Shock Fall In House Prices: The Deadly Express Is At It Again!

I don't normally buy the papers but I just had to today - the Deadly Express is at it again.  You may remember that my friend Maria Davies particularly (inspirational speaker and experienced property investor), always makes people laugh by holding up two copies of the Deadly Express - one printed six months before the other - to make her point about newspapers using anything as a headline to sell papers. 

One copy she holds up says "Property Prices About To Crash!" and the second says "Property Market Booms: Doom-Mongers Proved Wrong!" or something similar.  Gets a laugh every time.

However, if you are an aspiring or fledgling property investor, you might have noticed that it's not only the papers who are at it this time, even the very lovely chap on GMTV was at it yesterday, reporting that property prices fell by the biggest amount in ages - "0.8 of a per cent" was what he said.  By my admittedly shaky calculating that means that if a per cent is 1.0 then 0.8 of 1.0 is......no, no idea sorry!  Hopefully Judith will come to my rescue shortly, but in the meantime let's examine the Deadly Express article in more detail. 

I have tried to distill the facts from the extremely emotive feature - at one point they assert ""the property market coudl suffer a similar slump next year to that in America" with absolutely no reasoning to back that up.  The emotive stuff was quite shocking in that they make inflamatory assertions in between cold hard facts, with the two bearing no relation to each other!

"House prices are falling at their fastest rate for more than 12 years" - sounds scary doesn't it?  When I looked for the facts and figures quoted I found the magic 0.8 again, but this time it's to say that in November alone, the property prices on average across the country fell by 0.8%.  For this to happen lots of property had to fall in value by more than 0.8% and lots of property had to rise in value by more than 0.8%. 

Hmmmmm, you mean not ALL property fell in value?  No, it's an AVERAGE.

Firstly this means that that the mythical average property worth £175,000 might have fallen in value by £1,400, now being worth only £173,600.  This might be a teeny tiny problem if you had to sell RIGHT NOW, and you needed every bean of that £175,000, but if you don't need to sell right now, you might think that November isn't a great time to sell anyway, what with that pesky Christmas in the way, and you might want to try again in January. 

If you had bought your property 10 years ago you would probably have paid less than £87,500 for it and you would probably feel that a tax free profit of £86,100 was not so bad.  How many people can earn an extra £8610 a year, without having to work for it? 

If you are a professional property investor, you are not planning to sell ever - hang on, can I repeat that?  You are NOT PLANNING TO SELL EVER, and you know that property is predicted to grow, year on year, by the GOVERNMENT, at 5.5% minimum and you know it's historically grown at nearer 12-14% per annum, regardless of monthly or even annual "adjustments". 

So when I read the classic line in the feature from Karen Ward, author of the Halifax report, where she says (and I quote) "higher mortgage costs would spark repossessions and make buy to let a poor investment" I had to have a little chuckle, thinking of all my professional property investor friends rubbing their hands and going "bring it on!" knowing that in the kind of market Karen is conjuring up, they will be able to pick up even more bargains, and get even more of their money back out, making their long term investment even more attractive. 

Not to say that they enjoy buying properties that people have had repossessed, but whether they buy it or someone else does, it will be sold. 

Does Karen invest in property, I wonder?  Or is she an employee, paid month by month, to create a report out of some dry old figures and generate some PR for the Halifax?

"The credit squeeze is biting" which apparently has resulted in the number of mortgages being taken out is at the lowest level for 3 years.  Hang on, here's an actual fact. 

Just 88,000 mortages - down from the monthly average of 109,000 apparently.  That is a 20% drop, near enough.  But is it that because people don't want to buy property, or is it the credit squeeze itself that has caused the drop, with banks and building societies running scared and refusing more people?  They couldn't GIVE their money away just last year, with 5 or 6 times multiples of salary.....it could be that they were granting TOO MANY mortgages and this is a welcome return to prudence?

Mervyn King outlined a "gloomy forecast" for the economy (not house prices specifically) saying growth could slow while prices could rise.  Ok, so if growth (in what, he doesn't say!) is rising at say 10% and prices are rising at.....dunno, again, we have no idea what he's talking about.  Prices of what?  A bit further on he talks about "output growth" but again we have no idea what the GROWTH figure was before and what it is now.  So we can't compare the facts at all but are expected to accept Merv's prognosis. 

Say a mythical something was growing at 10% and the growth rate slowed to 8%....it's not LOSING value is it?  If it cost £100 and it was predicted to grow at 10% it would have grown to a cost (value?) of £110.  But if it only grew at 8% then it would now be worth £108 - again, it's not LOST value just NOT GROWN AS FAST.  As I'm typing this I'm wondering why I'm wasting my time, it's a completely meaningless statement.

Here's another fact that seems to contradict everything else I've written about so far.  Nationwide say that annual house inflation has fallen to 6.9%, from 9.7% the previous month.  Hang on, isn't house price inflation house prices GOING UP in value?  Very odd. 

Simon Robinson, Chief Economist at the Royal Institute of Chartered Accountants said "This data provides further evidence that the housing market is slowing sharply.......expect lower levels of activity rather than outright house price declines"

More worrying is the International Monetary Fund's assertions that the housing market is 40% overvalued.  What?  Do they mean every single house in Britain?  Or on average? 

They go to say, more reassuringly however, that they are predicting a 3% drop in values during 2008.  That sounds more like a minor correction to me.  Michael Coogan from the Council of Mortage Lenders says "the market is slowing, as we have always said it would at this time of year" which again means the RATE OF GROWTH is slowing....activity is slowing... 

The Bank of England's Mr King went on to say that he was ready to lend MORE (to the other banks and building societies presumably) to make sure major British banks have enough cash over the Christmas period. 

For what, I wonder?  To lend out to consumers?  To lend to the credit card companies so they can lend it to the consumers - usually at exhorbitant rates of interest (remember the teenager on the train I talked about who was about to accept a credit card at 37% APR?)

Or to make sure that savers taking their pennies out over Christmas to spend on presents don't get a nasty shock at the cashpoint!

This was almost the most worrying part of the whole article for me, I can tell you.  Is there not enough on deposit to cover my Christmas Present savings?  Is it all out on loan to those about to be repossessed?

That's much more worrying that a slowing up in the house price rise rate.  Don't you think?