Immigrants with Aids or mention farmers
So I would recommend that spindrift gets his facts right!" |
|
For the record
by DJW
|
#1001234
of 3278
03 Dec 2002
09:29 AM |
Hoogstraten,
Put me down for a 40% drop in house prices after inflation.
With a £100 donation to the "Shelter" Charity if I am wrong! I predict that the bottom of the market will be in 2008.
Call me a doom monger, but I think this is more common sense.
Reiterating the oft quoted question when has a boom not ended in a bust? It's a simple question. Please give a counter example - you can't can you?
I'm sure someone can define a boom more scientifically but if we say that a boom is a prolonged period of above average growth? Can someone help here - and that a bust is the opposite??
Please also keep your postings short. Endless quotes and diatribes add nothing to the debate.
David |
|
Confession – I am a Marxist Capitalist!
by Hoogstraten
|
#1001233
of 3278
03 Dec 2002
05:23 AM |
I note that Helen has finally grasped the concept of leverage.
Imagine someone bought a property for £200k, with 5% deposit. Prices then fell by 40 – 70% in real terms in that year. This means that the loss would be:
80k to 140k
-----------
10k
= 800% to 1400% annualised capital loss.
This would cause a Great Depression – DryMartini at least understands that massive capital loses (combined with leverage) would cause a Great Depression. How likely is this scenario in economic terms?
The doom mongers are using economics to justify these hysterical predictions (despite their protests to the contrary), but they are all using different economic theories. Lets have a look at some of them:
1. Contributor: Rob G
Theory: Keynesian Aggregate Demand sided collapse due to a collapse in confidence.
Examples: Great Depression and Japan in the 1990s
Problems with theory given current economic conditions: Keynes would argue that expansionary monetary policy can still be used (we are not caught in a liquidity trap at the moment), and that an expansionary fiscal policy can also be used to shore up Aggregate Demand (in the short-run). Note that a Great Depression has occurred once – it doesn’t seem particularly likely to me that we are going to have a wholesale collapse in confidence at the moment.
2. Contributor: Extra DryMartini
Theory: Supply sided collapse from a “credit crunch”.
Examples: Probably Argentina and other Latin American countries (and possibly also Malaysia).
Problems with theory given current economic conditions: Examples are confined in the main to banana republics. This is because the risk of default in first world countries of retail bank mortgage lending is very low. Affordability of property remains reasonable at the moment. Even in the last property collapse, the retail banks did not all go bankrupt (in fact, I can’t remember any going bankrupt). This is unlikely in the extreme.
3. Contributor: Helen
Theory: Hayekian view that if interest rates have been cut below the natural interest rate level, thereby leading to an inflationary boom, which will be followed by inevitable bust.
Problems with theory given current economic conditions: We now have cheap manufactured goods flooding in from China and Eastern Europe. There have also been massive technological advancements in recent years (e.g., the internet). This means that we have goods price deflation. As a result, the natural interest rate has adjusted downwards accordingly – where is the inflation in the economy (I am not referring to one asset class). I do not see any trigger for an imminent return to high inflation in the economy – perhaps Helen you could enlighten me? Hayek’s theory explains the boom, but it does not predict the bust (because the natural interest rate has fallen due to technological advancements and increased trade flows).
4. Contributor: rev.hk
Theory: Marxist theory that increased technology does not improve general welfare, because the increase in surplus value is simply expropriated by the capitalist (I am not sure that rev.hk realised he was arguing Marxist ideology, but he was).
Problems with theory given current economic conditions: Marx may well to some extent be correct. Nike factories relocating to cheap labour sources in the third world are an excellent example of Marxist theory in practice.
The problem with Marxism is that it proposes the replacement of the capitalist with the bureaucrat – which has disastrous consequences in terms of resource allocation, because there is no incentive for the bureaucrat to get the resource allocation right. The answer to the dilemma is to be a petty bourgeois capitalist yourself (there is nothing more petty in the Marxist world than being a landlord), that way you are the person expropriating the common mans surplus value. In the same way, own the capital that is reinvested in third world countries (e.g. cash equities) – and enjoy the fruits of the third worlds hard labour.
5. Contributor: Mr Britain
Theory: Return of the Living Dead type view that aids ridden immigrants are going to form an alliance with furious farmers armed with peasant pitchforks, and wreck havoc by consuming the brains of landlords.
Problems with theory given current economic conditions: As stated before, Mr Britain’s views are the most coherent and enjoyable of any of the doom mongers. However, despite a large number of horror stories agreeing with this scenario, I can’t seem to find any economic theory that advances this hypothesis.
