Hot on the heels of the Halifax numbers

http://www.noelwatson.com/blog/PermaLink,guid,74974cbf-7143-4210-b369-ec27d06f36ac.aspx

comes the latest RICS survey, and it makes for grim reading, showing the balance of surveyors reporting a fall compared to a rise is the greatest ever, eclipsing the last downturn.

 

This is all a bit confusing as Halifax said that sound economic fundamentals are supporting house prices

http://www.hbosplc.com/economy/includes/08_04_08HousePriceIndexMar2008.doc

"Sound economic fundamentals are supporting house prices. A strong labour market, low interest rates and a shortage of new houses underpin housing valuations. Our research shows that the labour market is the key driver of the housing market. Employment is at a record high and unemployment continues to fall"

http://www.thisislondon.co.uk/standard/article-23478211-details/The+negative+equity+map/article.do

 

Very similar to the graph that showed the falls last time around

http://www.noelwatson.com/blog/PermaLink,guid,ae958e81-fc73-40ad-babf-26da711926a2.aspx

 

 

 

Halifax numbers were out today, and they made for grim reading. Down 2.5% on the month SA and 1.5% NSA. Annual appreciation is down to 1.1%

http://www.hbosplc.com/economy/includes/08_04_08HousePriceIndexMar2008.doc

Good job we have sound economic fundamentals to support the housing market, and it would be even better if sound economic fundamentals was a leading rather than a lagging indicator - see the U.S. one year ago.

This has really knocked the Spreadfair numbers - a couple of weeks ago the U.K. was priced at 181k by the end of this year

http://www.introducertoday.co.uk/News/Story/?storyid=763&title=Confidence_in_house_prices_on_the_rise&type=news_features

today's spread was 167/176 - down around 10k, or around 6%. The London market is 269/276.

http://www.zoopla.co.uk/

http://uk.techcrunch.com/2008/01/17/zoopla-launches-property-command-and-control-system/

• BOE mortgage approvals

50K NSA (averaged 79k last two Januarys)

http://www.bankofengland.co.uk/statistics/ms/2008/Feb/taba5.4.xls

• Nationwide -0.5%MOM (-0.6% NSA) - 2.7% YOY

• Hometrack -0.2% MOM

http://www.hometrack.co.uk/commentary_survey_250208.aspx

• Land Reg +0.9% MOM

http://www.landreg.gov.uk/assets/library/documents/181181.pdf

 

This latest news has seen the Spreadfair indices recover

 

from six weeks ago

http://www.noelwatson.com/blog/PermaLink,guid,f6aea8d2-ce5c-42d4-8d20-90fd4d636840.aspx

From the CME

http://housingrdc.cme.com/

Seems to be lacking liquidity, but this may be due to time of day.

The latest Case-Shiller numbers were out today

http://calculatedrisk.blogspot.com/2008/02/s-case-shiller-prices-fall-sharply-in.html

and OFHEO

http://calculatedrisk.blogspot.com/2008/02/ofheo-widspread-house-price-declines-in.html

are we 12-18 months behind the U.S. in the U.K?

• Prices falling for six month in a row

http://www.rics.org/NR/rdonlyres/06197498-AAD8-4789-B8BB-D7164C32971E/0/RICSHousingMarketSurveyJan2008WEB.pdf

• The Land Reg figures have been updated - Greater London was down 5.7% in the quarter

http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/counties/html/county37.stm

compared to Halifax's -6.3%

http://www.hbosplc.com/economy/includes/19_01_08greater-london.doc

• Can the MPC cut rates any further with inflation and pay settlement rising?

http://www.ft.com/cms/s/0/363de920-d90c-11dc-8b22-0000779fd2ac.html

http://business.timesonline.co.uk/tol/business/economics/article3359893.ece

http://news.bbc.co.uk/1/hi/business/7234389.stm

• Even thought subprime was never a problem in the UK (allegedly), it would seem that the repossessions have a higher percentage of people from this sector than expected

http://news.bbc.co.uk/1/hi/business/7242311.stm

Apparently only 6% of mortgages are subprime on this side of the pond......

