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| The UK housing market: a bubble about to burst? |
I don't believe it! Not that argument again!
by Extradry Martini
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#1001513
of 3278
 13 Dec 2002
03:49 PM |
Mr. X,
Are you saying that the market will not go down because the majority will not sell? The majority do not need to sell for the market to go down, much as they don't need to buy to go down.
Even in your example, you were citing people who had bought 12-15 years ago - that was well before the current bull market started - so how did they make the prices go up? They didn't of course, just as they won't make the prices go down - it will be the relative force of sellers over buyers that will do that.
The point is that if there is more selling pressure than buying pressure in a market, it will go down, and it will go up if the buying pressure is stonger than the selling pressure.
It really is as simple as that. While you are right to say that the majority will not sell, they won't be buying either, so what effect will they have on the market?
The answer, of course, is that they will be irrelevant, as they were on the way up. So, any argument based on some notion that their inaction will somehow support the market is absurd. |
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"some peope will have, some never will! And they complain and complain and complain and complain" - Bob Roberts
by Jack Straw
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#1001512
of 3278
13 Dec 2002
03:41 PM |
Ladies tipple,
Thanks for the swift response, well done with the bonus! A number of banks were on a zero bonus policy this year so you must have had a good year.
Back to the verbal jousting, you say,
”Re the 70% - 40% you mention, I think it is you that needs re-read previous posts. I said that even a 70% fall from current levels is a possibility, and 40% was always the number for the real drop in prices last time. “
I have rechecked and the result is still the same unfortunately, thus I ask which level you are going for.
You are right; yes it’s 4 banks, possible 5 with BSCH, in the top 25 globally! Mind you these are the European figures, I’d be terrified if I was a DBC investor.
Top 10 European banks (market capitalisation $bn)
1 HSBC 97.55
2 Lloyds TSB 57.91
3 UBS 54.82
4 Deutsche Bank 50.88
5 ING 50.52
6 Credit Suisse 49.64
7 RBS-NatWest 41.89
8 BSCH 38.18
9 Barclays 37.12
10 BNP Paribas 33.66
”I am surprised that you say you work for a US bank. Firstly, you said early on in the forum that you made your living letting out your property - have you stopped doing this? If so, why? Secondly, you do not seem to have the level of knowledge or the understanding of macroeconomics requisite for the investment banking business. This is not meant to be derogatory in any way – I‘m not saying you cannot learn it - and besides I know nothing about (for example) how to make a property attractive for letting…”
OK I used to work for a US bank, since I was on the restricted list, I knew where the exposures were for our corporation. I am aware corporation X were stung in Mexico and had large Argentina positions when I last reviewed the exposure. You are not true, there are US banks with large latin American positions. Why, well that’s obvious – returns, why were the Midland in there previously salsa dancing?
I guess only time will tell with regard to the housing market. I would warn you that since your predictions we have had 2 months of price rises, but it is good to see you back! 10% next year! |
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Housing
by Mr X
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#1001511
of 3278
13 Dec 2002
03:27 PM |
To Rob G. So what if the prices fall ? As Jeff Morgan explained, the vast majority do not need to sell. Consider several people I know [as we all know these types people]Bought 12 - 15 years ago - for example £100K house with 90 % mortgage then. Value today £275K with £55k mortgage outstanding. Total monthly payments re mortgage £525 per month for a 3 bedroom semi in Herts.
For God's sake Rob G, can you explain why these people need to sell ? To do what ? Sell, and then rent at £1,000 for an equivalent property ? For them to break even, a drop of 80 % would need to take place OVERNIGHT to have a break even situation concerning equity. And furthermore, every year sees a further reduction in their mortgage debt as the years roll by towards the end of their term.
We all know that an drops of this magnitude just simply are not feasible. Yes, the vast majority of FTB's just on the ladder will suffer, but not the vast majority of established buyers.
Care to contradict ? |
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Take a Small Fall?
by Rob G
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#1001510
of 3278
13 Dec 2002
02:18 PM |
Yes, but Jeff:
Once prices start to fall significantly - what will stop them? |
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happy house-hunting this Christmas
by jeff morgan
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#1001509
of 3278
13 Dec 2002
12:25 PM |
I am about to be thrown out of my current office, as we are moving to a new building. As usual I am the rearguard.
I shall continue to be the same with housing. I'll sell later, much later, if at all - because I don't have to. Many - in fact the significant majority of house owners (probably 90%+) don't need to sell, don't want to sell, so won't sell. The most likely consequence of a fall in house prices [as I have said before, the price at which transactions are struck] will be to jam up the market more. And, I do believe that prices will fall, though not by the amounts some have suggested.
