I read the economist every week. for the last year, they often derided the US housing market and always talked about giving "liar loans to homeless black people and rednecks". The stereotyping was pathetic.
then they would follow this by discussing how the UK never had such horrible lending practices and how they don't have subprime.
all whistling pass the graveyard, becuase they have their own issues with "buy to let" which is similar to Subprime.
as the financial issues start getting contained to the UK and Eurozone I fully expect that we'll see dollar improvement. not because our dollar will be in any better shape... it'll only look better compared to the Pound and Euro.
Spain and Italy and possibly Ireland are showng cracks. as that continues to be contained (i.e. spreads) then Trichet will start to lower.
ot
Financial stocks, which have taken a pounding from the subprime mortgage meltdown, could take up to 25 years to recover to their pre-credit crisis levels, a senior hedge fund manager said on Wednesday.
Speaking at the Reuters Hedge Fund & Private Equity Summit in London, Hugh Hendry, Chief Investment Officer of Eclectica Asset Management, said financial stocks were set to fall further after the credit crisis burst a 16 year bubble in their prices last year.
He predicted Citigroup the largest U.S. bank and a major casualty of the crisis, could fall below $10 a share, less than a third of its 150-day moving average price of $32.82, as the credit crisis unravels further.
"When you have a bubble, the other side is profoundly bad," Hendry said.
When a bubble is created in a sector's stocks, which sees their weighting dominate the index, it typically takes a generation, or around quarter of the century for them to recover to their pre-bubble levels, he said.
"In 1980 the oil sector occupied about a third of the market capitalization of the S&P. The next 25 years were scorched earth," said Hendry.
You're right, Trichet will lower as the continent slows and the RE bust causes more havoc with balance sheets there. But their cutting will be incremental and slow. And no one is going to zero, that's for sure.
This means the dollar will rise, but more importantly, oil will drop. The combination of decreasing demand from recessionary factors, and an appreciating dollar will decide how fast, but by the end of the year I think the drop will be significant. And by that time all talk about the Euro as the reserve currency of choice will seem quaint.
Major Canadian networks are showing Ontario open houses with no buyers showing up, they are waiting for prices to drop. Also Canadian average credit card dept is the highest on record, the shoe is about to drop on Canada.
In the April 5th Economist they have a chart that shows what they call the "house price gap" by country. The house price gap is the increase in housing prices that cannot be accounted for by fundamentals. Britain is the third worse at nearly 30%. The US is 13th with a little over 10%. So, things are not that bad in the US compared to most other countries.
I'm a consistent Economist reader and while I often disagree with their political slant, they've been fairly consistent in recognizing the global implications of the housing bubble. Did some coverage on London and Spain a few months ago.
And to be fair, surely they have never used the term "redneck." Have they?
The crash has hardly started in the UK, marginal locations are dropping but London & SE median prices are climbing as volume goes in the ditch.
As for Spain & Italy, it's still only 2nd home markets where there was widespread bubble likegrowth, major cities are largely insulated (for now.)
Ireland had possibly the most dire housing stock in Europe bar Romania, but they should still hold up in financials as it's much cheaper to work out of the than London for non essential/backoffice ops.
The concern is the bubble in Ex soviet bloc property loans made in swissies.
Most currencies are climbing with swissie for now, but if the swissie accelerates ahead in a flight to safety you could have a euro recession through the back door.
Four years ago, his defeat by Ms Blanco was widely viewed as proof that the state's Bubbasrednecks uncomfortable with politicians who don't look like themhad not evolved.
Okay, I'm correcting myself. Good lord. No wonder they don't use bylines.
By the way that house price gap shown in the Economist was for the years 1997 to 2007.
I have been an Economist reader for a while. I think they are a much better news magazine than Time or Newsweek -- much more in depth coverage of subjects.
How do we get out of this mess? If we let assets deflate, the banks die. If we inflate, the consumer dies. If we keep real interest rates negative to spur growth, the dollar dies, commodities inflate and the consumer dies.
Excesive debt & and rich valuations - a toxic combination.
I see a need for savings and living within our means. Control inflation and let assets be priced wherever.
i enjoy a uk show called "property ladder" where a buxom and smart lady watches flippers renovate dumps for sale. In 8 out of 10 shows the flippers ended up with a decent to fat profit and an eagerness to double down on the next project, and in those same 8 out of 10, the host would rip them a new one for going way over budget, way over time, and making unnecessary improvements. She would end the lecture by saying the fast rising market in the area saved their asses and in a sideways market they would have been creamed.
A down market would bankrupt them.
My wife has relatives in Spain who have been saying since late last year that real estate prices there are falling. Modestly, but heading downward nevertheless.
I haven't been updated in a few months, so I'll inquire.
CR, with all the devaluing assets and real estate in the world cause a deflationary component to the economies of the countries with housing bubbles (i.e., U.S., U.K., E.U., etc.)? It will be interesting to see how it combines with the inflation being currently experienced in food, energy and commodities.
You're sure not reading the same Economist that I am...
Our friends' daughter bought a very, very small flat in London ~18 months ago. They were very concerned when she bought it, as it was barely livable. Looks like their fears have come true.
"This is no surprise to anybody except the Brits."
It's no surprise to many of us Brits and we suspect our crash will be deeper and more prolonged than that being experienced by our colonial cousins across the pond.
The only people who want a rate cut are France & Italy, and even there it's mixed. Even spanish banks aren't asking or expecting a cut(at least in public)
The ECB has been pretty hardcore with their mandate and with all the new countries adopting the euro(or looking to) they're not about to cave. Eurozone has plenty of room to run, both in depth and breadth, people keep forgetting that.
If EADS was too incompetent to hedge, tough noogies.
England I expect to cut and cut slowly and punish risky lenders, the smart move is to liquidate the pound for both euro AND dollar.
I haven't been updated in a few months, so I'll inquire.
It's contained alright.
doom
doom > Spain is no longer circling the drain, they are half way down! Their EU string makes life difficult right now because inspite of the blowup, interest rates remain very high.
That Halifax number was strange. The monthly decline on total housing was 2.5%, but only around 1.5% or less for new homes and existing homes separately (I don't have the numbers to hand but looked at them at work today).
No denying prices are falling, but nothing like where it is getting to in the US.
Irish housing prices are down nearly 9% over the year (to about January, IIRC), but delinquency rates are not rising there.
House prices have risen in lots of places, but only in the US is it creating a foreclosure explosion. Only in the US were so many stupid loans made. Buy-to-Let is not the same thing as the crazy stated and subprime loans that were available in the US.
solo writes:
Major Canadian networks are showing Ontario open houses with no buyers showing up, they are waiting for prices to drop. Also Canadian average credit card dept is the highest on record, the shoe is about to drop on Canada.
solo | 04.09.08 - 1:38 pm |
Sssshhhh. You're not supposed to say that out loud. Repeat after me, "Canada is immune, Canada is immune. There is no debt, there is no debt."
CR, with all the devaluing assets and real estate in the world cause a deflationary component to the economies of the countries with housing bubbles (i.e., U.S., U.K., E.U., etc.)? It will be interesting to see how it combines with the inflation being currently experienced in food, energy and commodities.
You get Indieflation. As in, yet another Indiana Jones movie.
Sssshhhh. You're not supposed to say that out loud. Repeat after me, "Canada is immune, Canada is immune. There is no debt, there is no debt."
According to that Economist article, Canada is second to last on the list of overinflated housing prices. The are negative about 3%. So they should be immune.
According to that Economist article, Canada is second to last on the list of overinflated housing prices. The are negative about 3%. So they should be immune.
EngineerJim | 04.09.08 - 2:08 pm | #
Trust me, after this last winter, no one will want to live here soon.
Mexico, South America, Canada, Asia the property boom and soon to be bust will be global all this decouple talk has been nonsense. The world economies exist to export to American luxury consumer market which is quickly fading.
Alec, an expensive Euro is'nt doing the economy any favors there. It's not just property values, it's that combined with a slow-down that will prompt the cut. I'm not saying it will be a US-amount, but I can see a point or 1.25 lower by the end of the year to combat not inflation, but recession-tendencies there as the global slide happens.
No dual mandate for the ECB, they just mind the inflation rate (the paper mandate anyways).
No serious cuts there until after the slide has begun in oil and food prices as they manage the headline rate of inflation (per occasionally hazy recall).
Financial stocks, which have taken a pounding from the subprime mortgage meltdown, could take up to 25 years to recover to their pre-credit crisis levels, a senior hedge fund manager said on Wednesday.
Translation: said senior manager just took a big short bet on financials.
Chris/Cobra Driver,
Foreign buyers lack one of the things that young and financially uneducated also lack, perspective. Many of their purchases are based on hearsay rather than fundementals.
Remember, the euro is only marginally more expensive against the RMB and other asian currencies, and china needs to buy from Eurozone tool & die products & other productivity tools to keep competitive.
It's no longer cheaper to hire a grunt to hump a box from point a to point b and germany is the beneficiary from it for now.
No, the bust is not global. Here in Finland, all bankers, real estate agents and builders are stating very clearly that there is no bubble here and the prices will not go down.
But, at the same time. sales times are getting longer and longer, builders inventory is much longer than in the USA....
You couldn't have got it more wrong if you'd tried. Are you trying out for a job with the Bush administration with a presentation of the facts like that?
The Economist has been calling a worldwide housing bubble since 2002. As far as I'm aware they are the only large circulation publication to have done so. They have repeatedly pointed out that many countries have housing bubbles much larger than the USA, a list topped by Britain.
This Brit sold his London apartment 4 years ago and has been waiting with increasing impatience for the pop. Its finally arrived!
It is London that is having the biggest drop (and represents the most total value of housing). And the UK did have liar loans, I had a coworker that "self-certified" her income, no documentation just swear to the amount. With UK banks lending at 4 to up to 6 times income, US banks look prudent. Now the UK banks are in panic and telling existing customers coming to the end of the 2 year year fixed period to get a loan from someone else. (The 30 year fixed of the US doesn't exist here, they are all really adjustables. There are 7-10 year fixed, but with horrible redemption fees if you close early). It will not be pleasant here.
i just returned from a short holiday in Ireland, first of all their home prices are ridiculously high, and tv and print media in last week of March were talking about home price values declining, a tour guide told me that alot of young couples were in over their heads on mortgages... in other words more or less the same thing seen here... they are in the early stages, friends in Italy told me back in November there were alot of homes just being deserted by owners unable to meet their mortgages....
when you speak of Ireland, do you mean Dublin or elsewhere?
ex-pat,
Look at the graphs in the guardian; London/SE, Newcastle & Scotland were rising in values, however deal velocity is through the floor which doesn't bode well going forward.
Perhaps they can get furriners to buy property.....nevermind.
"And to be fair, surely they have never used the term "redneck." Have they?"
A search of their website reveals 31 usages since 1996, none of them derogatory and none of them related to mortgages or housing. And the idea that The Economist didn't recognize the risks in the UK housing market is bizarre:- they have been pointing out its overheated nature for years.
Yeah, E_Tu_alt_a, I did the same search, and posted the most egregious usage back up there in the comments above. {Should have checked before posting.}
I couldn't believe they would toss around that term - having lived in the South, I found certain folks responded very negatively to that term, even in jest, so I'm not really clear on what a "non-derogatory" usage of 'redneck' would be.
But the Economist was definitely out in front on the housing bubble. Brilliantly so. It was their article called 'In Come the Waves', I believe, which convinced Mrs. Exception and I to wait out the hysteria. Best financial decision I ever made.
dont' expect ECB to cut rates much to prop up the dollar. The German Haus Fraus won't hear of it. Trichet walks a fine line keeping the Euro zone together
According to that Economist article, Canada is second to last on the list of overinflated housing prices. The are negative about 3%. So they should be immune.
Well first of all I don't think it was an Economist article. Got a link?
Second there is tremendous variation in housing valuations in Canada. The French-speaking parts are fairly valued (they do not have a cultural bias towards owning and simply will not pay more to own than to rent). Much of the English-speaking east is fairly valued too.
However no part of Canada is undervalued, which means to me that ownership costs are significantly below renting. If anyone else has a different definition of undervalued, I'd like to hear it.
It's the west, and to some degree Toronto, which are overvalued. British Columbia has prices which are every bit as absurd as CA or FL at the peak. Vancouver, which has not one bank headquarters or any other Canada-class (never mind world-class) business, is over 50% more expensive than Seattle down the road, and is more expensive than greater New York.
UK house prioces have clearly been bubbly since the turn of the century, if not before. As other commenters have said, you could watch it develop by tracking the number of property shows on TV, and the obsession with house price increases in the gutter press.
The collapse will look different to last time, though, since the structure of the average British mortgage has actually improved since then. During the last mortgage crisis, everyone was on adjustable rates, which were generally linked to the BoE base rate or LIBOR, and would reset every month. Most were not even standard repayment mortgages either. The 80s boom was built on the back of endowment mortgages, where you paid the interest on the loan, and then put a little extra into a stock market fund, which would pay off your mortgage at the end of the term, and give you a lump sum left over as well because stocks only go up don't they.
So when the recession came, householders were first hit by rocketing interest rates, then negitive equity, then if they survived that, they were faced with a shortfall notice from the bank that said "You know all that money that you thought was paying off the principal? Well, we lost it at the racetrack. You now owe us the balance".
This time round, we've actually discovered fixed rates, with most people on a 2 year or 5 year deal. It was only last year that 25 year fixed rate deals (you know, the ones that you thought were the normal, standard mortgage) were introduced.
Unfortunately, this means that the pain of recent base rate increases has been delayed until now.
The really horrible deals this time round are speculative "buy to let" loans. A whole load of amateur property tycoons have bought rental properties, and are going to find that it's difficult to change rental rates when their fixed rate expires. Rental apartments are also horribly overbuilt in some areas, with the added dilemma of decreasing demand as the economy cools. This last overlooked factor is because the last run up in the economy was built on the back of cheap migrant labour from the newly expanded EU. With the Euro getting stronger, and the UK economy slipping, a lot of them are just going east again.
And the pound is already taking a hammering. It's been going sideways against the dollar ever since it hit $2, while the euro has kept on powering ahead.
The thing about the UK market that could make for an even bigger house price crash than what we've seen in the US is that the ratio of rents to house prices is so far out of whack here. I moved from the SF Bay Area 2 years ago to London, and I'm astounded by the difference between what you get for renting vs buying. I'm renting a house and my rent would cover about 1/4 of the interest payments on a loan to buy the place. Buying here only makes sense if you can count on significant capital appreciation (more than 10% a year) making up the difference between the cost of renting and buying. As those capital gains come to be seen as more and more unlikely, or if the possibility of price falls becomes more apparent, prices will have to fall significantly for it to make sense to buy. Even at the peak of the bubble in the over-priced San Francisco area, the discrepancy between renting and buying was never as obvious as it is in the UK.
Have a look at this: HOUSING DERIVATIVES:. The UK housing derivatives market sees UK housing prices down for the next 8 years. the US housing derivatives markets, which only post values for the next 5 years, has housing values lower over that time period.
Gold!
Silver!
Bronze!
Decoupling?
The great ReCoupling.
This should help the dollar, no? Everyone else is going to crap, too.
Darn those Europeans, they were the last thing holding up the Manhattan market.
doom, maybe. I think we will see more rate cuts elsewhere - and that should help the dollar somewhat.
Best Wishes.
This is no surprise to anybody except the Brits.
I read the economist every week. for the last year, they often derided the US housing market and always talked about giving "liar loans to homeless black people and rednecks". The stereotyping was pathetic.
then they would follow this by discussing how the UK never had such horrible lending practices and how they don't have subprime.
all whistling pass the graveyard, becuase they have their own issues with "buy to let" which is similar to Subprime.
as the financial issues start getting contained to the UK and Eurozone I fully expect that we'll see dollar improvement. not because our dollar will be in any better shape... it'll only look better compared to the Pound and Euro.
Spain and Italy and possibly Ireland are showng cracks. as that continues to be contained (i.e. spreads) then Trichet will start to lower.
it'll be a race to zero!!!
Well, that article will definitely put the nail in the coffin.
WaMu!
Not
Quick question why infuse 7B for 30%, and not pay 10B (todays market cap) and buy the whole kit and kaboodle?
ot
Financial stocks, which have taken a pounding from the subprime mortgage meltdown, could take up to 25 years to recover to their pre-credit crisis levels, a senior hedge fund manager said on Wednesday.
Speaking at the Reuters Hedge Fund & Private Equity Summit in London, Hugh Hendry, Chief Investment Officer of Eclectica Asset Management, said financial stocks were set to fall further after the credit crisis burst a 16 year bubble in their prices last year.
He predicted Citigroup the largest U.S. bank and a major casualty of the crisis, could fall below $10 a share, less than a third of its 150-day moving average price of $32.82, as the credit crisis unravels further.
"When you have a bubble, the other side is profoundly bad," Hendry said.
When a bubble is created in a sector's stocks, which sees their weighting dominate the index, it typically takes a generation, or around quarter of the century for them to recover to their pre-bubble levels, he said.
"In 1980 the oil sector occupied about a third of the market capitalization of the S&P. The next 25 years were scorched earth," said Hendry.
Financials recovery may take 25 years: Hendry
| Reuters
The bottoms in buy up.
Does that mean furriners will not be riding in to save the SW Florida market?? That's all the news talks about here.
But there has been A LOT of euro property purchases that I can see in my scrolling of the county records.
3 years ago.
OUCH.
Chris
You're right, Trichet will lower as the continent slows and the RE bust causes more havoc with balance sheets there. But their cutting will be incremental and slow. And no one is going to zero, that's for sure.
This means the dollar will rise, but more importantly, oil will drop. The combination of decreasing demand from recessionary factors, and an appreciating dollar will decide how fast, but by the end of the year I think the drop will be significant. And by that time all talk about the Euro as the reserve currency of choice will seem quaint.
You mean they have gravity in Europe!?!?!
Who...could...have...known...?
Major Canadian networks are showing Ontario open houses with no buyers showing up, they are waiting for prices to drop. Also Canadian average credit card dept is the highest on record, the shoe is about to drop on Canada.
In the April 5th Economist they have a chart that shows what they call the "house price gap" by country. The house price gap is the increase in housing prices that cannot be accounted for by fundamentals. Britain is the third worse at nearly 30%. The US is 13th with a little over 10%. So, things are not that bad in the US compared to most other countries.
I'll bet that the various European speculators and financial wizards were all certain that "this time it's different".
This means the dollar will rise, but more importantly, oil will drop.
Actually, I don't buy that. The pound will fall against the Euro and Yen, but it will more likely start falling with the dollar.
Isn't the second dip? I recall that house prices were falling in the UK circa 2005.
YearningtoLearn,
I'm a consistent Economist reader and while I often disagree with their political slant, they've been fairly consistent in recognizing the global implications of the housing bubble. Did some coverage on London and Spain a few months ago.
And to be fair, surely they have never used the term "redneck." Have they?
The crash has hardly started in the UK, marginal locations are dropping but London & SE median prices are climbing as volume goes in the ditch.
As for Spain & Italy, it's still only 2nd home markets where there was widespread bubble likegrowth, major cities are largely insulated (for now.)
Ireland had possibly the most dire housing stock in Europe bar Romania, but they should still hold up in financials as it's much cheaper to work out of the than London for non essential/backoffice ops.
The concern is the bubble in Ex soviet bloc property loans made in swissies.
Most currencies are climbing with swissie for now, but if the swissie accelerates ahead in a flight to safety you could have a euro recession through the back door.
Four years ago, his defeat by Ms Blanco was widely viewed as proof that the state's Bubbasrednecks uncomfortable with politicians who don't look like themhad not evolved.
Okay, I'm correcting myself. Good lord. No wonder they don't use bylines.
By the way that house price gap shown in the Economist was for the years 1997 to 2007.
I have been an Economist reader for a while. I think they are a much better news magazine than Time or Newsweek -- much more in depth coverage of subjects.
How do we get out of this mess? If we let assets deflate, the banks die. If we inflate, the consumer dies. If we keep real interest rates negative to spur growth, the dollar dies, commodities inflate and the consumer dies.
Excesive debt & and rich valuations - a toxic combination.
I see a need for savings and living within our means. Control inflation and let assets be priced wherever.
i enjoy a uk show called "property ladder" where a buxom and smart lady watches flippers renovate dumps for sale. In 8 out of 10 shows the flippers ended up with a decent to fat profit and an eagerness to double down on the next project, and in those same 8 out of 10, the host would rip them a new one for going way over budget, way over time, and making unnecessary improvements. She would end the lecture by saying the fast rising market in the area saved their asses and in a sideways market they would have been creamed.
A down market would bankrupt them.
My wife has relatives in Spain who have been saying since late last year that real estate prices there are falling. Modestly, but heading downward nevertheless.
I haven't been updated in a few months, so I'll inquire.
It's contained alright.
CR, with all the devaluing assets and real estate in the world cause a deflationary component to the economies of the countries with housing bubbles (i.e., U.S., U.K., E.U., etc.)? It will be interesting to see how it combines with the inflation being currently experienced in food, energy and commodities.
Yearning to Learn:
You're sure not reading the same Economist that I am...
Our friends' daughter bought a very, very small flat in London ~18 months ago. They were very concerned when she bought it, as it was barely livable. Looks like their fears have come true.
Ugh.. Typo. "with" should be "will". As in "will all the devaluing assets.."
"Yearning to Learn writes:
"This is no surprise to anybody except the Brits."
It's no surprise to many of us Brits and we suspect our crash will be deeper and more prolonged than that being experienced by our colonial cousins across the pond.
ipodius,
The only people who want a rate cut are France & Italy, and even there it's mixed. Even spanish banks aren't asking or expecting a cut(at least in public)
The ECB has been pretty hardcore with their mandate and with all the new countries adopting the euro(or looking to) they're not about to cave. Eurozone has plenty of room to run, both in depth and breadth, people keep forgetting that.
If EADS was too incompetent to hedge, tough noogies.
England I expect to cut and cut slowly and punish risky lenders, the smart move is to liquidate the pound for both euro AND dollar.
euro/pound parity is not out of the question.
I'm damn sure Mr. Greenspan wasn't responsible for this either.
How will this all end? And who will direct the movie?
A younger Jack Nicholson could have played Ben.
Woody Allen, Mr. Greenspan.
I haven't been updated in a few months, so I'll inquire.
It's contained alright.
doom
doom > Spain is no longer circling the drain, they are half way down! Their EU string makes life difficult right now because inspite of the blowup, interest rates remain very high.
That Halifax number was strange. The monthly decline on total housing was 2.5%, but only around 1.5% or less for new homes and existing homes separately (I don't have the numbers to hand but looked at them at work today).
No denying prices are falling, but nothing like where it is getting to in the US.
Irish housing prices are down nearly 9% over the year (to about January, IIRC), but delinquency rates are not rising there.
House prices have risen in lots of places, but only in the US is it creating a foreclosure explosion. Only in the US were so many stupid loans made. Buy-to-Let is not the same thing as the crazy stated and subprime loans that were available in the US.
solo writes:
Major Canadian networks are showing Ontario open houses with no buyers showing up, they are waiting for prices to drop. Also Canadian average credit card dept is the highest on record, the shoe is about to drop on Canada.
solo | 04.09.08 - 1:38 pm |
Sssshhhh. You're not supposed to say that out loud. Repeat after me, "Canada is immune, Canada is immune. There is no debt, there is no debt."
If we want people to save, we should at least not discourage it. The congress should eliminate taxes on savings.
Andrew said:
CR, with all the devaluing assets and real estate in the world cause a deflationary component to the economies of the countries with housing bubbles (i.e., U.S., U.K., E.U., etc.)? It will be interesting to see how it combines with the inflation being currently experienced in food, energy and commodities.
You get Indieflation. As in, yet another Indiana Jones movie.
Badum ching. Thanks, I'll be here all week.
Sssshhhh. You're not supposed to say that out loud. Repeat after me, "Canada is immune, Canada is immune. There is no debt, there is no debt."
According to that Economist article, Canada is second to last on the list of overinflated housing prices. The are negative about 3%. So they should be immune.
Solo: At least Canada has oil. . .
Potential successful export business:
Duct tape.
Start exporting U.S. govt. issued duct tape which, when used properly and as demonstrated, will pretty much ensure containment.
According to that Economist article, Canada is second to last on the list of overinflated housing prices. The are negative about 3%. So they should be immune.
EngineerJim | 04.09.08 - 2:08 pm | #
Trust me, after this last winter, no one will want to live here soon.
Mexico, South America, Canada, Asia the property boom and soon to be bust will be global all this decouple talk has been nonsense. The world economies exist to export to American luxury consumer market which is quickly fading.
"Mexico, South America, Canada, Asia the property boom and soon to be bust will be global all this decouple talk has been nonsense."
I'd call it wishful thinking. Or maybe, religion.
euro/pound parity is not out of the question.
Alec, an expensive Euro is'nt doing the economy any favors there. It's not just property values, it's that combined with a slow-down that will prompt the cut. I'm not saying it will be a US-amount, but I can see a point or 1.25 lower by the end of the year to combat not inflation, but recession-tendencies there as the global slide happens.
No dual mandate for the ECB, they just mind the inflation rate (the paper mandate anyways).
No serious cuts there until after the slide has begun in oil and food prices as they manage the headline rate of inflation (per occasionally hazy recall).
Financial stocks, which have taken a pounding from the subprime mortgage meltdown, could take up to 25 years to recover to their pre-credit crisis levels, a senior hedge fund manager said on Wednesday.
Translation: said senior manager just took a big short bet on financials.
ipodius,
The ECB has 1 mandate, fight inflation. Inflation is in the eurozone, they're not cutting.
Cutting rates means laggard govt's don't engage in labor reform, which defeats the whole point of monetary union.
They get growth from supplying infrastructure & materials to ex soviet bloc & spain & Ireland (ie breadth & depth)
Products from Chindia haven't gotten dearer.
Rate cuts in Eurozone?
This year?
NOT
GONNA
HAPPEN
NOT GONNA HAPPEN
We will see...we will see...
Chris/Cobra Driver,
Foreign buyers lack one of the things that young and financially uneducated also lack, perspective. Many of their purchases are based on hearsay rather than fundementals.
continued.
The foreign buyers of 3 years ago also are taking the exchange rate hit on top of $ price declines.
ipodius,
Remember, the euro is only marginally more expensive against the RMB and other asian currencies, and china needs to buy from Eurozone tool & die products & other productivity tools to keep competitive.
It's no longer cheaper to hire a grunt to hump a box from point a to point b and germany is the beneficiary from it for now.
In the b9/11/04 issue of the Economist is an article on world housing price growth.They were way ahead of their competition on this issue.
lama | 04.09.08 - 2:45 pm |
Yep
Chris
No, the bust is not global. Here in Finland, all bankers, real estate agents and builders are stating very clearly that there is no bubble here and the prices will not go down.
But, at the same time. sales times are getting longer and longer, builders inventory is much longer than in the USA....
YearningtoLearn,
You couldn't have got it more wrong if you'd tried. Are you trying out for a job with the Bush administration with a presentation of the facts like that?
The Economist has been calling a worldwide housing bubble since 2002. As far as I'm aware they are the only large circulation publication to have done so. They have repeatedly pointed out that many countries have housing bubbles much larger than the USA, a list topped by Britain.
This Brit sold his London apartment 4 years ago and has been waiting with increasing impatience for the pop. Its finally arrived!
"I see a need for savings and living within our means. Control inflation and let assets be priced wherever."
Too right. The market will price things appropriately. A lot of people just don't want to see the real prices.
It is London that is having the biggest drop (and represents the most total value of housing). And the UK did have liar loans, I had a coworker that "self-certified" her income, no documentation just swear to the amount. With UK banks lending at 4 to up to 6 times income, US banks look prudent. Now the UK banks are in panic and telling existing customers coming to the end of the 2 year year fixed period to get a loan from someone else. (The 30 year fixed of the US doesn't exist here, they are all really adjustables. There are 7-10 year fixed, but with horrible redemption fees if you close early). It will not be pleasant here.
i just returned from a short holiday in Ireland, first of all their home prices are ridiculously high, and tv and print media in last week of March were talking about home price values declining, a tour guide told me that alot of young couples were in over their heads on mortgages... in other words more or less the same thing seen here... they are in the early stages, friends in Italy told me back in November there were alot of homes just being deserted by owners unable to meet their mortgages....
Lefty,
when you speak of Ireland, do you mean Dublin or elsewhere?
ex-pat,
Look at the graphs in the guardian; London/SE, Newcastle & Scotland were rising in values, however deal velocity is through the floor which doesn't bode well going forward.
Perhaps they can get furriners to buy property.....nevermind.
"And to be fair, surely they have never used the term "redneck." Have they?"
A search of their website reveals 31 usages since 1996, none of them derogatory and none of them related to mortgages or housing. And the idea that The Economist didn't recognize the risks in the UK housing market is bizarre:- they have been pointing out its overheated nature for years.
