Vince Cable Sums Up The UK Housing Bubble In 5 Words

Tyler Durden's picture

"Worse than before the crash," is the glaring headline from the UK's Independent, and Business Secretary Vince Cable warns, most families are "nowhere near" able to afford homes at average prices. As we have noted before, the UK is increasingly a divided nation (London and everyone else) and nowhere is that more clear than in home prices... a Cable warns this is producing an "unsustainable property boom."

 

Here is Cable's warning...

 

And the chart in question...

 

h/t @resi_analyst

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centerline's picture

Most of London can't even afford London.  Filled with the economic walking dead.

Serfs Up's picture

Asset prices rising most sharply the closer you get to the money printing centers?

Maybe someone should explain 'seignorage' to Mr. Cable?  

Say What Again's picture

I think I know what their problem is.

They drive on the wrong side of the road

</sarc>  <--- This is for you. You know who you are

medium giraffe's picture

Lol. It's to discourage Brits from going abroad.  You get in your rental, pootle along thinking 'this isn't so bad', then BAM! You crash your knuckles off the door groping for the gear stick with your left hand, and the whole thing starts to seem like a very poorly conceived idea.

Maxter's picture

When I went to Japan, the main issue I had with my rented car what that I would constantly start the wipers instead of the turn signal.

That and driving on the wrong side of the road until I wonder "What is this guy doing on my side of the road?.. Oh shit!"

medium giraffe's picture

Laughing because I've done that too.  If you want to have some real fun, take your right hand drive car on to the European mainland and have a passenger sit next to you with their hands over their eyes.

zaphod's picture

London is mostly being bought up by money from the east, this has made London's housing market reflect the dynamics of the housing market in China, not the housing market in the rest of the UK. 

 

philipat's picture

Actually, the UK drives on the right side of the road.

RaiZH's picture

Nope, I definitely drive on the left... the steering wheel is on the right. 

McMolotov's picture

There's nevah been a bettah time to buy, guvnah!

SheepDog-One's picture

Wait I got this one! EXTRA BULLISH!

fonzannoon's picture

the fucking nasdaq will probably finish positive after this sham of a day.

RadioactiveRant's picture

Pop!

Carney will have to print and launch a buy back of financial equities like last time. Rinse & repeat.

ebworthen's picture

As if the central banks and banksters didn't know they were blowing another bubble.

They win coming and going, regular folks lose coming and going.

"Gee honey, look how much our 401K/I.R.A. is worth!"

On paper.

SheepDog-One's picture

Last few years has just been a shitshow to keep the masses slumbering....the wake up call from this one will be ruthless.

RadioactiveRant's picture

Can't see the UK doing too well in the near future. In two years its going to exit the EU which will decimate whats left of its manufacturing sector (Nissan, Honda use the country as a low wage assembly plant into the European market), which will leave Paris and Frankfurt to soak up the spoils of the Citys service based exports.

The second meltdown will destroy its second tier safe haven/reserve status, and the Scots will make off with the remaining oil. I can't see where the growth it needs to pay off its gargantuan debt (£1.3tn/US$2.3tn) is going to come from.

matrix2012's picture

"I can't see where the growth it needs to pay off its gargantuan debt (£1.3tn/US$2.3tn) is going to come from."

 

I dont see it as a debt that needs to be paid back... lol...

The Generational Rich Families will waive the debt... after they finish sucking

starman's picture

When this shit pops I would prefer to be on vacation.

markpower49's picture

I am wrong to hope for a hard reset, with the resultant chaos and destruction?

Bill of Rights's picture

http://www.usatoday.com/story/money/business/2014/04/03/2013-ceo-pay/7200481/

 

Below are 200 Standard & Poor's 500 companies that filed proxies with the Securities and Exchange Commission between Jan. 1 and March 27, 2014. Annual compensation is how much the board gave in 2013, including new stock and option awards that can't be cashed in until future years. Realized compensation is how much CEOs actually received, including the cash components of their 2013 pay plus the value of exercised options and vested stock in 2013 that was awarded in previous years. Select column header to sort.

