Something Wicked This Way Comes

Nick Clegg is terrified. He snuck some money out of Miriam’s purse this morning to buy booze, and is pissed already (I know this because he always texts me when he’s drunk), and the pubs aren’t even open yet. Carney could barely bring himself to eat his waffles and maple syrup this morning. Even chief alien lizard-creature Osborne is worried: and no wonder. With an election only a year away, we are now several  months into the housing crash that I predicted would start “…in the autumn (of 2013), which will wipe at least 30% off headline values, possibly more given a market’s tendency to over-shoot.”

Ok, so clearly I know nothing about economics – the proof perhaps being that I worked as an analyst for an investment bank, as good as having a certificate in Economic Ignorance.

I’d also point out that pretty much every prediction on house prices I’ve made for seven years now has been almost comprehensively inaccurate, so at least I’m consistent.

BUT! And there’s always a but…I would quote this, again from myself (and I don’t quote myself because I think my writing is especially worthy of quotation. That’s for other people to think): “there is no rational analysis possible. All you can really do is try and predict what the executive is going to do next.”

Except…we will hit the end of the limits of government market manipulation at some point. House prices are up almost 10% this year, more in my own personal surveying experience; first time buyers are paying 6% more than a year ago (Help to Buy is set up to help First Time Buyers, remember, look into my eyes…) and 92% of people reportedly think house prices will rise this year…except wages have been falling for years in real terms, and are predicted to do so until 2017 at least (ONS figures). Is this really sustainable? With base rate at 0.5% and interest rate swaps at similar lows in perpetuity, possibly.

Except… they won’t stay that low for ever. They just won’t: and the longer they stay low, the worse it will be when they rise. I note that unemployment is down to 7.1% - very close to Carney’s forward guidance limit, which he said would trigger a rate rise. Which he has now said he will ignore. On a side note, I would mention he is really very slippery, but no one seems to notice: Carney now talks about how “phase 1 of forward guidance is nearly complete” – but he never mentioned a phased programme before, did he? Yet now he talks as if this was always the plan. Scary, if you ask me.

The most pernicious part of this whole asset bubble is, I think, the way the market-warping of the economy manifests itself in the fact that inherited wealth now accounts for 20% of total personal wealth in the UK. It had dropped in the 1960s/1970s to a low of 5%, and is now (unbelievably) back up to Victorian levels. This is fine if, like me, you have parents who own an expensive house outright, among other assets. But this is bad if, like me, your father has gleefully told you for almost three decades now that every single penny of his personal wealth will go to Sidmouth Donkey Sanctuary in his will.

I would note that, on average and with alarming regularity, recessions occur every seven years. And it’s been, what, almost…seven years since our last one? And what would happen if the economy tanked now? Private debt is larger than before 2007. The national debt is much, much bugger. The banks’ balance sheets are hardly in much better shape – in fact, under the new Basel regs they need to hold even LESS of a capital buffer than in 2007! If mortgage rates rise to a modest 3% - very low by historic standards, of course – then almost 25% of people’s income will be eclipsed entirely by debt repayments*, leaving nothing to buy food.

Notwithstanding famous housing analyst Kate Moss’ well known quote “nothing tastes as good as mortgage payments feel” – this isn’t, I think, a good situation to be in.


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*Edited to add: by which I mean that, with rates at 3%, 25% of the total population will have debt repayments larger than their income. This does currently read a bit like the "60% of the time, it works every time" quote from Anchorman regarding "Sex Panther".

MASSIVE HOUSING COLLAPSE! (WARNING: May contradict everything I have written previously)

I haven’t written a blog post for a while. Partly as my keyboard isn’t working very well, and partly as I have been concentrating my thoughts on my quest to become Britain’s oldest new-qualified architect (on course for about 40, at the moment…).

But partly also as, for some reason, housing has taken over the news agenda (briefly) and the amount of column inches wasted on the topic has made me reluctant to add any, but I have decided to add 6 inches worth here as I can’t help myself. If you measure it, and say “this isn’t 6 inches! This is clearly about 3!” THEN YOU ARE A GIRL AND KNOW NOTHING.

But, for what it’s worth, I am now certain that we are economically going to hell in a handcart.

We are doomed.

