Housebuyers may have to wait a year for better market conditions, say economists
David Budworth
Homeowners hoping for a revival in the housing market could have to wait at least another year, economists have warned, as rising unemployment, a squeeze on household finances and problems in the mortgage market continue to exert pressure on prices.
Economists have cautioned that it is too early to say that the market, which has already fallen about 20 per cent, has turned a corner. Most are sticking to forecasts of a 25 to 35 per cent drop in prices from top to bottom. They think monthly mortgage approvals must double to 70,000-80,000 before prices can stabilise or start to rise.
A barrier to that scenario is the continued shortage of good mortgage deals, especially for first-time buyers. At present, homebuyers with a deposit of less than 40 per cent are excluded from the most competitive deals, while good loans for those with a deposit of 10 per cent or less have all but vanished in recent months.
Easter traditionally marks the peak time for house sales and before this year's holiday there have been tentative signs that the property market is awakening. Nationwide Building Society said house prices rose 0.9 per cent last month, the first increase since 2007. A separate, closely watched survey from the Bank of England showed mortgage approvals jumped 20 per cent in February to 37,937, the highest level since May 2008.
Related Links
Mortgage rates fall to five-and-a-half year low
Knock-down auctions risk property recovery
Adding to the more positive mood, the Halifax index for the first quarter of this year showed the smallest quarter-on-quarter fall in prices since the first quarter of last year. Meanwhile the Royal Institution of Chartered Surveyors (RICS) said that interest from potential buyers rose for the fourth month in a row during February.
But Howard Archer, chief UK and European economist at IHS Global Insight, thinks house prices will not bottom out until mid-2010, by which point they will be 15 per cent lower, at mid-2003 levels.
He said: “Housing market activity is still very low by long-term norms and any pick up in activity over the coming months is likely to be gradual and fitful. Soaring unemployment, muted wage growth and unwillingness of many people to commit to buying a house when they are fearful are likely to continue to weigh the market down.”
Jeremy Leaf, of RICS, said: “Potential buyers continue to come through estate agency doors but without mortgage finance, transaction levels are likely to remain close to all time lows. Worryingly, the lengthy process of obtaining a mortgage, even for those with big deposits, is contributing towards the blockage in the market.”
That could begin to change after HSBC unveiled a 4.99 per cent deal for borrowers with a 10 per cent deposit. A survey from the Bank of England showed that banks and building societies expected to lend more to homebuyers over the next three months. However, this has yet to be seen.
There is evidence that cash buyers have started dipping their toes back in the market. This perhaps explains why new buyer enquiries have been strongest in London and the South East, areas popular with the sort of wealthy buyer with money to spend. Cash sales now account for 40 per cent of transactions as some older, richer buyers turn to property as a more lucrative alternative to low-paying deposit accounts.
However, the critical state of the economy, which is expected to remain in recession until next year, means that even buyers who are convinced that property is cheap are treading warily. Unemployment recently hit 2 million, and some analysts think it could climb to 3.3 million next year, the highest level since official records began in the 1970s.
Household budgets also remained under pressure as food prices have continued to rise. Even though housing affordability is improving it it still not back to the levels at the bottom of the last downturn.
Roger Bootle of Capital Economics said: “There is little evidence that the rise in buyer interest is feeding into sales activity. House prices will fall further.”
Showing posts with label House Price Crash. Show all posts
Showing posts with label House Price Crash. Show all posts
12 April 2009
Green Shoots ~ not even a Glimmer!
April 10, 2009
Don't be fooled by 'green shoots' in housing market
There is still some way to go before house prices stabilise and we are a very long way from a recovery
Andrew Ellson
Facts, Mark Twain once observed, are stubborn things. But statistics, he noted, are more pliable. It is with this caution that we should observe the latest data on the housing market.
Last week Nationwide reported that house prices rose by 0.9 per cent in March. The Bank of England, meanwhile, said that mortgage approvals jumped 19 per cent in February. Some commentators, including the Centre for Economics and Business Research, interpreted these statistics as evidence that the housing market is near the bottom. The same commentators even put a positive spin on separate figures from the Halifax showing that prices actually fell 1.9 per cent on the month - an annualised rate of 25 per cent - by arguing that at least the pace of decline was slowing.
The truth, sadly, is that we still have some way to go before house prices stabilise and we are a very long way from a recovery.
Apart from the folly of looking at a single month's statistics in isolation, it should be noted that the Nationwide and Halifax measures are no longer as reliable because the volume of home sales has fallen so much. Neither lender will reveal exactly how many customers their figures are based on, but the Land Registry reports that property transactions are down about 60 per cent on their long-term average, suggesting that the sample size of both surveys has reduced significantly. As any statistician will tell, you, the lower the sample size, the greater the chance of error.
Related Links
Mortgage rates fall to five-and-a-half year low
HSBC drops interest on low-deposit mortgages
Are property and shares recovering again?
Given that the customer base of each lender is also geographically skewed - with the Halifax traditionally lending more in the North and Nationwide in the South - the figures are far from a reliable indicator of what is happening in any one town. Perhaps a better reflection of the state of the housing market are the figures from Hometrack that show that vendors are receiving an average of only 88 per cent of asking prices and that it takes a record three months to sell a home.
Nor should anyone be fooled into thinking that a recovery is imminent because of what appears to be a large increase in lending. The total number of mortgage approvals may have risen by 19 per cent in February, to 37,937, but this was from a low of 31,791 and is still 44 per cent down on a year ago and 67 per cent down on the year before that. Lending still needs to increase substantially before there is a positive impact on house prices, and that is before rising unemployment is taken into account.
That is not to say that there are no positive signs. As we report on page 74, a number of banks, including HSBC, Abbey and RBS, have slowly started loosening their lending criteria by reducing the size of deposits needed to qualify for loans. Though these developments reflect lenders' growing confidence in the housing market, they should be viewed in perspective. With the notable exception of the HSBC deal, the rates remain prohibitively high and first-time buyers would still need to raise an average deposit of more than £15,000. Even the HSBC deal has a series of tough conditions attached that make the loan more attractive to higher earners. The bank knows that these borrowers are better placed to cope if house prices fall farther, so the deal is hardly a huge vote of confidence in the housing market.
Buyers must still beware.
Pension savers can ill-afford another blow
Would you accept a cut in your employer's pension contributions to save your job? The answer, most likely, is yes. Sadly, increasing numbers of workers could soon face such a demand as companies try to cut costs as the recession bites.
Employees of Aon, the insurer, became the first to suffer this fate when the company cut contributions by half this week. The move was doubly significant because Aon is the UK's leading pensions consultant, advising other big companies.
But as lower employer contributions are equivalent to a pay cut, nobody should accept this lightly. Reducing pension benefits ought to be a last resort, taken only to save a business from going bust. Employees who find that cuts are unavoidable would be wise to try to make up the shortfall by increasing personal contributions, not least because stock markets are now exteremely low by historic standards.
There is little that the Government can do to stop companies from such action. However, with saving for retirement facing this new assault, now would be entirely the wrong time to cut tax relief on pension contributions, as some believe may happen in the Budget. Pension saving needs more support, not less.
Don't be fooled by 'green shoots' in housing market
There is still some way to go before house prices stabilise and we are a very long way from a recovery
Andrew Ellson
Facts, Mark Twain once observed, are stubborn things. But statistics, he noted, are more pliable. It is with this caution that we should observe the latest data on the housing market.
Last week Nationwide reported that house prices rose by 0.9 per cent in March. The Bank of England, meanwhile, said that mortgage approvals jumped 19 per cent in February. Some commentators, including the Centre for Economics and Business Research, interpreted these statistics as evidence that the housing market is near the bottom. The same commentators even put a positive spin on separate figures from the Halifax showing that prices actually fell 1.9 per cent on the month - an annualised rate of 25 per cent - by arguing that at least the pace of decline was slowing.
The truth, sadly, is that we still have some way to go before house prices stabilise and we are a very long way from a recovery.
Apart from the folly of looking at a single month's statistics in isolation, it should be noted that the Nationwide and Halifax measures are no longer as reliable because the volume of home sales has fallen so much. Neither lender will reveal exactly how many customers their figures are based on, but the Land Registry reports that property transactions are down about 60 per cent on their long-term average, suggesting that the sample size of both surveys has reduced significantly. As any statistician will tell, you, the lower the sample size, the greater the chance of error.
Related Links
Mortgage rates fall to five-and-a-half year low
HSBC drops interest on low-deposit mortgages
Are property and shares recovering again?
Given that the customer base of each lender is also geographically skewed - with the Halifax traditionally lending more in the North and Nationwide in the South - the figures are far from a reliable indicator of what is happening in any one town. Perhaps a better reflection of the state of the housing market are the figures from Hometrack that show that vendors are receiving an average of only 88 per cent of asking prices and that it takes a record three months to sell a home.
Nor should anyone be fooled into thinking that a recovery is imminent because of what appears to be a large increase in lending. The total number of mortgage approvals may have risen by 19 per cent in February, to 37,937, but this was from a low of 31,791 and is still 44 per cent down on a year ago and 67 per cent down on the year before that. Lending still needs to increase substantially before there is a positive impact on house prices, and that is before rising unemployment is taken into account.
That is not to say that there are no positive signs. As we report on page 74, a number of banks, including HSBC, Abbey and RBS, have slowly started loosening their lending criteria by reducing the size of deposits needed to qualify for loans. Though these developments reflect lenders' growing confidence in the housing market, they should be viewed in perspective. With the notable exception of the HSBC deal, the rates remain prohibitively high and first-time buyers would still need to raise an average deposit of more than £15,000. Even the HSBC deal has a series of tough conditions attached that make the loan more attractive to higher earners. The bank knows that these borrowers are better placed to cope if house prices fall farther, so the deal is hardly a huge vote of confidence in the housing market.
Buyers must still beware.
Pension savers can ill-afford another blow
Would you accept a cut in your employer's pension contributions to save your job? The answer, most likely, is yes. Sadly, increasing numbers of workers could soon face such a demand as companies try to cut costs as the recession bites.
Employees of Aon, the insurer, became the first to suffer this fate when the company cut contributions by half this week. The move was doubly significant because Aon is the UK's leading pensions consultant, advising other big companies.
But as lower employer contributions are equivalent to a pay cut, nobody should accept this lightly. Reducing pension benefits ought to be a last resort, taken only to save a business from going bust. Employees who find that cuts are unavoidable would be wise to try to make up the shortfall by increasing personal contributions, not least because stock markets are now exteremely low by historic standards.
There is little that the Government can do to stop companies from such action. However, with saving for retirement facing this new assault, now would be entirely the wrong time to cut tax relief on pension contributions, as some believe may happen in the Budget. Pension saving needs more support, not less.
10 March 2009
UK housing trends ~ Down, Down, Down......
House Price Reports
UK house prices continue to crash at an alarming pace
Well that was short lived, no sooner had the "green shoots of recovery" appeared last month (in relation to house price growth) then the true overall trend re-emerges, downwards...
House prices have fallen 17.7% year on year and approx. 20% from their peak - in September 2007. It's also useful analysing the 'swing' from positive to negative; from 15% positive to 17.7% negative has taken twenty months, this is unprecedented during the (circa) twenty five years of house price data collation.
With falls now accelerating it's more important than ever that first time buyers remain increasingly vigilant ensuring they buy at future 2010 prices; perhaps negotiating a discount of 15% off the asking and or valuation price in order to insulate themselves from further falls.
