One of our readers, an estate agent who sold his business at the top of the 1980s housing bubble, wrote to give us his opinion on the current housing boom. We thought other readers would be very interested to hear his expert diagnosis...
Philip Coggan in the FT at the weekend asked 'how long can asset prices remain so high?'
His answer, logically, is 'not forever' but as long as papers such as the FT continue to hype property prices, maybe for a little longer...
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One problem is of course lax monetary policy, but he didn't mention property where additional forces are at work. A different article in the FT in the same section made a typical exaggeration of TWENTY FIVE PER CENT.
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In the UK, there is a whole industry devoted to talking property prices UP. Of course estate agents will, that's their job, but the lenders are at it too. They have bought into estate agency groups and property websites (such as Rightmove, owned by Royal & Sun Alliance, HBOS, Countrywide and Connells). The conflicts of interest should be obvious.
And there are other players in the 'positive property spin' industry...The Sunday Times 'Home' supplement, being funded mainly by estate agents' advertising, may look like a newspaper but its tone is of course, 'buy, buy, buy'. There are seldom any articles suggesting that 'prices can go down as well as up'. Many journalists are personally up to their necks in property and loans - they need to keep pumping air into the property balloon themselves.
And this weekend there is a classic example of spin in the Financial Times...
The latest method Building Societies have of keeping money pumping into property is to allow parents to borrow to help their kids buy ever more expensive property. Few people seem to have realised that the reason property keeps going up, is because the lenders keep finding ways of enabling people to borrow more and therefore pay more. It's so un-British to haggle, we're too shy, it's easier to ask for a bigger mortgage.
The FT article starts off by stating 'with the average UK home creeping above the £200,000 mark...'. WRONG! WRONG! WRONG!!
This nonsense figure of £200,000 was a cleverly and widely spun piece of statistical tosh from Rightmove (the website owned by you-know-who) and was only an average of THEIR asking prices in January. VERY, VERY different was the Nationwide average price at £158,573 and the Hometrack average price £161,700. The average of those two prices being £160,136, some 25% adrift from the article. Maybe that's why their readers' kids need to borrow so much money from their parents, because they are buying into the whole 'it can never go down' industry.
UK property is an over-inflated, pumped up and very dangerous bubble, utterly dependent on hype, lies, low interest rates and excessive lending...(and compliant journalists). Low interest rates and easy money are of course unsustainable. In The Times, Anatole Kaletsky, like a man in a washing basket trying to lift himself off the floor, cannot seem to understand, you cannot keep on borrowing forever. And don't ask George Osborne to understand any of this; the Tories are clueless.
There is no further upside to property prices. Prices are already too high, yields are pathetic, downside risk for most amateur investors is a tragi-comedy. People are up to their borrowing limits, many are re-scheduling loans to help make repayments on existing loans. And that seductive phrase 'equity withdrawal' is merely 'equity destruction' and when those central bankers or Asians decide enough is enough, the pack of cards will collapse.
I was an estate agent in the last boom and crash. I sold all my properties and the business in 1988. I went back in during the 90's. I'm now just clearing out my final properties and suspect that the coming crash (it's already started...stage 1, flat line/stagnation) may, at last make people realise, that prices can go down as well as up.
Someone recently said 'ah but the demand is still there'. Well, of course it is...as long as the press can keep persuading people it is. That can turn on a sixpence.
What short memories some of us have. Philip Coggan is trying, very politely, to remind people of this.
Russell Hicks (6/3/2006)
