House Prices to Skyrocket

House prices

House prices are going to “skyrocket” we are told by a think tank that has never yet got a single prediction right.

Once again the idiots who do research and presumably get paid for churning out total rubbish have given us a prediction about future property prices based on faulty and irrelevant research. Once again these guys have proven they dont know which way is up.

Oxford Economics; that’s what they are called. I quote from the newspaper the Daily Express, which obviously hasn’t done much research itself on the group’s findings.

“In what is hailed as “fantastic” news for the property market, the average value of a home in England is expected to rise from the current £214,647 to £260,304 by 2016.

“It comes after asking prices rose by 1.3 per cent last month, the biggest monthly jump since January 2010. All regions of the country should see an increase.
A shortage of housing, coupled with rising demand will drive the boom, with prices sky- rocketing by more than a fifth in just five years, according to research by Oxford Economics for the National Housing Federation.

“It said that over the past year, only 105,000 new properties have been built across the country – the lowest level since the 1920s. It is also less than half the number needed to meet demand.”

“The National Housing Federation commented on the report saying the housing market will be plunged into an unprecedented crisis and also forecast steep rises in the private rental sector and a house price boom.

“The Federation blamed the bleak outlook on an under-supply of homes in the UK.”

Well, if you believe that you must be crazy. Note the description of “prices sky-rocketing”. To put that in perspective read on.

I dont do forecasts. Only idiots do that. Anyone who claims to be able to predict what house prices will be in 2016 must be as daft as a brush. However, I can tell you that house prices will not show any meaningful rise in the near future, and for the most basic of reasons.

As I never tire of saying, house prices are not governed by the number of people wanting to buy a house, or by how many houses there are, any more than the sales of Ferraris are governed by the number of people who want to drive them. House prices relate to the availability of funding, nothing else. The funding isn’t there. The ability to pay high mortgage prices isn’t there. Banks are locked up. They aren’t getting out of their current mess in a hurry, and when they do, they will be careful who they lend to.

Finally, look back at history. House prices always lag the economy. They are the last thing in the economic cycle to perform. We must see an economic recovery before we see house price rises. That isn’t going to happen any time soon.

House prices cant rise very far because wages are not rising. You cant pay for a more expensive mortgage unless your wage packet goes up. And that is one reason that rents wont rise that much more either. You can only pay what you can afford. In short, without more money sloshing around the system prices wont be rising more than a smidgeon.

Anyone predicting what will happen by 2016 has to be on some interesting drug. My only question is: Can I have some, it seems to be very pretty coloured.

One final point. 21% rise in house prices in five years? Come on, that’s 4% a year (and not compounded). Factor in interest rates on the money borrowed, and inflation, and what would a house need to appreciate by just to keep up with everything else?

Just for the record, the average mortgage interest rate is 5%, and inflation is running at 4.5% and rising. The retail price index stands at 5.3%.

So, never mind the alleluias, if the Oxford Idiots are right, that means house prices wont keep up with inflation. And that’s a definition of “sky-rocketing”? Wow!

Okay, okay, if you insist. I’ll tell what will really happen.

House prices may go up a little, they may go down a little, but dont bank on it. The real story is they probably wont go anywhere much. If you want to buy houses for investment, forget it. Interest rates may stay low but it’s more likely they go up. Can you cope when they do go up?

Have a look at house prices when set against the price of real money (gold). You may be very upset if you do.

There are better places to put your money. Buy a house to live in, not to make money. But also remember, I dont think house prices will fall much from where they are either. The really important fact is: the housing market will remain difficult. In other words: No Change.

Next time the National Housing Federation wants a proper report I suggest they employ someone who knows what he’s talking about. I have been doing this for over forty years and I have yet to get it wrong even once.

Now if we suddenly get a fantastic turn round in the economy, and if the banks suddenly find they aren’t broke after all, and everyone is paying back what they owe, then things might start happening again, but that is rather a long shot I think. I prefer to view today’s economic lunacy as a very long drawn out collapse.

john

La Vienne

South to La Vienne

South of Tours the road climbs a steep hill, and at the top is a large industrial estate. There are several cheap hotels hidden away at the back of the retail outlets, but they are not easy to find, but they usually have rooms to let when all else fails.

