According to the National Association of Estate Agents, the UK property market is now ’stabilising’ - which, if you cut through the spin, simply means that a few metrics such as the number of sales agreed and the difference between asking and sale prices have remained roughly level for the past couple of months. The NAEA itself admits that there are a lot of properties on the market, buyers are being more cautious, and more sales are falling through before completion.
A more accurate picture is painted by the British Bankers Association, which says that April saw the second lowest level of mortgage approvals on record and the month saw only a marginal improvement on March’s record low, so calling it any kind of recovery would be stretching the facts to breaking point.
There’s also bleak news for the British consumer services sector today - the CBI reports that this sector is currently struggling through its worst period since 2001 as consumers tighten their belts and cut back on luxuries like eating at restaurants and going to the cinema.
May 27th, 2008
Throughout the course of the UK’s insane ten year long property boom, the market cheerleaders have patiently explained that these massive increases in the cost of property are a natural result of the laws of supply and demand - the UK’s population is growing and there simply aren’t enough homes to go round. This, of course, is complete bullshit. Yes the population is growing, but that’s nothing new and taken in isolation it simply cannot explain a trebbling of house prices over the space of a decade.
The truth is that the easy availability of low-interest mortgages at higher than normal salary multiples meant that people were increasingly able to outbid each other to secure their ideal homes, and when this phenomenon started pushing up values thw widespread belief that ‘house prices only ever go up‘ took hold (in spite of the recent evidence of the early nineties market crash) and a speculative bubble was created, a situation where the only thing driving up property prices was the market’s confidence that whatever price you paid today, the value would be higher tomorrow. Supply and demand really had very little to do with it.
On the other hand, the laws of supply and demand do provide a very clear explanation of why property prices are likely to fall a very long way. As the Independent reports, the latest Hometrack figures show that the number of homes for sale has increased by 7% over the past two months, while the number of buyers registering with estate agents fell by almost 7% in May alone. More sellers, less buyers - supply and demand - there’s really only one way prices can go. And with the banks continuing to push up mortgage rates and tighten their lending criteria (regardless of goverment efforts to convince them to do the opposite) it’s hard to see how demand is going to rise any time soon.
Obviously this sucks for anybody who’s been unlucky/stupid enough to buy at the top of the market, but for society as a whole (especially the entire generation of adults who have been completely priced out of the opportunity to own their own home) it marks a long overdue return to some level of sanity in the propery market.
May 26th, 2008
This article from the Scotsman highlights the difference of opinion between the Bank of England and the Treasury on what we can expect from the economy over the next year. The Bank, which is (at least in theory) independent from the goverment, claims economic growth will slow to 1.5% for 2009, while the Treasury says we can expect anywhere between 2.25% and 2.75% for the same period.
More proof, as if it were ever needed, that the people who are supposed be in control of the economy have no more insight than the rest of us when it comes to figuring out what the future holds. You’d imagine the Bank and the Treasury would have access to all the same economic data and models, so how can they come to such different conclusions?
May 24th, 2008
On the first Thursday of every month the Bank of England’s Monetary Policy Commission (MPC) has a little get together to decide what to do about interest rates for that month, and a couple of weeks later the notes from that meeting are released to the press. Until recently these notes didn’t generate a lot of interest, but now that everything’s going to hell in a handcart, the media likes to pore over them in the hope of gaining some insight into what the MPC’s plans for the future might be.
The nine members of the MPC rarely agree on whether to cut, raise or hold rates, and even when most of the members agree on a particular course of action, there’s usually at least one voice of dissent. This month for example, eight of them voted to hold, one voted for a cut - often the voting is a little more evenly balanced.
Most people like to believe that the business of running the economy is a straighforward (if not exactly simple) mathematical balancing act. But if it really were that straight forward, the nine members of the MPC would simply have to consult some mathematical formula which would provide them with the right answer, in fact the MPC wouldn’t be needed at all, the job could be easily done by a software model. But it’s just not as simple as that - the truth is that most of the economists who work at the Bank of England and in the rest of the financial services sector are at best making educated guesses about what will happen in the future based on any given course of action, and at worst are simply taking wild stabs in the dark and dressing their decisions up in impressive sounding, but ultimately meaningless, financial jargon (like “we see significant downside potential“).