And it will all vary with location because local effects are often more important. Estate agents may have a shifty reputation but their slogan 'location, location, location' is surely correct.
Anyway, if I can get connected in our new state-of-the-art office building then I may be able to read and write to the forum before Christmas. Otherwise I wish all of you that want houses good luck in getting them, at the price you can afford - and not more. |
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Trigger
by Lone Ranger
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#1001508
of 3278
13 Dec 2002
12:14 PM |
1. What trigger caused the rise
An injection of liquidity into the local credit system following Asian Financial crisis, Russian default, Y2K. A fall in the demand for lending by corporate sector. Leading credit instiutions to seek out other borrowers to continue growth. A change in the perception of property price momentum. A change in the BTL laws. An increase in the number of buyers indulging in speculative activity. Speculative buyers at margin consider cherries to be a commodity that will provide them with superior investment returns and acquire single props. or portfolio and buy at asking prices (plus). Momentum infleunced buyers purchase before prices rise further and buy at asking prices (plus). Speculative and momentum sellers take advantage of capital gains/low interest rates from sales to trade up/move out of areas and sell at asking prices (plus). "Normal" activity follows the price increase trend.
2. What trigger will cause a fall. A decrease in supply of lending. A change in the perception of property price momentum. An decrease in the number of buyers indulging in speculative activity on the upside. An increase in the number of buyers indulging in speculative activity on the downside. Speculative buyers at margin no longer consider cherries to be a commodity that will provide them with superior investment returns so they stop buying new additional properties or, begin to dispose of properties below asking price. Momentum buyers no longer purchase before prices rise further, but rather wait to see the price trend developing and make offers below the asking price. Speculative and momentum sellers either withdraw from the market or seek to take advantage of capital gains and still low interest rates by negotiating discounts on their purchases.
"Normal" activity follows the price increase trend. |
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The Right Stuff
by Rob G
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#1001507
of 3278
13 Dec 2002
11:47 AM |
Thanks for your contribution Mr Martini.
For my 10c, the trigger for the fall of the market will be a combination of the following factors:
1. A publicly perceived softening in prices, starting in the South.
2. A general feeling that job losses are more rather than less likely in futire.
3. The media's continued persistance that a fall is inevitable.
These are all currently at work.
Jack's other examples of 'bubbles', while presumably tongue-in-cheek are completely irrelevant as they aren't (with the exception of oil supply) bubbles at all.
My discussions with various middle class home-owning individuals in recent days (reunions and the like) have all revealed a remarkable consensus of opinion; that we are experiencing a bubble and that it will burst some time in the next year.
I have to say that I was surprised at the lack of anyone willing to believe that prices are likely to stabilise at their present levels.
It's only a matter of time before this perception filters down the ranks of society to the rather less well-informed FTBs who are currently propping up this house of cards.
[Edited to remove an offensive remark.]
[This message was edited by Monitor_JDW on 13 Dec 2002 at 12:16 PM.] |
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Have a Fact-Free Xmas with Hoogsraten/Straw!
by Extradry Martini
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#1001506
of 3278
13 Dec 2002
11:23 AM |
Straw/Hoogstraten
Thanks for your best wishes. Since you asked - having had a record year this year, my bonus is the highest I have ever received, but on a relative basis it is indeed lower, for obvious reasons.
Re the 70% - 40% you mention, I think it is you that needs re-read previous posts. I said that even a 70% fall from current levels is a possibility, and 40% was always the number for the real drop in prices last time.
Regarding the US case, yes there is risk in the banking system, but the US real estate market is nothing like as frothy as that of the UK, and house price to earnings ratios are a fraction of what they are in the UK. At the same time, banks like Abbey National have specialised in the mortgage market, by not only by direct lending, but also by leveraging up and borrowing money to invest hugely in securitised mortgage pools. By the way, where did you get your info on there being 4 UK banks in the largest top ten in the world? It is wrong – HSBC is the only one, and its relative size has absolutely nothing to do with mortgage lending.
I am surprised that you say you work for a US bank. Firstly, you said early on in the forum that you made your living letting out your property - have you stopped doing this? If so, why? Secondly, you do not seem to have the level of knowledge or the understanding of macroeconomics requisite for the investment banking business. This is not meant to be derogatory in any way – I‘m not saying you cannot learn it - and besides I know nothing about (for example) how to make a property attractive for letting…
Apologies, however, if I got it wrong and what you meant by “Being from one of the US banks…” was that you are a customer of a US bank – though I hardly see how that would give you any insight into Latin American lending by US banks. Incidentally, while I’m on the subject, you’re wrong on this one too – Latin American lending by US banks is tiny compared to their exposure to the domestic consumer and corporate markets. Most bank lending to the area has been by Spanish banks, and they have already written off the majority.
