Property Market recovery in 2013

The Centre for Economics and Business Research (CEBR) has predicted house price recovery up to 2007 peak prices in 2013, with the market expected to bottom out around 2010 at the level previously predicted by Graham Beale of the Nationwide (25%). This in the face of the Council of Mortgage lenders' recent advice that short-term house price predictions were futile. I am inclined to agree that we don't know enough about the implications of the coming recession to predict what will happen to house prices. Widespread company-closures and job-losses could well have an impact on the property market, and we are not in a position to predict how sharply the economy as a whole will suffer. For now I am going to stick to my wild prediction of last month...
Currently there is a resistance by sellers to accept the drop in house prices and that is no doubt why we have such a huge amount of unsold properties currently on the market with little chance of being sold in the next 6 m0nths - they are basically over-priced. Anyone who has observed the way in which house prices rocketed in the between 1990's and 2000 must accept that propertu prices have been over-inflated by a tremendous amount.

In other news, some US sources are reporting a surprise upturn in the housing market, but there is no reason to think this is anything other than a freak short-term occurrence.

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UK reports decline in GDP

The UK treasury has reported a decline in GDP that was even greater than expected at 0.5% for the third quarter of 2008 (July-Sept). Economic observers expect that this will be followed by an equal or even greater decline in the last quarter of 2008, which will see us entering recession for real. This will fulfill the criteria of official recession which is defines as two straight quarterly drops in GDP.
This has lingered for a while with the Republic of Ireland already having announced recession a few weeks ago. It is likely that it will be the end of February before the UK announces official recession conditions, and there is every chance that by that point, much of the rest of Europe will be recording drops in GDP.
GDP or Gross Domestic Product is a calculation of the total economic output of a nation including goods and services.

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Credit Crunch Latest

Bank Of England Governor Mervyn King publicly warned of a recession in the UK, the first public figure to make such an announcement, acknowledging that the UK economy faced a 'long slow haul' ahead to redress the problems that we are currently faced with.
In contrast Gordon Brown and Alistair Darling have avoided the use of the word 'recession' even though such an event is blatantly staring us in the face. This is what Mr King had to say:

"A recession looms because the credit squeeze came at a time when disposable incomes were falling due to rising energy and food prices... taken together, the combination of a squeeze on real take-home pay and a decline in the availability of credit poses the risk of a sharp and prolonged slowdown in domestic demand."

In the US, Treasury Secretary Henry Paulson has said:

"Clearly, we're going to have a number of difficult months ahead of us in terms of the real economy,"

in a TV interview yesterday, in contrast to what he was saying a few months ago claiming that the crisis would be short-lived and expecting a recovery by the end of the year. If we were expecting politicians to be consistent, we would be disappointed - However, we're a bit wiser than that...
This comes just a week after the announcement of a Government investment of $250bn in US banks. The Federal Reserve has $540bn ear-marked for bank-rolling....

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Guaranteed House Sales

Innovative property company SecureASale have re-launched their website helping to put some security back into the London housing market. SecureASale offer a ‘Sell House Fast’ service taking your property immediately off the market for 90% of it’s market value, often completing the transaction within a week. This might be a life-saver for you if you need to stop repossession from going ahead on your property.
If I were in this predicament, Secure a sale would buy my house quickly allowing me to stop the uncertainty of falling house prices and slow property sales. An added bonus with this service is not only the cash transaction, but there are no fees to pay as SecureASale take care of all the conveyancing and solicitors fees as part of the service – this really is a hassle-free option for those that need to sell to relocate for work, or for some other reason.
This could really make an impact on property sales in the London area and would be of huge benefit in other areas if the company were to expand its’ operations nation-wide. SecureASale are set to give a realistic option to those who need to shift their property in what is otherwise a fairly stagnant market.
In my estimation with the likelihood of falling house prices for some time to come, 90% is a good deal – if you don’t sell your house within 2 months you might well have to drop the price by 10% anyway. I don’t see any recovery in house prices for a few years to come.

