Two year stagnation!

Stagnation is what we call it now - two years from now we will be calling it the crash of 2008, since as the interest rates fall and inflation takes over and Gordon will keep printing money just like Bush did in an attempt to keep the public spending - and yet to no avail. Inflation will quickly errode the value of our homes.

It doesnt matter how much money is available when sentiment is so bad. Nobody wants to catch a falling knife in this market environment and come April 2008, - if the new 18% flat tax rate comes into force the BTL market will unravel - for those foolish enough to wait that long to try to sell (stuffed if u sell now - or if you wait).

Average selling time now is 8 weeks - the longest time since the records began in 2001.

Banks are now value properties at 15 - 20% less than a year ago. If you tried to get a mortgage in 2006 the valuation would have been 15-20% higher than now is what i mean by that. Of course - you can always "try" to get an independent valuation and then try to get the banks to accept it ........ id wager that if they are still accepting these valuations they wont for long. Independent valuations are worthless if they are not acceptable to the banks and thus they will have to reduce their valuations to suit the banks.

By pricing in a 20% fall in the valuations the banks have ensured the crash will happen.

I hope some of you read my previous posts entitled "Debt Bomb" that I wrote towards a year ago now.

The amount of Debt in the economy was the "Cause" and the Credit Crunch was the "Effect" its all one and the same process to me - part of the Property Cycle.

Still a little too soon to say "I told you so" .... I'll come back to say that in a year or so.

By the way ..... the only thing the media is good for is measuring sentiment - listening to a Expert quoted in a paper is just daft since if you talk to 10 experts 6 - 12 months ago you would have gotten 9 saying that the property in the UK is going to go UP UP UP. Of course if you ask the same "EXPERTS" now you would get most saying prices are going DOWN or static ....... EXPERTS are only experts as long as they are right and most will hedge their bets - since Experts who predict housing price crashes are invariably wrong (get the timing wrong).

If you get burned in the next year ...... consider it a lesson learnt - listening to the "EXPERTS" without doing your own research and having a good understanding of economics & Politics - and not just the text book stuff. Having the confidence to follow your own convictions and make those decisions with certainty in your own mind.

You all might have noticed the positive stance on UK market that PS had just one short year ago ...... and finally until today reflecting evidence as it becomes available (see article).

The credit crunch was TOTALLY predictable in that it was a symptom of a bigger problem, a HUGE problem. The housing market that just keeps inflating - think of it as a baloon, but it is NOT JUST THE HOUSING MARKET that is a big red baloon but rather our whole economy (red for warning) and debt - easy money the Helium that expands that baloon. Add a little Gordon Brown to open that Helium bottle to full throttle fueling our economy with Debt. The party has to end sometime and I do not believe that "static" will be the word people will use when describing the economy - NOR the housing market looking back on 2008/9.

I'll end this with a further prediction - one that is easy to make since it has historically ALWAYS happened, recession ALWAYS follows a HPC which is one reason why the property cycle is so long the negativity fuels the decline. If the banks are pricing in a 15%-20% fall NOW ...... then think 2 - 3 years down the line since it will be at least 5 years before the market recovers.

Some of you scoffed at my predictions on gold ........ now trading at £420 an once up from £350 at the time of my prediction.

Oh and then there is the £/Euro exchange rate ...... £ now lowest against the Euro since its creation. And the £ is going to keep falling by exchanging the money for my new apartment 4 months ago I have saved myself £10,000 pounds just in currency movement.

Have to agree with you Richard. UK PLC is stuffed.

When has there ever been a stagnation in any asset class following a boom???

UK property was undervalued in the 90's. It is now overvalued. There will be a reversion to its mean.

I predict 5 years of price falls. Yes the nominal value of property will fall only a little (say 5% in 2008) but the real fall after inflation will be much larger. 4-5 years of this and I reckon we will be back to reality and property will be affordable again.

Regarding Gold do you still see much growth in it particularly as the dollar appears to have bottomed? What about Silver?

Politics plays a huge part in the value of the dollar, much depends on the trade negotiations with China and whether the Chinese revalue their currency to appease the US. The US dollar is fast losing its status as the worlds reserve currency. Oil is now being bought and sold in any currency EXCEPT the Dollar.

As to the answer to your question, the Dollar will fall further against the Euro, but then the £ will be falling faster because our economy is in a worse situation than USA, we have one of the highest levels of personal debt in the Western World per person and a economy which is entirely reliant / based on excessive debt. Without that debt there would have been NO growth for the last 5 years outside of London except for the retail sector (which is stuffed).

US has begun its painful correction - UK is a year behind.

No more easy finance (and if Gordon keeps printing money - nobody will borrow it because the population is Debt satuated)

= No Growth based on debt
= High street squeeze - joblosses
= recession.

So predicting the Dollar movements based on Bush politics is just nuts so I look at the UK instead.