Have a Happy Christmas all! |
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"Im all shuck up" - Elvis
by Jack Straw
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#1001505
of 3278
13 Dec 2002
10:22 AM |
Thanks for the link, it’s almost like the guy was answering me! The chap makes a few good points, such as:-
“The ratio of interest payments to income has been broadly stable over recent years and is well down from the late 1980s peak.”
But the burden of debt is a completely different story. The ratio of debt to income has been rising sharply and is now well above the late 1980s peak
If rates were to rise sharply then there is no doubt that the debt side of the equation would end up giving you the more accurate picture. Because of the size of the debt, consumers are particularly vulnerable to higher interest rates”
This is the point I have stated again and again. You have not being reading one of us.
The point is that there has to be a trigger, and further we must consider there has to be some interest rate alignment pre EU entry. Secondly where is his analysis of disposable income rises, as per my OECD figures. This chap suffers from martini disease, i.e. one sided logic. Pentecost yesterday dicussed confidence as the main trigger, this chap discusses only debt risk. Well you doom mongers need to get your heads together and sing from the same hymn sheet!
Further he goes onto state,
“And the prevailing view is that it is going to carry on rising sharply. Because prices always go up in this country by leaps and bounds, don't they? It's all to do with land shortage and the like.
In fact, this argument is economically illiterate and historically blind. House prices do not always go up. Indeed, in the early 1990s average house prices fell by a cumulative 16 per cent. When people believe that house prices will again fall that's when the chickens will come home to roost. Then they will start to think about the debt burden because then, far from being the route to capital gains, debt will be the source of capital losses.”
This maybe true but his sample is flawed. What he is doing is analysing a short-term position on a long-term investment. Its like suggesting that if a sample of Bolton’s games, are taken from the premiership results this year, we see that they won at old Trafford. Therefore the only reasonable summation of this sample is the Bolton can win the premiership.
All this guy does is rehash old arguments, but balances his statements with theories about “cheap interest” and “increasing debts, (as people buy more houses)”. This says nothing new, it has been covered before, infact I’d hazard to suggest theres a bit of bet hedging in there. It still ignores the fundamentals of shortage of housing stock, reducing human occupancy rates per house, increased expectations etc. Here's a link covering this, it’s the JRF summary on the housing market,
http://www.jrf.org.uk/bookshop/eBooks/2022.pdf
And at no stage does he discuss the OECD disposable income figures, highlighting the UK having the greatest rise in real terms, since the 70’s. Your hero worship is misguided, if history proves one thing it is that no market can be followed on a chart. History may be a potential indicator, but is not a guarantee of future movements. We have not had an oil crisis since the 70’s, surely this bubble must burst. There has not been an influenza epidemic since post WW One, what a bubble! The bubonic plague has not ravaged Europe in centuries, this bubble has to burst. There have been four crusades – but not one for centuries, surely this bubble must burst – come one Mr Bush! P.C’s processing power has radically improved since the 80’s, this is a bad thing. It’s a mater of time before we are back to green screens and 086 processors. A bubble, as beauty, is “in the eye of the beyholder”. Or to put it another way “one mans trash is another mans treasure”. I find that anyone posting on this forum, over the last few months, could write a better article than that. We’ve spent more time discussing, and researching this topic, than that chap has placed in research in his whole career. We all are rhetorical in our points, only hindsight is 20/20, therefore not too much store must be set on one persons theories.
[Edited to remove derogatory name.]
[This message was edited by Monitor_JDW on 13 Dec 2002 at 10:57 AM.] |
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Kipper me ol mucker, EMOTIONS ARE THE KEY!
by Knowledge is Power
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#1001504
of 3278
13 Dec 2002
10:05 AM |
"I’m confused as to why you believe I am emotionally involved in this forum. You see I believe my strength is the ability to view both points of the forum, positive and negative, which is why in areas I have given ground. You see this is why your argument is flawed."
Ah, but Kipper you've hit the nail on the head. Housing isn't just asset prices, it's far more than that. People have emotional attachment with housing, and the normal emotions (e.g. fear, greed, envy) that can be seen in any market are exacerbated in the housing market. Without this appreciation, and the realisation that the common man pays bear attention to complex economics theory, you will never understand the social dynamics of the housing market.
