Debate House Prices
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New Statesman: 'Crash: The housing crisis is just beginning'

WTF?_2
Posts: 4,592 Forumite
Bear-tastic day for press articles:
http://www.newstatesman.com/economy/2008/06/house-prices-housing-british
As Britain wakes up to the nightmare of negative equity, we are facing a housing recession far worse than that of the early 1990s. Iain Macwhirter has a warning: don't buy a house now, at any price. Just say no. You have been warned
..
Let's get the numbers out of the way first. There is no longer a scintilla of doubt that there is a major, national housing correction under way. Nationwide registered a record 2.5 per cent fall in May alone. Analysts such as Morgan Stanley think there could be a 25 per cent decline in two years. The International Monetary Fund estimates that British house prices are overvalued by 30 per cent. A crash is defined as a 20 per cent fall over two years, so fasten your seat belts. The Financial Services Authority (FSA) says a million people face losing their homes over the next 18 months. Northern Rock was the first banking casualty; the buy-to-let flat specialist Bradford & Bingley is the second; others will follow as this second mortgage-related financial shock shreds banking balance sheets and undermines confidence in the financial system.
..
This is going to be far, far worse than the housing recession of 1990-92. Fuelled by irresponsible bank lending, UK house prices nearly tripled in the decade to 2007 - a more lunatic rise even than in America. British prices have been running at nearly eight times average earnings against a historic average of 3.5. This was never going to be sustainable. But right at the moment the bubble burst, in August 2007, a combination of related events conspired to turn this boom into an epic bust that is likely to consume the British economy and lead to a depression. You may think the credit crisis is over, but the real crisis is just beginning.
I can't face quoting any more - it's just too frightening. Only read the full article after a stiff drink :eek:
http://www.newstatesman.com/economy/2008/06/house-prices-housing-british
As Britain wakes up to the nightmare of negative equity, we are facing a housing recession far worse than that of the early 1990s. Iain Macwhirter has a warning: don't buy a house now, at any price. Just say no. You have been warned
..
Let's get the numbers out of the way first. There is no longer a scintilla of doubt that there is a major, national housing correction under way. Nationwide registered a record 2.5 per cent fall in May alone. Analysts such as Morgan Stanley think there could be a 25 per cent decline in two years. The International Monetary Fund estimates that British house prices are overvalued by 30 per cent. A crash is defined as a 20 per cent fall over two years, so fasten your seat belts. The Financial Services Authority (FSA) says a million people face losing their homes over the next 18 months. Northern Rock was the first banking casualty; the buy-to-let flat specialist Bradford & Bingley is the second; others will follow as this second mortgage-related financial shock shreds banking balance sheets and undermines confidence in the financial system.
..
This is going to be far, far worse than the housing recession of 1990-92. Fuelled by irresponsible bank lending, UK house prices nearly tripled in the decade to 2007 - a more lunatic rise even than in America. British prices have been running at nearly eight times average earnings against a historic average of 3.5. This was never going to be sustainable. But right at the moment the bubble burst, in August 2007, a combination of related events conspired to turn this boom into an epic bust that is likely to consume the British economy and lead to a depression. You may think the credit crisis is over, but the real crisis is just beginning.
I can't face quoting any more - it's just too frightening. Only read the full article after a stiff drink :eek:

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Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.
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Comments
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It is become blatantly obvious we are having a crash now. Where before you heard the so called experts talking about modest rises and then flat lining they have gone completely quiet.
Roll on the crash so we can return to normal life and normal lending. Then lets see proper lending restrictions enforced to prevent this bubble happening again.:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
Save our Savers
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stephen king would be proudStatistics are like a lampost to a drunken man...more for leaning on than for illumination
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flippin` heck!0
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before we reach HP armageddon it should be pointed out that mcwhirter's credentials lie in political journalism and not in economics.
before anyone jumps in to bite my head off, it can also be pointed out that none of the mystic economics hacks aboard the national dailies described a scenario that the market now finds itself in. (AFAIK).
