What caught my eye this week.
Will house prices fall, steady, or crash? I’d say a decline was the consensus view as we closed the door on 2022, with memories of Liz Truss still swirling about the porch like a frightful CGI spirit.
Yet having competent technocrats back in Downing Street after a multi-year hiatus has had such a calming effect on markets that the prospect of a proper slump seems to me to be abating fast.
PM Sunak and chancellor Hunt still can’t offer much in the way of growth. And that’s a problem in the long-term.
But even the slow puncture Brexit economy doesn’t seem quite so bad after October’s multi-lane pile-up.
Choose your poison
The major reason that if we’re going to economic hell in 2023 it’s on a Stannah Stairlift not a handcart is lower mortgage rates.
Declining swap rates had suggested there was room for lenders to reprice their mortgages cheaper if they wanted to play for market share.
And happily for anyone needing a mortgage, they’ve done so.
Massive lender Nationwide is the latest to cut rates across the board and join the sub-4% five-year fix club. Recent Weekend Reading links have flagged previous entrants including Virgin Money, Natwest, HSBC, and the Yorkshire Building Society.
Hardly universal, but far better than average five-year rates above 6% following the Mini Budget.
Getting the best rates does typically require lower loan-to-value ratios of 60% or less. Across the spectrum, lenders seem to be being more judicious about who they lend their cheapest money to.
Whether you’re buying or remortgaging, putting in a little extra cash might save you a lot of money if it unlocks a cheaper rate band.
Resetting the game
For sure lenders aren’t chucking money around like its confetti again. The days of less-than 2% five-year fixes have gone, at least for the foreseeable. Hence the froth is coming off the pandemic-era price pop.
But while employment remains strong – and with many of those who are leaving the workforce apparently doing so because they can afford to, to the dismay of the chancellor – it’s hard to see rates at today’s more reasonable levels being a catalyst for a ginormous crash.
Maybe we’ll even stumble into what the UK economy both needs and fears – stagnant prices.
More young people would then get a chance to move out of the chillingly expensive rented sector sooner, and start building housing equity instead.
Inflation will have to abate though for the economics of stable prices to work for home builders, if we’re to avoid the knock-on of even fewer new homes being built. Workers are too scarce now for a big government house building program. We need to the commercial sector to keep at it.
And of course mortgage rates could start to rise again. The US stock market wobbled this week as various economic stats have suggested it will be longer before interest rates can be cut there.
Rates remains the greatest guessing game in town. Which is very unfortunate for anyone having to make long-term choices about paying for the roof over their heads.
But everyone would suffer in a big slump, and after the past few years we can do without one.
Have a great weekend!
From Monevator
The UK’s biggest bond market crash – Monevator
FIRE-side chat: domestic geo-arbitrage made it possible – Monevator
From the archive-ator: Reviewing The Rules of Wealth – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
Brexit has cost UK £1,000 per household in lost productivity, says MPC member – The Overshoot
Renters leaving London at highest rate in a decade… – BBC
…while 73% of its workers would rather quit then return to office full-time – This Is Money
…and one in five of Britons are out of the workforce altogether – This Is Money
UK risks ‘disastrous’ food scandal due to lax post-Brexit borders, says NFU chief – Guardian
HMRC chases 4,300 social media influencers and online earners over tax [Search result] – FT
More risk, fewer rules: the plan to revive the City of London [Search result] – FT
Products and services
Open an account with low-cost platform InvestEngine via our link and get £25 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
Navigating the rollercoaster UK mortgage rates ride – Guardian
How are high mortgage rates affecting renters? – Which
Premium Bond prize rate up to 3.3% from March – Be Clever With Your Cash
Monzo launches a 3% instant access savings option – AltFi
Open a SIPP by 28 February with Interactive Investor and get up to £1,000 in cashback, plus pay no SIPP fee for six months. Terms apply – Interactive Investor