I must commend the doom mongers on their continued pluckiness, despite being disproved beyond reasonable doubt continually. |
|
for Mr Britain
by Singapore D
|
#1001232
of 3278
03 Dec 2002
02:53 AM |
-------------------
"The Polls on this site are wrong and have been manipulated by communists"
-------------------
Hahhh hahhhhh hahhhh !!! that's funny! I love this forum, it's like a classic episode of Monty Python. Keep it up Mr Britain, you make my day :-) |
|
A free lunch? Maybe in the long run....
by Hoogstraten
|
#1001231
of 3278
03 Dec 2002
12:31 AM |
Helen,
You continue to waste my time by not reading peoples predictions. You say:
“…where the CAMP DMs (your names) made their forecasts of a 40% - 70% fall in real house prices and a repeat of the Great Depression. [The latter point is of course given by the former prediction].
From my records, I note that their names are Extradry Martini, Engineer, Rob G, Rev.hk, DJW, Sho-Ryuken, Knowledge is Power, Singapore D, Richard Head & Jeff Morgan.”
From memory (you go through the mails – I trust my memory as being better than yours):
ExtraDry – 70% real price fall predicted.
Engineer – I think he predicted 40 – 50% fall.
Rob G – said a 50% price fall.
Rev.hk – really just argued about the benefits of Marxism, I not sure about his number, but I think it was 40%.
Singapore D – 50% (200k properties will be worth 100k).
KIP – I think he is another 40%-50% man.
Jeff Morgan – is not a full-blown doom monger – he is only predicting a 10 –20% fall.
Sho-Ryuken and DJW – I don’t remember.
The 40 – 70% figures are courtesy of the doom mongers themselves – I know they sound absurd – but that is their predictions. If they wish to mail to say they no longer believe in these massive percentage falls, I would be happy to entertain them.
You say:
“In fact, I tend to agree with Richard Head that a proper reading of Hayek would point to you as the meek-ling, hoping to avoid paying for all the excesses of cheap capital and gormless optimism.”
I like it how the doom mongers (who generally know nothing about economics) drop the name of a great economist to argue their insane predictions. Have you ever actually read Hayeks views? He is correct - his thesis is that recessions are often caused by prior inflations. What prior inflationary period are you pointing to? It is my view that the natural interest rate has been lowered in the last few years, and this has created a property boom. My views are therefore consistent with Hayek and Friedman (but I still agree with Keynes regarding one issue – the causes of the Great Depression).
I could be wrong, and inflation could return. If so, this would provide a trigger for property adjustment, as the natural rate of interest rates may come under pressure to rise. This trigger is unlikely in the short-run - there will therefore be little chance of wholesale collapse in property prices as you and your fellow doom mongers suggest.
If you presented any of these economists with your bizarre reasoning and wild predictions, I think they would correctly point out that there are a number of monetary and fiscal policies they could introduce to mitigate your Great Depression doomsday scenario.
I never celebrated your book – Jack Straw did. You are correct that buying property is conceptually similar to buying equities on margin. The fact that you would consider buying property, when apparently you were not aware of this simple point, is concerning. You need to be able to appreciate the risks when making any investment decision – even a child would know that property investment is not without risk.
You say:
“…have said about property being a free lunch with Eddie’s put option as back-up.”
I have never said any investment is a “free lunch”. However, it is again trivially true that a 40-70% real fall in property prices would result in the BOE cutting rates. If you wish to describe standard macroeconomic policy setting using the analogy of a “put option”, so be it.
You say:
“Most new-born property owners, I doubt, have even the slightest idea what leveraged finance is, much like they had no idea what they were doing in tech stocks in late 1999.”
I don’t know what the average person knows or doesn’t know – however, leverage is not a difficult concept to understand. Perhaps this is because you yourself did not appreciate the power of leverage? The doom mongers all come back to tech stocks in the end – this is tedious. You need to look at every situation on its merits – the fundamentals of the tech boom and bust were completely different (there was no dividends, so no net cash flows – do you rent for nothing?)
“When has a market boom not been followed by a bust?”
I have answered this question so many times, that I tire of it. I will therefore answer in capitals (since my credibility somehow depends upon it).
THIS IS CHARTISM. YOU ARE LOOKING AT A CHART, AND SEEING A SUSTAINED RISE OR FALL ON THAT CHART, AND ARE SAYING THAT THEREFORE THE CHART MUST NOW TURN. ECONOMIC FUNDAMENTALS DETERMINE WHETHER THE CHART WILL TURN – THIS WILL THEN BE REFLECTED IN THE CHART.
People have been saying that the property chart must turn for the last 6 to 7 years – one day they will be proved correct, and then say “I told you so”. Will it be imminently? In my view no.