• BOE inflation report

http://www.bankofengland.co.uk/publications/inflationreport/ir08febo.pdf

Since my last update,

http://www.noelwatson.com/blog/PermaLink,guid,0e3b33e1-7703-4307-ba05-1f8326b04221.aspx

Spreadfair is predicting further falls for London whereas the whole of UK is unchanged

 

Halifax showed London down over 6% in the last quarter, from 320,364k to £300,318

http://www.hbosplc.com/economy/includes/19_01_08greater-london.doc

http://www.hbosplc.com/economy/includes/19_01_08UK.doc

Slightly OT, an American tries to justify the amount he paid for his house

http://themessthatgreenspanmade.blogspot.com/2006/04/debunking-dismal-duo.html

Motley Fool analysis on last downturn

http://www.fool.co.uk/news/property-home/2008/01/25/how-bad-was-the-last-housing-crash.aspx

http://www.fool.co.uk/news/property-home/2008/01/25/the-last-housing-crash.aspx?source=eooyhoit14050001

 

A lot of people say that renting is like throwing money down the drain, conveniently ignoring the fact that an interest only mortgage is effectively renting from the bank. The argument for buying becomes less convincing with a falling market. An example is given below. 

House in Weybridge

Sale: Originally on at £619,950,

http://www.propertysnake.co.uk/site/detail/9182876

it is now listed at £595,000

http://www.johndwood.co.uk/www/site/_page.php?page=propertyDetails&type=b&id=WEY070272&theme=buying_country

Assuming a typical IO mortgage of 6%, this would mean you were paying £36000/year, or £3000/month.

Renting:

Listed for rent at £360/week which works out at £1560/month

http://www.johndwood.co.uk/www/site/_page.php?page=propertyDetails&type=r&id=jlwe_3186&theme=renting_country

Throw in the fact that house prices now appear to be falling (by around 1% month on average - Rightmove have the latest numbers - see link below), and this place will cost you at least £7k more a month to buy rather than rent. Maintenance costs would also be a lot less on a rented property

http://www.rightmove.co.uk/pdf/p/hpi/HousePriceIndex17thDecember2007.pdf

http://www.hbosplc.com/economy/includes/05_12_07HousePriceIndexNov2007.doc

Down 1.1%, and last month revised downwards from -0.5% to -0.7%. Fortunately for home owners, Martin Ellis states that

 "The UK economy is in sound shape. Strong market fundamentals, a structural housing supply shortage and pent-up demand from a large number of potential first-time buyers will support house prices, preventing a sustained and significant fall. I have put my own money on Spreadfair as I am so confident"

Actually, he didn't say the last bit, I made it up, but he really should be putting his money where his mouth is. As you can from my post a few weeks back, Spreadfair is predicting even greater falls

http://www.noelwatson.com/blog/PermaLink,guid,36bbf00c-9e24-42e8-b405-053aa7a525b4.aspx

 

Another vested interest states

"house prices have continued to grow at a healthy rate over the last two or three months"

http://www.ifaonline.co.uk/public/showPage.html?page=661317

We have seen Halifax's numbers, and Nationwide shows 0.7%, 1.1%, -0.8%, so that's an annual rate of below inflation and interest rates - hardly healthy!

 

Will the MPC cut rates in a futile attempt to stop the downturn. It is a very close call on Betfair

On a related issue, we are about to remortgage and found the following site useful

http://www.halifax-intermediaries.co.uk/tools/product-search/#results

A year ago I posted this

http://www.noelwatson.com/blog/PermaLink,guid,70afcbb4-dfc0-49e5-8e5d-38e55fa3568c.aspx

and surprisingly the U.S. housing market has been through a torrid time, with median house prices down 18% in the last six months alone

http://www.economagic.com/em-cgi/data.exe/cenc25/c25m01

Will the U.K go the same way

http://www.landlordexpert.co.uk/index.php?news=1397

I will revisit in a year's time - I'm guessing yes. Spreadfair punters certainly think so

http://www.spreadfair.com/

 

