Adventurer

This will no doubt interest people from UK more than others but I suspect NZ market may not be so different.
Remember though they are not saying prices will fall 50%- they are saying in real terms taking into account inflation so it may be that the actual reduction in prices could be somewhere between 35 & 40 %.


Traders predict house prices will fall by 50% in four years

· Investments based on property 'fall off a cliff'
· Job losses hit estate agents and mortgage firms

* Phillip Inman
* The Guardian,
* Monday June 9 2008
* Article history

The slide in house prices will continue for at least three years and crush the value of a home by almost 50% in real terms, according to a key index of property price futures. Indications from futures trading on long term property prices shows that the average UK home will recover its current value only in 2017.

By the end of this year prices will be down by 10% and by a further 10.5% in 2009, according to the index. Prices will keep dropping through 2010 and cut values by 23.5% when they hit rock bottom in 2011. House prices will then begin a slow climb back to current market values over a period of about six years.

If an average retail price inflation rate of 4% is included in the calculation and in addition the 8% drop in prices over the last eight months already registered by the Halifax index, the fall in values over almost four years will reach 47.5% in real terms.

The Liberal Democrat Treasury spokesman, Lord Oakeshott, said the figures revealed that property investors had little confidence in the market and were predicting steep and prolonged falls in prices.

"This government says this housing depression will be different from the early 1990s. Yes, that's right. It will be worse."

When not attacking government policy in the Lords, Oakeshott invests in property on behalf of pension funds through his investment vehicle Olim. He says he has watched the index steadily fall over recent weeks. On Friday it "fell off a cliff" after the Halifax published its latest house price survey.

Halifax said the value of a home fell by 2.4% in May, the seventh month in the past eight when prices have fallen.

The May figure spooked investors, who said prices were now falling more rapidly than at any time since the early 90s property crash. House buyers benefited from low prices until 1995 when values began to pick up.

Last week an economic consultancy, the Centre for Economics and Business Research, predicted that in 2008 almost 15,000 estate agents would lose their jobs. It said real estate output will also decline during the year by 3% in real terms, as the drop in mortgage approvals and housing transactions take its toll.

The slide is also hitting mortgage brokers, illustrated by John Charcol, which last week announced job cuts and made Katie Tucker, product specialist and one of the public faces of the broker, redundant.

The firm's chief executive, Ian Kennedy, is also reported to be in discussion with chairman John Garfield - one of the founders of the business - about his future. In January, the broker announced it was putting itself up for sale. But no buyer turned up and instead its founders were expected to inject more funds into the business.

The residential property futures market is based on the Halifax monthly house price index, published by the bank. It is an-over-the-counter market designed for banks, pension funds, insurance companies and housebuilders to trade on the future values of property. Tradition Property, a City-based property broker, operates a derivatives futures index based on the Halifax figures.

howden40

No, can't see it. The banks wouldn't let it happen for one, just think how much they would loose on reposessions.

When we had the last great prediction (UK) in the early nineties, the prices only dropped by around 10% on what we paid, but come 15 years later had more than doubled again. Mind you late eighties prices did double. We bought a large 4 bedroom for £40,000 in Dec 88 and sold it for £84,000 March 1990 - 16 months - but it's all relative if your already in the market.

We are extremely fortunate, we don't have a mortgage so we wouldn't really suffer if prices dropped (unless we sold up to move back or just sold up).

Something needs to be done about property prices for the future or kids will never be able to afford to leave home. The average age for children moving into the housing market in UK is 29. Must be similar here.

The price of building materials are shooting up, we only know this as we are going to have a lot of work done on this property (ex-rental).

Nice thought for the young.
Pauline

whitesand

Yes, hard times ahead for the property market, methinks. And estate agents appear to be dropping like flies in the UK at the moment.

Justcol

It will happen and is happening now.
reposessions are rising rapidly, banks are asking 25% deposit for a new mortgage
that will take most 1st time buyers out of the picture,
they are the first rung of the ladder, without them the rest of the market tumbles.
It will take some time for the market to recover from its current state but it
will.
I think this is going to take 5-6 years to blow over but prices will rise again.