15 ways to find the secondhand vintage furniture of your dreams – Guardian
VCTs: buyer beware, the tax benefits may not be worthwhile [Search result] – FT
Popular savings app Marcus raises rates, if you claim a bonus – This Is Money
Comparing the cheapest ways to cook a roast chicken – Which
Homes for book lovers, in pictures – Guardian
Comment and opinion
“It’s just not worth it”: why work no longer pays in the UK – Guardian
What four faddish investment concepts still teach us today – Humble Dollar
How many more bad apples are in the financial advisor barrel? – FT Advisor
Hands off our ISAs – The Motley Fool
Would you sell your business to your staff via an EOT? [Search result] – FT
Avoiding an inheritance tax shock like Sonia Fowler’s on EastEnders – Yahoo Finance
The unspoken risks of NOT retiring early – The White Coat Investor
A friendly reminder – Humble Dollar
The ten most important things Allan Roth tells clients – Advisor Perspectives
Fighting the last bull and bear market – A Wealth of Common Sense
Bedrooms and bank accounts – Finding Joy
Crypt o’ crypto
Crypto has become more correlated to stocks [and its timing sucks too] – Institutional Investor
Naughty corner: Active antics
Why the Medallion fund is the greatest money-making machine of all time – Of Dollars and Data
Breaking up Big Tech could be a positive catalyst for investors – Bloomberg via Yahoo
Thoughts on ‘the Berkshire system’ – Neckar
Hedge funds revisited – Morningstar
Valuing the unknowable – Investment Talk
Why meeting fund managers doesn’t much help you pick funds – Behavioural Investment
The case for volatility as the most useful measure of risk [Geeky!] – Verdad
‘Zombie VCs’ haunt tech investors as plunging valuations hammer industry – CNBC
AI mini-special
What is ChatGPT doing, and why does it work? – Stephen Wolfram
Why AI matters and how to invest – Shares Magazine
Bing AI can’t be trusted… – DKB Blog
Man beats machine at Go in human victory over AI [Search result] – FT
How AI will upend and extend existing copyright and royalty frameworks – Dror Poleg
Unplug the evil AI right now [Petition, even I think it’s premature!] – Change.org
Covid corner
Three years on, Covid lab leak theories aren’t going away. Here’s why – Prospect
Kindle book bargains
How to Make the World Add Up by Tim Harford – £0.99 on Kindle
Casino: The Rise and Fall of the Mob in Las Vegas by Nicholas Pileggi – £0.99 on Kindle
Fooled by Randomness by Nassim Nicholas Taleb – £1.99 on Kindle
The Art of Statistics: Learning from Data by David Spiegelhalter – £1.99 on Kindle
Environmental factors
Investing in Swedish heat pump maker NIBE Industrier – DIY Investor UK
How pesticides impair our senses – BBC
Big Oil won’t be ‘Big Renewables’ anytime soon – Semafor
Is carbon offsetting a con? – Prospect
Paleotsunami detectives hunt for ancient disasters – Hakai
Off our beat
Cheating at golf – Seth Godin
The weird reasons there still isn’t a male contraceptive pill – BBC
Why you can’t trust the media – Slow Boring
The new gatekeepers [Excellent presentation, slides] – Benedict Evans
I am not a dog person anymore – Cullen Roche
And finally…
“Democracy requires the ability of a population to pay attention long enough to identify real problems, distinguish them from fantasies, come up with solutions, and hold their leaders accountable if they fail to deliver them.”
– Johann Hari, Stolen Focus
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Fair to say that Merryn S-W and guests painted a slightly more dramatic picture in her podcast yesterday: “The Collapse of the UK Housing Market May Be Coming”. Still, worth a listen.
My vote goes to a gentle nominal decline that’s actually relatively steep in real terms as moderately high inflation persists for a few years.
@far_wide — My impression is that Merryn has been calling for a house price crash for at least a decade. Of course that doesn’t mean it can’t happen (look at the bond price crash we finally saw after 10+ years of concerns last year) but it does make taking the timing of her call hard to evaluate or overweight.
The UK housing market is a capricious foe, and I misjudged it for most of the early 2000s myself.
If you expected a big fall then late 2022 certainly looked like your time had come. But with rates having dropped off I think we’ll need a rise in forced joblessness, personally, to see really big nationwide drops. (I believe Merryn is looking for as much as 40% off?)
Nice juxtaposition of the unspoken risks of not retiring early
and the fellow who is not a dog person any more.