LORDY, I HOPE MCWHIRTER'S WRONG.miladdo0 -
Brit1234, I'm with you, lets bring it on full force now and get it over with.0
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Thanks for that !!!!!!. It's a very interesting article, though I take on board that he is a journalist and not an Economist. I thought the figures on oil & commodities were very interesting, the suggestion that oil is 60% over valued is not something I've seen anywhere else. I wonder where he got that figure? Indeed, the whole analysis of the effects of rapidly falling US interest rates was fascinating (well it would be if the effects weren't going to be so dire:o). Thanks.
SMF20 -
I like this bit:
250,000 UK households in negative equity
50% fall in net mortgage lending expected this year (down from £108bn to £55bn)
12m mortgages outstanding in 2007
25% predicted average house-price drop during current crash
3,775 mortgage products available now
15,599 mortgage products available in July 2007
The rest is pretty much bang on - if a bit hysterical in it's writing style..
The issue for me is that none of the financial journalists know enough economic throry to really paint the whole picture. And not enough economists know how to write well enough to tell the whole story. And I suspect they would be (still) be laughed out of town, if they tried.
Here's to those of us riding the crest of the k-wave into the next great depression....0 -
setmefree2 wrote: »the suggestion that oil is 60% over valued is not something I've seen anywhere else. I wonder where he got that figure?
SMF2
Well he actually said that 60% of the recent increases in oil prices were due to speculation. Which is not quite the same thing.
The issue is that as currency, property, retail and consumer related activities prices are falling: and as the banks / hedge funds want to continue to make money, they are thereforew busy creating relatively short term bubbles in commodities, food, and energy.
The real issue is that as demand for commodities, food, and energy falls as the west gets poorer, the bubbles will burst and the deflationary bear that is waiting to pounce, will bite with savage abandon - eating into all the asset classes, and forcing the prices of everything down. As the 'wealth disappears' (quote a Mr G Soros), so will employment sharpley, and all hell will break loose.
There is afterall no real shortage of anything but oil. and even that will be temepered by a fall in demand.
Still the US is planning to invade iran, to hold the worst off for another year.. so thats ok then!!0 -
It's OK though, because my flat exists in a "safe area", consisting of my flat.Happy chappy0
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Well he actually said that 60% of the recent increases in oil prices were due to speculation. Which is not quite the same thing.
The issue is that as currency, property, retail and consumer related activities prices are falling: and as the banks / hedge funds want to continue to make money, they are thereforew busy creating relatively short term bubbles in commodities, food, and energy.
The real issue is that as demand for commodities, food, and energy falls as the west gets poorer, the bubbles will burst and the deflationary bear that is waiting to pounce, will bite with savage abandon - eating into all the asset classes, and forcing the prices of everything down. As the 'wealth disappears' (quote a Mr G Soros), so will employment sharpley, and all hell will break loose.
There is afterall no real shortage of anything but oil. and even that will be temepered by a fall in demand.
Still the US is planning to invade iran, to hold the worst off for another year.. so thats ok then!!
The general public don't seem to have twigged the link between bailing out the banks (the setting of low interest rates and the provision of cheap and plentiful liquidity from the central banks) and the current round of sharp inflation. It will be interesting to see if they do.
And you've got to laugh at the excuses given in the drive to abandon inflation targets (and stoke this problem further) because all the problematic price rises are 'external' and therefore there's supposedly nothing the central banks can do.
Oh, but wait. Ordinary workers can't expect a few extra pennies in their pay packet as that would be dangerously inflationary :rolleyes: ... according to the same powers who are stoking the inflation.
It's pretty clear that "The Powers That Be" want to get out of this mess (which is largely of their own making) by inflating the money supply but constraining wages. Thereby making most people working to earn an income a lot poorer and stealing prudent people's savings in order to save the financial system's bacon.
I'd agree that a deflationary bust following nasty inflation now looks extremely likely. They can't create new bubbles forever without risking Zimbabwe/Weimar style hyperinflation which is even more damaging than a depression.
The worst thing is that simply holding cash in the bank isn't going to really protect you from the effects - it's highly possible that some big banks will be going to the wall in the next few years.
Maybe there is something to be said for shoeboxes full of cash under the bed.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0
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