March 2009 World economic and property articles

[HIDDEN]

Hi All

The first article on the list if accurate could be the 'death nail' in the coffin of the UK housing market. The talk is that the FSA (UK Financial Services Authority) will be looking to implement a cap on mortgage lending at 2.5 times joint income and 3 times for a single applicant. If for example the average UK wage is £25,000 this will result in a mortgage being granted of £75,000, when you consider that the average UK home is currently about £160,000 (down from £200,000) last year, house prices in the UK will have to fall considerably more IMHO. People like Scott that are planning to move back to the UK at some stage in the future may be in for a good time. The knock on ramifications for this will be that the UK asset base erodes pusing the UK way down the list of rich nations, stamp duty revenues fall cutting spending for local authorities, NHS etc etc.

Paul

The FSA mortgage cap: how it affects you
Those looking to move home, remortgage or take their first step on the housing ladder, may be dismayed to read reports suggesting that they will only be able to borrow up to three times their annual salaries, under strict new banking guidelines.
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/5001536/The-FSA-mortgage-cap-how-it-affects-you.html

Guardian [video]: Zimbabwe - gold for bread
"The zimbabwe dollar is now worthless. Here in my village, people are trading in gold panned from the river. If you need soap, you need gold. If you need bread, you need gold. Gold traders are demanding 4 times the market rate from people too hungry and desperate to turn them down. I don't remember the last time I used Zimbabwe dollars - the shops here just don't accept them anymore. People who are too sick or old to dig for gold are dying of hunger. I have never seen my people in such a desperate situation. Zimbabwe once had the best educated children in Africa. Now they must spend their days panning just survive.
http://www.guardian.co.uk/world/video/2009/feb/11/zimbabwe-gold-panning-starvation-food

Bloomberg: U.K. Mortgage Bond Market May Stay Shut, BOE Told
"U.K. residential mortgage-backed bond markets may stay shut throughout the rest of this year as banks nurse losses from the financial crisis, according to the Bank of England’s contacts". The outstanding balance of British residential mortgage- backed securities was the world’s second-biggest as of the third quarter of 2008, totaling 407 billion euros ($528 billion). That’s still a 10th of equivalent outstanding U.S. securities.
http://www.bloomberg.com/apps/news?pid=20601206&sid=aLGpqrIb86cs&refer=realestate

Telegraph: Meet The New Faux Poor
Desperate to chime with the zeitgeist, artfully distressed millionaires and billionaires are competing against one another to show just how far their fortunes have been reduced.
http://www.telegraph.co.uk/finance/personalfinance/4980962/Meet-The-New-Faux-Poor.html

Telegraph: Britain showing signs of heading towards 1930s-style depression, says Bank
The country is displaying early symptoms of being trapped in a so-called “debt deflation trap” where families find themselves pushed further and further into the red every month, according to a Bank report published today. The stark warning will cause serious concerns, since it was this combination of falling prices and soaring debt burdens that plagued the US in the 1930s. The Bank is using its Quarterly Bulletin to highlight the threat posed to the economy by deflation – where prices fall each year rather than rise.
http://www.telegraph.co.uk/finance/financetopics/recession/4996994/Britain-showing-signs-of-heading-towards-1930s-style-depression-says-Bank.html

[HIDDEN]

When we bought our first house in 1971 the ratio then was 3 times joint salary. This changed over the years to 4 or even 5 times joint salary. Sometimes 110% mortgages were offered without deposits and so on and so on. What happened in America was due to this increasingly mad type of lending where people had no possible way of paying back ( this happened mainly under Clinton who "forced" banks and lending institutions to make dodgy loans as a social engineering exercise. Of course when prices went up people borrowed against the equity for cars/holidays etc etc. Now the chickens have come home to roost. While I take your point of the effect this will have on prices in the UK, perhaps some sense of proportion is now required in terms of affordability.

Cheers

Brian

[HIDDEN]

International Herald Tribune: Reports show more weakness in U.K. economy
A record number of Britons signed up for unemployment benefits last month, average pay shrank in January for the first time since at least 1991 and David Blanchflower a Bank of England policy maker said he feared things would only get worse. "The worry is that this is all going to get much worse and we need to do something about it;" - well what is it then?
http://www.iht.com/articles/2009/03/18/business/jobs.php

The Guardian: Fed to spend $1trillion on quantitative easing
No one knows whether these measures will work. Much depends on whether banks loan out the cash they raise from selling treasuries and whether households and businesses spend, rather than save, any extra borrowing," he said. "But the sheer size of the measures suggests that they will do some good, thus increasing the chances of a decent recovery next year. At the least, no one can say that the Fed isn't trying.
http://www.guardian.co.uk/business/2009/mar/18/fed-begins-quantitative-easing