“Show us the money, if you have any!” Name your bet – I will entertain it. |
|
Bubbles, IT and Professionalism
by Rob G
|
#1001230
of 3278
02 Dec 2002
11:01 PM |
Jack,
I really don't know where you gleaned your rather myopic observance of the decline of the .COM boom, but it certainly wasn't anything to do with the ineptitide of IT professionals (and I use the term professionals in it's full sense).
I think you'll find that it was caused by a lot of venture capitalists pouring cash into a large number of high-burn-rate projects started by all manner of self-styled entrepeneurs. These were not IT professionals, but business persons, pure and simple. There is a BIG difference.
Unfortunately it was the lack of attention paid by the FINANCIERS to the marketability and validity of these money-pit startup companies which led to the bubble growing out of control.
So much for the 'professionals'.
Also, was it the IT department that led to the demise of Enron, Marconi et al or could it possibly have been the bean-counters?
I all my years in business, I've seen a large number of accounts staff clamouring to move into IT, but I have yet to meet one IT professional who expressed a desire to become an accountant. I wonder why that is?
Furthermore, I'd advise that if you want anyone to actually read your postings, they should contain at least some degree of coherent content, and preferably slightly more brief than the transcript of the 2002 summit on World climate change. |
|
Parlimentary Debate
by Betty Boothroyd
|
#1001228
of 3278
02 Dec 2002
10:40 PM |
I have had to request the re-instatement of my previous position, as it appears to me we require order in the house!! Could all you budding politicians stick to the issue The UK housing market: a bubble about to burst? and let me hear some valid points to enable me to make my final decision regarding the results of this poll!!
Order Order
I thank you. |
|
Must be wax my dear boy
by Mr Britain
|
#1001227
of 3278
02 Dec 2002
10:23 PM |
How can you come out with “continually quote pieces of your email” When I’ve not sent you any and why do you continually waffle on about the IT Industry or immigrants. Why don’t you stick to the issue in question. May I remind you my dear boy that this is about the boom or bust in the over heating housing market.
Have you just found a new word “semantic” since you seem to use it out of content when referring to my good self or other honourable colleagues on this site.
Why not turn a new leaf and try to inject real substance into the argument since you must be a very experience journalist, You can start by trying to answer a few of the points that other members have raised (are you sure you are not a real MP) without resorting to insults or miss quoting statements.
Lets start over again. So how many time average income for the FTB is property located within London in your opinion. |
|
"I'm a trifle deaf in this ear. Speak a little louder next time" Williy Wonka
by Jack Straw
|
#1001226
of 3278
02 Dec 2002
09:11 PM |
Mr Britain
------------
I believe you will find that Hoogie was referring to your comments, which I might add are not far off those being posted on the BNP website, I would presume.
I am not going to continually quote pieces of your email; I am not going to argue semantics. All I will state to you is that one reason for the failure of the tech boom was the lack of professional regulation. People of poor abilities are able to enter the market and pass themselves off as skilled staff, unlike a true profession. This cannot be correlated to the housing market, as there are NHBC standards to adhere to, plus council inspections. The quality of housing is not in question, as the NPV of Internet companies was, thus your comments are those of an inexperienced journalist or a pure jingoist.
-----------
Dearest Helen,
Well love, since this is your first post directly at me – I will indulge your personality search and answer each of your points in turn –
--------------
“See you have been at the copy and pasting again.”
Yes and what of it? To produce an effective argument you need to review both sides and compare and contrast the qualities of both. I feel experience plays a part in this.
--------------
“ Since you seem to be doing little other than wasting your employer’s time,”
Interesting semantic! I presume the length of your posting is to the benefit of your employer, or perhaps it is?
-------------
“ I thought it would be nice if you showed (with posting numbers to back you up) where the CAMP DMs (your names) made their forecasts of a 40% - 70% fall in real house prices and a repeat of the Great Depression. “
Look harder dear; it takes more than a superficial scan to prove your case. I seriously doubt you have read the 1k plus quotes and I am not doing work for you.
------------
”From my records, I note that their names are Extradry Martini, Engineer, Rob G, Rev.hk, DJW, Sho-Ryuken, Knowledge is Power, Singapore D, Richard Head & Jeff Morgan. I have read all their postings and cannot find much, aside from one by Extradry Martini, to link them any of the extremities alleged by you.”
I refer the honourable lady to my previous point
--------------
”In fact, I tend to agree with Richard Head that a proper reading of Hayek would point to you as the meek-ling, hoping to avoid paying for all the excesses of cheap capital and gormless optimism. As a self-proclaimed capitalist, you of all people should know that capitalism without bankruptcy is like christianity without hell. Any bailouts now will only make the final reckoning that much more painful.”
