Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19
US China War - Thucydides Trap and gold - 16th June 19
Gold Stocks Bull Upleg Mounting - 16th June 19
Gold Price Seasonal Trend Analysis - Video - 16th June 19
Fethiye Market Fruit, Veg, Spices and Turkish Delight Tourist Shopping - 16th June 19
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19
The Privatization of US Indo-Pacific Vision - Project 2049, Armitage, Budget Ploys and Taiwan Nexus - 12th June 19
Gold Price Breaks to the Upside - 12th June 19
Top Publicly Traded Casino Company Stocks for 2019 - 12th June 19
Silver Investing Trend Analysis - 12th June 19
Why Blue-Chip Dividend Stocks Aren’t as Safe as You Think - 12th June 19
Technical Analysis Shows Aug/Sept Stock Market Top Pattern Should Form - 12th June 19
FTSE 100: A Top European Index - 12th June 19
Gold Surprise! - 11th June 19
How Forex Indicators are Getting Even More Attention in the Market? - 11th June 19
Stock Market Storm Clouds on the Horizon - 11th June 19
Is Your Financial Security Based On A Double Aberration? - 11th June 19
What If Stocks Are Wrong About Interest Rate Cuts? - 11th June 19
US House Prices Yield Curve, Debt, QE4EVER! - 11th June 19
Natural Gas Moves Into Basing Zone - 11th June 19
U.S. Dollar Stall is Good for Commodities - 11th June 19
Fed Running Out of Time and Conventional Weapons - 11th June 19
Trade Wars Propelling Stock Markets to New Highs - 11th June 19
Best Travel Bags for Summer Holidays 2019, Back Sling packs, water proof, money belt, tactical - 11th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

UK House Prices ‘On Brink’ Of Massive 40% Collapse

Housing-Market / UK Housing Jul 04, 2017 - 05:23 PM GMT

By: GoldCore

Housing-Market

– UK house prices on brink of massive 40% collapse
– UK  at ‘edge of worst house price collapse since 1990s’
– Two leading economists warn of property crash
– “We are due a significant correction in house prices”
– Brexit and wages failing to keep up with inflation to trigger collapse


– Trend starting in London before fanning out to rest of UK
– UK homeowners unconcerned – 58% expect prices to rise
– Over 1 million mortgages under threat in UK
– Concerns of return of new “negative equity” generation
– Huge denial amid recency bias and endowment bias – emotional attachment to expensive things we buy – especially our homes

– Good news for first time buyers – bad news for UK banks and indebted, vulnerable UK consumers and economy

Editor: Mark O’Byrne

Two leading economics professors have warned that the UK housing market is on the brink of a 40% collapse, echoing the early 1990s property crisis.

“We are due a significant correction in house prices. I think we are beginning to see signs that correction may be starting” Paul Cheshire, a professor of economic geography at the London School of Economics told the Mail on Sunday.

The sharp correction or crash may come about due to two primary factors – Brexit and a fall in real wages as they fail to keep pace with rising inflation.

Despite these warnings following swiftly on the tail of recent poor housing market data, homeowners seem unfazed by what the future might hold, disregarding the parallels that are being drawn between today and the run up to the 1990s property crash.

Brexit deals another blow

Professor Christian Hilber and former Government housing adviser, and Professor Paul Cheshire warned that Brexit could be a catalyst for the correction which will see thousands of homeowners plunged into negative equity.

Hilber warned that the crash will not be short and sharp:

“If Brexit leads to a recession and/or sluggish growth for extended periods, then an extended and severe downturn is more likely than a short-lived and mild one.”

Brexit continues to create massive uncertainty. Last week we reported on the Bank of England’s Financial Stability Report which pointed towards an ‘adverse shock’, such as Brexit and how it might ‘may amplify a negative feedback loop.’

Wages fall short of inflation

The Professors also explained how wage growth’s failure to keep pace with inflation could result in a fall in house prices.

Last month official measures of inflation showed it was at 2.9% (although we know real inflation rates to be much higher) whilst incomes climbed by just 2.1%.

The OECD painted a bleak picture of the UK economy back in June when it showed that ‘inflation at 2.7% during 2018 would dwarf wage growth of 1.5% and result in the UK have the weakest real income performance, alongside Finland, of any of its 34 rich member states.’

The situation for the UK economy is not expected to improve as growth slows from 1.8% in 2016 to 1.6% this year and just 1% in 2018, according to OECD figures.

Follow the (London) leader

“Historically, trends seem always to start in London and then move out across the rest of the country. In the capital, you are already seeing house prices rising less rapidly than in other parts of Britain,” Cheshire told the Mail on Sunday.

This falls in line with our coverage last week of the weakening of prices in the London housing market. In the same week the Council of Mortgage Lenders said the housing market had ‘stalled’ and that in May over 75% of houses in London sold for less than the asking price.

In contrast an ‘ex-Bank of England guru’ predicted last week that we should not worry about the recent weakening in the housing market. David Miles, professor at Imperial College London, somewhat complacently told the Telegraph:

“The conclusion that I draw is that it is not implausible that house prices, which have become very expensive relative to people’s incomes, instead of over the next 30 or 40 years reversing that to go back to where we were in the 1970s and 80s, either stay as expensive as they are right now relative to incomes, or conceivably, unfortunately, rise further.”

With mixed predictions from experts and mortgage rates still very low, is it any wonder that we are seeing little reaction from homeowners themselves?

A petri dish of market emotion

Despite evidence showing that house prices are coming down, inflation is climbing and incomes are falling a Halifax survey shows that 58% of people agree with Prof. Miles and expect the average property price to rise in the next 12 months whilst just 14% expect house prices to fall.