The Guardian: Keep Calm and Carry On
The point is that people have been sold a lie since the 1970s. They were promised the earth and now they're worried about everything - their jobs, their homes, their bank, their money, their pension. This is saying, look, somebody out there knows what's going on, and it'll be all right.
http://www.guardian.co.uk/lifeandstyle/2009/mar/18/keep-calm-carry-on-poster

Telegraph: UK Petrol prices to rise again
Despite falling costs in the past few weeks motorists will be hit again by increases when the Government adds 2p to fuel duty from April 1. Between mid-February and mid-March the average UK price of petrol fell from 90.88p a litre to 90.56p, while The average cost of diesel went down from 100.79p a litre to 99.77p.
http://www.telegraph.co.uk/finance/financetopics/oilprices/5012467/Petrol-prices-to-rise-again.html

Times: UK Buyers face 15% deposits in mortgage shake-up
Buyers face 15% deposits in mortgage shake-up as the FSA clamps down on supersized offers, chairman announces proposals to mark end of reckless lending.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5931461.ece

FSA: The Turner Review: A regulatory response to the global banking crisis
The Chancellor of the Exchequer asked me in October 2008 to review the causes of the current crisis, and to make recommendations on the changes in regulation and supervisory approach needed to create a more robust banking system for the future. This Review responds to that remit, focusing on the fundamental and long-term questions. It does not address the short-term challenge of macroeconomic management over the next few years, though it does comment on ways in which the transition path to new more stable arrangements must be managed in the light of that short-term challenge. And its focus is on banking and bank-like institutions, and not on other areas of the financial services industry.
http://www.fsa.gov.uk/pubs/other/turner_review.pdf (PDF)

MoneyWeek: How far do house prices have to fall?
If we want to see a sensible link between house prices and earnings, house prices will have to fall a lot further than they have already - but just how much further?
http://www.moneyweek.com/investments/property/how-far-do-house-prices-have-to-fall-14677.aspx

Guardian: UK faces worse recession than US and Europe, IMF warns - all the more reason to move to Malaysia!
More fuel for the bears
http://www.guardian.co.uk/business/2009/mar/18/uk-recession-imf

REUTERS: Australia economy on brink of recession
SYDNEY, March 18 (Reuters) - Australia is on the brink of recession according to a private index of activity which has slumped to its worst reading in almost two decades.
http://in.reuters.com/article/asiaCompanyAndMarkets/idINSYD11391120090317

[HIDDEN]

BBC: Nothern Rock faces 50% negative equity
"Negative equity will affect 50% of Northern Rock's mortgage loans if house prices fall by 10% this year. The figure is revealed in a report on the nationalisation of the bank written by the National Audit Office (NAO). The NAO says the bank continued with high-risk mortgage lending right up to its eventual nationalisation in February last year. "
http://news.bbc.co.uk/2/hi/business/7952923.stm

Scotsman: Dunfermline Building Society in crisis with £26m loss
"One of Scotland's oldest building societies, the Dunfermline, is on the brink of unveiling a significant financial loss, exposing another of the country's great financial institutions to the threat of a takeover." ... "The Dunfermline was one of the last lenders to pull out of the 100-per-cent-plus loans market, while it also had a considerable exposure to buy-to-let loans and lending to commercial property borrowers."
http://news.scotsman.com/latestnews/Dunfermline-Building-Society-in-crisis.5086664.jp

MoneyWeek: America's big bail-out could backfire
The US is following Britain's example of 'quantitative easing' by buying up $300bn of government bonds. It's an aggressive move, but it could just make things worse. Long-term interest rates will have to rise sharply. There's a real danger that could choke off any economic recovery before it really starts, as global borrowing costs are forced up. In short, QE II could backfire badly.
http://www.moneyweek.com/news-and-charts/economics/americas-big-bailout-could-backfire-14682.aspx

Bloomberg: Gold Jumps, Oil Tops $50 as Inflation Concern Spurs Commodities
March 19 (Bloomberg) -- Gold jumped the most since September and oil exceeded $50 a barrel for the first time in two months on speculation the Federal Reserve’s steps to spur growth will revive demand for commodities as a hedge against inflation.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aFNc1.LB9or4&refer=home

BBC News: UK budget deficit widens further
The UK's deficit widened to £8.99bn in February, a record level for the month, official data has shown. This was eight times the figure seen a year earlier, as tax receipts fell 10% causing the government to borrow more. As unemployment has risen and firms have seen profits fall this has hit the money government collects in taxes.
http://news.bbc.co.uk/2/hi/business/7952262.stm

