The latest land registry figures (report here) show that London House prices are still moderately increasing, up by 1.9% on the previous month and 1.3% on one year ago. While this is cheering it should be noted that London is now the only area of the country experiencing house price increases, and the economic problems causing the general decline are also going to effect the London market sooner or later. The increases we see in the London market are being driven by higher end properties and the peculiarities of that market, in particular its international nature. The land registry figures report shows that the price increases are highest in Kensington and Chelsea (10.6% annual increase) and Westminster (6.6% annual increase) and lowest. Outside central London we find a mixed bag with most borough's reporting a slight increase or decrease year on year. We also see seasonally adjusted London sales volumes reducing slightly, but the figures clearly show that volumes are down most for low and high end properties, while for middle range properties from £400k-£1,000k the volumes are almost unchanged in the last year. This shows again the difficulties being faced by first time buyers. The same goes for higher end properties, so while prices are holding up at the moment the reduction in volume is slightly worrying. It could be that the shadow of recession is causing investors to think twice about high end London property, in the hope of price reductions to come.
Monday, 29 August 2011
Saturday, 20 August 2011
The Property Market and the ongoing Economic Crisis
It seems that economic conditions are once again taking a turn for the worse. This is hardly surprising. The problems we see today are simply those that were suppressed by government intervention in 2008, namely excessive borrowing at both individual and national level. Governments managed to reduce the impact of the crisis in 2008 by reducing interest rates and pumping money into the economy via quantitative easing. This gave the illusion of recovery and growth without solving the underlying problem that too much money had been lent to those without the ability to repay.
Now that governments are being forced to address these problems, and try to reduce their deficits to manageable levels, this naturally means support for the economy will have to be reduced, which will, as the tide goes out, expose those who were relying on that support. This is even evident on an international level, particularly in the current Euro crisis, in which the stronger Euroland economies are being forced to prop up the weaker ones.
So, how does this affect the property market?
In some ways the property market is in a good position. The fact is that the property market was at the sharp end of the ongoing economic crisis back in 2008. The initial manifestation of the crisis was in banking which resulted in a drastic reduction in mortgage lending, which provided a shock to the property market. The level of mortgage lending we see today is sustainable and we should not see further reductions in mortgage availability if the economy takes a turn for the worse now.
It is also fairly clear that we will be in a low interest rate environment for the next year or two. This means that funding, for those creditworthy enough, ought to remain relatively cheap. Economic problems, however, will mean that banks will remain unwilling to expand their mortgage offers greatly, and many will still be unable to obtain a mortgage. this will remain the case until the economy as a whole begins to grow and the banks see that the crisis is in the past. This means there are good opportunities for long term buy to let investors, with the rental market booming, being fuelled by those would be first time buyers who are unable to obtain mortgages.
What we also see is that a buffer of would be first time buyers is being created. This creates a hidden demand, for a certain class of properties, which will not go away. As soon as funding is available for these buyers they want to get onto the property ladder. So if you invest now in this type of property as a buy-to-let investment you will not only have good rental income but also the prospect of hidden demand being unleashed in the medium term, to provide a good capital return.
So, while we always have to be aware of the impact of general economic conditions, specifically as they affect tenants and buyers ability to pay, we must also take advantage of the situation we find ourselves in. Property still remains a good investment in the current climate, for those with a medium to long term outlook and available funding.
Now that governments are being forced to address these problems, and try to reduce their deficits to manageable levels, this naturally means support for the economy will have to be reduced, which will, as the tide goes out, expose those who were relying on that support. This is even evident on an international level, particularly in the current Euro crisis, in which the stronger Euroland economies are being forced to prop up the weaker ones.
So, how does this affect the property market?
In some ways the property market is in a good position. The fact is that the property market was at the sharp end of the ongoing economic crisis back in 2008. The initial manifestation of the crisis was in banking which resulted in a drastic reduction in mortgage lending, which provided a shock to the property market. The level of mortgage lending we see today is sustainable and we should not see further reductions in mortgage availability if the economy takes a turn for the worse now.
It is also fairly clear that we will be in a low interest rate environment for the next year or two. This means that funding, for those creditworthy enough, ought to remain relatively cheap. Economic problems, however, will mean that banks will remain unwilling to expand their mortgage offers greatly, and many will still be unable to obtain a mortgage. this will remain the case until the economy as a whole begins to grow and the banks see that the crisis is in the past. This means there are good opportunities for long term buy to let investors, with the rental market booming, being fuelled by those would be first time buyers who are unable to obtain mortgages.
