With the US subprime crisis spreading to Europe, shockwaves in Northern Rock which would spread to other banks, UK economy growth not looking healthy, increasing trade deficits, sharply rising mortgage costs, falling corporate profits and job cuts especially in the City, and as market turmoils escalates, housing price which shows a first drop of 2.6% (from Rightmove last month), this are the signs of the beginning of a housing crash. PROPERTY SHARES ARE A SELL!

From The Times - January 3, 2008


London prime property market falters - Judith Heywood, Deputy Property Editor

Prices at the higher end of London’s property market, thought to have been largely immune to recent ructions in the wider industry, have suffered their first quarterly decline since 2003.

Savills, the estate agent, has revealed that the price of prime property – that valued at more than £1 million – had fallen by 2 per cent in the last three months of 2007.

The absence of a spending spree by those earning large City bonuses has been blamed for the poor quarterly performance across the prime London market.

Last year, £5.5 billion of the £8.8 billion City bonus pot was poured into homes. This year Savills thinks that only £2 billion, from a total fund of £7 billion, will find its way into the property market.

interestingly, "pukka property" around Harrogate is seemingly still holding up well and selling steadily

tip\for 2011

I have a number of friends either on the tools or running constuction business - all seem to be very busy still (and using Marshalls)...

I seem to remember the last time there was a housing crash the food chain of builders, developers and contractors went to the wall because of delayed or non payment causing a domino effect. I can't pay you because I haven't been paid and so on...

Inflation rate is worst in 17 years - AFX


WASHINGTON (AP) - Higher costs for energy and food last year pushed inflation up by the largest amount in 17 years, even though prices generally remained tame outside of those two areas. Meanwhile, industrial output was flat in December, more evidence of a significant slowdown in the economy.

Consumer prices rose by 4.1 percent for all of 2007, up sharply from a 2.5 percent increase in 2006, the Labor Department said Wednesday. Consumers felt the pain when they filled up their gas tanks or shopped for groceries. Prices for both energy and food shot up by the largest amount since 1990.

In a second report, the Federal Reserve said that output at the nation's factories, mines and utilities showed no growth in December, adding to a string of weak economic reports showing that the economy was slowing at the end of last year.

The unchanged output in December was the poorest showing since industrial output actually fell by 0.5 percent in October. Output had been up by 0.3 percent in November.

The December weakness reflected flat output at U.S. factories, a tiny 0.1 percent rise in the mining industry and a 0.2 percent drop at the nation's utilities.

The Consumer Price Index rose by 0.3 percent in December, slower than the 0.8 percent in November, as food costs were flat for the month and energy prices rose by 0.9 percent after an even bigger 5.7 percent jump in November.

Outside of food and energy, inflation rose a more moderate 0.2 percent in December. This measure of core inflation rose by 2.4 percent for all of 2007, down slightly from a 2.6 percent increase in 2006.

The Federal Reserve is closely watching to see whether the jump in food and energy becomes more widespread and starts pushing core inflation higher.

From The Times - January 16, 2008

UK house price decline worst since 1990s slump

New figures suggest the housing downturn is gathering pace as unsold properties build up and surveyors' confidence falls - Grᩮne Gilmore and Gary Duncan

Falls in house prices across the country may now be at their most severe since the property slump of the early Nineties, according to bleak figures today suggesting that Britain's housing downturn is gathering pace.

A highly influential barometer of housing market conditions reports this morning that 49.1 per cent more surveyors found that house prices fell last month than saw them rise.

The gloomy result is the worst since November 1992 in the closely watched poll carried out by the Royal Institution of Chartered Surveyors (RICS), when this negative balance fell as far as minus 60.1 per cent. December's figure compares with a negative balance of 40.6 per cent of surveyors who reported that prices were on the slide in November.

With virtually every other reliable indicator of the housing market also pointing to grim conditions and falling prices, today's RICS report will deepen already intense gloom over prospects for homeowners this year.

Housebuilders were in full retreat after broker Dresdner Kleinwort downgraded Persimmon and Taylor Wimpey, saying both stocks should be sold. Among the second-liners Barratt Developments was also weaker after Dresdner Kelinwort reiterated its "sell" recommendation, while Bovis headed lower after Dresdner changed its stance to "sell" from "reduce".

UK house prices slump - MoneyAM

Halifax has reported UK house prices registered their biggest monthly fall in over 15 years in March.

Halifax, which is part of the HBOS banking group, the country's leading mortgage lender, said today house prices dropped 2.5% month-on-month, the biggest fall since September 1992 and much worse than the 0.4% fall analysts had expected, following February's fall of 0.3%.

The average house price in the UK in March was ?91,556, down from February's ?96,649, Halifax said.

In annual terms, March's prices slowed to a quarterly rise of 1.1% from February's 4.2%. The March increase was the smallest since March 1996 and below analysts' forecasts for a 2.3% rise.

