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Tom Winnifrith Bearcast Easter Day - Sorry Daily Mail Readers property is a bubble that will burst

By Tom Winnifrith

27 March 2016 10:28

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There is only one thing that Daily Mail readers love more than articles about how illegal immigrants can give you cancer and that is articles on how prices are going up. But today there is an article which warns that the Bank of England is set to try and stop Buy to Let becoming a bubble. It's too late! It is not if but when it all bursts.

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Comments

BlueFrew

27 March 2016, 13:36

Excellent Bearcast. I felt that property was in a bubble back in 2002 when the 2 bed house I owned at the time “earned” more than my wife had that year, even though she was on a roughly median UK salary at the time. Who would have believed what Governments of all stripes were planning to keep this bubble inflated.

Perhaps best illustrated by Vince Cable, who called the housing bubble in November 2003: “The growth of the British economy is sustained by consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices that the Bank of England describes as well above equilibrium level. What action will the Chancellor take on the problem of consumer debt?”

However when given a chance to govern as part of the coalition he sat on his hands as various Help To Bail Banks, I’m sorry, Help To Buy schemes were introduced to re-inflate the bubble.

Ultimately though, if any Government goes into the 2025 election with house prices as they are then they will get massacred at the polls. That’s why the Clause 24 changes that Osborne has introduced don’t come in fully until 2020. He’s hoping to have the Buy to Leach brigade sell up gradually. But at current yields BTL is a pure capital gains play. As house price indexes go into reverse there will be a rush for the exits. The leverage which made them seem so clever on the way up will be what crushes them on the way down.

Not only that, as this Bank of England blog article shows, falling real estate prices can weigh heavily on the economy. http://bankunderground.co.uk/2015/12/11/house-prices-and-job-losses/

I expect house prices to fall slowly at first, but hopefully by 2017 we’ll see very sharp falls. I expect there will be no need for a Bullcast for some time yet.