37 comments on UK House Sellers In Denial About The Property Crisis - Energy Too?
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37 comments on UK House Sellers In Denial About The Property Crisis - Energy Too?
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People are naturally reluctant to change for the worse and admit a loss. But in case of a house, there is a lot of a monetary loss involved. If someone has purchased their home at the height of the boom, he/she may not be able to recover the mortgage value. If the house is seen as an investment, it is normal to defer selling at what is perceived as a market low.
For these reasons I am not sure this is the same psychological phenomenon as adapting to peak oil. I don't mean people will adapt easily to peak oil. I am saying that this observation on the housing market doesn't necessarily have a good predictive value.
Some time ago I learned an interesting term: value discovery phase. It can be related to the valuation of any asset. It’s particularly applicable when values decrease. In the stock market the VDP can last just minutes: bad news is released about a corporation and the stock immediately looses value. The market can immediate reset its value. This was contrasted to the housing market. Obviously, when housing prices start to slide there is no immediate method to establish the VDP. It takes many months, but more likely years, the new price levels. There was a very similar but local real estate bust in Houston in the early 80's when the oil industry contracted significantly here. Real estate agent kept telling (for the obvious reason) buyers and sellers that market had bottomed out and was improving. In fact, it took at least 10 years for a noticeable improvement. But even with that, I knew one fellow, who bought in 1979, and even by 1994 his home had not recovered to the price he had paid originally.
Home sellers are stock in the same position as stock players: sell not and accept a lower return, or even a loss, or hang on to it and wait for recovery. If the home seller doesn't have to sell they'll likely wait it out. If they can't then they suffer the loss and move on. It's a hard choice. Back in 2000 I knew a fellow that owned Enron stock when it fell to $10/share. He said he wasn't going to sell it at a loss. He eventually sold it for $0.12/share. Difficult choices to be made for sure.
Economic downturns are caused by many things, but eventually we will get one at the same time as a nation's oil consumption ultimate peak - even though peak oil may not be the ultimate cause of the downturn.
The implication of less affordable/available energy post-peak in a 'net-importer' country is that any economic recovery can't be to a higher level than before (in the way we in the OECD have come to expect with ever more affordable energy for the last 200 years or so.)
If a country's house prices do not ultimately recover to a higher 'real' price than the recent peak then that will be good evidence for that country's peak oil now, not in the 30 years time expected by CERA.
"He said he wasn't going to sell it at a loss." When trading shares one of the most important things to do is to have a stop-loss and stick to it. It is human nature to want to have made the correct decision and selling out acknowledges a wrong decision has been made.
The question should now be "is there a market?"
The BBC reports that mortgage lending in August was £143M, which is just 2% of the lending made in August 2007.
http://news.bbc.co.uk/1/hi/business/7641535.stm
If the average selling price is around £200K thats is only 700 to 1000 houses with completed sales in the whole of the UK.
The other issue is given the small number of transactions, are the average prices we seeing accurate. With fewer transactions, individual transactions can have a bigger impact on the average. No way of telling.
Careful what you are reading, I think the article is badly worded. It says "...Banks and building societies lent an EXTRA £143m.... 32,000 new mortgages were approved in August, a new record low and 70% fewer than a year ago...."
So whilst a new record low is claimed (going back how far?? less then at any time in WW1, Great Derpression, WW2, the last boom??) it was far more than 700 to 1000, and also note that many people do not have mortgages so it is not a measure of totla completed sales.
As I have said in various posts on TOD the impact of the "credit crunch" on restricting lending is more urgent than depreciating assets. Much higher deposits are now required and many first time buyers will now have to save this extra deposit or loan it from the bank of mum and dad.
According to Reuters, last week the Fed lent nearly $188 billion per day, on average, to banks and money managers.
This Telegraph article says although 32,000 were approved, the vast majority did not actually take the money. Financial crisis: Mortgage lending plunges 95 per cent as housing market suffers