The economy is, quite simply, unpredictable. If the stuffed suits of Threadneedle Street were really any good at predicting exactly how things are going to pan out in future, then we wouldn’t ever have to deal with credit crunches and economic downturns. The economy largely does what it wants, the MPC can try to steer it in the right direction by making small adjustments to interest rates, but this is like attempting to steer the Titanic to safety by hoisting a small sail on the deck.
You should treat the predictions of economists and financial industry analysts with caution, especially the ones who are employed by the banks and other vested interests. For example, when the Council of Mortgage Lenders says that it expects house prices to fall by 7% this year, you have to ask how exactly it reached that figure and since it has a vested interest in the housing market, isn’t it just possible that the Council might be tempted to paint the situation as being a little rosier than it really is.
May 21st, 2008
So, despite enjoying a decade of prosperity in one of the world’s richest countries, it seems the British middle classes have suddenly found themselves mired in debt and are struggling to make ends meet. It’s easy to be at least a little sympathetic to skint people who have over extended themselves and perhaps lived a bit beyond their means - let’s face it, if you’re utterly broke and the banks are stupid enough to throw money at you without asking too many questions, you’d have to be made of stone to resist.
But if you happen to be an educated middle class professional and already lead a comfortable life with a good income, what possible excuse can you have for digging yourself so far into debt that you can no longer make ends meet, except greed and stupidity? Perhaps now might be time to sell the second home and (the horror, the horror!) consider downgrading the 4×4 to something a little more economical?
May 19th, 2008
Sooner or later, when considering decisions about money, you will come across the Vested Interest. In fact it’s almost impossible to avoid them. A Vested Interest (VI for short) is a person, company or organisation that wants to get its views across in order to somehow influence the people who are reading, watching or listening to them. ‘VI’ may be used to decribe the entity itself or his/her/its viewpoint.
Some VIs are obvious, some less so. I have a VI in writing this article. I’m hoping that if I make it interesting enough, and the information contained within it useful enough, more people will read it and so the traffic to this site will increase and hopefully at some point we’ll be millionnaires. Actually, it would be nice if we could make enough money for a cup of tea once a week, or perhaps cover the hosting fees. So my VI is quite transparent and, I hope, harmless.
But that is rarely the case once you get into the mainstream media. As Piers Morgan and his tipster colleagues at the Daily Mirror proved a few years ago, the temptation to use a position of public influence to push your own agenda can be overwhelming. And it’s not always illegal, either, though one might argue that it should be.
For example, of all the possible investments, the property market is not regulated by the FSA. Any idiot can call themselves a ‘property expert’ and give what is basically unregulated financial advice. And many of them have. Media people are among the most likely to be amateur landlords, so it’s not particularly surprising that the television schedules have been riddled with programmes extolling the virtues of ever-increasing property prices over the last decade. Nor are newspapers immune. The Times, for example, has carried a lot of property advertising, and has columnists who seem to believe that ‘house prices only go up’ - coincidence? Maybe.
Identifying Vested Interests will help you to decide for yourself whether a particular article is truly impartial - or as impartial as it can be - or whether you should treat it as wishful-thinking fiction. The following selections reflect my personal experiences with the media outlets concerned and are opinions only. Your mileage may vary, as they say.
Continue Reading May 12th, 2008
The Financial Services Authority says it is frustrated by the government’s foot-dragging over new legal powers which would make it easier for the FSA to target market-abuse.
Speaking at a parliamentary inquiry into financial stability and transparency, the FSA Chairman, Callum McCarthy, also echoed Mervyn King’s earlier call for a clearer delineation of the responsibilities of the FSA and Bank of England. At present responsibility for the UK’s financial stability lies with no single organisation - which means that after a major screw-up like Northern Rock it’s difficult to hold anybody accountable.
