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Green Shoots of Recovery?
The UK offically went into reccession on the 23rd January 2009. However, just a few months later, rumours about ´Green Shoots of Recovery´ have already surfaced....
So are we supposed to believe the worst is over already?
Well in 2007, after it became apparent the Banking system had lent far more ´debt´ than was sustainable (Up to 40 times too much). The global economy, which was already beyond control, started to lose confidence and it seemed only a matter of time, but it still took almost 2 years to officially arrive at ´reccession´. Clearly world economies don´t simply slow down overnight, more importantly economies don´t simply recover overnight. Usually a period of negative or minimal growth are experienced for years before a long slow return to growth can be seen. Then and only then, can house prices start to recover. Keep in mind this ´boom´ has been the longest and largest in modern history, logic dictates it should take longer to turnaround.
There remains many questions about the Banking system and how much ´toxic debt´ is still out there? AND how many more financial institutions will go under? In the USA where much of this started, more Banks had failed with many more still in danger (Over 200 on the FDIC watchlist) than in 2008 (25 Banks), in the first 6 months of 2009, that number had already been exceeded, currently 45 and counting.
Lets consider the UKs´ ability to recover? With international finance (And associated industries) accounting for about a third of UK economic growth over the last 10 years, how well positioned will ´the City´ be to lead the way out of depression? New Banking regulations are likely to be strict and prohibitive, which may encourage large financial institutions to move elsewhere? How many of these have already left the City? How many more will go? Even if every institution remained in the UK after the fallout, would the new Banking rules, including the seperation of retail and investment banking, allow them to be as profitable again?
Given the massive public debt the current Governement is taking on (About £350billion over the next 2 years) and the resulting repayment by public taxation it will require, how long before the public re-consider spending/investing, particularly on property which traditionally follows the economy?
A couple of statistical blips, particularly from UK property organisations and asking prices, do not indicate any real change of direction, as one commentator put it ´One swallow does not make a summer´.
´Green Shoots´, beware the ´Slugs of Unemployment!´
Other News:
June - The Council of Mortgage Lenders report a nominal increase in the number of approvals last month. Up 227 (to 43,414) following a 16% increase in April (36,500). However, upon closer inspection, these numbers actually translate as little more than seasonal change. April approvals are likely to relate to March applications, which in the property world are traditionally busier months than previous and when new properties come to the market, meaning it´s a small number, increasing from the slowest, quietest winter in over 10 years?
Possibly the most important point to consider relates to how many Mortgage Approvals are usual or sufficient to maintain a Status Quo on property prices? According to Capital Economics, it takes about 70 - 80,000 a month as a tipping point to stop house prices falling/rising in the UK, which is a long, long way away....
Also consider the ability to borrow and pay the huge mortgages necessary to own UK property, with unemployment soaring past 2mil, with 3mil in sight and predictions of 3.5 to 4 million already mentioned, that´s a lot of potential houseowners out of the market........
Recently BoE Supremo Mervyn King publicly stated this reccession is going to be longer and harder than the last, therefore reversing his opinion from last year when he indicated this was simply a short term ajustment.....
With many of the more agressive lenders now in public hands, Northern Rock, Halifax, RBS etc. There will be stringent rules applied to lending multiples and LTV numbers, and the pivotal ´Self certification´ 85% mortgage will not be available any time soon, if ever. Meaning that buyers will have to justify their incomes and ability to repay loans like in the ´old days´. Therefore in future, borrowing 3.5 times income will enable the average earning buyer about £90,000 loan, requiring minimum 10% deposit, so able to buy around £100,000. So average prices between £154,000 or £198,000 depending on whose numbers you believe, are still considerably too high.
The UK property market had been overvalued for a long while before it went ´pop´ in Summer 07. Price to yield ratios were ´over the edge´, and lending multiples were long beyond sustainable. Fuelled by cheap credit, the consumer culture party simply could not continue.
Oyster International had long warned of a UK property ´price bubble´, based on a ´credit bubble´, although I´m not sure anyone quite expected the fallout to be this severe, many knew it would happen. We´ve always believed a 50% correction in house prices was possible, and in some areas this is now looking likely, while other areas show only modest falls and there might be one or two very exclusive addresses which show virtually no change.
So what now? We sit tight and review the markets. Credible forecasts continue to offer a bleak outlook, keep up to date with the news from around the world and snippets of information, which might show us where it all went wrong, in the hope we´ll know when it´s the right time to step back in.
In The News:
Bank of England Interest Rates at 0.5%Following months of cuts in BoE base rates, the MPC hold the base Rate at 0.5%.
Property Values in UK Continue to ´Fall´ or ´Rise´ as the latest data confuses the market.
PLUS
UK Property Price Index Comparison
UK Property Price Predictions for 2009
USA Property News Updated - Half Price Houses Now Reality!!!!
International News including The Wheels Fall Off Dubai.......
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With UK property values falling from very high levels (See UK Property News ) and rental yields underwhelming, where else can you get both Capital appreciation AND positive yielding investment property?
As the Credit Crunch bites into the UK and USA economies, many other parts of the world its business as usual and are even benefitting from the problems faced here.
Whilst global property markets have continued to grow, albeit at a slower rate than before, new destinations are still opening, new Investment packages, unheard of countries appear for the first time on International Property websites and there are areas where bubbles deflated, particularly in markets where prices and supply outstripped demand. See International News
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At Oyster we believe the best ´Sale´ is when the purchaser is still happy to do the sale again! Some might consider this an old-fashioned theory, given today´s high pressure selling and slick marketing programs, making an investment has never been so confusing.
We don´t do expensive Exhibitions or free ´inspection trips´, because in truth, there is no such thing as a ´Free lunch´, the purchaser always pays, either directly or indirectly. Therefore, if you are paying for it, then you deserve honest, reliable service with real ´Value For Money´.
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