RobClubley

So there's a bright side to all this then?

dlmckay

But children never could afford to leave home. Daughters married and moved in with their husbands under the same roof as their mother in law. Unmarried daughters and sons with new wives stayed at home and cared for mum and dad until they died and then inherited the family home. All this moving out and buying your own home straight away is a new phenomenum... (shucks, that's terrible spelling, but you get what I mean).

Most people couldn't afford to buy a new home if they chose to strike out on their own and it was usual to rent.

FWIW, I see headlines like the one you've quoted as a newspaper seller and not really based on anything concrete. Sellers won't sell if they think the price is giving the property away unless they are financially crippled and that's only going to be a handful. Sellers will just hunker down (especially in NZ and this is already happening) and wait for the market to come back to what they feel is a reasonable price for their property before listing again.

hazeandsteve

Hopefully it will mean the end of the "buy a house, decorate, sell a house" tv programmes. Then UKTV can have more "celebrities/wannabies cooking on a desert island" programmes...makes you glad you've got sky, eh~?

whitesand

Yes, many have been awaiting this day for a long time! I think it's more than just a few who'll be affected by the housing crash. Firstly, the first home buyers who can't even get on the ladder, and secondly, the buy-to-letters who may have to sell sooner than they wished. But it's not just a case of houses coming down, rather they were well over-priced to begin with and even if they fell fifty per cent, would only be coming down to what they should be in the first place.

Things are bad now in the UK and it's not going to miss NZ.

Adventurer

Barratt up against wall as housing crisis grows
Simon English, Evening Standard
11 June 2008, 4:23pm
Reader comments (3) | Data

Barratt Developments, one of Britain's most important and bestknown housebuilders, was in crisis today after another dramatic plunge in the share price and warnings from City analysts that investors should get out immediately.

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In a note of near-unprecedented pessimism, Dresdner Kleinwort warned clients 'don't buy at any price', advice that helped send the shares down another 12¼p to 79¼p.

Dresdner analyst Alastair Stewart said: "We believe even at these levels existing shareholders should cut their losses and no one should consider buying until details of writedowns, gearing and any financial restructuring become clear.'

The company is now valued at just £200m. With debts of £1.7bn, analysts say it may have to raise at least £1bn to survive. A rights issue is out of the question, suggesting that Barratt's only hope is a debt-for-equity swap or investment from wealthy overseas funds.

A warning from Merrill Lynch that the housing market has 'gone beyond the tipping point' added to the malaise, with shares in other homebuilders going into near-freefall for the second day running.

A return to the negative equity and plunging house prices of the early 1990s is likely, said the bank. Merrill warned: 'We believe we have gone beyond the tipping-point, and are now clearly seeing a UK housing market being squeezed on opposing fronts, by a lack of willing lenders as well as willing purchasers.'

In frenzied trading, shares in Taylor Wimpey, Persimmon and others plunged, leaving investors nursing hundreds of millions of pounds of losses.

Analysts say there are increasing fears for the future of some of the companies in the sector after two days of drastic erosion of equity.

In an attempt to stem the panic, Barratt issued a statement to the stock market insisting it is still profitable and will meet City forecasts. It is due to update the market in early July.

Persimmon, the housebuilder that is about to be ejected from the FTSE 100, saw its shares lose 32¾p to 354¾p.

Merrill Lynch downgraded six housebuilders in all, saying: 'The early 1990s housing market has increasing relevance as a comparator. There is growing evidence on consumers behaving in a manner similar to that seen in the early 1990s, in that concerns over job security and falling house prices are leading to a reluctance to make a house purchase.'

The housebuilders will probably have to make huge writedowns in the value of their land banks. Those who bought aggressively in the past 12 months will be hit particularly hard.

The Royal Institution of Chartered Surveyors yesterday warned that the UK is facing the worst housing slump in 30 years. This came as the Council of Mortgage Lenders said that more than 20,000 people who bought homes with 100% mortgages are already in negative equity.

