The UK double dip recession

tommy75

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aMZKhYu7X_vU

Matthew_Lynn wrote: »

It doesn’t take much to get the British excited about house prices again. As the European fall approaches, there are signs that the market is bottoming out. It may even be rising again.
Does that mean the slump is over? Not at all. Expect a double dip in home values.
True, there are grounds for optimism. The Bank of England is printing money furiously, and the economy isn’t contracting the way it was at the start of the year. Against that, any increase in interest rates will hit the market hard, the banks are intent on restoring their balance sheets at the expense of mortgage holders, and the U.K. economy is losing jobs. All that means one thing: House prices have further to fall.
Right now, there are clear signs of recovery.
Property-research company Hometrack Ltd. said last month the average price of a home in England and Wales rose for the first time in two years. Other surveys have painted much the same picture. Nationwide Building Society said house prices in August increased 1.6 percent. That was the fourth consecutive monthly gain and the biggest since 2006.
In London, luxury-home values have been rising for five straight months, according to real estate agency Knight Frank LLP. Since it is London that often leads the whole market, such a development can only be another positive sign.
There may be more positive signals down the track. The Bank of England said last week mortgage approvals rose to their highest level in 15 months in July. If there is more money being loaned, that can only strengthen the market further.
Safe to Buy?
So it looks like the collapse in confidence in the housing market -- which has knocked 20 percent off house prices since the decade-long boom peaked in August 2007 -- is now over. It’s safe to buy a house again, right?
Not quite. There are good reasons to expect a second dip in the market later this year or early in 2010.
First, the benchmark interest rate is still at record lows of just 0.5 percent. Most people can still manage to at least pay the interest on their mortgages -- and so long as you can pay the interest, the property usually won’t be repossessed. At some point, interest rates will have to rise again. Once they do, many people will be in trouble. We can expect to see a lot more repossessions. And many of those properties will be back on the market at bargain prices, pushing prices down again.
Widening Spreads
Second, banks are repairing their balance sheets at the expense of mortgage holders. The spread between what the banks pay depositors and what lenders charge for loans is widening. According to Moneyfacts Plc, the margin on two-year money is the widest it has ever been. That may be good news for banks and their shareholders. Competition has been reduced, and it is easier for them to charge higher prices. But it is bad news for mortgage borrowers, the people who go out and buy houses.
Third, a lot of lending has been taken out of the market and isn’t coming back. According to CreditSights Inc., almost 300 billion pounds ($492 billion) of U.K. mortgage debt was securitized and sold to the bond markets from 2005 to 2007.
“That represents more than 90 percent of the growth in mortgage debt over that period,” it said. The world isn’t exactly clamoring for British securitized mortgages anymore, and won’t be for a long time. With less money coming into the market, there won’t be the same kind of demand for houses.
‘Socially Useless’
Fourth, for reasons that a psychologist could better explain, the British are attacking the financial-services industry, even though it is the biggest branch of the economy. The chairman of the U.K.’s Financial Services Authority, Adair Turner, even proposed a tax on financial transactions to help limit the size of the industry. He described parts of banking as “socially useless.” With that sort of attitude, it won’t be surprising if many foreign bankers go elsewhere, withdrawing their support from the housing market.
Finally, the U.K. economy is set for a decade of slow growth. Unemployment rose to the highest level in 14 years during the second quarter. Monetary expansion and government spending are tempering the decline somewhat, but the fiscal stimulus will have to end soon, and the big tax increases needed to bring the deficit under control will keep demand subdued for years. There is still a lot of pain ahead and house prices can’t grow much faster than the overall economy.
Don’t be fooled by the slight recovery in house prices over a few months. Markets always stabilize for a period, both on the way up and on the way down. It is just a pause for breath -- and the second dip in the crash is just around the corner.

As Chucky envisaged in his double dip W recession, we are probably about to see the UK property market slide back into negative month on month results. With VI, QE and low interest rates the second dip will still in my opinion consist of minor monthly drops as alot of STR are still jumping back in with hefty deposits. I think the UK housing market is still at least 20% overvalued and will not be buying until I see some realistic pricing.

lemonjelly

Interesting viewpoint. I'm very tempted to thank you, mainly as your thanks count currently is 666.....

HAMISH_MCTAVISH

tommy75 wrote: »

As Chucky envisaged in his double dip W recession, we are probably about to see the UK property market slide back into negative month on month results. With VI, QE and low interest rates the second dip will still in my opinion consist of minor monthly drops as alot of STR are still jumping back in with hefty deposits.

I'd broadly agree. There should be falls over winter, but they'll be far smaller than before.

I think the UK housing market is still at least 20% overvalued and will not be buying until I see some realistic pricing.

Then you probably won't be buying.

ruggedtoast

If you think property is such a great investment Hamish - why arent you out there buying. You must be missing all sorts of great opportunities with the time you waste on here.

HAMISH_MCTAVISH

ruggedtoast wrote: »

If you think property is such a great investment Hamish - why arent you out there buying. You must be missing all sorts of great opportunities with the time you waste on here.

I already have two houses, what on earth would I do with another?

BTL sounds like a pain in the ar5e to me. Not really my thing.

