Financial Crisis

[Naam]

At the end of the day should we ( USA citizens ) be worried?

of course not! after all your president is the "Leader of the Free World" (according to FAUX News)

[flying]

At the end of the day should we ( USA citizens ) be worried?

of course not! after all your president is the "Leader of the Free World" (according to FAUX News)

Heheh I was thinking we should be looking for another country......quick

[midas]

Good lord.

That graph shows NOTHING. To the 'sky is falling' crowd who reads that site, their 2 brain cells might think, 'oh good lord look how expensive housing has become.' <deleted> that graph starts in NINETEEN-SEVENTY-FREAKING FIVE.... it indicates nothing except possibly a confirmation that inflation has been averaging 3% since 1975 - which is NOT the sky falling. Do the math.

I'd be more concerned about the rise in tuition prices or health care than of the freaking housing market in the UK which has been beaten to DEATH.

So the non-resident law tuition here was 1,440 USD per semester in 1975. It's 22,155 USD now per semester. Graph that. That will blow that useless house price graph out of the water. At that rate, the houses would be over 900K GBP. Should I start a website called TuitionPriceCrash.com now?

How much was a litre of petrol in 1975? Bread? ANYTHING? (I wasn't even born yet). I guarantee all other things have inflated way beyond the prices of homes in the UK on a percentage basis (save me the 'technology' argument, please). So if you want to freak out about something, it's not housing prices.

jcon I don't really understand your rationale for trying to compare the costs of law tuition petrol or bread in 1975 because I don't

believe you needed to get credit to buy those things in those days?

I believe to see the relevance of the graph Alex posted you should also take account of the difference

in lending standards and CREDIT in 1975 People and lending institutions were far more responsible

then. Please tell me in this globalised world how, where and when America and Europe can look forward

to any meaningful wages growth in the foreseeable future for many to be able to achieve a mortgage even on

existing prices let alone anything higher without some form of government assistance so then we are back to sub- prime ?

To understand how different the lending world was then, consider that in 1975:

* Less than 40% of U.S. households had even one credit card, compared with 75% today. Total outstanding revolving debt was $55 billion, compared with nearly $1 trillion now. In 1975, 63% of households with a credit card paid their monthly balances in full; today, that figure is 45%. In 1975, most lenders required borrowers to repay 5% of their outstanding balances each month. By that standard, the minimum payment on the average credit card borrower's $2,200 debt would be $110 rather than the $44, or 2%, that many lenders require today.

* Car loans were typically for two to three years, four years at the most, and usually required a down payment of 20% or more. Leasing existed, but not in a form that was attractive to most consumers (most customers had to buy the cars at the end of the leases). Today, four out of five car loans last longer than four years; some stretch as long as nine years. And until recently, leases made up as much as 20% of the auto finance business. An average 2008 new car cost about $27,000. At 1975 standards, you'd need to put down $5,400 (plus taxes and fees), then make 36 payments of nearly $700 a month.

* Adjustable-rate mortgages hadn't been invented yet, at least not for the masses. Home loans were at a fixed rate, usually for 30 years, and generally required a 20% down payment. A family making the median income of $13,719 spent about 2.5 times its income to buy the median-priced house. At that 1975 standard, the 2006 median family income of $45,000 would have bought a house priced at $112,500 -- less than half of what a typical house cost that year.

And what did we have today................7 x income.....yes Jcon that is very scary especially if you are a lender now

Edited May 30, 2009 by midas

[Naam]

weekend thoughts for the resident doom&gloomers:

The U.S. economy will enter "hyperinflation" approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said. Prices may increase at rates "close to" Zimbabwe's gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe's inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

"I am 100 percent sure that the U.S. will go into hyperinflation," Faber said. "The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate." - Bloomberg

[flying]

weekend thoughts for the resident doom&gloomers:

Hey come on now...........keep up

http://www.thaivisa.com/forum/Financial-Cr...19#entry2768719

[midas]

Zimbabwe is not really an active participant in the global economy. What is their unemployment rate? It was 80% in 2005

[midas]

Well I don't know how many think Marc Faber is accurate but......