 

The Bonus section is the real noise.

medium giraffe's picture

I keep mentioning the UK housing bubble to people, but will they listen?  The UK housing market has been the subject of massive speculation.  When that speculation money pulls out, then - *poof*.

But what the fuck do I know?

RadioactiveRant's picture

No theres a massive shortage and 49% annual growth in mortgage lending (CML) is completely normal and sustainable. Nothing safe as houses.

Matt_Master's picture

Most people I work with say if interest rates move to 7-8% they will wont be able to pay their mortgage....keep clam and stop buying food. Fixed!

chiswickcat's picture

Stop? Or start? buying food.

dcau1's picture

I've had people tell me that if rates go up AT ALL they won't be able to pay the mortgage.

medium giraffe's picture

Rates are at a 300 year low. They couldn't possibly go up. 

Uber Vandal's picture

Anyone notice the ominous history lesson above the housing bubble headline?

I mean its Right. F******g. There. In. Front. Of. Our. Face.

KenShabby's picture

Lots of people at football matches though.

Watch a Mexican soccer match on Tv and the stadiums are empty.

nelsonmandella's picture

told you so = rates have to go up = crash 

scubapro's picture

what is slightly different currently is the lack (inthe US) of the ez financing.  there is no 'stated' income, no ninja loans, no neg am loans.  slowing yes, soft prices, sure, but porbably not a crash in re like before

The man with pointy horns's picture

In Britain the government, estate agents and banksters have perfected the art of housing bubbles. Deliberately keep the supply tight no matter what the demand. In reality Britain needs three or four million more homes, but then the bottom would drop out of the housing market and many people -- baby boomers -- would be plunged into negative equity.

That's why the government never properly addresses this issue, no one: not Toffs, Labour or Libs want to be remembered as the party which destroyed the middle class and crashed the finance sector. If it weren't for the finance sector and London, Britain would be a second-world country.

medium giraffe's picture

Couldn't agree more.  The whole country is a London suburb, and the banks are the only game in town. 

Rainman's picture

" .... lack ( in the US ) of the easy financing " ?  It's back. Now called ' ANOTHER CHANCE MORTGAGES '

 

http://www.reuters.com/article/2014/02/14/us-banks-subprime-insight-idUSBREA1D07820140214

The man with pointy horns's picture

That's why I'm staying in the North, everyone in the South thinks the North is a shithole- but at least things are more affordable in the North. Plus all the new homes are being built in my neck of the woods, while there's barely any substantial new housing estates in London.

NuYawkFrankie's picture

re ...everyone in the South thinks the North is a shithole

And everyone in the North KNOWS the South is a shithole

jmcadg's picture

UK house prices 50% overvalued, minimum. Ave House Price £230k, Ave Wage £25k, 9:1 ratio yet you can only get a mortgage on a 4:1 ratio and would need £46k in your pocket (on that £230k house) to get a decent mortgage rate (without gov help).

What bubble?

RadioactiveRant's picture

The historic trend was based on 3.5-4.5x income multiples and a 25 year term. Near zero interest rates have allowed this to rise to a 9-10x income multiple, and keep monthly repayments "affordable". As this now won't even buy a 1 bed flat/apartment within 30mins of central London the term has been increasing to 35 years, again to keep things affordable; thats also fine because we're all living longer, right? The obvious flaw in these assumptions that everyone seems to be ignoring are:

1) interest rates can't stay near-zero forever, sooner or later international investors are going to realise the fragility of the British economy and run from Sterling leaving the Bank with the only option but to increase interest rates, possibly sharply, to preserve the value of the currency.

2) While people may be able to work into their 70s, their earning power won't be what it is in their 40-50s. They'll either be working on the checkouts at their local Asda/Tesco/Morrisons, or part time in a more professional role.