MoneyWeek: Why rising unemployment is bad news for us all
"Britain's dole queues grew at the fastest pace since records began, taking the headline total to over two million for the first time in 12 years. That's terrible for those who've just lost their jobs of course. But bad news for everyone else too. It means less money being spent in the shops, more forced house sales and another surge in benefit costs. So that means even greater government borrowing, or even larger tax rises ahead. Or both..."
http://www.moneyweek.com/news-and-charts/economics/why-rising-unemployment-is-bad-news-for-us-all-14681.aspx

Boston.com: Scenes from the recession
Check out the bus - Prices wont last...
http://www.boston.com/bigpicture/2009/03/scenes_from_the_recession.html

Timesonline: Public sector shielded as unemployment hits 2 million
A growing divide between a burgeoning public sector and struggling private sector emerged yesterday as figures showed that the number of people out of work rose above two millions in January – the highest level since Labour came to power in 1997. The number of people signing on for unemployment benefits rose by 138,000 last month – the fastest rate since 1971. Meanwhile, jobs and pay are still rising in the public sector. Official figures show that 30,000 jobs were created in the public sector last year, with 105,000 lost in the private sector.
http://business.timesonline.co.uk/tol/business/economics/article5934942.ece

[HIDDEN]

The Times: Tenants exploit oversupply to force down UK rental prices
Poor old RICS complaining on behalf of their tenants that people want fair value.... Of the declines, "many reporting a fall of up to 30 per cent in rents". Later in the report, the only voices bleating flawed facts are the Estate Agents: "“The bottom end of the market is very lively indeed. Renters looking to negotiate on anything below £500 a week will get a bit of a shock". Folowed by the classic Estate Agent "in my area" misleading fiction of... "in some areas not much is coming in to replace them. Estate agents said that if this were to continue, demand could soon outstrip supply and rents could rise." Righ.I live in Gerrards Cross. One of the areas with the highest average house price. Check Rightmove "To Let" and see what there is sub 2000 pcm. Tons. Dreamers
http://www.timesonline.co.uk/tol/money/property_and_mortgages/article5934618.ece

The Telegraph: 2m UK homeowners to fall into negative equity, FSA warns
Remember when even mentioning a crash was rubbished - let alone the "lunacy" of JDs -35% prediction? If only 30% is more like it. Bear porn. Enjoy
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/5018160/2m-homeowners-to-fall-into-negative-equity-FSA-warns.html

BBC 'News': Back to the nineteenth century?
Pesto slates the whizzkids - predicts less inflation due to less credit..... One way would be to shrink our banks so that they could be funded wholly by domestic deposits and savings - but that would lead to such a severe contraction in the availability of credit as to impoverish us for some years.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/03/back_to_the_nineteenth_century.html

MoneyWeek: Don't get fooled by the stock market bounce
Stock markets are rallying, but now's not the time to pile back in. History and the corporate debt markets suggest that stocks could fall a lot further before they reach the bottom.
http://www.moneyweek.com/investments/stock-markets/dont-get-fooled-by-the-stock-market-bounce-14683.aspx

This is money: A&L dives £1.3bn into red as bad debts soar
Bad debts surged by 125% at Alliance & Leicester in 2008 as the bank, rescued last summer by the Abbey group, posted losses of £1.3bn
http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article_id=480790

Daily Mail: Shopkeepers hope for a boost in trade as rent day looms
Retailers on the edge could be forced out of business in the next few days if they can't afford to pay quarterly rent on Wednesday.
http://www.dailymail.co.uk/money/article-1163407/Shopkeepers-hope-boost-trade-rent-day-looms.html

Bloomberg: U.K. Homes Face ‘Unprecedented’ Drop, Bernstein Says
March 20 (Bloomberg) -- U.K. house prices face an “utterly unprecedented” decline of 40 percent in nominal terms, as interest rate cuts fail to slow the momentum of decline, according to analysts at Sanford C. Bernstein in London. “A 40 percent nominal house price fall is utterly unprecedented in the U.K.,” analysts led by Bruno Paulson wrote in an e-mailed note to investors today. Prices have already declined 20 percent, it said." end quote. How refreshing to have 40% drops due to loan to income ratios confirmed more and more eventually it will sink in that prices are coming down in line with incomes and as the FSA said earlier this week will stay at 3 x's income or lower to ensure they do not go up until they go up in line with wages
http://www.bloomberg.com/apps/news?pid=20601102&sid=avdOXgz7yQNM&refer=uk

Washington Post: U.S. Federal Deficit Soars Past Previous Estimates
Deteriorating economic conditions will cause the federal deficit to soar past $1.8 trillion this year and leave the nation wallowing in a sea of red ink far deeper than the White House had previously estimated, congressional budget analysts said today
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/20/AR2009032001820.html?hpid=topnews

Guardian: The dunes will reclaim the soaring folly of Dubai
When prices go up, buildings go up. When prices come down, buildings tend to stay up. Construction has ceased on half the unfinished towers that stretch out into the desert. Nothing can bail out a tower if there is nobody to live in it. The same goes for thousands of villas on the artificial islands in the world's most boring sea. They will stand empty in the heat. Most towers were built as investments. The value of those investments has fallen an estimated 60% in just six months. If their emptiness reaches a tipping point where there are no neighbours, no shops, no services and no social life, they will decay, like downtown Detroit. Their lifts and services, expensive to maintain, will collapse. Their colossal facades will shed glass. Sand will drift round their trunkless legs.
http://www.guardian.co.uk/commentisfree/2009/mar/20/dubai-decline-middle-east

ISN: There Is No Zombie Free Lunch
Now the true cost of feeding the zombies can be seen. The cost is that large parts of the world will not be able to finance necessary investments, and some developing countries will not be able to pay their growing food bill. So the poor will become even poorer. There is no free zombie lunch.
http://www.isn.ethz.ch/isn/Current-Affairs/Security-Watch/Detail/?ots591=4888CAA0-B3DB-1461-98B9-E20E7B9C13D4&lng=en&id=97954

Darling Has Little Room for Fiscal Stimulus as Borrowing Soars, ITEM Says
Chancellor of the Exchequer Alistair Darling has little room for a further budget stimulus with Britain set to borrow 180 billion pounds ($260 billion) in the coming fiscal year, Ernst & Young’s ITEM Club said.
http://www.bloomberg.com/apps/news?pid=20601102&sid=aSkvns9xFzPY&refer=uk

[HIDDEN]

Apartment purchase prices per square meter in major cities, in US dollars for the year 2008. Prices are indicative and they apply to existing apartments of 120 square meters in city centers. London is shown in 2 categories, the super-premium areas of "prime central London", which includes Belgravia, Chelsea, Mayfair, Notting Hill, Knightsbridge, Regent's Park, South Kensington, St. John's Woods, and St. James; and "other luxury".

South East Asian countries have been marked in red
 
Rank  City, Country Price
-------  ------------------------- --------
1  London (Prime), United Kingdom 24,250
2  Upper Manhattan, New York, USA 15,933
3  Moscow, Russia 15,531
4  London (Other Luxury), UK 15,202
5  Paris, France 13,826
6  Hong Kong 12,599
7  Tokyo, Japan 11,870
8  Singapore 11,800
9  Mumbai, India 10,222
10  Barcelona, Spain 9,871
11  Geneva, Switzerland 7,534
12  Zurich, Switzerland 7,376
13  Sydney, Australia 7,085
14  Madrid, Spain 7,021
15  Turks and Caicos Islands 5,724
16  Tel Aviv, Israel 5,021
17  Toronto, Canada 4,737
18  Auckland, New Zealand 4,438
19  Warsaw, Poland 4,383
20  Cayman Islands 4,234
21  Dubai, United Arab Emirates 4,066
22  Bahamas 3,998
23  Montreal, Canada 3,779
24  Munich, Germany 3,613
25  Saint Petersburg, Russia 3,417
26  Shanghai, China 3,318
27  Trinidad and Tobago 3,174
28  Athens, Greece 3,170
29  Frankfurt, Germany 2,843
30  Bangkok, Thailand 2,819
31  Cape Town, South Africa 2,784
32  Berlin, Germany 2,462
33  Beijing, China 2,282
34  New Delhi, India 2,107
35  Sofia, Bulgaria 2,032
36  Marrakech, Morocco 1,973
37  Manila, Philippines 1,969
38  Istanbul, Turkey 1,867
39  Panama City, Panama 1,783
40  Kuala Lumpur, Malaysia 1,400
41  Johannesburg, South Africa 1,376
42  Amman, Jordan 1,261
43  San Jose, Costa Rica 1,255
44  Beirut, Lebanon 1,237
45  Jakarta, Indonesia 1,068
46  Bangalore, India 980
47  Cairo, Egypt 569

NOTE: The information regarding Most Expensive Cities 2008 - Real Estate Prices on this page is re-published from Global Property Guide. No claims are made regarding the accuracy of Most Expensive Cities 2008 - Real Estate Prices information contained here. All suggestions for corrections of any errors about Most Expensive Cities 2008 - Real Estate Prices should be addressed Global Property Guide.