Nationwide forecast: 2008 UK house prices to ‘drop to 0%’
November 16, 2007 at 9:40 am | In forecast, housing market, nationwide | Leave a Comment
“House prices recorded another strong year in 2007, underpinned by significant economic momentum, ongoing housing shortages and strong buy-to-let demand. We forecast house price growth of 5-8% in December last year, and with two months left to go it looks like the middle to upper end of this range will be achieved. That being said, momentum is now fading, and a number of factors suggest that house price inflation will drop from its current rate of 9.7% to 0% by this time next year. The main reasons for this more subdued outlook lie on the demand side of the market, where a slowing economy, tighter credit conditions, stretched affordability for first-time buyers and lower house price expectations appear likely to reduce the level of activity. The supply-side of the market will still be characterised by widespread housing shortages, in spite of government targets to increase house building. These shortages will provide some offsetting support to prices amid the weaker demand environment, particularly in the south of the UK.
Fionnuala Earley, Nationwide’s chief economist
Shiller predicts: 2008 "even worse than 2007" for US housing
November 13, 2007 at 1:57 pm | In forecast, housing bubble, shiller | Leave a Comment
Yale University economist Robert Shiller, co-developer of the S&P/Case-Shiller Home Price Indices, told Reuters Monday he believes the housing market’s slide is by no means nearing its conclusion.
Shiller said not only are forecasts of a bottom in 2008 probably wrong, but 2008 could see a decline even worse than that of 2007:
“There is a probability of a continuing decline for a period of years, bringing prices in many cities down in the 10s of percent, the bottom is hard to predict. I do not see it imminent and it could be five or 10 years too.”
Shiller gained prominence with the bestseller Irrational Exuberance
“We have seen housing bubbles many times in history, but they have been much more local than this one,” he said during the interview.
Shiller forecasts that the areas likely to be hardest hit by plummeting home values are those that saw the most precipitous ascents during the boom and those at the center of the subprime mortgage meltdown, with California and Florida well up on the list. The S&P/Case-Shiller Home Price Indices have seen eight consecutive months of negative annual returns for existing single-family homes through August. “Based on the futures market for the S&P Case-Shiller Composite Index, we are looking at home prices down another 5% in 2008,” Shiller said.
[Judith Levy]
Bailey gets it wrong on London real estate
August 27, 2007 at 1:51 pm | In economy, london, research, residential, subprime | 4 Comments
I’m going out on a limb and publicly challenge Liam Bailey [pictured], head of Knight Frank residential research and one of the most respected and influential real estate analysts anywhere in the world.
This past weekend, in a front page FT article on the subprime fallout and London property, Bailey is quoted, claiming that if there is an expected and highly probable “downturn in City profits and employment levels, [read: smaller bonuses] you couldn’t be surprised if central London prices fall”. The article also paraphrases Liam claiming “a correlation between the health of the City and London residential prices’ and that prime London property “suffered badly in 2002 and 2003 after prices of technology and telecommunications shares crashed.”
What makes the 2007 property market different to 2002, and what Liam (and the FT) failed to highlight in this weekends article is the growing influx of foreign property ownership in central London and its impact on the property market. Bailey and the FT writer failed also to highlight Bank of England interest rate policy, which towards the end of 2003 was on the rise and may also have had an impact on the percieved slowdown in prime London real estate.
Again, another article writen by the same FT writer (Jim Pickard) in June 2007 and also quoting Liam Bailey:
The central London market has been propelled as never before by a surge of buyers from overseas, in particular the Middle East, Russia, India and China but also from European countries. The price of a top-end house in London has risen 46 per cent in the past two years, a rate of inflation four times the national average, according to research by the FT.
Liam Bailey, Knight Frank research head, says price rises in parts of London – Belgravia and Knightsbridge – have hit 45 per cent. But he predicts: “We believe that by the late summer price growth will begin to become much more subdued.”
In 2004 and 2005, Knight Frank had 16 applicants per top-end property. This rose to 32 per property during 2006 – but has since dropped to 18.
The article highlights 271 central London homes sales closing at over a million pounds in February of this year, a 33% increase over last years figures. So what are we supposed to believe?
Montreal based Rodrigue Tremblay, the noted political economist, claims that the practice of sub-prime loans and the creation of “derivative financial products” is much more widespread in the USA than in other countries. High risk loans represent 20% of mortgage loans in the U.S., compared to 5% in Canada according to Tremblay. Of the $10 trillion mortgage market, about $2 trillion constitute the sub-prime mortgage market, which is a shitload amount of money.
