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!

Barratt raises incentives as profits plunge


Barratt Developments, Britains biggest housebuilder, today unveiled measures to kick start the property market as it axed its final shareholder dividend and reported a 67 per cent slide in pre-tax profits.

The group pledged to pay customers stamp duty on purchases up to 500,000 and said it would be launching a part-exchange service normally reserved for the car industry. Anyone looking to buy a new Barratt home can sell their old one to the business at a fair market value.

Mark Clare, chief executive of Barratt, said housebuilders had to offer higher incentives given the considerable uncertainty about the near-term prospects for the sector.

He said: We know from research that our customers want low moving costs, help in selling their existing property, and more certainty over the price of their purchase."

The poor health of the market was reflected in full-year profits from the group today. The heavily-indebted housebuilder, which has spent the summer struggling to put its finances on a better footing, scrapped its final dividend and made writedowns worth 208.4 million on its land and commercial developments.

As a result, pre-tax profit for the 12 months to June 30 fell from 424.8 million last year to 137.3 million. Like its rival, Redrow, Barratt is paying only an interim dividend. Investors received a 12.23p per share payout in May.

The housebuilder, Britain's biggest by volume, said that margins, which have halved during 2008, would continue to slide in 2009, while forward sales in the past four weeks were down 30 per cent on the previous year.

Full-year revenues rose 16.7 per cent to 3.5 billion but like-for-like completions fell by 13.8 per cent.

From Times Online October 31, 2008



US confidence falls at biggest rate in 30 years Tom Bawden, New York


US consumer spending fell for the first time in two years in September as the weakening economy prompted the biggest decline in Americans confidence in at least three decades and reduced their ability to finance the purchase of goods and services.

The 0.3 per cent decrease in consumer spending in September was the biggest decline in three and a half years and came after two consecutive months of flat expenditure, according to new figures from the Commerce Department.

Weak spending looks set to continue as separate data indicated that consumer confidence recorded its biggest decline in October since monthly data began in 1978.

The Reuters/University of Michigan index of consumers sentiment dropped from 70.3 in September to 57.6 in October. The measure, in which the larger the number. the greater the confidence, averaged 85.6 last year.

In a further dose of gloomy economic news, the Institute for Supply Management-Chicago reported that its index a gauge of employment and demand fell from 56.7 in September to 37.8 in October.

From The Times November 3, 2008


Three million homeowners face negative equity trapGary Duncan, Economics Editor

Three million homeowners, or more than a fifth of households, could end up in the trap of negative equity, with mortgage debts larger than the value of their property, as house prices continue to plunge, new City estimates show.

Bank of England calculations that the numbers caught in negative equity could soar from about half a million at present to 1.2 million by 2011, are seen as too optimistic in the bleakest assessment yet of the threat.

Michael Saunders, of Citigroup, says that the Bank's estimates are too optimistic since they are based on a survey of households where homeowners are asked for details of their own debts, financial assets and property value. Mr Saunders points to previous Bank research which showed that individuals tend to overstate the value of their homes by up to 20 per cent, and understate debts by 10 to 15 per cent.

Adjusting for this bias, he calculates that a likely further drop of 15 per cent in house prices on top of the 15 per cent slide over the past year will leave between 2.5 and 3 million homeowners in negative equity. This would exceed the peak of 1.8 million, the number of people who were in this predicament in the early Nineties.

Mr Saunders gave warning that negative equity will leave millions of people reluctant to spend and deepen the painful, consumer-driven recession that most of the City now expects. Widespread negative equity is likely to exert a lasting drag on spending as households save more, while also hitting the credit quality of lenders' assets and adding to the caution over high debt levels among both lenders and borrowers, he said.

Worries over the scale of the housing slump were reinforced on Friday as the latest snapshot of conditions in London from Knight Frank, the estate agent, showed that prices in the prime residential areas of the capital fell by a record 3.9 per cent last month.