Id say that £ will fall in relation to the $. Events such as those witnessed recently in Pakistan could easily depress the $ further, however the long term trend is for the £ to fall against the dollar.

I dont play with currencies - unless I have to -

Gold will go over $1000 an ounce £500 (at least)

Forgive the spelling mistakes in my first post - forgot to check the post for typo's.

The question that really need to consider here on this forum - considering our investment in EU is what should we do with our £ considering it is likely to fall further against the Euro.

If you have your money in £ now and need to complete on an apartment in the next year then YOU WILL end up paying more than bargained for. It will cost you 1000's more than it did just 3 months ago. There is just no getting around it whether you are paying in cash or taking a mortgage out (the £ will be weak vs Euro for some time).

If you are looking to invest in the US, then I would say wait! Property prices will continue to fall for ALL of 2008 to finally bottom out in Jan/Feb 2009.

Why wait?

Because in that time if the £ falls significantly against the $ in that time then you make / save money.

http: / /ichart .finance .yahoo .com /1y?gbpusd=x

http: / /ichart .finance .yahoo .com /1y?gbpeur=x

Just some currency charts - they get updated 3-4 times a week.

RATS - that time limit on post editing is a real pain ........ can we have it extended by 15 minutes?

If you are looking to invest in the US, then I would say wait! Property prices will continue to fall for ALL of 2008 to finally bottom out in Jan/Feb 2009.

Why wait?

Because in that time if the £ falls significantly against the $ in that time then you make / save money.

The point is that the UK property cycle is SHORTER than in US and that the £ has already fallen significantly against the $ - you have already missed the boat in terms of taking advantage of the strong £ when buying in the US.

Your money is better invested in a high interest savings account for the next 6 months - or perhaps in Gold ....... problem is that with gold ....... who do you sell to when gold is priced so high?

I bought gold bullion coins - and I know for a fact that i will not get the gold value price when I sell them.

Is it really such a disaster if UK property prices stagnate? I don't think we are looking at a crash here unless interest rate levels spiral up significantly. If I look at the way I am affected it is not all bad

- Interest rates are going down (good for cashflow)
- There could be some good buying opportunities in the next few years (good)
- UK property values are going to stagnate (I've had a good run for 8 years so equity is still good)
- I'm getting rental income in Euros from EU properties (good because I'm not highly leveraged)
- Banks are tightening up lending criteria (feels bad but it is probably healthy)
- Properties owned in Europe will increase in price in £ terms (good)
- It will be harder to sell EU properties to foreign investors (shouldn't affect me)
- It is more diffcult to expand my property portfolio by remortgaging (bad but I'll have a stronger cashflow)

I feel the doomsters are sometimes jumping at straws to prove themselves right. Would a 3-4% drop in value a year after you had a 20% increase be disastrous? Yet the doomsters in the press seem to fall over themselves to say I told you so.

Another good example is Capital Economics who got a lot of press 5 years ago claiming the property market was 30% overvalued. Well the market probably increased since then by 35%. Now they are forecasting a 3% decrease in UK properties next year and I guess if that happens they will be quick to say I told you so and frame it as if some financial disaster has occurred.

Capital Economics were right - property is overvalued by 30% - even more now, they just got the timing wrong.

If you ironed out the peaks and falls you would see that house prices rise at the same rate as inflation, - anything more is a bubble and will eventually fall back to its realistic value.

It is vital that - if you want to make money in the UK market that you take notice of the property cycle. Look at prices in relation to the rate of inflation rather than what the property peddlars sell you or neglect to mention to you.

Take advantage of the property cycle - buy at the bottom and sell at the top (fairly obvious stuff).

BTL investors will find it very difficult next year as the combination of house prices falls + rental yields falls.

Rental yields and HPC together!

Yes you heard me correctly!

As people can no longer sell their homes many will rent them out instead (try to rent them out) as this excess supply takes effect prices will fall. People go where they are told to by their work if they cant sell - they let to rent ........ simple as that.

Other factors that BTL Bulls like to go on about - visitors from other countries such as the Polish will return as they notice that the £ is no longer earning them so much more than they would get at home. If the consumers stop spending (no choice - theyve maxed all their cards) and the retail slowdown comes then those migrant jobs will be the first to go.

The British unmarried masses between 20-35 who have fulled the retail spending (most of who have crazy amount of debt) and thus our economy (I include myself in that bracket - although I have no debt) we will all move back to the Parental home - yes you guessed it ...... im living back with my parents after selling up. Waiting for the bottom of the market post 2009 / 2010.

The first sign of retail slowdown is in Bars and Resturants and we are currently seeing a slowdown in these venues, instead of eating out we are eating in.

Ignore the signs at your peril.

For the savy investor who sees these things coming and acts accordingly, they will reap untold rewards. Look to other countries where the property cycle has already hit bottom or is about to (why I invested where I did).