It’s good to zoom out sometimes. I still remember one job I did shooting photos at a concert, where I came away with some great pics for publication but hardly any recollection of the concert. Since it turned out in the long run I didn’t need the money perhaps I should get in my time machine and go ‘young ermine, I am the ghost of future present, here is a roll of used dollar bills. Leave your camera at home, let the commission go and listen to the show’.
Work is sort of like that, it can distract you from the things that matter in life 😉
Great to see a reference to Ben Evans in the ‘off our beat’ section. He’s a great commentator on the wider tech, finance and business environment
Well worth subscribing to his newsletters and twitter
@far_wide “The Collapse of the UK Housing Market May Be Coming”. Has been my cassandra call for almost 2 decades – but like a broken clock, I might be right once in a while.
Certainly the drag of indebted young folk with their massive student debt and zero savings (due to the weaponisation of homes as rental money machines) means who will be able to afford the bottom rung of the housing ladder let alone boomer mausoleum.
The Wolfram article is exceptional. Doing some work in that area (LLMs) at the mo. I remember someone describing his ability in being able to investigate some research area in an evening and by next day have a more intuitive and in depth understanding than other academics who had been working on the field for decades. Slightly jealous.
I’m of the view property will fall in price but will continue to get less and less affordable. This is the worst of both worlds and therefore a perfectly inkeeping British accomplishment.
@Andrew – just as we were giving up – something to restore our faith in Britain.
To be fair to Merryn, it was her guest that was predicting an up to 40% reduction in house prices, which was from personal experience with the Irish market.
Generally speaking Merryn gets a lot of things wrong, but thats ok. Her biggest flaw imo is being a Brexit lover/supporter, when it has never literally never made any economic sense.
The other one that comes to mind is saying for years that the American market was over-priced, which of course has raced ahead of all other markets in the meantime.
@flotron — I’m a fan of her writing and she’s always at least thought-provoking. The UK money media landscape is definitely better for her commentary. My response was just because another reader cited her podcast.
@The Investor, would you be able to do an article on UK house price growth in real terms and compare it with returns on equities (FTSE world or S&P500)? It might surprise many who think property has been best asset class in the last 2 decades.
I suspect house prices will be stable for the next few months, which in real terms means a fall, but on average people are seeing their wages rising (not as fast as inflation but 6-7% nevertheless) and unemployment remains low so I don’t see there being a sudden house price crash. If inflation continues falling and Sunak or the incoming Labour govt start making signs towards a closer relationship with Europe then we could start to see some optimism return towards the end of this year and house price inflation start to pick up again. All speculation of course, who knows what Putin will do next or what the next black swan event will be.
I made the mistake this week of commenting on a Richard Murphy blog post, you know that leftwing guy on Twitter who’s always raving about something or other. He said that imputed rent was made up bulls#%t and I couldn’t help but try to correct him. Ended up getting ‘banned’ from his blog! Turns out he just has an irrational hatred of economists. Its like they say, those on the far left are not so different from those on the far right.
It’s going to be hellish difficult to persuade all of the “missing” 50+ers back into the job market – especially after creating a society that doesn’t value the old in general, never mind in the workplace. There comes a point where even chucking more money at the already retired isn’t enough of an incentive – and until the government comes up with a way of giving everyone more time I can’t see much changing.
Anyone else regretting not tapping their house equity to invest whilst interest rates were now very low? Nationwide were offering a 5 year for less than 1%, I don’t now think I will ever see a rate that low again in my lifetime!
I have to keep reminding myself why I didn’t do it, the emotions and nerves at the time. Hindsight and investing regret I am often finding myself contemplating on, I wonder if anyone else finds themselves pondering the what ifs….. it’s surely wasted time, but I often find it difficult not to go there.
I think we’ll see housing values fall in certain areas, new builds, properties further away from local amenities, schools, second homes where people have stretched themselves etc. but certain properties will likely now retain their values.
Having lived through three housing “crashes” (and survived to tell the tale), I’d say that the market doesn’t really crash, it just stops dead. Fortunately for sellers (and agents) there’s no general rush to the bottom, just a sitting on hands until the economy picks up. Sucks for the sellers and not great for buyers because of FUD and difficult to get financing.
