I wasn’t really sure what to write about for this entry in the BIGBLEU blog until I read the following in MoneyWeek dated 16 April 2010.
“HOUSE PRICES: the bulls fold
I was recently debating house prices on BBC Radio Scotland with a property market professional (writes Merryn Somerset Webb, Editor-in-Chief of Moneyweek. It was meant to be the classic bear versus bull debate (with me as the bear, obviously). So I was surprised when he announced that the best we could hope for this year was that house prices would remain stable before falling again. Yet what’s really weird is not that he suddenly came over all honest, but that for so long most other estate agents haven’t been prepared to do so. Agents need high sales volumes more than they need high prices if their businesses are to succeed. So it’s in their interests to try to persuade reluctant sellers to come to the market by telling them the truth, which is that, with houses hugely overvalued, interest rates only able to rise from here, and unemployment and taxes set to soar, it is almost impossible to make a case for rising house prices.”
Talk about the pot calling the kettle black! Merryn mentions “truth” and “honesty” a few times in this extract. Isn’t she forgetting that MoneyWeek have been calling the demise of the UK housing market for YEARS and been consistently wrong about it? To date it’s been the ‘never been a better time to buy’ estate agents that have been consistently right, vested interest or not.
In terms of her finding it “impossible to make a case for rising house prices” because of the prospect of rising interest rates, taxes and unemployment, isn’t she describing exactly the environment we’ve had in 2009 and 2010, during which prices in London have returned to their 2007 highs – just 1 year after we were mired in the longest and deepest recession since the war?
On the subject of interest rates, the March inflation figures announced last week continued their upward trend. CPI 3.4%, RPI 4.4%, RPIX 4.8%. 4.8% is a big number isn’t it! Many people agreed that they were big numbers and there was the usual speculation that as a result rates would start to rise later this year rather than next year or later.
Those that think rates will rise appear to be ignoring the consistent BoE mantra that inflation will start to fall back later this/next year. As we’ve said before, we don’t think the bank really think it (e.g oil is at $85.5 today and looks ready to explode upwards), it’s just a good excuse to keep rates low for much longer.
They are also ignoring how scared governments and central banks are of returning us to where we were in March 2009 by raising rates prematurely – it’s easy to forget that just over a year ago Volvo reported that truck sales had plunged 99.7% - with orders for just 115 new lorries in the previous three months compared to orders totalling 41,970 in the third quarter of 2007.
Add to that the fear of what’s going on in Greece, Spain and Portugal (we haven’t added the UK to the list because we don’t think it belongs there) at the moment (Greek 10-year government bonds surged to 11.406 percent yesterday after Standard & Poor’s cut its credit rating to junk), the uncertainty of the election and austerity measures and we don’t think there will be higher rates for a very long time and certainly not until the economy is roaring, regardless of inflation.
On the subject of unemployment, a few public sector jobs might go, but we think the private sector will take up the slack as the world economy recovers much more strongly than expected courtesy of Bernanke, the BoE and other central banks keeping rates where they are “for an extended period” as the West inflates its way out of its debts.
Speculation about taxes is particularly topical because it’s just been leaked that Mervyn King thinks that whoever wins the election will be out of power for a whole generation because of how tough the fiscal austerity will have to be. Whether that’s right largely hangs on the speed of the economic recovery, but comments like that will certainly help to keep sterling low and further stimulate inflation. Maybe MK said it because he thinks inflation isn’t rising fast enough?
Lastly, we also think the high street banks disagree with Merryn. They have been consistently increasing loan to value ratios and dropping margins on mortgages. That’s a good indication their confidence in the housing market is returning. Not only does that mean they disagree with Merryn but cheaper, easier money for borrowers will help sustain the rally in prices.
I know most of this is a totally one sided regurgitation of what we’ve said in the past, but that hasn’t stopped MoneyWeek over recent years.
Ps – Nationwide announced yesterday that property values were up by 1% in April. That’s going to spoil somebody’s May Day Bank Holiday!