UK Property Too Fragile to Consider

Estate agents will tell you London is the key indicator for the rest of the country when it comes to property.

And sure, the capital HAS seen the bulk of price rises in the last year.

But they’re not telling you the true story.

For example, right now the centre of Manchester is a property landmine that could blow in up in our face at any moment... with disastrous repercussions for the rest of the country.

Let me explain why...

Take a walk through Manchester today and it’s awash with empty shells of property... commercial, flats and residential houses... utterly unlettable... many unsaleable.

The Government would never highlight this, but their own figures show...

• Three in every 50 homes across the city are empty...

• 7,179 homes have been empty for six months or more with a total of 13,251 empty homes across the city...

• And the Greater Manchester area has 26,970 homes empty for more than six months

It’s not only Manchester... it’s other major cities too, including Leeds and London. In fact, at last count there were 750,000 empty houses in Britain!

What’s this got to do with you? And what does it mean for UK house prices in 2010?

Here’s the thing...

It shows this ‘recovery’ in the property market hasn’t been caused by a surge in demand OR a shortfall in supply.

Instead, record low interest rates are easing the burden on overextended borrowers... enabling the owners of these ‘empty shells’ to keep ticking over... while seducing more and more buyers into taking the plunge…

But that’s about to change. Drastically.

And for once, we’re not the only ones who think so...

According to Danny Blanchflower, a former member of the UK’s Monetary Policy Committee:

“House prices have risen by about 6%... But the markets are thinly-traded, and that’s pushed up prices... I don’t believe the data and I think prices will fall a lot.”

We believe house prices won’t just fall... they’ll HALVE and take nigh on a decade doing it.

I’m deadly serious.

From peak to bottom, UK residential and commercial property prices could easily fall an eye-watering 50% before they even begin to truly recover.

When property slumps, GET OUT of these stocks

Of course politicians, the media and house sellers like to talk down this idea.

Why? Because that’s what people want to hear! When people’s houses are worth more they feel richer... they’re more likely to spend their money... and vote the ‘right way’ in the polls.    

According to one of the UK’s leading estate agencies, Savills, house prices in the UK are set to RISE by 27% up to 2015... and the National Housing Federation agrees, saying the average house price will reach £274,700 over the next three years.

The mainstream media and industry spokesman always love to be optimistic about house prices.

But we’ve seen this happen before...

“House prices to recover next year,” reported TheTimes on 17 November, 1989... But it took another 7 years for UK property to reach rock-bottom.

Interest rates were cut in each and every one of those years and it didn’t make the blindest bit of difference. By 1996 the average home had lost more than 40% of it value!

Home repossessions went into a tailspin... and personal bankruptcies rocketed...

The same thing could happen again in 2010.

And it could blindside over-zealous buyers who were too quick to believe the rosy outlook handed to them by agents, lenders and politicians.

Thing is... it’s not just the price of ‘bricks and mortar’ this deception will crush... 

Comment by Roger Bootle: Budget 2010

"Government needs first and foremost to look to its own failings. Incompetent and bloated government is one of the most serious factors holding the British economy back." 

Licensing or Taxing

The Government is right now in the middle of another campaign of pure SPIN: The need to License Landlords.

With the advent of the hopeless deposit scheme, its administrative nightmares and the way it bends over backwards to help the tenant is filling us with such foreboding. One case had the tenant abscond after 10 months without paying the rent due. The deposit scheme made the landlord wait 4 months before the deposit was finally handed back to its rightful owner. And why? Because the authorities we waiting to contact the tenant to get their permission!! As they had done a runner with no forwarding address - a futile process.

Where do they get these people from who make such idiotic decisions?

Will this proposed licensing scheme be any better? No way.

The new scheme has identified "accidental landlords" (as a new source of tax revenue?) as a "problem" as they do not understand their obligation to the tenants.

Like any scheme from this vacuous Government it will reduce the supply of private rentals at a time when no amount of social housing providers can satisfy the demand for homes. And they [social landlord sector] still have serious problems with BAD tenants.

When will we have the suggestions for a tenent licensing scheme? I wonder.

Please make any comment as this area needs a balanced review.

Dollar Denominated Property Under Threat

The coming financial storm no one is talking about

BY MANRAAJ SINGH

Dear Reader,

There’s a major trend that could have a devastating impact on the US dollar.

What’s shocking is that I haven’t come across a single other financial analyst who has fully grasped the implications of it.

