/ˈdʒeɪms ˈæd.kɒt/ (adcott) wrote in recession_uk,
/ˈdʒeɪms ˈæd.kɒt/
adcott
recession_uk

I wrote this post in February - I chose to save it rather than post here as I worry about spamming. This certainly looks like it's happening though, so it's getting posted rather than letting it languish on my hard drive. Better late than never.

Bottom called
(image nicked from other forum)


Beware the coming property bull trap.

Nobody under the age of 40 has experienced anything other than growth in the housing market - there does seem to the prevailing consensus that the slump in house prices is reaching an end (generally based only going on "gut feeling") and lots of people are trying to catch a falling knife.

The simple fact of the matter is that houses are still way overpriced. Property is not a good investment. Until houses reach a price where new potential new entrants to the market are able to afford them comfortably, prices will continue on a long-term down trend. The people who would ordinarily be purchasing for the first time are 20-somethings who currently have a mountain of student debt, very little in the way of savings and are quickly being made redundant.

Debts need to be repaid, savings need to grow and jobs need to be secure before housing breaks the down trend. The lending criteria of banks is immaterial - the high cost of borrowing only reflects the underlying risk of default (which is derived from debt, savings and employment).

That is not to say, however, that prices will continue to get cheaper and cheaper with no fluctuations. Here is a table of nominal prices during the last property bear market:

YearLondonUK Average
Q319899606562782
Q419899354161495
Q119909108959587
Q219908699358982
Q319908248357245
Q419907788454919
Q119917714654547
Q219917790155418
Q319917776754903
Q419917532253635
Q119927302952187
Q219927311452663
Q319927097452243
Q419926657350168
Q119936694850128
Q219936853651918
Q319936803951746
Q419936778051050
Q119946933251327
Q219946971151362
Q319946869651731
Q419947012152114
Q119956900651084
Q219957339751633
Q319957376651334
Q419957416150930


I have highlighted a period roughly 18 months after the peak of 1989 where prices went up before resuming the downward trajectory... We are currently roughly 18 months from the peak of the last bull market so it is not unreasonable to assume that a similar temporary upswing may occur over the next few months.

Don't be fooled into thinking that government intervention in the lending practices of Northern Rock will have any positive effect overall. All this does is destroy the pricing mechanism for mortgage debt and is in my view quite dangerous. Rates cannot stay at permanently low levels.

People will, I'm sure, be sucked in. If you are in the market for a house, there is no rush to "get on the housing ladder". Prices will fall until they are affordable and they will likely stay relatively affordable for many years.
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