What are your thoughts on the UK housing market?

[counter_violent]

Based on what I have seen I think the opposite will happen so long as they can get sufficient credit.


Paul

This may indeed be true of the "younger" end of the population...but what I see is middle end paying down debts while they still have jobs and older end scrimping and saving because they have seen it all before. Considering developed world populations are ageing...I think there will be no V shape recovery this time.

 

[Atilla]

I just don't see where inflation comes from ....intervention with all these billions thrown at the economy was to stop a deflationary spiral...this does not however necessarily morph into inflation....i just don't see the rational for this argument....demand for goods and services will not pick up whilst all these jobs are being lost....and coming out the other side...demand will be slow because even when the jobless get jobs...the first thing they will have to tackle is personal debts before going on any spending sprees...and its the same for property price recovery.

This whole recession is all about job losses and prevention of a depression.

This article pretty much details what is round the corner imo. Hopes of rate cut dashed as fastest rise in fuel prices ever pushes inflation higher | Mail Online

It is dated Feb 08 almost 1.5 years ago.

Reason for the inflation back then was down to food and fuel. CPI maxed at around 5.3%.

If in the worst depression inflation is at 2% (and that is a big under estimated lie in itself) what will prices be once growth is underway?

If in the worst depression oil is at $70-75 now who is to say $150 will not be achieved again. If dollar continues to fall halving in value then oil at $300 is not beyond imagination. Bear in mind falling currencies can also import inflation.

Similarly as growth gets going billions of Indians and Chinese will start eating again. Food prices will rise again.

What is going to be any different now to what was back then?

This time round pressures are external to our economies and likely to be supply side issues as opposed to demand thus unemployment and the traditional Philips curve relationship with inflation is breaking down. Stagnation is becoming a distinct possibility imo.

 

[Xeno]

Hopes-rate-cut-dashed-fastest-rise-fuel-prices-pushes-inflation-higher.html]Hopes of rate cut dashed as fastest rise in fuel prices ever pushes inflation higher

Yes, and ironically we'd have been better off lowering rates right then, as Danny Blanchflower, the lone voice, said. I don't know why people really think oil prices, or commodity prices in general, are going to care what UK interest rates are. If we'd been having this discussion then, the people warning about inflation and keeping rates higher would have been wrong.

Ignoring, as we seem to have done, my stat about QE being a sixth of wealth destruction so far, let's look at the fundamentals. There's little us in this country can do about commodity prices. In fact globally the oil price is as much a factor of flows of speculative money as anything else. So, commodity driven inflation is something that may just happen.

One of the lessons of this recession is that interest rates and inflation have been less connected to the recession. Let's remember the fundamentals of the recession - credit crunch, unemployment, falling wages. These are hard facts. Credit is expensive compared to interest rates, credit is harder to get, jobs are still being lost, businesses are still going bust and wages are being cut. These are all hard facts that are deflationary in a fundamental sense. Ignore the actual inflation rate, since that's likely to be commodity driven and we can do little about it. But don't confuse the headline inflation rate with what is happening to jobs, credit and property.

So, back to the original question of the property market. Let's ignore foreign buying and demographic changes, as I think we can. Property prices are largely dependent on three things - demand for property, supply of credit and economic sentiment. Demand for property is interesting, in that fundamental demand is much larger than supply - i.e if everyone could obtain cheap enough credit, they'd buy a property. This means that actual prices are largely a function of the price and availability of credit, and economic sentiment. If you don't believe this, ask yourself how prices got so ridiculously high in 2007. You don't think it had anything to do with 125% mortgages, self certification etc etc?

So, where are we. Economic sentiment on the streets that I see is terrible. Credit is hard to get. Unemployment lags the first wave of credit crunch, but, and this is crucial, the following things all lag unemployment - mortgage arrears, credit card and loan default, and reduction in household spending. This second wave has not happened yet. This is what will kick off the second wave of house price falls.

Bubbles burst in this way every time. Not in a straight line, but with green shoot mini rallies dotted throughout the long downward slope. Why on earth should it be any different this time? Especially given the fundamentals I've mentioned.

 

[chump]

Yes, and ironically we'd have been better off lowering rates right then, as Danny Blanchflower, the lone voice, said. I don't know why people really think oil prices, or commodity prices in general, are going to care what UK interest rates are. If we'd been having this discussion then, the people warning about inflation and keeping rates higher would have been wrong.