This is again meaningless semantics, what does it mean? To quote Shakespeare I would suggest the following – "Life," in Macbeth's formulation, this point by mine
is
”A poor player
That struts and frets his hour upon the stage,
And then is heard no more. It is a tale
Told by an idiot, full of sound and fury,
Signifying nothing”
--------------
”More important, thank you for celebrating my maths book “Tom Thumb’s Musical Maths’ and then using it for your leveraged finance calculations in postings 1177 to 1192. “
If you truly are Helen please identify who the book is dedicated to dear.
------------------
”Just in case any of Sunday’s sleepers missed it, I'd like to mention again that I was most impressed by your decency in proving that buying property is the same thing as buying equities on margin, meaning that while you can make a lot of money if the market goes up, you can end up warming your ankles with Marks and Spencer’s finest if it goes down and you’ve just got in. “
This is illustrates a pure misunderstanding of fundamentals. The above is true up to the point of each being an investment and perhaps buyer confidence. However companies valuations are dependent on their net cash flows, to suggest that net cash flows into houses can provide the volatility of a stock is misguided. To illustrate this a review of the volatility of M&S shares vs house prices will prove this point. Yet again I must point out people can chose not to purchase a share but not to exist in a dwelling, well unless you are a gypsy.
-----------------
”This was a most generous act on your part and goes against everything that you have said about property being a free lunch with Eddie’s put option as back-up.
I admire you for this selfless act of highlighting both your own double standards and the risks associated with buying assets which have appreciated in value oh so very sharply in the past four years. Most newborn property owners, I doubt, have even the slightest idea what leveraged finance is, much like they had no idea what they were doing in tech stocks in late 1999. “
Thank you for identifying that our arguments are reasoned. I refer you to my previous point, that reasoned arguments are made by a knowledge and acceptance of both sides. To ignore this leaves us with a sad diatribe made only as an emotional attempt to either insult or argue with a more informed opponent. One could suggest that the “schizo” approach of yourself and Jojo, since you are the same person, is neither reasoned nor well judged.
The correlation to the Internet bubble, by certain people, always makes me smile. To quote Livermore in “Stock Operator” –
”Never be a gambler…gamblers always lose…. I am an investor.”
Your point is infact profound, perhaps this illustrates the risk of house ownership, or any investment. Buying as a gamble may be a risk, but only short term.
-----------------
”Your honesty is to be greatly appreciated, I’m sure, and should sere as a warning to anyone foolish enough to think that what goes up will always go up.”
I’ll choose to ignore the poor spelling and counter the main point attempted here. Medium to long term this is always the case, short-term volatility in any investment is possible, but to invest in an informed manner is always prudent and no form of negative journalism can disprove this.
---------------
”For the record, Sho-Ryuken’s central question remains unanswered, three times now -:
When has a market boom not been followed by a bust?
Would you care to answer the question please. Today would be great timing. “
I’m not sure how to counter this point, for the following reasons. Firstly, how do we class a boom and a bust? Would a 100% rise in a stock followed by a say 10% fall be considered boom and bust? I think not, I would consider that boom/bust by its very definition is not that, but more like waves in the ocean. A boom should be followed by an offsetting bust (of an equal and offsetting amount, adjusting for inflation). The answer to this is that we are in perpetual boom, when viewed long term, else prices in housing would be nowhere near their value now. The point is pure rhetoric, and is easily disproved. Or to quote Willy Wonka,
Willy Wonka: [D]on't forget what happened to the man who suddenly got everything he always wanted.
Charlie Bucket: What happened?
Willy Wonka: He lived happily ever after
---------
”Your usual tactic of avoiding difficult questions and waiting to ridicule a faux pas or someone’s name is well known and has had its day.
Your credibility rests on a proper answer.”
Time is the only proof of my theories; I seek no credibility in a circle of low-level journalists. The answers are all here, its like a physiatrists paint pictures, you can read into them what you will. But I assure you Mr Britain’s points will not come to pass. AIDS, farmers, illegal immigrants, fox hunting…. and any other
popular media point will not influence the market, only fundamentals can do that.
------------
”Show us the money, if you have any!”
This is a petty attempt at an insult; qualify the wager if there is to be one.
-----------
In summary petty attempts at insulting myself purely detract from the core of the argument. I am yet to see one reasoned issue against my points, read previous postings for this – consider it homework, and happily await your proof, but please note.
“To place wit before good sense is to place the superfluous before the necessary.”
