"The Recession" is Still On Track - House prices to fall

Really2

brit1234 wrote: »

My degree is designed to open my eyes and see how different varibles combine.

Can you get your money back? If not could you get 50% back by Christmas 2010

(the opening your eyes bit does sound like it could be a degree in conspiracy theories at El Wacko University Texas.)

StevieJ

Sir_Humphrey wrote: »

I have to partly disagree with you StevieJ. British banks were securitising British sub-prime lending. This is a case of the UK banks doing what US banks were doing. Have you already forgotten Granite? Were the problems of RBS,. Bradford and Bingley and HBOS just imagined? Is the BoE and FSA going to allow there to be a repeat?

I expect better from you.

They were, but it is the US sub-prime securitized mortgages that have created the shock waves throughout the financial world. Many of these securities were backed by mortgages sold to people with no jobs at teaser rates that when uplifted would gaurantee default and then included in 'AAA :eek:' packages.
In contrast UK property market is down around 8% from peak with fairly low default rates.

StevieJ

Sir_Humphrey wrote: »

But the Stock Market has increased by about 45%, whereas HPI is flat/very low in much of the South East, still negative in the North, and only increasing in prime areas by a far less than 45%. And Sterling has only increased by a tiny amount.

If you were a rich foreigner and had chosen property over stocks for the last 12 months, it would mark them out as a complete chump.

Diversification old boy

Radiantsoul

Sir_Humphrey wrote: »

If you were a rich foreigner and had chosen property over stocks for the last 12 months, it would mark them out as a complete chump.

They have very different risk profiles though. I suspect that the risk of stocks are far higher and so they should naturally pay a higher return.

Radiantsoul

brit1234 wrote: »

Government debt is growing vastly and we are in real danger of seeing national goverments go insolvent. If you don't believe me then why is the stimulus been cut, why are countries all round the world having their credit ratings lowered?

Face it we are in uncharted terrortry.

It is not only countries that are having their credit rating cut, but almost all borrowers. The result might be a general shift downwards in entities credit rating, but the impact of those spreads might be less material.

It is in part the error of credit rating agencies that caused the problems we face. But I am not sure that their are many places to lend money that are safer than governments. In many ways this crisis has seemed to indicate that governments DO have power in the face of international capitalism. Far from speculators bring down governments, governments have shown they can save speculators.

Sir_Humphrey

chucky wrote: »

they're crazy if they do

i don't see why not in the short to medium term - but that doesn't make me a bull

i see level HPI but if it's modest it won't be my much - does that make me a bull?

that only happens in la-la land where the bears on here seem to be in currently

they obviously don't understand the fragility of the current economic recovery - none of that would make me a bull but i'm definitely not one of those bearish creatures

Well, what I am reading from some Bullish people (not you Chucky) is that the recovery will be accompanied by interest rates staying at 0.5%. The reason some people like Bootle think they could stay low for years is because they think the economy is still jiggered.

There are two camps of opinion amongst economists; recovery which will lead to higher IRs - not necessarily straight away but at some point in 2010. The other camp is no recovery/double dip in which case house prices and consumer spending start falling again even without IR rises.

The trouble for house prices in both cases is that although householders ought to be less leveraged than they were if they have taken the chance to do overpayments, house price/earning ratios are still very high and mortgage spreads are higher than they were during the boom meaning that IRs do not have to rise as much to derail the market again by increasing selling volumes.

There may well end up being fewer forced sellers than otherwise would have been, but still enough to tip the market particularly at the bottom of the market where more people were FTBs with the highest leverage and lowest equity.

The other scenario would see lower IRs but instead higher unemployment tipping the market again.

What some Bulls seem to have done is cherry pick points from two mutually exclusive scenarios to conjure a fantasy that supports HPI.

My gut instinct is that the eventual bottom will be about another 15% below the trough of April 2009 in nominal terms (which is about the same as real terms in the current economic climate).

StevieJ

Sir_Humphrey wrote: »

and mortgage spreads are higher than they were during the boom meaning that IRs do not have to rise as much to derail the market again by increasing selling volumes.

.

Assuming margins stay the same

Really2

Sir_Humphrey wrote: »

Well, what I am reading from some Bullish people (not you Chucky) is that the recovery will be accompanied by interest rates staying at 0.5%.

Not here either the recovery will actually be stagnation/ marginal growth for two years, enough to get us out of recession but no real growth.

Rates will remain low but that is because of the slow growth.

TBH I can't remember anyone saying we are going to come out with strong growth.

So you can knock me off that list also .:)

chucky

Sir_Humphrey wrote: »

What some Bulls seem to have done is cherry pick points from two mutually exclusive scenarios to conjure a fantasy that supports HPI.

very true - but you forgot to say that many bears do exactly the same.
just because it fits your viewpoint and you'd like it to happen, it doesn't mean that it will happen or is even realistic.

Sir_Humphrey wrote: »

My gut instinct is that the eventual bottom will be about another 15% below the trough of April 2009 in nominal terms (which is about the same as real terms in the current economic climate).

i'm not saying you're wrong but that isn't for me.

if the falls of banks, the world stock markets and all the other economic devastation that happened only took 15%-20% off house prices - it's going to need something of a much larger magnitude to take your 15% of Feb or April 2009 lows.

Radiantsoul

Sir_Humphrey wrote: »

What some Bulls seem to have done is cherry pick points from two mutually exclusive scenarios to conjure a fantasy that supports HPI.

My gut instinct is that the eventual bottom will be about another 15% below the trough of April 2009 in nominal terms (which is about the same as real terms in the current economic climate).

The third scenario is interest rates remain very low and the economy recovers. The surplus capacity in the economy is perhaps 10%(two years of lost growth at 3% plus the 4% fall this year). So assuming the economy grows at 3% per annum we can have growth of 3%(or less) without being especially inflationary and in fact the output gap would increase. That seems the most likely outcome for this year and next. It is an interesting issue when and how that output gap will ever be filled. It will certainly act in a deflationary way on consumer prices, nevermind the occasional commodity price spike or tax rises.

I think it is quite hard to speculate the impact this would have on houses prices, but it seems to point to neither a crash nor a surge.