Lets have another house price crash thread!
05 February 2007, 10:27 PM
#31
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even if it does fall below 50k it wont matter if your not looking to move, as prices will only rise again.
05 February 2007, 11:09 PM
#32
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The average house is 6x the average income.. It's simply not sustainable, particularly if interest rates go up. (Another 0.25% rise has not been ruled out)
House prices are growing at their slowest rate for 8 months now.. I can't see them rising much more (above inflation)
House prices are growing at their slowest rate for 8 months now.. I can't see them rising much more (above inflation)
06 February 2007, 10:29 AM
#33
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US investment bank Merrill Lynch is worried.
“We think global interest rates are going to rise a lot more than investors are discounting, and this is a worrisome outlook for profits,” said Khuram Chaudry, Merrill Lynch’s chief European strategist.
Despite a growing number of commentators who are suggesting that central banks have lost their control over monetary policy, Mr Chaudry believes that central banks still have more impact on the global economy than many investors appear to think. “It matters when central banks tighten monetary policy.”
Global liquidity growth has fallen from a peak of 22% in 2005, to around 10% now, notes Ambrose Evans-Pritchard in The Daily Telegraph. “Mr Chaudry said the suddenness of the fall matters more than the absolute level, typically serving as a warning signal with a lead time of 12 to 18 months. It slid in a similar fashion in 2000, and before both the 1998 Asia crisis and the US Savings and Loan crisis in the 1980s.”
This is all happening at a time when global investors are more exposed to sudden shocks or liquidity drying up than ever before. For example, Tony Tassell in the FT reports that State Street Global Markets reckons that the carry trade (borrowing in a low-yielding currency - mainly yen at the moment - to buy a higher-yielding currency) “is approaching extreme levels.”
The carry trade is difficult to measure - people don’t fill in a form detailing their intentions when they buy or sell currencies. But State Street has found a pretty good method of working out roughly how much ‘carrying’ is going on. They look at where money from institutional investors is going, and where it is coming from. They then relate that to the yields on various currencies.
So basically, when there’s a lot of money leaving the low-yield currencies, and lots heading into the high-yield currencies, you can be fairly comfortable with concluding that a big chunk of that is people aiming to profit from the carry trade.
That’s the theory. And at the moment, the correlation between fund flows and currency yields is at 61%, its highest since 1999. Investors are borrowing in yen and Swiss francs, and buying up the Brazilian real and the Australian dollar, among others.
But the carry trade is very risky. Others have described it as “picking up nickels in front of a steamroller.” As Albert Edwards, Dresdner Kleinwort analyst, points out, the “yen is extremely cyclical, closely tracking shifts in the Japanese economy.”
If you’ve borrowed money in yen to put in Australian dollars, and the yen suddenly strengthens, you could find yourself in a very deep hole, very quickly. So some decent Japanese economic news could cause a sharp rush out of carry trades - particularly if it makes a rise in Japanese interest rates more likely.
Of course, that would mean reversing all those fund flows, so that demand for yen would increase sharply, which would in turn drive the yen higher, making the position of all those carry trades still outstanding even more disastrous.
So what should investors do? Merrill reckons that it’s time to invest in cash, large cap stocks with decent dividend yields (they suggest AstraZeneca and Sweden‘s H&M, among others), and - of course - gold.
“We think global interest rates are going to rise a lot more than investors are discounting, and this is a worrisome outlook for profits,” said Khuram Chaudry, Merrill Lynch’s chief European strategist.
Despite a growing number of commentators who are suggesting that central banks have lost their control over monetary policy, Mr Chaudry believes that central banks still have more impact on the global economy than many investors appear to think. “It matters when central banks tighten monetary policy.”
Global liquidity growth has fallen from a peak of 22% in 2005, to around 10% now, notes Ambrose Evans-Pritchard in The Daily Telegraph. “Mr Chaudry said the suddenness of the fall matters more than the absolute level, typically serving as a warning signal with a lead time of 12 to 18 months. It slid in a similar fashion in 2000, and before both the 1998 Asia crisis and the US Savings and Loan crisis in the 1980s.”
This is all happening at a time when global investors are more exposed to sudden shocks or liquidity drying up than ever before. For example, Tony Tassell in the FT reports that State Street Global Markets reckons that the carry trade (borrowing in a low-yielding currency - mainly yen at the moment - to buy a higher-yielding currency) “is approaching extreme levels.”
The carry trade is difficult to measure - people don’t fill in a form detailing their intentions when they buy or sell currencies. But State Street has found a pretty good method of working out roughly how much ‘carrying’ is going on. They look at where money from institutional investors is going, and where it is coming from. They then relate that to the yields on various currencies.
So basically, when there’s a lot of money leaving the low-yield currencies, and lots heading into the high-yield currencies, you can be fairly comfortable with concluding that a big chunk of that is people aiming to profit from the carry trade.
That’s the theory. And at the moment, the correlation between fund flows and currency yields is at 61%, its highest since 1999. Investors are borrowing in yen and Swiss francs, and buying up the Brazilian real and the Australian dollar, among others.
But the carry trade is very risky. Others have described it as “picking up nickels in front of a steamroller.” As Albert Edwards, Dresdner Kleinwort analyst, points out, the “yen is extremely cyclical, closely tracking shifts in the Japanese economy.”
If you’ve borrowed money in yen to put in Australian dollars, and the yen suddenly strengthens, you could find yourself in a very deep hole, very quickly. So some decent Japanese economic news could cause a sharp rush out of carry trades - particularly if it makes a rise in Japanese interest rates more likely.
Of course, that would mean reversing all those fund flows, so that demand for yen would increase sharply, which would in turn drive the yen higher, making the position of all those carry trades still outstanding even more disastrous.
So what should investors do? Merrill reckons that it’s time to invest in cash, large cap stocks with decent dividend yields (they suggest AstraZeneca and Sweden‘s H&M, among others), and - of course - gold.
06 February 2007, 11:09 AM
#34
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Even if house prices don't crash, by renting I am in a position that I will only start to lose out (in comparison to owning this house) if the house prices go up by about 9% this year.
Rental 2.5% of property value vs 7% on interest, insurance, maintenance, net loss 4.5%.
Gain in capital value of property of about 9%, loses 4.4% when subtracting RPI, and loses 4.5% as above.
So even if prices don't crash and the market continues at well above its long term growth I'll not lose out. To me the rental yields are giving a future indication of the true value of housing.
Rental 2.5% of property value vs 7% on interest, insurance, maintenance, net loss 4.5%.
Gain in capital value of property of about 9%, loses 4.4% when subtracting RPI, and loses 4.5% as above.
So even if prices don't crash and the market continues at well above its long term growth I'll not lose out. To me the rental yields are giving a future indication of the true value of housing.
06 February 2007, 12:32 PM
#35
The IFS said that £500 million had been concealed "off balance sheet" in Government liabilities for public sector pensions, dozens of "buy now pay later" private finance initiative schemes to build new hospitals, as well as the debts of Network Rail, which are underwritten by the taxpayer.
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