New Home Loans Fall 67%. How Far Will Housing Drop?

"The record low numbers of mortgages means that the whole market is likely to be at its least active since the early 1990s".

That’s the assessment of one David Dooks, statistics director at the British Banking Association (BBA). The BBA reports that 21,118 mortgages for new homes were approved last month.

That’s 23% lower than May, and a massive 67% lower than June 2007. The weak housing market is, of course, nothing new. What we’re seeing is shades of grey getting even greyer — each month’s news being worse than the month before.

The question is, how grey will things get? No one can say with certainty, but we do have clues. They give us an inkling of what’s going on beneath the surface...

You see, keeping a roof over your head is one of the most important goals any of us has. My grandma used to say:

"Always get your rent paid before anything else. Even if you go a bit hungry, you’ll have somewhere to sleep." (She hails from an era before actually owning your home was considered vital to existence — hence the reference to rent).

It’s a fair assumption that most people will forego the majority of other expenditures to meet the basic requirement of shelter. Yet, at the margins, more are finding themselves unable to meet said requirement.

The number of repossessed properties going at auction rose 64% in the first half of the year. And the Council of Mortgage Lenders reckons total repossessions will rise to 45,000 — a jump of 50%.

The absolute numbers aren’t that big. But that’s not the important issue here. What these figures show us is that more of the strugglers are going under.

For every homeowner that can’t keep up repayments, there are many others that are only just managing. It paints a less-than-rosy picture of homeownership — something that this time last year was the dream of so many.

Commentators are quick to blame the tight-as-a-drum credit market for the lack of activity in the housing market. Reluctant lenders are certainly a factor. But far more important is the negative sentiment of would-be buyers — both those who own no home at all, and those who might, in better times, have been tempted to trade up.

Bad sentiment lingers. So even if lenders loosen their purse strings — which they’ll have to eventually to stay in business — we’ll still see depressed volumes.

Indeed, some analysts have forecast that house prices could fall another 15% by the end of the year. Not only that, they could be 30% lower by the end of 2009.

Of course, none of this matters directly if you own a home you can afford and you’re happy to continue living in it. But, indirectly, it affects us all.

Remember how I said people will cut back on most things in order to pay the mortgage? Well, that seems to be exactly what’s happening — though it’s taking time to work itself through.

This morning’s official retail figures show that sales volume rose 0.6% in the three months to the end of June. Now, that’s still growth. But it’s down from 1.6% in the three months to May. That suggests a pretty sharp slowdown in June. In fact, it’s the biggest fall in growth for 22 years.

Sad to say, but we’re still in the early days of all this.

Buckle up!

[NB: With all the doom and gloom we’re seeing right now, it’d be easy to think there’s nothing at all worth investing in. But the best investments are often made when sentiment is at its lowest. Our sister publication, The Fleet Street Letter, has recently published a report that details how you could turn the current UK situation to your advantage. Find out more right here]

Venture Capital Wars — a tale from the wreckage of the private equity boom
By our small-cap specialist Tom Bulford

These are tough times for the private equity industry, that shady group that provides for private companies both finance, and advice of uncertain value.

Key to the success of many private equity firms is their ability to source the capital required to support their investee businesses, and also a buoyant small company section of the stock market on which these companies can eventually be floated. Today finance is hard to come by and the new issue market has slowed to a crawl. One company that has made a move to do something about this is the Braveheart Investment Group, which as the name suggest is a Scottish outfit. Braveheart gathers funds from individuals and other private and public sector sources and invests them into about ten new situations each year, concentrating on emerging technologies some of which emerge from University research.

Its shares have fallen by some 40% since Braveheart came onto AIM last march, but if this is disappointing it is nothing compared to the experience of another private equity firm ANGLE, the shares of which have sunk by 80% in the four years of its stock market existence.

You can read this article in full HERE.

Your questions answered

If I were a young, ambitious, management consultant-type, I’d do this next bit very differently. I’d knock up a glitzy PowerPoint presentation, put on a headset, and invite you to a big auditorium to hear me talk about my vision for Fleet Street Daily.

"I want Fleet Street Daily to be a two-way street," I’d say. And then I’d say more stuff about visions, probably.

Fortunately, though, I’m not that sort of fellow. But I do share the above sentiment.

You see, one of the things I enjoy most about editing this e-letter is the dialogue with readers. Now I want to "kick things up a gear" as they say.

We’re entering a very uncertain period. So I’m asking you to send us any questions you have about investing. It can be about anything — the state of the FTSE, the price of oil, you name it.

Of course, time constraints mean it won’t be possible to answer every single question we get. So each week I’ll pick out the best. The editors here will get our heads together, and I’ll publish our thoughts on the chosen questions the following week.

Send your questions to: askfleetstreet@fspinvest.co.uk

I look forward to hearing from you.

Until tomorrow

Ben Traynor

The Daily Reckoning — The value of hard work and saving

Not much time to write this morning...or is it evening?

We don’t know. But yesterday, we promised the crowd, here at the Investment Symposium, that we would have some answers by Friday. Today, we listened to other speakers...hoping something would come up.

What does it all mean? How come oil is backing off? Why are banking stocks going up? How can the US get out of its debt trap?

And the ‘civil war’ between inflation and deflation? How will it end? With a bang of hyper-inflation? Or a whimper of falling prices, bankruptcies and recession?

The best we’ve been able to come up with so far is that — like any civil war — the civilians are getting killed. They’re ambushed by higher consumer prices one day...and bushwhacked by falling asset prices the next. Living standards are falling back down to levels not seen in 40 years.

You can read this 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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