Property prices could fall by half, says Crispin Odey

Hedge fund boss Crispin Odey doesn’t think much of the current government.

“David Cameron is not a leader”, he told London’s Evening Standard newspaper yesterday, adding that George Osborne is hated by the City.

Given that the head of Odey Asset Management has previously been a big supporter of the Conservatives, his comments are particularly striking.

Odey’s main problem, he says, is that the government doesn’t seem to understand the situation the economy is in. Cameron “had no idea that we were about to go into a cataclysmic crisis”, says Odey. “It was easy to see it was about to happen. And it was easy to see how bad it was going to be. It’s not a recession, it’s a depression.”

Unsurprisingly perhaps for a man whose firm manages £8bn in assets, Odey thinks the solution to the crisis lies in the financial sector. “We have got to get the banks working again. That means the end of bashing the bankers.

“If there is no credit growth there is no economic growth. The last time we were in a depression was the 1930s, and what got us out was cheap money. We need a zero interest rate and a housing boom.”

Unfortunately for homeowners, the 53-year-old financier doesn’t think a housing boom is likely. In fact, he expects the opposite. “Property is ludicrously expensive,” he says.

That may seem a bit rich coming from a man who submitted plans for a £120,000 chicken coop on the grounds of his estate, but you can’t dismiss Odey’s record – he shorted banks long before the crisis, but also called the market rally of 2009.

So he’s worth paying attention to. And if he’s right on property now, then things could get very uncomfortable for both the UK economy and homeowners. “House prices are right at the top of their cycle. I think they could crash. I’m not saying it’ll happen immediately, but I do think they can drop by half.”

  • Roberto Birquet

    It is confusing to say “we need a housing boom”, and to say, they are ludicrously expensive. I agree wit the latter, and also believe it’s a key reason for the stagnant economy.
    If FTBs need to save a deposit of £50K, they are hardly likely to go out shopping for clothes and cars that the govt weants them to do. If we were to have a further boom, it would worsen an already poor situation, ad stretch it out to another generation – again very stupid. That is unless he wants tio destroy the value of money as well. And what about the comment: “We have got to get the banks working again. That means the end of bashing the bankers.
    Is he saying banks are not lending because they are in a strop over all the complaints thrown at them? I do believe many people are irrsational which is why I believe in strong regulations of markets, but that would pathetic.

  • jimtaylor

    “We have got to get the banks working again. That means the end of bashing the bankers. “

    It isn’t simply a case of ending “banker bashing” – they got us into this mess and they need to be rehabilitated before the banks can be trusted to work properly and there is still some way to go before we can have confidence that banks & bankers are behaving themselves (LIBOR etc)

  • Roberto Birquet

    He is right about the Tories. They never understood the depths of the crisis, claiming it was all about government spending was woefully inadequate.
    If we want default (on all debts, especially private sector) via inflation, I would suggest the money printing should have gone to consumers – you would not need bank lending so much then. Give those in overpriced property £10-15K of debt forgiveness, and those without property £10-15k in cash. I would also allow those wanting to sell, but caught in neg equity, the same rights of debt forgiveness as in the US. Jingle mail could get the whole housing market moving again, by immediately boosting supply. The only required banker bashing would be: sell to the highest bidder within three months or lose the property, by order of the state.

  • Boris MacDonut

    These comments sound more like Bill Oddie. Of course a hedge fund manager wants banks to offer easy leveraging opportunities. To say house prices will fall by half is beyond ridiculous. How can prices be “right at the top of the cycle” when they are 16% lower than in 2007? To fall by another 50% we’d need to see interest rates return to 12% and they are not even expected to breach 1% by 2018.

  • piperstickmonkey

    No surprise that the city boys would love a housing boom. That means that commercial banks create money from thin air and lend it at interest. then it’s ‘ let the good times roll’ …until the next bust!

    We need to end the boom – bust cycle. As long as our money supply is created as debt then banks are too big to fail since they create 97% of all money in the economy.

    To end this we need to prevent commercial banks from creating money! . How about we apply seigniorage to commercial bank digital money?

