Will the housing market decline push the Stock Market Up?

[Gardan]

Do people agree/disagree that if the housing market comes off the boil,will investors return to the stock market and possibly use the stock market as their next vehicle to make some cash.
Is there any relationship that while house prices have been rising,the stock market has fallen.
I personally fit into this category as do some of my friends.

Thanks

 

[sidinuk]

The UK stock market will not go up while we have a Labour government, simple as that.

Gordon Brown is attacking businesses with increased taxation and regulations to ensure that profits (the Labour enemy) are more and more difficult to come by. Vodafone is the biggest FTSE100 constituent and how much did the government force them to pay for a 3G licence?

Secondly, Labour are trying to ensure that the majority of the population are on some sort of means tested benefit so they don't vote Tory again out of fear of losing those benefits. Unfortunately this destroys the incentive to save. Already 1/2 the population can make themselves no better off by saving their money than they are just spending everything now and relying on means tested benefits in the future. With no incentive to save for the future where is the demand for shares going to come from? Now that pension funds have lost the tax credit on dividends (Gordon's £5billion a year raid the month after Labour took office) combined with zero capital growth in stocks makes pensions absolutely pointless for anyone who is not a higher rate tax payer.

The housing market won't crash without a catalyst (the last crash was triggered by the abolition of double tax relief). However this could well be sharply increasing interest rates in response to a sudden explosion of inflation - which given labour's public sector spending spree must surely be close.

 

[FetteredChinos]

could the trigger just not be a change in sentiment? i read this morning that public confidence that their house would increase in value over the next 12 months decreased from 62% to 56% over the course of a single month. besides, the press are now starting to cotton on to the fact that prices can go down as well as down (

surely if that drops below 50% then a sustained fall is on the cards. im very bearish on long-term house-prices. although i dont currently own my place, and am waiting for a sizeable (40-50%) correction in london before committing to a purchase, several of my friends have purchased recently at what looks like close to the peak. i would not wish negative equity upon them, nor indeed anyone at all.

indeed a fall in prices would be bad for the economy as a whole (lack of disposable cash from equity withdrawal etc).

basically, i think this country is in the do-do.

anyone know how easy it is to emigrate to costa rica??

 

[sidinuk]

Well as traders we are always being encouraged to take a contrary view - when your plumber tells you he made £10,000 from share trading last week, you know it's time to sell. Equally when stock market slumps make the front page news you know it's time to buy. So a lowering of peoples expectations for the housing market can only be a good thing.

Personally, I think you'll be waiting a long time if you expect a 40-50% correction in London. After 11 Sep 2001 house prices slumped and all the papers screamed that it was the beginning of the end - since then they've almost doubled. A lot of people are still waiting to buy from then, let alone those fools that have sold to rent with the expectation of buying back cheaply after the slump that never happened.

 

[FetteredChinos]

im not so sure sid. have you seen this??

http://www.propertyfacts.co.uk/pricetrend/pricetrends.htm


a gradual easing off in prices looks unlikely.

 

[FetteredChinos]

btw , prices before sept 11 were still actually relatively affordable, and by no means over-expensive on historical levels. there was always "further room up" after that..

 

[sidinuk]

I'm not so sure about the figures that they show - it seems to suggest that average house prices were >£95k in the late 80's before slumping to below £65k.

According to the Nationwides figures(attached) they peaked at £62,782 in 1989 before dropping to £50,128 (20%) in 1993 and then went nowhere for the next 3 years.

The long term trend since 1952 (according to the Nationwide figures) is 2.1% per quarter., about 9% per annum.

But whichever way you look at it house prices are way above the long term trend and these things do have a tendency to revert to the mean. By my calculations that's about 80k, average house prices are now just under 150k - so that's a drop of 46%! Maybe I was wrong about your 40-50% estimate!

 

[Gardan]

I am not sure about a 40-50% drop but maybe 20% might be more realistic because I can not see interest rates rising to much in the future now the Bank of England is slapping its self on the back for the housing market slowdown. This I think will be enough for them to stop increasing interest rates.Also I am not to sure we can use the housing crash of the early 90's as a reference as we had a world recession/poll tax/high inflation and Gordon Brown making monetary policies.Surely it is much more stable now under the bank of England's control? .Re Sid's comment about a Labour Goverment strangling business, we did very well as did a lot of other business under the current Labour business and my view (right or wrong) is both Governments are not un-similar(don't wish to start a political debate) But where are all the savie investors who may be reducing their Housing portfolios going to put their cash? Stock Market looks good to me!

 

[oatman]

What if the "buy to let" mob start getting screwed?
They'll have to liquidate their positions
Of course, they're long :cheesy:

 

[chump]

Who thinks BOE have much left in the pot to increase rates in the next 12 months without setting off panic bells in Industry and to boot creating a crash the govt politically wish to avoid?

If interest rate rises end up being only gradual why would a significant portion of current house owners jump out of their investment when they have little by way of alternative on offer in which to put their money? Please don't hold up stocks as viable alternatives..most people's wallets have not stopped smoking from the last panic jump out of stocks. Stocks IMO have for the moment become the province for short term traders and not investors and IMO that's the way it will stay until there is a perceived change in value added opportunity theirin.