Martin Ellis;
"The average UK house price declined by 2.3% in February. This monthly decrease more than offset January's 2.0% increase. Prices in the three months to February compared to the previous quarter, which provides a better indicator of the underlying trend, were 3.6% lower...
Whilst market activity remains at very low levels, there are some tentative signs that activity may be beginning to stabilise. The house price to earnings ratio - a key measure of housing affordability - has fallen to its lowest level for six years.
Continuing pressures on incomes, rising unemployment and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are, however, likely to mean that 2009 will be another difficult year for the housing market."
LLOYDS BANKING GROUP HOUSE PRICE INDEX
Ket Statistics
February 2009 (seasonally adjusted)
Annual change
-17.7%
Monthly change
-2.3%
Average Price
£160,237
.
Key facts
House prices declined by 2.3% in February. This fall more than offset January's 2.0% increase (revised from 1.9%). Historically, house prices have not moved in the same direction month after month even during a pronounced downturn. For example, prices fell for seven successive months in 1989 but subsequently increased in three of the first ten months in 1990 even though the overall trend in prices was downwards.
Prices in the three months to February compared to the previous three months - an indicator of the underlying trend - were 3.6% lower. This is slightly below the quarterly rate of decline of 5-6% recorded consistently between June 2008 and January 2009.
House prices in February were 17.7% lower on an annual basis. The annual rate of change (measured by the average for the latest three months against the same period a year earlier) fell from 17.2% in January to 17.7%. The UK average price has returned close to the level in August 2004 (£159,799).
-The house price to earnings ratio - a key affordability measure - is at its lowest for six years. The house price to average earnings ratio has declined from a peak of 5.84 in July 2007 to an estimated 4.42 in February 2009; a fall of 24%. The ratio is at its lowest level for six years (February 2003: 4.41). The long-term average is 4.0.
-Tentative signs of a stabilisation in activity albeit at a very low level. Bank of England industry-wide figures show that the number of mortgages approved to finance house purchase was unchanged between December 2008 and January 2009. Approvals in January, at a seasonally adjusted 31,000, were also identical to the monthly average recorded in the second half of 2008.More details about UK house prices continue to crash at an alarming pace (opens a new window)
UK house prices continue to crash at an alarming pace
Well that was short lived, no sooner had the "green shoots of recovery" appeared last month (in relation to house price growth) then the true overall trend re-emerges, downwards...
House prices have fallen 17.7% year on year and approx. 20% from their peak - in September 2007. It's also useful analysing the 'swing' from positive to negative; from 15% positive to 17.7% negative has taken twenty months, this is unprecedented during the (circa) twenty five years of house price data collation.
With falls now accelerating it's more important than ever that first time buyers remain increasingly vigilant ensuring they buy at future 2010 prices; perhaps negotiating a discount of 15% off the asking and or valuation price in order to insulate themselves from further falls.
Martin Ellis;
"The average UK house price declined by 2.3% in February. This monthly decrease more than offset January's 2.0% increase. Prices in the three months to February compared to the previous quarter, which provides a better indicator of the underlying trend, were 3.6% lower...
Whilst market activity remains at very low levels, there are some tentative signs that activity may be beginning to stabilise. The house price to earnings ratio - a key measure of housing affordability - has fallen to its lowest level for six years.
Continuing pressures on incomes, rising unemployment and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are, however, likely to mean that 2009 will be another difficult year for the housing market."
LLOYDS BANKING GROUP HOUSE PRICE INDEX
Ket Statistics
February 2009 (seasonally adjusted)
Annual change
-17.7%
Monthly change
-2.3%
Average Price
£160,237
.
Key facts
House prices declined by 2.3% in February. This fall more than offset January's 2.0% increase (revised from 1.9%). Historically, house prices have not moved in the same direction month after month even during a pronounced downturn. For example, prices fell for seven successive months in 1989 but subsequently increased in three of the first ten months in 1990 even though the overall trend in prices was downwards.
Prices in the three months to February compared to the previous three months - an indicator of the underlying trend - were 3.6% lower. This is slightly below the quarterly rate of decline of 5-6% recorded consistently between June 2008 and January 2009.
House prices in February were 17.7% lower on an annual basis. The annual rate of change (measured by the average for the latest three months against the same period a year earlier) fell from 17.2% in January to 17.7%. The UK average price has returned close to the level in August 2004 (£159,799).
-The house price to earnings ratio - a key affordability measure - is at its lowest for six years. The house price to average earnings ratio has declined from a peak of 5.84 in July 2007 to an estimated 4.42 in February 2009; a fall of 24%. The ratio is at its lowest level for six years (February 2003: 4.41). The long-term average is 4.0.
-Tentative signs of a stabilisation in activity albeit at a very low level. Bank of England industry-wide figures show that the number of mortgages approved to finance house purchase was unchanged between December 2008 and January 2009. Approvals in January, at a seasonally adjusted 31,000, were also identical to the monthly average recorded in the second half of 2008.More details about UK house prices continue to crash at an alarming pace (opens a new window)
01 February 2009
Happy New Year ~ Not in Ireland!
Best to ignore the cheerleaders for the property sector
By Proinsias O'Mahony Saturday January 31st, 2009
Proinsias O’Mahony doesn’t share the optimistic assertions of some in the property business about recovery in the housing market
HAPPY new year? Not really. The banks are at death’s door. Unemployment is rocketing. Cuts much more severe than those proposed in the recent budget are inevitable. The recession is deepening, with fears that Ireland is on the verge of a so-called ‘lost decade’ growing increasingly realistic.
We’re up the creek. Auctioneers and developers, however, have a different vision for 2009, one where ever more affordable homes will be snapped up by a willing populace.
After all, construction firms cannot cut prices further as they are “down to their bottom line” on prices, according to one builder recently. Indeed, those who are “stupidly waiting” for prices to fall further should cop themselves on and realise that prices are bottoming. This stupidity has been disappointing developers for some time now. In August, property tycoon Derek Quinlan noted that first-time buyers must be given the confidence to buy as “negative media commentary force them to sit and wait, believing that prices have not yet bottomed out”. Impartial ‘experts’ have been beating this drum for some time now.
Tom Parlon, former minister and now Director General of the Irish Construction Industry Federation, warned last March that “there’s not much more scope for further cuts” and that “now is the time to buy, there is real value out there”.
Politicians, too, are puzzled by this ignorant penny-pinching. “If I was to give advice to people, I would say, go out and buy some property now”, said Galway TD Frank Fahy last May. Frank has a pretty extensive property portfolio, as does his Fianna Fáil colleague Donie Cassidy. Donie, perhaps better known for his masterful management of Foster and Allen and other show-band giants than his political accomplishments, said last April that there was “unbelievable” value in the marketplace, something he would remind us all of in 12 or 18 months “when prices have again increased by 25% or 30%”.
That didn’t quite pan out. A mule could have told you that Donie was in la-la land but he wasn’t the only one. “The time to buy is now”, said estate agent Pearse Wyse last April, warning that the “great value” didn’t “mean people can dilly dally.” “It makes little sense to hold off making a purchasing decision”, said another in summer 2007, when the bubble had already burst. “There is no better investment than Irish property at present”, said high-profile estate agent Ken McDonald in the same year, going on to ask why “we allow scaremongers and doomsayers with unfounded pessimism and unbridled negativity” to talk down the economy. Never mind, said Ken: “the Irish love affair with property will continue undaunted despite the knockers.” Hmmm. Of course, this love affair was encouraged by good old Bertie, our dearly departed Taoiseach.
“The boom is getting boomier”, he said in 2006. “We should have an examination into why so many people got it so wrong”, adding that people “should have bought last year.”
By April 2007, he was predicting a “soft landing”.
By July, he asked why those who sit on the sidelines “cribbing and moaning” don’t “commit suicide”.
Two months later, we were told that there “is no place for politically motivated attempts to talk down the economy and the achievements of our people across all sectors.” What a crock. It’s one thing to have to listen to such garbage from those in the property sector.
It’s another thing entirely when the leaders of our country were encouraging one of the greatest housing bubbles in history, a bubble whose bursting has plunged Ireland into a crisis of incalculable proportions.
Ahern is famously pally with developers, whose one-dimensional thinking seems to have informed government policy. Take Bertie’s buddy Sean Dunne, who said just last month that he was “prudent” when he splashed out almost $600 million for a 5 acre site in Ballsbridge at the height of the boom. In 2006, Dunne lashed out at the economists who had “mistakenly forecast the end of the housing and property boom in Ireland” for the last six years. This deluded bunch of “hyenas”, those “harbingers of doom and gloom”, included the Economist magazine, the IMF and the OECD. “The hyenas have stopped laughing…each and every one of them was wrong.”
They weren't wrong though – just early. David McWilliams, who had been warning for years that the housing bubble couldn’t last, likes to use the analogy of a doctor who advises a patient to change his lifestyle. Smoking 20 fags a day, the patient ups it to 40 as the years pass. After all, the doctor’s been warning him for years and nothing’s happened. By 2007, our patient is puffing on cigars aplenty and downing a daily bottle of whiskey into the bargain. Why not? Sure he’d been hearing the same old warnings for the best part of a decade… It was obvious that a serious property bust was a question of ‘when’, not ‘if’, just as it was obvious to decent economists that a financial crisis would likely be triggered by this bust. Study after study has confirmed as much. 2007 was full of guff about a soft landing even though studies of international housing bubbles show that there has never been such a thing. Bubbles are followed by crashes just as day is followed by night. The global financial crisis hit the headlines in 2007, creating a perfect storm for Ireland in the process. And yet, politicians and regulators appear to have been taken unawares. When UCD economist Morgan Kelly published a study showing that house prices typically fall by between 40-60 percent in a crash, he was dismissed as a scaremonger (it’s now very likely that Irish falls will be even greater). Also dismissed were his comparisons with Finland, which saw unemployment rocket from 3 to 20 percent and house prices halve in the aftermath of its housing crash in the early 1990s.
It wasn’t rocket science. Between 2000 and 2006, house prices doubled relative to income and rents. Construction accounted for nearly a fifth of our economy (the international norm is just 5 percent). First-time buyers became priced out of the market so banks invented 110 percent mortgages to be paid back over a forty-year period. The signs of an unsustainable bubble were everywhere. And yet, politicians trumpeted that the fundamentals were sound. What were they smoking? Other countries, of course, also had their fair share of paid housing cheerleaders. Take David Lereah, former chief economist with America’s National Association of Realtors. Lereah, author of the 2005 bestseller, Why the Housing Boom Will Not Bust and How You Can Profit From It, used to routinely trot out wildly bullish forecasts that mirrored the hallucinatory abominations of his Irish counterparts. He left his job in 2007. Was he wrong to be so bullish, he was asked recently? “I worked for an association promoting housing, and it was my job to represent their interests”, he admitted. “I put a positive spin on it. It was easy to do during boom times, harder when times weren’t good”. And now? “I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop.”
