UK house prices
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Residential capitalism is a child of the banking system
Everyone understood their opportunity: real estate. In China, it is always real estate. From Red Capitalism, pg38, before launching into a description of the Great Hainan Real Estate Bust of 1988 to 1993. …the stormy situation in national large midsize cities’ housing prices has created a new real estate market craze From a People’s Daily editorial on Tuesday. It’s the “biggest bubble in history” From China’s richest man Wang Jianlin, Sept 28th, on the current state of the real estate market and before… well that bit hasn’t happened yet so we are fine sticking with maybe nothing, but maybe something pretty bad at some point in future.
Here’s an interesting thought from Grant Spencer, the Deputy Governor in charge of financial stability at the Reserve Bank of New Zealand: While boosting the capacity for development and housing supply is paramount, it is also important to explore policies that will keep the demand for housing more in line with supply capacity…We cannot ignore that the 160,000 net inflow of permanent and long-term migrants over the last 3 years has generated an unprecedented increase in the population and a significant boost to housing demand…There may be merit in reviewing whether migration policy is securing the number and composition of skills intended. While any adjustments would operate at the margin, they could over time help to moderate the housing market imbalance.
Why did Americans (and Spaniards and Irish) borrow so much against housing in the 2000s, only to find themselves stuck with more debt than assets? It sounds like a simple question, but it’s surprisingly difficult for economists to agree on an answer. The standard approach is to attribute the excesses to changes in the behaviour of lenders, who, for whatever reason, became much more eager to give mortgages to people they previously would have avoided with terms they previously would have considered reckless. (For more on the European cases, see here.) For example, about a third of all mortgage debt originated in 2005 and 2006 was either subprime or “alt-A”, according to data from Inside Mortgage Finance, compared to the stable 1990-2003 average of about 10 per cent. Subsequent experience tarnished these product segments so badly they effectively disappeared.
In the real estate world, the term “golden brick” refers to the first level of bricks above ground and is typically discussed because of the tax implications: developers can avoid VAT on a land sale with a “golden brick” transaction, where it’s obvious that a building is under construction. In the peer-to-peer real estate world, the term “golden brick” has emerged as a nice bit of spin for property market pain. Here’s Property Partner, a crowdfunding site for housing equity, encouraging its customers to keep buying last week:
Six open-ended UK property funds (and counting) have suspended redemptions on the back of Brexit induced volatility leading some to worry the market’s on the verge of a sizeable correction in UK real-estate prices. But this isn’t the crisis of 2007, says SG’s Jean-David Cirotteau. As Cirotteau and team observe, during the subprime crisis, UK office prices dropped by 38 per cent from peak to trough from the end of 2007 to mid-2009, and within that context the London residential price correction was more limited, with the market falling by 17.7 per cent.
UK retailers, with some exceptions, have had a rocky start to the day, but The City can take solace in musical metaphors for Brexit. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for a full newsletter here.
Michael Sherwood of Goldman Sachs faces a grilling from MPs on BHS, house prices are up 5.1 per cent in June, says Nationwide, Dixons Carphone profits are up 17 per cent. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
Lol, no, of course it won’t. The UK’s “peer-to-peer” lenders are facing their first economic shock and possible down cycle. But where some see the apocalypse, the likes of Ratesetter see an opportunity: FinTech is in its infancy but that means it is necessarily forward-thinking and modern and that allows it to respond more nimbly to the inevitable changes and opportunities that will arise from today’s vote. Leaving the EU may discombobulate big banking conglomerates and FinTech businesses will look to fill any spaces. This may prove to be an opportunity for FinTech.
From Bernstein’s Chirantan Barua and team: They “wouldn’t be surprised”, btw, to see house prices down 20-30 per cent if Brexit were to happen as sterling falls, volatility increases and people realise it’s a market ripe for a drop.
Rolls-Royce says the outlook for next year is negative, sending its shares down 22 per cent this morning. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
Selling flashy apartments in London is good business. As the FT’s Lex column reported last week, Berkeley Group, one of the most well known premium house builders, achieved a pre-tax return on equity of 29 per cent in its latest year-end results.
In the UK, Monday saw the launch of Onthemarket.com, a supposed attempt to break the online property portal duopoly in Britain, currently consisting of Rightmove and Zoopla. The new challenge has come from Agents’ Mutual, a sizeable consortium of estate agents who want to regain control of the homebuyer audience. About 25 per cent of agents have signed up on the condition they stop advertising properties on the two incumbent sites, opting instead to fix monthly listing fees for five years – and escape the escalating monthly charges levied by Rightmove and Zoopla.