Adventurer

December 12, 2007
Sex, population and the predicted share crash of 2008

In 2002, I wrote in the London Evening Standard, This is Money's sister title, about an appealing theory that claimed to accurately predict the future for the stock market. The prediction? US shares would race higher before beginning a decade-long slump in 2008. UK shares would be close behind...

'Investors should brace themselves for one of the most powerful rallies the UK has ever seen before the stock market falls into a Japan-style recession that could last for a decade or more. A slide in London house prices, starting from about 2008, is expected to be the first sign that the good times are over in the UK before the economy - and share prices - languish until at least 2022.

'The theory goes that a tidal wave of babies born after the Second World War is reaching the optimal spending age of 46 - couples begin to spend more because their children fly the nest. In marketing circles, it is known as the Harley-Davidson effect: the biggest buyers of the bikes are men in their fifties. This spending drives the economy and, therefore, stock markets.'

London Evening Standard, 8 March 2002

So crudely, the theory is based on sex. More accurately, it relies on demographics to forecast changes in the economy and share prices.

Harry S. Dent, leading cheerleader of the theory in the US, used demographic charts to predict the Nineties shares boom with startling accuracy. This explanation and chart sets out his theory.Harleydavidson2_203x150_5

He was also able to correlate Japan's ageing population with a bear market for the Nikkei shares index from 1990 to 2004/05.

He then pored over his graphs and predicted an unprecedented shares boom for the US and other western economies - he wrote a book called The Roaring 2000s.

When I wrote the Evening Standard article in 2002, the theory was falling down. Shares had, in fact, slumped, post-dotcom boom. However, it turned out to be a temporary correction and share prices have since risen rapidly, although nowhere near as spectacularly as Dent predicted (in the Nineties, he set a 30,000-point target for the Dow - its current level is around 13,500 points).

But the underlying trends were right, with the longest sustained growth in economies both sides of the Atlantic.

The theory has a bigger fan-base in the US. But there are also some British demo-zealots - Alan Steel, an Edinburgh-based financial adviser and demographic hobbyist, still avidly follows Dent's updates. He suggested I point out to readers the Office of National Statistics graph on demographic structure (2006), which perfectly illustrates the baby boom in the UK which first came after the war but then came through in a much stronger wave in the 1960s. By far the larger baby boom was in the Sixties (pictured).

Uk_population_3The demographics orginally suggested the rot would begin in the US in 2008 and a few years after in the UK (the difference is down to GIs returning quicker than British troops who were stationed longer after the war in Europe). So we should expect a few more years of sparkling gains before the slump, which, the charts say, will last beyond 2020.

The most recent Dent update in 2006, however, put back the decline to 2009 'when oil prices hit $100'. Note: the price of crude was a whisker away from $100 a barrel last month.

So should we trust the theory? Should we follow the advice and ditch our general holdings to buy shares in health and pension companies (that will benefit from the ageing population), and funds that invest in emerging markets with young populations, such as Latin America? Should we all buy bungalows in Bexhill?

Bungalowbysea_203x150_3 My previous attempts to prise a new UK assessment from Dent have been fruitless. The organisation is entirely US-focused. I'll be trying again in coming weeks. I'll also talk to experts about the impact of globalisation and immigration on the theory - especially given the recent influx of more than a million people to British shores.

And in my next blog post, I'll also give details of a worrying indicator that accurately predicts house price crashes: it's flashing red for the UK and 2008.

- Andrew Oxlade, Editor, This is Money

>> Financial predictions for 2008

>> FTSE 100 'could fall 1,200 points in 2008'

joanneroy

id just like to say,the uk is losing alot on the house prices at the moment. I am waiting to sell my house and in the last 6 weeks we have so far had to drop our price by 20k and all im really hoping is it doesnt have to drop anymore

julesnye

Does you're house price say offers around or just the fixed price as that may get more people looking if they think it will go for a bit less than the asking price?

joanneroy

well i dropped it 20k on saturday,when you put a price on a london property there is never a chance youll get the amount what its on for. You usually take anything up to about 8k off. If i put offers around 215k people will come to me with silly offers like 190k so id rather not thanks for the advice thou x