Think about it Kipper, self-effacement & all, to understand the market you need to understand the dynamics and logic of society at large. If you do so, you’ll come to the speedy recognition that things will not continue the way that they have been over the last 2 years. And, pushing all the complex mechanics of economics aside, the only thing that happens when a market reaches it’s peak is it bursts. End of story.
As for giving ground, I’ll get back to you on that one in Dec 2003. |
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dearest ladies drink
by Jack Straw
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#1001503
of 3278
13 Dec 2002
09:48 AM |
Martini,
Welcome back, it’ll be good to get a coherent argument out of the doom mongers. Interesting article, but may I point out that you stated prices would fall 70%, “as in the late eighties”. But your new quote states,
“His conclusions in this coherent and eloquent piece are the only ones one can make given the current economic climate. He says, rightly, that a climate of believing that property prices only go up (a classic belief in an irrational market) is now prevalent in the UK, despite a fall of 16% in nominal prices in the early ‘90s. What he fails to mention (and I think this is the only thing he left out in the whole article), is that after taking inflation into account, prices fell by 40% over that period. “
Well what is it 40%, or 70%? I my opinion both theories are flawed, but it’d be good to get some consistency out of you.
You further go onto state,
“Now that inflation is very low and going lower, it is likely that a similar fall in the market will mean a fall in nominal prices of much more, thereby triggering the consumer credit crunch and the banking crisis that Standard and Poors reported as a risk earlier this week. He probably did this because of the inability of the economically illiterate (to whom the article was undoubtedly addressed) to understand the point.”
This posting is very much like the “dust til dawn” movie. We start off with fundamentals and then we enter the mythical world of vampires and monsters. “consumer credit crunch and the banking crisis”, this is a ridiculous summation, obviously you have not heard of netting and the reduced risk such a portfolio. Only a berk would consider this valid, we have 4 of the largest 10 banks in the world for a reason, that reason is the housing market. With regard to the S&P point, I covered this with Zorro earlier this week. Therefore if you need a response please re read all previous postings. Suffice to say the Us banking market has more risk at present, look at Citibank/JPM’s position with Enron. Being from one of the US banks I can confirm further exposure to latin American countries, which is far more risky than the uk housing market. In summary, only an idiot would consider that mortgage-lending risk is greater than latin American investment risk.
Oh good luck with your bonus this year, it’s gonna be a bleak winter for city bonuses. |
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Spot on...
by Extradry Martini
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#1001502
of 3278
13 Dec 2002
09:08 AM |
Having not been in this forum for some time, I have come back to post a link to an article by Roger Bootle (one of Britain’s leading economists), only to find it has already been posted here.
His conclusions in this coherent and eloquent piece are the only ones one can make given the current economic climate. He says, rightly, that a climate of believing that property prices only go up (a classic belief in an irrational market) is now prevalent in the UK, despite a fall of 16% in nominal prices in the early ‘90s. What he fails to mention (and I think this is the only thing he left out in the whole article), is that after taking inflation into account, prices fell by 40% over that period. Now that inflation is very low and going lower, it is likely that a similar fall in the market will mean a fall in nominal prices of much more, thereby triggering the consumer credit crunch and the banking crisis that Standard and Poors reported as a risk earlier this week. He probably did this because of the inability of the economically illiterate (to whom the article was undoubtedly addressed) to understand the point.
Anyway, if you don’t want to page down through the guff between this posting and where the link to the article was last posted, here it is again:
http://www.telegraph.co.uk/money/main.jhtml;$sessionid$CWK0V
5QNLF2OZQFIQMFSFF4AVCBQ0IV0?xml=%2Fmoney%2F2002%2F11%2F17%
2Fccecag17.xml&_requestid=50996
Regards and Happy Christmas to all – I’m going off to count my bonus
[Edited to break up overly long URL.]
[This message was edited by Monitor_JDW on 13 Dec 2002 at 10:02 AM.] |
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Champagne Socialists and Eating the Poor
by Hoogstraten
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#1001501
of 3278
13 Dec 2002
08:25 AM |
RealFakeElvis – I understand you are busy today (probably you have lined up 300 hamburgers to eat in the next 3 hours?).
I now have renewed respect for the FT (the Financial Tabloid), because although hysterical and inconsistent, it at least tries to be more economically coherent than the rag that you have cut and pasted.
Your “expert” is in fact just another tedious clown. What does he think is the trigger for his supposed impending property collapse? Not higher interest rates, higher unemployment or City of London financial problems (at least these would be arguments someone could make a case for).
