HSBC Economist: UK housing bubble is bursting and it's serious

WTF?_2

Didn't see this posted already, though there's so much similar stuff from the media now that I could have missed it:

From last week's Torygraph:

http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/04/08/bcnhsbc208.xml

We believe that house prices started rising for perfectly valid reasons as the UK outlook improved following central bank independence. But these house price gains were then extrapolated into the future. Buoyed by overly loose lending conditions, the UK property market has exhibited classic bubble features in the past couple of years.

We often hear that these problems are caused by the sub-prime crisis in the US. But it's worth remembering that whilst overly loose lending practices in the US pushed house prices to six-times the average salary, in the UK house prices are now nine-times the average salary.

As lending standards at banks now recoil the correction is likely to be marked. In our view, it will have serious consequences - depressing consumer spending and leading to the sharpest downturn in more than a decade. As the problems in the credit markets intensify, the Bank of England will have to cut interest rates more aggressively. But the bad news is this is unlikely to translate into lower mortgage rates, and so unlikely to revive either the economy or the housing market in the near-term.

In our view house prices have moved significantly away from 'fundamentals'. Price declines in the region of 10pc this year cannot be ruled out.
(The bolding and underlining is mine)


Now, when a representative of a bank is telling you this sort of stuff it's time to sit up and take notice.

If anything, they'll be playing things down for fear of being accused of talking down the market or being sensationalistic.

WTF?_2

chucky wrote: »

A 10% drop in price sounds more like a correction in values rather than some sort of bubble bursting or serious crisis.

When house prices are expected to drop 20%/25% that's a serious price drop!!

Please stop trying to scare people...

Please get a clue.

Informing people as to opinions of economists out there on the direction the market is taking is not scare-mongering.

A predicted 10% drop in values this year most certainly is something that people should be aware of. Especially when it comes from a bank which will have a vested interest in talking the market up.

Or would you rather we all stuck our fingers in our ears and went 'la la la la la la la':rolleyes:

Generali

!!!!!!? wrote: »

Didn't see this posted already, though there's so much similar stuff from the media now that I could have missed it:

From last week's Torygraph:

http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/04/08/bcnhsbc208.xml

We believe that house prices started rising for perfectly valid reasons as the UK outlook improved following central bank independence. But these house price gains were then extrapolated into the future. Buoyed by overly loose lending conditions, the UK property market has exhibited classic bubble features in the past couple of years.

We often hear that these problems are caused by the sub-prime crisis in the US. But it's worth remembering that whilst overly loose lending practices in the US pushed house prices to six-times the average salary, in the UK house prices are now nine-times the average salary.

As lending standards at banks now recoil the correction is likely to be marked. In our view, it will have serious consequences - depressing consumer spending and leading to the sharpest downturn in more than a decade. As the problems in the credit markets intensify, the Bank of England will have to cut interest rates more aggressively. But the bad news is this is unlikely to translate into lower mortgage rates, and so unlikely to revive either the economy or the housing market in the near-term.

In our view house prices have moved significantly away from 'fundamentals'. Price declines in the region of 10pc this year cannot be ruled out.
(The bolding and underlining is mine)


Now, when a representative of a bank is telling you this sort of stuff it's time to sit up and take notice.

If anything, they'll be playing things down for fear of being accused of talking down the market or being sensationalistic.

The thing to remember when reading this macro economic stuff from banks like HSBC, they have to put out credible research.

It's one thing for them to talk up a particular company because they've just been paid a fortune to do some work for them, it's quite another to put out stuff that's obviously wrong because they have vested interests. It's self defeating really doing that sort of thing as pretty soon, nobody listens to you and (more importantly) nobody will pay for your research. I agree that some places do it but the really big guys tend not to IMO.

Banks tend not to put out sensationalist notes because sensational things tend not to happen.

HSBC once put out a research note on a December General Election in Turkey. Its title? 'Turkey Votes for Christmas'.

carolt

chucky wrote: »

Please stop trying to scare people...

Please stop trying to prevent serious discussion of whether and by how much house prices will fall by accusing those who do so of trying to 'scare' others.

Sometimes bad news is scary. But that doesn't mean that it isn't better to face up to it rather than hide your head in the sand and hope it will all go away.

If those reading this have overstretched themselves in buying, better that they have a clear idea about what mainstream commentators are saying (The Telegraph is not renowned as a the nest of unrelenting bears as far as I know). (Can bears live in a nest? Sorry, an aside). That way, they can plan ahead by remortgaging early, selling if appropriate, building up their savings, etc etc.

If they are thinking of buying as FTB's and maybe not had the time to read all the headlines recently, then it is especially important they are informed of the potential risks as well as rewards in buying - as they are precisely the people who have most to lose if property prices fall and the most likely candidates for early repossession. If they buy, we have a moral duty to ensure they do so in as informed a manner as possible.

The only people, as far as I can see, who would wish to limit others posting on house price falls on a forum like this are either :

(a) those who believe that far more people read this site than actually do, and that their advice is taken far more seriously than it actually is; ie that we influence the statistics, rather than just reflect them. I for one am not arrogant enough to assume that my posts can have that kind of effect! Are there posters who really believe that if we, here on this forum, stop talking about house price falls, they won't fall?

(b) those who believe that in a crisis it is better to avoid dealing with the issue for as long as possible.


Which category do you fall into, chucky?

wolvoman

!!!!!!? wrote: »

If anything, they'll be playing things down for fear of being accused of talking down the market or being sensationalistic.

I'm not so sure.

The banks, estate agents, surveyors et al have a vested interest in transactions more than prices. They may actually feel that painting a gloomy picture will kick the BoE and government into action to create more liquidity and bring interest rates down.

adr0ck

the article does talk about a 10% correction in prices and not a crash

i think that was what chucky was saying

suppose it all comes down to what everyone thinks a crash is (in percentage terms)

maybe we should have a poll

crash = 20% - 30% fall in 1 year year for me

anyone else (or has this been done before)

Generali

adr0ck wrote: »

the article does talk about a 10% correction in prices and not a crash

i think that was what chucky was saying

suppose it all comes down to what everyone thinks a crash is (in percentage terms)

maybe we should have a poll

crash = 20% - 30% fall in 1 year year for me

anyone else (or has this been done before)

It has been done before.

I don't think nominal or real house prices have ever dropped by that much that I can think of. Possibly land prices would have done during the Black Death but I don't remember the figures (seriously - I had a lecture on this stuff while studying economic history).

In the equities world, a bear market is often thought of as being a fall from top to bottom of 20% - I generally think of a house price crash as being a fall of 20% in real house prices. If you wish to define it differently then that's you choice.

PS A 'correction' is just another word for crash really - it lets the person using it show how unemotive and professional they are.