Latest Goldman tentacle and asset-inflator in chief Mr Carney (small hands, smells of cabbage) has, you may have noticed, committed to forward guidance on interest rates. I have (probably, can’t remember or be bothered to re-read) said in the past that I’m worried about an un-sustainable re-inflated housing bubble.

I’m going to put my balls on the line here and say, actually, this isn’t going to happen, however hard the Tories try to make it happen to get re-elected. I think we are being fooled into thinking they can manipulate the market forever, but history tells us pretty much unanimously that they can’t, and I keep forgetting this: or if they do, they will do severe damage to our long-term prospects as a country, which is arguably even worse.

House prices are rising above inflation, and wages are rising below inflation, and somehow we are in a recovery. WTF.

 In fact, we are, I decided about 5 minutes ago, going to see the beginnings of a housing crash, starting in the autumn, which will wipe at least 30% off headline values, possibly more given a market’s tendency to over-shoot. Okay, maybe that’s a bit strong: but the risks to the downside are stronger than most market commentators believe. And I don’t think I have ever been proved right on a house-price prediction before, SO IT’S ABOUT TIME I CALLED ONE RIGHT, HUH?

This is basically down to long-term interest rates: Mr Carney (small hands, smells of cabbage) has done his best to keep down the expectation of future rate rises, by saying “if nothing makes us put up rates in the future and we have no reason to and want to keep them low, then we won’t put up interest rates”. He managed to say this in such a hypnotic Goldman Sucks-way that media heard this as “rates will stay low FOR EVER” whilst the markets and everyone else heard what he actually said, and LT rates have started to climb already, as they received the confirmation that they had suspected: that rates could indeed go up if the conditions merit. No idea when 10yr govt bonds are doing today, but I’m guessing they’re up too (ie they are recently, I know this and am trying to appear knowledgeable).

But even if base rate does stay at 50 bips, this doesn’t mean much: over two-thirds of mortgage lending is linked to long term rates anyway, whilst ignoring the MPC totally, and these are being dictated at the moment primarily by guessing when QE in the US will enter TAPER PHASE 1 (NOT-IMAGINED). When they do, rates will rise here by at least 1.5% following a US rise of 2% (which is generally predicted), which most bank models (that I have stolen, anyway) reckon will cause a 30% drop in average property values here, as house prices are basically a leveraged bet against long-term interest rates. The Help to Buy bullshit will make no difference I have now decided, as the scheme will be limited to such an extent when govt start to get worried about exposure, that this will be not enough to dictate margin prices given falls. I think this is where commentators have got it wrong: they assume govnt is underwriting all mortgages, but ignoring the fact that they can limit this guarantee as much as they like, which could be a lot once prices start to fall (you’d think/hope).

An interesting point was made to me recently by the head of mortgage strategy at a major high-street bank, which I will not name (oh allright, Lloyds): ignore the crap about housing shortages/nothing being built etc – there are a million or two buy-to-lets which are held by small investors, and if house prices start to drop, a significant portion of these could all come onto the market in months, which would dwarf any long-term structural housing drought in the short term.

IE: “There’s a housing shortgage, and  nothing to bu….oh look, a million flats have just come on stream in about a minute.”

If house prices do actually fall by double digit numbers, all bets are off and we really are in trouble. Don’t forget that private debts are UP, staggeringly, since the period of stagnant growth and uber-cheap credit started (who’d have thunk it?), and are now frankly, f*****g massive compared to most countries in the Western world (if not all). Interbank rates could explode in minutes (and we’re not even allowed to rig them now, which doesn’t help), and we have nothing to fire at the next crisis.

So there you have it: my prediction, which will change completely after I’ve had another cup of coffee and am feeling more bullish about life. But then, it’s my birthday tomorrow, which may explain why I think the world’s going to end.

Happy Birthday to me.

In Which I Make Swear (And Then Another Swear)

I actually find the whole PRISM surveillance thing quite comforting, as it is nice to know that someone reads this blog, even if they are a bored CIA operative. Anyway, hello bored CIA operative! Is it fun reading bad jokes about how we’re all being spied on?