These people are also pricing in 7% down in a year

http://www.tfsbrokers.com/pdf/RISK&MANAGE/2007/Nov-07.pdf

 

http://business.timesonline.co.uk/tol/business/economics/article2737191.ece

I have been expecting this for a while

http://www.noelwatson.com/blog/CategoryView,category,Housing%2Bmarket.aspx

maybe the MPC will cut rates as they did in August 2005

http://213.225.136.206/mfsd/iadb/Repo.asp?Travel=NIxIRx

 

 

Observing the collapse of the U.S. housing market, I am continually informed that it is different in the U.K. for some reason.

The FSA have released a report related to U.K> subprime mortgages - areas of concern include self certification.

http://ftalphaville.ft.com/blog/2007/07/04/5657/subprime-the-nasty-uk-truth/?source=rss

Future interest rates are still rising

http://www.futuresource.com/charts/charts.jsp?s=LSSM08

It's going to get messy!

Six times salary mortgages are now being offered

http://www.telegraph.co.uk/global/main.jhtml?view=DETAILS&grid=&xml=/global/2007/04/11/nhomes11.xml

UPDATE: Nine times!

http://www.cambridge-news.co.uk/news/region_wide/2007/04/12/c35ac683-f9d5-459d-84f4-d7150f641794.lpf

UPDATE: Ten times!

http://business.timesonline.co.uk/tol/business/money/mortgages/article1654078.ece

the old 3.5 times salary rules is deemed ond hat - good job the credit assessment is much more sophisticated. Until the banks start tightening their lending criteria and/or the MPC raise real interest rates (currently <1% with RPI inflation at 4.6%), the boom shows no sign of abating, although the bust is sure to come at some point. The long term interest rate mean is around 7%, and nothing says rates won't exceed the long term mean.

The chart above is using CPI -a measurement that even the BOE governor is unhappy with (unlike RPI, CPI includes mortgage payments)

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/11/01/cnbank01.xml

Not sure if this is a wind up, but Harlow estate agent Alan Howick is fuming that interest rates have been going up recently

http://www.bishopsstortfordcitizen.co.uk/news/localnews/display.var.1167393.0.rate_rise_is_outrageous.php

I'm not sure if he appreciates that interest rates are still below their long term mean, and that real interest rates (interest rates - inflation (5.25- 4.4) are still very low. I'm not sure that raising equity from your residence is hard work - surely they have merely been the beneficiaries of historically low rates. I'm sure Mervyn and co. will pay lots of attention to Mr. Howick going forward.

Betfair are quoting 4.4 (3.4-1 in traditional odds), so it's looking like rates will be held this month (although punters could be wrong footed as they were last time)

although the market has priced in a couple more rises between now and June

http://www.thebusinessonline.com/Document.aspx?id=E161BD4B-1844-497D-9A04-207B84C577A0

As the article says, lax lending criteria/excess liquidity have keeped the bubble going

http://www.realtor.org/home_buyers_and_sellers/buy_now_ad.html

http://www.realtor.org/files/home_buyers___sellers/good_time_to_buy_ad.pdf

I will revisit this in one year's time from now. I'm guessing the market will still be heading down

http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

Article on the B.B.C.

http://news.bbc.co.uk/1/hi/business/6088630.stm

This is the first housing downturn that I have been old enough to witness so it will be fascinating to see how it pans out. One thing to be expected is for vested interests (and reading the article it would appear that BBC is one - if the U.S. isn;'t experiencing a crash, I'd like to know what it is experiencing!), will be constantly talking up the market. The reasoning given by the realtors is that the market is not crashing because sales are picking up month on month. However, this is partly due to the sales of previous months being revised downwards

http://calculatedrisk.blogspot.com/2006/10/september-new-home-sales-1075-million.html

http://bigpicture.typepad.com/comments/2006/10/house_of_pain_t.html

It seems even Alan Greenspan is getting in on the act

"Most of the negatives in housing are probably behind us," Greenspan said. "The fourth quarter should be reasonably good, certainly better than the third quarter."

http://money.cnn.com/2006/10/26/news/economy/bc.economy.greenspan.reut/?postversion=2006102615

Maybe he feels guilty for causing this bubble and subsequent collapse in the housing market with his super accommodative monetary policy, but if I were someone looking to buy a house, and prices had fallen by 10% in a year, why wouldn't I wait for another year when, if the market follows the same trend, they will be 10% cheaper again?