Gordon plays his hand

Gordon Brown plays to his strengths and his latest moves to encourage Europe to stand behind their banks have played a major part in the recovery of the stock markets, but is the stock-market a realistic indication of economic well-being?
There are two major problems facing the Western Economy, on the one hand there is the collapse of the 'market' as share prices plummet, on the other there is the major recession just around the corner. Only one of these problems has received what could turn out to be a temporary reprieve.
How was this done? In fact it was quite literally a confidence trick... a bluff (that will hopefully work) to show the world that we are in charge of our own economy, but the chips on the table are all ours...
In a very real sense this 'trick' is much-needed to counteract the over-playing of doom and gloom that has affected the markets. The markets have done what they do best, they have over-reacted, the big gestures by all the leading Governments will help to inspire confidence in the markets alone - this should arrest some of the loss of confidence in the Western economies around the world, but it will not avert recession, the best we can hope for is that it takes some of the 'edge' of the worst of it.
Don't get me wrong, I am against market intervention in principle, but if you are going to do it, you have to do it big and right now Gordon is going for it - only time will tell if it will be enough to prevent a meltdown in the stock-exchange. He is now leading from the front and has the confidence in his economic beliefs to take the rest of Europe with him.

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Big Chill hits Iceland

A political stand-off has begun between Britain and Iceland after Iceland nationalised three of it's banks leaving a cloud of uncertainty hanging over subsidiary banks in The UK. Gordon Brown moved swiftly to guarantee ALL private deposits regardless of whether they exceeded the £50,000 ceiling. Less certain is what will happen to the public money on deposit with Icelandic banks. Over 100 local councils, 96 police authorities and countless charities are thought to have funds at risk, and the UK government is making use of fraud legislation to 'freeze' the assets of Icelandic companies in response.

So far the Icelandic government have kept quiet about whether they will repay the public money owed to UK local councils, and unless there is a move to reassure depositors soon, the whole situation threatens to get ugly. The problems are due largely due to the outrageous growth of Icelandic banks fueled by foreign debt, a debt which dwarfs the domestic economy. Iceland will now be looking to borrow from Russia to preserve it's now fragile economy. Meanwhile the domestic currency, the Icelandic Krona is in free-fall.

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Starting a pension

In these troubled financial times, there are those who have been asking if this is a good time or a bad time to start a pension. I would that it is ALWAYS the right time to start a pension. Over the full term of the pension, the ups and downs of the stock market should really iron themselves out.
If you are over twenty, then you should consider a pension, most UK employers are now obliged to offer a pension scheme that can easily be transferred when you change jobs (stakeholder pension). Many employers actually contribute to the scheme too - if this is the case, then YES - it's a no-brainer, take advantage of any company scheme that offers to contribute to your pension.
Even if they don't contribute (there is no requirement for them to), it should be very easy for your employer to arrange your contributions and take care of the tax issues.
The only circumstances where you don't need to think about a pension is if you are working on a casual basis and will continue to do so, or likely to earn vast amounts that will enable you to make your own financial arrangements for your future.
My final bit of advice is this: don't go half-measures - if you decide to do this, make a real go of it to make sure you end up with a decent income. If you just 'dabble' and don't really put a significant amount in, then you will have wasted all your money.
Consider this (UK citizens only...), if you DON'T put money aside for your pension, what will happen? The state will provide you with income support up to a set level. If you only put a small amount into your pension, you may find that all you have done is to take the onus off the state to look after you, and you may well have only provided enough to just keep you above the level where the state was going to support you anyhow! So...either do it properly and set yourself up for a decent retirement or don't bother because the state is obliged to look after you.
The days of great employers offering fantastic pension plans are very quickly disappearing, it is up to you to sort out your own future now, the government has come half-way by making stakeholder pensions available to all - the smart people will take full advantage.

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Best buy balance transfers

Most credit card comparisons involve a combination of interest on purchases and interest of cash withdrawals, minimum payments and the like - when it comes to 0% balance transfer credit cards the only significant comparison is how long the deal will last for.
The 'norm' is to offer 12 months, so be aware of those who are only offering something less than the full year.

The 'Top Dog' spot has been fiercely contested, with Virgin money offering the longest period of 0% on balance transfers (I know because I used this particular offer myself...). Capital One then came along with a deal that lasted up to 16 months, snatching the number one slot.

Virgin credit card have now reacted by matching the 16 month deal - this goes to show that the market does not stay static for long and it's always worth doing a Credit card comparison to check what deals are currently on offer. Be good to yourself, get your finances in the best possible shape right now so that you are in the best position to survive the crunch.

