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!

oblomov ..... you contradict yourself ..... unless Alan tells me off yet again yet again, negative equity arises because your house price has fallen below the price at which you bought, not because mortgage rates rise ...... the latter might well hurt badly, and you may be forced to sell, but that is not the same thing.

you then continue correctly, by agreeing that over time, especially in UK, "prices always have regained their past levels after a drop and soared past them".

Agree cynic, though I dont think I contradicted myself. I didn't make myself clear. What I should have said was that negative equity is only a problem if you have to sell and that usually happens because of the mortgage rate rise because borrowers didn't account for the fact that the mortgage rate can rise! They borrow what they can afford at the current interest rate, not what they could afford if it goes up a couple of per cent.

Partly the lenders fault - they used to build in a margin so thet borrowers could afford a rise. Now the onus is on the borrower to do it themselves, and greed often prevents them from doing so.

Had an estate agent round today out of interest, they valued it 40,000 less than the last agency to my surprise and said that a lot of people had put their homes on the market before the hips came in, then again never trust an estate agent!

certain companies - e.g. S*****'s - are known to over-value so they can get the house on their books ..... when it does not sell at their initial vakuation, they will suggest reducing .... verges on sharp-practice

Amazing how we copy the Dow verbatim whilst theycould not care less if we descend into a sub prime we truly are the 51st state without the benefits

OO's

This will not be good news for house prices and property shares....


BoE looks reluctant to reduce interest rates just yet - AFX

LONDON (Thomson Financial) - The Bank of England looks no closer to cutting interest rates than it did at the start of the month, if governor Mervyn King's words today are anything to go by.

Since the start of the credit crisis this summer and the recent deterioration in overall liquidity conditions, marked by the Northern Rock debacle, economists have been slowly moving towards pricing in a rate reduction. Some have even called for a cut as early as November.

But in an appearance before a parliamentary committee today, King was adamant, saying the option of cutting rates at the first sign of trouble is not the way to go.

'King is finding it very hard to conceal his true colours as an extremely conservative monetary hawk,' said David Brown at Bear Stearns. 'Short sterling futures are reining in some of the optimism for easing after King dampened expectations for any near-term cut in rates.'

Matthew Sharratt at Bank of America echoed this view. For him, King's statement the central bank will not be taking short-term options was crucial.

Comments from other ratesetters at today's hearing also appeared to indicate support for King's view. Kate Barker, the resident housing expert, said UK mortgage repossessions are 'not alarming'' despite recent rises in defaults, adding the housing market remains 'relatively robust.'

Meanwhile, Andrew Sentance said it is too soon to see adverse effects of the crisis on the wider economy.

Today's data also proved supportive. Retail sales in August did not fall as some had feared but rose somewhat strongly for a second month. Money supply was also back at levels not seen since May.

The underlying trend in retail sales remains robust, said Sharrat at Bank of America.

Even housing market data came in strong, with the British Bankers Association's key mortgage lending figure topping 6 bln stg in August, up on 5.8 bln in July and just a shade under the 6.2 bln stg record set in November last year.

'With King arguing that the BoE should not be taking easy, short-term options and retail sales and M4 money supply data for August coming in on the strong side, the chance of a near-term rate ease from the BoE next month still looks small,' said Sharratt.

But these figures are partly backward-looking and it is very hard to see the UK economy escaping unscathed by the confidence-denting events of the past few weeks. In particular, the drying up of liquidity in the interbank market, the highly public nature of the run on Northern Rock and the emergency measures taken by the government and the BoE may exact a toll on consumer confidence.

The financial sector, for one, may see business slow slightly, leading in turn to a smaller contribution to services sector growth.

Already some observers are downgrading UK growth prospects next year.

Lehman Brothers has revised downward its forecasts for UK GDP growth in 2008 as a result of the financial market turmoil. The US investment bank said it is now forecasting GDP growth of 1.7 pct in 2008, down from its earlier forecast of 2.3 pct.

Michael Saunders at Citigroup pointed out the longer the strain in the money market runs, the greater the likelihood of a rate cut in the UK. But the BaoE also has another option: lowering the standing facility lending rate, which now stands at 6.75 pct, he added.

For Daragh Maher at Calyon, the general observation among the ratesetters that it is still too early to gauge the economic effects of the recent credit crisis suggests a wait-and-see period where the BoE will hold off cutting the base rate, even if it offers additional liquidity to money markets.

By Sivakumar Sithraputhran; sivakumar.sithraputhran@thomson.com

i'd sell ya houses and buy back 50% cheaper next year...almighty crash coming

Well, that confirms it then. Maestro said so.

Wolseley is a very good one to short now...short today at 820p.


Wolseley profits slide - MoneyAM

Wolseley said FY pretax profit fell from last year, hit by its exposure to the gloomy US housing market.

The group said there are no signs yet of any upturn in the US housing market.

In Europe, Wolseley said underlying fundamentals of the construction markets remain sound, and its operations are expected to show further good progress.

'Europe continues to progress, achieving strong profit improvement and benefiting from acquisitions during the period, whilst in the US we have been fast and decisive in reducing our cost base in reaction to deteriorating market conditions,' CEO, Chip Hornsby, said.

The building materials and plumbing supplies group said pretax profit before exceptional items was 758m, compared with 817m last year, and pretax profit also fell 17.6% to 634m.

In North America, the results were also adversely affected by price deflation in lumber and panels, weakness of the dollar, and one-off restructuring costs, the company said.

The company added that Wolseley UK grew strongly in a market which showed a gradually improving trend over the year, despite rising interest rates.

The commercial and industrial market should remain positive, albeit at lower rates of growth, the company said.