  • Marc

    House prices may fall a lot in real terms which is not much good for those who need nominal falls so they can afford to buy

  • David Atherton

    Boris M is absolutely right, how can we be at top of cycle, if we are 16% (I’d say 20%) down. House prices are cushioned by the ‘sit on hands’ factor. People in the 80s sat on neg equity, if you owe over 85% today, you are effectively in neg equity. The real drop is not price but volume. Apply VWAP theory to housing and you’ve got your 50% drop from 2007 now. But VWAP isn’t real.

    Also, no-one is really bashing lending bankers, they’re bashing city traders, who happen to be part of banks. Glass-Steagal (retail banks can’t play markets) solved the problem 80 years ago, and can solve it again.

  • Tom

    Utter nonsense to claim house prices are ‘16% lower than 2007’ given the flat-lining of incomes over the period.
    Nothing will unblock this situation other than house prices falls, big income increases across-the-board or another period of irresponsible and reckless lending; which won’t happen.

  • Boris MacDonut

    #8 Tom. In 2007 HP’s were 7 times income, now they are at 5.8 times. So I was wrong, sorry ,the fall is 17% , not 16%…….compared to income. Don’t give me the “in real terms” nonsense. For ordinary Joes real terms means compared to income in pound notes. Ordinary Joe do not care a jot how much gold it might buy, just whether he can keep his roof over his head.

  • Boris MacDonut

    #8 Tom.Your other mistake is to say income is flat-lining. It is not. Incomes are up considerably, it is wages and salaries that are only rising modestly, but disposable income …..well that is burgeoning thanks to the uber low interest rates.

  • NeutronWarp9

    I suspect Crispin is referring to the central London property market or other highly des res areas rather than the housing markets in, say, Rotherham or Walsall. In Crispin’s sense, therefore, prices may well be ‘close to’ the top of the cycle. We understand his point and being tetchy over his precise wording is somewhat fatuous.
    How volume equates to house values beats me; it simply suggests inability or reluctance among parties to buy/sell; nothing more. Many (albeit imperfect) equity theories/methods are notoriously unsuitable to real property markets and therefore colourful use of VWAP or Markowitz et al acronyms is pseudo-techno-spin flannel. I ain’t buying it – and neither are the British public.
    For the statistic-loving among you, 9 out of 10 cats prefer Whiskas (that’s 90% or 9/10). Need I say more.

  • Boris MacDonut

    #11 Neutron. If Odey has such limited experience of the real world, I hope you ignore his suggestions.

  • Edward

    I think it’s illuminating that “the only way to get growth is to get credit growth”. Who is going to take this credit? Some SMEs need credit, certainly, for real growth. But everyone else is already leveraged to the hilt and doesn’t want more debt.
    Or maybe he was just talking about financial institution lending to each other for speculation so we can pretend the subsequent rise in GDP means anything to the real world?

  • jack

    The guy is worth 455 million, so I dont think he cares if he makes more money, so why put his reputation on this?

    If his idea of property falling 50% is so ridiculous then so is intrest rates remaining close to zero for the next ten years!

    375 BILLION pounds have to emerge at some point

  • Aduffawol

    In his report does he include Northern Ireland or is it just mainland uk?

  • Boris MacDonut

    #15 . I’m sure it doesn’t really matter. Ulster makes up less than 2% of the UK property market. It is within the margin of error.

  • Aduffawol

    @16 accepted but personally my I have interests in ulster. I do feel that property pricess in the region are at fair value considering residual value but for me further falls are welcome 🙂

  • Nick

    To echo #13, who is indeed going to take this credit up? For most SMEs credit is now a dirty word and they are getting by without it. Large businesses are sitting on piles of cash, so they hardly need it. Hedge funds will no doubt be desperate to start re-leveraging but I think suspect the reason they all hate George is because he will stop them doing so.

    The Economist has a theory that the best people to take a company through hard times are the risk averse, but the best people to take them through good times are the risk seekers. We’ve been in bad times so long now that those left standing are definitely led by the former. It will take an almost generational shift to for them all to switch to the latter.

  • Nick

    hat that could undo itself.

