It’s tough being a bear on house prices these days. Most of those who thought that the market would crash in 2005 have lost their nerve and started to mutter about prices being stagnant for years instead. But not MoneyWeek friend James Ferguson. He’s sticking to his guns.
All the factors that made the market look ripe for a crash in 2005 still exist in 2006. They’re just a bit worse – we are more indebted, the economy is even more fragile and affordability ratios are even more out of sync with history than they were this time last year. So why are all the so-called experts so complacent about the future? Because they are buying into an awful lot of “wonky maths”, says James, who explains exactly what he means (at some length, but bear with him – it’s worth it) in this article.
Still, while the lenders, economists and estate agents in the market refuse to accept that things have changed in the housing market, ordinary punters seem to be well aware of the dismal state of things. The fact that transactions hit their lowest levels for 30 years in 2005 shows that they have no intention of paying bubble prices for property any more, nor of falling for the many claims that the darkest days are past.
Consider the case of London home owner Victoria Topley. She put her one-bedroom flat in Finchley on the market three months before Christmas but has so far had absolutely no takers at all. Her solution? To give it away as a competition prize.
“Selling it could take far too long,” she told the papers, so instead she is inviting people to take a look at it online (see www.winalondonflat.com) and then pay £2.50 each to guess its value. Contestants can enter as many times as they like and the one who names the price closest to the official valuation gets the flat (off street parking and all). It’s not much of a vote of confidence in the market is it?
Another thing worrying me is a recent survey from UCB Home Loans, which shows 55% of mortgage brokers think people will make more money in the housing market than in the stockmarket in 2006. Only 55%? I’ve never met a bearish mortgage broker, so if 45% of them would rather buy equities than houses, things must be really really bad.
A final word on James Ferguson. We get lots of responses to his articles and many of you have asked to hear more from him, so we’re launching his very own investing newsletter. You can find out more by clicking here.