Yeah, E_Tu_alt_a, I did the same search, and posted the most egregious usage back up there in the comments above. {Should have checked before posting.}
I couldn't believe they would toss around that term - having lived in the South, I found certain folks responded very negatively to that term, even in jest, so I'm not really clear on what a "non-derogatory" usage of 'redneck' would be.
But the Economist was definitely out in front on the housing bubble. Brilliantly so. It was their article called 'In Come the Waves', I believe, which convinced Mrs. Exception and I to wait out the hysteria. Best financial decision I ever made.
dont' expect ECB to cut rates much to prop up the dollar. The German Haus Fraus won't hear of it. Trichet walks a fine line keeping the Euro zone together
According to that Economist article, Canada is second to last on the list of overinflated housing prices. The are negative about 3%. So they should be immune.
Well first of all I don't think it was an Economist article. Got a link?
Second there is tremendous variation in housing valuations in Canada. The French-speaking parts are fairly valued (they do not have a cultural bias towards owning and simply will not pay more to own than to rent). Much of the English-speaking east is fairly valued too.
However no part of Canada is undervalued, which means to me that ownership costs are significantly below renting. If anyone else has a different definition of undervalued, I'd like to hear it.
It's the west, and to some degree Toronto, which are overvalued. British Columbia has prices which are every bit as absurd as CA or FL at the peak. Vancouver, which has not one bank headquarters or any other Canada-class (never mind world-class) business, is over 50% more expensive than Seattle down the road, and is more expensive than greater New York.
UK HPI data:
House Prices - Data Download
Bank of England Interest rate history:
Bank of England|Monetary Policy|Monetary Policy Committee (MPC)|Decisions
UK house prioces have clearly been bubbly since the turn of the century, if not before. As other commenters have said, you could watch it develop by tracking the number of property shows on TV, and the obsession with house price increases in the gutter press.
The collapse will look different to last time, though, since the structure of the average British mortgage has actually improved since then. During the last mortgage crisis, everyone was on adjustable rates, which were generally linked to the BoE base rate or LIBOR, and would reset every month. Most were not even standard repayment mortgages either. The 80s boom was built on the back of endowment mortgages, where you paid the interest on the loan, and then put a little extra into a stock market fund, which would pay off your mortgage at the end of the term, and give you a lump sum left over as well because stocks only go up don't they.
So when the recession came, householders were first hit by rocketing interest rates, then negitive equity, then if they survived that, they were faced with a shortfall notice from the bank that said "You know all that money that you thought was paying off the principal? Well, we lost it at the racetrack. You now owe us the balance".
This time round, we've actually discovered fixed rates, with most people on a 2 year or 5 year deal. It was only last year that 25 year fixed rate deals (you know, the ones that you thought were the normal, standard mortgage) were introduced.
Unfortunately, this means that the pain of recent base rate increases has been delayed until now.
The really horrible deals this time round are speculative "buy to let" loans. A whole load of amateur property tycoons have bought rental properties, and are going to find that it's difficult to change rental rates when their fixed rate expires. Rental apartments are also horribly overbuilt in some areas, with the added dilemma of decreasing demand as the economy cools. This last overlooked factor is because the last run up in the economy was built on the back of cheap migrant labour from the newly expanded EU. With the Euro getting stronger, and the UK economy slipping, a lot of them are just going east again.
And the pound is already taking a hammering. It's been going sideways against the dollar ever since it hit $2, while the euro has kept on powering ahead.
The thing about the UK market that could make for an even bigger house price crash than what we've seen in the US is that the ratio of rents to house prices is so far out of whack here. I moved from the SF Bay Area 2 years ago to London, and I'm astounded by the difference between what you get for renting vs buying. I'm renting a house and my rent would cover about 1/4 of the interest payments on a loan to buy the place. Buying here only makes sense if you can count on significant capital appreciation (more than 10% a year) making up the difference between the cost of renting and buying. As those capital gains come to be seen as more and more unlikely, or if the possibility of price falls becomes more apparent, prices will have to fall significantly for it to make sense to buy. Even at the peak of the bubble in the over-priced San Francisco area, the discrepancy between renting and buying was never as obvious as it is in the UK.
Have a look at this: HOUSING DERIVATIVES:. The UK housing derivatives market sees UK housing prices down for the next 8 years. the US housing derivatives markets, which only post values for the next 5 years, has housing values lower over that time period.