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

stueyhants

StevieJ wrote: »

Assuming margins stay the same

What evidence is there to suggest margins will come down ? The wholesale MBS market is a fraction of it's former self so I find it difficult to envisage a real sustained pick up in the volume of lending which would force rates down through competition.

Whilst there is more demand for money than supply expect the margins to remain historically high.

brit1234

StevieJ wrote: »

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.

British banks also securitized their mortgages last decade. How do you think they could suddenly lent so much money all of a sudden. They went from lending as a portion of savings to selling off their mortgage deals over night triggering the credit which fueled the house price bubble.

We to had sub prime and our own risky lending in 125% mortgages, interest only, gift deposits, fraud and self certs.

We have this yet to fully fall from the housing market, so yes house prices have lots of room for falls.

The US Alt A Mortgages including the famous Option arms are also securitized. They are defaulting now and likely to trigger loses on par with sub prime.

julieq

Sir_Humphrey wrote: »

Re paragraph 1, I see you agree that there is little spare capacity in manufacturing. Just today is a sign of this in factory inflation.

Re paragraph 2, Well, we over-relied on finance and services over the last 10 years, in some cases with business models which are permanently defunct. There is no question that we need to diversify the UK economy into manufacturing (which we are told the low £ is supposed to facilitate). The thought that we can just return to the economy that existed before 2007 is delusional and shows that too many people have learnt nothing from the credit crunch.

I didn't say there was little spare capacity. Capacity has either been mothballed (too expensive to write off), or it's at the end of a hose stretching to Eastern Europe or the Far East. The factory gate inflation is a lot to do with the supply chain being empty, which means lead times have gone out. But the investment needed to get a supply chain moving is minimal, it's really just a question of placing an order and waiting. If you had to build a production line you'd have a separate problem entirely.

And we do manufacture. I work in the manufacturing sector and my company supplies other companies who manufacture, we and they export. We import sub assemblies and components. We sell services. We provide finance and financial services. The fact that we don't have vast factories producing finished garments from raw cotton doesn't mean we don't have a hugely significant service based fashion industry (to take one example).

In a sense the UK economy is based around manufacturing value, it doesn't matter if we are working on basic raw materials and turning them into something else, or taking something made elsewhere and adding value in some other way.

Think of a car and a garage. You can make some money mining the ore that makes the metal that is built into components in the car. You can make money supplying people who build cars. You can make money buying the car from the manufacturer and selling it. In that entire supply chain there might be maybe £10K total to divide up between participants.

You can offer the finance to buy the car, and earn interest of maybe 25% of the purchase price.

Or you can operate a garage, in which case over the lifetime of that car you could offer services for something approaching the same amount the car has made to downstream participants.

You'll find the actual manufacturers from raw materials make the least. If that weren't true, the activity would never be devolved to sub suppliers.

Sir_Humphrey

julieq wrote: »

Unless householders decide en masse to exit the market regardless of price, the supply would only increase substantially on forced sales. To get there, they have to be repossessed. That puts the mitigation into play, and the lenders are able to do that, most likely by operating divisions offering homes for rent, probably back to their former owners. Individuals needing to move have the same option.

So it's a closed loop, more or less. Big HPI is one thing, big falls seem to me very unlikely. There'll likely be some jittering up and down as the system regulates itself.

All it would take would be a return to market numbers which were normal for the decades before March 2009. New mortgages are not that competitive.

I do not think that a further 15% fall is that large in a low inflation environment.

I was also not talking about low value manufacturing. As I am sure you are aware, manufacturing has been neglected by both Tory and Labour governments for thirty years. I know that there are good manufacturers in the UK, just not enough of them.

julieq

It pretty much goes without saying that if sales increased, mortgages would be more competitive because the volume of business would go up and lenders would compete for it, but I don't see how that would make any difference anyway. Supply will be throttled if we get big falls, either by individuals or by lenders.

I wasn't talking specifically about low value manufacturing either, but the fact is we have manufacturing in our national portfolio as well as other things. The idea that we're crippled because we have no manufacturing base is pub bore territory, we have a perfectly functional manufacturing base but we also earn our living in other ways, adding value at many points.

Just as a point of interest, my own company came out of the downturn far more healthy than others who manufacture from components, because we didn't have to deal with unproductive fixed overheads, we just turned the supply chain down a few notches. In many ways you're better off as a country not manufacturing than manufacturing into a recession.

Sir_Humphrey

julieq wrote: »

It pretty much goes without saying that if sales increased, mortgages would be more competitive because the volume of business would go up and lenders would compete for it, but I don't see how that would make any difference anyway. Supply will be throttled if we get big falls, either by individuals or by lenders.

No, because if demand for mortgages stays the same, but the supply of money stays the same, the margin increases and mortgage rates go up. This explains how banks can get away with such large margins right now - there has been a pick-up in demand since March (not enough alone for positive HPI).

julieq wrote: »

I wasn't talking specifically about low value manufacturing either, but the fact is we have manufacturing in our national portfolio as well as other things. The idea that we're crippled because we have no manufacturing base is pub bore territory, we have a perfectly functional manufacturing base but we also earn our living in other ways, adding value at many points.

I know, but the trouble is that some of the other things have just gone away and are not coming back. So logically, we need more manufacturing to fill the output gap.

julieq wrote: »

Just as a point of interest, my own company came out of the downturn far more healthy than others who manufacture from components, because we didn't have to deal with unproductive fixed overheads, we just turned the supply chain down a few notches. In many ways you're better off as a country not manufacturing than manufacturing into a recession.

Well, that is plain wrong. China, France and Germany are all major manufacturers and have weathered the recession far better than the UK and USA. Your company may be doing better, but it does not follow that means the whole economy is.

julieq

The last point is interesting. Germany sit actually one place up from us in the supply chain, our manufacturing companies are supplying them with parts. France is somewhere in between. As I said last year the recovery was largely pulled by Germany and to a lesser extent France.

China really suffered domestically from the downturn, but not quite so visibly because the authorities don't advertise problems. It's a complex picture in China because they both supply from the base of the chain and have essentially cloned plants from European companies working in the same way a factory in Germany would but at lower costs.

To get a real comparison like for like you have to look at what's happened in the UK in the early 1980s where we had heavy manufacturing and a lot of pain and closed plants, and now, where we have relatively efficient industries which have been surprisingly effective at retaining employees. We can pick up the slack relatively quickly this time round.

I accept your reasoning about mortgage margins at the present time (wasn't disputing this), so the question is what the mechanism is for 15% falls unless there are forced sales.

Emy1501

chucky wrote: »

who are they then?

If people believe that Feb 2009 were the bottom for house prices then I 'm sure that they must also believe that Labour have saved us. I can't see how prices will not fall more than 10% if the growth figures are not hit over the next 2 years.

We will not be able to pay the debt back so their will deep cuts to avoid credit rating downgrades etc.

HAMISH_MCTAVISH

Emy1501 wrote: »

II can't see how prices will not fall more than 10% if the growth figures are not hit over the next 2 years.
.

Well yes, but you didn't see how prices could rise 10% this year either, did you?

chucky

Emy1501 wrote: »

If people believe that Feb 2009 were the bottom for house prices then I 'm sure that they must also believe that Labour have saved us. I can't see how prices will not fall more than 10% if the growth figures are not hit over the next 2 years.

i would have thought that were exclusive though.

we had negative growth but house prices increasing. would positive growth force house prices lower?