Why The Big House Price Plunge Is Yet To Come

A couple of months back I compared the housing market to a rock climber climbing down a cliff face. He can’t see how far above the ground he is. He prods and probes with his foot, trying to find a toe-hold... or, ideally, terra firma.

A month or so back, some felt house prices were stabilising. Maybe my climber had reached solid ground. Maybe the market was in equilibrium... "Nonsense," wrote one Fleet Street Daily reader in an email to me last week. "That was because there was little or no activity in the market, not because the worst is over."

It was an interesting email to get, especially since the chap in question works as a property sales manager.

And it seems his experience is shared across the board. The Royal Institute of Chartered Surveyors (RICS) today reports that the average estate agent sold only 15 properties during the second quarter of the year.

That’s the lowest level since RICS began the survey back in 1978.

What’s happening is very simple. Fewer people want to buy, because they think house prices will fall.

But fewer want to sell at the prevailing price. Some are in denial, and won’t accept that their primary asset is worth what they hoped. Others are deciding to stay put and wait for things to improve.

It’s like a big staring contest between buyers and sellers. Who’ll blink first?

I’ll tell you who — the sellers. It’s already happening. House prices are gradually creeping downwards, as our climber finds toeholds and moves down the cliff. But right now, I’d say we’re on a bit of a ledge. The big plunge is yet to come... but it could be just around the corner.

Look at what’s happening in the States with Fannie Mae and Freddie Mac. The mortgage twins, as they’re known, specialise in packaging up mortgage deals and selling them onto Wall Street (probably the worst business you can possibly be in right now).

The two companies’ share prices took a hammering last week. Investors fear the twins are on the brink of insolvency.

Sure, the US Fed has now agreed to bail them out. But that only underlines how serious the situation is.

And do you think mortgage lenders over here aren’t taking note? You think they’re not alarmed?

Of course they are! One of the major reason volumes are so low is because even those who want to buy a house often can’t get the funding. Lenders simply won’t give it to them — they’re paralysed with fear.

The whole demand side of the market is being squeezed. And that can only mean one thing — lower prices.

Maybe the storm blowing over the Atlantic won’t be the final straw. Maybe it’ll come from elsewhere — like higher inflation further impinging on people’s ability to save a deposit. The official inflation rate, announced today, is 3.8%. That’s 1.8 percentage points above target.

Or maybe the recession will simply make house prices unaffordable — or undesirable — for the majority of would-be buyers.

But we can be sure of one thing. Very soon, something’s going to blow us off that ledge...

When in Russia...

Anyone following the TNK-BP saga will know that Russia is a funny place to do business. Either your venture is a failure... or it’s a success, and the Russian government (via its proxies) starts looking for a way to grab some of the pie.

Unless... unless you have a "long spoon". As the old saying goes, He who sups with the Devil should have a long spoon.

Basically, you need to find a way to play the game. That’s what Peter Hambro’s done.

His strategy has enabled Hambro to build his company into Russia’s second-largest gold miner.

It’s all very cloak and dagger stuff. But I guess that’s the realpolitik of doing business in Russia...

Our Miner Diarists Erin and Isabel take a look at what Hambro’s doing right that BP could be doing wrong...

How you can profit from the ‘New Great Game’

Resource localisation.

Sounds pretty boring, doesn’t it? But my colleague Manraaj Singh reckons this phenomenon is about to throw up all sorts of interesting profit opportunities. "The Russians, the Americans, the Chinese, the Indians. They all want a piece of Central Asia," he says.

As I write this, Manraaj is hidden away in his cubbyhole. As ever, he’s beavering away, looking for ways to play this trend.

"Fortunes are going to be made from the flood of new investment flowing into Central Asia’s energy sector," says Manraaj.

"What you looking at?" I asked him this morning. But, as ever, Manraaj is keeping his cards pressed to his bosom.

I’ve learned from experience not to rush Manraaj. The man puts in the hard yards when it comes to recommendations. He takes his time, he covers the angles.

That’s the real strength of his Profit Hunter service — when his readers get a new report, they know they can have total faith in its contents.

Manraaj has dubbed the scramble for Central Asia the ‘New Great Game’.

"So far the major players are just jostling for position," he tells me. "But once this struggle gets truly underway — pow! We’ll see a ton of money pour in."

Find out why one of the most energy-rich regions on Earth is about to enter a whole new chapter in its history...

Until tomorrow

Ben Traynor

PS In case you missed it, find out HERE how you can get your hands on the latest Fleet Street Letter investment report. I’m biased, of course, because I worked on it! But give it a read, see what you think. I reckon it could be just the ticket in the current investment climate...

Today’s Daily Reckoning — Give capitalism a chance...

Last night, we attended a birthday party for our old friend, Lord Rees-Mogg. Tout London was there — Maggie Thatcher and David Cameron, for example.

We had heard that Mrs. Thatcher had been unwell; but she looked spry...even sturdy. It was not the occasion to ask a serious question...but we wondered how she must feel. She, along with Ronald Reagan, did so much to set capitalism free. But now, it is being put back in a cage...

All the world’s major markets are in major declines. The worst hit so far are those in the Far East — which are falling again this morning. Among the Asian markets, only Vietnam seems to be on the mend. European markets are down 20% - 25%. But Shanghai has lost 40%...and Vietnam has been trimmed more than 50%.

You can read today’s Daily Reckoning in full HERE.

P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.

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