House market final props could soon collapse

julieq

Oh, forbearance again.

Bears, honestly, if you think that the housing market is being sustained by low rates and bank forbearance, you're going to be sorely disappointed when precisely nothing happens when rates rise. It's a fantasy that the market is being sustained by props, when the same props exist elsewhere and the market has tanked (US for example). The UK market hasn't fallen much because there's a net shortfall of supply of 100Kish homes per year.

But let's dig behind the Moneypanic article and look at some things the FSA have actually been saying (as opposed to the spin of a sensationalist VI with a well known agenda). For example:

The proportion of the residential loan book that is in arrears, and hence not fully performing, continued to fall and at 2.81% was the lowest proportion for 3 years.

That's not quite what Moneypanic said, was it?

or

The total number of accounts in arrears at the end of the quarter was 1% down on Q1 and 6% down on last year at 332,700.

This isn't forbearance. It's arrears reducing. And it's arrears reducing from tiny amounts to miniscule amounts. Let's be quite clear about this: there is no systemic problem with the UK mortgage market. There is no widespread affordability issue even at higher rates. Arrears and default rates are low and they are reducing. The one thing that is a good indicator of repossession is unemployment: rate increases have very little effect.

The bears will love this one

· In terms of the total outstanding loan book, the proportion of BTL loan balances has
also been increasing over the last few quarters and now stands at 12.08%, the highest

percentage since the series started.

This is more encouraging for the bears, until you look at the actual numbers

15. The overall [FONT=TimesNewRoman,Bold]number of loan accounts with reportable arrears also continued the
downward trend seen since Q2 2009, reducing by 1% this quarter to 332,700 accounts at
the end of Q2. This was 6% down on Q2 2010 when there were 352,700 cases in arrears.
However, looking at the amount by which an account is in arrears, the proportion that are
10% or more in arrears has been slowly increasing; it rose from 0.34% in Q2 2010 to

0.38% in Q1 2011 and it remained at this value in Q2.

The numbers and commentary is here. http://www.fsa.gov.uk/pages/Library/Other_publications/statistics/index.shtml



[/FONT]

julieq

BOE Interest rates are not set to sustain the housing market. That is a nonsensical conspiracy theory and it isn't borne out by the experience anywhere else in the world where they are low and the market has dropped, of which the best examples are the US and Japan.

They're set low to provide stimulus to the wider economy.

Most people aren't accessing the low rates. They'd either fixed in the lead up to the crisis or they've mortgaged since. The number of people on low rate trackers is very low indeed, and even where this is true it's a windfall rather than a lifesaver except at the margins. Will interest rate rises force some people over the edge? Well yes, obviously. The question is whether that number is significant and it isn't according to the studies that have been done - one was quoted earlier in the year. If you want to think that everyone is sitting on the edge of financial ruin, well you're free to believe what you want but there is no evidence of it at all. Rate increases do not historically cause waves of repossessions: what really does cause trouble is increased unemployment which thankfully we've avoided so far.

We're well into bear psychology with this really. They convinced themselves that the UK housing market was in a big bubble - it wasn't, it was marginally overheating - and when prices fell they assumed that this was the start of a big deflation. When that didn't happen as expected, they had to find reasons they weren't expecting, and so this idea of "props" was invented. It's nonsense: the same props exist elsewhere and prices still fell. The issue with prices in the UK is the basic one that supply is less than demand on a massive and systemic level, and until we build more houses, prices will essentially be subject to upwards pressure.

Simple message, stated often and clearly, and the penny will eventually drop.

shortchanged_2

julieq wrote: »

BOE Interest rates are not set to sustain the housing market. That is a nonsensical conspiracy theory and it isn't borne out by the experience anywhere else in the world where they are low and the market has dropped, of which the best examples are the US and Japan.

I believe Mervyn King stated himself that one of the reasons for keeping low interest rates was to help the heavily indebted mortgagees who were struggling during these tough times.

And if you don't think the BoE don't consider this in their decisions you are not as wise as claim to be julieq.

shortchanged_2

julieq wrote: »

Most people aren't accessing the low rates. They'd either fixed in the lead up to the crisis or they've mortgaged since. The number of people on low rate trackers is very low indeed, and even where this is true it's a windfall rather than a lifesaver except at the margins.

You're forgetting the very important part though julieq that household income is falling.

So even if you say people coped before the austerity cuts that would be because they had a greater household income coming in to be able to service those debts.

That would not be so easy with the current conditions now we are paying higher taxes and incomes are being squeezed. A rise in interest rates would put many households under a huge amount of pressure.

RenovationMan

shortchanged wrote: »

I believe Mervyn King stated himself that one of the reasons for keeping low interest rates was to help the heavily indebted mortgagees who were struggling during these tough times.

Do you have a link to this?

JonnyBravo

StevieJ wrote: »

Hey JB unusual to catch you out on one of those, you are normally such a pedant (sorry couldn't resist)

Arggghhh.....

It still took me a moment to realise what was wrong.
:doh:

Hoisted by my own pedant's petard.
:rotfl:


Watch your back Stevie.... watch your back.... those dark alleys are dangerous places.....





edit: oh hang on.... the u is near the i on the keyboard "It was a typo" :rotfl:

shortchanged_2

RenovationMan wrote: »

Do you have a link to this?

Can't find one I'm afraid. But he definately said it.

julieq

shortchanged wrote: »

You're forgetting the very important part though julieq that household income is falling.

So even if you say people coped before the austerity cuts that would be because they had a greater household income coming in to be able to service those debts.

That would not be so easy with the current conditions now we are paying higher taxes and incomes are being squeezed. A rise in interest rates would put many households under a huge amount of pressure.

It's falling back to 2004 levels. Big deal. I think we'll manage.

And anyway because there is a shortfall in supply, the average salary of those able to buy is increasing, because ownership is concentrated further up the income continuum.

Bear doctrine is that everyone buying a house was doing so at the limits of affordability, and that is simply not a sustainable argument on the basis of actual surveys and estimates on the impact of rate rises. Honestly, if you're rubbing your hands in the expectation of a price collapse when rates rise, you'll be sorely disappointed, and you'll be waiting a long time anyway.

Buy_It_Now

shortchanged wrote: »

Can't find one I'm afraid. But he definately said it.

And we are supposed to believe it, because you alone heard it?

shortchanged_2

Buy_It_Now wrote: »

And we are supposed to believe it, because you alone heard it?

Yes you are.