House prices – dead cat bounce?
House prices are up again this month according to the Nationwide.
Thats four months in a row, we are now almost at the same level of a year ago.
Great lets pile into the market and ride the next bull run.
Well hang on! Whats really happening out there?
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A visit to my local estate agent provides an interesting insight. In a busy agency which would normally have it’s shelves bursting with property, there is very little there and what there is most seems under offers, or under desirable.
Lets look at our journey.
House prices, the economy, all of us landlords have been on a journey over the last 18 months since the collapse in the economy and the banks being declared bust.
Early this year we were all facing a banking and economic apocalypse.
Thanks in part to action to bail out the banks, we now have a banking system that is well capitalised and starting to lend once more.
Those that have a job can now access funds which is critical to a healthy housing market.
We are all breathing a collective sigh of relief that we are not facing a total economic ‘melt down’.
However – what about the known unknowns?
We can all see what’s in front of our face but what’s lurking behind the mask?
With unemployment surging and likely to hit 3 million by the year end. Many of us including homeowners will not be able to afford their existing home let alone look to trade up. The government have done their best to stop an avalanche of repossessed property hitting the market and particularly the auction rooms depressing the market further by their various mortgage support schemes through ‘our’ banks. These packages are only temporary and when they run out many of these properties will end up being sold at auction for what the lenders can get.
Not good news for house prices.
We know that many property owners are still living in denial.
Property owners won’t sell now because many have negative equity or are waiting for their house prices to recover to its previous level.
When they finally wake up and realise that prices aren’t going to bounce back in the way they think and supply recovers to a more normal level then the economic negatives will catch up with the market.
That will snuff out any belief that a short swift correction in house price and asset valuations has past.
At that point we will have to wake up to the realities of a huge public sector debt, a pension crisis and a unaffordable public sector.
Thats when we realise that the cat called ‘house prices’ dropped from a 10 storey building and bounced was still dead and wasn’t likely to spring back to life any time soon!
Hawkeye – a unique perspective on property investing