House prices fell 1% in the first quarter from the previous quarter, the biggest fall since the second quarter of 1995.

'Overall, we expect there to be a modest fall in UK house prices this year,' said Martin Ellis, chief economist.

However Ellis added that any declines should be viewed in the context of significant price rises over recent years, adding that housing valuations are being underpinned by a strong labour market, low interest rates and a shortage of new houses.

"housing valuations are being underpinned by a strong labour market, low interest rates and a shortage of new houses."

No shortage of new housing around our way. In fact the enticements are becoming ridiculous. Unfortunately there's no money to be loaned at anywhere near the rates they were.

Low interest rates maybe, but then multiples are way over the average.

... and the strong labour market is probably the only thing holding it all up. Problem is it's a lagging economic indicator and by the time it shows up, we'll be well down.

Interestingly I'm about to start some building work and a couple months ago, 1 guy coming round with his quote actually told me there were builders laying off around here. I live near Edinburgh and that's hardly a place you normally associate with a bad housing market.

Food for thought.

i came back to aberdeen last year and housing was up about 35% in the year.....that was on top of another 30 odd per cent rise prev year.
property has doubled within 3 years in aberdeen.

i saw a 2 bedroom flat......price was 245,000.....haha, u must be joking.
anyway prices quoted, u need to add about 50% here to get property......an estate agent early last year told me on average there were 28 people after a given property.......i wonder what it is now

Oil booming. Lived there 90-96. You wouldn't believe the bargains when I moved there and it was just when the rest of the country was looking peaky. '86 had ruined it. It'll happen again. ;-0

Short term, who knows what is happening.
But who remembers the decade of woe that was the 1970's?
One thing many of us should remember clearly was the queues outside building societys on the first of every month, as young couples wanting to buy their own home queued for very limited funds that the society were able to lend out as mortgages.
You had to be a member and you had an interview as well as an application and by the end of the day, the society had often committed all it could for that month.
We are not going to see that again, but signs are apparant that something similar is happening.
High street lenders are pricing high to deter borrowing. Off street lenders are pulling deals each month as their tranche of lending becomes used up.
Only this morning, one of the biggest off street lenders has e-mailed to say its April money for 90% lending has gone.
The remaining question is whether this is due to demand or low supply. The housing figures suggest supply must be very low, I know demand to be very high, mainly for remortgaging debts.
Where next? It is unlikely we will go back to the days of queueing, but lenders will cherry pick their borrowers more and more until more money is available. The problem with this is tha an estimated 70% of all the population is classed as sub prime from a credit perspective, and without those people being able to join consumerism, consumerism will suffer a long slow starvation.
Doom and gloom? Perhaps. But the silver lining is that capitalism abhors a vacuum and someone will evolve the product to plug a gaping gap. When they do, the surge will be huge.

I agree with you about the gap filling in principle but I don't think this will happen while house valuations remain too high. There is only a credit crisis for riskier borrowers or high geared companies notwithstanding conditions have generally tightened. Its a pity financial institutions did not keep more older experienced staff to hand on a stricter discipline. Well they must all learn the hard way now. Sounds to me hewittalan6 that the government would like to see a giant Northern Rock situation where governments buy up these sub prime assets at tax payers expense. They must be worried about social unrest particularly with so many people threatened with repossession. So much for Brown's stability and the end to boom and bust.

The gap filling principle has been tried once in this round of problems, Gus.
A lender started sourcing cheap money on the Swiss LIBOR, but this has failed. The sign is though that they are already trying. I know of one source where 100% funding is available on a quite risky basis for purchases under value, using newcastle B. Soc and a bridging facility. Scary.
Mervyn King did actually say consideration was being given as to haw to prevent large amounts of repossession and I think this will form from a shift in policy towards lenders having a more difficult ride in repossession proceedings, rather than a government bail out.
I envisage a court approach where the lender has to prove that repossession is the only option on a longer term basis, rather than on the short term basis it currently has to prove.
In other words the current test of there being no likelihood of arrears being caught up in the foreseeable future may drop the word foreseeable and allow defendants to argue that potential changes in circumstances in the more distant future and reduced payments in the present would show a net result of the mortgage not exceeding its original term.
Another possibility is that mortgages come under similar rules to HP, in that when equity achieves a particular % level, the property cannot be repossessed, but remains as security, with interest rolled up or payments made for as long as it takes, at a level set by the courts.
My opinion is that capitalism demands nature takes its course and we swallow the bitter medicine for the good of the economy.

The 2.5% fall is just the beginning

Mr Browns reassuring statement is simply disingenuous. Sure, house prices have jumped by 180% in the past ten years. But this 2.5% fall happened over the course of just one month. If you annualised that (multiply by 12), then that would be a 30% fall in house prices over the course of a year.

Of course, you cant do that the monthly figures are volatile, and I fully expect the Halifax index to see some sort of bounce (or at the very least, a much smaller drop) for this month, simply because the March fall has been so big.

