This article doesn't really quantify how much money's at stake. It will be interesting to see if this triggers a Northern Rock-esque run on the bank. What did the U.K. do about their deposit insurance after the last episode?
"After months of gloomy forecasts, analysts have finally confirmed the news that homeowners had been dreading for months: that large numbers of British householders have slipped into negative equity.
According to the investment bank Citigroup, a quarter of a million of them now owe more than their properties are worth since house prices started to drop at the end of last year.
Citigroup said prices had dipped by 7 per cent since the autumn and the bank's chief UK economist, Michael Saunders, yesterday warned that house prices could fall by 15 per cent or more by the end of 2009. Such a drop would leave at least a million homeowners in negative equity."
What this really forebodes is the lack of pricing authority in the rental market. As much as some specuvestors are holding on with moderate losses when rents start falling a whole new leg of asset depreciation will ensue.
I wonder how much the market will rally come monday? This can only be good for the markets as this news portends a bottoming of the banking sector. It can't get any lower, right? It can only go up from here.
What this really forebodes is the lack of pricing authority in the rental market. As much as some specuvestors are holding on with moderate losses when rents start falling a whole new leg of asset depreciation will ensue.
Rob Dawg | Homepage | 05.31.08 - 11:38 pm | #
Its all about incomes ultimately - incomes measured in real outputs of tangible goods & services not fiat.
The west has been running on a low tank for a long time.
I think that's what's scaring the crap out of all the central bankers - they can pump money but it won't necessarily grow corn or rice. And if they pump enough out to help citizens pay a rent sufficiently high so as to cover buy-to-let prices... what happens next? Another round of RE price inflations? More commodity inflation?
Somewhere along the line we have to start making more stuff & consuming less - especially here in 'the west'.
I agree dryfly, and as far as the 80% or so of production and consumption that is pure domestic is concerned it makes sense, even if the consumer is not going to like taking their medicine. (Nobody likes a reduced standard of living or having to give up their SUV and ATV.) This is going to suck.
However, what I think is going to be interesting is all the wailing and gnashing of teeth that'll happen as our emerging market and oil trading partners realize they have to adjust their exchange rates. (I'd still say the odds are they'll hold on to until their own domestic inflation force their hand.)
I hope no one from the USofA is critical of the UK. In socal, where our fine lending institutions greedily gave no doc loans to illegal aliens, 5 to 1 lending standards are considered Prime loans. In other words, the US is in just as deep Sh!t as the UK. And with Ben Bernanke and his money printing republicans, I could argue the US is in a hell of alot worse shape.
Somewhere along the line we have to start making more stuff & consuming less - especially here in 'the west'.
Globalization makes that a little complicated. Those countries with lower labor costs aren't going to unilaterally surrender. Although higher energy (i.e., transportation) costs could help us, anything short of magnificent (and proprietary) productivity gains won't stop an eventual equalization of living standards.
This is a great post and certainly gives one a reason to pause. If the British are in the same boat as we are then things could get dicey indeed.
Nevertheless, I am getting tired of the scorn heaped on individuals who bought property in hopes of making a profit. Correct me if I'm wrong but that seems to me to be a perfectly acceptable practice in a capitalist system. If they erred in their investment strategy then so be it. They aren't the first and won't be the last to have made a bad decision. Let's cut the investor who made a bad investment a little slack.
Here are some more thoughts on the subject-http://blog.metro-real-estate.com/?p=439
I doubt even $200/bbl oil will significantly affect imports. Shipping (as in by boat) is the most fuel efficient way to move stuff. Especially if you don't mind going slow (power required ~= speed^3). Rail isn't nearly as good, but it's tons better than trucking. Air freight, forget it. One thing is certain, warehouses will go back to not having wheels.
In a sense, any place with an ocean port could wind up being "closer" to every other such place than some landlocked place a hundred miles inland. Very pre-20th century.
I own a property in the UK, bought at the last trough in 1995. Lived in it until 99 when I moved to the US - so to give you an example of the prices/rent etc:
I bought at $100,000.
I rent at $1000 per month - had 3 steady tenants in that time and a total of 6 weeks void (over ~10 years). My rental managers say I can get $1100 to $1200 now but I don't change rent on good tenants.
In 2004 an identical property on the other side of the building sold for $350,000.
I've scaled the numbers to the $100k mark to make it easy to work out what my yield is, and what it would be if you bought the place in 2004.