This is crazy, given that it will affect anyone who owns dollar-denominated investments, whether it’s gold, international shares or commodities. In fact, even if you aren’t directly invested in them, there is very good chance your pension fund is.

That’s how big this is.

The thing is, though, you can turn this trend to your advantage, as we’ll see in a moment.

I’m talking about the planned creation of a single common currency in the Gulf States. A new monetary union just like the eurozone, but for oil rich countries.

That might not sound like a big deal. After all, who really cares what a bunch of Arab countries are doing with their currencies?

But this is going to have a colossal impact on the world economy. Let me explain…

Last Friday, I explained why the dollar’s long-term value is under threat as the US economy falters. But now let me show you the threat to the dollar that the rest of the world still hasn’t picked-up on…

The great petrodollar merry-go-round is about to break down

You see, right now the dollar receives a huge amount of support from being the standard currency for international trade. The international oil trade is a big part of that. Oil is priced in dollars on the international market. It is bought and sold in dollars.
What that basically means is that countries that want to buy oil need to have dollars. Countries that sell it are left holding dollars. That fuels global demand for the American currency. It props up its value…

Right now, the only major producer that sells in a different currency is Iran. They take their payments in euros and Japanese yen. But it is the Gulf Arab states like Saudi, Kuwait and the UAE that are at the heart of the global oil trade.

But now think of a situation where global oil production is increasingly concentrated in the hands of the Gulf Arab countries. And, as I explained in a recent special report, that is what is going to happen as non-OPEC production collapses.

Now consider what the impact on the dollar is going to be when those countries say they don’t want to be paid in dollars anymore. Once they’ve got a common currency you can bet they are going to price their oil in it. They will want to be paid in Dirhams or Dinars or whatever else it is that they eventually name it.

That is going to short circuit global demand for the dollar. Because oil importing countries won’t need to buy dollars to pay for their oil anymore. The Gulf countries won’t be left holding huge reserves of dollars which they then have to recycle into the US…

Right now the oil-exporting countries are the second-biggest holders of US government debt after China. That’s because they get paid for their oil in US dollars. A lot of that money then gets reinvested in US dollar-denominated assets. But if they aren’t being paid in dollars anymore, they won’t have to recycle them by investing in US government bonds. International demand for the dollar is going to plunge. And the value of the dollar is going to plunge with it.

Two years to D-Day?

The Gulf Co-operation Council (GCC) states have been talking about this for a long time. And they signed the first concrete agreements to implement it last September. Since then they have been moving ahead with their plans. By the end of this year, they should have a monetary council in place. This will be a precursor to the Gulf central bank. And it will decide on the name and value of the currency.

They had planned to have their new currency in place by 2010. I doubt they will manage it that quickly though. The way I see it, the impact of the financial crisis will force them to push it back by about a year.

But there is absolutely no doubt about it – the Gulf common currency is now on its way. And when it happens it is going to kick the legs out from under the dollar.

As I said though, there are ways that you could profit from this. An obvious trade is to go short on the dollar. There are listed funds that allow you to do that. And again, not all dollar-denominated assets will lose out. Whilst the value of US shares, for example, is going to be eroded, the value of certain dollar-denominated commodities like oil and gold rises as the dollar weakens.

Kind regards,

Manraaj Singh
For The Right Side

Editor’s recommendation: Manraaj Singh is Chief Investment Strategist at Profit Hunter. As he explains, when the dollar falls, oil goes up. Click here to receive his latest smart way to play the “oil rebound”.

FSA to Destroy the Housing Market

Apparently, potential homebuyers will be banned from borrowing more than three times their annual salary, under new rules to be announced this week. And they'll have to stump up at least a 5% deposit.

The Telegraph reports that the tough new rules are part of a move by the Financial Services Authority (FSA) to change its regulation of the financial industry.

I'm not sure if anyone's told the FSA, but I think the new rules might have come a little bit on the late side…

The latest move to regulate the housing market shows the limitations of regulation. The FSA is talking about asking for minimum deposits of 5% when someone buys a house. But these days, most banks are asking for at least 10% minimum, and 40% if you want the best deals. And that's assuming they don't then find an excuse to get out of lending at all.

Why regulators waited until the bust came along

So why introduce the rules now? After all, during the good times, it was clear that housing was in a bubble. It should have been clear to anyone that lending at six times salary, the widespread use of interest-only mortgages, and 100% or higher loans, were a recipe for disaster when combined with historically high house prices.