Don’t expect any big changes in the near future however, we’re sure Brown and Darling are far more interested in cooking up increasingly desperate schemes to keep the housing market bubble inflated for just a little while longer, rather than taking some genuinely prudent moves to help regulate the country’s banking system.
May 6th, 2008
Dear oh dear, the government’s climb-down over its abolition of the 10p tax rate must surely be the final nail in the coffin of Gordon Brown’s reputation as a ‘safe pair of hands for the economy’. What happened Gordo? Once you were the Golden Boy who proved finally that the Labour Party could be trusted to safeguard the nation’s financial well-being, but now look at you.
“No more boom and bust!”
“I will not allow house prices to get out of control!”
How did that work out for you? Here we are today with a nation up to its neck in debt, desperately struggling to stay afloat, a banking system that needs massive taxpayer bailouts (despite rewarding itself with obscene bonuses every year), a housing market so grotesquely over inflated that the price of putting a roof over your head is a lifetime of crippling debt for even the most modest of homes, and an economy so dependent on unsustainable house price inflation that when the inevitable property market collapse comes it will spell doom for us all.
Don’t worry though Gordon, some people may paint you as an incompetent, but I just see you as a King Canute figure - you may have looked good when things were on the up, but you never really had any control and now things are looking bad it’s obvious that you have no power to stop the tide from coming in.
A quick note for your successor though - you might like to think about tighter regulation of those chaps in the city, if you’d like to avoid this sort of mess in future, instead of entertaining the foolish notion that you’re the one who’s running the economy.
April 23rd, 2008
Chancellor Alistair Darling has told mortgage lenders that they should be more lenient to homeowners* who fall behind with their repayments. The meeting was called by the chancellor this morning to let the banks know that taxpayers would expect to see benefits in return for the £50bn+ of their money which Darling has used to bail out poorly managed financial institutions which are currently suffering from serious cash-flow problems.
Assuming that the bankers didn’t just laugh in the chancellor’s face before strolling out of the meeting with their pockets stuffed full of taxpayer’s cash (which, if we’re honest, is almost certainly what they really did), and assuming the banks really do decide to go easy on people who are struggling with their mortgages, where does this leave us?
The government has shown that it’s more than willing to use taxpayer’s money to prop up failing banks, regardless of how recklessly they’ve behaved in pursuit of unsustainably high profits. If the chancellor somehow manages to convince the banks to treat mortgage defaulters with greater leniency, the government will have created an environment where not only is it ‘safe’ for banks to make risky loans, it’s also ‘safe’ for consumers to recklessly borrow more than they can afford to repay. (But only so they can buy property at artificially inflated prices).
In the short term the only people who lose out are taxpayers who can’t afford to own their own homes – their taxes are being used to prop up irresponsible banks, bale out foolish borrowers, and keep housing bubble inflated just long enough to improve the Labour party’s chances of re-election. But the whole thing is clearly unsustainable and the longer this charade continues, the more it’ll hurt when everything collapses, so in the long term the only people who lose out will be, well, everybody.
*Although “homeowner” is a bit of a misnomer - as long as the bank can reposes your home, you don’t own it.
April 22nd, 2008
I am writing to enquire whether you have any vacancies on your strategic board for someone of my talents. I realise that it is a little unorthodox to apply ‘on spec’ for such a high-ranking position within your organisation, but I believe I have the necessary skills to further increase the profits and assets of Big Bank Plc. In this letter I will attempt to demonstrate my knowledge of the challenges and opportunities in our marketplace.
1) Who are our customers?
I understand that our most lucrative customers are those with the least awareness of financial matters; indeed, the less numerate they are, the better. Rather like the dear old PM, in fact.
If they don’t know the difference between APR and AER, if they fail to read the small print in their credit contracts - not that it matters, as I’m sure I have the necessary legal skills to make such text impenetrable - and if their limited attention is grabbed by an ‘introductory’ rate, then they are exactly the kind of people we need to target.
I think that if we closely follow that other highly successful model of commerce - drug dealing - we won’t go far wrong in attracting and retaining the right customer base.
2) How do we get people to take on more debt?
Continue Reading April 14th, 2008
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