I hope he is wrong

http://www.bloomberg.com/apps/news?pid=206...FA&refer=us

“I am 100 percent sure that the U.S. will go into hyperinflation,”

I think Marc Faber is interesting to listen to but I would like to ask him more about this theory regarding

hyperinflation in USA. Hyperinflation or even serious inflation like in the 1970s doesnt seem possible without a

means to translate a rise in prices into wages.

In United States today I see at least two forces acting against that :-

1. The union representation of workers ( except with GM ) has been drastically reduced and theydont have the same power to impact economic or labour policy.

2 Outsourcing work to China, Vietnam, India, Mexico and other nations in Asia makes wage demands less likely for USA workers to enforce.

In so many industries now any unrealistic demands would just result in the loss of even more jobs to overseas workers.

[flying]

I think Marc Faber is interesting to listen to but I would like to ask him more about this theory regarding

hyperinflation in USA. Hyperinflation or even serious inflation like in the 1970s doesnt seem possible without a

means to translate a rise in prices into wages.

You know the funny thing is I clearly remember those crazy prime interest rates.

Not only 70's but early 80's

But I do not recall a raise in wages at all. But even if we saw those rates again today it would be so very painful wouldn't it?

[Abrak]

weekend thoughts for the resident doom&gloomers:

The U.S. economy will enter "hyperinflation" approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said. Prices may increase at rates "close to" Zimbabwe's gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe's inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

"I am 100 percent sure that the U.S. will go into hyperinflation," Faber said. "The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate." - Bloomberg

I dont know how seriously I take him he also says in his latest news letter that it is 'very likely in my opinion' that swine flu will become a 'very dangerous and deadly global pandemic.'

[Naam]

in my opinion Marc Faber is a brilliant man. met him twice personally (years ago) and was impressed by his overall knowledge which covers the whole financial range. unfortunately he is beating the gloom drums to an extent which (i think) is a bit embarassing. but he has to keep up his reputation being Mr. Doom&Gloom™ as scores of other gloomers are mushrooming, competing and try to trump him

p.s. in his mother tongue swiss-german he sounds much better and more convincing than in english

[12DrinkMore]

The hidden banking bailout scam?

http://www.bloomberg.com/apps/news?pid=206...&refer=home

McGee was expecting a rate of 4.7 percent; the broker offered him 5.375 percent. The average 30-year fixed-mortgage rose to 5.27 percent as of yesterday, according to Bankrate.com.

So what does this mean?

With my USD 1,000 deposit in the bank earning no interest the bank is lending out some USD 8,000 @ 5.375% (I believe the average fractional reserve multiplier is around 8), so they earn USD 430 on MY USD 1,000 ie 43%, and I receive NOTHING. I reckon the average Johnny Depositor doesn't realise this, and thinks the banks are making 5% on his deposits. Far from the truth.

I wish there was some way I could safely and conveniently remove my cash from this dam_n scam. We really need a saver's strike to sort out the interest rates and force the banks to pay more. Interestingly enough, theoretically the banks could pay me 10% for my cash and loan out the multiplied USD 8,000 at 5.3% and STILL make a huge profit of 33%.

Maybe there should be two types of money defined.

1. Real Money, RM, paying premium rate interest

2. Fractional Reserve Money, FRM, paying low interest, if at all.

As most of the money in existence is located on the disks of computer systems, adding a small identifier tag should not be too difficult. RM would instantly become much more valuable, and FRM would devalue fast.

This is also possibly the main reason why a return to a gold standard is no longer an option, as a currency which moved to a gold standard backed by physical gold would instantly massively appreciate in value as the whole world piled into to it.

[flying]

I wish there was some way I could safely and conveniently remove my cash from this dam_n scam. We really need a saver's strike to sort out the interest rates and force the banks to pay more.

Why not? Many already do this. Why not remove as much of yours from their usage as possible? There are many ways. Lots of folks only have enough in a bank to pay bills if that.

It is not like the interest they pay is so great that you will miss it.

Quit talkin & start walkin.................I mean that in the nicest way

[12DrinkMore]

Why the obsession with UK house prices - I think there has been a world wide decline - Property prices in Thailand have declined along with the rest but as people start to reinvest - property and land will be high on the list - so I think prices are probably near their lows and due for a slow rebound .

http://www.housepricecrash.co.uk/graphs-av...house-price.php

For all those lovers of charts, and staunch believers that history repeats itself.

