Warnings on the House Price Crash

I was on the telephone this morning and was surprised to be told that no 0ne could have foreseen the house price crash coming other than perhaps, Warren Buffet. My protestations that I had been warning of just such an outcome on my blogs appeared to be met with some doubt. While many of my warnings were made on the old "FT Forums" facility of the Financial Times which now do not easily seem accessible online, I have trawled up a couple of choice quotes from my blog Ironies: "Britain will not survive the continuation of this Government in office for very much longer!" Ironies 10:11 am 13th June, 2003 linked here. By 09:12 pm on 13th August, 2003 , read here, on the appointment of Mervyn King as Governor of the Bank of England and substitution of the CPI for the RPI in the inflation indices, I made the point that if price stabilisation were the objective this was an error as follows: Personally, however, and strictly as a non-economist, if I wanted to use a statistic showing price rises were no longer that severe a problem, which I assume is Brown's intent, then I think I would leave the property element in. This is a particularly fascinating quote as the assumption, highlighted above, I made back in 2003 is now quite clearly totally incorrect. I wished to retain property prices in the inflation index as property was already over-valued and the end result of any inevitable adjustment would be beneficial to the inflation figures. Brown, it is now daily becoming ever clearer, had no such aim! Brown's plan was presumably , the deliberate destruction of the English economy, his recent actions with Scotland's Banks leaving sufficient suspicion that he hopes to save Scotland from the worst effects of his disastrous economic mismanagement as Chancellor and present subsequent Prime Ministerial misrule. While looking through these old postings readers might enjoy my rant on the Zimbabwe 500 note and its euro equivalent posted on 1st August 2003 on the same page as the above quote or from here. I might add further links here later as I have to research other blogs including Teetering Tories, regarding the reported bribery of former Tory Party leader Michael Howard.

House Prices and Recessions

This blog has long maintained that the house price crisis, which governments and politicians in the UK and USA have both tried to ignore, remains basic to the dire and contnuing economic crisis, which is now quite clearly once again rearing its head.

The sell off on Wall Street, already well down today on the turmoil underway across the EU, got new legs when US home sales last month were announced as down another 3.5 per cent to the lowest levels for fourteen years!

Amongst all the numbers from the press release, this paragraph in particular caught my eye:

Foreclosures and short sales — when a lender agrees to sell for less than what is owed on a mortgage — made up about 29 percent of all home sales last month. That's up from about 10 percent in past years. And a wave of foreclosures are being held up, either by backlogged courts or lenders awaiting state and federal probes into troubled foreclosure practices.

In the UK the ongoing manipulation of house price statistics, that amazingly contiues in the mainstream media, month after month will quite soon inevitably be sussed out by the intending buyers who are its victims.

A Buyer's Strike is coming, sped on its way by the rapid realisation that owning a property to which you are heavily mortgaged and thus indebted for life, and will likely never more appreciate, is even less likely to prove sensible, when looting, arson and riot could occur anywhere, at any time once our democracy is totally abandoned, as is now becoming the case!

I have suggested possible solutions again and again on these pages, if any interested readers remain, you can find some on the following search links:

Walkaways

Fannie Mae

House Price Crash

Mortgages

"Panic begins to grip UK Housing Market"

As this blog has long and repeatedly pointed out the real disaster in the UK economy is the coming house price collapse. Arabian Money, linked here, has also now spotted the reality, this quote comes from the linked article, headlined the same as this posting:

"..... the house price to income ratio is twice its long term average. For it to revert to this long term level requires either a doubling of salaries or a halving of house prices. It is not hard to see which option is the more likely in the current age of austerity.

But this is going to be a major shock to the UK national psyche. The bubble has been forming so long it has become accepted as a new reality. Few younger property owners remember the 1990-3 house price crash. Corrections can and do happen even in a market where supply is as tight as in the UK housing market."

