Today, we will start off with a happy story predicting that house prices will continue their endless push into the stratosphere. Is there really no end to house price appreciation; not according to an outfit called smart new homes.
Thereafter, we return to the gloom. We will be handing out our standard fare of crashing property prices, the credit crunch, and implausible ideas about bailing out distressed homeowers.
Property prices going up in 2008
Yes, you read it right. Forget everything else you heard this week about the bottom falling out of the market. UK property prices will be going up next year, at least according to smartnewhomes.com.
That little link was my forlorn attempt at spreading a little happiness around today. However,in these days of property market depression I should not be the only one out there looking for cheery stories about ever rising house prices. If you see something similar, please email it to me here. I will promise to post the link.
Until the new year, prices will be falling
"oh there goes gravity, back to reality". Market Oracle begs to take a different view to smart new homes. It has very nice piece that starts out with face-slapping 0.8 percent price decline:
"The Nationwide, one of Britain's biggest mortgage Lenders announced a sharp 0.8% Drop in House Prices for November, the biggest fall for 12 years, bringing the annualised rate down sharply to 6.9%. Whilst at the same time the Bank of England reported a slump in new home buyer mortgage approvals to a 3 year low. The fall house prices is inline with the Market Oracle forecast for a 15% drop in UK House prices as of 22nd August 07. "
Say goodbye to subprime
Financial innovation clunks into reverse. Mortgage lenders are now pulling all those high risk lending products that kept house prices rising. "Latest data from money search engine Moneyfacts.co.uk reveals two thirds of sub prime products have vanished in the last six months. Indeed, the credit crunch has virtually destroyed the sub prime buy to let market and made a significant dent in the residential market too."
Credit quality continues to deteriorate
Stories like this one never get the attention they deserve. According Standard & Poor's $36.2 billion of US debt was in "a distressed state" - more than four times the $8.6 billion reported a month earlier. Furthermore, "distressed debt as a percentage of total debt recorded its largest monthly increase in five years, more than doubling to 4.9 percent from 2.3 percent. The ratio was as low as 2.1 percent 12months ago."
What exactly Standard & Poor's mean when it talks of "distressed" debt? It is a euphemism for debtors not paying back creditors.
Bush turns socialist
The home of the free market is taking a decidedly interventionist approach to the rising number of home repossessions. The Bush administration is brokering a deal major US lenders that will see a temporary freeze on subprime interest rate adjustments. Given that Bush has a hand in it, it almost goes without saying that the plan is ill-considered and poorly conceived. Mish does a great job pointing out the perverse incentives that this plan will offer housing speculators. Mish points out one fairly obvious flaw with the plan:
"So now the lenders all get together and decide who can afford to pay what. I have a counter proposal. Why don't grocery stores all get together and decide how much customers can afford to pay for a loaf of bread?
Seriously, that is what is being discussed here. But let's get one thing straight right up front. This has nothing whatsoever to do with "saving people's homes". This is about saving financial institutions from collapse. And the plan will fail. It rewards those who cannot afford to pay. The details are not in yet but I suspect one measure of the ability to pay will be whether or not one is current on their loans."
Keith over at housing panic rages against the plan. He has a post entitled: "Moral hazard goes off the charts as banks and our goverment talk about voiding contracts and letting teaser rates continue. That probably just about sums the whole thing up.
Do you think Brown, King, Lomax et al will cook up something similar here when prices also crash 15 percent?
UK personal sector debt
I found this great link on the immobilienblasen blog. It is site called credit action. The numbers on UK personal debt are just shocking. My favourite statistic is that Britain's personal debt is increasing by £1 million every 4 minutes.