Don’t you just love the estate agents’ unerring optimism for the housing market?
How about their ability to convince the public that housing is always a no-brainer of an investment?
Well, here’s something else you might like. Yesterday, the national press ran the story on the latest so-called ‘research’ by estate agent Hamptons International.
Owning a home in Britain, they tell us, is more affordable now than at any time since crisis broke in 2008.
With interest rates at record lows, they say, the money saved on mortgage repayments now outweighs the monstrous prices that punters must pay for property.
Of course, if you read the small print you find out that this doesn’t apply to London, where even the estate agents can’t spin the story any other way – houses are just ridiculously expensive.
So, what’s this ‘analysis’ worth? And what does it tell us about the housing market?
When rates are low, the picture looks rosy
Well, to come up with this conclusion, Hamptons created its own ‘affordability index’.
This index assumes the average punter has a 15% deposit and goes for a standard repayment mortgage – and also takes into account average monthly spend.
Now, first off, let’s state the obvious. This ‘average’ punter is making a leveraged investment to the tune of seven to one here.
And with 85% of the funds borrowed, when rates are as low as they are, of course the picture looks rosy!
But that’s only as long as you don’t consider the situation on a risk-adjusted basis.
Perhaps including interest rates back at 10%, or even 17% as we saw back in the ’90s, would make for a more balanced analysis?
And anyway, you need to remember something: the ultimate beneficiary of this arrangement isn’t the punter at all. Sure, his or her name is above the door, but the real benefit and risk stays with the lender.
After all, in the example given, they’ve got an 85% stake in the house purchase. That’s considerable skin in the game, as far as I can see.
And that raises a pretty big question…
Who’s really set up for the fall here?
Hamptons, of course, suggests that homeowners are doing really well in the affordability stakes.
But let’s make no bones about it. It’s the bank that really owns the property – at least in the example given.
Now don’t get me wrong. Despite the risk, the bank holds some decent trump cards. As in any business, the debt-holder’s hand is a strong one.
There’s a right to be repaid, a right to interest and, ultimately, a right to chuck someone out of their home if they don’t hold their side of the bargain.
And so long as the punter is keeping to their side of the bargain, the bank makes a nice profit too.
For sure, the punter is being asked to their neck on the line. And when it comes to a home, most are willing to do whatever they can to keep their end of the bargain. They’ll work longer hours, cut back on just about everything, be it holidays, cars and in extreme cases, even food, just to keep up with those damned mortgage payments.
But when things go awry, it’ll be the banks that suffer.
If rates go up, then there will be carnage. Of course, the Bank of England knows as much. It’s why I’m absolutely convinced the central bank will maintain low rates well into the foreseeable future. The central bank is banker to the bankers, after all.
Of course, the rhetoric may imply otherwise. The rhetoric tries to suggest that the central bank is some sort of public servant.
For instance, a little episode earlier this week…
Pull the other one, Mr Carney
Governor Mark Carney was speaking in Washington and accused the banks of causing the great crash. He even seemed agitated that they’d “got away with it”, that “they are still on the best golf courses. That has to change.”
Yeah, yeah, yeah – pull the other one.
This is the same guy that’s in bed with the government desperately stirring up the next crash. Under a thin veil, the central bank is responsible for the UK’s ramp up in the private debt mountain.
Carney’s bank is responsible for the irresponsible lending rate of half a percent. He is, himself gleefully presiding over the next banking bloodbath.
Make no mistake. The banks have considerable skin in the game as far as the housing market goes. Hamptons’ research note could just as easily have replaced ‘homeowners’ with ‘banks’.
Things have never been more ‘affordable’ or, should I say ‘profitable’ for the guys that put down hundreds of millions of pounds every month in the great housing gamble.
All I can say is, I don’t think I’ve ever read a research note so absorbed by the here and now, and with so little attention to the future.
But hey, this is an estate agent, not a City analyst. You go for it guys – there must be some suckers who’ll still lap it up.