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23 November 2008

Kirstie and Phil's Location, Location, Location Returns as UK House Prices Crash Housing-Market / UK Housing Nov 20, 2008 - 01:12 AM
By: Nadeem_Walayat

Kirstie and Phil self professed property experts make a return to the UK's TV screens with a more muted version of their long standing delusionally bullish UK property candy floss show titled location, location, location that helped feed the get on the property ladder frenzy of the last few years.
Finally, Kirstie has been forced to recognise the fact that house prices can actually fall which follows earlier near religiously opinionated programming that fed on and reinforced the fervour that gripped much of the country as annual house prices roared ahead every month by more than that which people earned in wages, that house prices are a one way bet.
The credit crash is clearly leaving the presenters in an air of frustration that the wood be buyers are in increasing numbers failing to act on their suggestions of buying found properties as people increasingly realise the risks of buying into a crashing UK housing market. Kirstie is still not getting the message that no matter how much you want house prices to rise, you can't talk up the market. But still the impression is that the presenters desperately want the potential buyers to BUY the located properties upon which the programme still hinges, when most are not wanting to once they do the sums away from the glare of the TV cameras, that BUYING does NOT stack up as the analysis of November 2007 showed and concluded that house prices need to rise by more than 2% per annum to beat renting, anything else and buyers lose money.
housepricecrash.co.uk video
Whilst Kirstie's now infamous emotional and angry response against anyone that suggested that house prices could fall on ITV's London Tonight 'appears' to have gone. Still both Kirstie and Phil are attempting to talk people into lemming like house buying decisions that they will likely regret as the housing bear market progresses, as in fact the most recent program illustrates which showed that had prospective buyers acted on Kirstie's and Phil's 'suggestion to buy', they would have lost £20k ! Let alone many of those that acted during the programming's boom years that are now probably sitting in negative equity.
Perhaps Channel 4 should have commissioned a show titled Repossession, Repossession, Repossession, so as to revisit those of Kirstie and Phil's clients that are in the process of handing their keys back as they pack their possessions and head off to some rundown council estate. Instead Channel 4 is holding onto an old programming formula that has been tinkered to at the edges for primarily an era that has now GONE ! No longer exists, instead of focusing on the housing bear market.
The return of the property show location,location, location follows Channel 4's other new money series titled the Ascent of Money, unfortunately again Channel 4 have commissioned a series led by an academic called Niall Ferguson, who appears to have little real world experience of actually trading the financial markets but purports to know the answers that led up to the credit collapse and what is likely to transpire. This from someone who apparently stated in late 1999 and early 2000 that Gold was dead as an investment and held no future other than as jewellery, and in fact published a book to the the same effect in 2001 as this was his conclusion after 'studying' over 500 years of monetary history.
It just goes to show the wide difference between academia that basically does not understand what they are talking about as they have never actually gained the experience and insight that comes with actually trading the markets over a number of years by reacting to price movements in real time. Instead academics rely on sanitised historic events without any of the associated experience of actually being immersed in events in real-time which is from which accurate forecasts are generated, rather grandiose theories of what should happen are employed that usually never stand up to a real market environment.
Given the poor quality of mainstream programming, its no wonder than people are waking up to find out that their banks are bankrupt and the housing market has crashed.
As to where house prices are going ?
The most recent house price data released by the Halifax shows that UK house prices have fallen by more than 16% from the peak of August 2007 and October 2008. The crash in both US and UK housing markets over the last 12 months was increasingly followed in September by the bankrupt banks collapsing one by one like a chain of dominos with governments rushing to their rescue during September and early October to the tune of unheard of amounts of tax payers money that now runs to collectively over $3 trillion. This triggered the near panic co-ordinated interest rate cuts in October of 0.5%, which was followed this month by an near unprecedented 1.5% cut.

The whole trend for the house price crash has been forecast well in advance of events, right from the very peak to the initial down-trend path amidst prevailing mainstream denial that house prices were actually falling as recent as of March of this year, and right up to the most recent data that fulfills the original forecast of a 15% fall in average UK house prices as projected in August 2007.

The current house price forecast is now complete, therefore work is underway towards completing in-depth analysis geared towards generating the next accurate forecast for UK house prices to cover the next 2 to 3 years, to get the analysis in your inbox subscribe to our always free newsletter.

By Nadeem Walayathttp://www.marketoracle.co.uk

Cameron


Cameron draws up battle lines.....