Ignoring, as we seem to have done, my stat about QE being a sixth of wealth destruction so far, let's look at the fundamentals. There's little us in this country can do about commodity prices. In fact globally the oil price is as much a factor of flows of speculative money as anything else. So, commodity driven inflation is something that may just happen.

One of the lessons of this recession is that interest rates and inflation have been less connected to the recession. Let's remember the fundamentals of the recession - credit crunch, unemployment, falling wages. These are hard facts. Credit is expensive compared to interest rates, credit is harder to get, jobs are still being lost, businesses are still going bust and wages are being cut. These are all hard facts that are deflationary in a fundamental sense. Ignore the actual inflation rate, since that's likely to be commodity driven and we can do little about it. But don't confuse the headline inflation rate with what is happening to jobs, credit and property.

So, back to the original question of the property market. Let's ignore foreign buying and demographic changes, as I think we can. Property prices are largely dependent on three things - demand for property, supply of credit and economic sentiment. Demand for property is interesting, in that fundamental demand is much larger than supply - i.e if everyone could obtain cheap enough credit, they'd buy a property. This means that actual prices are largely a function of the price and availability of credit, and economic sentiment. If you don't believe this, ask yourself how prices got so ridiculously high in 2007. You don't think it had anything to do with 125% mortgages, self certification etc etc?

So, where are we. Economic sentiment on the streets that I see is terrible. Credit is hard to get. Unemployment lags the first wave of credit crunch, but, and this is crucial, the following things all lag unemployment - mortgage arrears, credit card and loan default, and reduction in household spending. This second wave has not happened yet. This is what will kick off the second wave of house price falls.

Bubbles burst in this way every time. Not in a straight line, but with green shoot mini rallies dotted throughout the long downward slope. Why on earth should it be any different this time? Especially given the fundamentals I've mentioned.

The only real disagreement I have with you on that post is I don't see a further downprice leg in a momentum sense. The next leg for property is usually much harder to see in terms of price because it is more often a loss in value that occurs as inflation (weak though it might be) will still outstrip the growth in house price so even if prices are flat they do still drop in real terms a little each year until eventually they become relatively cheap and affordable once more which is a process that takes a medium term to happen.Think 5 to 7 years. In effect it's a 2 step process. Phase 1 which we are coming towards the end of is the mom drop attributable to forced selling in a thin market. Next phase which we now come into all other things being equal is the loss in real value via inflation as described and it's characteristic is a relatively stagnant market where volumes take time to recover. In this my 4th such cycle I can say it hasn't happened any other way than this in the last 3 cycles. Coming into this my thoughts were that because of the excesses the phase 2 might take even longer ,but at this point I still don't know whether that would be the case because it really depends on factors that just cannot be forecast with any accuracy worth putting money on.

Now I'm going on holiday and it can all do whatever it likes ..LOL

 

[Xeno]

I think you're right that we will see value fall off in the way you describe, however I do think we'll also see actual falls regardless of inflation. We did in the early 90s crash, where we had rises in 92 and 93, only to see actual falls after both. The falls were even bigger after inflation adjusting, and of course for the last year or two it was fairly flat and stagnant.

 

[poborsky]

When inflation hits then better to be in anything but paper currency. Property, silver, gold, coins with some silver content. This is not a recession, its a disaster which has just begun to unfold. The printing presses are running for a reason. Asian countries are getting tired of financing the western way of life. Buy your own treasuries because nobody else will at these returns. US and a few others will play the game but they have their own problems. The ponzi schemes are struggling to keep the charade going.

 

[counter_violent]

This article pretty much details what is round the corner imo. Hopes of rate cut dashed as fastest rise in fuel prices ever pushes inflation higher | Mail Online

It is dated Feb 08 almost 1.5 years ago.

Reason for the inflation back then was down to food and fuel. CPI maxed at around 5.3%.

If in the worst depression inflation is at 2% (and that is a big under estimated lie in itself) what will prices be once growth is underway?
-----------------------------
I didn't say we are in a depression because we are not, we are in a reccession at the moment....if by some miricle everything stabalises then its possible to stave off the depression. Prices cannot rise while house prices are lower and at significant risk of being even lower still. Wages are not going up ...jobs are still being lost and spending power is diminished....the worry is that all of this will continue along this path and lead to deflationary pressures and if that happens then it's not even worth thinking about...suffice to say, there won't be enough lifeboats.
---------------------------------
If in the worst depression oil is at $70-75 now who is to say $150 will not be achieved again. If dollar continues to fall halving in value then oil at $300 is not beyond imagination. Bear in mind falling currencies can also import inflation.
------------------------------
In another thread you talk about everything reverting to equilibrium....so which is it...bubbles on bubbles or everything reverting back to the mean ?