Kudos for his new-found honesty, if nothing else. There are many David Lereahs in Ireland. Developers, estate agents, dizzy television presenters with their own property agendas, economists working for the banks – the same old clowns will trot out the same old claptrap, rabbiting on about ‘value’ and the dangers of waiting too long and how a bottom is near and how it’s a great time to buy. It’s not a great time to buy. It’s a great time to wait. Property remains over-priced by any conventional valuation yardstick, some places more than others (West Cork comes to mind). Property crashes play out over a period of many years, partly because sellers become anchored to old prices that are no longer relevant. There’s also a large element of wishful thinking involved – a recent US study found that people expected prices in their locality to fall but believed that their own house would appreciate in value or stay the same. The facts are, however, that house prices do not rise in real terms (after inflation) in the long run.
Countless international studies confirm this. A couple of booms aside, real house prices were flat or falling most of the time in the US in the 20th century. Booms occur periodically before prices revert to their historical mean. The bigger the bubble, the bigger the bust. We’ll still have to put up with the cheerleaders, however, even as the market deflates. Morgan Kelly puts it well. “We can start looking forward to estate agents telling us that the worst is over, a necessary correction to an overheated market has taken place, there has never been a better time to buy, and so on until most of them go out of business.”
By Proinsias O'Mahony Saturday January 31st, 2009
Proinsias O’Mahony doesn’t share the optimistic assertions of some in the property business about recovery in the housing market
HAPPY new year? Not really. The banks are at death’s door. Unemployment is rocketing. Cuts much more severe than those proposed in the recent budget are inevitable. The recession is deepening, with fears that Ireland is on the verge of a so-called ‘lost decade’ growing increasingly realistic.
We’re up the creek. Auctioneers and developers, however, have a different vision for 2009, one where ever more affordable homes will be snapped up by a willing populace.
After all, construction firms cannot cut prices further as they are “down to their bottom line” on prices, according to one builder recently. Indeed, those who are “stupidly waiting” for prices to fall further should cop themselves on and realise that prices are bottoming. This stupidity has been disappointing developers for some time now. In August, property tycoon Derek Quinlan noted that first-time buyers must be given the confidence to buy as “negative media commentary force them to sit and wait, believing that prices have not yet bottomed out”. Impartial ‘experts’ have been beating this drum for some time now.
Tom Parlon, former minister and now Director General of the Irish Construction Industry Federation, warned last March that “there’s not much more scope for further cuts” and that “now is the time to buy, there is real value out there”.
Politicians, too, are puzzled by this ignorant penny-pinching. “If I was to give advice to people, I would say, go out and buy some property now”, said Galway TD Frank Fahy last May. Frank has a pretty extensive property portfolio, as does his Fianna Fáil colleague Donie Cassidy. Donie, perhaps better known for his masterful management of Foster and Allen and other show-band giants than his political accomplishments, said last April that there was “unbelievable” value in the marketplace, something he would remind us all of in 12 or 18 months “when prices have again increased by 25% or 30%”.
That didn’t quite pan out. A mule could have told you that Donie was in la-la land but he wasn’t the only one. “The time to buy is now”, said estate agent Pearse Wyse last April, warning that the “great value” didn’t “mean people can dilly dally.” “It makes little sense to hold off making a purchasing decision”, said another in summer 2007, when the bubble had already burst. “There is no better investment than Irish property at present”, said high-profile estate agent Ken McDonald in the same year, going on to ask why “we allow scaremongers and doomsayers with unfounded pessimism and unbridled negativity” to talk down the economy. Never mind, said Ken: “the Irish love affair with property will continue undaunted despite the knockers.” Hmmm. Of course, this love affair was encouraged by good old Bertie, our dearly departed Taoiseach.
“The boom is getting boomier”, he said in 2006. “We should have an examination into why so many people got it so wrong”, adding that people “should have bought last year.”
By April 2007, he was predicting a “soft landing”.
By July, he asked why those who sit on the sidelines “cribbing and moaning” don’t “commit suicide”.
Two months later, we were told that there “is no place for politically motivated attempts to talk down the economy and the achievements of our people across all sectors.” What a crock. It’s one thing to have to listen to such garbage from those in the property sector.
It’s another thing entirely when the leaders of our country were encouraging one of the greatest housing bubbles in history, a bubble whose bursting has plunged Ireland into a crisis of incalculable proportions.
Ahern is famously pally with developers, whose one-dimensional thinking seems to have informed government policy. Take Bertie’s buddy Sean Dunne, who said just last month that he was “prudent” when he splashed out almost $600 million for a 5 acre site in Ballsbridge at the height of the boom. In 2006, Dunne lashed out at the economists who had “mistakenly forecast the end of the housing and property boom in Ireland” for the last six years. This deluded bunch of “hyenas”, those “harbingers of doom and gloom”, included the Economist magazine, the IMF and the OECD. “The hyenas have stopped laughing…each and every one of them was wrong.”
They weren't wrong though – just early. David McWilliams, who had been warning for years that the housing bubble couldn’t last, likes to use the analogy of a doctor who advises a patient to change his lifestyle. Smoking 20 fags a day, the patient ups it to 40 as the years pass. After all, the doctor’s been warning him for years and nothing’s happened. By 2007, our patient is puffing on cigars aplenty and downing a daily bottle of whiskey into the bargain. Why not? Sure he’d been hearing the same old warnings for the best part of a decade… It was obvious that a serious property bust was a question of ‘when’, not ‘if’, just as it was obvious to decent economists that a financial crisis would likely be triggered by this bust. Study after study has confirmed as much. 2007 was full of guff about a soft landing even though studies of international housing bubbles show that there has never been such a thing. Bubbles are followed by crashes just as day is followed by night. The global financial crisis hit the headlines in 2007, creating a perfect storm for Ireland in the process. And yet, politicians and regulators appear to have been taken unawares. When UCD economist Morgan Kelly published a study showing that house prices typically fall by between 40-60 percent in a crash, he was dismissed as a scaremonger (it’s now very likely that Irish falls will be even greater). Also dismissed were his comparisons with Finland, which saw unemployment rocket from 3 to 20 percent and house prices halve in the aftermath of its housing crash in the early 1990s.
It wasn’t rocket science. Between 2000 and 2006, house prices doubled relative to income and rents. Construction accounted for nearly a fifth of our economy (the international norm is just 5 percent). First-time buyers became priced out of the market so banks invented 110 percent mortgages to be paid back over a forty-year period. The signs of an unsustainable bubble were everywhere. And yet, politicians trumpeted that the fundamentals were sound. What were they smoking? Other countries, of course, also had their fair share of paid housing cheerleaders. Take David Lereah, former chief economist with America’s National Association of Realtors. Lereah, author of the 2005 bestseller, Why the Housing Boom Will Not Bust and How You Can Profit From It, used to routinely trot out wildly bullish forecasts that mirrored the hallucinatory abominations of his Irish counterparts. He left his job in 2007. Was he wrong to be so bullish, he was asked recently? “I worked for an association promoting housing, and it was my job to represent their interests”, he admitted. “I put a positive spin on it. It was easy to do during boom times, harder when times weren’t good”. And now? “I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop.”
Kudos for his new-found honesty, if nothing else. There are many David Lereahs in Ireland. Developers, estate agents, dizzy television presenters with their own property agendas, economists working for the banks – the same old clowns will trot out the same old claptrap, rabbiting on about ‘value’ and the dangers of waiting too long and how a bottom is near and how it’s a great time to buy. It’s not a great time to buy. It’s a great time to wait. Property remains over-priced by any conventional valuation yardstick, some places more than others (West Cork comes to mind). Property crashes play out over a period of many years, partly because sellers become anchored to old prices that are no longer relevant. There’s also a large element of wishful thinking involved – a recent US study found that people expected prices in their locality to fall but believed that their own house would appreciate in value or stay the same. The facts are, however, that house prices do not rise in real terms (after inflation) in the long run.
Countless international studies confirm this. A couple of booms aside, real house prices were flat or falling most of the time in the US in the 20th century. Booms occur periodically before prices revert to their historical mean. The bigger the bubble, the bigger the bust. We’ll still have to put up with the cheerleaders, however, even as the market deflates. Morgan Kelly puts it well. “We can start looking forward to estate agents telling us that the worst is over, a necessary correction to an overheated market has taken place, there has never been a better time to buy, and so on until most of them go out of business.”
02 January 2009
UK Biggest hose price drop in History....
Biggest house price drop on record
House prices plunged by 16.2% during 2008 in the biggest drop for a calendar year on record, Halifax said.
Last year's price plummet, which came after the average value of a property in the UK fell 2.2% in December, was the biggest year-on-year fall since the Halifax began recording data in 1983.
Britain's biggest mortgage lender said the typical price of a property now stands at £159,896 - back to August 2004 levels.
The drop in annual house price inflation measures prices in the previous three months compared with the same period a year ago. But if house prices in December are compared with prices in December 2007, the fall is even more dramatic at 18.9%.
And Halifax warned that the property market will come under further pressure in 2009 as the financial crisis continues to restrict lending in the UK.
Bank of England figures on Friday revealed that just 27,000 mortgages were approved for new house purchases during November, which was a new record low.The Bank also said in its credit report that banks and building societies plan to cut back further on lending as the economic outlook worsens.
However, the Halifax offered hope that the downturn in the property market could be limited as housing affordability improves. The lender said the house price to earnings ratio - a key affordability measure - had declined to its lowest level for more than five-and-a-half years.
First-time buyers (FTBs) may also be in line for some relief, with the proportion of local authorities where housing is affordable for FTBs more than trebling in 2008, according to the Halifax.
Economist Howard Archer of IHS Global Insight cautioned that, despite the interest rate falls and property price reduction, the outlook for the housing market remained "bleak". He predicted house prices to fall by a further 15% on the Halifax measure in 2009.
This would see property prices plummet by 32% in nominal terms from their August 2007 peak of £199,612 to stand at £135,912 at the end of this year, he said. House price falls would then ease at the start of 2010 and flatten out in the latter months of the year, added Mr Archer.
Copyright (c) Press Association Ltd. 2009, All Rights Reserved.
House prices plunged by 16.2% during 2008 in the biggest drop for a calendar year on record, Halifax said.
Last year's price plummet, which came after the average value of a property in the UK fell 2.2% in December, was the biggest year-on-year fall since the Halifax began recording data in 1983.
Britain's biggest mortgage lender said the typical price of a property now stands at £159,896 - back to August 2004 levels.
The drop in annual house price inflation measures prices in the previous three months compared with the same period a year ago. But if house prices in December are compared with prices in December 2007, the fall is even more dramatic at 18.9%.
And Halifax warned that the property market will come under further pressure in 2009 as the financial crisis continues to restrict lending in the UK.
Bank of England figures on Friday revealed that just 27,000 mortgages were approved for new house purchases during November, which was a new record low.The Bank also said in its credit report that banks and building societies plan to cut back further on lending as the economic outlook worsens.
However, the Halifax offered hope that the downturn in the property market could be limited as housing affordability improves. The lender said the house price to earnings ratio - a key affordability measure - had declined to its lowest level for more than five-and-a-half years.
First-time buyers (FTBs) may also be in line for some relief, with the proportion of local authorities where housing is affordable for FTBs more than trebling in 2008, according to the Halifax.
Economist Howard Archer of IHS Global Insight cautioned that, despite the interest rate falls and property price reduction, the outlook for the housing market remained "bleak". He predicted house prices to fall by a further 15% on the Halifax measure in 2009.
This would see property prices plummet by 32% in nominal terms from their August 2007 peak of £199,612 to stand at £135,912 at the end of this year, he said. House price falls would then ease at the start of 2010 and flatten out in the latter months of the year, added Mr Archer.