The 10% number may be an underestimate, as vendors will be adding incentives to try and shift homes without reducing the headline asking price - free furnishings etc.

If this situation were to happen in the U.K, then a new home currently retailing for £550000

http://www.findaproperty.com/displayprop.aspx?edid=00&salerent=0&pid=398896&agentid=00360

would be retailing for £500000 in a years time (assuming the falls were uniform), so not only would you save £50k off the asking price, you would save £7000 on the stamp duty.

http://www.houseweb.co.uk/house/market/sdutycalc.html

and with interest rates soon to be 5%, the "cost" of the house will be 5% less in real terms. Including the incentives the developer would throw in, I would assume a saving of approx 80k in a year!

Of course, this won't happen in the U.K. as it is different here because.... (insert reason here - examples include low interest rates, high employment, stable economy, shortage of affordable housing)

There are lots of informative U.S. based blogs -

• Boston Bubble

http://www.bostonbubble.com/

• Interest rate round up

http://interestrateroundup.blogspot.com/

• Paper Money

http://paper-money.blogspot.com/

• Accrued interest

http://accruedint.blogspot.com/

• Calculated risk

http://calculatedrisk.blogspot.com/

• The Big Picture

http://bigpicture.typepad.com/

and our very own U.K. website

• House Price Crash (not the most neutral of site but never a dull moment!)

http://www.housepricecrash.co.uk/forum/

http://www.bloomberg.com/apps/news?pid=20601103&sid=adbsVAhN68TM&refer=us

Markit page here (can't work out how to find spread - different layout to CDS)

http://www.markit.com/magnoliaPublic/affiliations/abx

 

This was unexpected - you could get odds of 5-1 on Betfair at the weekend, and when the auction closed you could still get 3-1

 

The market is certainly spooked, especially estate agents

 

It will be interesting to see how the housing market is affected. of course, 0.25% is only a small change - when rates return to their long term average of 6-7%, this could be tricky.

They have come from a 1% Fed rate to 5%

http://bigpicture.typepad.com/comments/2006/05/real_estate_dat.html

although I don't believe the ARM has moved by as much (1 year Freddie Mac link below)

http://www.freddiemac.com/pmms/pmmsarm.htm

FED predictions can be found here

http://clevelandfed.org/research/policy/fedfunds/Index.cfm

I personally think the U.K would've continued to drop if we hadn't had the 0.25% cut last year

http://www.houseweb.co.uk/house/market/irfig.html

With at least one 0.25% interest rate rise currently predicted for the U.K. over the next year it will be interesting to see what effect this has on the U.K. market.

http://uk.houseprices.yahoo.net/

I found this picture the other day showing how London house prices have changed between 1988 and 1995.

These figures don't take into account inflation - the following links show inflation levels for those time periods. I'd estimate that taking inflation into account, the falls in some areas were around 55-60% - ouch!

http://www.statistics.gov.uk/articles/economic_trends/HICP_Historical_Estimates.pdf

http://www.safalra.com/other/ukinflation.html

http://eh.net/hmit/ukcompare/result.php?year_late=1988&use%5B%5D=CPI&use%5B%5D=DEFIND&use%5B%5D=WAGE&use%5B%5D=GDPCP&use%5B%5D=GDPC&typeamount=100&amount=100&year_source=1988&year_result=1995

Of course, it is different this time, but if I had a place on the right hand side of the map, I may be getting nervous.