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!

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.

There are buyers waiting to pick up bargins in the housing market .

It is not a bargain yet at the moment...the slide is due to happen soon.

Who wants to sell their house 20% cheaper ?

When someone is drowning in debts facing higher mortgage rates, job loses or salary cuts, rising inflation and petrol prices. It is a buyers' market now...you can see that sign boards are staying longer nowadays. And buyers are quoting 15-30% off the asking price as advised by websites.

more interesting would be to pick some property/building shares to short ..... this is not a sector i have ever followed, so would appreciate any thoughts

No idea which companies may be most affected, but many lenders have lowered their maximum loan to value deals on all new build properties and flats.
It therefore follows that builders aiming at affordable housing for first timers will be hardest hit (unusually) as these are exactly the type who usually have little deposit, and there is less room to mess around with prices and part exchanges, due to lower margins.
Strange, but the impact looks to me to be at the lower end, rather than the luxury end that often gets walloped.
Barratts, Wimpey etc?????

i can tell you that even the high(er) end has stagnated somewhat or at least faciful prices are no longer being achieved nearly so readily

Agreed. But we are talking of the builders, not the general market.
With high end propertied with fanciful prices there is enough margin to package up a deal involving a part ex or assisted sale, which can then take a gifted deposit at a high LTV, as it is not a new property.
Industry estimates are for 70% of people being sub prime, yet this market is now restricted in many instances to only 75% LTV on new build property. Essentially this means a large part of the first time buyer market is out of the new build market.
On pre owned property they can still achieve 90% LTV, so the builders can sell them part ex properties in order to get the part exers into their new and badly overpriced home. For me, it follows from this that the hardest hit will not be the builders doing 5 bed country piles, but the ones building tiny 2 bed townhouses on brownfield sites.
Just a thought. Lets see what happens.

i think you are right

I think the next move on intrest rates will be a cut . There is an idea that , to sell and rent for a period will be a good plan . This will push up rents and make BTL a good thing again , and there are investors waiting .

Word of warning.
Sell and rent has always been a lousy high risk plan.
When one takes into account estate agent fees, HIPS fees, stamp duty, legal costs, moving costs, mortgage fees, valuation fees and rental costs, one would have to see a crash of 20%+ to make it profitable at all, and there is no guarantee of either that, or being able to pick both top and bottom and getting a property where you want to live.

i am far from convinced that UK will cut rates in the near future .... there seems no pressing reason and indications are that europe is more likely to put them up.

concur with Alan ...... playing your house like a share trade makes no sense at all

Interesting research out today.
The good old north / south divide is back in business.
There is a long history of the north being a far more stable housing market than the overcrowded south, so perhaps the northern housebuilders may suffer less than their southern counterparts.
This is in % terms of course, but a (say) 10% downturn on a 250k house is still more off the bottom line than the same downturn on a 150k house. On top of this the south usually suffers a greater % fall (or rise) than the north.
If you must stay in the housebuilding sector, then perhaps the least risky play is for an upmarket northern builder and the most risky is for a low cost southern builder. However they seem contradictions in terms!!

The USA have cut intrest rates , are we going to do the same ?

i would doubt it, for there looks to be no necessity .... in fact the move by Fed could prove to be a poison chalice in the long(er) run with it's inevitable inflationary effect