Copyright (c) Press Association Ltd. 2009, All Rights Reserved.
01 January 2009
Bad in Wales
Slump is worst since 1930s - veteran estate agent
Jan 1 2009
by Nick Machin, South Wales Echo
THE current economic slump will be worse than the Great Depression of the 1930s, a South Wales estate agent has warned.
And Saul Magrill should know – because he was there.
Mr Magrill, 94, thought to be Britain’s oldest working estate agent, is shocked at the downturn in the housing market.
He blamed the banks for being “greedy” and spenders for lacking self-discipline.
Mr Magrill started work as a property consultant when he was just 17 in 1931, at the height of the pre-war economic downturn.
But Mr Magrill, who works one day a week for the Chris John Estate Agents in Pontcanna, Cardiff, as a consultant, says that was nothing compared to what Britain is going through now.
He said: “It’s much, much worse now than it was in the 1920s or 1930s.
“I started work when I was 17 in 1931 during the height of the Depression.
“But I have to say that I think 2009 will be much worse than 1931 because people don’t know the old-fashioned rules of budgeting.”
Mr Magrill said property prices had been too high for years and a slump was only a matter of time.
“I’ve been saying for a long time that the bubble had to burst. People were taking out mortgages more than 10 times their annual salary – which they just couldn’t afford.
“In the 1930s people mainly rented property anyway, which was more affordable than it is today, so there wasn’t this risk of lots of people losing their homes and having negative equity. The banks have been deviant. They have been very greedy.”
Mr Magrill added that people today would find it harder to adjust to budgeting.
“In the 1930s it was always hard and everyone struggled so you would stick together,” he said.
“But now people are buying things on credit they can’t afford and are being encouraged to by retailers.
“There was never that option or temptation in the 1930s – you had to make do with what you had.”
Jan 1 2009
by Nick Machin, South Wales Echo
THE current economic slump will be worse than the Great Depression of the 1930s, a South Wales estate agent has warned.
And Saul Magrill should know – because he was there.
Mr Magrill, 94, thought to be Britain’s oldest working estate agent, is shocked at the downturn in the housing market.
He blamed the banks for being “greedy” and spenders for lacking self-discipline.
Mr Magrill started work as a property consultant when he was just 17 in 1931, at the height of the pre-war economic downturn.
But Mr Magrill, who works one day a week for the Chris John Estate Agents in Pontcanna, Cardiff, as a consultant, says that was nothing compared to what Britain is going through now.
He said: “It’s much, much worse now than it was in the 1920s or 1930s.
“I started work when I was 17 in 1931 during the height of the Depression.
“But I have to say that I think 2009 will be much worse than 1931 because people don’t know the old-fashioned rules of budgeting.”
Mr Magrill said property prices had been too high for years and a slump was only a matter of time.
“I’ve been saying for a long time that the bubble had to burst. People were taking out mortgages more than 10 times their annual salary – which they just couldn’t afford.
“In the 1930s people mainly rented property anyway, which was more affordable than it is today, so there wasn’t this risk of lots of people losing their homes and having negative equity. The banks have been deviant. They have been very greedy.”
Mr Magrill added that people today would find it harder to adjust to budgeting.
“In the 1930s it was always hard and everyone struggled so you would stick together,” he said.
“But now people are buying things on credit they can’t afford and are being encouraged to by retailers.
“There was never that option or temptation in the 1930s – you had to make do with what you had.”
16 November 2008
House Crash ~ How much further to go?
Five experts predict how much further house prices will fall
UK house prices are now nearly 15 per cent lower than 12 months ago, according to the Nationwide, with the price of an average house dropping by £30,000 to £158,872.
But when will the house price crash end and how far will prices fall? Should buyers grab a bargain now, or wait another year, or even longer. Times Money asked five experts for their predictions on when the market will hit rock bottom. Here are their answers. And have your say in our poll below.
Martin Ellis – chief economist, Halifax
Prediction: Another 8% fall
“We are predicting a 20 per cent fall over 2008 and 2009 – so as we calculate that prices have already fallen by 12.4 per cent, we would expect roughly another 8 per cent fall before prices start to bottom out at the end of 2009.
“There’s a lot of uncertainty surrounding the economy and unemployment figures in particular at the moment, so it’s very hard to say when prices will start to recover. Prices certainly won’t bounce back quickly.”
Jonathan Davis – housepricecrash.co.uk
Prediction: Another 35% fall
“The market will not bottom out until spring 2011, by which point there will be a 40 to 50 per cent drop from when house prices were at their peak in August last year.
“If you remember the last house price crash in 1988, it took until 1994 for the market to recover, so a good four or five years. There is no reason whatsoever to suppose the market will recover any quicker this time.
“It is far too early to bag a bargain – people should not be buying for at least another two years. We are only one year into the crash, and it has a long way to go yet.”
Yolande Barnes – Savills
Prediction: Another 10% fall
“We are forecasting a 25 per cent drop from when house prices were at their peak last year, so that means we’ve got about another 10 per cent to go. Whilst we expect prices to bottom out during 2010, the prospect of recession means we do not expect prices to start recovering anytime soon. Houses will not regain their 2007 value until about 2014, or possibly 2013 in the south-east.”
Nicholas Leeming – propertyfinder.com
Prediction: Another 10% fall
“There will be a further drop of about 10 per cent throughout 2009, before the market starts to level out at the end of the year. It will take a while for the effects of the Government bail-out to filter through – the capital markets will not be freed up until maybe the third quarter of 2009, when we can expect to see more mortgage transactions and a gradual recovery of the market.”
Nick Bate, UK economist, Merrill Lynch
Prediction: Another 10% fall
“There will be a 25 per cent drop from the market peak last summer – we have already seen about a 15 per cent drop, so we have about another 10 per cent to go.
“However, no one can say with any confidence exactly where prices will be in a year’s time – but it will certainly be a long time before prices recover to the levels we saw last year. With unemployment rising and people becoming less credit worthy, banks may continue to be reluctant to lend for some time, and this will lead to a very muted recovery.”
UK house prices are now nearly 15 per cent lower than 12 months ago, according to the Nationwide, with the price of an average house dropping by £30,000 to £158,872.
But when will the house price crash end and how far will prices fall? Should buyers grab a bargain now, or wait another year, or even longer. Times Money asked five experts for their predictions on when the market will hit rock bottom. Here are their answers. And have your say in our poll below.
Martin Ellis – chief economist, Halifax
Prediction: Another 8% fall
“We are predicting a 20 per cent fall over 2008 and 2009 – so as we calculate that prices have already fallen by 12.4 per cent, we would expect roughly another 8 per cent fall before prices start to bottom out at the end of 2009.
“There’s a lot of uncertainty surrounding the economy and unemployment figures in particular at the moment, so it’s very hard to say when prices will start to recover. Prices certainly won’t bounce back quickly.”
Jonathan Davis – housepricecrash.co.uk
Prediction: Another 35% fall
“The market will not bottom out until spring 2011, by which point there will be a 40 to 50 per cent drop from when house prices were at their peak in August last year.
“If you remember the last house price crash in 1988, it took until 1994 for the market to recover, so a good four or five years. There is no reason whatsoever to suppose the market will recover any quicker this time.
“It is far too early to bag a bargain – people should not be buying for at least another two years. We are only one year into the crash, and it has a long way to go yet.”
Yolande Barnes – Savills
Prediction: Another 10% fall
“We are forecasting a 25 per cent drop from when house prices were at their peak last year, so that means we’ve got about another 10 per cent to go. Whilst we expect prices to bottom out during 2010, the prospect of recession means we do not expect prices to start recovering anytime soon. Houses will not regain their 2007 value until about 2014, or possibly 2013 in the south-east.”
Nicholas Leeming – propertyfinder.com
Prediction: Another 10% fall
“There will be a further drop of about 10 per cent throughout 2009, before the market starts to level out at the end of the year. It will take a while for the effects of the Government bail-out to filter through – the capital markets will not be freed up until maybe the third quarter of 2009, when we can expect to see more mortgage transactions and a gradual recovery of the market.”
Nick Bate, UK economist, Merrill Lynch
Prediction: Another 10% fall
“There will be a 25 per cent drop from the market peak last summer – we have already seen about a 15 per cent drop, so we have about another 10 per cent to go.
“However, no one can say with any confidence exactly where prices will be in a year’s time – but it will certainly be a long time before prices recover to the levels we saw last year. With unemployment rising and people becoming less credit worthy, banks may continue to be reluctant to lend for some time, and this will lead to a very muted recovery.”
Nick Louth predicts on housing
More house price falls to come
By Nick Louth, exclusive to MSN
November 13 2008
The big rise in unemployment this week and the Bank of England's admission that Britain is in recession are clear reminders that those hoping for a quick end to falling house prices are likely to be disappointed.
Whether we look at other housing booms in the UK, experience in other countries, or the relationship between the economy and house prices, evidence suggest we are still a considerable way from the bottom.
The UK economy in depth
Recession for real"It is very likely that the economy entered a recession in the second half (of 2008)," Bank governor Mervyn King said. He said that the economy could shrink by 2% next year, compared with the broadly flat forecast the bank had previously. Earlier, a 140,000 rise in the jobless total in September put unemployment at 1.82 million, the highest in 11 years.
Those who lose their jobs are of course under immediate pressure on mortgage payments, but those who merely fear their jobs are under threat are more likely to act more cautiously too. That means fewer new buyers, delays in transactions and a temptation for sellers to lower asking prices.
Why the recession is needed immediately
Average prices drop, more to comeAverage UK house prices peaked at just under £200,000 in August 2007, according to the Halifax. Prices in October, at £168,000 were 16% down from this, matching levels last seen three years ago.
Nationwide, the largest building society in the country, reckons prices will fall by 25% in total, and there may be no bounce-back before 2010, according to chief executive Graham Beale
Based on the Halifax index, that would put average prices down to £150,000. However, it could easily be a lot worse because of the size of the bubble that preceded the August 2007 peak and the severity of the current economic downturn.
Bubbles past and presentThe last slide in UK house prices was a rather modest affair, though it lasted six years from May 1989 to July 1995. House prices as measured by the Halifax fell by 13%, from an average of £70,000 to £61,000 over the period. That might be a comforting precedent, except that it is already clear that the UK has in one year experienced a house price fall which took six years to occur in the 1990s. And it is still getting worse.
The difference this time is that we have had a major banking crisis which has rationed credit, while a recession is building which looks to be in a different league to the modest economic slowdown of the early 1990s.
Research by professor Morgan Kelly of University College Dublin shows that house price bubble across the world have similar characteristics. On average prices lose 70% of the gains made from trough to peak before bottoming out. This research is backed up by an international study made by the Bank of International Settlements in 2004, which found a strong positive correlation between the size of a housing bubble and the subsequent fall.
The doomsday scenario?So if Professor Kelly's 70% figure is accurate, where would that leave UK house prices? The last downturn in the housing market ended in July 1995, when average prices according to the Halifax were £61,000. That gain, trough to peak over 12 years, is £139,000. So if this is a typical bubble, the fall would be 70% of that, £97,000, taking the price of the average house at the low to just £103,000.
There are plenty who would see this as too much of a doomsday scenario, especially as houses would become affordable long before such low prices were reached. House prices have averaged 4.0 times average earnings over the long term, and since prices peaked the ratio has already dropped from 5.84 to 4.92 in August.
