There will be a housing recovery

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Jonbvn wrote: »

If you followed several threads on this forum, you will find several posters (mostly but not exclusively the uber bears) consider their opinions as undeniable facts.

Ah, but they have exclusive access to detailed housing market data going back 2000 years!!! :rotfl:

GDB2222

Tim_L wrote: »

What I am arguing against is the notion that prices can't ever recover in due course, which is what the OP was confidently asserting. Prices more than recovered from the last crash relatively quickly, within a few years. Even at 2.5x earnings as a multiple, you're looking at about 7% pa house price inflation built into the structure of the market, unless the amount of housing stock magically increases or people stop wanting to live in as nice a house as they can possibly buy.

You can spread bet housing price indexes anyway. So the OP could put his money where his mouth is with a stonking sell, if he thinks it's genuinely a one way bet. I don't, personally.

What the OP actually said was:

The idea that house prices will ever return to 2007 prices (corrected for inflation) is not going to happen for two reasons. Firstly 2007 prices were much higher than normal wage earners could afford. Secondly, the fallout from 2007 will stay in the minds of regulators, lenders and borrowers for hundreds of years. People are still talking about the Tulip bubble after 400 years.

I tend to agree with the OP on this, with the caveat that 'corrected for inflation' should read 'corrected for wage inflation'. I would put it another way and say that I hope it won't happen again, although human nature and banks' bonus structures may make it happen.

As long as the banks reward employees (and their Boards!) for selling lots of mortgages, they will manage to come up with justifications for their institutions loaning 100% of the property value at huge multiples of earnings. If lenders will one day again lend 6x or 7x earnings, then I think we will see average house prices at those sorts of multipliers again. At the moment, there is no sign of that, and I am pretty sure the FSA or BOE would stamp on it (at the moment, and about time too!).

The armageddon scenario this time round is that a large number of BTL investors go bust, there will be no political will to bail them out, and their properties will flood the market as repos.

As to spread betting, the problem is that the market is already discounting a further hefty fall from today's prices.

macaque_2

Tim_L wrote: »

I agree with most of what GDB2222 said.
What I am arguing against is the notion that prices can't ever recover in due course, which is what the OP was confidently asserting. Prices more than recovered from the last crash relatively quickly, within a few years. Even at 2.5x earnings as a multiple, you're looking at about 7% pa house price inflation built into the structure of the market, unless the amount of housing stock magically increases or people stop wanting to live in as nice a house as they can possibly buy.

I am not saying that house prices can't ever 'recover'. I am saying they won't. Prices rises can be driven by fundamentals (wealth and population size) or speculation (or both). The prices in 2007 were the product of speculation. Amateur investors using colateral on existing properties were behind much of this. Many of these people are now in deep financial difficulties.

Banks managed to lend a vast amount of money by relaxing lending rules and passing the debt off to others. This resulted in lending multiples of >4 times income, self certification', unemployed people borrowing and 'little old couples' running up property debts of £20m. The people who were bying the debt have now realised that they were sold a pig in a poke. The BOE have acknowledged that the credit crunch will permenantly changes in lending practices.

It is conceivable that house prices could rise to 2007 levels on fundamentals. That means rising prosperity or a rising rising population with stable prosperity. Falling prosperity/population will drag house prices down.

A rising population with falling prosperity just leads to rising squalor and that is more or less where we are at the moment. In the UK, debt is at an all time high. Government borrowing and spending is (according to the EU) far too high. The economy is in recession and unemployment is rising. Industries are leaving the UK in significant numbers.

A growing problem for the UK housing market is that they are badly out of alignment with world prices. In a global economy, high house prices lead to higher wage costs. That is not sustainable.

gauly

macaque wrote: »

Are you an estate agent by any chance?

Hey! If I was an estate agent I would be predicting a boom in house prices in the next 15 weeks not in the next 15 years! I just own the one house which I live in and that is all I ever intend to own.

macaque wrote: »

The house price correction of the early 90s was not a crash. What we seeing now is a crash.

It definitely seemed pretty crashy to me. In fact, including inflation prices fell by around 20 to 30% which is more than we have lost so far this time (albeit in a much longer time). What's the difference between a crash and a correction?

macaque wrote: »

The lenders have clear incentives to learn from this crash. It is costing them billions and some are being sold off in distressed circumstances.

The lenders do have an incentive to learn from this crash - the problem is the lender doesn't make the decisions. Each lender is made up of individuals with their own motivations which are unlikely to coincide exactly with the long term future of the institution they work for.

I'm not a banker so I don't know exactly how banks work, but it does seem that people have made a lot of money from some pretty stupid decisions and then at worst they lose their job but they don't have to pay back all the previous years of bumper pay they received. For example, if everyone around you is getting big bonuses by misselling 100% mortgages to subprime borrowers then obviously you should join in. After all the bank is probably going to go bust whether or not you join in and in the mean time you are losing money (or possibly losing your job for not hitting your targets).

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gauly wrote: »

For example, if everyone around you is getting big bonuses by misselling 100% mortgages to subprime borrowers then obviously you should join in. After all the bank is probably going to go bust whether or not you join in and in the mean time you are losing money (or possibly losing your job for not hitting your targets).

Now that is probably the most unusual, yet accurate, wording of the prisoner's dilemma that I've ever seen! Top notch Sir!