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5 "Tells" that the Stock Markets Are About to Reverse

UK Housing Market Bottoming?

Housing-Market / UK Housing Apr 15, 2009 - 12:45 AM GMT

By: Nadeem_Walayat

Housing-Market

Best Financial Markets Analysis ArticleThe Royal Institute of Chartered Surveyors (RICS) is reporting that the average sales per surveyor increased for the first time since late 2007 as the number of sales ticked up to 9.7 from a low of 9.6 last month as record low interest rates of 0.5% have cut the mortgage servicing costs for homeowners coupled with the government running an unsustainable £160 billion per annum budget deficit as the government announces ever more reckless stimulus packages and thereby attempting to entice prospective home buyers back into the housing market, though an up tick from 9.6 to 9.7 in the number of sales amounts to a pretty insignificant move of just 1%.


RICS paints a positive picture:

"The tentative signs of a pick-up in activity have become more broadly based over the past month,"

"The higher level of buyer interest is feeding through into actual sales. Newly agreed sales, measured on a net balance basis, rose over the month as did the average sales per surveyor series, for the first time since the tail end of 2007."

However actual house prices according to RICS continue to fall with 73% reporting price falls against 78% for February with a house price balance of -77%, so not exactly what one could term as a housing market bottom but rather a moderation in the pace of decline.

UK Recession

However the recession is far from over, with the economy expected to continue contracting into the end of 2009 as per the forecast for GDP contraction of -6.3% as per the original forecast as of mid Feb 09, with recovery into 2010. However as I have warned several times that the growing debt mountain could trigger a double dip recession AFTER the next election as public spending cuts and tax rises are undertaken by the next government in an attempt to bring government debt under control. This therefore implies that we have not seen the end of Quantitative Easing as like a drug, it will be difficult to wean the economy off of it, therefore my expectation is that the government will force the Bank of England to accelerate Quantitative Easing far beyond the £75 billion announced to date.

UK House Prices Trend

UK house prices peaked in August 2007 (UK Housing Market Crash of 2007 - 2008 and Steps to Protect Your Wealth) The rate of descent peaked for December data at -19% and has now declined to -17.5% for March. The housing crash is showing signs of pausing as the below graph illustrates which is per the updated house price forecast that covers the trend into 2012 which projects for a total drop from peak to trough of 38%. However, as I have warned many times over the past 20 months that the government has in its power the ability to print money to bring nominal house price falls to standstill, this money printing is now quaintly termed as "Quantitative Easing" so as to hide the truth and mask the continuing crash in house prices that despite the opinion of the mainstream press by the likes of Anatole Kaletsky and Ambrose Evans-Pritchard HAS put Britain on the path towards bankruptcy, as explained in the depth analysis of November 2008 - Bankrupt Britain Trending Towards Hyper-Inflation?, and updated more recently - Gordon Brown Bankrupting Britain as Tax Payer Liabilities Soar- Update

The analysis of March 11th in response to ridiculous mainstream press stories that house prices could fall by another 55% - Telegraph Runs with Improbable UK House Price Crash Forecast of Another 55% , with the following conclusion -

Therefore nominal house prices will be increasingly supported by the highly inflationary measures being put into action whilst real terms values continue to erode. This therefore increasingly points to a gradual decline in the rate of house price falls, and suggests a prolonged period of stagnation. However, it does make the Numis Securities forecast for a possible another 55% fall in UK house prices EXTREMELY unlikely, if anything the UK housing market is targeting a shallower rate of decline in the order of another 14%-16% over the next 2 years rather than the Telegraphs scare mongering headline grabbing 55%, and if inflation is worse then expected then the pace of house price falls may still reduce further.

With subsequent data confirming the expectation for a moderation in the rate of UK house price falls, however at the cost of future economic growth a the country falls into a stagflationary economic environment under the weight of attempting to save the bankrupt banks which has already saddled the tax payer with £1.2 trillion of liabilities and is expected to pass above £2 trillion by the end of 2009, with the eventual amount of liabilities likely to extend to as high as £5 trillion if the whole banking system's liabilities were dumped onto the British tax payer which would trigger far more Quantitative Easing as the government instructs the Bank of England to print money to buy government debt due to the increasingly skeptical financial markets which would send the currency spiraling lower and inflation spiraling higher.

It will be interesting to see how the mainstream press now runs with this RICS story as it is barely a month ago that the likes of the Telegraph ran with headline that UK house prices could fall by ANOTHER 55%. Though a quick google tells the usual tale of the mainstream press running with headlines on the basis of lack of proper analysis i.e.

Property sales come to life as hopes rise for end to falling prices Times Online

Housing slump will end by Christmas, predict economists Telegraph.co.uk, Last month another 55% drop, this month end by Christmas? Though its not so surprising when one considers the Telegraphs economic lowdown by Roger Bootle of Capital Economics that have been calling for a UK house price crash since 2002 and therefore missed most of the boom.

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By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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