"Housing affordability is improving significantly," said Martin Ellis, chief economist at the Halifax. "The house price to average earnings ratio has fallen below 5.0 for the first time for four and a half years. We expect a further improvement in the ratio over the coming months."
Affordability issueIf average earnings do not change, which is itself a hefty assumption given the recession we are entering, prices would hit the long-term affordability average with a further 20% fall.
The trouble with this argument is that once houses became an investment asset, with the buy-to-let boom of the late 1990s, they became subject to the same speculative forces that drive share prices.
Instead of being guided by "fundamentals" such as the ratio of income to price, they were driven by price expectations. What that implies is that we can expect an overshoot, in which prices having been way above typical affordability averages for several years, then spend some time well below them.
Mortgage troubles drag onOne additional difficulty this time around is in mortgage finance. Though the Bank of England has cut interest rates sharply, stubbornly high inter-bank rates mean that rates offered to borrowers have yet to fall significantly. With buyers having to stump up larger deposits too, and credit generally harder to come by, this augurs badly for those who expect prices to soon stabilise.
Weakening activity underlines this. The Royal Institution of Chartered Surveyors said its sale-to-stock ratio, which measures transactions as a proportion of homes offered for sales, fell in October to the lowest level since December 1992. This seems to reflect a mis-match between the asking prices of sellers, and what buyers are willing or able to spend.
Some commentators, however, see the gloomy headlines as far too alarmist. One is Stuart Law, chief executive of property investment specialist Assetz.
"Our view is that house prices will drop by around a total of 10 to 15% from the peak this time last year, based on the Financial Times house price index data," he said. "We therefore think that prices will fall no further than a further 5% or 10% at most."
The FT Index, which uses the actual mix of property in England and Wales, rather than the mix based on sales, has recorded only a 4.3% fall in the year to September, less than half that recorded by most other indices.
Law noted that the complexities of the housing market produce some temporary pricing effects. "Auction pricing and distressed house builders are selling for much greater discounts than is visible within the house price indices," he said. "Even today we are sourcing property from house builders at greater than 30% discount to current valuation, never-mind from peak value last year."
The good news for most...The one piece of good news is that for most people, most of the time, house prices don't matter. You need a home to live in, and higher or lower prices are reflected both in the home you sell and the one you purchase. For first-time buyers, where they have job security, falling prices remain good news to be taken advantage of.
However, for those who have purchased recently, over-stretched buy-to-let investors, those who are having trouble making mortgage payments and those who have lost their jobs, price falls mean trouble. The fear of negative equity - in which the value of the home sinks below the size of the mortgage - ensures a cash loss if the home has to be sold.
The more prices fall in the months and years to come, the more people are going to be facing that anxiety.
By Nick Louth, exclusive to MSN
November 13 2008
The big rise in unemployment this week and the Bank of England's admission that Britain is in recession are clear reminders that those hoping for a quick end to falling house prices are likely to be disappointed.
Whether we look at other housing booms in the UK, experience in other countries, or the relationship between the economy and house prices, evidence suggest we are still a considerable way from the bottom.
The UK economy in depth
Recession for real"It is very likely that the economy entered a recession in the second half (of 2008)," Bank governor Mervyn King said. He said that the economy could shrink by 2% next year, compared with the broadly flat forecast the bank had previously. Earlier, a 140,000 rise in the jobless total in September put unemployment at 1.82 million, the highest in 11 years.
Those who lose their jobs are of course under immediate pressure on mortgage payments, but those who merely fear their jobs are under threat are more likely to act more cautiously too. That means fewer new buyers, delays in transactions and a temptation for sellers to lower asking prices.
Why the recession is needed immediately
Average prices drop, more to comeAverage UK house prices peaked at just under £200,000 in August 2007, according to the Halifax. Prices in October, at £168,000 were 16% down from this, matching levels last seen three years ago.
Nationwide, the largest building society in the country, reckons prices will fall by 25% in total, and there may be no bounce-back before 2010, according to chief executive Graham Beale
Based on the Halifax index, that would put average prices down to £150,000. However, it could easily be a lot worse because of the size of the bubble that preceded the August 2007 peak and the severity of the current economic downturn.
Bubbles past and presentThe last slide in UK house prices was a rather modest affair, though it lasted six years from May 1989 to July 1995. House prices as measured by the Halifax fell by 13%, from an average of £70,000 to £61,000 over the period. That might be a comforting precedent, except that it is already clear that the UK has in one year experienced a house price fall which took six years to occur in the 1990s. And it is still getting worse.
The difference this time is that we have had a major banking crisis which has rationed credit, while a recession is building which looks to be in a different league to the modest economic slowdown of the early 1990s.
Research by professor Morgan Kelly of University College Dublin shows that house price bubble across the world have similar characteristics. On average prices lose 70% of the gains made from trough to peak before bottoming out. This research is backed up by an international study made by the Bank of International Settlements in 2004, which found a strong positive correlation between the size of a housing bubble and the subsequent fall.
The doomsday scenario?So if Professor Kelly's 70% figure is accurate, where would that leave UK house prices? The last downturn in the housing market ended in July 1995, when average prices according to the Halifax were £61,000. That gain, trough to peak over 12 years, is £139,000. So if this is a typical bubble, the fall would be 70% of that, £97,000, taking the price of the average house at the low to just £103,000.
There are plenty who would see this as too much of a doomsday scenario, especially as houses would become affordable long before such low prices were reached. House prices have averaged 4.0 times average earnings over the long term, and since prices peaked the ratio has already dropped from 5.84 to 4.92 in August.
"Housing affordability is improving significantly," said Martin Ellis, chief economist at the Halifax. "The house price to average earnings ratio has fallen below 5.0 for the first time for four and a half years. We expect a further improvement in the ratio over the coming months."
Affordability issueIf average earnings do not change, which is itself a hefty assumption given the recession we are entering, prices would hit the long-term affordability average with a further 20% fall.
The trouble with this argument is that once houses became an investment asset, with the buy-to-let boom of the late 1990s, they became subject to the same speculative forces that drive share prices.
Instead of being guided by "fundamentals" such as the ratio of income to price, they were driven by price expectations. What that implies is that we can expect an overshoot, in which prices having been way above typical affordability averages for several years, then spend some time well below them.
Mortgage troubles drag onOne additional difficulty this time around is in mortgage finance. Though the Bank of England has cut interest rates sharply, stubbornly high inter-bank rates mean that rates offered to borrowers have yet to fall significantly. With buyers having to stump up larger deposits too, and credit generally harder to come by, this augurs badly for those who expect prices to soon stabilise.
Weakening activity underlines this. The Royal Institution of Chartered Surveyors said its sale-to-stock ratio, which measures transactions as a proportion of homes offered for sales, fell in October to the lowest level since December 1992. This seems to reflect a mis-match between the asking prices of sellers, and what buyers are willing or able to spend.
Some commentators, however, see the gloomy headlines as far too alarmist. One is Stuart Law, chief executive of property investment specialist Assetz.
"Our view is that house prices will drop by around a total of 10 to 15% from the peak this time last year, based on the Financial Times house price index data," he said. "We therefore think that prices will fall no further than a further 5% or 10% at most."
The FT Index, which uses the actual mix of property in England and Wales, rather than the mix based on sales, has recorded only a 4.3% fall in the year to September, less than half that recorded by most other indices.
Law noted that the complexities of the housing market produce some temporary pricing effects. "Auction pricing and distressed house builders are selling for much greater discounts than is visible within the house price indices," he said. "Even today we are sourcing property from house builders at greater than 30% discount to current valuation, never-mind from peak value last year."
The good news for most...The one piece of good news is that for most people, most of the time, house prices don't matter. You need a home to live in, and higher or lower prices are reflected both in the home you sell and the one you purchase. For first-time buyers, where they have job security, falling prices remain good news to be taken advantage of.
However, for those who have purchased recently, over-stretched buy-to-let investors, those who are having trouble making mortgage payments and those who have lost their jobs, price falls mean trouble. The fear of negative equity - in which the value of the home sinks below the size of the mortgage - ensures a cash loss if the home has to be sold.
The more prices fall in the months and years to come, the more people are going to be facing that anxiety.
02 October 2008
Any mortgages out there?
Why even mortgage brokers are struggling to find mortgages for their clients...
A massive two-thirds of brokers have been unable to source a mortgage for clients in the past two months, according to the Intermediary Mortgage Lenders Association. This surprising statistic highlights just how difficult it is to secure mortgage finance for many borrowers, with even the experts struggling to find us a deal.
The main reasons brokers quoted for the inability to find their clients mortgages are the tightening of lending criteria and the increase in deposits required, as loan-to-values (LTVs) have been cut – a problem mentioned by 51% of respondents. After that, 23% of intermediaries cited the withdrawal of products as the biggest impediment.
And this survey was released last week, before the B&B crisis and before hundreds more products were pulled from the market on Monday, wiping out 11% of available mortgages according to some estimates.
So the situation has just got a whole lot worse!
Problem areas
Brokers said that they are having problems finding deals across all product types with remortgages mentioned by 72% of respondents. Over half claimed they had been unable to source a loan for a first-time buyer and 50% couldn’t help a sub-prime borrower to find a deal.
Perhaps most worrying is that over a quarter (26%) of intermediaries had struggled to find deals for standard status borrowers -- the average Joes who are perceived to be least affected by the credit crunch.
What happens to these borrowers?
If brokers are unable to help a borrower get a deal, what can they do?
Well, they could try going direct to lenders to see if there are any products available that brokers cannot access. Earlier this year, many lenders introduced what was called a ‘dual pricing policy’ making their direct-to-consumer deals cheaper than those offered through brokers. This clearly made life extremely difficult for good brokers, who were forced to tell their clients they could get a better deal by going direct to the banks and building societies.
But dual pricing has become less of an issue in recent months and it’s fair to say that brokers now have access to most (if not all) of the competitive products on the market (HSBC being one significant exception). While deals may sometimes look different in terms of headline rates, broker deals sometimes come with added extras, like free valuation and legal fees for example, that might offset a difference somewhere else in the product.
The bad news is that the IMLA survey showed that customers who were unable to obtain a mortgage mostly ended up remaining with their existing lender on their Standard Variable Rate as a result. This is likely to be around 1.5% to 2% higher than the most competitive deals on the market. A massive 83% of brokers admitted that borrowers they couldn’t help fell into this category. This means that when they come to the end of a deal, such as a two-year fixed rate, they are being forced to move onto a much higher rate, and in most cases will pay significantly more each month.
For first-time buyers, a large proportion (40%) continued to rent instead of buying if their broker couldn’t find them a deal. Interestingly, a small percentage of existing homeowners who couldn’t get a decent remortgage deal decided to sell up and rent (15%), according to the brokers surveyed.
And sadly, they admitted that in 14% of cases where they could not help, the customer is facing repossession.
How can you avoid this?
Is there anything you can do to prevent yourself being one of the borrowers that brokers, or indeed lenders, cannot help to find a decently priced mortgage?
Well, it’s easier said than done. There are ways you can ensure you can have access to the best deals, but they may not be easy to achieve. Here are three key considerations:
Borrow less.
