No Bubbles here… Move along!

[gurusid]

Hi Folks,

Ok, here’s a point of debate; how does this end? No I’m serious. Its fairly obvious to me now that ‘prices’ of UK property will never come down (to affordable levels). Just not gonna happen. We (UK) are not Japan, with its insular industrial superpower economy. We (UK) are part of the largest economic block on the planet. Also the UK has opened its doors not just to the EU but to the world. £37 Billion has been ‘injected’ into the London property market in just seven years:

By Lana Clements | Yahoo Finance UK – Wed, Oct 16, 2013 17:50 BST

No stairs and square rooms only: Demands of the foreign buyers pouring billions into London’s property market

A whopping £37 billion has been poured into London property from overseas over the past seven years, but just who are these buyers and what do they want?

More than half of London’s £1 million property is now being bought by foreign buyers. In fact, overseas money now gobbles up nearly two-fifths of resales and almost three-quarters of new-build property on the market in prime locations.

This astonishing appetite for London addresses has seen a staggering £37 billion injected into London’s prime housing market in just seven years, figures from upmarket estate agency Savills show.

Given that it is now as ‘economically feasible’ to commute from Barcelona in Spain:

Yahoo Finance UK – Fri, Oct 25, 2013 09:19 BST

Cheaper to live in Barcelona and commute than rent in London

How one man worked out he’d be better off living in a three bed apartment in Barcelona AND commute to London than rent a one-bed flat in the capital.
When Sam Cookney declared that it was cheaper to rent in Barcelona and commute to his job in London, his friends thought he was exaggerating, but it turns out he was bang on the mark.

The staggering costs of renting in central London, means it can actually be cheaper to rent and commute from the city of sun, sea and sangria – and live in a more spacious home to boot.

“I thought at least it would require some poetic licence or dodgy sums,” said the 30-year-old, who currently flat shares in Shepherd’s Bush. “But the only assumption I’m making is that I work a four-day week in London, with a day at home (i.e. Barcelona).”

Will that trend take off or will the continued ‘influx’ of of both foreign investors and workers and the shortage of affordable homes just see those with money buying and forcing everyone else to rent at extortionate rates? Given that once council owned property that allowed those with low incomes an affordable home are sold off to refurbish an ever dwindling stock:

Press Association – Sun, Oct 27, 2013 03:45 GMT

£2m council home goes under hammer

A London house believed to be the most expensive council home sold will go under the auctioneer’s hammer tomorrow.

The 200-year-old building, which is around the corner from the fashionable Borough Market and is on the south bank of the River Thames, is being sold by Southwark Council and comes with a reserve of £2.3 million.

The Grade II-listed building needs extensive repairs and refurbishment, but despite this experts said it could fetch far more than its asking price because of soaring demand from private buyers and developers keen to purchase a rare family home in the heart of the capital.

The Labour-controlled authority plans to use the millions raised from the sale to help meet the large costs of building and refurbishing council homes in the area.

So how can prices come down? They may ‘ratchet’ down a bit from say three million to two, but if the ‘currency’ continues to be devalued, won’t investors just keep putting the prices (and rents) UP?

Interestingly, UK average house price is an ‘unknown’:

By Richard Dyson | Telegraph – Fri, Oct 25, 2013 09:17 BST

UK average house price: £165,000 or £252,000?
House-price fever is taking hold again, but why do the statistics differ so much – and which can you trust?

The housing recovery has awakened the familiar, feverish interest in house price information, with statistical reports emerging from one source or another on an almost daily basis.

Is the data reliable? Who produces it, and how? Why is it that according to one index the average price is over £250,000, when another has it at £164,000?
…
Land Registry – £164,654 Government-owned Land Registry says its index is “the most accurate independent index available”. It uses official transaction data lodged as part of property ownership registration, and so reflects prices actually paid. The index in its current form stretches back to 1995. Land Registry also captures the property address and type (such as a detached house or flat; freehold or leasehold).