The point is that yes, a 2.5% fall would be containable if that was the end of it. But it wont be. This is just the beginning of the crash. Certainly, we cant expect the government to acknowledge that immediately. After all, it took at least a year and probably longer for the US authorities to begin to admit that there was no end in sight to the house price crash over there. But as that experience also shows, politicians cant prevent bad news from happening simply by going into denial mode.

The bigger lie, however, is a much more fundamental one. Mr Browns statement suggests that the 180% rise in house prices over the past decade is a good thing. Its not. Its a bad thing. And its a bad thing regardless of what you believe has driven prices higher.

If you think that house prices have risen because of a supply and demand imbalance, then it shows that the property market is failing in some way. A rising price in this context warns producers (in this case, builders) that we need more of something (in this case, houses). The fact that prices have risen so far and for so long suggests therefore that our mechanism for satisfying housing demand is sorely lacking. Thats a failure of government ultimately, because it comes down to bad planning and confused building regulations.

If, as we do, you think the rise in house prices has much more to do with the availability of cheap credit, then thats also a bad thing. Because its discouraged saving, and encouraged breath-taking levels of risk-taking behaviour amongst financially nae consumers. I suspect that the carnage set to ensue due to the number of 100%-plus, interest-only and six-times-salary mortgages taken out in recent years will dwarf any mis-selling scandal weve seen in the past few decades. Certainly, I find it hard to believe that the property industry will escape this crash without having stricter regulation imposed on it.

House prices are now falling year-on-year

By the way, not many people pointed this out, but if you look at the raw data, house prices are now falling year-on-year. Halifax takes the three-monthly average and comes up with annual growth of 1.1%. But taking the March average house price of 191,556 alone, reveals a 1.3% fall on March 2007, when the average price was 194,094, and a whopping 4% fall on August last year.

So when the Halifax argues that well see low-single digit price falls this year well, were already there. Are things going to stabilise in the next few months? I doubt it. Expect to see that forecast downgraded to high-single digit before the end of the year

I have a wee problem with the idea of mis-selling and tighter regulation.
It has been argued by many (including a tory investigation into the role of the FSA) that regulation is far too tight already, and is hindering the industry with mountains of unneccessary red tape.
John Redwood argued for more caveat emptor and less big brother.
As far as mis-selling goes, the rigmarole for a broker is painstaking and exhaustive. They are held responsible for investigating the truth behind applications and for assessing a clients affordability. Morally and ethically, how can anyone argue that offering a client a product they have asked for, on the basis of facts they themselves supplied, provided by a lender willing to take the risk, giving the client full written details of the contract prior to their commitment to it and employing a solicitor to check it over can ever possibly be mis-selling!!!!!
It is the typical bullshit of "blame someone else" for my mistakes culture that is going a long way to ruining life.
What next? Car companies sued for mis-selling a 1.6 litre car to someone who only needs a 1.2 litre and have suffered an extra few quid in fuel costs?
What utter crap. I am waiting for the queues of people claiming mis-selling, but that is an astonishing abrogation of their duty to themselves. Anyone taking on a long term commitment of any sort is a fool who deserves all they get if they do it without considering the what ifs of the future.
We happily apply that to the lenders. The borrowers should expect the same response.

hewittalan6 - interesting comment about bridging facility and New.B/Society. Somebody cannot be living in this world. I wonder how wide spread this type of transaction goes on at present against the current background. Scary indeed. I can see where Courts should be used where there is a good deal of equity in the property or a reasonable amount but, presumably where negative equity is concerned,it won't make much difference unless the authorities are prepared to underwrite the bad loans and take on some of all of the risk. I agree with you that capitalism should take its course but, with so many people involved in sub prime the social problem could be immense. Unfortunately, we have not got the right people in government to think the situation through and hopefully something will give and Brown &co are forced to go. A backbench revolt may be the catalyst if things get worse and they start getting worried about losing their seats.

It will be a good test of the independance of the BoE, Gus.
Politics demand a rate cut or two. It can be argued that good fiscal management requires at least to hold rates and there is a good argument for raising them!!
In the long term, I think raising rates would be a fairly good move, as it would strengthen the considerably and interest foreign depositors, and hasten a fall in property prices to more sustainable levels.
Fear of a fall in value is what has restricted lending at least as much as the lack of money, and once that fall is realised lenders will loosen their criteria a little, spurring the market on to a steadier playing field.
I agree though that the socio-sconomic fallout would be too much for a government to weather, so a cut is on the cards, with all this means for simply putting off the inevitable end game.

Tend to agree with you hewittalan6 about interest rates. However, for now at least, the rate set by the BOE seems to have de-coupled from market rates. Presumably this will continue while there is such mistrust between institutional lenders. If BOE lowers rate this week, be interesting to see what market rates do.