  • Boris MacDonut

    #19 Simple maths Nick. House prices will half if interest rates hit 12%. As soon as you can gaurantee this will happen, I will use a different word than ridiculous. FYI the last time rates were at 12% was in 1991.

  • Nick

    Who decided that interest rates were the only factor that decided house prices? Supply, demand and TV shows probably have at least as much effect as credit price.

    Real interest rates as available at retail aren’t even that low. The banks have taken most of the extra margin themselves so it might take a smaller movement than everyone thinks to affect the market. Actually, I personally suspect the opposite: they may actually choose to absorb some of the hit themselves when rates start to go up in order to preserve the value of their potential assets for as long as possible, in the hope that “something will turn up” before the crunch comes.

    Maybe there won’t even be a crunch, who knows, I certainly don’t. But what I do know is you can’t rule out a conceivable outcome just because you don’t like it.

  • PV70

    The government and BoE policy is supporting inflated house prices. Now that interest-only mortgages are coming back according to The Sunday Times, correction is even less likely. The policy makers have intervened the market and have so far succeeded. As more people are able to work remotely from home, it could be time to say adios UK and move somewhere where you can actually rent at a reasonable cost or even buy something. Long-term consequences ofthe current dysfunctional property market are likely to be disastrous!

  • crazy tony

    probably when the market realises that sterling is a pile of crap there will be a currency crisis, bond yields will soar and so will interest rates. But its not just house prices that will fall….

  • Boris MacDonut

    #21 Nick. Now you are trying to prove yourself wrong. You correctly cite that mortgage rates have not really fallen much since 2007 and that they are unlikely to rise in lib=ne with base rate. That paper bag you are trying to fight your way out of must be mighty tough. A 50% fall is ridiculous, worthy only of ridicule.

  • Manny

    here we go again, I cant wait for all this nonsense to end
    I have said this before and I say it again…… 2007 peak -70% is where all this house price rubbish will end.
    When time proves me correct you are all invited (especially Boris) round my house to celebrate… dinner and drinks (champagne of course). We will celebrate the death of all this housing stupidity gripping this country.
    Boris does not like my simple maths but interest rates do not need to go up… the average person cannot afford to repay £162k over 25years even at 0%. It is these stupid prices making life unaffordable in this country.. Even if you are a renter you are paying some landlords massive mortgage.
    Goodness me at 12% monthly repayments over 25 years on 162k = £1700pm
    Does anyone seriously believe this is affordable.. That is why rates will stay at zero
    and even at this zero level people are getting crushed..
    Cant afford food, petrol, electricity or gas list goes on…

  • Boris MacDonut

    #25 Manny.You are having a proper old joke there. Declaring that House prices will fall to an average of £55,000. You also say that will be the end. What? They will stay forever at that stupidly low level ! To repay £162,000 over 25 years costs just £540 a month or 28% of typical income after tax….just like it did in 2002 and in 1992 and in 1982. At 12% I make it £1,430 a month. But as you say, irrelevant as rates will stay near zero. Houses are cheap, buy one, as rent is now at £770 a month.

  • Mark

    #25 Manny – you talk huge amounts of sense. #22 and #23 make good points as well. As for Crispin, he will have bought his property to have a roof over his head and his comments are just intelligent & practical.
    Do you think Boris should put a risk warning on his posts “Past performance is no guarantee to the future”?

  • Don

    Which way will house prices go from here in real terms. I don’t know but I’d put the greater chance being to the negative. There will be (a lot of) people who will disagree because the UK has a love affair with the entitlement of buying their own property so prices can only ever go up in their eyes.

    Now for the reasons I base my decision…
    1. Interest rates have fallen for 30 years. Lower interest rates make housing more affordable. We are as low as they can go so best case this will lead to flat prices and worst case a substantial fall in prices.

