One of the strangest things about this crash so far has been the inability of so many of us to accept that the party’s over. The hype around ‘star trader’ Greg Coffey, now about to take up a position at Moore Capital, is a case in point. He resigned from hedge fund giant GLG back in April to gasps all round. Why? Because the value of the emerging-markets funds he ran were said to have risen 51% in 2007 and 60% in 2006. That, said most papers, made him not just a very rich man, but something of a genius. I couldn’t really see it at the time. Not only was he using huge leverage in 2006 and 2007, but emerging markets were soaring anyway. His record would be more surprising surely if he hadn’t made 50%-60% a year during 2006 and 2007? It is worth noting that 2008 didn’t go so well for him. According to Thisismoney.co.uk, he was down 5.5% in March and another 9% by the time the news of his resignation from GLG hit the press. Coffey may well be, as the papers constantly say, “super bright”, but is it reasonable to expect investors in the funds he will now be running to make 50% a year? Or is it delusional? Quite.
Still, there are even more bizarre examples of financial delusion knocking around in the housing market. This week a survey found that the average homeowner believes that the value of his house has fallen only 0.1% in the last three months. That’s just a sixtieth of what the Land Registry figures suggest. Even odder, homeowners under 34 seem to think the value of their homes is still rising – from £173,960 in July to £176,056 in September. This is idiotic, of course, but it makes a nasty kind of sense too. If you have borrowed six times your income to take out a 100% mortgage on an asset falling in value by 2% every month, you probably don’t have much choice but to retreat into an alternative economic reality. Otherwise you’d have to accept that you fell for a lot of irresponsible hype, that you are well into negative equity already, and that you won’t be able to move house for a decade.
On the plus side this is great news for some. If you are under 35 and have spent the last ten years fretting about missing out on the fortunes being made on the housing ladder, you can stop right now. The credit crunch has given you your freedom. Not only is it perfectly possible to view very long-term renting as a good financial move, but if you do want to buy, the price of your dream home is getting closer to the sum you can afford to pay for it every day. Anyone who has already bought is now a slave to their mortgage and will be for the next 20 years or so. You aren’t – and given the current rate of house-price decline, you probably won’t ever be. So assuming you can keep your job and stay out of debt for the next few years, you should find that the credit crunch is the best thing that has ever happened to you.