Green Shoots of Recovery?

The UK offically went into reccession on the 23rd January 2009. Yet just a few months later, rumours about ´Green Shoots of Recovery´ have already begun to surface....     

So are we supposed to believe the worst is over already?

Back in 2007, it became apparent the Banking system had lent far more ´debt´ than was sustainable (Up to 40 times too much) the Banks lost confidence, the system froze and it seemed only a matter of time until the wheels came off. Even then it took almost 2 years to officially arrive in ´reccession´. 

The World economy doesn´t simply grind to a halt overnight, more importantly it doesn´t simply recover overnight. A period of negative or minimal growth should be expected, usually for years, before a long slow return to growth can be evidenced. Then and only then, can house prices start to recover.

As we are in Bank Reporting season, there remain questions about the Banking system and how much ´toxic debt´ is still out there? How much more needs to be written-off? More Government intervention AND how many more financial institutions could go under? In the USA where much of this started, a number of Banks have failed, in 2008 (25 Banks) and in the first 6 months of 2009, the number had already been exceeded, in August the number hit 77, with over 300 on the FDIC watchlist. See USA News

But What About The UK?

Lets consider the UKs´ ability to recover? With international finance (And associated industries) accounting for about a third of UK economic growth over the last 10 years, how well positioned will the ´City´ be to lead the way out of a depression? New Banking regulations are likely to be strict and prohibitive, which may encourage large financial institutions to move elsewhere? How many of these have already left the City? How many more will go? Even if every surviving institution remained in the UK after the fallout, would the new Banking rules, including the potential seperation of retail and investment banking, allow them to be as profitable again?

Given the massive public debt the current Governement is taking on (About £350billion over the next 2 years) and the resulting repayment by public taxation it will require, how long before the public can re-consider spending/investing, particularly on property which traditionally follows the economy?

A couple of statistical blips, particularly from UK property organisations and rising asking prices, do not indicate an actual change of direction, as one commentator put it ´One swallow does not make a summer´.

´Green Shoots´, beware the ´Slugs of Unemployment!´

Other News:

June - The Council of Mortgage Lenders report a nominal increase in the number of approvals last month. Up 227 (to 43,414) following a 16% increase in April (36,500). However, upon closer inspection, these numbers actually translate as little more than seasonal change. April approvals are likely to relate to March applications, which in the property world are traditionally busier months than previous and when new properties come to the market, meaning it´s a small number, increasing from the slowest, quietest winter in over 10 years?

Possibly the most important point to consider relates to how many Mortgage Approvals are actually taken up? How many is normal or sufficient to maintain a Status Quo on property prices? According to Capital Economics, it takes about 70 - 80,000 a month as a tipping point to stop house prices falling/rising in the UK, which is a long, long way away....

Also consider the ability to borrow and pay the huge mortgages necessary to own UK property, with unemployment soaring past 2mil, with 3mil in sight and predictions of 3.5 to 4 million already mentioned, that´s a lot of potential houseowners out of the market........

Recently BoE Supremo Mervyn King publicly stated this reccession is going to be longer and harder than the last, reversing his opinion from last year when he indicated this was simply a short term ajustment.....

With many of the more agressive lenders now in public hands, Northern Rock, Halifax, RBS etc. There will be stringent rules applied to lending multiples and LTV numbers, and the pivotal ´Self certification´ 85% mortgage will not be available any time soon, if ever. Meaning that buyers will have to justify their incomes and ability to repay loans like in the ´old days´. In future, borrowing 3.5 times income will enable the average earning buyer about £90,000 loan, requiring minimum 10% deposit, so able to buy around £100,000. So average prices between £154,000 or £198,000 depending on whose numbers you believe, are still considerably too high.

The UK property market had been overvalued for a long while before it went ´pop´ in Summer 07. Price to yield ratios were ´over the edge´, and lending multiples were long beyond sustainable. Fuelled by cheap credit, the consumer culture party simply could not continue.

Oyster International had long warned of a UK property ´price bubble´, based on a ´credit bubble´, although I´m not sure anyone quite expected the fallout to be this severe, many knew it would happen. We´ve always believed a 50% correction in house prices was possible, and in some areas this is now looking likely, while other areas show only modest falls and there might be one or two very exclusive addresses which show virtually no change.

So what now? We sit tight and review the markets. Credible forecasts continue to offer a bleak outlook, keep up to date with the news from around the world and snippets of information, which might show us where it all went wrong, in the hope we´ll know when it´s the right time to step back in.

In The News:

Following months of cuts in BoE base rates, the MPC  hold the base Rate at 0.5%.

More..

Property Values in UK Continue to ´Fall´ or ´Rise´ as the latest data confuses the market.

UK Property Market 

PLUS

UK Property Price Index Comparison

UK Property Price Predictions for 2009

USA Property News Updated - Half Price Houses Now Reality!!!!

International News  including  The Wheels Fall Off Dubai.......

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With UK property values falling from very high levels (See UK Property News ) and rental yields underwhelming, where else can you get both Capital appreciation AND positive yielding investment property?

As the Credit Crunch bites into the UK and USA economies, many other parts of the world its business as usual and are even benefitting from the problems faced here.

Whilst global property markets have continued to grow, albeit at a slower rate than before, new destinations are still opening, new Investment packages, unheard of countries appear for the first time on International Property websites and there are areas where bubbles deflated, particularly in markets where prices and supply outstripped demand. See International News

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