Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Gerald Celente: Why You Still Need Guns, Gold, and a Getaway Plan... - 23rd Jun 18
Cheap Gold Stocks Bottom Basing - 23rd Jun 18
A Trade War Won’t Be Good for the US Dollar - 23rd Jun 18
SPX/Gold, Long-term Yields & Yield Curve 3 Amigos Update - 22nd Jun 18
Gold - How Long Can This Last? - 22nd Jun 18
Dow Has Fallen 8 days in a Row. Medium-long Term Bullish for Stocks - 22nd Jun 18
Trouble Spotting Market Trends? This Can Help - 22nd Jun 18
Financial Markets Analysis and Trend Forecasts 2018 - A Message from Nadeem Walayat - 21st Jun 18
SPX Bouncing Above Support - 21st Jun 18
Things You Need To Know If You Want To Invest In Bitcoin Now - 21st Jun 18
The NASDAQ’s Outperformance vs. the Dow is Very Bullish - 21st Jun 18
Warning All Investors: Global Stock Market Are Shifting Away From US Price Correlation - 20th Jun 18
Gold GLD ETF Update… Breakdown ? - 20th Jun 18
Short-term Turnaround in Bitcoin Might Not Be What You Think - 19th Jun 18
Stock Market’s Short Term Downside Will be Limited - 19th Jun 18
Natural Gas Setup for 32% Move in UGAZ Fund - 19th Jun 18
Magnus Collective To Empower Automation And Artificial Intelligence - 19th Jun 18
Trump A Bull in a China Shop - 19th Jun 18
Minor Car Accident! What Happens After You Report Your Accident to Your Insurer - 19th Jun 18
US Majors Flush Out A Major Pivot Low and What’s Next - 18th Jun 18
Cocoa Commodities Trading Analysis - 18th Jun 18
Stock Market Consolidating in an Uptrend - 18th Jun 18
Russell Has Gone Up 7 Weeks in a Row. EXTREMELY Bullish for Stocks - 18th Jun 18
What Happens Next to Stocks when Tech Massively Outperforms Utilities and Consumer Staples - 18th Jun 18
The Trillion Dollar Market You’ve Never Heard Of - 18th Jun 18
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18
The Euro Crashed Yesterday. Bearish for Euro and Bullish for USD - 15th Jun 18
Inflation Trade, in Progress Since Gold Kicked it Off - 15th Jun 18
Can Saudi Arabia Prevent The Next Oil Shock? - 15th Jun 18
The Biggest Online Gambling Companies - 15th Jun 18
Powell's Excess Reserve Change and Gold - 15th Jun 18
Is This a Big Sign of a Big Stock Market Turn? - 15th Jun 18
Will Italy Sink the EU and Boost Gold? - 15th Jun 18
Bumper Crash! Land Rover Discovery Sport vs Audi - 15th Jun 18
Stock Market Topping Pattern or Just Pause Before Going Higher? - 14th Jun 18
Is the ECB Ending QE a Good Thing? Markets Think So - 14th Jun 18
Yield Curve Continues to Flatten. A Bullish Sign for the Stock Market - 14th Jun 18
How Online Gambling has Impacted the Economy - 14th Jun 18
Crude Oil Price Targeting $58 ppb Before Finding Support - 14th Jun 18
Stock Market Near Another Top? - 14th Jun 18
Thorpe Park REAL Walking Dead Living Nightmare Zombie Car Park Ride Experience! - 14th Jun 18

Market Oracle FREE Newsletter

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

UK House Prices 2011 and Beyond

Housing-Market / UK Housing Nov 16, 2010 - 02:16 AM GMT

By: Tim_Waring

Housing-Market

In 2007 we saw the images of Northern Rock customers queuing on the streets to withdraw their funds. It seemed that finally the exuberance in the housing market was going to be deflated. Three years on and this has not happened to any really significant extent. Up until recently, I have been waiting for the monthly data from various sources to show an accelerating rate of falls. In reality, the market has traded sideways at a level just below the all time peak. When markets do not do what you expect them to you eventually have to ask why.


Life Before and After Northern Rock

Prior to Northern Rock, the housing market appeared on the face of it similar to any other. Ultimately, one believed it was driven by the invisible hand of market forces. Clearly the explosion of credit was propelling it forward but supply/demand fundamentals still appeared at the fore. The reality of the market has become apparent post Northern Rock - the house market is subsidised by the UK taxpayer.

If Northern Rock and HBOS had been allowed to go to the wall, then a drastic correction would have occurred in house prices. Instead, the taxpayer came to the rescue and has been putting in scaffolding under a fragile market ever since. Approximately 70% of households are owner occupied so there are political and economic reasons why this is the case.

Economy and Consumer Penalised

Ultimately, it is bad for the British public. In the long run, high house prices benefit very few. Non-owners and owners are now being taxed to support the value of their house.

This can not be good for the economy but policy is now backed into a corner by housing data. Even though the market is viewed as over-valued, any significant falls towards a healthy level are apparently unthinkable. A depressed housing market will be used as good reason for further QE.

2011 and Beyond

This has profound implications for the next few years. I believe the market will feel a heavy hand on its head as consumers struggle with job losses, rising food/petrol prices etc resulting a downward grind by a few percentage points, probably between 5% and 10% over 2011. Beyond this, the data will probably not get much worse. If it does, the BOE will be quick to inject liquidity and rubber hammer banks into lending when they shouldn't. If this is correct then a bear like myself has to consider becoming neutral or marginally bullish. If nominal price falls are unlikely, the yield of 4-10% on residential property looks attractive compared to most other investments even without the tax benefits. The biggest risk is if the BOE loses control of interest rates due to lack of faith in its debt and currency. However, if there is a currency crisis then property will be better than cash or gilts.

Conclusion

The market should have been allowed to correct itself. Instead resources continue to be wrongly allocated into supporting over-valued housing stock. Buy-to-let entrepreneurs return in droves when they could expend their energies and cash in other enterprises that might generate jobs. However, if you are a UK resident there is a new reason to owning a house - to capture the subsidy the tax payer is providing.

Tim Waring

http://grittyeconomics.blogspot.com/

I am a businessman and an investor, not an economist. Having spent the last 15 years in starting and running businesses I have a keen interest in how economic theory meets real world markets and economies.

© 2010 Copyright  Tim Waring - 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.


© 2005-2018 http://www.MarketOracle.co.uk - 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