It might be the 6 coffees and impending fatherhood, but I’m feeling optimistic

Ok, so bad news abounds. It appears everyone is starting to agree: we have a growing economy, but only because it is being driven by the inflation of asset prices via 0.5% interest rates, and hundreds of billions of QE being pumped into the economy, and also by large population growth enabling a growing GDP number (as GDP per capita is falling). Even worse for all the newly emerging political demagogues, we can't stop flogging off our property to foreign investors, as it's the only thing stopping our balance of payments problem from exploding.

We also seem now to be nearing the start of the next recession, seemingly without many people having noticed the last seven years of ‘recovery’.

In fact, living standards have fallen month on month for almost 74 months in a row, with 4 exceptions, with even those exceptions looking a bit shaky statistically speaking (CPI ees lies! LIES!). Wages look set to keep on falling – so the economy is getting bigger as more people are moving here, but we’re mostly all getting poorer. I’m personally concerned by reports that the wages of people born in 1981 are likely to peak at 35. Bugger…

That Carney chap has also gone a bit quiet with his ‘Will we? Won’t we?’ teases on interest rates, with Haldane (his chief gimp) essentially coming out into the open and admitting that, no, rates are never going to go up, as it’s too late now and you can’t taper a Ponzi scheme. Although he didn’t quite put it like that.

One striking feature of our economy is the fact that not far off a trillion pounds is now invested in buy-to-let. In 1996, there were a few thousand BTL mortgages, now there are two million private landlords, with five million private rented properties (and about nine million people living in them). This worries me slightly, if only the fact that previous housing crashes have been tempered by the illiquid nature of the housing market: but presumably with ASTs, BTL properties could all come onto the market quite quickly in a falling market…but anyway, my housing market predictions are predicated on the fact that IT IS A MARKET when it’s clearly not anymore.

I don’t think this is unfair (‘fairness’ is a daft test of anything) but it’s not very efficient: imagine if that £1 trillion had been invested into productive parts of the economy and the bulk of those nine million renters were in owner-occupied housing, enjoying security of tenure and decent housing conditions, and there were as a consequence 9 million more financially secure consumers in the economy, rather than all that money being ploughed into buying houses that had already been built, and renting them out to people priced out as a consequence – what would our recovery look like instead?

Anyway, whatever: we now have a situation where the young generation are poorer than their parent’s generation. And they scare me: have you seen our young folk?! They are often outside the office. Neat haircuts. Polite. Soberly dressed, talking to each other about working hard at school, drinking less than previous generations - WHAT THE HELL IS WRONG WITH THEM?!

Despite what we read in the press, we have actually been here before. Quite a while ago, admittedly: but in the years leading up to the Enlightenment. This was a time when increasing wealth and living standards for a few at the top meant that infant mortality plummeted among the upper classes, whilst it remained high for the lower classes: essentially, the aristocrats started to outbreed the serfs. At the same time, primogeniture ensured that most kids from rich families actually ended up poor, and less financially secure than a lot of serfs – as only the eldest inherited anything. And yet, all the rich kids received a decent education. This led to a large group of well-educated yoof who had no money and were on the whole much poorer than their parents. This led to an explosion of, generally pretty decent, radical thought, and eventually led to the Enlightenment: an era of progress generally regarded as a Good Thing.

We have a similar situation in this country now: a generation coming up, much more educated than their parents, but overall much poorer. This could lead to great things.

C’est Cidre. Not Cider.

The title just refers to the fact that I am completely baffled by the slogan for Stella Artois. I mean, what?

First blog for a while. That’s largely because nothing has changed in the housing market and I have nothing new to say! Not that I generally do. It’s also because I have so much work to do, I don’t know where to start, so I’m not going to. I’m going to write a blog post for ten minutes.

I still as a surveyor on a daily basis see an awful lot of money flooding into the London market from all over the globe, pushing out baby boomers into the regions, retiring to their orchards in Sussex and Hampshire to start a Handmade Artisan Cider business, having made hundreds of thousands of pounds on selling their little box in Fulham (millions in the case of Fulham, really) and pricing out the locals. The general mood now I think seems to be of resignation at the status quo: if you’re under 35 and don’t have parental help (ie your parents don’t own their own home), you will never buy, and spend your life on a rolling periodic tenancy. This seems to be accepted now. What that means the country will be like in 10 or even 20 years, no one seems to think about.

