Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

UK Unemployment Figures Mean Disaster for the Housing Market

Economics / UK Housing Aug 13, 2009 - 07:25 AM GMT

By: MoneyWeek


Best Financial Markets Analysis ArticleDavid Stevenson writes: Britain's dole queues just got a lot longer. Another 220,000 people were added, according to yesterday's official stats. That takes the total to 2,435,000, or a rate of 7.8%, the highest since 1996.

What's more, the number of people without work is set to increase much further. And even if you still have a job, the chances are that your pay packet's hardly growing.    

And that spells more trouble for house prices…

The unemployment numbers are horrifying

Yesterday's jobless figures were truly awful. The percentage of the population without work hit its highest for some 13 years, while the nation's dole queues reached their longest for 14 years.

Further, the actual number of employed Britons fell by a record 271,000 in the three months to June, as even more people left the workforce than claimed benefits. Many of these 'non-signers' are now relying on their partner's income, redundancy payments or savings, says Howard Archer of HIS Global Insight. He also points out that although the 'claimant count' only rose by some 25,000, that's probably down to the  'student effect' – i.e. college or school leavers who can't get a job, but aren't eligible for benefits.

Meanwhile, for those still with jobs, the pay picture isn't looking too bright either. Unless you're one of those bankers back on the mega-bonus trail, your income is unlikely to be growing. UK annual average earnings growth, excluding bonuses, rose by just 2.5% in the three months to June, the lowest since the data series began in 2001. 

Gloomy enough. But even worse is the likelihood of Britain's dole queues getting a lot longer… for a while longer, too.
Technically, the recession may be ending, though any recovery is set to be sluggish at best. And there's every chance of a double dip, as we talked about in Money Morning the other day (How savers could derail a recovery). But either way job losses won't stop rising.

Even a recovery brings job losses

Back in the 1990s, unemployment rose for 18 months after the economy bottomed out. That's likely to happen again – for two reasons:
Firstly, companies who've had to slash their costs to stay afloat will keep cutting their workforces while the economic outlook stays unclear.

And secondly, many firms simply won't survive.   

Ed Stansfield of Capital Economics has forecasted that Britain's jobless total is heading for 3.5m, i.e. over 11%, by 2011.

We're often told that unemployment is a 'lagging' indicator, i.e. it reacts to what's going on in the economy rather than leading it. And we're also told that it doesn't matter if our pay packets aren't expanding very much because consumer prices are now falling.

Enjoying this article? Sign up for our free daily email, Money Morning, to receive intelligent investment advice every weekday. Sign up to Money Morning.

That may help homeowners with tracker home loans to feel flusher while interest rates stay low. But if hundreds of thousands are being laid off, and those with jobs aren't able to wring much more out of their employers, the amount of money sloshing around the economy is going to be severely curbed.

Away from the City-fuelled London and the South East, as Matthew Lynn says in last week's magazine: Britain's about to become two nations once again (if you're not a subscriber, get your first three issues free here), it means less spending in the shops. And we'll all need to pay more tax to pay for the extra welfare benefits the government will have to fork out. The cost to the Exchequer of someone out of work, based on benefits claimed and tax revenues lost, is £9,000 a year, says John Philpot of the Chartered Institute of Personnel and Development.

The threat to house prices

But the real damage of a further job loss surge is likely to be a flood of home loan defaults. Stansfield reckons the number of residential property borrowers who fall behind with their payments could climb even higher than the 350,000 level reached in the 1990s recession.

He's expecting that 375,000 families will run into arrears. That's unless the dole queues lengthen even more than he thinks, in which case up to 400,000 could hit trouble.

This will lead to a spurt in forced selling, and also repossessions. At the same time, the pay squeeze will make life tougher for borrowers if loan rates start rising again – and fixed rates are already up to a ten-month high.

Why housing bulls are wrong

Right now, most commentators appear to have turned bullish on British house prices. And my inbox is full of messages from estate agents citing lack of supply, i.e. not many sellers around.

But that could be about to change. A vicious downward house price value spiral could now start to develop as more borrowers are forced to unload their properties at fire sale prices.

Just look at the chart below:

The red line shows Britain's unemployment rate, the blue line the Nationwide average house price. Note how, despite all the talk that they'd been overvalued for ages, home values only nosedived when job losses really began kicking in during 2008.

As Edmund Conway points out in the Telegraph, in the early 1990s prices climbed quite sharply in some months, but over a three-year period still fell more than they rose.

If Britain's dole queues reach 3.5m this time round, the housing market will bear the brunt. And if some of the gloomier job predictions turn out to be right, outright carnage could be just around the corner.

By David Stevenson for Money Morning , the free daily investment email from MoneyWeek magazine .

© 2009 Copyright Money Week - All Rights Reserved
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 losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Money Week Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules