Tag Archive for Housing Market

A UK housing bubble or something else?

Home prices in the UK continue to rise to new highs, exceeding the pre-recession peak. The price increases started in London and have now spread nationally. Many families are quickly being priced out of the housing market. Some are calling it a bubble.
The Guardian: – UK house prices continued to accelerate in February, rising by 1.9% during the month and pushing the annual rate of inflation to more than 9%, according to the latest data from the Office for National Statistics.

Commentators warned of a “superbubble” and said the market was “out of control” as the official figures reported year-on-year prices rises of 17.7% in London and said first-time buyers had experienced double-digit price growth.Just to put this in perspective, US home prices are now roughly at the levels they were a decade ago. UK home prices have risen over 40% over the same period.

Many are blaming the Bank of England’s so-called FLS (the Funding for Lending Scheme – see overview) for flooding the market with cheap mortgages. Indeed the program has resulted in lower bank financing costs and lower mortgage rates.

Source: BOE

But is all this cheap credit creating a speculative housing bubble in the UK or is there another factor at play? If you speak with British realtors, they tend to have one major complaint in common. The UK is facing a housing shortage as the post-recession home construction activity remains subdued.

Source:  Department for Communities and Local Government

Homes are being built at about half the rate needed to meet the pace of British households creation. But that is also partially the case in the US – so why such a divergence in house price trajectories between the two nations? The answer, according to Goldman, is that unlike the US and some other nations that went on a building spree during the bubble years, the UK was facing a housing shortage even before the financial crisis. The UK housing “bust” happened without the “boom”.

GS: – And, while the shortfall in house building has become more acute in the years since the financial crisis, the rate of house building was also inadequate before the crisis. Unlike countries such as the US, Ireland and Spain – where house building rose sharply in the years leading up to the crisis – the UK has experienced a post-crisis bust in housing supply, without having experienced a pre-crisis boom.

But with housing prices rising faster than wages, doesn’t it mean that this rally should be ending soon? Not necessarily. The acute housing shortage has put a similar upward pressure on rents as well, limiting housing options.

Source: GS

And while fewer people can purchase a home after the recession, those who can end up paying materially less on their mortgage than they would be paying in rent (thanks to FLS). They are jumping into the housing market and driving up prices.

Of course if the Bank of England pulls the plug on FLS, home price increases are likely to slow. The housing shortage however will still remain, resulting in higher demand for rentals. Whether paying more for a home purchase or paying a higher rent, one thing is clear: UK residents will be paying increasingly more for shelter in the years to come.

SoberLook.com

From our sponsor:

www.SoberLook.com

The Five Biggest Asset Bubbles in History – Money Morning

Between the stock market, bitcoin, and tech IPOs, today everyone seems in a race to spot the next biggest asset bubbles readying to pop.

The term “asset bubble” indicates that there is a marked, noticeable divergence between the market price of an asset and its fundamental value. In other words, something that people store value in – a coin, a house, a share of stock – is valued much, much higher than the thing itself could possibly be worth.

New Rental Securitization Deal Likely Heralds Double Dip in Housing – Shah Gilani

Today, in New York, investors will be pitched the first-ever REO-to-rental securitization deal. The $500 million deal bundles foreclosed single-family homes, “real-estate-owned” by Blackstone Group, into securities that pass-through rental payments to investors.

The new securitization of rental properties comes at a time when home prices have rebounded dramatically across the country. But rather than confirming a bull market in housing, the “trade,” as Reuters calls the transaction, likely heralds a coming double-dip.

The upward trajectory of housing prices, fueled by private equity companies and hedge funds’ cash purchases, now faces institutional liquidity demands – and their potential exit.

Here’s what the Blackstone deal is all about, why its structure is problematic, how the ratings agencies will view it, and what it portends for the future.

Gauging the trajectory of the US housing market – Sober Look

One set of economic data that shocked some economists last week was the existing home sales report. In spite of sharply higher mortgage rates, sales rose in August.

Source: Econoday

NYTimes: – Sales of existing houses climbed 1.7 percent in August to a six-and-a-half-year high, and factories grew busier in the mid-Atlantic region this month, providing signs that rising borrowing costs are weighing only modestly on the economy.

The National Association of Realtors said on Thursday that existing houses were selling at an annual rate of 5.48 million units, the highest level since early 2007, when a housing bubble was deflating and the economy was sliding toward its deepest recession in decades.

The report surprised analysts who had expected higher interest rates would lead to a decline in resales. Mortgage rates have risen more than a percentage point since the Federal Reserve’s chairman, Ben S. Bernanke, hinted in May that the central bank could begin reducing its economic stimulus soon. On Wednesday, however, the Fed said it would maintain its $85 billion monthly purchases of Treasury and mortgage-backed securities.

One could argue that home-buyers are ignoring higher rates, but that doesn’t seem likely. Is this spike driven by capitulating buyers who had been waiting on the sidelines for mortgage rates to drop? That strategy had certainly worked in the past and buyers are realizing that this time it’s different.

One reason to think that the jump in existing home sales is transient is the decline we’ve seen in new home sales – which most are attributing to higher rates. The divergence shown below is unlikely to be sustainable.

The August number for new home sales (to be released this Wednesday, 10AM ET) will be critical to gauge the trajectory of the US housing market. On Thursday we will also be getting the pending home sales index that should provide a glimpse into sales going forward.

SoberLook.com

From our sponsor:

www.SoberLook.com

The All-American “Short Squeeze” No One Else Sees – Shah Gilani- Money Morning

This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission. Everyone knows the U.S. housing “recovery” has been resurrected on slippery ground. But now that we’re finally about to slip – big time – no one sees it coming… Then again, how could they? The numbers are incredibly…