It’s a good job the London housing market is indestructible, otherwise the collapse of the Russian currency might be cause for concern in Belgravia. After all, Russians were buying one in every five “super-prime” properties this year. That stat comes via Knight Frank, who consider £10m-plus pied-à-terres to be super prime. In the six months to October, 21 per cent of the high end sales closed by the estate agent went to Russians. Infographic of the golden postcodes after the jump.
When city-dwellers moan about their high cost of living, they often elicit the unsympathetic retort that they should shut up and praise the ghost of Jane Jacobs for the cultural vibrancy of their neighborhoods, the lucrative jobs, and the artisanal pizza. Living in a great city is a consumption good, you whinging ninnies — you SHOULD have to pay for it! Why do you think you’re entitled to live wherever you want?
Sometimes it’s all about the ski chalets. On which note, Knight Frank’s latest dive into the world high-altitude snow-dusted living offers some interesting findings. Among them is the fact that putting your investment money in twee wooden cabins is actually becoming a bit of a thing: For the world’s wealthy a ski home is a key component of their global property portfolio, but increasingly it is being bought not just as a lifestyle acquisition but one that can provide an investment return as well. Which is possibly a neutral bet given the poor but not terrible track record of ski chalet prices during the crisis: Bricks and mortar – of the Alpine variety – did not benefit from the safe haven shift that prime property in cities like New York and London saw post Lehman’s collapse in 2008. Prime prices dipped in the Alps but did not plummet like they did in some of Europe’s oversupplied second home coastal markets.
From Bloomberg: London home sellers cut asking prices by the most in more than six years this month, adding to signs that the property market in the U.K. capital is coming off the boil. London values fell 5.9 percent from the previous month to an average 552,783 pounds ($922,300), the biggest drop since December 2007, property website Rightmove Plc said today. Nationally, prices declined 2.9 percent, a record for an August.
Widodo declares victory in Indonesia || Security theatre spreads to more airports || UK retailers say prices falling || House prices stabilise || Attacks on Gaza intensify || AbbVie forced to retract claims of support || Portugal bonds drop || Selling momentum for stocks fades
The PRA and the FCA should ensure that mortgage lenders do not extend more than 15% of their total number of new residential mortgages at loan to income ratios at or greater than 4.5. This recommendation applies to all lenders which extend residential mortgage lending in excess of £100 million per annum. The recommendation should be implemented as soon as is practicable.
From Tomas Hirst, editorial director of Pieria, commissioning editor at the World Economic Forum and sometime playwright… Commentators have been huffing and puffing themselves breathless with warnings of an imminent market correction in Britain’s property market. Even the European Commission has got in on the act warning policymakers of the risk of “excessive house price rises and increases in mortgage indebtedness”. What there is no disagreement over is that prices have been rising strongly. According to the Nationwide House Price Index the average UK house price sold for a record £186,512 in May pushing annual pace of price growth up to 11.1 per cent:
Goldman Sachs has had a look attempts to lean against house price cycles by central banks, in 20 OECD countries from 1990 to 2012, to see what effect they have had. More on that below, but first a striking chart of post-Great Recession house price trends (from the first quarter of 2009 to now):
Late last year we speculated that if anything was going to disrupt the London property bull market it was going to be a grand exodus, motivated by the economically viable population realising that they could nowadays live and work quite happily outside of city perimeters. You know, the internet and all that. Silly us. Knight Frank’s latest wealth report, to be released on Wednesday, has decided that the greatest disruption to established property wealth centres may come from extra-terrestrial advances instead.
The latest RICS survey shows that house prices are continuing to boom in the UK. This is despite the fact that the net balance of surveyors reporting house price gains edged down from 58 per cent in November 2013, which was the highest since 2002, to 56 per cent in December. As Citi’s Michael Saunders notes the overall rate remains very high and consistent with house price gains of at least 10-15 per cent year-on-year, especially since the reading for house price expectations is the highest since 1999. What’s more interesting, however, is that the boom is no longer as London/South-East centric as it has been.
So, we may have been a little distracted by the boom in estate agents, dark inventory, and London houses earning more than their occupants to see what was really going on. In fact, London is in the grip of a terrible and deep housing bust that has only just begun to turn. Greater London house prices, adjusted for inflation, are fully 27 per cent below their peak in the summer of 2007.