Each of the two previous booms was followed by a drop in price down to LESS than the previous boom high. I cannot see any reason why this should not happen again, so at least another 30% is about to be lopped off the bloated house prices over the next couple of years. And a few other reasons, rather than the "history repeating itself"

- Unemployment forecast to increase by 80% to over 3,000,000 in the next year.

- Repossessions increasing year on year, adding to the number of properties coming on to the market that will be sold at less than the "market valuations", as banks don't want all this property on their books.

- The general mood of the buyers, set and constantly reinforced by the press and statements from banks, that house prices are going to fall further. As an example today

http://www.independent.co.uk/news/business...ip-1693232.html

prices will drop by another 12 per cent before bottoming out in the middle of next year

This will all become a sellfulfilling prophesy, as any sensible potential buyer is simply going to wait and save money over the next year.

"Those who forget the past are condemned to repeat it" (or some such words), so those who don't look at previous booms and busts are going to make a loss of 30% on the value of a property bought today.

[midas]

in my opinion Marc Faber is a brilliant man. met him twice personally (years ago) and was impressed by his overall knowledge which covers the whole financial range. unfortunately he is beating the gloom drums to an extent which (i think) is a bit embarassing. but he has to keep up his reputation being Mr. Doom&Gloom™ as scores of other gloomers are mushrooming, competing and try to trump him

p.s. in his mother tongue swiss-german he sounds much better and more convincing than in english

I agree with your assessment that Marc Faber has knowledge which covers the whole financial range and he is impressive. But because

he also sells subscriptions I don't understand why you have such a high regard for Marc Faber and yet you seem to so easily dismiss

Celente who I believe is equally credible in the specific area in which he operates-i.e.trend forecasting just because he sells subscriptions? .

I once personally met a close ally of Marc Faber - Lord William Rees - Mogg

who wrote the book entitled " The Great Reckoning " as far back in 1993 and Marc Faber contributed to this book.

http://www.amazon.com/Great-Reckoning-Jame...n/dp/0283061162

The amazing thing is that many of the things happening now that you ridicule and say that its people screaming " the sky falling in " was first referred to

in this book 15 years ago. They may have been premature in their timing about the things we would be seeing, but they had

unbelievable vision regarding so many things. So in this context as Marc Faber clearly shared the same mindset as Lord William Rees - Mogg

( jointly contributing to the book ), I am curious why are not labeling what everything Marc Faber says as being doom and gloom rubbish?!

[Abrak]

The hidden banking bailout scam?

http://www.bloomberg.com/apps/news?pid=206...&refer=home

McGee was expecting a rate of 4.7 percent; the broker offered him 5.375 percent. The average 30-year fixed-mortgage rose to 5.27 percent as of yesterday, according to Bankrate.com.

So what does this mean?

With my USD 1,000 deposit in the bank earning no interest the bank is lending out some USD 8,000 @ 5.375% (I believe the average fractional reserve multiplier is around 8), so they earn USD 430 on MY USD 1,000 ie 43%, and I receive NOTHING. I reckon the average Johnny Depositor doesn't realise this, and thinks the banks are making 5% on his deposits. Far from the truth.

I would be very surprised if the average depositor didnt 'realize this'.

(1) For a start say in the UK's case how could a bank that is financing its capital from the BOE or from private sources at 12-14% survive if it wasnt pulling of a deal like this with its depositors monies? Their ability to pay a super normal return on their capital is based on that capitals ability to attract other liabilities with virtually zero interest.

(2) Every bank bailout that I can think of is financed this way. To a large extent it is financed directly by the government through some sort of direct subsidy. Secondly it is financed directly through the banking system (or indirectly through the government) through an expansion of margins - namely at the expense of depositors and good borrowers. This is nearly always very effective because a financial crisis destroys the secondary banking system that fosters the disintermediation that results in reduced margins in the first place. Thailand post '97 would be a classic example.

Incidentally I do think your bank maths is a bit simplistic. I am not saying this is much better but I think you should consider this. Operating costs at the bank are probably around 2.5% of assets and loan loss provisions realistically 1.5%, so the actual margin is more like 1.375%. The reserve multiplier may be a lot higher than 8 - for instance under BIS in Thailand mortgages are only 50% risk weighted so 16 would be more like it. That would give a profitability of about 22%. I am not an expert however.