But back to London, have you seen the number of ‘07 Lambo’s and Ferrari’s cruising Knightsbridge this summer? Well expensive sport cars in Knightsbridge is nothing new you say; but have you seen the increasing foreign registration, mostly Dubai licence plates? That my friend certainly is something new and something to think about
The Inflation Question
April 23, 2007 at 3:59 pm | In bank of england, economy, gordon brown, interest rate | 2 CommentsLast week, the Bank of England announced record inflation rates prompting Mervin King, the central bank’s governor to write a letter to UK chancellor Gordon Brown, explaining why consumer inflation had reached a level that was more that 1 percent higher than the recommended 2% inflation rate.
The letter did not explain why the 2% rate was chosen as safe inflation, since inflation at any rate is , well, still inflation. The question: why at 2% inflation is “good”, but at 3% inflation is “bad” intrigued my mind. I couldn’t get any answers in the FT, Wall Street Journal, or any other financial broadsheet, so I decided to do further investigation into the inflation question to see if I could come across some explanation, forcing me to re-read “The Force of Finance”
Krugman’s occasional recommendation of 2 percent inflation means that money would loose half its value within 35 years – one generation. Why is that good?
asks Brenner
Indeed, in some of his writings for Slate magazine and others, Krugman appears to admit that inflation targeting as a solution/strategy for economic advancement may be fundamentaly flawed, since, by the professors own admission:
The Consumer Price Index overstates inflation. Nobody really knows by how much, but Boskin and company made a guesstimate of 1.1 percent annually. Compounded over decades, this is a huge error.
In Mervin King’s letter to the Chancellor last week, he blamed the record CPI on “a sharp increase in energy prices during the second half of last year” which he feels ” more than offset the fall in petrol prices”. King also blames the record inflation rate on a rise in food prices caused by “bad weather”. This – King states – accounts for one half of the CPI pick up over the past year, which has risen to 3.1% from 1.8% this time last year. King points to this “upside” in inflation, which forced the bank to raise interest rates by 75 basis points over the past couple of months. Most economists are predicting imminent rate rises in light of the inflation figures and to a lesser degree, the strong pound against the dollar.
Although Gordon Brown appears satisfied with this strategy, Kings argument for rate rises is not flawless, because if rising interest rates were the cure against rising inflation, then the interest rate rises in August last year and the “surprise” rate rise this past January should have curbed the inflation rate, but this has not happened.
Furthermore, King is blaming the rise in inflation on energy prices and the weather, all aspects of human life that he has absolutely no control over. So if King and the bank of England have no control over the causes of inflation, how can we realistically expect him to have the cure?
BoE – rates on hold "for now"
March 21, 2007 at 12:35 pm | In bank of england, economy, interest rate | Leave a CommentBank of England minutes released this morning showed one policy maker voted for a rate cut this month and none wanted a hike. “That’s quite surprising. As you know the general feeling has been that there is one more hike left in the pipeline yet,” said Richard Hunter, head of UK equities at Hargreaves Lansdown
[Reuters]
Job cuts in America
January 19, 2007 at 3:55 pm | In global economy, housing market, usa | Leave a CommentNews just in that phone giant Motorola is planning 3,500 job cuts as well as Time magazine slashing 250 people. Worrying trend for the overall US economy, consumer spending and the deflating housing market.
Update 01.22.07: Pfizer Cuts 10,000
UK inflation at record levels
January 16, 2007 at 5:08 pm | In bank of england, ecb, economy, inflation, interest rate | Leave a Comment
The UK’s Consumer Price Index (CPI) rose to 3 per cent in December, up from 2.7 per cent in November and was the highest on record according to the National Statistics office. The Retail Price Index (RPI) also rose to 4.4 per cent in December, the highest since 1991. The two indices are used by government statisticians and economists as measures for inflation (or deflation) rates in the overall economy.
Rising mortgage costs had an “upward effect” on the RPI in December, mainly due to increasing interest payments; with lenders passing on the November 2006 quarter point increase in the Bank rate.
The BoE used the 2.7% CPI November figure as justification for their “shock’ rate rise last week. At 3% we should assume/prepare for another rate rise next month. This weekend, in the Sunday Times, economics editor David Smith wrote:
I dont want to scare anybody unduly, but the last time we had a retail price inflation beginning with a four … the bank lifted rates to 7.5%. Yes 7.5% …
In a speech today, Dr Andrew Sentance of the Bank of England described inflation in simple terms as: “too much money chasing too few goods”. Dr Sentance explained that in order to understand whether there is too much money, “we also need to understand the factors affecting the production of goods and services, and how changes in these supply factors are affecting the outlook for economic growth and inflation.”