But I digress. I am on the verge of stopping writing anything, I have to admit, partly because it has only really just properly occurred to me that there is no longer any point on offering analysis or views on the housing market.  Like pretty much the rest of the (world?) economy now, there is no rational analysis possible. All you can really do is try and predict what the executive is going to do next. How this differs from the planned economy of Soviet Russia, I’m not sure (other than the milder weather and lack of large-scale building). You cannot balance demand/supply, wage growth, mortgage finance etc, put them in a model and say “house prices next year will be X” as it doesn’t hold any relation to any of these: it is down to what bat-shit crazy schemes the government will put in place, what heights of insanity our fiat-currency driven debt –fuelled death-spiral will reach, and how successful Carney is going to be in getting the Bank of England back on track to its original New Labour purpose, which is creating a massive housing bubble before the next election.

As a renter, I must admit it is hard to know what to do. Our economy is splitting into a classic rentier/worker stratification, comrades. There was a great example of the “winners” in the house I surveyed two weeks ago, the vendors then asked us to survey the new house they were buying. He was a brickie, she was a primary school teacher who had stopped working recently, at 50. They bought their east end terrace house for, I would think, £50-60k a few decades ago. They sold it last month for £2 million. They then bought a new rather palatial house (in Hove) for a million, and had a million left over in cash, tax free, and are both taking up golf.

Or another example: I met a couple in their 50s, both professionals, who are letting out their house that they bought – again, a few decades ago – and spend their time sailing their yacht, having no need to work anymore. The rent pays their living costs, they put money aside for the future and their mortgage is slowly being paid off – the property will then transmute into their pension.  They let out their house to a couple in their 20s, who, again both professionals, cannot afford to buy a house of their own, even though they both work full time in good graduate jobs, and because rents are so high, they cannot afford to put anything away for the future, or think about pensions etc .

I have no interest in concepts of fairness. I really could not care less about whether something is “fair” or not, and I personally think that the word should only be allowed in debates in playgrounds: but is this efficient? Is this really the most efficient way to run an economy? Really?

If wage growth is declining rapidly and house prices are going up, does that indicate a healthy economic system that will grow steadily over the coming years, providing gains for all? Or is that a sign that things are going wrong somewhere, and QE and 0.5% base rates are creating massive imbalances that are building up and which will at some point have to burst over the masses, like a…thing? (I can’t think of an analogy that won’t make the CIA operative feel queasy, and it’s still early in the US.)

So back to the being a renter conundrum: do we buy, given that Osborne is about to stoke up the property market by a good 30%? To quote Chuck Prince, former banker, whilst the music is playing, should we not be dancing? Or do you look at things sensibly and say: this is totally fucking mental, why would we borrow £400,000 from a bank to buy something which is potentially going to be worth half that in a few years, even if it goes up in value in the short term?  What will happen to house prices when the 80% of the over 50s who plan on selling to fund their retirement dump their houses on the market in the next five years? What will government do to stoke up prices then – negative rates? £1 trillion of QE?

So two weeks ago we bought a yacht. Fuck it.

If you find yourself riding a dead horse, dismount...

I haven’t written a blog post for a while. Mainly, this is because I cannot decide what my opinion is on several things, and I am too confused to offer any comment. A realisation that pretty much everything I write is confused made me post this anyway.

But one small example of this confusion is over Osborne’s New Buy, or whatever it’s called, property pyramid scheme: this has managed to confuse me to such a degree that I have decided to stop even trying to predict what might happen in the property market, as it is pointless and clearly now totally f*****g insane beyond all measure. Some analysts think it will push prices up by 30% when it is introduced next year. I offer that without comment.

So, onwards: anyway, I write a regular column for a property magazine, which has, I am told, over nine readers in Northern Europe alone. I am paid 38p a word, so every time I write two words I pop out and buy a Twix. I have put on a lot of weight in the past year or two. About three months ago I completely ran out of things to say, but keep submitting copy as I like eating chocolate.

Actually, that’s not quite true: I do have one more thing to say, but I can’t write about it as they won’t let me, so I will say it here:

SURVEYORS HATE EVERYONE IN PROPERTY WHO ISN’T A SURVEYOR.

There, I’ve said it. I feel comfortable saying that, because I don’t hate everyone – but then I came to surveying late(ish) so still think of myself as an outsider. But it’s true: and it is entirely based in jealousy.

This is because: a surveyor’s typical fee on a house sale will be, say, £700 – take out tax, petrol, a few quid for a pastie and admin costs and you’re left with -£64.57 (we have very good accountants).

But an agent, who uploads a few photos online and shows some people round, makes on average, say, several thousand pounds at least for each property sold. So, despite the fact that now to become a surveyor you need to spend years studying for a Post Grad degree, then a few years in structured training and then sit professional exams – it is all to earn less than an estate agent, normally with very few qualifications at all.

BUT THAT’S NOT ALL! Oh no. What about developers? Surveyors think they’re idiots. They earn millions, and normally know f**k all! I have yet to meet a successful commercial developer with ANY qualifications. And even worse, loads of people do it non-professionally, and they make money too! Part-time people. People who just buy a house because they have just bought a house, and then the price rose and they paid no tax on the gain and they have still made far more in property without even thinking about it than the surveyor, who has spent years studying and learning about property, will ever make in their lifetime. So who is, in fact, the idiot in these scenarios? (Answer: Nick Clegg).

There aren’t many other professional areas where you can dabble and make millions – historically, say, a civil servant could have bought a buy to let and made more in a few years on a rising market than they earned from their salary. I couldn’t dabble in medical research at weekends and accidentally make several hundred thousand pounds.

This is why surveyors are bitter people, consumed by the torment that is the knowledge that they are the only people who have spent years studying to qualify as a property professional, and yet make less than pretty much everyone else in property.

Not me though. I’m not bitter. I have five Twix bars to eat.

 

 

I’ll leave you with this thought: ten years ago the UK’s housing stock was worth an estimated £2.9 trillion. Within just five years, at the peak of the market, this figure had rocketed to £5.4 trillion. Today it stands at £5 trillion.

Are we trillions of pounds richer than ten years ago, just because we are valuing out houses at higher prices? Discuss.

Then smack your head against the desk.

“Show me on the doll where the Lib Dem touched you”

I have written so many blogs recently, but I keep deleting them as they are just whining.

But then, I realized that this is sort of the point of this blog, so I’m going to post one anyway. So this is the culmination of about a hundred different thoughts and will be pretty winding. Reading it will probably be a bit like trying to find a friend’s party, where you don’t know the address and spend ages lost in a minicab, and when you get there the party has already reached the stage where a girl is sitting on the stairs crying because no one likes her shoes and you have sort of missed the point of the party in the first place.

But I shall crack on.

By they way, the title refers to another post about Nick Clegg, but I can’t think of another title for now. Worked for TE Lawrence.

I also partly haven’t posted because the data coming out of various statistical agencies and major agents, as well as housebuilders, is becoming so muddled it is very hard to work out exactly what is happening – this is made doubly hard by the fact that I do almost no statistical analysis at all anyway, and my thoughts are based entirely on heresay and conjecture – as well as by the fact that my own personal professional experience is so warped now, ie surveying in London, that making comments about the wider housing market is very difficult – because there is no wider housing market anymore, if there ever was one.

Let’s take inflation for example – CPI is 3% - WHAT? Can you name a single bill or food item or cost of anything at all that hasn’t risen by at least 5%? Recently, I can’t. Even the SPI (Spaniel Price Index) which is based entirely on a basket of kibble, cheese and badger shit is going through the roof. Partly down to the badger cull, possibly. Incidentally, the BoE used this index for a bit during one of Mervyn King’s ‘episodes’, but they cover this up.

I read an interesting paper by a City broker recently, which was very interesting and full of interesting things and does run to quite a few pages (link here: http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf ).

I don’t think I missed any major structural faults on the house I was surveying at the time (houses don’t need walls on every side, do they? They’re allowed windy bits?). It basically said: look, if you factor in the actual rate of inflation then we have probably been in permanent recession since about 2000. Which is quite alarming.

It also says lots of other things, such as we’re all doomed and our economy now resembles a slowly deflating balloon and debt will kill us etc etc but the inflation bit was my main point of interest as I sort of think lots of people intuitively agree.

Factor in other aspects of how the economy ran for so long, and we really are in the shit – most growth for as long as people could remember, before the crisis hit, had been debt fueled on the back of lending against house prices, and if you get a new credit card with a 5k limit, are you 5k richer? I think so, but it turns out that no, you’re not – out national house stock rose by about £2 trillion in a decade, did that make us £2 trillion richer? Apparently not.