RELIABLE? Land Registry’s “price paid” data comes at the end of a property purchase – often many months after – and so this index confirms a trend rather than indicates a future direction. The quality of the data means it is regarded as highly authoritative.

ONS – £247,000 Another Government-backed organisation, the Office of National Statistics, produces one of the most complex indices which “together with the Land Registry HPI is one of the main indices used by central and local Government”. But why does it come up with such different numbers? The short answer is that ONS statisticians obtain mortgage data from lenders and then “mix-adjust” it to reflect different property types and locations. It is also weighted to reflect volumes of transactions, in a process which is updated annually. There is also a seasonal adjustment. According to its latest reading (August 2013) “house price growth remains stable although prices in London are increasing faster than average”.

RELIABLE? This index is difficult to use as changed weightings mean annual prices can’t be compared against each other.
…
How relevant is all this information to homeowners and prospective buyers – and what importance should be attached to it?

Nicholas Ayre, managing director of home buying agency Home Fusion, says: ‘Buyers are so bombarded with statistics that it can be hard to know what to believe. How big is the sample, what area does it cover and how out of date are the numbers? For example, the Land Registry is quite useful for historic data but it is recording what happened three months ago and much can change during that time.”

He concluded: “Don’t take any of the indices too seriously. Many indicate a national average property price that could be very different from your experience in your particular area so it is wise to take them with a huge pinch of salt – useful as a general guide but not something to base a decision to buy or sell property on. My advice would be to pick an index without a commercial angle, such as the ONS index, because while the Government will be interested in house prices rising, it is not trying to flog anything off the back of it.”

“…because while the Government will be interested in house prices rising, it is not trying to flog anything off the back of it.” Sure, of course not… only the whole goddamn country! 😆

Seriously now we have a certain ‘Canadian’ in charge, it looks like boom time is here to stay:

Financial Post, John Greenwood | 15/10/13 4:55 PM ET

Bank of England’s Mark Carney dogged by fears of U.K. housing bubble
…
Indeed, Mr. Carney garnered much international attention back in the turmoil of 2009 for pushing the bank rate down to 0.5% and letting the world know that he had no plans to lift it off the ground any time soon.
At the same time, the CMHC dramatically hiked the amount of mortgage insurance it was underwriting while another scheme, dubbed the Insured Mortgage Purchase Program, enabled lenders to sell nearly $70-billion of home loans back to the government.
The strategy worked brilliantly, at least in the short-term.
At a time when many banking activities had come to a standstill in other countries, Canadian banks were doing gangbuster mortgage business. Long story short, the flow of credit to Canadian consumers and businesses didn’t dry up and the economy quickly recovered.
But it was a recovery built on real estate borrowing by consumers and one of the unintended consequences is that consumers are now buried under record debt. National house prices have generally been rising since the early 2000s, with the trajectory steepening especially since 2010, prompting warnings from both Finance Minister Jim Flaherty and Mr. Carney, prior to his departure to the Bank of England.
Is Canada going to regret its real estate mania? Will Britain? The jury is still out.

And after taking a breather, Canadian prices have started ascending once again:

Canada Emerges From “The Housing Market Correction No One Noticed”
Royal LePage records strong house price gains in the third quarter of 2013

TORONTO, October 10, 2013 – According to the Royal LePage House Price Survey released today, the average price of a home in Canada increased between 1.2 per cent and 4.1 per cent in the third quarter of 2013.

The survey showed a year-over-year average price increase of 3.7 per cent to $418,686 for standard two-storey homes, while detached bungalows rose 4.1 per cent to $381,811. During the same period, the average price for standard condominiums saw a more moderate increase, rising 1.2 per cent to $246,530. Sales volumes surged in a number of regions, as Canadians re-entered the housing market after sitting on the sidelines for more than a year – marking the end of the most significant housing market correction since the 2008-2009 global recession.

Well jurors, whaddyarekon? Are we seeing a dash for hard assets or just another bubble? Or will currencies especially sterling depreciate faster than prices?

