Same old, same old

I'm getting bored of talking about it, but I feel the need to externalise my sense of outrage.  Every month is the same, every year, forever.  I'll be long dead in my grave before I start accepting what I'm told in press-releases at face value.

A quick recap of what I'm talking about:  May house price statistics.  The end-of-May indexes from both Halifax and Nationwide contained some quite strong upward movement, enough for some over-excitable vested interests to proclaim an annual growth rate of 17%.  Last week the Land Registry published their index for May; how much growth did that show?  Fuck all, that's what.  Prices fell 0.2% over the month, and fell 15% year-on-year.  So much for "house prices rising again".

The problem is (well, it shouldn't be a problem, but people are sheep) that only three days after the Land Registry index is published, the Nationwide published their numbers for the next month.  So "bad news" is only in the public concious for three days, and "good news" is all anyone uses for reference the rest of the month; this gives people false confidence in "good news".  The publication dates shouldn't matter, but people tend to value "recent" data better than old data, regardless of accuracy.

The simple explanation for this constant gulf between the Land Registry and the Halifax/Nationwide is simple.  The Land Registry is better!

"You would say that, you're constantly arguing that prices are low and/or surpressed!"  I hear you shout.  Which is true, but that doesn't mean I'm wrong.  Anyway, I don't have any particular vested interest one way or the other; I have enough direct property investment to dwarf the Plan A Development Fund, so I should be cheering all the money-printing and other efforts to "kick start the housing market."  The reason I'm not is quite simple: property is grossly overvalued, does not stand up to any reason (i.e. all the "supply and demand" you hear about is based on faulty definitions of "supply" and "demand"), and a correction is vital to a healthy economy.  And, even more fundamentally, even after two years of falling prices, current valuations are still unsustainable.  Valuations have been protected by economic policy, but at the cost of destroyed savings (which are vital to a healthy banking sector, and therefore the future property market) and a forthcoming inflation shock.

Anyway, back to the point.  Why is the Land Registry better?  I refer to my previous post on the subject, but can be summarised in two points: 1) a larger, and more representative sample size (i.e. includes cash purchases and specialist mortgages); and 2) superior statistical methods, geometric mean and regression based on difference in achieved prices for the same house rather than a reliance on mix adjusting and seasonal fiddle-factors.

So what's going to happen next?  The Land Registry still showed a distinct trend that monthly falls are getting smaller, plus the past few weeks contained evidence that other indicators were becoming positive.  But evidence of any real structural solution are very few and far between.  This led me to finally declare the dead cat bounce I had long been predicting.

So what about those June house price statistics?  Halifax hasn't reported yet, that'll be next week.  Nationwide says 0.9% up in June.  Which, of course, gets reported unquestioningly as "good news".  This is an interesting number, as it represents a smaller growth than the last two months; June is also the final traditional house-buying month, the last month to get seasonally adjusted downwards.  It will be interesting to see what happens next.

The only real predictor of house prices is, of course, mortgage approvals.  So what do they say?  "Mortgage approvals still rising", says the BBC, with helpful commentary of how this underlines the continuing recovery.   So how much did they rise?  Was it 8% like the last month?  No, it was 200.  That's right, two hundred mortgages more than the previous month.  That's a soaring market sparked by "pent up demand" if I've ever seen it.  Mortgage approvals have peaked at around half the rule-of-thumb neutral level of 90,000.  Recovery?  Do not make me laugh.

Not only that, but net lending was the lowest ever recorded.  This was also painted as good news (which it is, from an economic stability point-of-view), it represents a quite severe shortage of money entering the property market, and therefore is going to be a brake on house prices.

This dead cat bounce may be shorter than I reckoned.  I was expecting to last between six months and a year, but at this rate the August house price statistics will be undeniably negative once again; where they will firmly stay for the rest of the year, at least.

The rest of the world is beginning to latch on to my ideas, they always do, in the end.  The Times published quite a good synopsis of the current state of events last week, it still put too much of an upbeat spin on it for my liking, but acknowledged that a housing recovery is unlikely to be underway just yet.  And most of the rest of the mainstream media have been cooling on the whole "green shoots" thing, they're firmly hedging their bets.

In other, related news.  My cash ISA which had been paying 0.60% (I would have transferred it were it not for two factors: a) I couldn't be bothered; and b) nowhere else offers significantly more) is now paying 2.70%.  Now, this isn't the bank being generous, it's more a reflection of wholesale money-market rates; and these are the best predictors for future interest rate moves.

The inflation/interest rate shock is coming.  Then where will we be?  This is going to cause significant pain.  There are quite a few people, anyone who's fixed rate has ended soon, who have been happy to fall back to a variable mortgage as "it's essentially free money, I'll fix again when rates go up" - oh no you won't, you can have 0.5% variable, or 3% + fixed.  There are no cheap fixes (well, 3% is cheap by historical circumstances, but that's more due to reckless monetary policy than anything else - that's a separate rant).  That gap is only going to get wider, the jumping point might have already gone.  (And most of these fixes requires a LTV ratio that existing mortgagees can't meet anyway.)

So what should anyone do about any of it?  Fucked if I know, but it's not going to be easy.