Sales for the year ended July 31st rose 14.6% to 16.22bn from 14.16bn, the company said.

Irrespective of market conditions, the group said it will look out for acquisitions.

The company also lifted its full-year dividend by 10.2% to 32.4p.

Don't suppose anyone will be surprised by this:

BBC News: Borrowers told to lie about wages

Strawbs.

Fall In House Prices Speeds Up
[ October 11, 2007 ]

By Serena Cowdy

House prices are falling at their fastest rate for two years, according to the latest figures from the Royal Institution of Chartered Surveyors (Rics).

The survey shows that in September, 14.6 per cent more surveyors reported a drop in house prices than reported a rise. This is a big jump from August's figures, when just 3.3 per cent more reported such a drop.

Surveyor confidence in both sales and prices took a knock in September, reaching their lowest levels since March 2003 and May 2005 respectively.

The number of new buyer enquiries dropped - for the tenth month in a row - and at the fastest pace since March 2003. Rics also states that in every area except London, the number of properties coming onto the market fell, for the fourth month in a row.

The group said the fall in buyer confidence was largely the result of the five interest rate hikes since August 2006, along with stricter mortgage lending criteria on the back of the recent global credit crunch.

Jeremy Leaf, a spokesman for Rics, emphasised that despite the drop in prices, "the underlying economy remains strong" and said that a major correction in the market "seems unlikely" while economic growth and employment conditions remain in good health.

There were also significant regional variations in the September figures; while the largest price falls were seen in East Anglia, Wales and the Midlands, smaller falls were reported in the south-east, south-west, Yorkshire and Humberside and the North West - and Scotland and London still saw prices rise.

However, buyers have good reasons to be wary. Earlier this week, the Council of Mortgage (DMBK.TA - news) lenders (CML) said that interest-repayment burden on first-time buyers was the worst it's been for 16 years.

It seems that the nation's house-buying fever is cooling.

house prices could not keep rising exponentially, but a breather or retrenchment, even for a year or two, is a long way from a property slump.

i know for sure that in Yorkshire, at the upper end of the market, sales have become sluggish - i.e. good properties in the right location and at the right price still sell easily enough, while those with more fanciful ideas continue to sit and wait ..... and wait and wait

Cynic, I thought u said that house prices would not drop...guess u have now changed your mind.

they may drop a bit, especially sectors like buy-to-let and similar, but i do not believe that there will be any significant overall drop especially in the quality market ..... do not confuse an inability to get a fancy price with a fall

well said Richard, the thing is there are stacks of over-priced houses on the market and it is these people who realise now they have to be sensible and reduce their prices if they are serious about selling, that are causing prices to look as though they are dropping, as you rightly said a quality location will always sell as will a well presented or re-furbed house at the right price.
People forget interest rate increases take several months after to take effect, the BOE were wrong two years ago to drop from 4.75 down to 4.5% it only accelerated price growth and caused more of a headache for now, i think they were right to increase to current levels, and have probably found they might have caused a bit too much of talk of a slow down, i'm certain we will see a rate decrease by early next year, which should keep the market bouyant...

I am completing next week on a purchase i made at auction two weeks ago, just a quick refurb, i noted the projected increase quoted on the mortgage if a full percent increase of 80, so that is just 20 for a quarter rate rise.... wow 5 a week, if it happens i guess i better not have that extra pint and a quarter when i go out then...:)

Moody's Investors Service on Thursday cut its ratings on home builders Centex, Lennar and Pulte Homes to junk status, saying it expects bleak housing industry conditions to linger at least until 2009.

The downgrades affect about $9.4 billion of debt and $3.25 billion of commercial paper authorizations, Moody's said.

Key problems facing homebuilders include rapidly declining orders, high housing inventories, disruptions in the mortgage market and heavy cancellations, Moody's said in a statement.

Affordability issues are also weighing on key markets while confidence is ebbing among potential homebuyers, Moody's said.

It will be challenging for the three companies, as well as for much of the entire industry, to stay in compliance in the coming year with debt leverage covenants, the rating agency said. Covenants are restrictions in borrowing agreements.

From The Times - October 18, 2007

UK house market is heading for crash - Gary Duncan, Economics Editor


The property boom of the past ten years has left the British housing market in danger of following the slump in American house prices, the International Monetary Fund said yesterday.

In a bleak warning, the IMF found that homes in Britain were overpriced by up to 40 per cent far more than the overpricing in the US before the current property slump began there. The finding will fuel fears over housing market prospects after growing evidence recently that prices have already begun to fall in some parts of Britain.

The warning came as it emerged yesterday that the Bank of England discussed whether to lower interest rates this month to shore up Britains growth. But there was substantial reluctance among the Banks Monetary Policy Committee to rush into lowering borrowing costs, with only one of the nine-strong panel voting for a rate reduction.

The IMF report said: The extent of house price overvaluation may be considerably larger in some national markets in Europe than in the US. The estimates suggest that a number of advanced economies housing markets outside the US could be vulnerable to a correction.

House prices in Britain now stand at about nine times average annual earnings up from about five times in 2001. Average national house prices have risen threefold since the early 1990s, from about 60,000 to about 200,000 now.

In its twice-yearly report on world economic prospects, the IMF warned Europes governments that the tighter lending conditions for homebuyers caused by the worldwide squeeze on credit could lead to a serious correction in excessive house prices.

The steady increase in interest rates has already contributed to some cooling of these housing booms, and recent developments are likely to have a further dampening impact, it said.

The IMF, however, did qualify its pessimism, saying that there were considerable uncertainties in its model, which did not take in key factors in Britain such as shortages of supply, boosts to prices from immigration and greater affordability due to the availability of mortgages.

Segro has been a good shorting for me...I think this will go to 400p.