A $700bn bill becomes an $800bn bill

Some relief has been expressed (at least politically) about finally getting the so called 'rescue-package' through the House of representatives. This bill that was originally a 3-page document has developed into a 451 page document and somehow been passed. These are the things that worry me:

• Easily-frightened politicians (there is an election just around the corner) have rejected an easy to understand 3 page document on the grounds that it was too much of a burden on the tax-payer.
• The Senate turn this document into a 451-page mega-bill in a matter of hours adding $110bn to the tab to make it more appealing to Joe Public.
• The House of Representatives totally 'buy' this with only one man who previously voted for the three-page bill admitting that the 451 page version was NOT the same as the bill he had backed and voting against it.

We are meant to believe that this massive document has been digested and understood and voted on in all good conscience a couple of days after it had first been written, with no re-writes or re-drafts, straight through... I hate to sound so negative, but this makes no sense to anyone without a hidden political agenda, in fact it stinks... The US Governing body has just voted NOT to spend $700bn on the grounds that it is too much, then turned around with a YES vote for the $810bn plan a matter of days later without surely having had the requisite time to make an informed judgment. Draw your own conclusions, leave me a comment....

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Recession or Depression?

As at the time of writing this article, neither the UK or US economies are officially in recession according to the precise definition, but already people are asking if this will be like the Great Depression of the nineteen-thirties.
The difficulty in answering this question is that there is not apparently a precise definition of an economic depression, and it is one of those terms that can only be applied in retrospect. In other words we won't really know if we are in a depression until it's over and then it will be up to historians to decide if the crisis can be compared with the Great Depression.
Paradoxically, the 'Credit Crunch' tag was already established even before recession had struck, the only definition we have for 'A Depression' is a prolonged recession, therefore we can compare the period of the thirties recession when this recession is over, but that is going to be the only tangible measure.

Employment figures are certainly a feature that will be common to both recessions, but the abject poverty, sickness and hunger that characterised the Great Depression can hopefully be avoided, and of course one must bear in mind that this came at a time of World War which thankfully is not the present situation. However the similarities that will be evident are bound to be unwelcome and could well include a near-collapse of the stock exchange, huge job losses and real economic uncertainty. What is apparent is that the current safety nets are breaking and hence the moves by Governments to try and establish new safety nets - judging the level at which to fix these nets is a gamble and we will only know the consequences when it is all over.
In conclusion then, terming a recession a 'depression' is a job for historians, we must continue as individuals to operate good budgeting and housekeeping to ensure that we stand the best chance of surviving financially intact. The fact that we are entering recession is quite bad enough without having to consider how deep a recession it will eventually become. Rest assured it will be quite bad enough!

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Now is the time for mutuals..

How is it that building societies have become victims of the credit crunch?
It is simply because they are now banks having de-mutualised themselves in the rush to become financial houses able to borrow money. The traditional building society was owned by the depositors since their money was the only cash reserves that the society had. They could only lend out money that was on their books and were not allowed to borrow from banks - in fact they were not allowed to go into debt. Since the eighties, we have been cashing in our good old building societies and turning them into banks. The members have been only too keen to let go of thier assets in return for some good hard cash and really who can blame them?
Now the chickens are coming home to roost with the unthinkable happening - building societies having behaved like banks investing in the sub-prime market, going into debt and finally going bust. Rest assured if your money is in a mutual society it is as 'safe as houses' (pun intended).
Meanwhile, the UK government's own new bank, Northern Rock has proved so popular with investors (after all it can't go bust now it has been nationalised..) that it has been asked to withdraw some products as the other banks see it as unfair competition. More mess created by this crazy interventionalist action. Northern Rock is now seen as THE place to put your money at the expense of other banks simply because it has performed so badly that the government has seen fit to underwrite the whole business - pure madness!

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$700bn rescue package approved by senate

The Senate has added $100bn to the $700bn Bush administration credit crunch rescue package, the House of Representatives will get a second chance to approve the new package. The added measures include improvements to deposit insurance (Ireland have already guaranteed ALL bank deposits, and the UK is considering increasing guarantees from £35k to £50k). This improvement to the bill is seen as a measure that helps to protect the individual rather than big corporations and the fat-cats. In the UK, it has been said that the new £50k protection actually covers 96% of the population as it is only the remaining 4% that have anything like £50k sitting in the bank. Of all the measures proposed, putting insurance in place to cover individual bank deposits is the main one that will restore confidence to the root level of the economy. Bailing out fat-cat companies that have made a professional error of judgment is not high on the agenda of the people...