Edited May 30, 2009 by Abrak

[AlexLah]

Because he had a meeting with him said hello and such, and he never had a meeting with Celente.

I have had a few meetings with Kissinger, a very funny guy. When you are one on one with him he talks without his funny accent, I wonder why.....

Just kidding....

[Chaimai]

Why the obsession with UK house prices - I think there has been a world wide decline - Property prices in Thailand have declined along with the rest but as people start to reinvest - property and land will be high on the list - so I think prices are probably near their lows and due for a slow rebound .

Your opinion is directly opposite to that mentioned in many resources and by those involved in the industry.

Would you care to post some evidence to back up your claim other than " I think "

'I think" indicates it my opinion - whether right or wrong this is a discussion board and even if I did bother to find somebody to back up my opinion on the internet , which I am sure I could , what is the point .

We all have experiences and that is what we are expressing not a statement with proof from the times, telegraph or sun.

excellent rebuttal Churchill !

midas - you haven't quite realised it yet, but the CML that you quote + Halifax + Telegraph + NAEA + www.housepricedrop.com (wonder what their agenda is ??) is all OPINION - same as churchill (same as you, no doubt) - they all giving an opinion based on their experience. Their views are no more an oracle than yours and 'supporting' a personal view a link to a newspaper (or, I agree, a Yahoo news article) gives it no additional validity.

[Chaimai]

Why the obsession with UK house prices - I think there has been a world wide decline - Property prices in Thailand have declined along with the rest but as people start to reinvest - property and land will be high on the list - so I think prices are probably near their lows and due for a slow rebound .

Your opinion is directly opposite to that mentioned in many resources and by those involved in the industry.

WRONG ! Do you mean ALL those in the industry, or just the ones you can find to contradict churchill's opinion.

I am in the industry and what I am seeing, what I am living, what I am breathing i.e. what is ACTUALLY happening at the present time in my locale, supports churchill's views. What the leading local estate told me yesterday supports this view - for our area. He achieved 8 sales this week - half what he was doing almost 2 years ago, but more than double what he was doing 6 months ago.

[AlexLah]

Chai can you then please give us uninformed sheeple a source where we can look at reliable information?

I read another article the other day that said it had interviewed 200 of the top economists and their general opinion was that the end of the recession is near.

Does that mean we go from recession to depression or from recession to having glorious moments again?

Should we better not read any news article, watch news either on TV or the internet and instead just completely isolate ourselves and just wait?

Edit: Chai is it true that the number of mortgage approvals has been down by about 60%?

Edited May 30, 2009 by AlexLah

[Abrak]

Each of the two previous booms was followed by a drop in price down to LESS than the previous boom high. I cannot see any reason why this should not happen again, so at least another 30% is about to be lopped off the bloated house prices over the next couple of years. And a few other reasons, rather than the "history repeating itself"

I know this statistic and actually I think it holds going back for at least the last 4 booms. You can make a very similar argument for the US stockmarket. If you look at the PE of the Dow against long run earnings (taken to be a 10 year moving average), the average PE has been about 13x. However, after every bull run in the last 100 years the bear market has bottomed out at below mean at under 10x. The Dow is currently at 15x implying at least 30% downside especially as the 10 year MVA is heading down.

Now I dont really tend to argue with these sort of statistics, tend to look at signs of life as dead cat bounces and dont really care that much to the extent that a recovery in asset price from overvalued position doesnt make for a very exciting investment. However, I do think there are signs - particularly in the movement of gold - that 'this time might be different.' Certainly it seems investors are anticipating inflation and 'dashing from cash' and paying a premium for assets.

But then again maybe people are reading too much into the 'signs of life' in the property market. Maybe recent transactions are just some people fully discounting further falls in the market. For instance Traditional are forecasting that the Halifax index will fall from GBP157k to GBP130k in a year and a further GBP10k by end 2010. That would bring prices down to 0.9x their historic mean of 4x earnings. To the extent that people are selling now based on those future prices you could argue that prices are close to bottoming.

[AlexLah]

Interesting graph of US mortgage stuff dunno if something similar is available for the UK? There are a few "Opinions" that a second wave of bad news is approaching.

[midas]

WRONG ! Do you mean ALL those in the industry, or just the ones you can find to contradict churchill's opinion.

