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

UK House Prices Slump 1.1% - Interest Rate Cut?

Housing-Market / UK Housing Dec 06, 2007 - 03:01 AM GMT

By: Nadeem_Walayat

Housing-Market Best Financial Markets Analysis ArticleThe UK Housing Market fell sharply in November, registering a 1.1% price drop according to Britain's biggest mortgage lender, the Halifax. The British Pound fell sharply on the news and stocks soared in anticipation of deep cuts in UK interest rates as the Housing Market has its first consecutive decline for 3 months in a row since 1995. The credit freeze is now in its 5th month with the interbank rate soaring to 6.65% increasing the chance of an interest rate cut at today's Bank of England MPC Meeting.


The Market Oracle forecast as of 22nd August 07, is for UK interest rates to fall to 5% by September 2008, with the first cut scheduled to occur in January 2008. Given the sharp drop in the housing market and signs of a fast weakening economy, there is now an increased chance that the first interest rate cut will take place at today's Bank of England MPC Meeting i.e. a month earlier than originally forecast. However, UK inflation is expected to continue rising during the next few months, with the Market Oracle forecast for UK inflation to peak during January 2008 and then decline sharply to below 3% by November 2008 (RPI), which will ensure the Bank of England keeps cutting interest rates during 2008. .

UK Inflation Trend Forecasts

The UK housing markets fast deterioration is expected to result in annualised UK House price inflation going negative for the first time since the early 1990's by April 2008, this is expected to be followed by a sharp fall in house prices as the buy to let sector rush for the exit to take advantage of the Uk capital gains tax change effective from 1st April 2008.

Further signs of the housing slump accelerating were illustrated by a sharp deterioration in the ability of houses to sell at auction with the number of sales falling from 97% in January 2007 to 71% by November 2007, despite cuts in the auction reserves as observed at a typical auction house.

Housing Market transactions are expected to take a further hit during December 2007, as the government's decision to expand the requirement for ALL UK Home Sellers to provide a Home Information Pack as of 14th December 07, will likely result in a big freeze on transactions hitting the UK housing market over the next few month. as fewer properties are put onto the market and thereby less transactions take place. Whilst this could be construed as being short-term supportive of house prices, it will hit the housing sector hard, which includes mortgage lenders and estate agents that could see as much as a 25% drop in business over a short space of time, and therefore the expectations are for further shocks in the housing and financial sector, this time focused on estate agencies.

Uk House Price Forecast 2007 to 2009

The UK property market remains at historically high unaffordability levels as illustrated by the Market Oracle UK House Price Affordability Index. Therefore the trend is for a sustained drop in UK house prices over several more years as house prices falls have barely begun.

UK House Price Affordability Index

The Markets reaction to the increased probability of an interest rate cut today was for the British Pound to fall sharply to £/$2.02 down 9cents or 4.4% from its £/$2.11 peak just 3 weeks ago. The Stock market soared with the FTSE rising by more than 170 points to 6493, led by Shell and BP as crude oil rose. As the property market continues to weaken, investors will increasingly see the stock market as a better investment option during 2008 which is expected to result with stock market gains during 2008.

However UK growth is forecast to fall sharply during 2008 towards 1.5% and therefore stronger gains are expected in foreign markets or in sectors with a strong exposure to fast growing foreign markets, rather than in domestic orientated sectors.

Global Stock Markets P/E Ratio Analysis

Current Market Oracle Housing Market / Interest Rate and Inflation Forecasts:

UK Housing Market Forecast for 2008-09 - As of 22nd August 2007
UK House Prices to fall by 15% over two years, falling prices to be accompanied by cuts in UK interest rates. (22nd Aug 07),

 

UK Interest Rate Forecast for 2008 - As of 22nd August 2007
UK Interest Rates to Fall to 5% by September 2008, First Cut in UK Interest Rates to Occur in January 2008 (22nd Aug 07)
 
UK Interest Rate Forecast for 2007 - As of 26th December 2006
UK Interest Rates to Peak at 5.75% between Aug and Oct 07(26th Dec 06)

 

UK Inflation Forecast for 2008 - As of 26th Nov 2007
Despite the current upward trend continuing into the immediate future, UK Inflation as measured by the RPI is expected to fall sharply to or below 3% by November 2008 (current 4.2%). The CPI is expected to fall to 1.8% by November 2008 (current 2.1%). (26th Nov 07)

 

By Nadeem Walayat
Copyright (c) 2005-07
Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 100 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.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Phillip
06 Dec 07, 04:01
Buy to let crash

Millions of fixed rates will expire over the coming year at very high interbank rates.

The buy to let is now a loss maker, I think your right about a buy to led crash in April. Why invest in buy to let when you can earn 6% plus risk free in a savings account ?


Deepak
06 Dec 07, 10:03
savings interest rates

savings rates might look good, but look how badly the pound is doing - wiping out gains. Most savings rates from institutions are simply catching up with the best that have been available for a while - most give rip off rates.

I wonder if you're not better keeping big mortgages as the BoE are obviously going to bail out homeowners and putting the cash into the mid-far east or the places that Nadeem keeps hinting at (turkey, russia, india, south korea) - that's where many moved their money during the summer crunch (note the bombay index).

Nadeem - any chance of some currency commentary ? Staying in the pound looks a poor bet right now.

ps - did you notice Canada reducing its interest rate even though its partially an oil currency ?


Elaine Power
24 Dec 07, 05:32
BUY TO LET investing

I am a buy to let investor ive been buying property since have a large range of propertys

We have been hear before its all happened before look at 1989 to 1996 period neg equity dom and gloom

I hope it all happens agian we need a price crash i havent bought property for 3 years there is no point yeilds are rubbish

Price booms do not help the proffesional property investormy advice is to put your money in the bank and hang back untill you can make a yeild of 8%

its simple

Im buying into the stock market i know its risky but over a 5 year period you will make money far more than in BUY TO LET

but if the crash happens i will be the first to buy again


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