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!

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

From The TimesNovember 3, 2007

Cracks appearing as bankruptcies riseGrainne Gilmore and Gabriel Rozenberg
The number of consumers becoming insolvent is expected to soar next year after figures published yesterday showed rising bankruptcies and a fall in the use of arrangements to avoid going bust.

Personal insolvencies overall fell in the third quarter by 3 per cent, and were 5 per cent lower than a year ago at 26,072, data from the Governments Insolvency Service showed.

However, accountants said that the figures disguised the problems that are set to emerge in the consumer credit market, which will give people fewer means of combatting debt.

Individual voluntary arangements (IVAs), a form of insolvency that has gained popularity over the past decade, dropped by 14 per cent year-on-year. But the decline comes in the aftermath of an industry-wide squeeze by banks on IVA providers.

Steve Treharne, of KPMG, the accountant, said: This is really a lull in the storm. The traditional ways that people can delay the impact of money worries such as a new credit card or a second charge on their home are gradually being closed off as a result of the credit crunch. This is now a plateau, but all the indicators are that consumers are in for a rough ride.

IVAs, which allow debtors to freeze and sometimes reduce their debt while paying off a manageable sum each month, have been affected by a dispute between creditors and IVA companies. Some creditors believe the fees charged by IVA companies are too high, and have rejected large numbers of IVA applications. Nearly one in five IVA applications are rejected.

Several insolvency operators, including Debt Free Direct, the market leader, have been forced to issue profit warnings this year as banks withdraw their support.

John Hall, chief executive of personal debt solutions provider new-tomorrow.com, said: These figures arent surprising and the underlying position is much worse than the figures suggest.

There is a dam waiting to burst and the cracks are starting to appear. The reason the figures are not higher still is that lenders are making it more difficult for their customers to put a voluntary debt solution in place by insisting on unachievable repayment levels, resulting in significantly more house repossessions.

Mr Treharne said: According to the Council of Mortgage Lenders, the number of property repossessions is likely to rise by 50 per cent in 2008. If people struggling with debt lose their home they often give up and either go bankrupt or enter into an IVA.

Although personal bankruptcies were down by 3 per cent in the third quarter compared with the previous three months, they rose by 2.2 per cent from a year earlier. Some 111,359 people went into bankruptcy or entered into an IVA in the year to the end of September, up 13 per cent year-on-year. Other data showed that about 3,100 companies went into liquidation in the third quarter of this year, nearly 3 per cent down on the number of company liquidations in the same period last year. The number of compulsory liquidations fell by 4 per cent, while voluntary liquidations fell by 2 per cent.

Mike Jervis, partner in the Business Recovery Services practice at PricewaterhouseCoopers, said: Credit has been readily available to corporates until this summer and the downward trend in corporate insolvencies reflects this. However, while companies have so far avoided formal insolvency, less creditworthy corporates are finding that it is increasingly difficult to borrow at affordable rates in the current climate. There is still uncertainty as to how many businesses will fail as a result of the more restrictive credit environment.

Ministry of Justice figures showed housing possession orders rose in the third quarter, to 23,800 from 23,000.