– London house prices fall in September: first time in eight years
– High-end London property fell by 3.2% in year
– House sales down by over a very large one-third
– Global Real Estate Bubble Index – see table
– Brexit, rising inflation and political uncertainty causing many
buyers to back away from market
– U.K. housing stock worth record £6.8 trillion, almost 1.5 times
value of LSE and more than the value of all the gold in world
– Homeowners and property investors should diversify and invest
in gold
Editor Mark O’Byrne
In what might be a sign of things to come, London house prices have fallen
for the first time in eight years.
London house sales have fallen by a third as years of frenzied
bidding come to a shuddering halt.
The capital remains expensive. Housing still costs 10 times the average
salary and only 50% of Londoners own their own homes, the EU average is 70%.
Currently the rest of the UK appears to be benefiting from the lack of
affordability and stock in London. Buyers are moving further out of the
capital in order to secure their footing on the housing ‘ladder’… no snakes
here …
Last month U.K. house prices regained their fastest pace since February.
A Halifax house price survey showed a 4% price rise in the three months
to September compared with the same period last year.
Long-term, a fall in London prices may be an indicator that concerns over
Brexit, inflation and political stability are beginning to affect the U.K
property market.
This will be a hard landing for a country that is so convinced that
putting all one’s eggs in the housing basket is the answer to securing and
growing wealth.
‘Global Real Estate Bubble’
Last month, UBS Wealth Management published
its Global Real Estate Bubble Index. London came sixth
with a score of 1.77. The group concluded that London is still firmly in bubble-territory.
The research found that London house prices have climbed 15% in the last
year and 45% since the financial crisis, when adjusted for inflation.
This suggests September’s fall in prices might be a signal that the top of
the market is just behind us. This is no surprise when one considers both the
known and unknown events on the horizon for the city.
Brexit is the most discussed threat. Foreign buyers are wary of what the
future holds and there is anecdotal evidence that EU workers are being
offered shorter contracts. Four years ago foreign buyers accounted for
82% of property purchases.
Brexit is the main stymie of political progress in the country.
Conferences, policy announcement and parliamentary discussions are
dominated by how this may or may not play out. No-one knows what will happen,
prompting many to feel uncomfortable with making major financial decisions.
This could go on for some time.
Meanwhile the Bank of England are tasked with sorting out the economy.
They continue to encourage inflation and plan to raise interest rates. Thus
devaluing the value of the pounds in our accounts and increasing the cost of
borrowing.
It is not surprising, therefore, that it is not just in London that we are
looking at the bursting of the property bubble.
Rest of the UK still climbing…according to some
London, often an indicator for things to come for the rest of the U.K.,
should be a beacon for the rest of the country’s housing market.
Halifax data shows in September house prices had their fastest annual
rise since February. The year-on-year increase jumped a surprisingly large
4%.
Pundits believe this is an indicator that buyers are shrugging off threats
of a rate hike by the Bank of England.
Others aren’t so sure. Nationwide’s own home price survey showed more
subdued numbers (2%), suggesting there is a slowdown in house prices across
the country, particularly in certain regions.
The pace of national price increases has slowed and is down from a
peak of 10% in early 2016, to 4% today.
Halifax said future demand might be limited by ‘a squeeze on spending
power from higher consumer price inflation and the high cost of property.’
However it does not think that future interest rate price rises would
affect the market.
Despite concerns over inflation stretching affordability, mortgage
approvals remain at an average pace of almost 67,000 a month, little
changed from 2016.
The economist Samuel Tombs of Pantheon Macroeconomics told the Guardian
that he thought Halifax was way off the mark.
“Other surveys show that the pipeline of demand is soft; Rics [the
Royal Institution of Chartered Surveyors] has reported that new buyer
inquiries have fallen in six of the last seven months. Real wages still have
further to fall over the next six months and mortgage rates will rise soon in
response to the increase in banks’ funding costs.”
Obsession with home ownership
Last week Prime Minister Teresa May referred to the ‘British Dream’.
Judging by Twitter few understood what she meant.
If there is such a thing it has to be the desire to own the roof over your
head and then sell it at a ridiculous profit.
In the UK this comes at a serious price, but one which few of us question.
Often first-time buyers have to rely on family to help, then be comfortable
with a 25-year mortgage and restrict their lifestyles well into middle-age.
Ten years later they have to do it all again as a baby’s on the way, house
prices are climbing and they want to climb the proverbial ladder.
Failure to do this is seen as just that … a ‘failure’.
To not pursue home ownership in the UK and in Ireland is seen as pretty
nuts and irresponsible.
The problem is that in the UK, renting is enough of an incentive to put
yourself in such a dire financial situation. It is very different to
continental Europe. In the UK and Ireland few leases are long-term and
landlords hold the majority of rights. As a result you feel very insecure in
your home.
Brits and Irish want to feel financially secure. Ironically they get this
security by getting themselves into hundreds of thousands of pounds worth of
debt. But the ‘wealth effect’ is so desired and so encouraged by economists,
that this level of debt is both expected and accepted.
The British government has encouraged this. For them this is what
capitalism is all about. Home ownership and buy-to-let mortgages. But it may
run people and perhaps the economy into the ground.
Consider the number of people who subsidise their lives, savings and
retirement with the ‘wealth’ they have locked up in their homes. In 2015
older homeowners borrowed £4.2m a day using equity release loans as pensions
are no longer covering retirement costs.
We can only expect this to get worse given the looming
pension crisis.
Pensioners will be royally scuppered if they find themselves in negative
equity, with no pension to support them. Especially so given a considerable
number of pension funds and investment bonds rely on UK property to
generate income.
Government has a lot to answer for
The country is consistently coming under fire for a lack of housing supply
and lack of affordability.
Earlier this week the government announced plans to extend its “Help
to Buy” program to 135,000 buyers. The program offers interest-free loans to
homebuyers. This will see an extra £6.7 billion pounds ($8.7 billion) of
“stimulus” into the market.
Yet another example of leaders trying to unnecessarily stoke a market
which results in increased inflation and higher debt levels for a country
which is already one of the most indebted.
Currently the UK housing stock is worth nearly £7 trillion, more than the
companies listed on the London Stock Exchange and more than the value of all
the gold in the world.
The World Gold Council estimates that all the gold ever mined totaled
187,200 tonnes in 2017. At a price of US$1,250 per troy ounce, one tonne of
gold has a value of approximately US$40.2 million.
Thus today, all the gold in the world is worth some $7.5 trillion dollars
or £5.7 trillion pounds and less than the value of the UK housing stock.
The ridiculous valuation of the London property in particular is thanks to
the government, banks and real estate businesses peddling the Greater Fool
Theory.
The theory applies here as buyers bought property they thought was
expensive but believed they would be able to sell it at a higher price, for
significant profit to an ‘even greater fool’.
Falling house prices will make a fool out of everyone, whilst (no doubt)
the government continue to make housing ‘affordable’.
Time to Buckle Up With Physical Gold
Housing in the UK is a single asset class but it accounts for two-thirds
of the country’s wealth.
There is not a level in society whether government, businesses, banks or
individuals that does not have skin in this game.
The figures and economic outlook suggest we need to start diversifying.
The government needs to stop being so irresponsible and no longer
constantly peddle arguments for home ownership. However it is difficult
politically to sell that story. Especially when all parties have realised the
youth vote has major housing concerns and believes they have the right to own
property.
Brexit is the main area of concern and no-one wishes to rock the property
market any further. Instead homeowners need to consider how they can both
protect themselves from falling prices and diversify their investments and
wealth.
It is not prudent to have so much wealth caught up in one falling asset.
Especially given that it is inevitable that London property will be affected
by a number of issues on the horizon including rising interest rates,
inflation and Brexit.
Gold is another real asset that millions of investors have placed their
faith in over hundreds of years. Like housing, it is tangible. Unlike
housing, it does not come with a massive debt burden and it benefits from
rising inflation and uncertainties in both political and economic spheres.
News and Commentary
Source: Economyandmarkets.com
Gold Prices (LBMA AM)
10 Oct: USD 1,289.60, GBP 977.77 & EUR 1,094.61 per ounce
09 Oct: USD 1,282.15, GBP 976.23 & EUR 1,092.01 per ounce
06 Oct: USD 1,268.20, GBP 970.43 & EUR 1,083.93 per ounce
05 Oct: USD 1,278.40, GBP 969.28 & EUR 1,086.51 per ounce
04 Oct: USD 1,275.55, GBP 960.87 & EUR 1,085.11 per ounce
03 Oct: USD 1,270.70, GBP 959.00 & EUR 1,081.87 per ounce
02 Oct: USD 1,273.10, GBP 956.48 & EUR 1,084.55 per ounce
Silver Prices (LBMA)
10 Oct: USD 17.12, GBP 12.98 & EUR 14.53 per ounce
09 Oct: USD 16.92, GBP 12.86 & EUR 14.41 per ounce
06 Oct: USD 16.63, GBP 12.73 & EUR 14.20 per ounce
05 Oct: USD 16.66, GBP 12.64 & EUR 14.19 per ounce
04 Oct: USD 16.83, GBP 12.67 & EUR 14.29 per ounce
03 Oct: USD 16.61, GBP 12.53 & EUR 14.13 per ounce
02 Oct: USD 16.58, GBP 12.46 & EUR 14.12 per ounce