The Bridge at Vienne

It’s so much nicer to drive that little bit further to the delightful town of Montbazon on the River Indre, The square is small, but then so is the town. But the trattoire is certainly worth a stop, and so is the patisserie next door. You can while away an hour visiting the 9th century donjon if that turns you on, or follow the river downstream through delightful woodland.

And then you are over the border into La Vienne. Properties here are reasonably priced. The climate is good, warmer than England, yet with plenty of rain to make the world look green and pleasant. You aren’t far from the sea. The rivers are fun and picturesque, and the things you can do are legion.

Futurescope

Futurescope

You’ve got the Futuroscope just north of Poitiers, this is a futuristic city which is part working business park, and part modernistic extravaganza. I’ve only wandered around the outside so I dont know anything about the wonders within. I’ve promised myself to go and spend a couple of weeks in the region specially to visit all these places next spring.

Futurescope

 

Futurescope

Then there are the various animal sanctuaries. There’s Crocodile Planet, Monkey Valley, and Snake Island. There are the pigmy Bonobos from the Congo, only discovered in 1929. There are chimps, marmosets, and capuchins all running free.

Crocodile Planet is set under a glass dome with 100 plants and 200 animals from crocs, to alligators to caymans. Snake Island is home to 250 reptiles; and in the ruins of Chauvigny’s chateau there are eagles, vultures, falcons, and more.

There’s horse riding, canoeing, cycling, and pretty well anything available. Once again, this is a great place to open any kind of holiday venture from hotel to gite. There are nature trails, and the latest gimmick, tree walks.

And if that doesn’t interest you, there are the various forays into the past re-enacted as spectacles at several of the local historical venues: A medieval fair in the village of Chateau-Larcher; knights’ tournaments at Nouaillé-Maupertuis, and many more.

Montmorillon specialises in bookshops, with thirteen in the middle of the old town dedicated to various genres. There are also paper, typing, printing and calculating shows at the various museums.

There are Michelin starred restaurants in Poitiers, and vineyards galore that date back to Roman times; so how about agneau du Poitou, or Belle de Briande.

I am particularly drawn to the ancient city of Poitiers, because it was the home, and power-base of my favourite heroine, Eleanor of Acquitaine. The old quarter, half-timbered, is fascinating with its medieval squares and clock towers. There are also the amazing romanesque ceiling frescoes in the eleventh century Saint Savin Abbey church

Chauvigny is one of France’s most complete medieval cities dating back to the fifteenth century, with fortresses, romanesque churches, and a maze of old streets hugging a rocky spur overlooking the river Vienne.

Good grief, I give up. If you want to live in France you’d be hard put to find a more interesting and charming place to live, and make money on the side. My latest members’ bulletin on the Unique Property Site gives a short list of some interesting places to buy at reasonable prices.

Next week, pretty well worn out with all there is to see, I shall move further south and venture deep into the “unknown”. You’ll see why I use quotation marks when I load the article.

Loire-2

France Loire

The Loire Valley is known as the Garden of France. But that’s not all. Let’s have a look at the plusses there are for this region.

1    It’s beautiful, with a very attractive river-scape, pretty villages, and ancient historical towns. This is la belle france at its best.

2    It’s famous for it’s chateaux. There seem to be hundreds of them, from the small and charming, to the massive and downright ostentatious.

3    There are masses of things to do, from walking holidays, fishing in the countless lakes in the region, visiting the major aquarium near Amboise, visiting the chateaux, and watching the various son et lumiere spectacles, and getting stuck into some excellent cuisine. All of this makes this part of France ideal not only for somewhere to live because there is so much to do, but as an ideal place to run a small guest house, as during the summer you will always be full.

4    Not only is this region beautiful and busy, but it is also close to Paris, Orleans, the amazing medieval glass in Bourges cathedral, the wines of Vouvray, Chinon, Saumur, and more, and also just a whisker away from the Vienne which is also an amazing place to stay.

