UK Property Market Stagnating

[tj]

Since the euro was intoduced as hard currency in 1999, it is at its highest level against the pound, some of the articles do actually mention that point,

But i guess its all rather incidental, the pound is heading for another beating today!

 

[Quillan]

Its that half full or half empty thing really. I my book it's not the Euro that has changed its the pound which is at its lowest against he Euro. Its not the Euro that's moving.

[Gluestick]

Not quite true, Quillan.

The Euro has gained significant ground during the past 18 months as it has become a preferred Reserve Currency over the US$ and partially, Sterling.

The ECB is now in the same silly position as the Bank of England and the Federal Reserve: viz, that lowering interest rates defuses a "Hot" Currency, but since inflation is already roaring away, a lowered Euro rate whilst de-valuing the currency marginally, simply encourages inflation.

Which is the core problem of unstable and unwieldy modern currency systems.

The ECB doesn't want the central banks and governments of the disparate EU member states within the currency systrem to act independantly (which under the treaty within certain limits they can if their fiscal balance goes awry) as it promotes an atmosphere of discord and uncertainty in the global Forex and capital markets.

However, if the Euro remains at its currently high level (against other main traded currencies) it cripples EU manufacturing exporters.

In the case of the Bank of England, they are really now between a rock and a hard place!

With inflation starting to roar, if interest rates are kept synthetically low to avoid the feared housing market collapse, then the currency also stays low and thus the Balance of Trade Deficit simply grows and grows! As does price inflation.

The much vaunted "Independence" of the B of E from Government is currently being shown up as mythical: since the MPC (Monetary Policy Committee) ought to be focused only on Money Supply and its corelationship with the value of GDP/GNP, not the underlying economy.

i.e.: x pounds against y GDP: as against:  x+15% pounds against y GDP- 10% = Monetary Inflation.

This is where it all goes so terribly wrong!

 

[Quillan]

Admittedly it's a chicken and egg situation with the Euro. Those who's manufacturing relies on import from Euroland are looking at a very uncertain future. Likewise those manufactures who sell in to countries outside Euroland are going to find their goods too expensive.

This is not the fault of Euroland after all it was not them that gave loans to every Tom, Dick and Harry many of whom could not afford such loans. The US is now in a terrible state, I see one website selling repossessed homes from $100 upwards in the US (BBC News 24), people are defaulting on loans all because the banks thought they were being clever and that they could make a bundle. The UK unfortunately is in a not to dissimilar position. Both the US and the UK are printing money to try and bail the economies out which in the UK is typical of the Labour party, they did it before and they will do it again. This, as we all know, is not the answer. Borrowing must be bought under control before inflation can be addressed and the only real, but painful way, is to increase the interest rates until people stop borrowing. Of course the financial people are going to play it down, its not in their best interest to do so. It's the man/woman in the street who will suffer as always.

[darnsarf]

"but since inflation is already roaring away" ....

 

UK Underlying inflation is 3.4%. More of a squeak than a roar, I'd say.

 

edited  after google served up a 2003 newsfeed!

[Gastines]

Gluestick, as you obviously have more knowledge on monetary markets than me and I think possibly a few others on the forum,what would you advise us mere mortals to do? We have left all our capital [all ,might be a rather grand term ] in the UK in a bank account giving 5.25%. Capital is secure as it can be in a bank and we can draw cash anywhere in the world as required. Pension also paid into the same account and a few other bits and pieces. The problem for most of us is the charges incurred as well as the exchange rate in getting it transfered to Euros. It seems that buying anything in euroland is out of the question at the moment , whether it be property/car or even investments. We did have ISA's which went DOWN in capital value and something else which the Financial Advisor forgot to tell us was losing £100 a day but as he said was paying 7%?????

Regards.

[Gluestick]

The trouble with reporting such stats as inflation, is Fiscal Drag: reporting and mensuration lag well behind reality!

One of the dire problems with stats, as we all know: writing analysis and reports (as I do), we have to weight stated figures with a tad of guesstimate.

That said, since the current government's target is 2%, then +1.3% is a significant problem!

I just wish ALL my UK bills had only increased by this: simply, I know that nothing has reduced, taxes are up, income from my practice reasonably static (and has been for over three years, 'cos if I increase fee rates I would lose clients) etc. as all business is facing the same critical realities on cost.

 

 

[Gluestick]

[quote user="Gastines"]

Gluestick, as you obviously have more knowledge on monetary markets than me and I think possibly a few others on the forum,what would you advise us mere mortals to do? We have left all our capital [all ,might be a rather grand term ] in the UK in a bank account giving 5.25%. Capital is secure as it can be in a bank and we can draw cash anywhere in the world as required. Pension also paid into the same account and a few other bits and pieces. The problem for most of us is the charges incurred as well as the exchange rate in getting it transfered to Euros. It seems that buying anything in euroland is out of the question at the moment , whether it be property/car or even investments. We did have ISA's which went DOWN in capital value and something else which the Financial Advisor forgot to tell us was losing £100 a day but as he said was paying 7%?????