Clearly, I bought undervalued in 95, but it's way overpriced now - there's no way to make rent/price work in your favour as a purchaser.
While a sudden increase in immigration and limited landmass as well as tight planning laws and increasing incomes all argue in favour of increased prices, there is no way it's sustainable and its only just dawning on UK friends that 'maybe it's not just the US in deep doo-doo with housing'.
I've read that barges are much more efficient than rail for intranational shipping, too. Cities not located along coastlines or major rivers could very well be screwed.
One thing to keep in mind regarding energy vs. trade is that the raw materials and finished products must be moved by more than just boats. How many factories are on the docks these days? Certainly few mines, quarries or wells.
TJ, I'd love to be one of the guys doing just that. The problem is who's going to run (as in administer) the program? You have an administration that has systematically disassembled the governments ability to do such a project. The people have been scattered to the wind.
It's kind of like the mit-loss problem for the mortgage industry. It ain't going to happen because the few Tanta class individuals left out there are already spoken for. And by the time industry can get enough folks trained up to deal with the problem, the problem will have solved itself. Think new doctor and dead patient.
The Oil Drum is a good start if you interested in details though.
"I think that's what's scaring the crap out of all the central bankers - they can pump money but it won't necessarily grow corn or rice. ... what happens next? Another round of RE price inflations?
Can't grow corn or rice, but if further money pumping raises even more the cost of housing components copper, lumber, cement et al, I may at some point begin to see increasing building costs providing a rising floor under my sinking home price.
If that were to convert deflationary buying postponement back to good old anticipatory buying it might give new meaning to the long alleged banker/broker/politician secret desire to "inflate or die" - providing a miracle cure for a variety of today's troubled mortgage securities.
I'm partially long DUG, SMN, QID and selected puts on parabolic equities, betting a further 'inflation bubble' won't happen, but new transport highs and NAZ heading for its 2590 gap up 3%, along with the adage "After inflation, earnings will rise..." - has me cautious.
If Bernanke and crowd have planned all this, then I just go from cautious to furious.
EEngineer- "Rail isn't nearly as good, but it's tons better than trucking."
Speaking of rail, the entire industry in the U.S. needs a massive enema.
I can't get into it now as Conjure and I are crunching data, but I was recently forced to endure a Norfolk Southern executive's presentation that made me want to puke.
I'm quite familiar with the drum, and have read numerous energy-oriented books. Like Simmons, I believe the world doesn't yet really comprehend what trouble lies ahead... and it's too late for a smooth transition.
I wonder how the American population will react to the 80% reduction in standard of living globalization will bring.
badger boy
Actually, I'd argue that the American standard of living has gone down quite a lot over the last 30 years or so. And, of course, the wealth gap has increased enormously-- and that's the thing that, absent hunger or other existential threats that people really care about in the end.
I'm currently living on about half of my old US income with what I consider to be a much higher standard of living. I have universal health care and great public transportation a few steps from my door. There are wonderful concerts, plays and lectures that I can go to every night of the week. If it ends after the metro closes I can either wait for a night tram or walk home.
The cost is I have to hang up my clothes to dry and if I don't leave enough time between showering and running the washing machine I'll run out of hot water. Oh, and I 'can't afford' a car. (Actually, I could, but it's more trouble than it's worth, since it usually takes more time to get where I'm going by car-- even if I can find a parking space when I get there.)
If I had kids, I'd consider my standard of living to be much higher. You don't need a university education to be a part of the middle class here, and if you do go to university it's heavily subsidized. Public education is free and still includes all the 'frills' like art and music that Americans have been busy eliminating for the past 40 years.
In short I think we could adjust to a change in living standards quite easily and well. It takes a change in priorities and a redirection of energy. Whether that will happen, of course, is anybody's guess.
i red several articles which say that already half of people fro eastern europe has left UK. what good is to earn money in currency which depreciate aggainst your own currency at scale 15-30%annualy. so who is going to rent? foreigners? i doubt it.
While a sudden increase in immigration and limited landmass as well as tight planning laws and increasing incomes all argue in favour of increased prices
What argues in favor of increased prices is increased rents. That's the objective measure of end user demand. As you pointed out, rents have gone up, but an order of magnitude less than prices.
I'm currently living on about half of my old US income with what I consider to be a much higher standard of living. I have universal health care and... ----Sarah
Where are you, Canada? Curious.
The cost is I have to hang up my clothes to dry...
The real "cost" is that you don't have a far-flung empire, which the US does. We've supported that empire for eight decades, and it has bankrupted us. Unfortunately, we refused to give it up when we needed to, about 1969, and chose instead to play phony money games. Which has led us down to road to this imminent ruin.
In using that financial trickery, we did vast damage to our productive capacity, our value system, and our underlying economy. So that even if we now choose (out of dire necessity) to abandon our empire, we will still suffer terribly in re-adjusting our way of life to what it once was.
Either way, the American Empire, the Pax Americana, is closing up shop. The world better start thinking about a new global order.
Somewhere along the line we have to start making more stuff & consuming less - especially here in 'the west'.
The process has already begun. Our imports are dropping and our exports rising. But there is still a long way to go and a long way for the dollar to go down to bring it about.
Hapsburger-- New EU member state. Part of your old empire.
Just to be clear-- I'm not saying it's paradise here. Far from it. There are some very major problems-- some of which we don't face to a comparable degree in the US. But just as famines are often not the result of an absolute lack of sufficient food to feed the population (just an absence of the ability of the poorest to afford their usual cheap food source), a drop in living standards doesn't have to mean real hardship for most people. It depends on what, specifically, you have to give up, and what alternatives to it you have.
By the way, I've been looking at housing costs versus income here and in other European countries. It's a little less than 20% of net income here and pretty similar in most European countries. That surprised me, since rents are quite high in most major cities, but of course these are countrywide statistics and many even in the cities either own outright or have heavily subsidized rents. Does anyone have a source for comparable statistics in the US?
This, of course, is only tangential to the post-- apologies to CR and Tanta!
If americans install single payer national health care, credit card and lending reform, increase taxes, and a 32 hour work week the decrease in their standarding of living might make Americans happier over all even with less stuff.
Absolutely! Americans must choose what kind of country they really want.
After the devastation of WWI & WWII, the Europeans made choices about what was important to them. With our help, they rebuilt not only their infrastructure but their culture.
Unfortunately, European priorities ... universal health, public transport, education, culture at your doorstep, great food, family, jobs with a livable wage, a roof over your head ... are not yet American priorities. The frontier, cheap resources, our founding as an entrepreneurial colony, the protection of 2 oceans, no war devastation (since the Civil War) has shaped us. It's a natural progression since the founding of Jamestown.
It's possible a massive upheaval would have to occur to reorder American priorities. Then there's always the question of whether we'd survive as a nation to come out the other end.
I've read that barges are much more efficient than rail for intranational shipping, too. Cities not located along coastlines or major rivers could very well be screwed.
Every city in the U.S. depends on the same mode of transportation to move the economy, and that is the truck.
Only a limited set of goods move by rail, and an even more limited set moves by water.
The big box retailer, chain store, overnight delivery, just-in-time inventory model was built on a model of local and regional trucking.
Trucking is going through a horrible shake-out now due to diesel prices, and this will disrupt the economy, drive up prices, and cut into corporate profits.
The shake-out will have to correct over time in higher shipping rates to lure truckers back on the road. But not for years will the U.S. trucker fleet be rebuilt.
i am from slovakia, also a new eu state and i already see signs of slowing economy in the eastern europe. RE is already slowing down since the runnup was quite overblown and fueled just by cheap credit. people are returning from UK since they nolonger can earn as much money when they convert british currency to their own.
i think bulgary and romania can have problems since the foreign capital inflows that fueled economies through RE investments in eastern europe is largely over and probably soon the investors will start to liquidate their positions after tax exemption period of 5 years has passed.
i red that something like 4% of mortgages in rumania are deliquent since most mortgages are in Euros and romanian lei has gone down vs euro 10% in a year.
RE in poland, czech republic, slovakia and hungary is starting to go down and since most banks in eastern europe are owned by few austrian banks + few italian, this could lead to credit crunch.
btw. i think people in us should really consider to retire with their savings to europe. we have healthcare system that costs 50$/month and if you put some money over that you can have even private care which has more quality. after RE prices goe down it could be a realy good idea to retire in europe. i know many friends of my parents who lived in us after leaving in 1968 and are planning to comeback to slovakia once they retire.
PROS:
- universal healthcare
- lowcrime rate. guns have only cops and military - russians knew how to keep people in check:)
- you can go to nature, woods, no sheriff to annoy you, noone to tell you this is private property.
- the HOA things are unknown in east. so you can splash the toilette in the after 22:00 and so on well in the germany you cant xD
CONS:
- not functioning justice system, you cant sue someone for anything, but on the otherside no one can sue you well it take always a lot of time.
I lived in Moscow off and on from 99 through 2004. I owned a 60 meter flat close to downtown and paid $115,000. It was what they call novy remont, western style. I sold it in 04 for $200,000. My realtor told me a few months back that it is now worth $350,000.
It was not simply a real estate phenom. It was/is an international credit bubble.
My daughter teaches school in Prague. I would like to buy her a flat but prices there mirror the insanity of other desireable worldwide metro areas.
Safely ensconced on 70 acres with horsies, moo cows, and chickens, I take comfort in the fact I can always eat my inventory.
It is just a cycle. Granted a whopper and international but a cycle non the less. Things change and you cannot live backwards. Accept it, plan and more foreward. Save a little and hide it. It is always wise to have a spare flint in your Zippo.
infinity:Price to income ratio is about 5 in the UK. The US never reached such a level and look at the problems we've had. The Brits are in big trouble...
UK has worse debt/GDP ratio than US..Finance is major fuel for London/UK..even though there is not as much excess housing as in the US, leverage in UK is worse. Expect major churning in the Thames..
revro-- I'm in Prague, so much of what you say applies here.
I've been trying to figure out if RE could be considered to be in a bubble here, but it's hard to know where to start with the analysis. On the one hand, mortgages or (unregulated) rents relative to average income are very high. On the other hand, housing starts plummeted after '89 and have never returned to pre-revolutionary levels. Although they went back up quite a bit after Western-style long-term mortgages were introduced around 2000 there has been nothing like the building boom in the US here. Then again, as revro says, a certain amount of the price run-up came from foreign purchasers-- so some, at least, of housing could be considered 'hidden inventory'. There's also a fair amount of hidden inventory from people 'holding' rent-controlled apartments either to sublet or for future housing for a child.
I found several references to US data expressed as the percentage of renters and mortgage holders paying over 30% or over 50% of income on rent-- so the information I'm looking for to make a comparison with Europe is probably buried in the census data. But now I'm thinking it would make more sense to express the European data in those terms-- percentage of people spending over a certain percent of income on housing. Otherwise we get into the problem of comparing averages in low wealth-gap, high safety net countries versus the reverse in the US.
Sarah,
Praha real estate is still over valued. The expats who bought 4 to 6 years ago are probably OK. The locals who own and rent out are doing so for their own retirement purposes. No social safety net thus far. Rents should stay reasonable because of this.
I remember B&B's sales pitch every time they came around trying to sell MBS off their master trust. They argued that their brand of non-professional landlords was better and far more diversified than the "professional" landlords patroned by the likes of Paragon. so much for that.
first
Price to income ratio is about 5 in the UK. The US never reached such a level and look at the problems we've had. The Brits are in big trouble.
Live tables on housing market and house prices - Housing - Communities and Local Government
This article doesn't really quantify how much money's at stake. It will be interesting to see if this triggers a Northern Rock-esque run on the bank. What did the U.K. do about their deposit insurance after the last episode?
Some of these investors were really speculators buying for appreciation.
"Some"? There is nowhere in the UK where rentals are cash flow positive.
Negative equity hits 250,000 - and there is worse to come |
Money |
The Observer
"After months of gloomy forecasts, analysts have finally confirmed the news that homeowners had been dreading for months: that large numbers of British householders have slipped into negative equity.
According to the investment bank Citigroup, a quarter of a million of them now owe more than their properties are worth since house prices started to drop at the end of last year.
Citigroup said prices had dipped by 7 per cent since the autumn and the bank's chief UK economist, Michael Saunders, yesterday warned that house prices could fall by 15 per cent or more by the end of 2009. Such a drop would leave at least a million homeowners in negative equity."
so which U.K. bank stocks are in for an @$$ pounding when the bell rings on monday morning?
What this really forebodes is the lack of pricing authority in the rental market. As much as some specuvestors are holding on with moderate losses when rents start falling a whole new leg of asset depreciation will ensue.
Kaboom,
They aren't going to take the time to figure out which ones are in trouble. All of them are screwed come Monday.
