Why?
The first reason is simple. It’s just that the housing market, like the stock market, will begin to attract buyers because it’s now cheaper. People will start to believe that there is value to be found in some areas. Given the huge falls we’ve had recently, that time is getting nearer.
People mainly buy houses to live in rather than as investments. But still, the principle is the same: it’s a value hunt. And there will come a point when sellers will find people willing to buy at their price – and that’s when support comes in… and we potentially see a bottom in the market.
The second reason we could see support in the property market is just as simple to grasp.
It’s all about the miserable state of our economy. More specifically, it’s about the dire implications for the pound and what that means for outside investors.
As sterling continues to weaken against a host of major currencies, UK assets become more and more affordable to foreigners.
UK house prices have fallen 8.1% over the past 12 months, according to Hometrack. But when you look at that alongside the fall in the pound over the same time, then the price slump is magnified.
To give you an example, the pound has fallen by roughly 27% against the US dollar over the past year. So an American looking to buy a £500,000 house in the UK a year ago, could now pick it up for some 33% less, or around £335,000, when you take exchange rates into account.
It’s similar for euro buyers. The pound has slumped roughly 20% against the euro in the past 12 months. That makes second homes in the UK a lot more attractive, especially on top of the already hefty price correction.
Still, there’s no hurry. It looks like they’ll wait a little longer – which is why we’re not at the bottom yet.
Following the Brown and Darling stand-up comedy show about saving the economy with a 2.5% VAT cut, the pound may have enjoyed a little respite over the last couple of weeks.
Having been as low as $1.46 on 13 November, it bounced above 1.55 last week. Forex punters were clearly betting on the stimulus package helping to get things going.
But it didn’t last long. Now sterling’s getting smashed again – and my money is on it getting worse. Yesterday’s UK manufacturing data showed yet another month of contraction – the seventh month in a row. And despite recent hefty interest rate cuts, banks are still not lending.
So, expect a further big rate cut when the Bank of England meets on Thursday. If it does, then sterling will fall some more… and those house prices will start to look even more attractive to outside buyers.
Until tomorrow,
Frank Hemsley
For Fleet Street Daily
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You have 5 Days to protect yourself from all of THIS…
BY BEN TRAYNOR
Yesterday we looked at P/E ratios for the S&P – one of the broadest, most liquid equity markets there is – and saw how big was the bubble we now see bursting before our eyes.
It shows how the ongoing bust has translated into market performance – and gives a chilling clue as to where we may go from here:
Source: dshort.com
The chart compares the S&P’s performance since this crisis began with how other crisis-hit markets were faring by this stage.
So where are we? Well, the S&P 500 is just over 50% down since the crisis began last year. That’s less the NASDAQ was down this many trading days after dot com burst… more than the Nikkei after that bubble went pop… and about the same as the Dow after the Wall Street Crash of 1929.
Of course, there are no guarantees today’s markets will follow the same path as these previous former bubbles. But if they do, then about the best we can hope for is to follow the Nikkei’s path and trade sideways for the next decade.
If we follow the Dow, then expect any stocks you hold to lose you some more money in the near term.
The Daily Reckoning – The way this money thing works
BY BILL BONNER
“Shopping has become a patriotic duty in America,” writes Tom Leonard in The Telegraph.
Remind us how that works again...
Let’s see, the Wall Street insiders made billions in bonuses and fees during the Bubble Epoque – and they were smart enough to take the money off the table.
Then, when the bubble popped, they were a little short of money down at the shop. And since they didn’t have any money, they couldn’t lend any. And since they couldn’t lend, well, Americans couldn’t borrow... and since they couldn’t borrow... they couldn’t shop... and since they couldn’t shop... the whole kit and caboodle of the US economy came to a halt.
Worse, it started going into reverse. According to the official numbers, it went backwards 0.5% in the 3rd quarter.
And because businesses aren’t selling anything, profits are falling... and investors are pulling out their money…
You can read today’s Daily Reckoning in full here
P.S. If you enjoyed this article then we encourage you to sign up for the free Fleet Street Daily eletter. Learn what you can expect from today's markets -- and how to prosper in the face of uncertainty. You won't find more thought provoking writing anywhere on the Internet.