  • Don

    2. Consumer inflation. This has remained low for a long period. If this continues to remain low then prices will rise but if it takes off then prices will drop. Therefore this is an even split.
    3. Salary inflation. This has been positive for a very long time easily outstripping consumer inflation. This causes prices to rise. The economy is now in stagflation and this has reversed. If this remains to be the case it will point to a decline in property prices.
    4. Rents. Can more money be squeezed out of renters? Possibly but not much more as per point 3. No extra yield potential leads to no further house price rises.
    5. Britain’s love affair with the housing market. Sentiment still points to housing being a sound investment with no risk (as we should know there is no such thing as no risk). This will not change in a hurry and therefore points to house prices being higher in the future.

  • Don

    Using these 5 points and others my decision is that there will be a real term fall in house prices. I also happily admit I do not know the future and if I’m proven wrong so be it. Saying this does not prevent me from buying as I see property as a place to live rather than an investment.

  • bob

    I pay as much heed to a man who’s spending £120k on a chicken coop as I do to the pissy, old tramp at the end of my road who tells me the end of the world is nigh.

    At least the tramp spouts his rubbish because he’s drunk, not due to an inflated sense of self-importance.

  • Alan

    This guy seems to lack conviction…

    I think they could crash. I’m not saying it’ll happen immediately, but I do think they can drop by half.”

    So there might be a crash. Sometime. And house prices might halve in value.

    Possibly. Well, maybe.

  • Boris MacDonut

    #27 Mark. As Don says,we cannot predict the future. Past performance is all we have to go by, whether it is the outcome of a soccer game or the possible level of the gold price. So we can only make best guesses. But no gaurantees. For my own “predictions” I have looked at the period 1931 to 2011 and assumed prices only rising at one fifth or less of those levels. Even factoring in an 80% decline in performance still produces a decent gain and makes renting look foolish in the extreme.
    Most housebuyers are 30 to40 years old and expect to live to be over 80. It is performance over 45 years that should be of most interest. Prices are up 4,000% in the last 45 years.

  • Fred Kondratieff

    Back in the 90’s, the late Bob Beckman in his books “The Downwave” and “Into the Upwave” was of the opinion that house prices would ultimately collapse by possibly 80%. Whilst his timing of events tended to be a bit off the mark it could well happen. Further more it does tie in with the decline and fall of GB as a once powerful nation. The USA, of course is, going much the same way

  • Boris Macdonut

    #34. Fred. Your post effectively says something someone said twenty years ago and got wrong, still might happen.

  • Tony O’

    If we end up having a full blown currency crisis, interst rates could rise much faster than anyone imagines.

  • Coastwatcher

    I agree with Odey’s comments about the current government.
    Confirmed by the appointment of the Canadian Governor to run the B of E.
    Very likely that the bondholders and the bond trading houses have insisted on Carney, having twigged that Osborne is using QE not just to provide liquidity but to pay down debt.
    They want an outsider in there to reverse out of Weimar.
    Expect dramatic changes at B of E, under bondtraders’ threat of dumping sterling.

  • Carol Wilcox

    What a complete idiot this man is. How can churning the market in second hand houses create growth?

  • DaveC

    The issue at hand is who pays the UK plc bill and how quickly. This guy wants a housing boom and zero interest rates. In other words he wants Joe Public, the savers, the pensioners to pay and he wants us all in more debt to pump up the value of his underlying assets. More debt and more QE and free money.. clown

  • Fred Kondratieff

    #35. Boris. You comment is valid. I really should have been more explicit. For example, Bob Beckman took the view that China would not become the next super power! He also took the view that the 50 to 60 year economic cycle would bottom out at the end of the 90’s! However, in other areas he was not too far off the mark.
    Regarding property prices, he was in the habit of upsetting the vested interests ( Building Societies) with his comments such as Florida property prices collapsing in the 30’s and not recovering to the same level until 30 years later. Things seem to be heading in same direction again for the same old reasons.

  • Le Brit

    The writer is roughly correct on the pending fall, using basic values average wage circa £25k, average house price circa £168k. Using a multiple of 3.5 ( the average for the mortgage industry) then the average house price should be 3.5x£25k =£87.5k not far off from the 50% the writer stated. Until this happens the market will be in the doldrums for years to come because wages are not rising sufficiently so the other side of the equation has to give. No doubt the Donut will have a pile of stats to rubbish the article.