/begin snark
I wonder how much the market will rally come monday? This can only be good for the markets as this news portends a bottoming of the banking sector. It can't get any lower, right? It can only go up from here.
/end snark
This parrot's dead.
What this really forebodes is the lack of pricing authority in the rental market. As much as some specuvestors are holding on with moderate losses when rents start falling a whole new leg of asset depreciation will ensue.
Rob Dawg | Homepage | 05.31.08 - 11:38 pm | #
Its all about incomes ultimately - incomes measured in real outputs of tangible goods & services not fiat.
The west has been running on a low tank for a long time.
I think that's what's scaring the crap out of all the central bankers - they can pump money but it won't necessarily grow corn or rice. And if they pump enough out to help citizens pay a rent sufficiently high so as to cover buy-to-let prices... what happens next? Another round of RE price inflations? More commodity inflation?
Somewhere along the line we have to start making more stuff & consuming less - especially here in 'the west'.
does anyone have a dollar amount as to b&B's liabilities?
JOY JOY JOY
As a Georgist, when I first encountered the term "buy to let" my nose crinkled and the only thought I had was WTF!
"Buy to Let" is a great, great social evil and I'm only too glad to see everything dealing in it ripped a new one.
I agree dryfly, and as far as the 80% or so of production and consumption that is pure domestic is concerned it makes sense, even if the consumer is not going to like taking their medicine. (Nobody likes a reduced standard of living or having to give up their SUV and ATV.) This is going to suck.
However, what I think is going to be interesting is all the wailing and gnashing of teeth that'll happen as our emerging market and oil trading partners realize they have to adjust their exchange rates. (I'd still say the odds are they'll hold on to until their own domestic inflation force their hand.)
More containment! Love it!!! Wheels are getting pretty wobbly. Central bankers are going into the buy to let business everywhere.
Petula Clark - Downtown
YouTube
- Broadcast Yourself.
I hope no one from the USofA is critical of the UK. In socal, where our fine lending institutions greedily gave no doc loans to illegal aliens, 5 to 1 lending standards are considered Prime loans. In other words, the US is in just as deep Sh!t as the UK. And with Ben Bernanke and his money printing republicans, I could argue the US is in a hell of alot worse shape.
Somewhere along the line we have to start making more stuff & consuming less - especially here in 'the west'.
Globalization makes that a little complicated. Those countries with lower labor costs aren't going to unilaterally surrender. Although higher energy (i.e., transportation) costs could help us, anything short of magnificent (and proprietary) productivity gains won't stop an eventual equalization of living standards.
That means ours goes down.
tj- "That means ours goes down."
And that's the dirty little secret you'll never hear our so-called leaders talk about in public.
That means ours goes down.
The US standard of living for 5% of global population takes 25% of global resources.
I wonder how the American population will react to the 80% reduction in standard of living globalization will bring.
This is a great post and certainly gives one a reason to pause. If the British are in the same boat as we are then things could get dicey indeed.
Nevertheless, I am getting tired of the scorn heaped on individuals who bought property in hopes of making a profit. Correct me if I'm wrong but that seems to me to be a perfectly acceptable practice in a capitalist system. If they erred in their investment strategy then so be it. They aren't the first and won't be the last to have made a bad decision. Let's cut the investor who made a bad investment a little slack.
Here are some more thoughts on the subject-http://blog.metro-real-estate.com/?p=439
badger- "I wonder how the American population will react..."
As others have noted, here and elsewhere, failed attempts at economic integration have usually led to wars.
I'm fervently hoping we make some breakthroughs in power generation and storage, otherwise resource wars may be the hallmark of the 21st century.
I doubt even $200/bbl oil will significantly affect imports. Shipping (as in by boat) is the most fuel efficient way to move stuff. Especially if you don't mind going slow (power required ~= speed^3). Rail isn't nearly as good, but it's tons better than trucking. Air freight, forget it. One thing is certain, warehouses will go back to not having wheels.
In a sense, any place with an ocean port could wind up being "closer" to every other such place than some landlocked place a hundred miles inland. Very pre-20th century.
I own a property in the UK, bought at the last trough in 1995. Lived in it until 99 when I moved to the US - so to give you an example of the prices/rent etc:
I bought at $100,000.