I am in the industry and what I am seeing, what I am living, what I am breathing i.e. what is ACTUALLY happening at the present time in my locale, supports churchill's views. What the leading local estate told me yesterday supports this view - for our area. He achieved 8 sales this week - half what he was doing almost 2 years ago, but more than double what he was doing 6 months ago.

Chaimai

Churchill's opinion that house prices are " probably near their lows and due for a slow rebound "

was based on nothing more than " I think "

This is contrary to the opinions of many ( obviously not ALL because

it doesn't include you ) in your industry because even The Council of Mortgage Lenders

are telling us they expect to see a big jump in the number of people who have lost their homes due to repossession.

Am I correct that these properties alone would most likely then be sold at a fire sale value after being repossessed ?

And even if you are seeing an increase in YOUR business, are you referring to an increase in the volume of sales

because you dont say you are seeing a consistent rise in property values across the board? Are you saying you are seeing an a general

trend of increased property values ?

An increase in the volume of your business could be attributed to purchasers just taking advantage of low interest rates while they last

but based on the expectations for higher bond yields alone could mean this is unlikely to last long.

You have the following picture developing in the UK :-

1. Increasing unemployment

2. Stagnant wage growth

3. More conservative lending standards by institutions

4. Increase in home repossessions

5. Expectations that interest rates will go up

Based on these five factors alone, it's difficult to see what would generate growth in home values. If you have information contrary to this

it would be nice for you to contribute this ?

As you are in the industry, perhaps you could also confirm whether my understanding regarding loan to income

ratios is correct or not? As I understand it at the peak of the boom, the ratio was as high as 7x income but

generally 5x income. I understand now that under the more conservative and rigid lending rules this will be restricted to closer to 3x income?

If i am incorrect on this issue, what loan to income ratio is being applied in mortgage applications right now ?

Edited May 30, 2009 by midas

[Chaimai]

Chai can you then please give us uninformed sheeple a source where we can look at reliable information?

I read another article the other day that said it had interviewed 200 of the top economists and their general opinion was that the end of the recession is near.

Does that mean we go from recession to depression or from recession to having glorious moments again?

Should we better not read any news article, watch news either on TV or the internet and instead just completely isolate ourselves and just wait?

Edit: Chai is it true that the number of mortgage approvals has been down by about 60%?

Alex - the only reliable information is what you (me, we, other people) can see happening outside their front doors and under our noses - this is reality - not speculative journalism or tea leaf reading. The latter two are useful in terms of helping an individual make an informed decision on something they may wish to do i.e. buy a house.

The property market is one piece of the jigsaw. However, in the UK it is such a huge piece of the economic jigsaw that recovery in this sector is necessary for recovery overall. The UK is such a property based economy. Activity in this area results in activity in so many othe areas - household goods, DIY, carpet retailers, furniture retailers etc, etc

As I said, local activity for sales is up, our mortgage activity is up. However, there have been a number of cash sales - some, no doubt, taking advantage of distress sales (although there are not that many) and some "OAP" purchasers where they have cash.

No - I don't think we should bury our heads in the sand and wait for the sun to come out. Most battles are actually won by doing something positive/constructive (if we can). I have just bought another plot of land and believe that it may be appropriate to build out - I think that is preferable to waiting around to see what happens in the next 12 months. My tea leaves say give it go

Mortagage approvals:-

Up 29% in March (31,000 loans from 24,000 in Feb). However, these figures are 33% down on a year ago, in terms of volume, and at £4bn is 43% down in value.

http://www.guardian.co.uk/money/2009/may/1...age-lending-cml

[midas]

[

Alex - the only reliable information is what you (me, we, other people) can see happening outside their front doors and under our noses - this is reality - not speculative journalism or tea leaf reading. The latter two are useful in terms of helping an individual make an informed decision on something they may wish to do i.e. buy a house.

Chaimai people who are not in the industry need to get their unbiased information from somewhere ?Are you suggesting it is preferable they base their opinion as to whether to buy or not according to the advice of an estate agent or mortgage broker vs. what you class as nothing more than speculative journalism ?

The property market is one piece of the jigsaw. However, in the UK it is such a huge piece of the economic jigsaw that recovery in this sector is necessary for recovery overall. The UK is such a property based economy. Activity in this area results in activity in so many othe areas - household goods, DIY, carpet retailers, furniture retailers etc, etc

But even an increase in related activities " household goods, DIY, carpet retailers, furniture retailers etc, etc " doesn't automatically translate to higher property values?