There is more chance of seeing $30 dollar oil.
-------------------------------------
Similarly as growth gets going billions of Indians and Chinese will start eating again. Food prices will rise again.
-----------------------------------
They all stopped eating did they ? Or did they all stop consuming luxury unnecessary items which they didn't need in the first place.
---------------------------------
What is going to be any different now to what was back then?
-----------------------------------
The difference is clear. Lack of available funds and relatively expensive credit and little appetite to go on more spending sprees...Have you considered that Joe public may just have wised up now to what is going on in the world...we could easily see everyone winding their necks in for the next ten years or so...until such time as all this is forgotten and the next generation repeats the same mistakes.
---------------------------------------
This time round pressures are external to our economies and likely to be supply side issues as opposed to demand thus unemployment and the traditional Philips curve relationship with inflation is breaking down. Stagnation is becoming a distinct possibility imo.

Into next year we will have govt change and this will lead to the introduction of plans to start tackle the claw back of all this money pumped into the economy....savage cuts in public sector coupled with rising taxes for those still in work. All of this is most definitely mid to longer term and will in turn depress any shoots of recovery generally.

 

[Atilla]

Into next year we will have govt change and this will lead to the introduction of plans to start tackle the claw back of all this money pumped into the economy....savage cuts in public sector coupled with rising taxes for those still in work. All of this is most definitely mid to longer term and will in turn depress any shoots of recovery generally.

CV, I was simply trying to answer your question as to where inflation could come from.

It can come from external factors like the price of oil and price of food.

CPI went up from 2.2 to 5.3% as a consequence last year couple of years. Official explanation based on statistics was oil and food.

Explanation wasn't excess debt or cheap credit. That caused the sub-prime crises. CPI does not reflect on housing costs.

 

[poborsky]

Even if the UK economy survives long enough to see a general election and a change of govt takes place there is no reason to assume that any new govt would want to discourage inflation. It takes courageous decisions to make large and meaningful public spending cuts, unlikely. The current account deficit is likely to deteriorate over the short term and the present govt is intent on reflating the housing/credit bubble as it struggles on blindly into the abyss.

 

[Trader333]

It takes courageous decisions to make large and meaningful public spending cuts, unlikely.

That didn't stop Thatcher and a new government has a 5 year reign in which to hit hard first then give something back later on.



Paul

 

[Atilla]

That didn't stop Thatcher and a new government has a 5 year reign in which to hit hard first then give something back later on.



Paul

Thatcher's policies were all wrong then and no different today.

Privatising council homes, selling national industries to peanuts and she had North Sea oil. Other than bringing trade unions into line and reforming their practices - Thatcher's policies wrecked the UK.

Wasted billions of reserve currency trying to maintain the £ whilst missing out on the opportunity of joining European Monetary System which her chancellor Lawson & likes of Heseltine and Howe strongly recommended.

UK never has recovered since. Even the banking crises of today has foundations of her governments doing.

Claim attributed to the tories has more to do with the growth of world economy which the UK ended up participating in after horrendous wastage of years. Countries like Spain and Italy sailed passed the UK's living standards.

If Neil Kinnock or John Smith got in perhaps we may well have avoided the smarty Blair years... Who knows but thought of Thatcher makes my blood boil.

Let's not mention the council tax - one of the most inefficient and unfair taxes ever to be devised.

Privatisation of railroads a total ****-up - widely and undisputed acceptance today.

 

[zambuck]

.....Well said Atilla.....

Tories deregulated the Banking system.....the result was the state we are in today....

A deregulated banking system means that owners, aided by creative quants figures, will play ponzi roulette - brilliant roillercoaster while it lasts - but disaster for all when it ends.

That has what hit UK and US....Indians and Chinese have been les affected by this recession....

Recession did not happen because Chinese and Indians have strted eating wheat...!!....it happened because of incompetance of UK Banking sector....!

 

[davidcamm]

I was reading today in some of the quality newspapers that people will no longer be able to retire at 65yrs as they will not be able to afford to!

The Government are going to make it illegal to force employees to retire at 65 (hmmm I wonder why?) Maybe with Billions of bailout to pay back, the Government need them working to pay taxes and not be getting a pension!.

