Take cover! The housing market is heading for a bloody and protracted crash!

Thrugelmir

We are heading into uncharted waters. As no one knows the impact that the financial deleveraging that's currently in progress will have.

My personal view is to expect the unexpected. As there's no way that the staus quo can be maintained. Game changing events at the macro level are rewriting the rules of the housing market. That serenely sailed upwards from the early 70's until the buffers were hit in 2008.

As investment warnings go. Past performance is no indication of future performance is very adpt currently.

wotsthat

Thrugelmir wrote: »

My personal view is to expect the unexpected. As there's no way that the staus quo can be maintained. Game changing events at the macro level are rewriting the rules of the housing market. That serenely sailed upwards from the early 70's until the buffers were hit in 2008.

There's definitely going to be plenty of the unexpected.

Trouble is it's difficult to plan for the unexpected. The best you can do is be sensibly diversified and hope for the best.

Graham_Devon

wotsthat wrote: »

I can see why that article's popular. A heady mix of banker bashing and an over simplified analysis of a complicated problem.

If they'd made an attempt to at least refute the argument that rental yields are supportive of prices and that population is increasing faster than housing supply it would be slightly more credible.

Sometimes an "over simplified" analysis is just what is needed.

You can easily get lost in the minute details of the housing market. It's easy to find yourself only looking at certain parts of the market and then coming up with a conclusion.

The simple analysis is this:

For all the QE, for all the bailouts, for all the held back repo's, and low interest rates....prices are, at best, where they were 5 years ago.

At some point all of those things will have to unwind.

It's that "point in time" that should be the focus. As of now, we have no idea when that might be. It may even be a couple of decades.

The problem with all of that is simple. While the housing market is being held up by several factors, some not directly intentional, life goes on around us. Indeed, today, all we see is increased inflation in the value of everyday items such as food, oil, transport. Sure, a fridge or 6 month old tablet may be reducing in price, but that's not something we buy every week.

All of us are seeing our incomes diluted by increased costs elsewhere, and all of us are, maybe unknowingly, relying on the supported housing market to keep the status quo, allowing our money to go further on inflated everyday items.

But at some point, housing will have to re-align. The longer it's supported, even unintentionally, the further our incomes move out of kilter with what was affordable 5, 6, 7 years ago. But one day, we will be expected to pay the same costs for mortgages as we did 5, 6, 7 years ago, on op of increased costs elsewhere.

If anyone can deny this, or can realise a different conclusion, then feel free. But until that point, all we are doing is playing a waiting game. A waiting game which, each time it's prolonged, makes the outcome slightly worse.

Thrugelmir

wotsthat wrote: »

Trouble is it's difficult to plan for the unexpected. The best you can do is be sensibly diversified and hope for the best.

At least making plans puts you in the best possible position. Also revising plans regularly as conditions change. The danger arises when there's a fixation on a plan along a single track road.

wotsthat

Graham_Devon wrote: »

But at some point, housing will have to re-align. The longer it's supported, even unintentionally, the further our incomes move out of kilter with what was affordable 5, 6, 7 years ago. But one day, we will be expected to pay the same costs for mortgages as we did 5, 6, 7 years ago, on op of increased costs elsewhere.

If anyone can deny this, or can realise a different conclusion, then feel free. But until that point, all we are doing is playing a waiting game. A waiting game which, each time it's prolonged, makes the outcome slightly worse.

But nothing is being prolonged. House prices are falling nominally (slightly) and in real terms (a bit more). Worked out the other day that to get to the longer term average ratio of earnings to wages a 13% fall in prices would be needed or a 4.5% wage increase for 3 years or a combination of the two.

I'd argue that we're not a million miles away from there and yet transactions are at very low levels. How come?

Graham_Devon

wotsthat wrote: »

But nothing is being prolonged. House prices are falling nominally (slightly) and in real terms (a bit more). Worked out the other day that to get to the longer term average ratio of earnings to wages a 13% fall in prices would be needed or a 4.5% wage increase for 3 years or a combination of the two.

I'd argue that we're not a million miles away from there and yet transactions are at very low levels. How come?

Doesn't really matter if houses fall 13%.

Those with mortgages taken out in the last say, 8 years, will still need to service them at the price they bought at. Sure, there may be some equity in the house, but that doesn't help service the debt.

We are prolonging, seriously prolonging, the return to normal interest rates, and a normal bond market, normal banks etc, with rock bottom interest rates and QE.

We are not alone, the whole of europe is pretty much doing the same. Just yesterday we got another "what....the debt is unsustainable?!?" reaction on the markets.

At the moment all we have in terms of policy is rinse and repeat. Be that the UK or the EU.

We haven't solved anything, and if anyone does intend to solve something with policy, it's taken as a threat to the status quo, and shelved. Take the FSA for instance, now looking to kick regulation into the long grass as it may effect people. As course it's going to effect people, but it will effect more and more people if they keep kicking these things into the long grass.

We can look at immigration all we like, but if anyone things immigration is the key to keeping house prices where they are are simply deluded. It's farcicle to suggest that those fleeing economically and socially deprived countries are arriving on our shores with briefcases full of cash ready to buy into our housing market.

The immigration has a different effect on housing. Mostly surrounding social housing and welfare.

shortchanged_2

wotsthat wrote: »

.

I'd argue that we're not a million miles away from there and yet transactions are at very low levels. How come?

You've answered your own question wotsthat. House prices are still overpriced hence the low level of transactions.

Sellers are still stubbornly hanging onto unrealistic prices and buyers still can't (or even sensibly don't want to) get the level of funds to pay the prices they are hoping for. Therefore this reflects the position we now have. A Mexican standoff.

Question is, what will give to get the housing market functioning again?

The-Joker

Graham_Devon wrote: »

Not my headline, the Daily Mails....and I thought I'd post it!

And it goes on....

http://www.dailymail.co.uk/debate/article-2124941/UK-house-prices-Market-heading-crash.html?ito=feeds-newsxml

The comments (at least the ones recomended by readers) seem to flow along the "excellent article" route too.

Nothing new, we are just waiting for the last props to come out.

Cheap easy credit will come to an end, then the last prop will be when the Government stops paying huge ammounts in rents and mortgage interest payments.

Then take cover the big crash that we have been waiting so long for will happen, better late than never.

Graham_Devon

Blacklight wrote: »

You get your favorite graph out Graham and I'll explain again why prices won't reduce by 70% any time soon.

Wow, really challenging your intellect with that one, aren't you.

wotsthat

Graham_Devon wrote: »

We are prolonging, seriously prolonging, the return to normal interest rates, and a normal bond market, normal banks etc, with rock bottom interest rates and QE.

In the 1930's there will have been people predicting doom and gloom simply because they couldn't see past the doom and gloom they were already in. Transport them from the 1930's to the 1950's and they will have wondered what all the fuss was about.

The rinse and repeat policy of today is somewhat different to that of the 1930's which directly or indirectly led to conflict. I'm all for the can kicking if it avoids this.

What must happen is that the time bought by can kicking is used to take action. In more mundane housing terms we've had 37(?) months of low interest rates - if during that time an indebted householder hasn't taken steps to improve their situation and is being supported by benefits to stay in the house then, of course, there must be a day of reckoning at some point EVEN if the result of this costs the taxpayer more.

Question is whether we need to be in a rush to get back to 'normal' and if rushing would actually make things worse.