As I said, local activity for sales is up, our mortgage activity is up. However, there have been a number of cash sales - some, no doubt, taking advantage of distress sales (although there are not that many) and some "OAP" purchasers where they have cash.

This is an increase in sales volume not higher property values? Churchills post referred to his belief

property values would increase-two different things

No - I don't think we should bury our heads in the sand and wait for the sun to come out. Most battles are actually won by doing something positive/constructive (if we can). I have just bought another plot of land and believe that it may be appropriate to build out - I think that is preferable to waiting around to see what happens in the next 12 months. My tea leaves say give it go

[churchill]

As I said I feel that property prices are near their lows and due for a slow rebound in the UK . I sold my flat in London last year at a 15% discount to the then valuation and feel that prices are now leveling out .

From today's FT London sees return of gazumping http://www.ft.com/cms/s/0/ff69f41e-4c89-11...144feabdc0.html .

So there is more demand than supply and investors are buying in - the low pound has also helped support prices .

I think that this will also be the case in Asia where prices have fallen but will now start to level.

But I do not think the US is over the worst , I think that Europe will also see values fall further as the Euro after the $ may be the last currency to decline . Perhaps in the US and Europe prices will fall another 10-20% .

[Naam]

in my opinion Marc Faber is a brilliant man. met him twice personally (years ago) and was impressed by his overall knowledge which covers the whole financial range. unfortunately he is beating the gloom drums to an extent which (i think) is a bit embarassing. but he has to keep up his reputation being Mr. Doom&Gloom™ as scores of other gloomers are mushrooming, competing and try to trump him

p.s. in his mother tongue swiss-german he sounds much better and more convincing than in english

I agree with your assessment that Marc Faber has knowledge which covers the whole financial range and he is impressive. But because

he also sells subscriptions I don't understand why you have such a high regard for Marc Faber and yet you seem to so easily dismiss

Celente who I believe is equally credible in the specific area in which he operates-i.e.trend forecasting just because he sells subscriptions?

I am curious why are not labeling what everything Marc Faber says as being doom and gloom rubbish?!

-i did not mention anything about high regard but i was impressed by his overall knowledge and (at that time) the brilliant ways he applied that knowledge. i mentioned that i met him "years ago" and that was 1992 when i was still a financial greenhorn albeit a successful one and that i was impressed.

-being brilliant in some respects does not necessarily mean something positive. Hitler and Goebbels were brilliant speakers, Rommel was a brilliant general, Stalin and Mao were brilliant in organising mass murder, you are brilliant copying, pasting and quoting others. but i hold none them (or you) in high regard.

-i did not mention that Marc Faber is credible. in fact my mentioning that his gloom predictions are embarassing proves the contrary and is a clear indication of my opinion concerning his forecasts, especially the latest one on "zimbabwean inflation in the United States". to sum it up: neither Faber nor Celente impress me nowadays

facit: you seem to be either reading impaired or have other reasons to deliberately misinterpret my postings. keep up the good job and don't forget to add some derogatory remarks about people who studied natural sciences and hold doctorates (one from Aachen, Germany and one from MIT, Boston, Mass., U.S. of A. aka Greates Nation on Earth™).

[midas]

As I said I feel that property prices are near their lows and due for a slow rebound in the UK . I sold my flat in London last year at a 15% discount to the then valuation and feel that prices are now leveling out .

From today's FT London sees return of gazumping http://www.ft.com/cms/s/0/ff69f41e-4c89-11...144feabdc0.html .

So there is more demand than supply and investors are buying in - the low pound has also helped support prices .

I think that this will also be the case in Asia where prices have fallen but will now start to level.

But I do not think the US is over the worst , I think that Europe will also see values fall further as the Euro after the $ may be the last currency to decline . Perhaps in the US and Europe prices will fall another 10-20% .

I feel the economic prospects in UK are much worse than in many other European countries

[Chaimai]

midas, I think that you are missing a few fundamentals. People buy property for a host of reasons. Mainly because they want to own their own home. Some will buy for investment, some will buy for pure speculation - no different to many other markets.