So if old folks are gonna be keeping their jobs where are the young ones gonna get their jobs to be able to pay for the old ones to retire?

Also we are all gonna be paying more in taxes for the upcoming future, Taxes are going UP UP UP

Seems to me people have no choice but to cut back on expenditure and especially housing costs so people will downsize, stay with parents/family or house share.

Going off the last Bubble burst in home prices in the 90's I really can't see any rise in home prices until at least 5 years of stagnation have passed and prices have not yet even bottomed. Experts seem to think they will bottom out by summer 2010.

We'll see maybe those 12 million new immigrants will buy some by 2020 but were the Government promising to build 3 million new homes by then?

 

[Trader333]

With regards to Thatcher, the only point I was making was that when you have 5 years in which to implement policy then you are less likely to worry about being unpopular in doing so. I an certainly not Thatcherite at all and during those years I was a local leader for the MSF union.


Paul

 

[zambuck]

...Retirement age has got nothing to do with Taxes......It is a way of witholding the Income Support payments to people from age of 65 which is the case now....What will happen is that between ages of 65 and 70 Income Support and Pension will not be paid by Governments....

....Peoples basic necessities are - air, water, food and then shelter.....The whole world revolves around these....!!

 

[Atilla]

With regards to Thatcher, the only point I was making was that when you have 5 years in which to implement policy then you are less likely to worry about being unpopular in doing so. I an certainly not Thatcherite at all and during those years I was a local leader for the MSF union.


Paul

Sorry Paul, probably did over react hearing Thatcher being touted as a possible solution.

I reckon you are right and tories will cut back on services but what is required is higher taxation to extract excess level of cash in the system.

That money should then be given to the labourers who are the real wealth generators - not the shoddy fat cats adn shareholders who have only screwed up on the economy.

I'm not sure given the state of our public services there is anything left to cut back on.

I can see people attacking foreign immigrants and benefit cheats which may bring all of £150m back into the coffers whilst the elite of the earners get away with their billions and off-shore tax havens.

 

[0007]

I was reading today in some of the quality newspapers that people will no longer be able to retire at 65yrs as they will not be able to afford to!
That's already the case for some people.

The Government are going to make it illegal to force employees to retire at 65 (hmmm I wonder why?) Maybe with Billions of bailout to pay back, the Government need them working to pay taxes and not be getting a pension!.
Correct! And the private business sector which has an ever-elastic supply of profits and investment lol will pay ever-increasing NI and other taxes without the entrepreneurs ever thinking of relocating - while the public sector expands, spends like it's going out of fashion and makes nothing.

So if old folks are gonna be keeping their jobs where are the young ones gonna get their jobs to be able to pay for the old ones to retire?
The young ones won't need jobs because they will remain in training until retirement / do extended degree courses / put on some new register where you are not working but don't qualify as being unemployed. The school leaving-age will rise to 25 and you will then need a Master's in underwater-basket-weaving to get a shelf-stacking job at Tesco.

Also we are all gonna be paying more in taxes for the upcoming future, Taxes are going UP UP UP
Yes, yes, yes.

Seems to me people have no choice but to cut back on expenditure and especially housing costs so people will downsize, stay with parents/family or house share.
Already happening - this is what happened pre WW2 and after up to the 1960s.

Going off the last Bubble burst in home prices in the 90's I really can't see any rise in home prices until at least 5 years of stagnation have passed and prices have not yet even bottomed. Experts seem to think they will bottom out by summer 2010.
We don't need another housing boom. Prices have got to reduce to give starters a chance.

We'll see maybe those 12 million new immigrants will buy some by 2020 but were the Government promising to build 3 million new homes by then?
Never believe a politician - especially when they've got their mouth open or have just made a promise.

It's a gloomy outlook for many.

 

[Technically Fundamental]

As far as I know the raise in retirement age is a way of trying to cope with the forecasted costs of an aging population. This is why they're brining in this new legislation forcing employers to open pension schemes for all employees by 2011 (I think... dont quote me on that date). Nice boost to the all the investment managers who've been wiped out in the past year or two as well lol.

 

[Trader333]

This is why they're brining in this new legislation forcing employers to open pension schemes for all employees by 2011

That has already been the case for many years now. Employers have to provide a pension facility although most small companies subcontract it out unless you meant something else ?


Paul

 

[Technically Fundamental]

not by law they dont. not yet. its a guideline atm but it's becoming legislation.