From “Arabian Money”:

The British banking system just will not be able to survive without devaluation and inflation. This is the only way to lessen the enormous burden of house hold debts built up during the real estate boom.

House price crash

The alternative of letting house prices crash would render the UK banks insolvent, and with assets six times the national GDP they are already far too big to be allowed to fail. So the UK just has to devalue and do so relatively more than their competitors to stay afloat.

And where does that leave any one looking for a ‘lifeboat’ – or has that option already sailed… :whistle:

L,
Sid.

[Variable81]

I may be wrong, but pretty sure I’ve read numerous times here on TAE before (and perhaps in a book about bubbles I had the pleasure of reading, Devil Take the Hindmost: A History of Financial Speculation) that, paradoxically, you tend to see rising prices right before a bubble pops/deflates. Usually it’s in conjunction with falling sales, which we seem to be seeing in Canada, at least according to Garth Turner (not that I hold him to any high degree of esteem):

Fact is, property values outside of Calgary, the weird steamy bits of Van/Lower Mainland and the manic middle market in the GTA are no longer robust. There’s a condo glut in Ottawa and Winnipeg starting to impact the whole market. Halifax is cooked. Montreal prices are comatose. Vancouver Island and Saskatoon are awash in listings. Yesterday I told you about the new housing market in the wider Toronto area, where sales have fallen by up to 50%.

All of this is happening when you can still get a variable mortgage for 2.4% or lock up for a half-decade at a point more. Does anyone seriously believe prices and sales will romp higher because rates fail to rise, or even drop by a quarter? Cheap money didn’t save the American housing market after prices had roared above income levels. It didn’t work in Japan or Spain or Holland.

https://www.greaterfool.ca/2013/10/23/new-lesson/

Cheers,
Variable

[gurusid]

Hi Folks,

Oh yes:
From ZH JPM Sees “Most Extreme Ever Excess Liquidity” Bubble After $3 Trillion “Created” In First 9 Months Of 2013

Submitted by Tyler Durden on 10/28/2013 15:04 -0400

…
To summarize:
In just the first 9 months of 2013, DM countries have injected $1 trillion in liquidity sourced exclusively by central banks; EMs have injected another $2 trillion driven by bank loan demand.
The total global M2 is over $66 trillion, growing at an annualized pace of over 6%.
The amount of excess liquidity, i.e. the infamous “liquidity bubble” in the global fungible system is “the most extreme ever in terms of its magnitude”
And that’s really all there is to know: the music is playing and everyone has to dance… just don’t ask what happens when the music ends.

“…just don’t ask what happens when the music ends.” Which is exactly what TAE has addressed in their ‘Century of Challenges/World of Change’ presentation.

Or… will they allow the currency to ‘devalue’ so that you’ll need all the ‘liquidity’ just to buy a loaf of bread. And no, I’m not talking ‘inflation’ here, but some perverse systemic manipulation unlike anything ever done before. I mean what’s to stop them pumping the QE handle forever until those that benefit own everything. Then they just reset the game by issuing a ‘new’ currency system, cancelling all ‘their debt’, but transferring all the other ‘private’ debt. If the system is completely rigged, with strange ‘flash crashes’ and ‘flash corrections’ on the stock markets, with commodity markets manipulated who knows where this is going? I think humanity has reached a historical disconnect: this is NOT Rome. Rome did not have (to my knowledge) high frequency trading, flash crashes and POMO (permanently open market operations). Maybe I’m just too stupid to understand all the ‘market fundamentals’ or to see the obvious that the ‘system’ will just crash; but something tells me that ‘they’ who are running the ‘show’ will not let that happen until they are good and ready. And when they are, I think that we will all be surprised… :unsure:

L,
Sid.

[linadavid]

Amazing post.

[kendalljett]

“Good fences make good neighbors” https://www.greaterfool.ca/2013/10/23/new-lesson/ wordle unlimited

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