I rent at $1000 per month - had 3 steady tenants in that time and a total of 6 weeks void (over ~10 years). My rental managers say I can get $1100 to $1200 now but I don't change rent on good tenants.
In 2004 an identical property on the other side of the building sold for $350,000.
I've scaled the numbers to the $100k mark to make it easy to work out what my yield is, and what it would be if you bought the place in 2004.
Clearly, I bought undervalued in 95, but it's way overpriced now - there's no way to make rent/price work in your favour as a purchaser.
While a sudden increase in immigration and limited landmass as well as tight planning laws and increasing incomes all argue in favour of increased prices, there is no way it's sustainable and its only just dawning on UK friends that 'maybe it's not just the US in deep doo-doo with housing'.
EEngineer,
I've read that barges are much more efficient than rail for intranational shipping, too. Cities not located along coastlines or major rivers could very well be screwed.
One thing to keep in mind regarding energy vs. trade is that the raw materials and finished products must be moved by more than just boats. How many factories are on the docks these days? Certainly few mines, quarries or wells.
TJ, I'd love to be one of the guys doing just that. The problem is who's going to run (as in administer) the program? You have an administration that has systematically disassembled the governments ability to do such a project. The people have been scattered to the wind.
It's kind of like the mit-loss problem for the mortgage industry. It ain't going to happen because the few Tanta class individuals left out there are already spoken for. And by the time industry can get enough folks trained up to deal with the problem, the problem will have solved itself. Think new doctor and dead patient.
The Oil Drum
is a good start if you interested in details though.
dryfly writes:
"I think that's what's scaring the crap out of all the central bankers - they can pump money but it won't necessarily grow corn or rice. ... what happens next? Another round of RE price inflations?
Can't grow corn or rice, but if further money pumping raises even more the cost of housing components copper, lumber, cement et al, I may at some point begin to see increasing building costs providing a rising floor under my sinking home price.
If that were to convert deflationary buying postponement back to good old anticipatory buying it might give new meaning to the long alleged banker/broker/politician secret desire to "inflate or die" - providing a miracle cure for a variety of today's troubled mortgage securities.
I'm partially long DUG, SMN, QID and selected puts on parabolic equities, betting a further 'inflation bubble' won't happen, but new transport highs and NAZ heading for its 2590 gap up 3%, along with the adage "After inflation, earnings will rise..." - has me cautious.
If Bernanke and crowd have planned all this, then I just go from cautious to furious.
EEngineer- "Rail isn't nearly as good, but it's tons better than trucking."
Speaking of rail, the entire industry in the U.S. needs a massive enema.
I can't get into it now as Conjure and I are crunching data, but I was recently forced to endure a Norfolk Southern executive's presentation that made me want to puke.
EEngineer,
I'm quite familiar with the drum, and have read numerous energy-oriented books. Like Simmons, I believe the world doesn't yet really comprehend what trouble lies ahead... and it's too late for a smooth transition.
I wonder how the American population will react to the 80% reduction in standard of living globalization will bring.
badger boy
Actually, I'd argue that the American standard of living has gone down quite a lot over the last 30 years or so. And, of course, the wealth gap has increased enormously-- and that's the thing that, absent hunger or other existential threats that people really care about in the end.
I'm currently living on about half of my old US income with what I consider to be a much higher standard of living. I have universal health care and great public transportation a few steps from my door. There are wonderful concerts, plays and lectures that I can go to every night of the week. If it ends after the metro closes I can either wait for a night tram or walk home.
The cost is I have to hang up my clothes to dry and if I don't leave enough time between showering and running the washing machine I'll run out of hot water. Oh, and I 'can't afford' a car. (Actually, I could, but it's more trouble than it's worth, since it usually takes more time to get where I'm going by car-- even if I can find a parking space when I get there.)
If I had kids, I'd consider my standard of living to be much higher. You don't need a university education to be a part of the middle class here, and if you do go to university it's heavily subsidized. Public education is free and still includes all the 'frills' like art and music that Americans have been busy eliminating for the past 40 years.
In short I think we could adjust to a change in living standards quite easily and well. It takes a change in priorities and a redirection of energy. Whether that will happen, of course, is anybody's guess.
i red several articles which say that already half of people fro eastern europe has left UK. what good is to earn money in currency which depreciate aggainst your own currency at scale 15-30%annualy. so who is going to rent? foreigners? i doubt it.