(Blog editor's added emphasis)

Fannie Mae, Walkaways and Sovereign Debt Stormclouds mount

Fox News reports on Fannie Mae one of the main factors behind the present crisis as this blog has always maintained, read it here. Negative homeowner equity will shortly become the major problem facing the coalition government yet no plans are in place to avoid the disaster sure to result. This blog made a suggestion to the disaster that was the Brown Government. I repeat that post below, will anybody now listen:

Monday, September 22, 2008

Curing Britain's Property Price Crash.

The Chancellor of the Exchequer, Alistair Darling, in an interview on the Radio 4 Today programme this morning gave no sign that he was ready to confront the UK housing crisis as I feel sure will still be the case in his conference speech later this morning and that of his Puppet Master tomorrow. The steps being undertaken in the USA over the weekend as reported from an EU perspective are fairly well ( although sometimes inaccurately) summarised in this link. Britain, it is generally acknowledged, has the second gravest property price crunch in the world, yet unlike in the USA with the magic Mr Paulson, the UK government, oh so typically, seems to be doing nothing to address it, content with ignorant BBC interviewers throwing out suggestions of bonus caps in the city and windfall taxes for the energy sector while chucking ever more billions of pounds yet further down the drain for added liquidity for the institutions at fault. In my post of yesterday, immediately beneath this posting, I addressed the problem of the householder in negative equity - particularly in my example number 2, of a family with a mortgage in excess of the value of his home but not yet in default - a potential 'walkaway mortgagee' as separate from one in default and given notice of re-possession. In my view it is the potential 'walkaway' who must first be helped. A decision to quit one's home is grave indeed and places that family in a position of effectively turning their back on the system. It is therefore an action that the government must endeavour to discourage even at great cost. (Re-possessions follow from a considered action of the mortgage holder and form a separate problem). Nobody yet knows how far UK property prices will plunge but it is essential to be aware that a fall of 20 per cent from peak levels requires a rising property market of 2 per cent above inflation for a period of twelve years before the original peak value is once again achieved. That is far too long to expect an ordinary mortgage holder to maintain mortgage payments for zero return. Once 'walkaways' begin they will spread like a plague with all kinds of consequences such as cross-squatting which will make counter-measures practically impossible - effectively anarchy could be an end result. Mortgages have always assumed the equity provided by the mortgagee is the first at risk. In this crisis that has to be changed. I suggest that for houses purchased since Gordon Brown, in the words of incoming BoE Governor King, to paraphrase 'moved the Goal Posts and excluded house prices from the CPI' any loss of value on the resale of such houses be directly proportioned between the first mortgage holder and the mortgagee. This is potentially expensive, but less so if it halts further slides in house prices. As the country is effectively bankrupt such a move will need financing and as a further step to somewhat also put the cost of the greed at the door where it lies I would further suggest the exemption of the first home from capital gains tax be withdrawn.

The unmitigated disaster of scrapping UK mortgage interest tax relief!

Tax relief in the UK was known as Miras, read here, it was introduced in a bid to encourage home ownership. It followed along from the earlier abolition of annual taxation assessed on the market value of property.

Is home ownership a sensible objective? A few minutes spent watching the following video clip may well incline one to that view, albeit relying on the exagerated comedy features of a popular British TV show:



In the UK today, the three main political parties, compete to claim themselves as being the most "progressive", of which, after any brief  analysis, independently minded researchers would likely be convinced is merely a new word describing modern day marxism, it is unlikely therefore that many proponents of the case for private home ownership can be found amongst their ranks.

Amazingly I have recently been informed by e-mail, that such an aboilition is starting to be considered in the USA itself. I provide a link to a site dedicated to fighting such a disastrous course. Read here and here.

Home ownership benefits society in a miriad of ways providing employment not just to local builders, carpenters and plumbers but countless other service providers attracted by serving communities with a vested financial stake in making their communities attractive and prosperous. The one serious drawback I have been offered being that it may have a slight tendency to reduce the mobility of labour.

What can be learnt from the situation that has developed in the UK since Miras was withdrawn by the social engineering New Labour Party at the beginning of this new century?

Robbed of mortgage interest tax relief, the benefits of property ownership became confined to the imperative for an ever escalating price of property. Britain's politicians, beneficiaries of tax-payer funded second home allowances and thus with a double (in some cases even treble) stake in ever overinflating house prices, connived to ensure this could initially be achieved. This corrupt conspiracy peaked when house prices were deliberately removed from the Bank of England's target inflation figures, which revised inflation calculation method was imposed upon (and/or accepted by) the BoE's new Governor, Mervyn King, upon his appointment.

A reintroduction of mortgage interest relief in the upcoming budget of George Osborne would be the first sign of a return to sanity by the supposedly "conservative" portion of Britain's coalition Government. As the sub-prime mortgage debacle has proven, a property owning democracy depends on a decent education system, as a re-introduction of Grammar Schools are similarly not on this government's agenda, a return to a decent society capable of prudent mortgage management, seems mere wishful thinking for the UK.

I hope the USA has more success in fighting off the removal of the small subsidy central government supplies when providing mortgage interest income tax relief. Considering this provides so many other, often intangible benefits, the actual costs must be minimal. Where have the tax funds thus saved by Britain over the past ten years been spent? An area too murky and dreadful even to begin to contemplate.

Other posts from this blog on the present housing crisis may be found by entering some of the following key words in the "Search" section at the head of this blog or clicking on the links:

Walkaways

Fannie Mae

House Price Crash

Mortgages

Other episodes from Keeping up Appearances, illustrating the inevitable delapidation of socially provided housing versus private property (although the implied social divisions are not an essential prerequisite!!!) are available on YouTube. (I believe the programme has been seen on Public Service Broadcasting in the USA, please note we Brits are not all in one category or the other!).

House crisis reality.

Many of the reports I read on Britain's house price crash seem to be coming from somewhere beyond reality, spun to aid the Government no doubt. This in today's Telegraph on City Centre Flats seems to bring more reality. Note this mind-blowing statement, however, proof if ever more were needed that lalaland still has many occupants: Agents insist that there does remain some demand for city centre accommodation because of continuing rise in rental values. In Manchester with rents are increasing to such an extent that some landlords are insisting on six month contracts – rather than a year – because they know they can increase the price after that period. They know!!!!!! that with purchase prices tumbling rents will continue increasing, do they deserve a cold bath or what? If I were a landlord and I could find a tenant daft enough I would sign one up for as many years ahead as possible - after all it is a slump and not a boom all now see approaching or are all wrong again? - Not yet methinks!

The "End Game" Approaches

"This has been one of the most interesting days in finance ever," said Andrew Roberts, head of credit at RBS. "We are right at the tipping point. Yields are about to collapse even further, equities are about to turn over. The end game approaches, probably in next few weeks."

In the US, the 27pc collapse in existing homes sales in July leaves no doubt that America's property market cannot stand on its own feet without the prop of homebuyer tax credits. "Home sales are in free-fall. These are truly dismal numbers," said Teunis Brosens from ING.

The article from which this quote came may be read in full from here. Readers of this blog will be unsurprised that the western world has reached this point, just as we warned at the start of this summer when JC Trichet pompously departed on his holiday in St Malo claiming that all was incredibly well, indeed with all our warnings down the years, that corrupt self-serving politicians would inevitably land the world in the mess in which we now find ourselves, bankrupt and with no economic weapons left to mitigate the consequences. Sound money or means of trusted international exchange will be required before recovery can begin. Restoring value to the property market, will be a priority alongside finding as yet unidentified honest and decent leaders. In September 2008 I put forward one idea to achieve the former objective, do Clegg and/or Cameron now have the courage to take on such an approach, and perhaps simultaneously convert to decency? A quote from that old posting: Mortgages have always assumed the equity provided by the mortgagee is the first at risk. In this crisis that has to be changed. I suggest that for houses purchased since Gordon Brown, in the words of incoming BoE Governor King, to paraphrase 'moved the Goal Posts and excluded house prices from the CPI' any loss of value on the resale of such houses be directly proportioned between the first mortgage holder and the mortgagee. This is potentially expensive, but less so if it halts further slides in house prices. As the country is effectively bankrupt such a move will need financing and as a further step to somewhat also put the cost of the greed at the door where it lies I would further suggest the exemption of the first home from capital gains tax be withdrawn.Decency for Clegg and Cameron could be guaged as a distant possibility by an immediate large cut to UK contributions to the EU pending a halt to their ongoing and grandoise plans for ever more vainglorious enterprises and aggrandisement.