5    The weather is similar to that of Southern England, only better, with hotter, longer summers.

6    From Southern England you can easily drive here in a day. The TGV goes to Tours, and there are flights to Poitiers using RyanAir.

If you fancy buying a genuine chateau there are several for sale. I list a few in the current members’ bulletin.

If that is too grand or too expensive, there are plenty of bourgeois homes for sale. But what is really interesting is that there are plenty of cheap ruins for renovation, or barns for conversion, with prices starting at about £15,000.

I’ve decided I’m going to have a fortnight’s holiday here next year in the spring. I really like it. I’m sure you will too. Just for the record, we stopped on spec at many places along the route and only managed to find one place to stay, and then one of us had to sleep on the floor.

I think this is a good place to be. I dont think you could go far wrong investing here. Check it out.

Loire Valley

I have just returned home from a short trip across western Europe. I have been saying that there are all sorts of places where buying property would be a disaster. Yet there are small pockets of interest which would repay a closer examination.

I am going to concentrate on France and Spain in the next few bulletins.

First, a warning. France is both politically and economically on the edge of a volcano. It is one of the top ten economies in the world, roughly on a par with the UK. It is a socialist country with massive government control and interference in all aspects of life. It is also becoming less and less able to juggle all the governmental aspects of life, and the financing of this great behemoth is becoming untenable. This means that over the next few decades it is likely that socialism will be dismantled in part as unsustainable.

There is also the problem of irresponsible bank lending. France is seriously at risk from the cross lending of banks and is likely to suffer as a result. The largest French bank is insolvent, and if the banking system was allowed to unwind in the normal way the whole system would collapse.

That is what ought to happen if the principles of capitalism were allowed to run their course, but that will not happen in a socialist country. The banks will be protected, and the tax payers will suffer for years as a result, and the economic life will be strangled. Those who made serious mistakes will be protected, and the whole country will be made to pay for the mistakes of a few. That’s the more unpleasant face of socialism: collective guilt, collective protection, but the suckers at the bottom all pay.

What this means is that France will not be a great place to do business over the next decade or so. However, life does go on, and I’m not sure that anywhere in Europe will be great for business in the near or medium term.

Having said that, there are still great places to live.

I am very impressed with the Loire Valley. There are several reasons why, and I have a few suggestions to make. I’ll list those reasons in the next bulletin.

Where to Buy

In the last article about buying property I concentrated on where not to buy. I cant say where you should buy, but let me give you some pointers so you know what to look for. I’ll do this in two parts. First, we’ll look at how you should go about choosing a place to buy, then we’ll have a look at how you should approach the valuation.

Let’s start with a few rules.

1    You never buy into a falling market. After all, would you get on a train going backwards even if you thought it might go forwards sometime soon?

2    You shouldn’t buy into a dodgy currency. After all, if it falls, you will lose money. Let me remind you that if you bought something nice and cheap in Portugal in 1966 or thereabouts, the escudo was at 63 to the pound sterling. Forty years later when the escudo became the euro there were 315 to the £. That’s one heck of a loss just on currency movements.

For reference, the US$ is in a long term decline. The euro could be going the same way.

3    Remember that countries that may be forced out of the eurozone are likely to suffer serious currency devaluation. We are talking 30% instant devaluation at least. I am not aware that politicians have ever managed to solve a debt crisis. They always, repeat, always make it worse. There is only one way to deal with a broke company or country, and that is for it to default. It is also the case that politicians do not have enough money to fix markets. The market will ultimately rule. It is estimated that the currency markets trade over three trillion dollars worth of transactions in any one day. A government cant control that movement of money for more than a few days.

It is also the case that markets can remain insane longer than you can remain solvent. The markets are now insane. They will not stay the way they are. Sanity will return. Making a big move into anything at this stage is not a good idea. When things are insane you just have to be patient and wait for the return of sanity, or take advantage of insanely cheap deals. The real question is: what is an insanely cheap deal? What is cheap today may turn out to have been expensive when looked at next year. That means you need to know how to value a property.