We would all like to have a whopping 40% deposit but it’s not that easy, is it? However the best and most competitive mortgages are available to those who only need to borrow 60% of the property’s value. However, there are plenty of extremely good deals for those who have 25% to put down. It gets tougher to find a deal the smaller your deposit so it really is essential that you try to save as much as possible. If you have a deposit of 5% for example you will have a pretty small selection of expensive mortgage to choose from. The good news is that with house prices falling, first-time buyers may be able to continue saving for longer, rather than feeling pressured to rush into the property market right now.
Clean up your credit record.
Lenders love whiter than white borrowers with no history of bad credit. This has always been the case and they have always charged ‘sub-prime’ borrowers more to offset the lending risk. Now they simply won’t lend to people with anything other than the minimum of credit problems. If you do have outstanding late payments on any credit agreements, settle them before you even apply for a mortgage. Although remember that lenders can still see past payment discrepancies on your credit file.
Become Mr and Mrs Average.
Unusual requirements are not what lenders want at the moment. Although there are self-cert mortgages out there for those who can’t prove their income, for example, they are expensive and the cheapest deals are available to those in full-time employment, on the electoral roll where they live, and preferably having lived in the same property for a while. Credit scoring often penalises those who move house, and jobs, frequently.
More: Buy-to-let Gets Busted
A massive two-thirds of brokers have been unable to source a mortgage for clients in the past two months, according to the Intermediary Mortgage Lenders Association. This surprising statistic highlights just how difficult it is to secure mortgage finance for many borrowers, with even the experts struggling to find us a deal.
The main reasons brokers quoted for the inability to find their clients mortgages are the tightening of lending criteria and the increase in deposits required, as loan-to-values (LTVs) have been cut – a problem mentioned by 51% of respondents. After that, 23% of intermediaries cited the withdrawal of products as the biggest impediment.
And this survey was released last week, before the B&B crisis and before hundreds more products were pulled from the market on Monday, wiping out 11% of available mortgages according to some estimates.
So the situation has just got a whole lot worse!
Problem areas
Brokers said that they are having problems finding deals across all product types with remortgages mentioned by 72% of respondents. Over half claimed they had been unable to source a loan for a first-time buyer and 50% couldn’t help a sub-prime borrower to find a deal.
Perhaps most worrying is that over a quarter (26%) of intermediaries had struggled to find deals for standard status borrowers -- the average Joes who are perceived to be least affected by the credit crunch.
What happens to these borrowers?
If brokers are unable to help a borrower get a deal, what can they do?
Well, they could try going direct to lenders to see if there are any products available that brokers cannot access. Earlier this year, many lenders introduced what was called a ‘dual pricing policy’ making their direct-to-consumer deals cheaper than those offered through brokers. This clearly made life extremely difficult for good brokers, who were forced to tell their clients they could get a better deal by going direct to the banks and building societies.
But dual pricing has become less of an issue in recent months and it’s fair to say that brokers now have access to most (if not all) of the competitive products on the market (HSBC being one significant exception). While deals may sometimes look different in terms of headline rates, broker deals sometimes come with added extras, like free valuation and legal fees for example, that might offset a difference somewhere else in the product.
The bad news is that the IMLA survey showed that customers who were unable to obtain a mortgage mostly ended up remaining with their existing lender on their Standard Variable Rate as a result. This is likely to be around 1.5% to 2% higher than the most competitive deals on the market. A massive 83% of brokers admitted that borrowers they couldn’t help fell into this category. This means that when they come to the end of a deal, such as a two-year fixed rate, they are being forced to move onto a much higher rate, and in most cases will pay significantly more each month.
For first-time buyers, a large proportion (40%) continued to rent instead of buying if their broker couldn’t find them a deal. Interestingly, a small percentage of existing homeowners who couldn’t get a decent remortgage deal decided to sell up and rent (15%), according to the brokers surveyed.
And sadly, they admitted that in 14% of cases where they could not help, the customer is facing repossession.
How can you avoid this?
Is there anything you can do to prevent yourself being one of the borrowers that brokers, or indeed lenders, cannot help to find a decently priced mortgage?
Well, it’s easier said than done. There are ways you can ensure you can have access to the best deals, but they may not be easy to achieve. Here are three key considerations:
Borrow less.
We would all like to have a whopping 40% deposit but it’s not that easy, is it? However the best and most competitive mortgages are available to those who only need to borrow 60% of the property’s value. However, there are plenty of extremely good deals for those who have 25% to put down. It gets tougher to find a deal the smaller your deposit so it really is essential that you try to save as much as possible. If you have a deposit of 5% for example you will have a pretty small selection of expensive mortgage to choose from. The good news is that with house prices falling, first-time buyers may be able to continue saving for longer, rather than feeling pressured to rush into the property market right now.
Clean up your credit record.
Lenders love whiter than white borrowers with no history of bad credit. This has always been the case and they have always charged ‘sub-prime’ borrowers more to offset the lending risk. Now they simply won’t lend to people with anything other than the minimum of credit problems. If you do have outstanding late payments on any credit agreements, settle them before you even apply for a mortgage. Although remember that lenders can still see past payment discrepancies on your credit file.
Become Mr and Mrs Average.
Unusual requirements are not what lenders want at the moment. Although there are self-cert mortgages out there for those who can’t prove their income, for example, they are expensive and the cheapest deals are available to those in full-time employment, on the electoral roll where they live, and preferably having lived in the same property for a while. Credit scoring often penalises those who move house, and jobs, frequently.
More: Buy-to-let Gets Busted
Biggest since I don't know when.....
House price fall biggest in 17 years
By Christina Fincher
LONDON (Reuters) - House prices fell 1.7 percent in the month of September to post their biggest annual drop since comparable records began in 1991, the Nationwide building society said on Thursday.
Interest rate futures rallied as investors speculated the figures increased the chance of an interest rate cut by the Bank of England next week, although analysts cautioned that a cut in itself would do little to halt sliding property values.
"Even if the Bank of England cuts interest rates as early as next week, as we now expect, this is likely to provide only very limited support to the housing market given that elevated money market rates are exerting upward pressure on fixed rate mortgages," said Howard Archer, economist at Global Insight.
Mortgage approvals are already less than a third what they were a year ago and figures from the Bank of England Thursday showed lenders expect to restrict credit even further in the coming months.
A survey of construction, meanwhile, showed the sector contracted for a seventh consecutive month in September as commercial activity fell at the fastest pace since the survey began a decade ago.
Nationwide said house prices in September were 12.4 percent lower than a year earlier. Before 1991, Nationwide conducted quarterly house price surveys. The largest annual fall on that measure was a 10.7 percent drop recorded in the early 1990s.
The 11th consecutive monthly decline highlights the sharp reversal of fortune for the property market since the credit crunch took hold last summer, bringing an end to a decade in which property values almost trebled.
"Casting back one year there have been some astonishing and unpredictable developments in the housing and financial markets," said Fionnuala Earley, Nationwide's chief economist.
"We would need to see a significant shift in consumers' sentiment before we begin to see any real recovery in activity and subsequently house prices."
September's decline pushed the average price of a property to 161,797 pounds, the lowest since February 2006.
The precipitous drop in house prices both in Britain and overseas has been a key element of the crisis that is rocking the global banking sector and threatening to send many industrialised economies into recession.
A reluctance by banks to lend to each other had led to a sharp increase in wholesale funding costs in recent weeks. Several mortgage providers have responded by raising their own mortgage rates.
Policymakers are concerned a weakening property market could feed a vicious downward spiral of falling consumer demand and rising unemployment.
Futures markets suggest the Bank of England will cut interest rates to 4.75 percent next week and to 4 percent by this time next year.
A Reuters poll this week showed 45 of 66 economists polled September 29-October 1 said the BoE would hold rates at 5.0 percent next week. A cut by the end of the year is now almost a certainty with forecasters in the poll.
(Reporting by Christina Fincher; Editing by Mike Peacock/Toby Chopra)
By Christina Fincher
LONDON (Reuters) - House prices fell 1.7 percent in the month of September to post their biggest annual drop since comparable records began in 1991, the Nationwide building society said on Thursday.
Interest rate futures rallied as investors speculated the figures increased the chance of an interest rate cut by the Bank of England next week, although analysts cautioned that a cut in itself would do little to halt sliding property values.
"Even if the Bank of England cuts interest rates as early as next week, as we now expect, this is likely to provide only very limited support to the housing market given that elevated money market rates are exerting upward pressure on fixed rate mortgages," said Howard Archer, economist at Global Insight.
Mortgage approvals are already less than a third what they were a year ago and figures from the Bank of England Thursday showed lenders expect to restrict credit even further in the coming months.
A survey of construction, meanwhile, showed the sector contracted for a seventh consecutive month in September as commercial activity fell at the fastest pace since the survey began a decade ago.
Nationwide said house prices in September were 12.4 percent lower than a year earlier. Before 1991, Nationwide conducted quarterly house price surveys. The largest annual fall on that measure was a 10.7 percent drop recorded in the early 1990s.
The 11th consecutive monthly decline highlights the sharp reversal of fortune for the property market since the credit crunch took hold last summer, bringing an end to a decade in which property values almost trebled.
"Casting back one year there have been some astonishing and unpredictable developments in the housing and financial markets," said Fionnuala Earley, Nationwide's chief economist.
"We would need to see a significant shift in consumers' sentiment before we begin to see any real recovery in activity and subsequently house prices."
September's decline pushed the average price of a property to 161,797 pounds, the lowest since February 2006.
The precipitous drop in house prices both in Britain and overseas has been a key element of the crisis that is rocking the global banking sector and threatening to send many industrialised economies into recession.
A reluctance by banks to lend to each other had led to a sharp increase in wholesale funding costs in recent weeks. Several mortgage providers have responded by raising their own mortgage rates.
Policymakers are concerned a weakening property market could feed a vicious downward spiral of falling consumer demand and rising unemployment.
Futures markets suggest the Bank of England will cut interest rates to 4.75 percent next week and to 4 percent by this time next year.
A Reuters poll this week showed 45 of 66 economists polled September 29-October 1 said the BoE would hold rates at 5.0 percent next week. A cut by the end of the year is now almost a certainty with forecasters in the poll.
(Reporting by Christina Fincher; Editing by Mike Peacock/Toby Chopra)
04 September 2008
Peter Schiff ~ Eye of the Storm
In The Eye of The Storm
Peter Schiff
Sep 4, 2008
As we enter the height of the hurricane season, it may be worthwhile to recall, when considering the economy at large, the particular deception that lurks in the "eye" of the storm. After a raging tempest, the sudden appearance of the calm 'eye' can all too easily encourage people to leave their shelter in order to assess and even repair damage, exposing themselves to the often more devastating second leg of the hurricane.
We have long warned our readers of a coming real estate crash which would then lead to a credit crunch, and eventually a major round of bank failures. We have argued that these developments would be the precursors to a major recession, and perhaps a depression.
As predicted, the collapsing values of bonds backed by subprime mortgages did indeed lead to a collapse of the entire mortgage market, a bank liquidity crisis, a credit crunch and a steep fall in consumer confidence. This was the first leg of the storm, but the full blown banking collapse and the deep recession are not yet manifest. The conventional wisdom holds that the bullet has been dodged.
The markets are buying this hypothesis. Tempted by the latest crop of economic data that seems to show expansion, U.S. stocks have moved sideways, and even climbed slowly. The U.S. dollar has risen from its lows, and the rate of bank failures appears to be under control. In short, with gold off almost twenty percent from its highs, it looks as if many investors have concluded that the worst of the storm has past, and have decided look for good deals amid the stock market wreckage. Proceed with caution.