Regards.

[/quote]

As always, an investor has to decide whether they need income or "performance", i.e. Capital Gain. Normally, it's a mix of the two.

The core problem now is that most investors have invested to receive a projected income from their investments to live on.

Switching into (e.g.) another geographical area enjoys two problems: one, the transaction cost and two, the exchange risk.

In global markets which are now totally uncertain and roiled by disaster and rumour, either stick with cash or take a long view punt into emerging markets such as India.

You need to carry out some serious analysis and study before making any moves!

If you don't need income and are very brave, look at acquiring objects of core value such as rare coins. One benefit is that with care, each coin can represent a de minimus transaction for CGT purposes and is therefore free of CGT on sale. Care needed here!

At the moment, the global investor is seeking shelter: that's why gold is so very high. It always zooms in times of uncertain value elsewhere.

I was tipping it as a hedge over 18 months ago, BTW.

 

[cooperlola]

As you probably know, Gluey, I am a railway pensioner.  Years ago, the newspapers were extremely scathing when my fund invested in a quantity of fine art.  The tabloids went to town taking the rise out of them for "risking" pensioners' money on such things.  The fund responded by saying that it had taken the decision to do this in order to spread the speculative load of its portfolio (which is, to this day, a huge mix of property, global investments etc, plus the "odd-balls" such as the fine arts etc.)  Not for nothing does the Railway Pension fund win management awards year after year, and has one of the most stable futures for its members of any similar fund out there.

Still doesn't help me much though when I have to change it into Euros![:-))]

[Gluestick]

[quote user="cooperlola"]

As you probably know, Gluey, I am a railway pensioner.  Years ago, the newspapers were extremely scathing when my fund invested in a quantity of fine art.  The tabloids went to town taking the rise out of them for "risking" pensioners' money on such things.  The fund responded by saying that it had taken the decision to do this in order to spread the speculative load of its portfolio (which is, to this day, a huge mix of property, global investments etc, plus the "odd-balls" such as the fine arts etc.)  Not for nothing does the Railway Pension fund win management awards year after year, and has one of the most stable futures for its members of any similar fund out there.

Still doesn't help me much though when I have to change it into Euros![:-))]

[/quote]

I remember that very well, JE. It was a brave but sound decision, IMHO.

I also remember the lord who most shrewdly invested in fine coins when CGT came in: years later he liquidated (Spinks ran the sale I recall) and raised over £10 million: but since no one coin  had cost him any more than £1,000, his gain was tax free.

Smart!

 

[Alan Zoff]

Demonstrates the weakness in the way financial services are regulated. The financial advisers and fund managers are more concerned with satisfying auditors than securing decent returns for the average investor.  As long as they have the right bits of paper in place, with all the boxes ticked, they are covered and their salaries/ commission will be safe, regardless of performance. This limits the scope and incentive for them to use real skill and professional judgement, except when acting for their own account.

[Gluestick]

The main problem with the markets, Alan, is in fact quite simple.

Circa 85% of ALL new fresh funds inflow eminates from the institutions serving the Little Guy: pensions, life assurance, savings, investments such as PEPs, ISAs etc.

Despite having access to legions of "Analysts" and "Risk Managers", the majority of buy/sell decisions are predicated on what can only be called the Lemming Factor: the markets are notoriously fickle and totally dominated by trend following.

One of my best friends is new business director of a small, focussed external (to the LSE) stock broker: they do try and analyse good bets.

The large boys, however, have such larges chunks of cash to move, they tend to only "Follow the herd": and therein lies the problem!

This is precisely why when the market drops, all shares drop in sympathy: even good equities which offer far higher than average performance.

That's why Warren Buffet is the wealthiest man in the World, currently; the Sage of Omaha (as he is known) only buys what he calls "Value Investments" for his fund, Berkshire Hathaway.

If the market drops, Buffet simply shrugs and hangs on: if his judgment originally was correct, well, then the stock weathers the temporary blips and keeps on rising and perfoming.

 

[WJT]

This is the first time I have seen any signs that the ECB may have to lower interest rates. I know that high inflation is a reason not to, but that is what I read out of the below link.

http://uk.news.yahoo.com/afp/20080331/tbs-eu-eurozone-economy-inflation-confid-5268574.html

[Quillan]

Another area is of course repossessions of private and Buy to Let property.

