The point being that only some bubbles will burst, whilst others will inflate and deflate according to demand. However, to stretch this somewhat tortuous analogy a little further, if the whole chocolate bar heats up only then could you find the gooey stuff starting to melt and the bubbles combining to form larger, more threatening air pockets. Now that could be an unpleasant bursting bubble capable of splattering us all in dark stuff.
“Buy to let” has been such a bubble threatening to burst for some time and already examples of serious chocolate damage can be seen in areas such as Edinburgh, Leeds and Nottingham. This however should not have come as any surprise and is something I have banging on about for some time – especially when having to suffer with dinner party bores telling me how many flats he or she has bought “off plan” - well at least the quality of conversation over supper will go up anyway.
What is so odd, though, is that from everyone saying that there is a property shortage, we now have an oversupply such that our dear Prime Minister is going to “subsidise” it with £200m to mop up the excess! After all, the government has encouraged the buy to let bubble and just as it is bursting the government has decided to join in itself! You couldn’t make this up. I then have to listen to government spokesperson saying that they want to help first time buyers – which, in a falling market, probably the last thing first time buyers want to do is buy! Stop interfering with the market chaps and let the over-heated prices fall back and sure enough you will find money conscious first time buyers will be coming back in.
After all, we now know, and courtesy of a see-through plastic wallet belonging to the government’s housing minister, that even they think that overall residential housing is likely to drop 5-10% over the next 12 months, so why not let the market take its course rather than waste more extremely rare taxpayers’ money.
Of course being precise on house prices is extremely difficult as most of us have a figure in our mind as to what our house is worth. The result is that we very reluctantly ever fall back from that imaginary figure even in the face of a falling market and when all the other valuations are coming down as well. The reality is of course that we only know the value when we actually have to move - usually because of either family or financial issues.
For most of us therefore our housing markets will just stagnate until one of us is forced to move. This was so obviously highlighted by the plight of the removal companies who last week reported their pain as so few of us are now moving. From a normal moving cycle of seven years it seems we have stretched this out to somewhere between 11 and 15 years – not much there for removals, house fittings and even DIY.
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I was muttering about Iceland a few weeks ago and that their banking and investment structures seemed too good to be true.
Well since then we have seen a rescue package from the other Nordic central banks to try and prop up the troubled Icelandic currency and to stabilise its banking system. Sweden, Denmark and Norway have all chipped in. This has been designed to send a message to those betting against the currency and the finger has been pointing at the more aggressive hedge funds. However, the little nation has been courting such external investment, notably from the Japanese carry trade, and also from the Russians, one suspects. The problem is that if those bigger “punters” turn against you then those who bet you “up” are just as likely to bet you “down”.
With interest rates at 15.5% they have the highest in Europe, and with inflation at 11.8% - a 20 year high – against a target of 2.5%, the bets were being stacked against the nation. It may not be in an Icelandic saga but they should all learn to “sup with the devil only with a long spoon”.
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One further figure to note last week was the US confidence figure. Given that consumer spending is at least 60% of US GDP, coming out with the worst consumer confidence figure for 28 years is not encouraging. With the inflation outlook rising and new construction of detached family homes being the worst 17 years – then all I add is that least we are getting the bad news out first.
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And finally…………now have you ever lain awake at night worrying if your dustbin men (sorry environmental control officers) were getting lost in the early hours of the morning? Well worry no longer, as I have good news for you, especially if you are a Council Tax payer in York. The good burghers of Ebor have spent £40,000 on fitting satellite navigation to their trucks even though they do actually follow the same route each week. Presumably this is called Sat-Bag?
Have a good weekend,
Justin A. Urquhart Stewart
Director
Seven Investment Management Limited