You refer to the following:-

1. Increasing unemployment

2. Stagnant wage growth

3. More conservative lending standards by institutions

4. Increase in home repossessions

5. Expectations that interest rates will go up

1 and 2 are inevitable consequences of this stage of the cycle and are expected AND factored in.

3 I never saw lending multiples of the level you described, I think there were a couple 5x salary multipliers for 'professionals' schemes. Many lenders actually work on an affordability model rather than an archaic multiple of income (what about existing outgoings ?). However, there is no doubt that lending criteria became too 'hot' and needed to correct itself. As usual it was too late, a knee-jerk reaction and a boom-bust effect in terms of Credit appetite.

I have said before that I used to be a senior bank manager (senior - not done for effect, just to suggest that I worked at a strategic level that involved me analysing various market factors. I am not a guru but I have experience). I have seen at first hand what happens when the pendulum swings from 'lend it as fast as you can' to 'we are open for business, but we don't really want to lend and I am not putting my neck on the block for anyone'. This in my view is unhealthy, gives credibility to the accusation of banks being fair-weather friends (taking the umbrella back when it starts to rain) and makes a mockery of the governments assertion that they are encouraging/instructing the banks to lend.

There has to be a loosening of credit policy. There are very decent people who are struggling to find a mortgage for a variety of reasons. Not everyone can fit into a black and white tick sheet. I am not advocating a return to the pre-recession attitudes but please don't quote 7x salary multiples as a norm - these are the sort of extremes that are too-readily quoted on forums like this. Extremes exist but life usually goes on in the middle ground. One size fits all rarely fits anyone properly.

4. Repossessions will inevitably rise. This is also no surprise but remember that many people are enjoying the lowest interest rates ever seen and this will increase survivability. Unfortunately, those who find themselves in those unemployment numbers may also fall into the risk area for repossessions - many won't, they will have insurance to cover unemployment or may find alternative income sources. In my area these repossessions have not materially impacted on the market. In the county town some 12 miles away they have, but there was already a ridiculus surplus of over-priced flats.

Remember that not all Northern Rock loans will go bad. They had a flawed business model (in terms of funding) and the 120% Together mortgage product was inappropriate. However, even where repossessions might occur they may only suffer, say, a 20% shortfall. I would suggest that this already in the budget at a higher level.

Repo's will not be given away. There is a competitive demand for these properties and remember that, from an investment perspective, a rented property will yield 5.5% to 7.5% (excluding any growth factor in value) and this is significantly higher than stagnating bank deposits. Many of customers are now buying for this reason.

Also, watch for churchill's comments about demand. Before the recession there was a pent-up demand for housing, Fact. The government were promoting the need for 1m additional new houses in the south east over and above the natural level of supply. Fact.

People will not use an estate agent or mortgage broker to DECIDE whether to buy. Their decision is usually made by the time they get to those people. If they base a decision of the likes housepricedrop.com etc then "up to them".

You are over-focussing on higher values. Higher property values will come from the next stages of the economic cycle. Values in 5 years time are likely to be higher than now and 5 years later they are likely to be higher still. I hope that any annual rises will be contained to a sensible level.

In my view (and experience) churchill is right. 'Values' have probably bottomed in many/most areas - don't bother to look too hard because I can also find the exception that proves the rule. Values are not relevant to retail sales - activity is. Values remain a consequence of supply and demand.

5. Interest rates will most certainly rise. They have to. UK base rates are at an unprecedented low of 0.5% and are manipulated by the MPC on behalf of the government to stimulate activity and ease the cost of borrowing. My mortgage payment has dropped from £870 p.m. to £103 p.m. - thank you.

However, Base Rates are unlikely to rise in the short-term. If and when they rise, economic conditions and confidence will be such that any increases will not be an issue.

Mortgage rates sub 5% for a decent proposal, we even saw a sub 4% in one case - but, we also a 7% case on a 90% loan to value and 90% mortgages are as rare as rocking horse sh!t.

All in all there is a long way to go with more setbacks along that rocky path. I simply report what I am seeing now.

Edited May 30, 2009 by Chaimai

[Chaimai]

I feel the economic prospects in UK are much worse than in many other European countries

Feel - "feel" midas, what sort of half-cocked evidence is that

[AlexLah]

This guy warned people that there was not going to be a housing bubble burst , funny guy.

http://www.youtube.com/watch?v=iW5qKYfq