Out of interest I had a look at the The Council of Mortgage Lenders website last night and in particular their statistics ( http://www.cml.org.uk ) although to understand better you need to read the bit about how processioning property has changed. The way I read it is that  the mortgage company puts a repossession order on the property which is then blocked by the courts almost straight away. The reason for this is to allow 'reasonable' time for the house to be sold by the owner thus ensuring they get the best price. The reason behind this is because back in the 90's mortgage companies were selling the properties for any old amount as long as it paid off the mortgage which was not in the owners best interest.

The private housing is not so bad but there is a steady upturn, the more interesting area is the Buy to Let where there seems to be a big rise. These properties get sold, either by the mortgage companies or the owners at normally the lower end of the price range because obviously it's in both sides interest to get the debt repaid asap. These lower prices and the quantity of stock involved must surely have an effect on property prices.

Don't forget these figures are low because they are only the mortgage repossessions and do not include those by companies holding a second charge like all those currently advertising on the TV which dramatically increases the figure. I think if you add those figuers in to the equation it would make for quite bad reading.

I also noticed during my search the vast amount of auction companies now specialising in reposed property.

[Chancer]

[quote user="Quillan"]

 The reason behind this is because back in the 90's mortgage companies were selling the properties for any old amount as long as it paid off the mortgage which was not in the owners best interest.

[/quote]

I am fairly certain that this was the case (and may still be) in France when I bought my property direct from the liquidator.

To me it was a bargain, but then so are most property prices in France compared to the UK "values" that we tend to judge them against, it was only later on when I encountered several unhappy people that had their eye on the property but did not get a look in that I found that it was in fact a steal.

[Ian]

The euro has tracked gold since 2006 - and I notice gold has dropped below support line at $900 (though admittedly within a primary upward trend). Could this signal an imminent (smallish) fall in the euro (i.e. potential window to bring some money over!)? Or is the gold-euro correlation just that; a correlation with no cause and effect relationship?

[Gluestick]

The main reason for gold's dip, Ian was the uptick (circa 2.5%) against Yen, Swiss F and etc in the US $ after the Fed pumped such high levels of liquidity into the system and again dropped rates.

Commodity prices were off across the board, with crude futures dipping below the magic $100/barrel benchmark.

Personally, I see no relief for Euro-£ Cross rates until the ECB lower their base rate; which despite rapidly building inflation they must do soon, as the Euro is far over-valued relative to the underlying forward view of the Eurozone economies and the now intense pressure on manufacturing exporters such as Airbus Industrie, BMW, Siemens, BASF, SGS-Thompson, car manufacturers generally and etc.

Apart from the flight to Euros as a hedge and reserve, it has been used as a benchmark of value in replacement for the US$, all of which have made it more desirable to Forex investors.

 

 

[cooperlola]

[quote user="Gluestick"]

Personally, I see no relief for Euro-£ Cross rates until the ECB lower their base rate; which despite rapidly building inflation they must do soon,

 

[/quote]I wish they'd bl**din' well hurry up then![:D]

[Gluestick]

No one wishes this more than me, JE!

Having spent Paque in la belle I was totally amazed how food prices had zoomed since Nouvelle Ani!

And as for Fiuel...........................................................

Tomorrow, Mrs G and I have to transfer some more "Running Money": what a time to chose!

[:(]

[Alan Zoff]

Cheery item from Daily Telegraph emailed to me today:

 

Houses are overpriced by as much as a third and may be set for a significant fall, the International Monetary Fund (IMF) has warned. In a stark examination of housing markets around the world, the IMF also warned that Britain's housing market is even more overvalued than in the United States, where prices have slumped so dramatically that the wider economy is now thought to be in recession. The IMF said: "Countries that look particularly vulnerable to a further correction in house prices are Ireland, the United Kingdom, Holland and France. In these economies, it is difficult to account for the magnitude of the run-up in house prices."  

[Russethouse]

Have the telegraph never heard of supply and demand then ?

Even in the depths of a recession, just when you have scraped together a deposit and secured a mortgage, some b***ard will come up with cash and gazump you, in my experience!

[woolybananasbrother]

The Government has consistently ducked changing the buying and selling process in UK for a European type system. RH, your anger should be directed at them, not the people who take advantage of it.

[Russethouse]

Too late WB, its a long time ago but I daresay a similar set of circumstances will give a similar result.

If the Government really wanted to steady this situation they would adjust stamp duty as a first step.

[woolybananasbrother]

Yes RH but gazumpers would largely disappear and mind changers would think twice if they had a deposit to lose. Perhaps mortgage repayments too should be limited to a percentage of salary as they are here.

[Russethouse]

It doesn't make any difference to cash buyers Wooly.

Mortgage repayments were limited here too and we are still in a house we got on that basis....