Harry_Powell

tommy75 wrote: »

I think the UK housing market is still at least 20% overvalued and will not be buying until I see some realistic pricing.

I agree, though I believe that the drop will be closer to 10% rather than 20%, but I also believe that the drop won't be as rapid as it has been over the last 18 months. If it takes 6 years before the market bottoms out, with gradual drops accompanied by periods of small gains and stagnation, will you continue to hold out for the bottom? Given that many people could already have been waiting 4 years to buy, this would mean that they spent 10 years waiting to buy.

Also, if the article is correct and we see increases in interest rates, will it not be more cost effective to buy now to take advantage of the 20% drops we have already had, plus secure a long-term fixed rate mortgage at a relatively low interest rate. If we do have a protracted period of small drops to -15% over the course of 6 years, you could possibly have saved as much by buying now with a decent mortgage rate than to buy in 6 years with a much higher mortgage rate?

Just a thought. I'm currently in the process of buying, and intend staying put in the property for at least 5 years, hence we're trying to get a 5 year fix. We've been waiting 3 years to buy and have lived in 5 properties in that time, TBH we're fed up of it already and the thought of waiting even just 3 more years to own our own place fills us with dread.

Good luck to you though, and I hope it works out for you. Everyone is different and everyone has their own goals/ambitions in life and I hope you meet yours.

michaels

I'm not convinced given the supply squeeze (and low transaction volumes) that there is not enough credit available to sustain house price rises so I continue to contend that the main factor driving house prices is expectations - most of the comments from those considering buying relate to where house prices are going, where interest rates are going and how much rent costs.

The recent increases in prices have brought more supply on to the market and traditionally the autumn and winter see a fall in demand (my take on the market is that this year 'spring' has happened about 3 months late in the housing market) and with the increased supply those who seriously want to sell will need to reduce prices.

So this is where expectations take over - if next spring the 'consensus' view is that falling prices are the start of the next downward leg (especially likely if the economy as a whole appears to be stumbling) then the spring demand from buyers will not materialise (why buy if you expect prices to fall further) and this will be self-fulfilling. If the economy is looking rosy (or being spun as rosy by VIs - and what bigger VI than an approaching election) then the spring bounce will begin and will also be self-fulfilling.

Slightly longer term increasing taxes, reduced govt spending and monetary tightening, possibly with commodity price driven stagflation as the rest of the world recovers more strongly may make it another spring rally in an overall bear market but none of this happens till next July at the earliest.

tommy75

Harry_Powell wrote: »

I agree, though I believe that the drop will be closer to 10% rather than 20%, but I also believe that the drop won't be as rapid as it has been over the last 18 months. If it takes 6 years before the market bottoms out, with gradual drops accompanied by periods of small gains and stagnation, will you continue to hold out for the bottom?

As the natural bottom has by the looks of it been stretched out to avoid the total collapse of the UK economy, I think I will only be able to hold out for up to one more year to see where we are as I really hate renting. It may take a bit longer than this to sort out the mess but I'm not getting any younger.

Harry_Powell wrote: »

Also, if the article is correct and we see increases in interest rates, will it not be more cost effective to buy now to take advantage of the 20% drops we have already had, plus secure a long-term fixed rate mortgage at a relatively low interest rate. If we do have a protracted period of small drops to -15% over the course of 6 years, you could possibly have saved as much by buying now with a decent mortgage rate than to buy in 6 years with a much higher mortgage rate?

I guess it all depends on the amount needed from the bank for my 3 bed semi & size of deposit needed to get a good rate at the time, which we simply don't know.

Even though some vendors have reduced the odd 10k off their asking price, I'm not somebody new comming into the market with the opinion that your average terraced house has always been 100k and over. In 2005 most people were saying that they never thought they would live to see terraced houses sell for over 100k and it happened. These same houses were selling for 30k only two or three years earlier.

The simple fact of the matter is that I have to pay three times more for the same house plus the extra interest on the mortgages as I would have to do if I had bought a few years earlier prior to 2003. As I was not in a position to buy in 2003 means my future quality of life and my childrens has dropped significantly. If my wage had gone up to offset this, I would be getting on with my life oblivious of MSE 'debate house prices and the economy'.

Harry_Powell wrote: »

Good luck to you though, and I hope it works out for you. Everyone is different and everyone has their own goals/ambitions in life and I hope you meet yours.

Thankyou.

Cleaver

tommy75 wrote: »

As the natural bottom has by the looks of it been stretched out to avoid the total collapse of the UK economy

There are a number of jokes available:

Press 1 for a joke mainly centred around stretching.
Press 2 for a joke based around a natural bottom as opposed to a surgically enhanced one.
Press 3 for a gag that uses the phrases 'total collapse' and 'bottom' together in a witty way.
Or press 4 for Cleaver's surprise anal-based joke.

1984ReturnsForReal_2

As the European fall approaches

And right there I found a point to disregard the rest of the article & shelve it with other drivel that may or may not occur.

HAMISH_MCTAVISH

Cleaver wrote: »

Or press 4 for Cleaver's surprise anal-based joke.

Does it involve an economic relapse? Or should that be a prolapse?