Paul Krugman's four ways out of the Eurocrisis

The interesting article covering eight pages may be read in portions from the links in the quote below, or in full from the link from the name of the Nobel prize-winning economist:

"As I see it, there are four ways the European crisis could play out (and it may play out differently in different countries). Call them toughing it out; debt restructuring; full Argentina; and revived Europeanism." Paul Krugman

As Mr Krugman makes clear, the outcome for different countries in the Euro may not all fall into the same category, a statement which on its own confirms the Euro as we have so far known it is doomed.

Another more substantial flaw in the entire analysis, in my opinion, is that it is restricted to looking at the Euro in isolation, rather than as an integral part of the global economy. Thus the analysis on a Full Argentina solution, for example, is weakened by the very weakness of the US Dollar, itself aggravated by the dagger of the unresolved property price fiasco. A consideration of a cure for the Euro should be set against an alternative internationally traded world currency not steeped in its own problems, yet none such exist as evidence by China's moves to correct inflationary forces last week.

As the Swiss Franc is presently the sole well-run currency that could be considered as a template the question must become one of how to restore stability and maintain purchasing power against resources needed by humanity in a globalised world, fragmentation to Swiss Confederation sized national units hardly seems practical! Read also Sound Money, New Bretton Woods, House Price Crash etc.

Walkaway Mortgagees or Drowning Householders?

Yesterday in the USA the Federal Government unveiled a new fifty billion dollar plan to aid its underwater homeowners. One blog gives its views here. Moral hazard is the phrase much used elsewhere in the USA. In the UK we would describe those unfortunates with mortgages greater than their home values as having negative equity. Drowning seems much more apt. It is many, many months since this blog first warned of the dangers of negative equity being likely to result in Walkaway Mortgagees and likely anarchy to follow. Finally a respected member of the mainstream media has finally awoken to the dangers, read here. Earlier postings on this topic, together with my suggested solution, may be found by using the keywords "Walkaways" or "UK House Price Crash" in the search bar for this blog.

"Debt Forgiveness" - the monster that should not be named - now appears!

This blog has asserted long, loud and oh so often, that it is the house price crash, underwater home owners, walkaways and re-possessions that lay at the heart of the ongoing economic crisis in the English speaking countries of the West. I have in the past suggested means of solving this crisis, expensive but with costs as nothing compared to this proposal from the Irish Independent, this morning, read here. A quote:

"It [debt forgiveness] will have to be done simply because the Irish economy will not be able to function properly at all levels if we keep the levels of debt as they are. So far, we have spent four years of this crisis loading more debt on to the shoulders of already heavily indebted households and families. It is unsustainable," the Trinity College economist told the Sunday Independent.

Pointing to the direct impact the servicing of this massive debt was having on the middle class, whom he described as the "main productive part of the economy", he added: "We will have to simply allow these people to write down their mortgages to closer to the level of the prices of the homes that these mortgages have been written against. It has to be done very robustly at the level of the middle class. The reason why, is that the middle class is being the hardest squeezed by tax increases at current levels and future ones. They also bear the most burden in terms of debt, but also they are the main productive part of the economy."

Sunday Times headlines House Price Crash

The article is linked from here, it is headlined "Negative equity to reach 2 million" and highlights the location of the real national crisis about which the Government continues to do nothing as covered by this blog, here, here and again here. The stupidity, if not now virtual criminal incompetence of this Government is evident from the headline article in the Sunday Telegraph, "Darling will spend his way out of recession" here and the growing question marks over the motives of Brown and Darling in another Telgraph article "Darling the bearded Trot who 'wanted to nationalise the Banks'." linked here. This blog has queried Brown's true motives in policies clearly designed to destroy certainly England if not Britain have been queried down the years and this year in February here, in April here and here and as recently as 27th September linked here. Throughout all this the opposition remains complicit and silent.