The City is on alert for Thursday's interest rates verdict from the Bank's monetary policy committee (MPC). A cut is seen as a certainty, with a majority of economists expecting a further half-point reduction to match last month's emergency move, and take rates to 4 per cent.

Some believe the MPC will be bolder, and order an unprecedented reduction of 0.75 percentage points, or even a full point as it steps up its efforts to prevent a deep recession. On the same day, the European Central Bank is also expected to cut eurozone interest rates by a half-point.

Pressure on the MPC to deliver an aggressive rate cut will be increased this week as a spate of dire results from corporate Britain is expected to emphasise the impact of the economic downturn. First-half sales at Marks & Spencer are tipped to be the worst for three years, while British Airways' half-year results on Friday are expected to show the impact of sliding demand and the past surge in oil prices.

Is it any wonder all these folk go into negative equity? You borrow 6x your salary to take out a 125% loan in an already over-inflated market.

It was bound to end in tears and I've no sympathy with th ose borrowers who got themselves into that position nor with the banks who ran around with their heads up their rear ends for far too long.

Long may this downturn continue IMO. A lifelong lesson is being learnt by those who need it.

Which is fine Al as long as you are not one of those people who are facing eviction and all that goes with it (I am not). Although one and all have a responsibility to ensure mortgages can be paid, whatever happened to the fiscal responsibilites of banks who should have ensured that borrowers could make their repayments? I think you must have a brick on a string for a heart mate ;-)

pth

I agree, as noted above, that the banks have a huge role to play in this, but it seems everybody is trying to lay the balme solely at their door. As individuals we all have a responsibility to monitor where we are financially and far too many have neglected that for the sake of having all the material things they really could not afford. I mean some folk must have been struggling to pay 6x for a start even at the lowest interest rates. They were purely greedy and blinded by that.

They were living a dream and eventually we all wake up.

I'm sorry, but you make your own bed in life and to blame others for stealing the covers is an abdictation of responsiblity IMO. That's all I'm saying.

In the early 80's, Maggie said we should take a dose of medicine. In the late 00's, another dose is here to be swallowed and it'll take a few more spoonfuls yet!

It's not all doom and gloom . Not sure how the Dinar has fared but can't be much worse than the pound.http://www.rte.ie/news/2008/0916/baghdad.html

There is really no hurry to buy a house now...especially the first-time buyers, just wait for another 6-12 months and you will get a better bargain.



House prices still falling fast


House prices fell another 2.6% in November, the Halifax says.

According to its latest survey, that increased the annual rate of house price falls to 14.9%, as against the 13.7% rate in the 12 months to October.

The Halifax said the average property in the UK was now valued at 163,605,
a level last seen in July 2005.

Last week, the Nationwide building society said the pace of house price decline had eased off, with prices down 13.9 % in the year to November.

But the Halifax figures suggest that house price falls are accelerating.

"The combination of high house prices in relation to earnings, constraints on householders' incomes and spending power, and the decline in the availability of mortgage finance since the summer of 2007 has curbed housing demand," said the Halifax's chief economist, Martin Ellis.

The mortgage lender calculates the annual rate of decline by comparing the average house price over the past three months with the average for the same three-month period the year before.

A straightforward monthly year-on-year comparison suggests that prices may have fallen even faster, by 16.1%, although the lender argues that this approach can be distorted by short-term price fluctuations.

The Halifax's survey suggests that the average house price has now dropped by 31,485 in the past 12 months.

Mr Ellis said there were indications that sales, if not prices, had bottomed out.

"The number of mortgages approved to finance house purchase was broadly unchanged for the fourth successive month in October at a seasonally adjusted 32,000," he said.

"The recent flattening off in approvals suggests that housing market activity may be stabilising."

However, there are widespread fears that the current rationing of mortgages will become even worse in the coming year, unless the government's efforts to overcome the crisis in the banking industry and to revive mortgage lending come to fruition.

The Council of Mortgage Lenders (CML), among others, has warned that new lending may be negative in 2009, for the first time on record.