News Review interview: David Cameron
Unfazed by his falling poll lead, the Tory leader is turning tough, dour and aggressive to challenge an increasingly cavalier Gordon Brown
Dominic Lawson


David Cameron prides himself on treating Kipling’s two impostors, triumph and disaster, just the same. So in the week when the Conservative lead in the opinion polls has crumbled to three points and the entire business establishment has seemed to line up behind Gordon Brown’s plans to borrow still more to reflate the economy, the Tory leader appears as relaxed and self-confident as ever. But with all the political turbulence, is he still relishing the job and managing at the same time to enjoy family life?

“Yes, these are turbulent times and there are huge challenges facing the Conservative party, but I feel more confident than ever that I have found a good team and I’m happy in the job. And I do feel I still spend enough time with the family. Last night I got home at seven and read Noddy for the millionth time to Elwyn and put the children to bed and then Sam and I had supper together and just watched televi-sion. That doesn’t happen every night, admittedly.”

Immediately outside the tight-knit family unit, one of Cameron’s closest friends is George Osborne, the shadow chancellor. Notwithstanding Cameron’s remarks about his “good team”, how worried is he about the loud murmurings within the Tory party that (partly as a result of ill-advised talks about party donations on a Russian oligarch’s yacht) Osborne should make way for a political heavyweight with government experience, such as Ken Clarke?

“It doesn’t worry me too much.

You have these times in politics when you go through the wringer; but the fact is that George is a tough, confident and robust person and he’s got good judgment and he will come through this.”
I point out that Cameron and Osborne are each godparents to one of the other’s children. In such circumstances is it possible for him to be as objective as he needs to be as a boss?

“Funnily enough, I’d almost say the opposite in a way. That makes me sound rather cold and heartless – you know, I had to sack a friend from the shadow cabinet [fellow Old Etonian Hugo Swire] and I did. I mean, I hope I’m a kind and gentle and friendly and compassionate person but I’m also very tough. And George is also able to look at the situation objectively, knowing that he’s been through a tough time and he’s got to come through it.”

The Batman and Robin of the modern Conservative party are now united in a politically high-risk strategy to oppose outright the fiscal stimulus – otherwise known as hand-outs – that Alistair Darling, the chancellor, is set to announce to parliament tomorrow. Hold on a second, though: wasn’t Cameron only the other day saying that the Conservative party would try to forge a “bipartisan consensus” on the economy in such dire national circumstances?

“Look at exactly what I said. When I gave the speech at our party conference about all-party support, it clearly applied to the immediate banking crisis, the need to rescue the banks. It did not mean that we backed the fact that the government are borrowing so much. It did not mean that we backed their broader economic policy. But Gordon Brown, he’s a very cunning politician. What he always does with any offer of support about anything is to say, ‘Ah, well, if you support this thing over here, you support everything I do.’ It’s a tactic he has.”
I suggest to the Tory leader that his strictures about Brown’s fiscally irresponsible behaviour would sound more convincing if he had not earlier committed his party to matching Labour’s spending plans through to 2010 – plans that he now argues are partly responsible for the nation’s overborrowed state.

“I switched policy because they had become unaffordable. We can have an argument about whether they became unaffordable earlier and whether we should have moved earlier. But the Conservative party is doing what an opposition party ought to be doing, which is to warn of the huge cost of what the government seems determined to embark upon.
“We’re talking about a public borrowing requirement of maybe £70 billion this year and over £100 billion next year. And the question is: what are the risks of going ahead? I’ve been very careful not to say – considering such hideous consequences there could be as a result, for sterling, long-term interest rates and the ability to fund the debt – not to say that these things will happen, but that these things might happen.”
However, Brown’s point, backed by serried ranks of economists, is that the greater risk to the economy lies in not borrowing more money to avert a slump, isn’t it? “He says the risk of inaction is worse than the risk of action but he doesn’t even want to admit to the affordability problem because the reason why it is so potentially unaffordable is because he’s put us there.”
There is a sense in which Brown is successfully painting himself as the FDR fighting to get the world out of a slump, with Cameron as a pale imitation of the do-nothing approach of the US Republican party in the 1930s, isn’t there?

“I just think that’s wrong. We are being extraordinarily active in terms of ideas to combat unemployment and rising repossessions, helping small businesses’ cash flow, making sure that money flows from the banks into businesses.