And we can’t control inflation now – because government policy is geared totally towards asset/house price support. I am going to look like an idiot when Osborne presents the budget in about an hour and refutes every point I make here, but he is making policy for the majority, and the majority own houses, and low mortgage payments are the only thing between absolute, complete instant disaster and long term, slowly unfolding disaster.

So what will Osborne do in his budget? Will he make noises and tinker around the edges, or fundamentally solve the first time buyer problem?

At the risk of looking more like an idiot than I am anyway, the ‘plight’ of first time buyers, such as myself, will not be solved, for now at least (I like renting, anyway I own my own chicken coop mortgage-free). Because that would harm the majority. So why would politicians do anything about it? That would be crazier than I think even they are. People keep saying ‘let’s have a massive house building boom!’ – what, like Ireland did? Like Spain? ‘Cos that helped. We could build a million houses tomorrow, and who would finance their purchase, exactly? We’d have another million empty houses, and still a crippling housing problem. You’d have to reform the housing finance system, and that just won’t happen. It just won’t.

As much as I like the bat-shit crazy Greens and New Age economics and Will Hutton writing articles from his multi-million pound London townhouse on poor people, nothing will change. Because when the Greens actually get power, like where I live, their policy mutates into daft things like ‘let’s replace every RBS branch with an artisan loaf maker’.

If you make bread YOU ARE A BAKER and if you have a shop that makes bread IT IS A BAKER'S SHOP. Actually, hahahahaha ‘artisan loaf maker’…sounds like a euphemism (for having a CRAP Nick Clegg, do keep up).

Wages are too low. Even at purely construction cost most people who can’t buy now couldn’t afford to buy at just cost anyway, within the constraints of the current mortgage market.

And the economy is based on getting this right, as our whole fractional reserve fiat-currency-driven economic model is based on banks borrowing short (sometimes really short, or even not at all like Northern Rock) and lending long, which rests on a property-owning democracy, as this long-term lending largely boils down to mortgages. Which we have, just, for now but won’t have soon – and then we’re really buggered.

But that’s then – right now politicians make decisions for the next few years, and jeopardizing those next few years even more, just because our country might be destroyed in a decade, makes no sense from an electoral point of view.

I hope the shape-shifting alien lizard creatures that run the world know what they’re doing.

Schadenfreude i/ˈʃɑːdənfrɔɪdə/ (German: [ˈʃaːdənˌfʁɔʏdə]) : pleasure derived from the misfortunes of others.

Oooh mansion tax! Labour have recently said that they support a 1% levy on property over £2 million – the so-called mansion tax that the Lib Dems pretend to like (how very liberal of them). There could even be a vote soon on this issue in the Commons (which wouldn’t actually achieve much, even if it passed, by the way).

This is basically an entire policy based on schadenfreude. I am amazed how long it has taken to get to this politics-of-envy point, to be honest, but I suppose this is down to the fact that most people on mortgages actually are doing just fine thankyouverymuch.

Before I start, I would like to point out that I am more prone to this envy than most, as I spend my working days as a surveyor waddling around the houses of the super rich and I don’t even own a property at all.

The principle of the tax is based around two starting points: a) lots of people are really rich, especially foreign people, and they are buying all ‘our’ houses in London and now elsewhere, and b) young middle class families can no longer easily afford to buy houses in London, even if they cut back on Ocado deliveries and pay their nanny less (“can I just pay you directly in Zloty?”).

Squaring the circle by Ed Milibrain, we get to c) let’s hammer the rich foreigners! Wouldn’t it be great fun if squillionaires buying these ‘mansions’ (tiny, badly built over-priced rabbit hutches) in central London suddenly had to pay hundreds in thousands in tax? Hehe! That’d be brilliant. And it would also solve b) as well (I am being SARCASTIC on “b)” Nick Clegg, keep up).

Now, I have long suspected that flogging off all our central London property for insane amounts of money to gullible foreigners has been part of a really terribly clever sting. This sting involves us hoovering in billions from abroad selling this stuff off and then, once we have hoovered in these billions, turn around and tell them it’s all going to incur loads of taxes etc etc we were just joking before on the whole ‘safety deposit box’ thing – and now it looks as though Labour have given the game away too soon, and the plan has been ruined before we have extracted all the petro-dollars we could have done.

