Darkening outlook for UK housing
The outlook for the UK housing market has darkened again. The usually optimistic bunch of property market watchers polled by Reuters, who have tended to predict ever-rising property prices no matter what the season or financial climate, now say the market will move sideways for the next two years.
They say that in the next few months, the small double-dip in prices that has begun will continue. Modest gains predicted less than three months ago for this year and next essentially have been wiped away.
No one should be surprised by this. It smacks of an awakening to reality more than a slight change to a few variables in the statistical model. What’s perhaps most striking about these new poll results is that economists think houses are even more overvalued now than they were in July even after a few straight months of falls.
The poll found the proportion of property market watchers who expect a double-dip in prices has swung to a three-quarters majority from about one in four minority in July. As polls go, that is a big shift in sentiment in a very short period of time. The consensus points to a 5 percent fall from here on top of the 1.4 percent fall over the last two months, but the forecast range goes as far down as 22.5 percent from here.
That tallies with anecdotal evidence. A friend who is heavily invested in London property says he’s having trouble selling and says a 15-20 percent fall in the market is likely.
Transaction volumes in Britain’s property market have slowed to a trickle, mortgage approvals are low, and banks are now asking for huge deposits and making rigorous income and credit checks before lending huge sums of money.
Rents are rising again after years of stagnation because people either can’t afford to buy or are scared to buy ahead of another potential fall in prices.
Economy signs: Some good news
A look at the macroeconomic news and its impact on the mood of investors and the direction of the economy. Are we heading for a double-dip recession?
Jobless claims and trade data came in better than expected prompting some investor cheer today.
“We were expecting that things would slow down in the third quarter and start to pick up in the fourth quarter, but now it seems like the slowdown in the third quarter wasn’t as severe as we feared,” said David Sloan, an economist at 4CAST in New York.
On the housing front, homebuilders seem to be banking on a recovery and restocking land inventories. The move is partly out of shortage fears and because they see rivals doing it, said industry consultant John Burns. But note everyone is buying into the recovery scenario, including Barry Ritholtz in The Big Picture.
“I do not believe that Housing has bottomed yet, but I suspect — hope is probably more accurate — that the worst of the collapse is over. I expect no sort of bounce back anytime soon; Housing is likely to see no real gains for the next few years, and might simply drift for as much as a decade (über housing bears think much longer),” writes Ritholtz.
The Fed’s Beige Book, released on Wednesday, suggested that while the recovery has been faltering, the economy may skirt a second recession.
“The economy continues to plod forward, neither gaining momentum nor lurching back into recession,” said Sal Guatieri, an economist for BMO Capital Markets in Toronto.
Economy signs: Housing a painful recovery
A look at the macroeconomic news and its impact on the mood of investors and the direction of the economy. Are we heading for a double-dip recession?
The housing market is more closely related to the price of luxury items than staple goods such as food and clothing, reports David Leonhardt in the NYT. This being the case, don’t treat your home like an investment because the forecast is underwhelming.
But all is not doom and gloom in the housing sector. In is blog Jeff Matthews Is Not Making This Up, Mathhews espouses the “Cover Story Syndrome” method of investing. The seeds of a housing market recovery have been planted by this week’s Time magazine cover story on just how bad things are, according to Matthews.
“When investment themes get so popular they appear on the cover of a major news magazine—a dying breed, but the basic idea is still there—then that investment theme is, by definition, too popular to succeed, and maybe popular enough to start betting against,” says Matthews.
Also in the down but not out category is Mark Hulbert’s article in MarketWatch. He takes a look at how to make money amidst deflationary concerns. Look to the consumer staples and health care sectors as a way of staying in the stock market.
Investors have their head in the sand when it comes to the outlook for the economy, reports Izabella Kaminska in the FT. The blog also contains a great video of Spock’s Vulcan nerve pinch.
Housing “W”hipsaw looms
America has breathed a sigh of relief since April, as the summer selling season kicked in and the $8,000 first-time homebuyer credit nudged consumers off the fence into the most affordable market in years. These factors, along with easy financing from the Federal Housing Administration, was the first leg up for the “W,” said Lisa Marquis Jackson, a vice president at John Burns.
The onset of the weaker selling months, a building pipeline of foreclosures and expiration of the tax-credit on Nov. 30 will likely bring rising prices upturn to a halt, creating a “false peak” and fresh downturn, the group says. Federal efforts have slowed foreclosures but have not addressed many issues including unemployment and underwater mortgages, leaving a heavy “shadow inventory” set to knock prices to fresh lows.
An extension to the first-time homebuyer credit — bandied about by the Obama administration — may soften, but not prevent another leg down, the John Burns group said.
“We anticipate that foreclosure activity will remain very high at least through 2012, with the majority of future foreclosures coming as a result of job losses,” John Burns, president of the group, said in an outlook.
The second downward thrust to the “W” could also come as the FHA clamps down on credit, they said. Signs of stability in the economy will push mortgage rates higher, meantime.
Once a new, lower bottom in prices is realized in mid-2010, America can see a gradual appreciation thereafter because of weak employment, sluggish economic recovery and continued stress on the banking system, the group predicted.
There is proposed legislation to raise the downpayment for FHA mortgages but apparently it doesn’t have legs