What we also see is that a buffer of would be first time buyers is being created. This creates a hidden demand, for a certain class of properties, which will not go away. As soon as funding is available for these buyers they want to get onto the property ladder. So if you invest now in this type of property as a buy-to-let investment you will not only have good rental income but also the prospect of hidden demand being unleashed in the medium term, to provide a good capital return.
So, while we always have to be aware of the impact of general economic conditions, specifically as they affect tenants and buyers ability to pay, we must also take advantage of the situation we find ourselves in. Property still remains a good investment in the current climate, for those with a medium to long term outlook and available funding.
Sunday, 31 July 2011
RICS Housing Market Survey
The latest RICS survey shows that while house prices are continuing to fall they remain stable in London, with some evidence of a small increase in prices in certain areas. Activity Levels and buyer inquiries remain low across the country as a result of the uncertain economic conditions.
The full report can be found here.
On the Possibility of a US Default
After having seen the possibility of a Greek default deferred for a few months, we are now confronted by the more interesting, and altogether more unexpected, possibility of a US default. Not, as in the Greek case, because they do not have an ability to pay without outside assistance, but rather because of petty squabbling among politicians who either cannot see the damage a US default would do, or are simply engaging in brinkmanship.
What is certain is the the US must do something about it's budget deficit. It is not sustainable in the long term, and despite the fact their economy is not growing strongly, and their property market is now in decline, they must cut government expenditure. If they do, and manage to avoid default, they still face a downgrade by S&P, which will have consequences for investors and the economy.
The biggest message from the US debt crisis we have been witnessing this week, is the narcissism of elected politicians. When confronted by an crucial issue for the country, the US politicians have managed to think of their own political careers first, and the good of the nation second. It is inconceivable that the US should default on their debt; the consequences of this for the world economy are unthinkable, but the politicians are able to overlook this to get in some political point scoring.
Back in the UK our politicians have less substantial matters to deal with, but we should always be aware, I think, that, like their US counterparts, most British politicians today are political careerists who will put their own career first, over and above the national interest. There are exceptions, but generally speaking the quality of the people we elect to represent us seems to be increasingly mediocre; as evidenced by the expenses scandal, which showed us the real character of many of our MPs.
We should remember that politicians are our representatives, and we entrust them to run the country for the benefit of the populace as a whole, and not for the benefit of themselves. Their own personal interests must always come in second place, behind the national interest. We should not tolerate politicians who think otherwise, in case we find ourselves in the same position as the US electorate does today.
What is certain is the the US must do something about it's budget deficit. It is not sustainable in the long term, and despite the fact their economy is not growing strongly, and their property market is now in decline, they must cut government expenditure. If they do, and manage to avoid default, they still face a downgrade by S&P, which will have consequences for investors and the economy.
The biggest message from the US debt crisis we have been witnessing this week, is the narcissism of elected politicians. When confronted by an crucial issue for the country, the US politicians have managed to think of their own political careers first, and the good of the nation second. It is inconceivable that the US should default on their debt; the consequences of this for the world economy are unthinkable, but the politicians are able to overlook this to get in some political point scoring.
Back in the UK our politicians have less substantial matters to deal with, but we should always be aware, I think, that, like their US counterparts, most British politicians today are political careerists who will put their own career first, over and above the national interest. There are exceptions, but generally speaking the quality of the people we elect to represent us seems to be increasingly mediocre; as evidenced by the expenses scandal, which showed us the real character of many of our MPs.
We should remember that politicians are our representatives, and we entrust them to run the country for the benefit of the populace as a whole, and not for the benefit of themselves. Their own personal interests must always come in second place, behind the national interest. We should not tolerate politicians who think otherwise, in case we find ourselves in the same position as the US electorate does today.
Sunday, 24 July 2011
Why are house prices not collapsing?
The BBC news website published an interesting article today about house prices (http://www.bbc.co.uk/news/business-14020457). This has made me think a little about what exactly is going on in the property market, and why, amid perpetual warnings of collapse, property prices have remained stable. The article hints at various possibilities, but to me it seems clear that while the prices remain stable the depth of the market has collapsed considerably. Many of those who would like to sell cannot because their current property value will not cover their existing mortgage, or cannot get a mortgage on a new property. Similarly many would be buyers cannot obtain funding for their purchase. What we are left with then is the tips of two ice-bergs. On one hand the sellers, still with memories of 2007 and the values their properties reached, and not wanting to accept much below that now. On the other hand the much reduced collection of buyers who can obtain funding, and are therefore willing to buy at current prices. So, while the prices have remained stable it is at the cost of volume and market depth. If you are lucky and you're prepared to wait you might sell your property at a good price, but should you need to sell in a hurry, don't expect a flurry of buyers at your door looking to view.
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