Here's the news from my side if property went down 20% never mind 40%+ I would be off the fence with cash in hand faster than you could blink and I suspect there is a lot of cash sat on the sidelines at the moment..

I might be wrong ,but 40-50% sounds to me like the kind of wishful thinking I used to indulge in years ago when I had unrealistic ideas about how tight I could turn the screw to get a lower price on property..that approach cost me more winners through properties lost than I care to think about however each to there own.
Cheers

 

[stevet]

estate agents push house prices up by pandering to the gullible - but the gullible love holding a falling market - so who can tell what will happen in houses - except that at some point they will drop by 50%

 

[Gardan]

Chump Re your comment:"Here's the news from my side if property went down 20% never mind 40%+ I would be off the fence with cash in hand faster than you could blink and I suspect there is a lot of cash sat on the sidelines at the moment.".
Firstly a 20% drop is only what some parts of the countries house prices have risen over the last 12/18 months, so no big deal there really for your average house owner? More of a levelling off I would say but not very interesting if it is an investment vehicle.Secondly Re "cash sat on the sidelines" will that not possibly go into the stock market? instead of 5% return (Gross)at the bank/building society? I think it might.

 

[chump]

If the above holds true then I must indeed be a gullible chump and have been one for 30 years which is how long I have been investing in property...you see I have never paid less for a property chronologically speaking and in the fullness of time I don't expect that situation to change unless all of the very vested interests in this country who truly determine supply and demand change their preferred positions..I am of course referring to planning depts, conservation groups , and let us not forget housebuilders who I am sure would love to eat up their limited landbanks throwing up units at lower unit prices which will yield them ever decreasing profits..but of course you say the govt is helping address the problem are they not ? Mr Prescott is /has sanctioned the levelling of 1000's of houses some are already rubble and don't worry because one house is to be built for everyone demolished .. this is not exactly happening right now ,but we can trust the govt that it will happen before those needing those houses are 6 foot under..this is still a small island with limited space which god is not adding to..extra bodies are still piling up on this limited space are a faster rate than we currently keep pace with in housing terms..my view of the probabilities is still as I state above..10years from now I will still be payng more for property..read it and weep if you are bargain hunting..

Cheers

 

[Gardan]

Chump, I totally agree with you on the long term view,I am sure house prices will double over the next ten years. However my view for the short term 1-2 years still stands ,that the stock market might be a better vehicle for making 10%-20% gains over this period.I have and will continue for the next six months to reduce my housing stock(try to lock in some gains) with a view to putting the cash into the stock market.I will always keep some property as what I see as one of the best long term investments you can buy.

 

[chump]

Gard,
I only look at property long term. When you consider the illiquidity and transactional costs of moving in and out you have to be braindead to asset hop on property or extremely lucky to have caught one of the three trending periods that we have had since the 1970's.
I sold this summer what I wish to dispose of for the next decade, but if prices dropped significantly then that cash would be back in. Stocks to me have a hill to climb far steeper. Their profitablility prospects here in the Uk are limited unless they can catch the impetus from the East..if they can't then they better hope the govt just prints plenty of money for the next few years...this is of course nothing to do with short term trading prospects...

Cheers

 

[stevet]

last property crash - just as property started to come off the top - i asked a friend of mine who was a major property developer - what was he going to do now as property was over for a while - he reassured me by explaining that i knew **** about property and he was now able to buy cheaper than he could for a long while - and he kept doing that as property spiraled down -i cant quite remember how many millions he went bankrupt for - but from palatial mansion to council house was one indicator of what happened to him

 

[chump]

Steve,
Your friends strategy might have been right or wrong..I have no idea..what I do know from what you say is he did not know his numbers well enough so his strategy was wrong for him..and that can apply to anybody in any market including what was his name ..Niedorfer or something similar...by the way the last so called property crash was no crash to me it was a major opportunity and I took it.

Cheers

 

[TheBramble]

I have no idea on the likely movement of house prices nationally in the medium term. Us Joe Public get influenced in this regard by whatever the pundits most recently come up with. And to a certain extent, that becomes a self-fulfilling prophecy. But I am aware that London prices have been falling quite seriously over the last 18 months specifically.

The most recent (Summer) months have been quiet, but are usually so. The real indicator will be to see if the 'normal' interest during the Autumn months as people put Summer holidays behind them and plan (ha ha ha) on moving before Christmas, pans out as expected.

In response to Gardan's original question - I am not aware of any relationship between the relative buoyancy of the housing market and UK stock market action.

If 'general sentiment' is impacted by a dull housing market I think it unlikely the major mechanics and movers of the markets would be much bothered or influenced.

 

[Gardan]

Chump, Yes your right about the costs relating to house hopping,I think anything in the sub 200k (Northwest) bracket in housing will also not suffer to much.My question is probably related to the people who have portfolios in excess of 10/20 houses or apartments over 30? they must of seen this slowdown before us mere mortals. If they did they must have tons of cash burning holes in their pockets? and interest rates are to low.
Thanks Gary

 

[Mark Barton]

watch the interestrate futures.if they start moving the knock on effect starts