GOLDMAN 555

Here is the latest article predicting a crash. I given up hope with it happening if it was going to happen it would have happened by now.




He’s not sure of exactly when the slump will come, but seems to think it’ll be pretty soon - “it could yet be one or two years away”.
Of course, Mr Miles’s observation has been received with the usual barrage of denial from estate agents and property pundits. Even the BBC somewhat strangely opted to report his prediction for “a substantial fall in real house prices” with these words: “A former government advisor… says house prices will soon slow down so much they lag behind general inflation.” That’s a very relaxed way to describe what in any other market would be described as a crash.
But anyway - back to Mr Miles. Speculation is certainly one reason for house prices soaring - but of course, if people didn’t have the means to keep buying houses, regardless of how expensive they are, prices couldn’t rise any further. So a trading update from sub-prime lender Kensington Group shed a particularly well-timed shaft of light on the market yesterday.
The group’s shares were the biggest losers in the FTSE 350, plunging 100p to 805p, as it warned that profits would be at the lower end of City forecasts, while profit growth in 2007 would fall, due to "intense" competition in the market.
Kensington lends to those with poor credit records, and people who can't provide evidence of a steady income history, such as the self employed. So the customers are already higher risk than those most lenders are dealing with - so you‘d think that taking a cautious approach to lending to them would be only sensible.
But it seems that Kensington's standards are just too high. Chief executive John Maltby said: "We do not lend at high income multiples and our loans are low compared with the value of houses. What we are facing is increasing competition and that is what people are responding to."
In other words, 'other lenders are willing to give more money to less creditworthy people than we are.'
Kensington's problems provide the clearest illustration of just why the housing market has sustained its growth for so long. In this market, the lender willing to take the most risk wins - in the short term. And as the short term is pretty much all investors care about (as least until everything goes pear-shaped, and they start to ask why no one was keeping a better eye on who they were lending to), banks and companies like Kensington have every incentive to relax their borrowing criteria, and very little reason to worry about what would happen if house prices, say, fell 40% - as the Financial Services Authority recently warned banks should be planning for.
So what’s Kensington doing about the competition? Well, Mr Maltby reckons its ’second charge mortgages’ - those second mortgages constantly advertised on daytime TV which are often used as ‘consolidation loans’ to pay off other debts - is the way forward.
“This is higher risk. But it is also higher growth and offers higher margins… we believe we have good, strong prospects.”
But the trouble is, as James Hamilton of broker Numis told The Independent, that “this strategy with its super margins is ideal while property prices rise. The real risk is property price deflation removing the collateral supporting the loans. Should this happen, the loan impairment charge would explode.”
In other words, Kensington can be fairly free and easy with lending on second mortgages while property prices are rising, because if people default the company can just repossess the house and have at least enough to cover the loss. But if house prices start to fall, then the company effectively loses its security - and if a customer defaults, there’s no chance of covering the losses.
So effectively, buying stock in Kensington is taking a massively leveraged bet that house prices will keep rising. It’s not a bet that we - nor David Miles, we suspect - would recommend you take.

Jerome

I've no doubt that the SN housing market experts will be along in a minute to rubbish that article...

apples24

iTrader: (1)

simple economics m8 house price rises are exceeding earnings only a matter of time

pslewis

I must admit to thinking a drop would happen a couple of years ago ..... it didn't - and I was amazed at the climb which is based on money that is simply not there, but its happened.

What will happen now?

Well, I was wrong then - so, I could be wrong again ...... but, humour me .... money is getting more expensive (a lot more expensive as a % of the old lending rates).

Houses are sitting at the highest earnings/average price ratios than at any point in history.

Buy-To-Lets are now not making the money they were and will come to the market.

The buy-to-let houses on the market will alter the supply/demand balance in favour of the buyer .... and at that point the scales tip remarkably quickly and a crash happens.

I have been wrong before and I could well be again ..... the difference now is that money is going to get ever more expensive.

stevebt

iTrader: (8)

house prices wont drop as the price of land is rising quickly, they may stabalise but they wont drop a big interest rate may mean people willing to take a bigger loss but that wont happen for a while

apples24

iTrader: (1)

bit of a silly comment that if house prices stop rising why the hell would yo want to buy a house strapping yourself up paying mega interest lol

Deep Singh

WTF kind of gibberish is that?

stringvest

why would pepole want to buy houses if they werent an investment? if prices stay the same theres not much point buying one i think thats what hes saying

Jay m A

iTrader: (2)

So is renting an investment?

If prices stay the same?, or fall? - for how long, 20 months or 20 years?

There is not much point in buying one if you can't afford it, but in terms of short term affordability there is not much point in buying if the rental price on a property is higher than repayments - which is all down to individual finances.

Also a lot has been said that house price increases is all on paper - nobody sees the money unless you downgrade or get out, but don't forget the 1 in 3 divorce rates that releases a lot of property cash and at the same time keeps producing 'FTBs'

MattW

House gone on market, looking to buy a new one that will be released over next 12 months, will have to rent for a short time......you never know

pslewis

This is a very important and relevant point ...... for every large family house there is the potential for 2 small houses wanting to be bought upon divorce!

And, this, I believe is a major driving force at the lower end of the market and one which holds prices too high for the young FTB.

pslewis

Leslie would like to say something:-

https://www.scoobynet.com/non-scooby...ml#post6386708

Abdabz

I wouldnt go to court about the car... I'd wait until house prices crash and then look at the silver ford galaxy ad on ebay, I've been caught doing 80 past a school at 3pm and go to pepipoo etc...

Leslie

Looks like my thread identification is as good as my typo's.

You should have quoted what I said PSL, cant be bothered to repeat it now.

Les

pslewis

I could have ... but that wouldn't have been so much fun for the rest of us, would it now??

lozgti

Always the same people.

Is any other country surviving on false house prices and big debts?

Or is it just UK residents that are a bit thick?

Monkeybone

hope not, just buying our first place now :/

Petem95

Yeah the same things happening in the US and theyre surviving it.... oh no hang on theyre not... house prices are currently crashing there, bringing down the dollar with them.

And the UK housing market generally follows the US market by 12-24months. Time will tell I guess..

Ted Maul

have to disagree as there are many factors as to why the US housing market differs from ours, land for one.

as for a crash, as soon as people become comfortable in the fact that all the predictions of crashes have been false, and when most people think there wont be a crash..thats when it may happen.

my view is a series of stagnation periods, with yearly prices dropping maybe 5% for maybe 3 or 4 of the next 7 years, with small gains in between. the net effect is a nice adjustment in pricing without a 'crash'

lozgti

I think Mr Rees Mogg makes very good points.

Seems the Cycle is approx 20 years.Last peak with 6x salary problem was early 90's

What happens when house prices collapse? - Home - Times Online

ChrisB

Funny how Mr Miles predicted a 25% fall in house prices two years ago. Must use the same strategy as Mystic Meg did for the lottery numbers...

Petem95

I suppose by their very nature predictions are never totally accurate. If you could make accurate predictions you'd be a rich man... and this guy is because he does make accurate predictions - but as you point out Chris he doesnt quite have a 100% success rate!

lozgti

This made me smile...from the Wikipedia piece on 'housepricecrash' site

"The forum is moderated by a small group of users. At times, the moderators have banned users or relegated them to a "troll" sub-forum. An Internet troll is someone who tries to disrupt a forum and this minimises disruption to forum users. All trolls are estate agents as no-one else could believe that house prices are going up."