At its core, our economy is simply showing the effects of a national depletion of wealth caused by decades of consuming more than we produce and spending more than we earn. The natural corrective mechanism to such a condition is a recession. But recession is very bad for politics, especially in an election year. So, the potential corrective recession has been postponed by a massive injection of billions of dollars into the economy. At a time when we needed serious physical therapy, the government instead offered four massive pain killers:
First, the debased U.S. dollar has boosted exports and helped the GDP to remain positive.
Second, by setting interest rates below the rate of inflation the Federal Reserve discouraged savings and encouraged borrowing and spending.
Third, massive government lending kept the financial service industry solvent and the mortgage lenders operating.
Fourth, stimulus checks have kept American's spending money that they have not earned.
Although these government palliatives have succeeded in calming the immediate crisis (by saddling American taxpayers with massive liabilities), they have not cured the disease. If anything the huge doses indicate that the patient is getting far worse, even if in silence!
Last week, the FDIC announced that bank losses have tripled to $26.4 billion, leading to a fall of 86.5 percent in bank earnings. The Case-Shiller home price index shows American housing to have fallen in value by some 20 percent and still sliding. These massive movements have yet to be felt along the entire economic spectrum... but it is inevitable that they will be.
Don't be lulled into a false sense of security and start buying U.S. equities at seemingly knockdown prices. We are in the eye of the hurricane. Beware of the second leg!
###
For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my book "Crash Proof: How to Profit from the Coming Economic Collapse." Click here to buy a copy today.
More importantly, don't wait for reality to set in. Protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com, download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com, and subscribe to my free, on-line investment newsletter.
Sep 3, 2008
Peter Schiff
C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
1 800-727-7922
email: pschiff@europac.net
website: www.europac.net
Archives
Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nation's leading newspapers, including The Wall Street Journal, Barron's, Investor's Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg. In addition, his views are frequently quoted locally in the Orange County Register.
Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation's financial newsletters and advisory services.
321gold Ltd
Peter Schiff
Sep 4, 2008
As we enter the height of the hurricane season, it may be worthwhile to recall, when considering the economy at large, the particular deception that lurks in the "eye" of the storm. After a raging tempest, the sudden appearance of the calm 'eye' can all too easily encourage people to leave their shelter in order to assess and even repair damage, exposing themselves to the often more devastating second leg of the hurricane.
We have long warned our readers of a coming real estate crash which would then lead to a credit crunch, and eventually a major round of bank failures. We have argued that these developments would be the precursors to a major recession, and perhaps a depression.
As predicted, the collapsing values of bonds backed by subprime mortgages did indeed lead to a collapse of the entire mortgage market, a bank liquidity crisis, a credit crunch and a steep fall in consumer confidence. This was the first leg of the storm, but the full blown banking collapse and the deep recession are not yet manifest. The conventional wisdom holds that the bullet has been dodged.
The markets are buying this hypothesis. Tempted by the latest crop of economic data that seems to show expansion, U.S. stocks have moved sideways, and even climbed slowly. The U.S. dollar has risen from its lows, and the rate of bank failures appears to be under control. In short, with gold off almost twenty percent from its highs, it looks as if many investors have concluded that the worst of the storm has past, and have decided look for good deals amid the stock market wreckage. Proceed with caution.
At its core, our economy is simply showing the effects of a national depletion of wealth caused by decades of consuming more than we produce and spending more than we earn. The natural corrective mechanism to such a condition is a recession. But recession is very bad for politics, especially in an election year. So, the potential corrective recession has been postponed by a massive injection of billions of dollars into the economy. At a time when we needed serious physical therapy, the government instead offered four massive pain killers:
First, the debased U.S. dollar has boosted exports and helped the GDP to remain positive.
Second, by setting interest rates below the rate of inflation the Federal Reserve discouraged savings and encouraged borrowing and spending.
Third, massive government lending kept the financial service industry solvent and the mortgage lenders operating.
Fourth, stimulus checks have kept American's spending money that they have not earned.
Although these government palliatives have succeeded in calming the immediate crisis (by saddling American taxpayers with massive liabilities), they have not cured the disease. If anything the huge doses indicate that the patient is getting far worse, even if in silence!
Last week, the FDIC announced that bank losses have tripled to $26.4 billion, leading to a fall of 86.5 percent in bank earnings. The Case-Shiller home price index shows American housing to have fallen in value by some 20 percent and still sliding. These massive movements have yet to be felt along the entire economic spectrum... but it is inevitable that they will be.
Don't be lulled into a false sense of security and start buying U.S. equities at seemingly knockdown prices. We are in the eye of the hurricane. Beware of the second leg!
###
For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my book "Crash Proof: How to Profit from the Coming Economic Collapse." Click here to buy a copy today.
More importantly, don't wait for reality to set in. Protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com, download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com, and subscribe to my free, on-line investment newsletter.
Sep 3, 2008
Peter Schiff
C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
1 800-727-7922
email: pschiff@europac.net
website: www.europac.net
Archives
Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nation's leading newspapers, including The Wall Street Journal, Barron's, Investor's Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg. In addition, his views are frequently quoted locally in the Orange County Register.
Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation's financial newsletters and advisory services.
321gold Ltd
Property Price drop accelerates
Property price drop has accelerated
By PA News
September 02 2008
Government help for homebuyers follows 12 months which have seen prices tumble and loans restricted.
- The average UK property has lost 10.5% of its value during the past 12 months, the biggest drop since the final quarter of 1990, according to Nationwide Building Society.
- Property prices fell by 1.9% in August following drops of 1.5% and 0.9% in July and June respectively.
- The average property in the UK currently costs £164,654.
- London house prices dropped by 5.3% in the last month, a report by property agent Rightmove showed.
- The top five worst affected areas in London, when comparing July to August, were Wandsworth, Brent, Kingston upon Thames, Richmond upon Thames and Greenwich.
- Property firm Savills said profits in its estate agency slumped 88% during the first half of this year.
- Buyers are currently putting down average deposits of 20%, falling to around 10% among first-time buyers, according to the Council of Mortgage Lenders.
- Figures show that 144,400 first-time buyers got on the property ladder between August last year and the beginning of this year, and many of these could now find themselves in negative equity.
- Around 552,000 people bought a property with a 100% mortgage between the beginning of August last year and the end of March, meaning they have no equity cushion against house price falls.
- The Halifax estimate 300,000 first-time buyers entered the market in 2007, the lowest since 1980. This compares with an estimated 900,000 at the peak in 1988.
Related links
The government's plan, region by region
Govt raises stamp duty threshold for a year
Why the government decided to act
Message board: has the government done enough?
Stamp duty relief Q&A
By PA News
September 02 2008
Government help for homebuyers follows 12 months which have seen prices tumble and loans restricted.
- The average UK property has lost 10.5% of its value during the past 12 months, the biggest drop since the final quarter of 1990, according to Nationwide Building Society.
- Property prices fell by 1.9% in August following drops of 1.5% and 0.9% in July and June respectively.
- The average property in the UK currently costs £164,654.
- London house prices dropped by 5.3% in the last month, a report by property agent Rightmove showed.
- The top five worst affected areas in London, when comparing July to August, were Wandsworth, Brent, Kingston upon Thames, Richmond upon Thames and Greenwich.
- Property firm Savills said profits in its estate agency slumped 88% during the first half of this year.
- Buyers are currently putting down average deposits of 20%, falling to around 10% among first-time buyers, according to the Council of Mortgage Lenders.
- Figures show that 144,400 first-time buyers got on the property ladder between August last year and the beginning of this year, and many of these could now find themselves in negative equity.
- Around 552,000 people bought a property with a 100% mortgage between the beginning of August last year and the end of March, meaning they have no equity cushion against house price falls.
- The Halifax estimate 300,000 first-time buyers entered the market in 2007, the lowest since 1980. This compares with an estimated 900,000 at the peak in 1988.
Related links
The government's plan, region by region
Govt raises stamp duty threshold for a year
Why the government decided to act
Message board: has the government done enough?
Stamp duty relief Q&A
31 August 2008
The interview with Jack today..........
Straw says UK can 'weather storm'
Justice secretary defends Labour's "experienced pilot and co-pilot"
Justice Secretary Jack Straw has said Labour is best placed to see Britain through the current economic downturn.
He told BBC One's Andrew Marr Show that economic management under Labour would help the UK to "weather these storms".
He said Chancellor Alistair Darling did not speak out of turn saying economic conditions were the worst for 60 years.
The Tories have said it shows a split between him and Gordon Brown. Mr Straw also ruled out any Labour leadership challenge to the prime minister.
Experience
Mr Straw likened Britain's current economic situation to an airliner passing through turbulence.
There won't be a leadership challenge from me or from anybody else
Jack Straw, Justice Secretary
"The question for the country is who is better to take us through this turbulent period?" he said.
"Is it an experienced pilot and co-pilot in Gordon Brown and Alistair Darling, who have had the experience… or is it two people in David Cameron and George Osborne, who have had no experience of flying a large plane whatsoever."
The Tories have claimed Alastair Darling's comments to the Guardian newspaper "let the cat out of the bag" about the economy and proved that government was divided at the top level.
But Mr Straw insisted the Cabinet was completely in step and stressed that Mr Darling had been referring to the worldwide impact of the credit crunch and soaring food prices, rather than Britain's situation specifically.
This coming 12 months will be the most difficult 12 months the Labour party has had in a generation, quite frankly
Alistair Darling
Darling defends economy warning
Analysis: Darling's frank comments
He said: "We talk to each other all the time, each of us talks for the other. I'm sorry about this, but we're not clones of each other, and we sometimes use different adverbs and adjectives.
"The message from Gordon, from Alistair, from colleagues like myself, has been the same: we've had a very good period of economic management and economic success which has, for sure, provided us with a really serious platform to weather these storms."
Asked if he could rule himself out of any leadership challenge, Mr Straw said: "Yes. There won't be a leadership challenge from me or from anybody else."
Housing market
Mr Straw refused to speculate on possible measures to bolster the ailing housing market. But he said the government had already announced plans to allow local authorities to buy unsold homes to let to tenants.
"This is actually really important. Because of the credit crunch, because of the difficulty people find in getting mortgages, there is a market in the private sector that is, to say the least, not as buoyant as it was.
"Local authorities have said to us… why can't we go into the market to buy some of these houses. We have listened and we have acted very quickly."
Justice secretary defends Labour's "experienced pilot and co-pilot"
Justice Secretary Jack Straw has said Labour is best placed to see Britain through the current economic downturn.
He told BBC One's Andrew Marr Show that economic management under Labour would help the UK to "weather these storms".
He said Chancellor Alistair Darling did not speak out of turn saying economic conditions were the worst for 60 years.
The Tories have said it shows a split between him and Gordon Brown. Mr Straw also ruled out any Labour leadership challenge to the prime minister.
Experience
Mr Straw likened Britain's current economic situation to an airliner passing through turbulence.
There won't be a leadership challenge from me or from anybody else
Jack Straw, Justice Secretary
"The question for the country is who is better to take us through this turbulent period?" he said.
"Is it an experienced pilot and co-pilot in Gordon Brown and Alistair Darling, who have had the experience… or is it two people in David Cameron and George Osborne, who have had no experience of flying a large plane whatsoever."
