If the vote had gone the other way I'd have been certain there wouldn't be a bust. You simply do not get pessimism at the peak of any bubble. The vote is of no consequence. By definition, most people will be wrong at the peak.
FoFP
wouldn't
I agree with the logic but it assumes that the vote was taken at or near the peak - are we sure? There are "peak deniers" out there who believe we are about to enter a plateau or soft landing. You simply do not get the vested interest turkeys to vote for Christmas whatever they truly believe.
It could be the case that the peak is still further out. IMHO the peak would have been in 2001 if Greenspan et al hadn't dropped interest rates to emergency levels to avoid a post-bubble deflation. Essentially there was agreement to pump credit, and mortgage-finance through the GSE's, to offset a deflation.
Obviously they succeeded, but at the price of exacerbating the credit bubble. Such bubbles follow the rule "The bigger they are, the harder they fall" and I think it's odds-on that history will see the action as saving a recession at the cost of a depression.
Still, if it does look like a bust, they might be able to goose it one more time by dropping interest rates. I suspect though that the markets will take it out of their hands. It's clear that even Greenspan is getting worried about what he's wrought by his comments to the Senate Banking Committee last week. It's also clear from Ron Paul's as usual masterly questioning that Greenspan knows he's on the hook and had no defence but to bluster.
The sad facts of the matter are that house prices are a lot more likely to be decided by the Japanese and Chinese, and by the hedge funds holding mortgage-backs than they are to be decided by the BoE, estate agents, or BtLers. Housing *is* a credit driven market, and the world is now travelling in galaxies unknown where credit is concerned. There's nary a credit statistic to be had which isn't way off in the redline somewhere if compared to any previous history.
Just as nobody would mention deflation until they figured they had it beat, nobody in the current finance pantheon is going to give credibility to a housing crash. The one thing they don't want to be blamed for is starting a panic. One guy at one of the Societies dipped a toe into those waters and the rest of them held his head under until he cried uncle.
So forget predictions and prices. Credit is the key. If the credit comes down, prices will follow.
FoFP
Very interesting points, thanks for the illumination.
There is anecdotal evidence of lenders' valuations recently being far lower than the agreed price, therefore they prudently refuse to lend the full amount requested - which is the start of credit contraction.
Well, one turkey has finally broken free:
'The monetary policy committee hold the life of the housing market in their hands this week. If they choose to increase interest rates it is likely that the market in many parts of the country could grind to a halt. In addition, many home owners will be struggling to meet their increased mortgage repayments putting additional pressure on credit card spending and the increasing levels of consumer debt in this country.'
And he added: 'The housing market is showing only marginal indications of recovery from last year's slowdown and any significant additional pressure could prove to be the final straw.'
Chief Executive, National Association of Estate Agents
Yes, that's one means for credit to become less available.
This is less crash-prediction than it is special pleading for the BoE to set interest rates to suit the Estate Agency industry. It's one of the problems with sovietisation of interest rates. We'd have fewer credit problems if we let the market set 'em.
FoFP
In message , Sammy writes
This has been one of the major problems of house sellers since time began. Boom or Bust, we always ended up negotiating over a surveyors down valuation. It has absolutely nothing to do with credit bubbles or squeezes - I guarantee it!!
Isn't it easier to get/persuade an up value in a rising market?
FoFP
No - Surveyors tend to use comparables of completed properties to justify their valuations so, in a rising market, they are using slightly historic, (therefore lower), figures, so the tendency is to downvalue.
In a falling market, they add in the backside covering fact that the market is falling, so the tendency is to downvalue, (which actually self perpetuates the fall).
You could argue that the tendency is greater in a falling market, if you want to support your cause
downvalue.
Does that mean LTV ratios have been falling in the last few years? It must have been difficult for the surveyors to keep up if they were basing valuations each time mainly on the latest comparable sale.
In message , Sammy writes
Not necessarily - it has been an ongoing situation, so probably no real change.
Not really - it is what they have always done.
All of my five house valuations came in on the button, and in none of those purchases had I agreed a offer more than a few percent below asking.
tim
Hmmmm, finally came across an article linking the credit bubble to house prices that isn't written by Doug Noland. Could be a sign of the end times:
"Richard Faulkner" wrote
I've experienced that too. Every time I've had a property surveyed for mortgage purposes, the surveyor has insisted I was overpaying and that I supposedly ought to be able to buy the place for 20% less. I wish these guys would find you a property at the price they say yours is worth. I'd happily cut them 10% of the saving.
I paid 25k in '86 and was told it was only worth 20k. Sold 18 months later for 46k.
I paid 85k in '88 and was told it was only worth 60k. He wasn't right until 1994. Sold in '98 for 110k.
I paid 265k in '98 and was told it was worth 220k despite an attempted gazump at 285k. Last valued 1 year ago by an agent at 450k, but the remortgage surveyor insists it's only worth 385k. Go figure.
"M Holmes" wrote
I find your posts most interesting, Mr. Holmes FoFP, but what should one actually *do*?
What you do in any financial circumstances depends as much on your circumstances and wants as it does on the prevailing monetary winds. Thus any advice given could only be very generic.
If I'm correct about where we are in the K-wave or credit cycle, then tyhe next decade or two will favour those who've paid off or paid down debts and moved as far out of assets and as much towards cash or close equivalents as possible. This not least because once the bust comes, they'll be able to pick up assets at a substantial discount from overstretched debtors.
The one worry of course is if the government really screws up and we get a hyperinflation instead of a deflation. Then gold, guns and bullets will be the sought after assets.
FoFP
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.