This is the worst article ever posted on this site, because the author does not actually have a legitimate trigger for property collapse!
I believe his argument for property collapse rests on the fact that there are a pool of huddled masses, yearning to buy property, that are priced out! Does this mean that property is lying vacant all over London? No – this is clearly ridiculous.
This sickly liberal you worship believes:
“…the ordinary person finds the ordinary property almost out of reach. But if the ordinary person cannot afford the ordinary property, then the ordinary property is at the wrong price.”
Clearly, “ordinary” people are property owners all over London, and continue to buy based on affordability. “Ordinary” people is in fact a euphemism used by the “expert” when what he really means is that poor people are priced out of buying in London. If ordinary people were priced out of London property, London would be derelict. It is not.
I have nothing against poor people. The fact is, when I am in London, I want my Tesco’s delivered to my door (lugged up the stairs) for no more than 5 quid. I want cheap minicabs. I want late night deliveries of takeaways. I would prefer it if the streets were cleaned once in awhile.
However, is it a disaster that the people doing these jobs cannot afford to buy property? As long as my takeaway arrives on time, I am afraid I am indifferent to these peoples plight. Will their inability to get on the property ladder (even though interest rates are almost at an all time low, and affordability ratios remain reasonable) cause a property crash? Not a chance.
I tire of the whining chardonnay socialism of these elitist “experts”, who in patronising terms fret about the plight of the poor, and how everything from property to food is too expensive for them. If this charlatan actually believed this, he would give his property to a homeless person!
RealFakeElvis –pull on your white jumpsuit and your blue suede shoes and start again. |
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Mr Straw
by The RealFakeElvis
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#1001500
of 3278
13 Dec 2002
07:15 AM |
I’m sorry I don’t have time to argue with you today.
I suggest you read the following article. Its author is far more eminent than I and he describes your arguments as “economically illiterate and historically blind”. I agree with him.
http://www.telegraph.co.uk/money/main.jhtml?xml=%2Fmoney%2F2002%2F11%2F17%2Fccecag17.xml |
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"Wise men say only fools rush in"
by Jack Straw
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#1001499
of 3278
13 Dec 2002
01:13 AM |
Mr "Evil Freak Sale",
I fail to see where you are coming from, it appears, to me, that the more points you make the less you say. For example:-
“The idea that, if prices fall, homeowners will be able to stand firm, refuse to sell at the lower price and prevent a drop is just not credible. The fact that transaction volumes have been so much lower during this boom just illustrates that less people agreed to trade at these higher prices. This surely suggests that this time a far greater number of homeowners can afford to sell in the future at a lower price without losing out and certainly doesn’t support the optimist’s argument.”
This is a most amusing argument; to qualify you are suggesting the following,
1. House prices rise and people don’t sell
2. House prices rise and people won’t buy
3. House prices fall and people will sell
None of this makes any sense, what is the trigger, of the rise or fall, given this logic? Mind you I can’t fault your supply and demand theory, beyond the basis of its logic. If no one sold or bought prices would not rise! The fact is that demand has exceeded supply and thus prices have risen. Why do people not sell? Well who would sell the Microsoft stock they owned in the 80’s and 90’s? Further you look at the housing as an optional investment, which it obviously isn’t, with an easy flow from buyer to seller. People need to exist in a dwelling, if they rent someone owns the place. Further you need to know what a chain is, and its not what you wear around your neck.
I’m left with the following questions for you
1. What trigger caused the rise
2. What trigger will cause a fall
3. Why is a house different to a stock
4. Where are your figures
5. Why does falling interest rates help the owner / investor / buyer
6. What influence will joining the EU have on the UK housing market
I have more, but if I place too many you will not answer any. Please report back today.
”Are you arguing that high wage rises, high inflation and high interest rates provide a benign environment for mortgage holders?”
Did I say that? I think you need to re read my message, you appear confused. What I stated is that there are conditions that make either a lower or high inflation environment desirable to the house owner. It is the real terms increases you must look at. If you argue this is not the case please conduct a due diligence test on your logic and return. I see how you are confused with Hoogies “money illusion”, as this is the similar theory to the point I made. In summary I would suggest you take advice from your namesake,"Wise men say only fools rush in".
Pentecost, good points in that message. Confidence is a key trigger, but of course , it’s a supply/demand relationship, therefore both buyer and seller confidence that needs to be accounted for. Further I would suggest affordability is just as critical a factor for both parties. |
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