While a sudden increase in immigration and limited landmass as well as tight planning laws and increasing incomes all argue in favour of increased prices
What argues in favor of increased prices is increased rents. That's the objective measure of end user demand. As you pointed out, rents have gone up, but an order of magnitude less than prices.
Sarah - so where are you living?
I'm currently living on about half of my old US income with what I consider to be a much higher standard of living. I have universal health care and... ----Sarah
Where are you, Canada? Curious.
The cost is I have to hang up my clothes to dry...
The real "cost" is that you don't have a far-flung empire, which the US does. We've supported that empire for eight decades, and it has bankrupted us. Unfortunately, we refused to give it up when we needed to, about 1969, and chose instead to play phony money games. Which has led us down to road to this imminent ruin.
In using that financial trickery, we did vast damage to our productive capacity, our value system, and our underlying economy. So that even if we now choose (out of dire necessity) to abandon our empire, we will still suffer terribly in re-adjusting our way of life to what it once was.
Either way, the American Empire, the Pax Americana, is closing up shop. The world better start thinking about a new global order.
Somewhere along the line we have to start making more stuff & consuming less - especially here in 'the west'.
The process has already begun. Our imports are dropping and our exports rising. But there is still a long way to go and a long way for the dollar to go down to bring it about.
Hapsburger-- New EU member state. Part of your old empire.
Just to be clear-- I'm not saying it's paradise here. Far from it. There are some very major problems-- some of which we don't face to a comparable degree in the US. But just as famines are often not the result of an absolute lack of sufficient food to feed the population (just an absence of the ability of the poorest to afford their usual cheap food source), a drop in living standards doesn't have to mean real hardship for most people. It depends on what, specifically, you have to give up, and what alternatives to it you have.
By the way, I've been looking at housing costs versus income here and in other European countries. It's a little less than 20% of net income here and pretty similar in most European countries. That surprised me, since rents are quite high in most major cities, but of course these are countrywide statistics and many even in the cities either own outright or have heavily subsidized rents. Does anyone have a source for comparable statistics in the US?
This, of course, is only tangential to the post-- apologies to CR and Tanta!
If I can try to paraphrase Sarah from above...
If americans install single payer national health care, credit card and lending reform, increase taxes, and a 32 hour work week the decrease in their standarding of living might make Americans happier over all even with less stuff.
Sarah..."a change in priorities"...
Absolutely! Americans must choose what kind of country they really want.
After the devastation of WWI & WWII, the Europeans made choices about what was important to them. With our help, they rebuilt not only their infrastructure but their culture.
Unfortunately, European priorities ... universal health, public transport, education, culture at your doorstep, great food, family, jobs with a livable wage, a roof over your head ... are not yet American priorities. The frontier, cheap resources, our founding as an entrepreneurial colony, the protection of 2 oceans, no war devastation (since the Civil War) has shaped us. It's a natural progression since the founding of Jamestown.
It's possible a massive upheaval would have to occur to reorder American priorities. Then there's always the question of whether we'd survive as a nation to come out the other end.
Every city in the U.S. depends on the same mode of transportation to move the economy, and that is the truck.
Only a limited set of goods move by rail, and an even more limited set moves by water.
The big box retailer, chain store, overnight delivery, just-in-time inventory model was built on a model of local and regional trucking.
Trucking is going through a horrible shake-out now due to diesel prices, and this will disrupt the economy, drive up prices, and cut into corporate profits.
The shake-out will have to correct over time in higher shipping rates to lure truckers back on the road. But not for years will the U.S. trucker fleet be rebuilt.
Hm. I'm guessing Bucharest?
Not to be too OT but I found this interesting on coming shortfall in state and local taxes...
Think the Economy Is Bad? Wait Till the States Cut Back
To my thinking this is the other shoe to drop (although there have been a lot of shoes around lately).
State and locals spend twice as much as the federal govt. And they are just getting ready to deal with tax shortfalls.
Best regards,
Brad & Bing and A&L were the two closest candidates to Northern Rock type stardom. A&L is in a rough spot too.
Sarah, where r u (seriously)...
i am from slovakia, also a new eu state and i already see signs of slowing economy in the eastern europe. RE is already slowing down since the runnup was quite overblown and fueled just by cheap credit. people are returning from UK since they nolonger can earn as much money when they convert british currency to their own.
i think bulgary and romania can have problems since the foreign capital inflows that fueled economies through RE investments in eastern europe is largely over and probably soon the investors will start to liquidate their positions after tax exemption period of 5 years has passed.
i red that something like 4% of mortgages in rumania are deliquent since most mortgages are in Euros and romanian lei has gone down vs euro 10% in a year.