And the truth is, it was clear to most people. They might be speaking with the benefit of hindsight, but when you talk to City workers, they all knew that the good times couldn't last forever. But while the music was on, they just kept on dancing.

So why not introduce the rules then? Well, like everything else in markets, it all comes down to human behaviour. During the good times, everyone gets swept up in the bubble mentality. The political pressure to allow bubbles to keep expanding is irresistible. Can you imagine the carnage if the FSA had introduced these rules a couple of years ago?

Mortgage lending would have dried up overnight. The housing market would have collapsed. And the FSA (and by extension, the government) would have been hit with the blame. It doesn't matter that popping the housing bubble prematurely may have left us in better shape for today's big crisis. No one would have won any popularity contests by being the ones to stand up and call a halt to the party.

So that's why regulators tend to wait until the bust comes along. They then try to cram in as much regulation as possible while everyone is still shell-shocked and not thinking straight.


New regulations are useless now

But the trouble with this is that you then end up with completely useless regulations. As we pointed out banning 100% mortgages is pointless now, because you can't get them anymore. The market has already done everything the FSA might want to happen, and more.

So the regulations made today will make life more difficult for tomorrow's mortgage borrowers and lenders. But they won't stop the next bubble. Because that'll inflate in a different area, one that the regulators haven't paid as much attention to. And when that bubble looks like it's getting out of hand, the regulators will just ignore it, because everyone's having fun, and they don't want to be seen as the party poopers.

Then it'll pop, and they'll make up a load of rules to try to prevent it from ever happening again, as always happens.

Of course, the other thing to ponder is how this chimes with the government's mission to "get the banks lending again". I have no problem with the principle of sensible lending – I just think it should be up to the lender to decide what that consists of – but if you're going to restrict loans to three times salary, then we'd really better get used to sharply lower house prices.

Property bargain-hunters look set to be disappointed

Rightmove reports that asking prices in England and Wales rose for the second month in a row over the last four weeks. Sellers are apparently having difficulty adjusting to reality, says the group's commercial director Miles Shipside.

Prices are still down 9% on last year, but with the average price sitting at £218,000-odd, that's well out of the range of your average worker, given that the average salary in the UK is around £25,000 (and I realise a lot of people outside London will think that's overstating it somewhat).

Bulls have tried to point to the fact that Rightmove has seen a 120% rise in the number of enquiries to its site compared with this time last year. However, it's no surprise that people are more interested in looking at properties – with all this talk of a crash, they're probably hoping to find some bargains.

But with sellers "still pricing wishfully high" as Shipside puts it, it looks like they'll be disappointed. Prices still have a good way to come down – Numis Securities reckons as much as 55%, as we noted last week (Read: Will Britain go bankrupt?). And by the time houses are genuinely cheap, we'll no doubt be obsessing over some other asset bubble.

The End of Property Finance as We Know It?

In case you hadn’t noticed, Chancellor Alistair Darling’s giving a bit of a speech this afternoon.

He’ll be laying out the Government’s plans for saving the economy from an even worse recession than it’s already facing.

It’s quite a clever way to sell it. Regardless of how bad things get in the future, you can always say: “Well, it would have been even worse had it not been for the quick-thinking actions of the dynamic Brown Government.” That’ll be the spin anyway.

But can the pre-Budget Report really make much difference to our economic plight? Of course it can. It can make things a lot worse…

This government encourages shopping and discourages working

The main thrust of the pre-Budget Report seems likely to be a 2.5 percentage point cut in VAT, which will fall to 15%. There’s plenty of other stuff being mulled over by the papers, and no doubt a few nasty surprises as well. But we’ll find out what he’s really got in store for us in a few hours, so no point running through all the eventualities here.

Let’s just focus on this VAT cut. I’m not going to complain about tax cuts. Lord knows, we’ve seen too few of them in the past decade. But it’s interesting to have a look at the thought process behind what’s being done here.

VAT is a tax on consumption. As taxes go, it’s not the worst one. It treats everyone equally and fairly - you pay according to the quantity of resources you consume. You could even describe it as a green tax.

Income tax, on the other hand, is a tax on production. The harder you work, the more you earn. The more you earn, the more the state takes out of your pay packet. And oddly enough, this effect is felt most strongly among the least-well off in British society. Because of the way the ridiculous tax credits system works, certain workers face a marginal tax rate of 70% once they earn above a certain amount. In other words, there’s a point at which they only end up getting an extra 30p for every £1-worth of work they do. For an apparently dour Presbyterian, Mr Brown sure doesn’t believe in encouraging the work ethic.

