Property Price Boom


I would effectively like to short UK house prices. Does anybody know of any financial instruments that would achieve this?


"The Times" Bricks and Mortar section, on a Friday, I think, always mentions firms that allow you to "bet" on house price movements and there are comments on what people are "betting". Some folk bet to hedge.
I'm not so sure any decline in house prices isn't going to moderate soon, i.e. I suspect they might well stabilise soon and firm up a little. I realise I'm probably in a tiny minority saying that.
I'm no expert, but do have some interest in the property market ;-)
I agree with Mr Charts as I also have property interests and I do not see any evidence of the decline that everyone is talking about. My assessment is that we will see a stabilisation. From a purely fundamental basis:

Interest rates are still low
Demand is still exceeding supply in most areas
Unemployment is stable if not slightly declining.

Therefore what is going to cause the collapse that everyone is talking about ?

The last time we saw a collapse the conditions were very different.

Just my view which could be wrong and no doubt others will see it differently.


There's a board discussing property trends on the Motley Fool (am I allowed to mention them?). Several of the people there have placed bets on property prices currently or in the past.

The problem with spread bets though is that they currently price in a fall already so you can't exacly hedge as you would be betting that they fall more than the spread suggests rather than properly hedging (i.e. prices could fall 5% and you could lose the 5% value of your house and lose money on the spreadbet if the spreadbet had said they were going to fall 7%).

I think Goldman Sachs are starting to do warrants on house prices but these will come with the same caveat.

Price bubble=collaspe. This time will be no different from any other. Remember in 2000 when people said the market would keep going higher because this time we had computers to drive economic growth. What happened?

IMO everything is cyclical, BOOM BUST BOOM BUST.

Thanks for the info anyway, I'll have a look this Friday.

What factors have you looked at, or researched that has prompted you to consider shorting of house price indicator???
Hi Zambuck,

This sticks in my mind from a book I read about 3 years ago.

"Real estate prices in California began rising 25% per year and more. Property owners and early stage developers made fortunes that were well publicised. Not surprisingly, get-rick-quick advice soon followed, pointing out how easily ordinary folk could get in on the action. Middle income families, with no knowledge of the economics of real estate investments or the dangers of leverage, began taking second mortgages on their homes, using the proceeds as minimum down payments on any property, at any price. It didn't matter if they overpaid. The way prices were rising, they would make big profits anyway. No one was thinking cycles. The trend of sharply rising prices was being extended in a straight line that seemingly would never end. Warnings of an unsustainable 'bubble' forming in prices, and signs that some professionals were taking their profits and standing aside, were ridiculed by participants. With obvious demand, how could prices possibly stop rising -ever?

Alas the trend turned on them with a vengeance. Skyrocketing taxes and insurance had become a problem for everyone. Horror of horrors, even longtime Californians began putting their homes on the market so they could move out to lower cost residences.

The California real estate market was soon a catastrophe. For sale signs lingered on properties, with few buyers in sight.Sellers began to drop prices quickly, seeing themselves in race to get out fast before prices fell further.. Banks threw foreclosed properties on the market at fire-sale prices, plunging real estate prices further.

Individuals discovered that the magic of leverage now compounded their losses. Most simply walked away from their mortgages, leaving the banks holding tha bag. Within a year prices had plunged 35%. 10 years later, they were just beginning to recover.

Only those that heeded the warnings, curbed their greed, and took profits as the top approached kept their big gains and were ready for the early stages of the next cycle".

Sorry its a bit long.

I just feel that the risks are now for a fall in prices. Interest rates are historically low, prices in the South tend to lead and have already started falling.


Hi Spoon

Good point for Calif hoising market...and yes here in south east there is a slight slowdown..but not in a alarming way at this stage...

However I feel that this time the fundamentals are slightly different than last time...what was happenig in last 3 years here in southeast was this...people were buying the property on a buy to let basis...many were also getting mortgage with 1 years payment included in the quote (not telling the lenders of course!!) if they were lucky they will get a tenant which will help...BUT wven if the house was empty the price on an avarge 250000 property increaes by 15 %...that put that in market and sell it another buyer with the same aspirations...but he then has approx 25k in the bank...he waits again then pounces again...

This has been the scenario in the housing market and the demand is still outrsripping the supply in some even with the dip the market wil go sideways but will eventually rise if the fundamentals remain the same...

However if the interest rates rise then the whole thing will collapse like a pack of cards and sufferers wioll be those who got in at the wrong time not those who may lose 100000 pounds or so but will still come out smiling as their equity is big enough to cover their losses...

I am thinking of purchasing now and increase the stock by the way...
Hi Zambruck,

Not really trying to make a point for California or any other state/country. Just trying to illustrate cycles.