@Ermine post#3
I could not have put it better myself, but wisdom comes from making many mistakes. I try not to dwell upon mine too much these days. 🙂
As a relatively freshly minted fifty something retiree, and in the cross-hairs of Hunt Et Al, I cannot see how they could possibly incentivise me back into gainful employment without a fight or ruining my finances as is. Either scenario would be political suicide, especially so for the incumbent set of politicians who struggle every day not to get hamstrung by their own.
Just before I retired, a friend was drinking at the bar of my local. Not an unusual sight, what was a little unusual was that he was stood on the customer side and not as the landlord on the other. He had retired a year earlier and after a few pints he started talking about his first year as a retiree. The usual cliche of “I don’t know how I had time to work” came out, but then he came out with an absolute gem that I will always remember. (in a north east accent) “Retirement is highly under-rated”
After six months of it, I am beginning to understand exactly where he was coming from.
@ cantseethewoodforthetrees #14
I never regret not leveraging my property, it gave me great peace of mind knowing that whatever happened with shares, bonds or cash I had a roof over my head and I was not at the mercy of a rental market where demand could outstrip supply if it all went pear shaped. (But my first year of mortgage payments saw me paying 15%! So perhaps that helped me make a choice) Call it an insurance policy to ensure you get to retire. Of course you could roll those dice and be lucky 🙂 20 – 20 hindsight.
I read Merryn, she provokes thought and she can write. I might not see eye to eye with a lot of her points but she can provide good counterpoints to my own musings.
@TI , Thanks again for the links, it has been a while since I thanked you for these as retirement is now so busy 🙂
JimJim
@Eddie #15
> market doesn’t really crash, it just stops dead.
hahahahaha. I was stupid enough to buy a house in 1989. There are times the housing market crashes. It took 20 years for me to break even relative to the counterfactual of renting through the loss, buying that first house still ranks and the single, most egregious personal finance mistake I have ever made.
You may be right most of the time. But not all of the the time, BTDT and still carry the scars. I still do not regard residential property as a store of wealth nor part of my networth because of that experience, though our host disagrees.
Ha MSW! Literally never been right once in her life! God knows how she is still doing what doing and landed a lovely number at bloomberg! She gave up on the property crash infatuation some years back and bought! I’ve often thought of just doing the complete opposite of anything she suggests as a valid strategy!
Herself, Us, No one knows where property prices or interest rates will be in say three years time. I ponder what will happen when the energy support scheme is withdrawn and people come up for there remortgages. But recent history suggests that unless the market is swamped with forced sellers (they will sit tight) wait it out, until things pick ip again, at which point the current crop of crashist jump on the bandwaggon having paid rent for another 5 or so years.
@Ermine – maybe not a guaranteed “store of wealth” (what is, these days?) but property does have useful characteristics – I can borrow against it, I can rent it out, and I can spend to improve its value.
I’ve read your story and TI’s story as cautionary tales for sure, and I briefly dallied with BTL back in the 2010’s before that market was legislated into oblivion; but on balance owning a house is still financially preferable to not owning one.
I thought “Cheating at Golf” was an excellent link, and short enough to have been the quote of the week too. Never trust those who can’t be honest in little things.
@ermine: Timing as they say, is everything – or at least it was then it seems. We bought a one bedroom apartment in 1992. Better prices and subsequent returns but the interest rate of 10% (were at 15% thanks to the ERM saga), made it a very risky cash flow wise.
> You may be right most of the time. But not all of the the time, BTDT and still carry the scars
True, and I enjoyed your scary 1989 story, but its a tail risk event. That possibility doesn’t get equal weight with the vastly higher probability of profit as demonstrated by the following 3 decades (leaving aside the other benefits of owning your home). Take it from a 30-year renter.
>More risk, fewer rules: the plan to revive the City of London
I wonder what could go wrong with that.
@Learner – a tail risk event?
2008/9 – a 15% decline took till 2o12 to recover (nominally, I think)
the 90’s – nationally a 20% fall. Much worse in London.
the 70’s – stagnant for a decade and a half.
and I’m sure there were others. Seems more like every 20 years to me.