So effectively, the Government heavily favours consumers over producers. And the pre-Budget Report makes this very clear. Because it’s tomorrow’s producers who will pay for today’s consumer boost. According to The Daily Telegraph this morning, Labour plans to introduce a 45% tax rate on those earning above £150,000 after the next election.

Yet Britain’s big problem is that we’ve been doing too much consuming and not enough producing. How does encouraging more consumption, and discouraging production, help us get any further forward? The answer is simple enough. It doesn’t.

A recession is nature’s way of telling you that your economy is heading down the wrong path. A depression is nature’s way of saying the same thing – only a lot louder.

Britain needs a new set of economic props

As a nation, we’ve become too dependent on three things, all of which have been fuelled by the credit bubble. First there’s the financial sector. The finance sector is meant to allocate capital efficiently. It gets money from the people who have it, to the people who need it, with a minimum of fuss. That’s the nature of the value that it adds to the economy. But it’s not performed that role anywhere near as efficiently as we’d like to pretend. Were all those new-build buy-to-let properties an efficient use of capital? No, I don’t think so either.

The financial system’s ability to allocate capital efficiently has been badly undermined by central banks making it much harder to gauge risk clearly – more on that in the future. In any case, the end of the credit bubble also spells the end for the consumption bubble.

People used easy money and grossly inflated house prices to boost their consumption of everything from household furniture to shoes to computer games. That in turn meant more jobs in the services sector. But now that economic prop is being kicked away too.

The third prop has been rampant government spending. Fuelled by cheap borrowing and extremely healthy tax revenues, the government has splashed our money all over the public sector. But it’s not been spent on useful jobs, but on increasing the range of administrative and management roles in health, policing and education.

What will replace finance as our 'specialism'?

What can we do about all this? We need to consider what will replace the financial sector as our ‘specialism’. If we want to maintain a developed world standard of living, we need to contribute something to the global economy that can sustainably generate high-paying jobs. That means we need to have well-educated, skilled employees. But given the Government’s propensity to view any institution that promotes academic excellence with suspicion and hostility, the chances of turning around our education system any time soon is a major challenge.

And right now, this is a debate for another day, argues the “something must be done!” brigade. So will the VAT cut be effective? Well, it’ll make goods in the shops cheaper. But then, so will deflation. Shops are already slashing prices ahead of what they fear will be a miserable Christmas. And consumers are – rightly - already in ‘cut-back’ mode. It’ll take a lot more than a couple of percentage points off prices to make them blow their budgets this year.

So Mr Darling will have to have a lot more in his box of tricks if he wants to make a dent in this recession. We’ll find out soon enough – and give you the reaction on the MoneyWeek website later this afternoon.

Big Thank you to John Stepek

Buyout USA Property for as Low as 5% of Value

There's a new "secret" that a lucky few have already found that's enabling them to literally buy houses that ordinarily sell for around $1 Million or more - but now for just $1,997 or LESS!

There are 3,141 counties in the United States, and each one possesses this exciting new opportunity whereby anyone with as little as $100 to seldom more than $5,000 can buy homes ordinarily valued from $30,000 to in quite a number of cases above $5 million! - and for just 1% to rarely above 5% their selling costs!

And the BEST part about this is that you can be located anywhere and still buy any home you want - even if you're 3,000 miles away or more!

But, you don't have to visit the county you buy the homes in - instead, you can do it all from the comfort and privacy of your home using just your tiny 'ole mouse!

This is what makes this such a wonderful opportunity, in that you can go online to some select websites, then pick and choose the properties you want, and then get them for between 1%-5% at most.

No matter what happens you make money!

You basically buy a homeowner's tax lien certificate because he or she wasn't able to pay their property taxes.

They by law must pay you anywhere from 16% to as much as 50% in interest - and in many cases they must pay you back within as little as 6 months.

But, if they can't pay you back, YOU own their home free and clear (and for what usually amounts to just 1% of the house's actually selling value!)

Now, at this point you can either keep the house for yourself, or you can swiftly turn around and resell it (in any economy, good or bad!) to banks, lenders or individual buyers answering your little classified ad! - and where you make a killing!

The site that has all the facts as to how you can do this from your laptop or PC is here:

http://www.watersons-mg.com/real-estate-bargains

But I wish to strongly encourage you to take action and go there as it's rumored that they are going to withdraw this exciting opportunity as soon as they reach the maximum number of "members" they can handle.