Good luck anyway ('this time is different' - be careful people always think that!)

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....I did not lose any money in last property market crash (I did not make any major profit for a long time) and am not going to lose this time either...In downturn I will simply hold and use my equity if necessary...

(this time is different = bol**ocks")...well everyone is free to air their opinions..!!!..Nothing ventured..nothing gained is my motto..
Property is a market like any other, with its own individual characteristics.
If you're buying you do so when the fall stops and it begins to turn up, but ahead of the crowd.
If you're selling you do so when the rise stops and it begins to turn down, but ahead of the crowd.
Differing opinions are what create a market, nothing else. Having an edge on the other players is what makes you successful. Riding a trend from early on is much more preferable to getting on board late after everyone else realises the direction.
Now the housing market is more illiquid and less volatile, but that also means it doesn't chart the way many instruments do. It tends not to have counter-trend rallies and that does make it easier to take advantage of and be on the right side of.
Just like in any other market, getting emotional and ego-centric is counter productive.
As zambuck wisely says, (IMHO of course), every time IS a little different to the previous occasions, it's never identical because the conditions and influences are indeed always different.
But hey, I respect everyone's opinion and no-one is completely right or completely wrong; like I said, that's what makes a market, and it will always be like that - happily ;-)
The regional differences are immense. We mostly hear of house prices in the S.E. of England, which over the years have seen massive gains and equally massive falls. In the other 85% of the U.K. they have constantly risen, with some periods of relative inactivity, but no real sign of any falls. I would happily short the S.E. prices, but nowhere else. (IMHO)
Catsdad100 has raised an important point. I understand that in recent years a very significant percentage of residential property in Central London has been bought by foreign buy-to-let purchasers. This will help to exagerate price movements in both directions - forcing up prices at above the national average in a boom, and dumping a large supply of property on the market as prices start to fall and demand drys up.

Here in the South-west property prices have been very buoyant as people move here to "down-size" or retire, having sold at ridiculous prices in the home counties. Hence if prices fall in London, it will inevitably affect us down here.

Interest rates don't have to rise to cause people to have mortgage difficulties. Deflation would have exactly the same result, as would a rise in unemployment or a reduction in wages. Increasingly employers are periodically requiring large sections of their work-force to re-apply for their jobs, and they don't always get them, and even if they do, there are sometimes reductions in pay or benefits. The pensions crisis will encourage many to "down-size" on retirement to release capital to provide income to support their decimated pension income, increasing supply of larger properties. Likewise, escalating Council tax will force many to move down market on retirement. Locally Council Tax rose at 18.5% this year, on top of 12% last year - and the massive hole in the local government pension scheme ( over £30 billion nationally) will ensure that Council Tax continues to rise at several times the rate of inflation for years to come. This is of course on top of any political manoeuvering to underfund local government from the centre to shift the blame for rising taxes away from central goverment.

There will still be opportunities to make money from property, but we will have to be more selective. 4 years ago you could buy any tech stock and double your money in weeks, and we have just experienced the same in property. But from here we may have to be selective and skillfull in our property dealings, just as we have to be in our share selections.

All IMHO of course! :)
Mr Charts

As always very good advise ...I respect your words as they cut through the discussion in a very educational way...Makes readers think...Your words below in a way sums up not only trading but everything one does in life.....

If you're buying you do so when the fall stops and it begins to turn up, but ahead of the crowd.
If you're selling you do so when the rise stops and it begins to turn down, but ahead of the crowd....


Your statistics are very right indeed....You see what has been happening is that people who made money in SE are now moving further inland or outside SE to but cheaper properties...

The rise of property prices has also pushed up prices in Algarve and Spain etc...SO this ripple effect is moving outwards in other areas...People who are riding it are consistently making profits...

Do not hold property as a long term....make profit and move on...You will never be caught out...

Thanks for all your coments it is reassuring that my thinking is perhaps on right line...
There's a good objective article on house prices on moneyam today.
I'm not sure if it's ok to paste it in here. Perhaps if a moderator reads this you could let me know please?
On the Yahoo UK homepage it says

"House Prices up 1.3% in May"

Of course they may well come down again but attempting to predict the top or bottom of a market is fraught with danger. I can still remember the economic experts saying that we had reached the peak of the house price boom 2 years ago. Since then it has continued to soar. Of course at some point it will stop but I simply dont believe anyone knows when that will be.

Mr Charts - the only problem about cutting and pasting is one of the original copyright. Copy has copyright, but a link doesn't - so that's why its safest just to put the link.

However, if the copy is sitting in a restricted area of the website so that others cannot access it by a link, then I would say it is OK to do a cut and paste as long as full credit is given for the source - ie full acknowledgement is on the cut and paste for its source and author.

And if anyone complains then it can always be removed. :D