That means that there could be so little new lending by banks and building societies that it would be outstripped by borrowers paying off their mortgages.

That in turn would means sales falling even further, putting further downward pressure on prices.

The Halifax will be publishing its formal house price prediction for 2009 later this month.

"We have said we were comfortable with the consensus that prices would fall by about 20% over the course of 2008 and 2009," said Mr Ellis.

"But we do need to look at that again," he added.

Other commentators have already suggested that prices will continue to fall fast, with some suggesting they could drop by another 15-20%.

"The speed at which this housing market correction is unfolding, already the fastest on record by a country mile, is likely to step up a gear over the coming months," said Seema Shah at the consultancy Capital Economics.

"We think that we are only half way through this correction."

House Prices decline 2.2% in December - MoneyAM


Average UK House prices fell by 2.2% during December, according to the Halifax Building Society. House prices nationally are now 16.25% lower than 12 months ago.

Halifax says that the house price to earnings ratio is at its lowest for five and a half years. At 4.44, this is the lowest since April 2003 but is still above the long term average of 4.0

Repossessions almost doubled in the three months to September last year, according to the City watchdog.

Figures published today by the Financial Services Authority (FSA) show 13,161 homes were repossessed by mortgage lenders in the third quarter of last year. It represents a 92 per cent jump on the same period in 2007, when fewer than 7,000 householders lost their homes.

The FSA also warned of a sharp rise in the number of homeowners who have missed at least one mortgage repayment. It said 340,000 borrowers were in arrears at the end of September, a 24 per cent rise on the same period in 2007 and a ten per cent rise on the previous quarter of last year.

The proportion of total mortgages in arrears rose to 2.92 per cent, up 0.79 percentage points on the third quarter in 2007. The figures, which were compiled by the FSA using data from 300 mortgage lenders, paint a worsening picture of the UK housing market.

ttt

Mixed signals abound. We're still in the bull trap for me.

"Roger Bootle, managing director of macroeconomic research consultancy Capital Economics: 'Houses would still look expensive if rates hit average levels of around 6-7%. The average house price to earnings ratio is now still at the previous all-time peak seen in the 1980s, even after recent falls, so house prices have some way further to fall.'

I agree totally with Mr Bootle. ;-))

You could possibly argue a number of other markets are in the same bull trap too.... That's normally the nature of the beast though... one last chance to loose your money before the jobs done..... :-)

Strawbs.

Arrears rocket but lenders hang fire on repossessing properties

Strawbs - I'd heartily agree. We've probably got some way to go in this recession IMO.

Interesting article, skinny. Wonder what happens when the housing market drops another 25% or so ........................... and there's a strong possibility it might very well!

I think many markets were (still are) over levered. The first wave took out those on the edge. Governments slashed rates and printed money to stop things spiralling out of control. They've bought some time, but that's probably all. I get the feeling it just needs something to set the ball rolling again.

Strawbs.

Very true IMO, Strawbs.

I had a look on the Nationwide website today at mortgage rates. Their 5 year fixed if you have 25% deposit is 5.98% and for 15% deposit 6.88% for new borrowers. That's more than it was when BoE interest rates were 5%. What's more the arrangement fee is 995!!

Problems are two-fold: Few people have the size of deposit required and they cannot get the multiples they once could. These two dampeners must lead to price drops from here of fairly substantial proportions.

Finally, I truly believe the buy-to-let market will never return to its heady heights in my lifetime (and I've just turned 50 this year!).

Old fart - me too in three weeks :-(

s
dont know if you have children or not, anyway it matters not, you do realise that the thought of you ' doing it' is revolting to them, surely you is too old? its only for us youngsters dont you know? LoL never too old . maybe they will learn one day? us youngsters always think the same until suddenly we realise we aint so young anymore.
btw im older than the pair of you.(not jointly i hasten to add) but if i were then lucky me on more than one count.LoL
regards
jkd