Curing Britain's Property Price Crash.

The Chancellor of the Exchequer, Alistair Darling, in an interview on the Radio 4 Today programme this morning gave no sign that he was ready to confront the UK housing crisis as I feel sure will still be the case in his conference speech later this morning and that of his Puppet Master tomorrow. The steps being undertaken in the USA over the weekend as reported from an EU perspective are fairly well ( although sometimes inaccurately) summarised in this link. Britain, it is generally acknowledged, has the second gravest property price crunch in the world, yet unlike in the USA with the magic Mr Paulson, the UK government, oh so typically, seems to be doing nothing to address it, content with ignorant BBC interviewers throwing out suggestions of bonus caps in the city and windfall taxes for the energy sector while chucking ever more billions of pounds yet further down the drain for added liquidity for the institutions at fault. In my post of yesterday, immediately beneath this posting, I addressed the problem of the householder in negative equity - particularly in my example number 2, of a family with a mortgage in excess of the value of his home but not yet in default - a potential 'walkaway mortgagee' as separate from one in default and given notice of re-possession. In my view it is the potential 'walkaway' who must first be helped. A decision to quit one's home is grave indeed and places that family in a position of effectively turning their back on the system. It is therefore an action that the government must endeavour to discourage even at great cost. (Re-possessions follow from a considered action of the mortgage holder and form a separate problem). Nobody yet knows how far UK property prices will plunge but it is essential to be aware that a fall of 20 per cent from peak levels requires a rising property market of 2 per cent above inflation for a period of twelve years before the original peak value is once again achieved. That is far too long to expect an ordinary mortgage holder to maintain mortgage payments for zero return. Once 'walkaways' begin they will spread like a plague with all kinds of consequences such as cross-squatting which will make counter-measures practically impossible - effectively anarchy could be an end result. Mortgages have always assumed the equity provided by the mortgagee is the first at risk. In this crisis that has to be changed. I suggest that for houses purchased since Gordon Brown, in the words of incoming BoE Governor King, to paraphrase 'moved the Goal Posts and excluded house prices from the CPI' any loss of value on the resale of such houses be directly proportioned between the first mortgage holder and the mortgagee. This is potentially expensive, but less so if it halts further slides in house prices. As the country is effectively bankrupt such a move will need financing and as a further step to somewhat also put the cost of the greed at the door where it lies I would further suggest the exemption of the first home from capital gains tax be withdrawn.