According to the Council of Mortgage lenders there are 11.1 million mortgages in the UK, with loans worth over £1.3 trillion. With that many stakeholders in the property market is it unsurprising that they fail to believe times are taking a turn for the worst?

The confidence of house market participants seems to come from a place that is unaffected by major issues such as affordability and political instability. Instead it is a market psychologist’s petri dish of examples of emotional biases.

Instead of looking at inflation rates, incomes or Brexit worries homeowners are boosted by the likes of recency bias and herd behaviour – they forget the damage of the crash in the 1990s or the booms and busts exist at all instead remembering the most recent good times of climbing house prices (recency bias).

We saw this in the 1990s when the housing market crash of the early-1990s followed a housing boom in the late 1980s. At the time very few of the so called experts predicted the crash and most denied it would happen – even as it began to happen.

This recency bias is spurred on by the local herd (estate agents, parents at the school gate) telling them that house prices should be this high and that the area is desirable (confirmation bias).

All of this feeds into endowment bias – we place a higher value on an item that we own ourselves and we get emotionally attached and vested in things we personally own.

Our homes are more often than not the most expensive things we will ever own, to imagine it will be worth less than we paid for it, is rarely something we can bring ourselves to consider.

Confidence boosts equity release schemes

Endowment bias feeds into the minds of those who are looking to release equity from their homes.

The number of people who have chosen to release equity from their homes has climbed 72% so far in 2017, compared to the same period last year. According to Responsible Equity Release research this is to ‘cover pension shortfalls, prop up savings accounts hit by low interest rates and pay off mortgages.’

It is in the South West of England where homeowners are really taking advantage of the high house prices. More than four times (357%) more equity has been taken out of 2017 to date, in the South West, compared to last year.

All of these people who are either stepping up the ladder to a bigger house and therefore bigger mortgage or are releasing equity from their homes are clearly choosing to ignore the many warning signs.

Conclusion

Whilst Brexit and inflation threats appear to be the stuff of media hype the past and the history of property bubbles should not be ignored.

The LSE professors have drawn parallels with today’s potential crash and that we saw in the early 1990s. That very crash saw house prices fall nearly 40% over six years and sent over one million people into negative equity.

Often economic downturns hit households hard because of their uncanny ability to believe these things won’t happen to them. We no longer live in a society where people prepare for the worst.

We have been encouraged to believe the boom times are here to stay and the bad times are just a minor blip, which may or may not happen.

Unfortunately that results in poor and damaging financial decisions, such as leveraging you and your family to the eyeballs when it comes to buying a house or releasing equity in your family home.

Homeowners would be sensible to open their eyes to this currently uncertain and unsustainable situation and take the necessary precautions. These include paying off mortgage debt and reducing exposure to property and risk assets in the UK.

Prudent diversification and not having most of or all your eggs in the certain baskets remains the key, as does having an allocation to physical gold to hedge the growing risk of a property crash.

Gold Prices (LBMA AM)

28 Jun: USD 1,251.60, GBP 976.25 & EUR 1,101.91 per ounce
27 Jun: USD 1,250.40, GBP 980.31 & EUR 1,111.36 per ounce
26 Jun: USD 1,240.85, GBP 975.56 & EUR 1,109.32 per ounce
23 Jun: USD 1,256.30, GBP 987.70 & EUR 1,125.27 per ounce
22 Jun: USD 1,251.40, GBP 988.36 & EUR 1,120.13 per ounce
21 Jun: USD 1,247.05, GBP 989.04 & EUR 1,118.98 per ounce
20 Jun: USD 1,246.50, GBP 981.99 & EUR 1,117.24 per ounce

Silver Prices (LBMA)

28 Jun: USD 16.78, GBP 13.08 & EUR 14.78 per ounce
27 Jun: USD 16.66, GBP 13.07 & EUR 14.79 per ounce
26 Jun: USD 16.53, GBP 12.98 & EUR 14.79 per ounce
23 Jun: USD 16.71, GBP 13.12 & EUR 14.97 per ounce
22 Jun: USD 16.58, GBP 13.09 & EUR 14.85 per ounce
21 Jun: USD 16.51, GBP 13.03 & EUR 14.81 per ounce
20 Jun: USD 16.59, GBP 13.10 & EUR 14.88 per ounce

Mark O'Byrne

Executive Director

This update can be found on the GoldCore blog here.

IRL
63
FITZWILLIAM SQUARE
DUBLIN 2

E info@goldcore.com

UK
NO. 1 CORNHILL
LONDON 2
EC3V 3ND

IRL +353 (0)1 632 5010
UK +44 (0)203 086 9200
US +1 (302)635 1160

W http://www.goldcore.com/uk/

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: Past experience is not necessarily a guide to future performance. The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. GoldCore Limited, trading as GoldCore is a Multi-Agency Intermediary regulated by the Irish Financial Regulator.

GoldCore is committed to complying with the requirements of the Data Protection Act. This means that in the provision of our services, appropriate personal information is processed and kept securely. It also means that we will never sell your details to a third party. The information you provide will remain confidential and may be used for the provision of related services. Such information may be disclosed in confidence to agents or service providers, regulatory bodies and group companies. You have the right to ask for a copy of certain information held by us in our records in return for payment of a small fee. You also have the right to require us to correct any inaccuracies in your information. The details you are being asked to supply may be used to provide you with information about other products and services either from GoldCore or other group companies or to provide services which any member of the group has arranged for you with a third party. If you do not wish to receive such contact, please write to the Marketing Manager GoldCore, 63 Fitzwilliam Square, Dublin 2 marking the envelope 'data protection'

GoldCore Archive

© 2005-2019 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