Dr Sentance highlighted labour as one such “supply factor” affecting the economy and concluded that normal labour supply growth would add 0.3- 0.4% a year to the country’s GDP. However, minimum wage increased to £5.35 an hour last October, up from £3.70/hr in 2001 representing a 45% increase; more than four times the consumer prices index increase and more than double the rate of growth of average earnings for the same period. Sentance feels that this dramatic wage increase could have a “negative impact on employment prospects and add to wage pressures in some sectors of the economy, exerting some upward pressure on the level of structural unemployment.”
The chart above shows unemployment rising in the UK, which Sentance describes as “something of a puzzle”, citing “supply shocks” from increasing migration and increased participation of older workers as one probable explanation:
According to official estimates, net migration into the UK has risen fourfold since the mid-1990s, from around 50,000 a year to around 200,000 a year in 2004 and 2005. These figures have been boosted in particular by higher migration from the eight new members which joined the European Union in 2004, though the official figures suggest higher net migration goes back to the late 1990s. If sustained, this pattern of migration could contribute an addition of up to half a percentage point per annum to the growth of labour supply and hence employment. …
On the other hand, the recent surge in migration associated with the accession of new members to the European Union may ease off over the years ahead. Though the accession process is continuing, with Romania and Bulgaria joining this year, more EU countries are now opening their borders to migrant workers – providing alternative employment opportunities.
Indeed, today’s inflation report highlighted UK growth at a rate above the EU, citing the provisional inflation rate for the EU 25 in November at 2.1 per cent, compared with the UK rate of 2.7 per cent. The lower inflation will no doubt have an effect on cost of living which could be a great incentive for new EU members to migrate elsewhere. For example, Germany’s booming economy, coupled with low inflation and a diminishing labour market, in the short to medium term have greater pull than the UK’s over-inflating economy.
Dr Sentance concluded his speech by reminding us that the background to latest rate rise was primarily the rise in CPI. With December figures …
“significantly above its target level … if inflation is to be brought back to target and remain there, demand needs to be appropriately restrained and expectations of inflation by wage and price-setters must remain consistent with the 2% CPI target. As the press release accompanying last week’s interest rate move made clear, the MPC judged a further interest rate rise was needed to ensure that these conditions would be met and keep inflation on track to meet the target over the medium term.
Conclusion; brace yourself and hold your noses, expect another rate rise next month.
EU interest rates
January 11, 2007 at 3:03 pm | In UK, bank of england, economy, interest rate | Leave a CommentBoE raises 0.25 percent to 5.25%, but the ECB holds steady at 3.5%, causing the euro to once again strengthen against the dollar.
From the BoE press release:
In the United Kingdom, output continues to rise at a firm pace. Domestic demand has grown steadily and credit and broad money growth remain rapid. The international economy continues to grow strongly.
Sterling has risen and oil prices have fallen back. But the margin of spare capacity in the economy appears limited, adding to domestic pricing pressures. CPI inflation was 2.7% in November. It is likely that inflation will rise further above the target in the near term, but then fall back as energy and import price inflation abate. Relative to the November Inflation Report, the risks to inflation now appear more to the upside
Mumbai house prices approach New York & London
January 4, 2007 at 12:23 pm | In global economy, india, mumbai | 2 CommentsFor young Indian professionals living in Europe or the US, the lure of the home country, enjoying the most rapid growth in its history, has never been stronger. In all, perhaps, but one respect: soaring property prices.
So sharply have costs risen in cities such as Mumbai, Bangalore and New Delhi over the past two years that even the richest members of the returning Indian diaspora can find themselves struggling to step back on to the property ladder.
“We had a pretty healthy budget of $1.5m but were quickly priced out of prime buildings in south Mumbai, after looking for almost a year, we threw in the towel, increased our budget and settled for a small three-bed in a not-so-great building with no view and lousy common areas,” says a former manager of a US mutual fund who left New York for India last January with her venture capitalist husband.
In some areas, property prices are approaching London or New York levels at a time when, although middle-class salaries are rising fast with wage costs at India’s top 200 companies jumping 21 per cent in 2006, incomes remain a tiny fractionof those in the UK or US.
[FT]
Nestoria Zeitgeist on the horizon?
January 2, 2007 at 8:39 pm | In forecast, nestoria, research, search | 2 Comments
The latest post on the Nestoria blog highlights the top 10 property searches for 2006. Given that Nestoria has only been around for just over 6 months; it’s hard to accept this list as definitive, but the Nestoria team admit that having “a steady stream of incoming data” is one of the most intellectually rewarding parts of working at a search engine. In the coming months they promise to do their best to expose more data, which can be quite useful since many are predicting a slowdown for this year, especially if released in a timely manner. What would also be useful is if they used the Google Zeitgeist definition when reporting the searches.
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