Treasures from the threads - Number Twenty-two

This comment from the aptly named "UK Debt Slave" at 11:08 am (I normally do not include anonymous comments but make an exception for this interesting posting) was to a rather strangely written opinion piece by Jeff Randall in the Telegraph this morning, linked here: The classic response to any and all ills in British society Let's have an enquiry! Let's spend million writing a report that will tell us NOTHING we don't already know. TO HELL WITH ENQUIRIES! Let's straighten a few things out for you Jeff. I'll save the public purse millions right now by explaining what has happened. A VERY BIG CRIME HAS BEEN COMMITTED. That's what's happened. We are supposed to believe this debacle is all just a terrible accident. All the talking heads are saying how foolish everyone has been. "Oh dear. What a mess. Let's put the kettle on." The FACTS are very different. 1. On both sides of the Atlantic, the central banking system, the Fed and the BoE have presided over the biggest credit bubble in history. by keeping base rates way too low. They knew damn well what the consequences would be. 2. The regulatory bodies charged with overseeing lending practices and regulating 'inflation' have all FAILED miserably. 3. Both the Fed and the BoE used a wholly bogus yardstick to measure inflation. They based their inflation statistics on an easily manipulated 'basket of consumer goods' called the CPI, NOT MONEY SUPPLY. Inflation is ALWAYS a function of money supply. The money supply in the UK has consistently grown by between 11-14% YOY for several years. This growth in money supply is what has funded the asset bubble in property and stocks and shares. The real rate of inflation in the UK has consistently been 8-9%. 4. House prices have tripled, not because they are intrinsicly more valueable than they were 10 years ago but because of excess liquidity and insane lending practices, none of which were held in check. 5. The media has contributed to this fiasco, poured petrol on the fire, by deluging the bovine masses with 'property porn' TV shows, encouraging people to borrow beyond their means to participate in the one way ticket of infinite house price inflation. 6. Banks and mortgage lenders have thrown caution to the wind and thrown every rule of responsible banking out of the window, lending insane income multiples or worse, lending to people who don't even have a job! To make matters worse, they immediately sold these worthless mortgages immediately to get them off their books. They have infested stock markets and pension schemes all around the world with potentially devastating consequences. Banks have ignored every basic tenet of responsibility from capital asset ratios to common sense...GONE 7. The people charged with overseeing the regulation of banking, the FSA, were obvioulsy on holiday for 10 BLOODY YEARS. 8. The people charged with overseeing inflation, the MPC, were using a Mickey Mouse method to measure inflation. It was complete nonsense to measure inflation based on just a basket of consumer goods. Nobody it seems realised the obvious. WHY? 9. The government first under the satanist Bliar and now under Stalin Brown has consistently encouraged this myth with their Orwellian DEBT IS GOOD mantra. They have consistently peddled the myth that DEBT IS WEALTH. This is O-level economics, yet the combined efforts of the BoE, MPC, FSA, Treasury and government didn't see what was coming........OR DID THEY? You see, THIS DEBACLE CANNOT HAVE HAPPENED THROUGH IGNORANCE OR NAIVETY! It had to be contrived at the higest levels. This economic collapse was planned and deliberately orchestrated well in advance. The people behind this disaster, and they are at the very highest levels of the international banking system, the political elite and freemasonry, have DELIBERATELY planned and conspired to create the biggest economic catastrophe in human history. This is NO ACCIDENT. It WAS PLANNED. It is a repeat of the Wall Street crash and the Great Depression, which was also a conspiracy, headed by Paul Wahburg and the Rothschild banking dynasty. This is the NEW WORLD ORDER folks. The asset stripping of the people has begun. Million will lose their homes, their businesses, their savings and pensions. We are to be reduced to penury. Their objective is the biggest seizure of private property in history. Millions are going to have their homes seized, their pensions and savings destroyed, their gold and silver bullion and coins confiscated. They are going to asset strip the people as surety against our humungus national debt. We are to be reduced to slaves. The time for worthless enquiries and writing reports is over. It will require revolutionary acts to bring these people to justice and return freedom and liberty to the people. There's very little time left. WAKE UP PEOPLE It all could be cock-up rather than conspiracy, I suppose, but can the West's political leaders really be that stupid, unhappily perhaps so - I doubt we will ever know!

Sham Government and Predatory Members of Parliament

I hardly have to write a comment under this headline the press and media in general are saying it all this morning. I do wish to highlight this item in The Guardian, however, the article's headline:

One £285m mortgage rescue scheme. One family helped

The Link. A comparison is this blog's suggested solution for Britain's Property Price Crash posted 22nd September last year, here. Turning from the totally incompetent Government, let us now consider the loathsome Members of Parliament from whose moronic ranks the Government is drawn. One report on the disgusting scenes in the House of Commons yesterday afternoon is here. Yesterday morning, in total contrast, our troops made as dignified an exit from Basra as was possible given the hand they had been dealt by these same despicable and self-serving expenses obsessed politicians!

Pounds crash gains momentum ahead of BoE rate decision

Hang on here we go again. The simpletons running UK Ltd have yet to twig that all they do has the reverse effect to that intended. If a large sterling interest rate cut arrives at noon GMT today, the plunge in sterling risks becoming a rout and the necessary rate increases to follow will need to be ever higher. The house price slide underlying these momentous market moves continues to gather steam as reported in the Halifax index today, read here.