However, what is clear is that this tax will do nothing to alleviate our housing shortage in the short term – in fact, foreign money coming into the market is the only thing propping up the market at all at the moment, if we choke that off then the housing market could well have to face up to reality – and do people really want to do that, right now? Really?

The schadenfreude could be great in the short term, I agree, and a really good national mood-lifter – but then we might suddenly realize that – whoops! – they have lowered the tax to include houses worth £1 million, and now £500k, and now all houses… wasn’t income tax meant to just be a temporary tax on the really rich, originally? I guess this is my main objection – ignoring practicalities etc.

So what do we do instead? Something must be done, after al! I know that under the law of un-intended consequences, every single intervention in the housing market at any level by government recently has, without exception, made the housing market worse. But something MUST BE DONE!

Well, how about imposing Capital Gains Tax on a main residence, and abolish inheritance tax? Thus instantly stabilizing the housing market, removing the possibility of all future un-sustainable housing booms and creating a balanced, sustainable economy, with incentive to put money into productive areas of the economy, rather than sinking all available funds into stagnant, depreciating bricks and mortar assets. 

Wait…did I just solve the entire housing AND financial crisis?

I believe I did.

You’re welcome, Britain.

Nie moj cyrk, nie moje malp

Okay, just a quick one! Honest. By the way, the title refers to a recent Polish idiom I heard recently, meaning ‘not my problem’ – it literally translates as ‘not my circus, not my monkey.” It has almost no bearing at all on anything, but I thought it was awesome.

So: house price indices!

 There is a lot of confusion around house price indices – so I will do my best to add to that confusion by writing this blog based on absolutely no background research whatsoever, save for a lecture I had a few years ago, and my recent perceptions of actual, like, reality.

I read this morning in a newspaper that house prices have gone up, and also down (separate newspaper) and have also possibly stayed the same (third newspaper from last week).

So why the difference? Well, I don’t really care to be honest – they are weighted differently, have different sample sizes etc etc blah blah blah.

HOWEVER house prices have, on average (important) gone down A LOT. And I know this because a) I know everything and am always right, just ask my spaniel (but not my wife, she disagrees on this point) and b) I am an RICS Registered Property Valuer, so I can legally tell you what your house is worth, despite the fact that I can barely even remember my lectures and accidentally burnt a lot of my lecture notes.

Firstly, forget the fact that people completely forget about inflation when discussing house prices, so even my spaniel can see that house prices have dropped by a third in real terms (no one mentions this in the media, ever). I recently tried to introduce the concept of inflation to a middle aged Chartered Surveyor I know who is very knowledgeable about property and construction, probably more so than anyone I know, in fact, as he is one of the few people in Britain who is both a Chartered Architect and a Chartered Surveyor. I won’t name him here to preserve his anonymity, so without expressly divulging his identity, let’s for the sake of this blog post just refer to him as ‘my father’: half way through my explanation of exactly what inflation was, he accused me of inventing "voodoo economics". But I digress. 

Back to my point, the important difference is this: the average price of a property nationwide is different from the average price of a property bought and sold.

Example: if you have 10 houses, 8 worth £100k and 2 worth £1 million, then the average house price is £280k. This in itself is meaningless, as there are no houses worth £280k AT ALL in this scenario, but then it is a sort of useful benchmark.

House prices are dictated at the margins, and average prices based on transactions – so if every house was bought and sold then we could base our average on the £280k figure, as an average of all the transactions that have taken place.

But, if the lower end of the market is stagnant (which it is), and the only houses being bought and sold are top end, eg the only housing transaction in this scenario is one of the million pound house being sold, what is the average house price, based on transactions, according to the indices? (Keep up Nick Clegg). It has gone up (a lot in this instance), despite no movement elsewhere. Now imagine the other houses are falling in value in reality, and the figures are even more screwed.

This is an extreme example, but as a microcosm is what is currently going on – house prices are falling, apart from a minority in London, but this is rarely reflected in the figures.

But then again, I rent, so it’s not really my circus, or my monkey.