4    Properties bought in tourist areas are sold to tourists. Those bought in normal areas are sold to normal people. The most stable markets are those where normal people with jobs live. In times of trouble stick to normal areas.

Things to watch for.

High interest rates mean high mortgage costs for most people, and that leads to a depressed market with virtually no sales.

Low interest rates are also dangerous. It means that rates can only go up, which means that in the future the cost of any mortgage will rise. Remember that a 2% rise in interest rates leads to a 30% rise in mortgage costs. An ideal situation is when rates have been high and they are now on the way down. That will also coincide with low sales, but the beginning of a bull market in prices.

You buy when the market price is below the long term average. You should buy when it is cheaper to buy than rent. If rents are half the cost of a mortgage (as they were in Ireland 18 months ago, only a masochist buys).

It is also important to learn how to value a house or flat. Most people cant do this, and rely on what an estate agent tells them. I have yet to meet an estate agent who has the slightest idea how to value a house. If you want to know how to do it then you should buy my small book which tells you exactly how to do it either at home on for a holiday apartment by the sea (http://www.property.org.uk/unique/book/index2.html). It’s disarmingly simple, but an estate agent cant handle it.

At the moment you should steer well clear of any tourist areas in the developed world. There are far too many units for sale, and re-sales in any such areas are likely to be only at suicidal prices. These markets will only recover when the vast overhang of empty apartments is cleared. That could be a decade or more away.

Part two of this series will be loaded later in the week.

Property Buying Advice

Hello Folks,

I have been asked to update my views on where to buy property in this incredibly awkward, and ridiculous world.

I’d like to suggest that nowhere would be the best idea. On the other hand, my friend Julie says “You’ve always made money out of property, go and buy some more.”

Not exactly. I have not made money in Portugal. That was a mistake. It’s the only mistake I’ve made, but, in all honesty, I did highlight the possibility of a Portuguese default in my book on property investment. I think that version originally came out in 2005. I said the possibility of default maybe remote but the possibility is there.

Let’s have a quick look round. Unfortunately the news is bad wherever you look.

USA:

Let’s start with the good old US of A which is a complete disaster zone. Dont touch it with a barge pole. Property prices are still falling. You should never buy a falling market. The dollar is also in a tail spin. It has lost value every year this century. Real unemployment in the US is still hovering just above 22%. That’s seriously bad. 45 million people are on food stamps. Yikes. There are street battles in several cities. Too many cities are no-go areas. On top of that the banks have been foreclosing on properties they no longer hold mortgages for. They sold the mortgages on in packages to investment groups, and there is a frightful muddle as to who owns what. That mess is going to haunt the property market for years. Dont buy bank repossessions in the US, you wont be sure you have good title.

I did cover this fiasco in an earlier blog: The US Mortgage Farce. Here is a link to the article, a copy of which is on the Unique Newsletters section:
http://www.property.org.uk/unique/newsletters/No-USA.html

Leave the US for at least the next decade. If you were thinking of buying in Florida, dont!

Euro Zone:

The euro is falling apart. Politics versus banks. It’s a right royal mess. The politicians are up to their usual tricks: supporting the unsupportable. Political Europe is a train wreck. Financial Europe is following fast. The ECB (European Central Bank) is a smidgeon this side of solvency. A 4% slide in its balance sheet will put it into bankruptcy. That is not allowed, so they will have to print money.

Greece: Greece is being supported. It represented 3% of the Euro economy. Political gerrymandering has made the whole of Europe unstable just to save that 3%. Half-witted! Not only that, but if the country cant pay back existing loans, how in heaven is it going to pay back even bigger loans? A child of five could work it out. Europe’s politicians cant.

Of course, this mess will also affect Cyprus. Prices will drop drastically in the Southern part of the island. Any sales pitch for properties here will be cries of desperation. Avoid buying in Cyprus at all costs.

