According to Rightmove, asking prices for houses fell by the most ever on record last
month. Nationally, they fell by 3.3%, which if they continued to
fall at that rate would mean a fall of more than 40%, or about the
same extent of fall that occurred in 1990. In London and East Anglia
they fell by more than 5%, which over a year would be a fall of more
than 60%, or equivalent to the falls seen after 2008 in the US,
Ireland and Spain.
All this is
despite the best possible conditions for house prices. Interest
rates remain at low levels not seen for 300 years, and the government
has been providing guarantees to lenders for loans, along with
numerous other measures to keep the huge house price bubble inflated.
Its now clear that interest rates are rising sharply on a global
level. That is first affecting emerging market economies. Their
bond yields have risen sharply, and official interest rates in
Turkey, Russia, Brazil, India, South Africa and elsewhere have been
ramped up to around 12%. In Russia, also affected by the fall in the
price of oil, it has increased its interest rates from 12.5% to 17%
overnight, as the Rouble fell.
Temporarily,
this selling of emerging market bonds has caused a rush of hot money
into the US, UK, and Eurozone bonds, but just like the warning of a
tsunami is that the sea gets sucked up off the beach, before the wall
of water arrives, so with these interest rates. When the currencies
of the emerging markets have fallen sufficiently, and their interest
rates risen sufficiently, that wall of hot money will fly out of the
US, UK, and EU and into the emerging markets in search of these
higher rates, and the potential of currency gains. Interest rates in
the US, UK and EU will then rise sharply.
Already, the
US Federal Reserve has given notice to markets that it will raise
official interest rates in March or April of next year.
The markets, and stock market cheerleaders do not want to hear that
message, and continue to believe that the US will not raise rates
until after June next year, if at all, but that is because they have
become addicted to lax monetary policy to keep financial market
bubbles inflated. But, the fall in the price of oil has already
exposed the potential for a new sub-prime crisis, as the large scale
borrowing by small and medium energy companies to finance fracking in
the US and elsewhere via junk bonds, has already led to a freezing up
of that market, and the start of a new credit crunch.
Its not just
the new fracking companies. Recent analysis shows that North Sea oil
production is now unprofitable at these prices. The likelihood is
that many of these companies will go bust, and their debts will go
into default. That is exactly the same kind of scenario that existed
ahead of the financial crisis of 2008.
Moreover, as I have pointed out previously, the House Price Indices put out by the
estate agents and building societies are a sham. Asking prices are pretty meaningless, because a house can be put up
for sale at any price. What it actually gets sold for is a
completely different matter. The Asking price indices are based on
the price that houses are initially listed at, and takes no account
of any reductions of the asking price in subsequent months even, let
alone, how much the house is actually sold for. All the evidence is
that selling prices are around 30% below original asking prices,
outside London, and even in London, it appears that the bubble is
beginning to burst.
Moreover,
the other metrics used such as the length of time properties are on
estate agents books are also phoney. For one thing, houses that are
on the books of one agent for 6 months or more, often get taken off
not because they have been sold, but because the seller gets fed up
and tries their luck with another agent. I know of many houses
around me, where the seller has gone through three or more agents one
after another, before they eventually sold their houses, again
usually for around 30% what they originally listed for. Sellers
would have saved themselves a lot of time and effort had they just
set the asking price 30% lower in the first place.
The agents
have other tricks up their sleeves too. At auctions, where bids are
below the reserve price, the agents themselves put in bids to try to
push the price up. Where sellers look to be becoming fed up with the
agent for lack of progress, it is not unusual for the agent to
suddenly announce a potential buyer, only for that buyer to
subsequently disappear. At times of year like now, when agents know
that demand slows, it is again not unknown for the amount of houses
on their books to be suddenly reduced.
This seems
to have increased considerably over recent months, as there has been
a preponderance of houses that have been designated as sold subject
to contract, only for the sale to fall through and the house be once
more back on the market. Some of this is undoubtedly due also to the
fact that the banks have tightened their lending criteria, and many
people discover that their income is not sufficient to meet the
monthly repayments, even before interest rates rise.
There has
also been a notable increase in the number of repossessed houses
being put up for sale. They are usually not listed as being a
repossession, because such terms start to spook the market, and show
up in the official figures. Instead, such sales are nowadays
described as “corporate sales”, which simply means that the bank
has foreclosed on the loan, but sold off the asset to a specialised
property company for disposal.
All of this
means that the conditions for a new more serious financial crash are
being put in place. Interest rates are rising globally, credit in
the high yield section of the market has already frozen up, financial
asset prices are at astronomical levels, those levels are based on
multiple levels of fictitious capital, which is hugely inflated, and
unsound.
This is a
huge Ponzi Scheme, the likes of which has not been seen before in
history. It is a house of cards that must come tumbling down.
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