One thing that has changed actually, after ranting on this blog for quite a while on how Carney seemed to have bewitched the media and they seem to be oblivious of the fact that he contradicts himself almost constantly (so do I, but I'm not in charge of the economy): the media are starting to turn against him now, and even report his actual words that come out of his actual mouth. Fickle eh?

The Canadian property market, which he stoked into the biggest asset boom in the Western hemisphere before he came to do the same for Osborne here, is now starting to implode, but we’ll ignore that for now.

Let’s focus instead on another nation that is also famous chiefly for being shit at cricket: France. President Hollande has today convened an emergency cabinet, largely in response to the housing market there going into what Le Monde describe as a ‘meltdown’. But in French, obviously. Une meltdown.

What number have new housing starts in France dropped to? 306,000. Meltdown!

Meanwhile in the UK, “the Government’s Long Term Economic Plan Is Getting Britain Building Again”, and our starts have grown to…possibly 150,000, if we’re lucky. Half a French meltdown. Une demi-meltdown.

And we at OP have just had yet another planning application turned down for no apparent reason, so we’re taking it to committee. So that looks like a possbile 149,999.

Still, at least housebuilders’ profits are up almost 50%, and the baby boomer rentier class can retire in comfort to their orchards.

More Cidre anyone?

The Croupier's Cut

In the Guardian on 3^rd September 2003, there was a story saying that Asteroid 2004 QQ47 was predicted to potentially smash into the earth on 21^st March 2014, causing the kind of destruction expected in a thermonuclear war. So the current housing market price-growth in London and the South East may not be as sustainable as some people think.

Anyway…

As I’ve said before, our housing policy is made by people who own lots of properties. David Cameron, I will always remember, once forgot in an interview with the Independent how many homes he owned. Currently, and I write this ahead of the budget tomorrow, that policy is to pump as much taxpayer's money as possible into an endless pit of mortgage credit: and apparently these pumps are about to be jammed open (can you jam a pump open?).

I won’t rant any further on this here, and about how the eventual crash will make this Friday’s asteroid impact look tame, but I would however like to offer an indication of how much money is sloshing around at the moment.

I’m always struck by how many estate agents there are on any given high street: now, I’m not having a go; in fact, I think that estate agents are in the last truly competitive industry, as no one agent has more than a single digit % of the market as a whole. I am firmly of the "if you think bankers are paid an unfair amount and want to be as well, then become a banker" school of thought. Systemic sustainability is a separate issue to 'fairness'.

However, as to why so many can survive, I offer as a first example the flats the survey reports for which I am typing up at the moment (which is why I’m writing a blog, as I will find any excuse not to type up a survey report): they form part of a Fulham house that was pretty large (very large actually) that ten years ago was bought for £380,000. It has now been turned into seven flats (pretty tiny) and each one is on the market for just under £700,000 (I'm not saying this is a bubble. Nope. Not me). The agent’s fees are about £10,000 for each, to take some photos and put them up on their website - so not too bad.

As an aside, by the way, each one has already sold (as far as I can make out they came on the market about three weeks ago).  The flat, the specific survey report of which I stopped writing just before starting this blog, has – according to the agent – 42 people interested in it.

Example number two: take the house I’m off to a survey in a minute: this is a four bedroom semi-detached house in London, fairly good area, but not ‘super prime’. This is being bought by a Greek Cypriot family, although I am dealing with their Russian lawyer (paid via an account in the Cayman Islands). The house was found for them by an “executive search agent” who finds properties for rich people living abroad.

The estate agent’s fee in this case is roughly £19,000 - £20,000, going by the published fee scales on their website. Not bad again, for putting some photos up on a website. I’m guessing the lawyer’s fee is probably about the same, but I’ve no idea.

The search agent’s fee is…£36,000.

Not bad for having a quick scan on Rightmove, eh?

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.


_________________________________________________________________________

*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.