“Of course the prime minister will try to paint one of his famous dividing lines because he sits in Downing Street endlessly scheming up dividing lines. The real dividing line is that I’m telling the truth about the bad state of the public finances and he’s taking everyone for fools. That’s a dividing line I’m happy to debate between now and the next election.”
Ah, the next election. Many prime ministers before Brown have run the economic cycle to fit the political cycle: that is, they have cut taxes in the year or two leading up to a general election without worrying too much about how to pay the bill afterwards, just so long as it wins them another term in office. Does Cameron think that is what is going on now?
“I think he has the sense . . . he knows he has a huge share of the responsibility for the mess we’re already in. He knows it’s going to get worse and I think he knows the longer this goes on, the more he’s going to get found out. I think that’s why the kitchen sink is being dispatched with such haste. He must know this, having given us lectures about prudence for so many years, having said so many times that you can’t spend your way out of a recession, having said so many times that unfunded tax cuts are irresponsible. He must know the frustration of talking to other world leaders, who’ve got surpluses and can afford to do what we can’t, which is to distribute those surpluses.”
Cameron used to work in the Treasury as a special adviser to Norman Lamont, then the chancellor. Does his experience there lead him to believe that Darling and his officials are nervous about the borrowing that Brown seems determined to increase still further?
“Oh yes, it’s Gordon at the controls with his foot hard on the accelerator and I think Alistair Darling and the Treasury are desperately worried that this could impair the finances for years to come and we’ll be paying increased taxes for years and years as a result. You can almost hear the concern in the Treasury. In fact you can read it in the papers.”
Yet, I say, some MPs are now saying this could be Labour’s Falklands war – a crisis that was in large part caused by British government policy errors, but that was the making of a prime minister and led to election victory. Cameron lets out a shudder of distaste at the analogy.
“The key thing for me is: why are we where we are? There are two arguments being made: one by the Conservatives, which is that there were international causes but that we made some profound mistakes in Britain and Gordon Brown is responsible for that. It wasn’t America that made us the most indebted country on earth or said we should remove the Bank of England from its role of regulating debt in the economy.
“Gordon Brown’s argument that this all comes from America, like the movie The Monster that Came from the Deep, it’s nothing to do with me: this is a ludicrous argument and this will be understood by people.”
If it’s so obvious that Brown is “being found out”, why are the opinion polls moving in inverse relation to this apparent fact?
“I think at this stage of a crisis, governments can benefit. A foreign prime minister said to me the other day that while it’s all about trying to take coordinated measures with other world leaders, that looks good for governments. But then after that . . .”
Isn’t it equally possible that Cameron and his colleagues simply underestimated Brown? This provokes the only occasion in the interview when Cameron raises his voice sharply.
“Never! I was asked this question when he was 10 points ahead in the polls, I was asked this question when I was 28 points ahead. I never underestimate my opponents. I don’t think anyone can legitimately claim, in any way, that I’ve taken my foot off the gas for one day in the three years I’ve been doing the job.”
I hadn’t, in fact, accused Cameron of a lack of vigour. Indeed it seems to me that his weekly hectoring of Brown at prime minister’s questions has become increasingly strident and aggressive: how does this square with his claim that on becoming Tory leader he would end “Punch and Judy politics”?
“The idea that there’s a nonconfrontational, more chummy way of doing PMQs, it’s just not the case. I thought it might be possible. I was wrong. I thought maybe it could be different, and actually it can’t be. The fact is, prime minister’s questions is an adversarial occasion. It’s about me asking quite tough questions on behalf of the public. It’s the questions they want answered. And you can’t pull your punches.” Doesn’t Cameron accept, all the same, that the spectacle of him and Brown almost shouting at each other at PMQs over the fate of Baby P was perhaps the best illustration of how this approach alienates the public by producing more heat than light?
“I thought I was asking in a nonpartisan, nonaggressive way a perfectly reasonable question – the reasonableness of which was demonstrated when, four hours later, the government took up my suggestion of an independent inquiry. And I thought that the prime minister’s charge that I was playing party politics over Baby P was completely wrong and appalling and I thought he should withdraw it.”
Which he hasn’t? “He hasn’t. He doesn’t do that sort of thing.”
Vastly different people though Brown and Cameron are, they are both keen students of history. I wonder if Cameron feels that he is in a similar position, albeit in opposition, to Margaret Thatcher and Geoffrey Howe in 1981, when 364 economists wrote a letter urging them to stimulate the economy. Thatcher and Howe, unbending, insisted that their overwhelming priority was to reduce Britain’s debts.
“I do study history carefully, but it never repeats itself exactly: there was a much bigger problem with inflation then. I have spoken to Geoffrey recently: he was desperately trying to be fiscally prudent in order to get interest rates down and they kept creeping back up again because the fiscal situation was so bad. My thinking is perhaps more straightforward: I am a fiscal conservative. I believe profoundly in cutting taxes and would like to do it as prime minister. I don’t believe in unfunded tax cuts, just hoping the money’s going to come back.”
So the battle lines are drawn for the next election: adventurous, tax-cutting, risk-taking Gordon Brown versus Mr Prudence himself, dour David Cameron. Who would have believed it?

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.”

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.