RE in poland, czech republic, slovakia and hungary is starting to go down and since most banks in eastern europe are owned by few austrian banks + few italian, this could lead to credit crunch.
btw. i think people in us should really consider to retire with their savings to europe. we have healthcare system that costs 50$/month and if you put some money over that you can have even private care which has more quality. after RE prices goe down it could be a realy good idea to retire in europe. i know many friends of my parents who lived in us after leaving in 1968 and are planning to comeback to slovakia once they retire.
PROS:
well in the germany you cant xD
- universal healthcare
- lowcrime rate. guns have only cops and military - russians knew how to keep people in check:)
- you can go to nature, woods, no sheriff to annoy you, noone to tell you this is private property.
- the HOA things are unknown in east. so you can splash the toilette in the after 22:00 and so on
CONS:
well it take always a lot of time.
- not functioning justice system, you cant sue someone for anything, but on the otherside no one can sue you
I lived in Moscow off and on from 99 through 2004. I owned a 60 meter flat close to downtown and paid $115,000. It was what they call novy remont, western style. I sold it in 04 for $200,000. My realtor told me a few months back that it is now worth $350,000.
It was not simply a real estate phenom. It was/is an international credit bubble.
My daughter teaches school in Prague. I would like to buy her a flat but prices there mirror the insanity of other desireable worldwide metro areas.
Safely ensconced on 70 acres with horsies, moo cows, and chickens, I take comfort in the fact I can always eat my inventory.
It is just a cycle. Granted a whopper and international but a cycle non the less. Things change and you cannot live backwards. Accept it, plan and more foreward. Save a little and hide it. It is always wise to have a spare flint in your Zippo.
Either way, the American Empire, the Pax Americana, is closing up shop. The world better start thinking about a new global order.
Oh dear, unirealist. The patient isn't dead yet. It's a bit too early to plan the funeral.
infinity:Price to income ratio is about 5 in the UK. The US never reached such a level and look at the problems we've had. The Brits are in big trouble...
UK has worse debt/GDP ratio than US..Finance is major fuel for London/UK..even though there is not as much excess housing as in the US, leverage in UK is worse. Expect major churning in the Thames..
OT, good article on state spending cuts and their impact on the economy:
THE NATION; Think the Economy Is Bad? Wait Till The States Cut Back - NY Times
revro-- I'm in Prague, so much of what you say applies here.
I've been trying to figure out if RE could be considered to be in a bubble here, but it's hard to know where to start with the analysis. On the one hand, mortgages or (unregulated) rents relative to average income are very high. On the other hand, housing starts plummeted after '89 and have never returned to pre-revolutionary levels. Although they went back up quite a bit after Western-style long-term mortgages were introduced around 2000 there has been nothing like the building boom in the US here. Then again, as revro says, a certain amount of the price run-up came from foreign purchasers-- so some, at least, of housing could be considered 'hidden inventory'. There's also a fair amount of hidden inventory from people 'holding' rent-controlled apartments either to sublet or for future housing for a child.
I found several references to US data expressed as the percentage of renters and mortgage holders paying over 30% or over 50% of income on rent-- so the information I'm looking for to make a comparison with Europe is probably buried in the census data. But now I'm thinking it would make more sense to express the European data in those terms-- percentage of people spending over a certain percent of income on housing. Otherwise we get into the problem of comparing averages in low wealth-gap, high safety net countries versus the reverse in the US.
We are all nationalized now.
"Correct me if I'm wrong but that seems to me to be a perfectly acceptable practice in a capitalist system."
Exactly, but you're reaching the wrong conclusion!
"republicans are traitors" is a traitor.
Sarah,
Praha real estate is still over valued. The expats who bought 4 to 6 years ago are probably OK. The locals who own and rent out are doing so for their own retirement purposes. No social safety net thus far. Rents should stay reasonable because of this.
Enjoy the Summer!
I remember B&B's sales pitch every time they came around trying to sell MBS off their master trust. They argued that their brand of non-professional landlords was better and far more diversified than the "professional" landlords patroned by the likes of Paragon. so much for that.