The Tories have claimed Alastair Darling's comments to the Guardian newspaper "let the cat out of the bag" about the economy and proved that government was divided at the top level.
But Mr Straw insisted the Cabinet was completely in step and stressed that Mr Darling had been referring to the worldwide impact of the credit crunch and soaring food prices, rather than Britain's situation specifically.
This coming 12 months will be the most difficult 12 months the Labour party has had in a generation, quite frankly
Alistair Darling
Darling defends economy warning
Analysis: Darling's frank comments
He said: "We talk to each other all the time, each of us talks for the other. I'm sorry about this, but we're not clones of each other, and we sometimes use different adverbs and adjectives.
"The message from Gordon, from Alistair, from colleagues like myself, has been the same: we've had a very good period of economic management and economic success which has, for sure, provided us with a really serious platform to weather these storms."
Asked if he could rule himself out of any leadership challenge, Mr Straw said: "Yes. There won't be a leadership challenge from me or from anybody else."
Housing market
Mr Straw refused to speculate on possible measures to bolster the ailing housing market. But he said the government had already announced plans to allow local authorities to buy unsold homes to let to tenants.
"This is actually really important. Because of the credit crunch, because of the difficulty people find in getting mortgages, there is a market in the private sector that is, to say the least, not as buoyant as it was.
"Local authorities have said to us… why can't we go into the market to buy some of these houses. We have listened and we have acted very quickly."
Evidence of House Price Crash......
House prices crash by 10.5% in just one year - faster than the crash in the 1990's
Thursday, August 28 2008 @ 06:32 AM UTC
Latest Nationwide data shows month-on-month fall on 2% bringing the yearly fall to a staggering double digit value of 10.5%, a value that was predicted for the next 3 years and also a value that was denied could ever happen by estate agents and other mortgage dependent businesses.
At this rate, 30% - 50% within the next 32 months is now almost certain. Prices only go up eh? Missed the boat? Thats one boat I am glad I did not buy a ticket for.
If you have bought in the last 18 months you are probably in negative equity.
If you are a first time buyer, who has resisted the pressure from parents and friends, well done and here are some dinner party quotes to get your own back.
Message for Declan Curry, BBC: You berk.
For a while now I have generously been giving you the benefit of the doubt, thinking perhaps your hands were tied up by Auntie. But... this morning you removed all doubt from my mind, and I am now certain you a shameless non-independent VI, no wonder they let you work at the BBC.
You haven't quite been able to admit to the fundamentals over the past year clearly showing that house price falls are going to be deep, and 12 months ago you ridiculed anyone who thought 10% would happen - well look at the data today.
Your smirky little comment "so prices have fallen, your not going to be able to get a mortgage anyway" directed at people who chose to sit out the lunacy shows nothing but a nasty jealous streak running through you.
You should also know that a lot of people are shortly going to be wiping that grin of your face when they buy properties in cash, or have a hefty deposit for a cheap mortgage.
I hope your high leveraged BTL empire is weighing you down.
Thursday, August 28 2008 @ 06:32 AM UTC
Latest Nationwide data shows month-on-month fall on 2% bringing the yearly fall to a staggering double digit value of 10.5%, a value that was predicted for the next 3 years and also a value that was denied could ever happen by estate agents and other mortgage dependent businesses.
At this rate, 30% - 50% within the next 32 months is now almost certain. Prices only go up eh? Missed the boat? Thats one boat I am glad I did not buy a ticket for.
If you have bought in the last 18 months you are probably in negative equity.
If you are a first time buyer, who has resisted the pressure from parents and friends, well done and here are some dinner party quotes to get your own back.
Message for Declan Curry, BBC: You berk.
For a while now I have generously been giving you the benefit of the doubt, thinking perhaps your hands were tied up by Auntie. But... this morning you removed all doubt from my mind, and I am now certain you a shameless non-independent VI, no wonder they let you work at the BBC.
You haven't quite been able to admit to the fundamentals over the past year clearly showing that house price falls are going to be deep, and 12 months ago you ridiculed anyone who thought 10% would happen - well look at the data today.
Your smirky little comment "so prices have fallen, your not going to be able to get a mortgage anyway" directed at people who chose to sit out the lunacy shows nothing but a nasty jealous streak running through you.
You should also know that a lot of people are shortly going to be wiping that grin of your face when they buy properties in cash, or have a hefty deposit for a cheap mortgage.
I hope your high leveraged BTL empire is weighing you down.
04 August 2008
House Prices ~ How low can they Go?
Think of a number........say 10%
Think again..............say double it to 20%
Think again and compare it to the latest projection of say HBOS .........say 30%
That's probably not far out over the next 2 years!
Think again..............say double it to 20%
Think again and compare it to the latest projection of say HBOS .........say 30%
That's probably not far out over the next 2 years!
House Price Crash ~ GOOD GOOD VERY GOOD
Everybody talks as if falling house prices are a bad thing, nay, a national disaster.
Rising house prices, the logic runs, are therefore a good thing.
But the reverse is true.
Right now, falling house prices are exactly what we need. You know it, I know it.
House prices dropped a record 8.1% over the past 12 months, according to Nationwide, the biggest drop since it started collecting figures in 1991. Other reports suggest that the value of your home could drop by as much as 30% by 2010.
Everybody pretends this is terrible news, but quite frankly, it isn't.
I would argue that most of us are delighted at the thought, and rightly so.
The press, of course, is revelling in all the doom and gloom, but headline-hungry journalists aren't the only ones getting excited by the housing market collapse.
Hoping for the worst
Many of us, not just first-time buyers and rivals for Gordon Brown's job, actively want prices to fall. We would be disappointed if they stabilised, and the housing market became tediously becalmed.
The forthcoming collapse has been so widely predicted that if it doesn't happen, we would all be crushed by the anti-climax.
There is also a collective – and very sensible – horror at the way house prices have spiralled beyond all logic in recent years. We're all financial puritans at heart.
Even people who have cashed in to the tune of hundreds of thousands of pounds have been appalled by this scarcely credible surge in values. If house prices can behave so irrationally, how rational is the rest of our financial system?
The party's over
Add to that widespread distaste at the orgy of debt the UK has indulged in lately, and you can see why many people have been howling for the party to come to an end. It may leave many of us nursing sore heads and negative equity, but we knew all along it would end in tears.
So who gets hurt by a crash? Some will find it painful, but not as many as you think. Existing homeowners may see up to 30% lopped off the value of their home, but their next property has also fallen by 30%, so where's the problem?
Even the 1.7 million that Standard & Poor's estimate face negative equity will only suffer if they absolutely need to move home in the next few years. If you are among their number, you have my sympathy.
Other homeowners will have a shrinking amount of equity to dip into, too. But given that the nation collectively owes £1.4 trillion, the last thing we need is more borrowing.
In my opinion, those who missed out on the house price bonanza should be popping champagne corks. Or better still, saving the money towards a deposit, to allow them to enter the property market at more affordable levels in a year or two.
Any fall must be set in the context of the astronomical gains in recent years. As Nationwide quickly points out, the average house is still worth £11,000 more than three years ago – although admittedly, maybe not for much longer.
So let's not get too carried away, it's not the end of the world as we know it, just an abrupt halt to its wilder excesses.
Short, sharp shock
A short, sharp property crash might do us all some good – and I do believe it is likely to be short and sharp.
Although unemployment is set to rise, it still remains at modest levels. Personal insolvencies and repossessions will increase, but many people will hang on by the skin of their teeth until the recovery comes.
There are also one or two pieces of good news floating around, overlooked in the current carnage.
Swap rates are falling and lenders are cutting their fixed-rate mortgages, which might ease some of the pain for those facing payment shock. Plus there is still a good chance that interest rates could start falling by the end of the year.
Reality bites
Add the fact that we live on a small, squeezed island with a pent-up demand for houses, and you can see the ground is clear for a relatively speedy recovery. But let's hope it isn't too speedy, because we don't want to find ourselves repeating the blunders of the past decade (and the decade before that).
Arguably, the crash is a much-needed jolt of economic reality, and is the first step towards restoring common sense to the property market, and the rest of the economy.
I'll say it again. Falling house prices are a good thing. Enjoy it while it lasts.
Rising house prices, the logic runs, are therefore a good thing.
But the reverse is true.
Right now, falling house prices are exactly what we need. You know it, I know it.
House prices dropped a record 8.1% over the past 12 months, according to Nationwide, the biggest drop since it started collecting figures in 1991. Other reports suggest that the value of your home could drop by as much as 30% by 2010.
Everybody pretends this is terrible news, but quite frankly, it isn't.
I would argue that most of us are delighted at the thought, and rightly so.
The press, of course, is revelling in all the doom and gloom, but headline-hungry journalists aren't the only ones getting excited by the housing market collapse.
Hoping for the worst
Many of us, not just first-time buyers and rivals for Gordon Brown's job, actively want prices to fall. We would be disappointed if they stabilised, and the housing market became tediously becalmed.
The forthcoming collapse has been so widely predicted that if it doesn't happen, we would all be crushed by the anti-climax.
There is also a collective – and very sensible – horror at the way house prices have spiralled beyond all logic in recent years. We're all financial puritans at heart.
Even people who have cashed in to the tune of hundreds of thousands of pounds have been appalled by this scarcely credible surge in values. If house prices can behave so irrationally, how rational is the rest of our financial system?
The party's over
Add to that widespread distaste at the orgy of debt the UK has indulged in lately, and you can see why many people have been howling for the party to come to an end. It may leave many of us nursing sore heads and negative equity, but we knew all along it would end in tears.
So who gets hurt by a crash? Some will find it painful, but not as many as you think. Existing homeowners may see up to 30% lopped off the value of their home, but their next property has also fallen by 30%, so where's the problem?
Even the 1.7 million that Standard & Poor's estimate face negative equity will only suffer if they absolutely need to move home in the next few years. If you are among their number, you have my sympathy.
Other homeowners will have a shrinking amount of equity to dip into, too. But given that the nation collectively owes £1.4 trillion, the last thing we need is more borrowing.
In my opinion, those who missed out on the house price bonanza should be popping champagne corks. Or better still, saving the money towards a deposit, to allow them to enter the property market at more affordable levels in a year or two.
Any fall must be set in the context of the astronomical gains in recent years. As Nationwide quickly points out, the average house is still worth £11,000 more than three years ago – although admittedly, maybe not for much longer.
So let's not get too carried away, it's not the end of the world as we know it, just an abrupt halt to its wilder excesses.
Short, sharp shock
A short, sharp property crash might do us all some good – and I do believe it is likely to be short and sharp.
Although unemployment is set to rise, it still remains at modest levels. Personal insolvencies and repossessions will increase, but many people will hang on by the skin of their teeth until the recovery comes.
There are also one or two pieces of good news floating around, overlooked in the current carnage.
Swap rates are falling and lenders are cutting their fixed-rate mortgages, which might ease some of the pain for those facing payment shock. Plus there is still a good chance that interest rates could start falling by the end of the year.
Reality bites
Add the fact that we live on a small, squeezed island with a pent-up demand for houses, and you can see the ground is clear for a relatively speedy recovery. But let's hope it isn't too speedy, because we don't want to find ourselves repeating the blunders of the past decade (and the decade before that).
Arguably, the crash is a much-needed jolt of economic reality, and is the first step towards restoring common sense to the property market, and the rest of the economy.
I'll say it again. Falling house prices are a good thing. Enjoy it while it lasts.
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