Ireland: The last time I checked out house prices in Ireland (18 months ago) I reckoned they had a further 50% to fall. I’m not up to date, but heck, it’s obvious. House prices there are too high. They have to fall. Ireland’s banking system is totally up the spout. I’m sorry for those of you from Ireland who are trying to sell, but you simply have to face reality. The housing market is a disaster area. It wont recover in the foreseeable future.

Spain: Spain is still struggling along. The tourist market is just so large I think it may well win through. I dont know. It is sorely tempting to buy some of the cut-price deals. However, I am waiting. We have further to fall. Things are beginning to look interesting, but rules are there to save us from ourselves. Dont buy a falling market.

I still think there are areas worth looking at. I will do a follow-up article to this one, highlighting where I think you should buy in Spain, and it isn’t where the best deals supposedly are.

France: France is a fiercely socialist country. Socialism is about to get seriously demoted in the West. No apologies for quoting once again Mrs Thatcher. “Socialism is fine until you run out of other people’s money”. I dont know many countries that can afford socialism at the moment. Scandinavia perhaps. Singapore. Ummm….. cant think of anywhere else.

France also has a major tourist industry. It is still top of the tree by a very long way. It isn’t about to go bust. But, there is the euro mess.

What I haven’t mentioned is the bank cross lending. That is what is at the root of the problem. Italy’s banks (which are bust) owe 1.8 trillion. Every banking system in western Europe is tied into a web of cross lending and no-one can afford to pay off the debts. It’s a mess of epic proportions. The only way out is a concatenation of defaults. The politicians are trying to avoid that at all costs. That is what may make this slow motion train wreck take years to collapse.

I recently read Charles Hugh Smith’s blog on the subject. This is a rather neat analysis of the current situation:
http://charleshughsmith.blogspot.com/2011/07/dynamics-of-doom-why-eurozone-fix-will.html

Portugal:

I shall be writing an article specifically on Portugal which I will load probably within the next ten days.

The rest of Europe:

There is a shadow hanging over Europe, it is the euro. As a currency it isn’t working. It is secured on nothing, and 90% of those using it have no control over it. That is a stupid situation. I cant see how it can survive in its current format.

However, any country leaving the monetary union is likely to see an immediate devaluation of its currency. In Greece expect a 60% devaluation. In Portugal and Ireland expect a 50% devaluation. That will hit any house value like a bomb. And what does that mean in real terms for today? It means houses in those countries are over-valued by that percentage. Beware!

I dont expect fierce inflation any time soon in Europe as any money printing will be to fill holes in balance sheets, rather than flooding into the market place. But the whole economic scenario is surreal.

The problem here is what the US does. The Feds are keen on pumping money into the banking system there, and that money is being used to hedge commodities. That is causing the price of basic materials to ramp up artificially. The banks borrow from the Fed at 0% and instead of lending to businesses, they invest in commodities, and boost their reserves.

China is also in the midst of a housing bubble which is likely to burst any time. When that happens there will be more trouble, and we may well have a lurch down in commodity prices which will hit the Australian market. I wouldn’t buy there either.

As you can see we have forces pushing one way, and counter forces pushing the other way. Place your bets now on which side wins. Either way it is going to be a mess.

Many people have invested in Argentina. Sorry; my mother was a history buff and she gave me chapter and verse of all their political idiocies which managed to turn a wealthy country into a basket case time and time again. Argentina has been a political mess for 100 years. It is still a political mess. They have a wonderful knack of turning success into monumental failure. Argentina can be summed up in three simple words: Invest and lose!

Egypt, and the Gulf? I have long avoided the middle east. It is a tinder box. It will blow sky high one of these days. Once again, I dont know when, but I like to sleep at nights.

Sunni -v- Shia? That’s the stuff of civil war. Count me out.

Islam -v- Israel? That’s another fight that has quite a few more chapters to run. Again, leave me out of it.

That means I dont rate Turkey that much. You will probably make money there. It is a big economy and it’s doing well, but it is just too close for comfort to the powder keg just to the south. Just look at that frontier with Iraq. Not for me. If you fancy the place, stick to Istanbul. It’s a prosperous city and it’s a long way from any possible conflict.

That does leave a few places. Let me talk about them next week.

john