M. De Montlosier. |
|
He's convinced me. Give me my dollar back.
by sho_ryuken
|
#1001225
of 3278
02 Dec 2002
08:57 PM |
Mr Britain
Thanks for an excellent post !! I'm glad we all got that sorted. Time to close the forum now ??
Oh wait a minute, I read in the FT there is a market "anti-bubble" on the way.
http://search.ft.com/search/article.html?id=021202000425&query=anti-bubble&vsc_appId=totalSearch&state=Form
Sounds like the anti-Christ or something. Maybe we ought to get Engineer's comments on that first ?? Or maybe these guys are just communists after all ? |
|
Get your facts right
by Mr Britain
|
#1001224
of 3278
02 Dec 2002
07:46 PM |
Seems to me that some people are unable to read on this site and by coincidence they all see to be in the Jack Straw Club.
In Message #1001200 of 1166 I said
“Shares are going down whilst our Taxes are going up to pay for more and more immigrants slipping into the country, AIDS will add a massive amount to the national health bill over the coming years so if you think the waiting list is big now your in for a bit of a shock.”
In Message #1001205 of 1166 Hoogstraten quotes me as saying
“Your vision of evil farmers, aids ridden immigrants and banks moving out of the UK”
At no point did I link Immigrants with Aids or mention farmers as being evil however Hoogstraten goes on to say “For the record, I never trusted these country bumpkin types in the first place”
So I would recommend that spindrift gets his facts right before quoting me as saying “Mr Britain,re your comments about the effect on house pruices of asylum seekers with AIDS.” Do we take it that pruices was meant to read Prices.
Seems like I must have upset someone so I’m joining the bull’s from now on so:
Bust does not follow a prolonged boom
At 7 times income a two bed house remains extremely affordable
The world is not in a recession
Taxes are coming down whiles public services are going up.
£20,000 invested in a £200,000 property that goes up 10% produces a 50% return on the initial investment because stamp duty is zero and estate agent offer a free public service.
The Polls on this site are wrong and have been manipulated by communists.
Houses are in short supply despite a zero population growth.
Interest rate will continue to fall and remain below historic levels.
Estate agents are honest trustworthy people with no personal interest in prices going up.
Bulls smell lovely and are trying to save us money by telling us how to invest in property
It’s a myth that prices have started to fail in London. They are still going up by 20%
1200 New residents are about to arrive from Sangatte in France and they need houses.
The FTSE has no affect on jobs or house prices and is up again today by –0.36%
I’ve moved to Belgium so I alone will not allow the UK to join the Euro.
Hoogstraten will answer sho_ryuken and other questions one day
Just kidding guys. |
|
Perils of leverage
by zorro
|
#1001223
of 3278
02 Dec 2002
02:38 PM |
As Hoogstraten has admitted out in support of Jack Straw, 'leverage multiplies gain/loss of the initial investment'.
Precisely. What is true on the way up, is also true on the way down. If you put down a deposit of 10% ie £20,000 on a property worth £200,000 and this goes up in price by 5%, you have made a 50% gross profit on your initial investment. But if the price falls by the same 5% you also make a loss of 50%, to boot on an illiquid asset where you will have to bear the cost of that bad investment for as long as it takes. Is this sensible behaviour? |
|
Boom & bust
by sho_ryuken
|
#1001222
of 3278
02 Dec 2002
02:07 PM |
Helen
Thanks for re-iterating my question. I was getting a bit tired of repeating it myself.
The fact is, I don't really expect an anwer from Hoogstraten, as we all know the correct answer. Every boom from the South Sea Bubble and the Dutch tulip mania up to the the 80's housing market and the dotcom bubble have all had the same outcome. And they have all had the same increasingly preposterous explanations to prolong them. And once the inevitable crash comes, everyone pretends they saw it coming, even when they were actually vilifying the small number of dissenting voices at the time.
People talk about "supply and demand" without supplying any hard evidence of these factors at work. Demographic changes take a very long time to come about - they do not explain a bubble that has arisen in a very short space of time. The case for a crash has been put forward a lot more ably and with a lot more evidence.
Hoogstraten may come up with pathetic lines that I am "not thinking for myself" when I quote the weight of opinion of respected economists behind me. The fact is that fears of a bust have now been well articulated in the media, both high and low brow. Let's face it, that is all it takes, for confidence to be shaken as it now has been.
By the end of next year we'll all be talking about how obvious the crash was and how we all saw it coming, probably Hoogstraten included (he'll probably have changed his user name by then though).
Until that point Hoogstraten, enjoy your FDP Savill's literature - a year from now we will probably be framing it like the "traditional valuation techniques do not apply to new economy stocks" quotation from early 2000. |
|
|