The UK has no economic future; get out.

jmcadg's picture

Indeed, watch as those who self certified on ultra low rates, believing their property would rise in value forever, now they have to SHOW good accounts and that their motgage is affordable at an interest rate 3-5% higher than they were paying, or sell, whilst everyone else will be.

Good luck with that.

delivered's picture

Could be but I'm thinking of another reason. Hyperinflation. The housing bubble in London is being driven by hot money flowing from every corner of the global looking for the best and most stable real estate markets. This includes London, New York, and hell, even Los Angeles. The homes are being baught with cash from the superwealthly looking to park their money in what they view as a viable/real asset. With $10 trillion of newly created money from the world's CBs over the past decade starting to flow into every possible asset class, and the superwealthly being the primary reciepients of this cash (as it certainly hasn't flown down to the working class), this group is the first to experience hyperinflation (as they all have too many Euros, Yen, USDs, etc. that are losing value against real assets). The illusion around the world is that one currency depreciates against another (Yen versus USD, USD versus Euro, etc.). But in fact what is happening is that all of the over indebted western economy currencies are starting to fall against real assets. The mirage is that measurements against different currencies is pointless. The real measure is against real/productive assets. The tells to me are when the current Spanish and Italian 5-year yields are on par with the US and that China is by-passing liquidating USTs and exchanging them directly for mineral assets in Africa (which they have done recently).

No I'm not saying that London real estate is not over valued as it is. The problem is that too many worthless currencies are pursuing too few top quality assets and hyperinflation is beginning to take hold, but just for only a select few. And whether it is overpriced real estate in London, exotic high performance autos, record prices paid for art or rare diamonds, etc., the superwealthy have entered a hyperinflationary period. 

Also and for the Chinese that are now looking to enter the US in record numbers and buy-up whatever real estate they can find, Americans think that they are fueling the new bubble. But to the Chinese, they are trying to figure out how to get rid of a shitload of unwanted (and eventually, much lower value) USDs that continue to pile up as assets in their balance sheets. Remember, 60% of the world's CB reserves are in USDs or the equivalent. If the USD losses its reserve status (well in process) and/or the world simply moves to eliminating the need to settle trade in USDs, there is going to be a mountain of USDs to dump and diversify into other assets (IMF SDRs, other currencies, productive land, energy, PMs, etc.). So what if you pay 20% too much for real estate in California as if you lose 50% more of your purchasing power in USDs, you're still ahead of the game. 

SweetDoug's picture

'

'

'

Don't forget Canada!

House prices jump another 10% to $406,372

http://www.cbc.ca/news/business/house-prices-jump-another-10-to-406-372-...

 

•J•
V-V

Squid-puppets a-go-go's picture

Australia, too - 15% ave last year, sydney taking lead

AdvancingTime's picture

Propert yvalues in the UK should not be rising. I have been watching with wonder as the economic news flowing from the UK has been spun to give the impression of robust growth. How do you explain the pick up in growth to a mature country that has been struggling under debt? In general the UK economy is not particularly competitive, over-weighted in the service sector and global finance it is vulnerable to problems that surface throughout the world. As usual we must look deeper into the facts to get a clear picture of what is really happening.

It now appears much of the recent strength comes from the fact that thousands of Britons are receiving compensation for Payment Protection Insurance (PPI). Most Americans reading about the pickup in Britain's economy never even heard of the PPI. The total paid out so far is £13.3bn or about 22 billion American dollars. Dropping this huge amount of "helicopter money" on a country of only about 63 million people has been a big boost. The post below goes into why the growth won't last and has been way over spun.

 http://brucewilds.blogspot.com/2014/02/uk-economy-flood-of-questions.htm...

medium giraffe's picture

I keep waving the flag about 'growth' and 'green shoots' too.  Again, no takers.  No wonder I never get invited to parties anymore.

smacker's picture

Vince Cable's comments will be ignored by those who have money invested in the property market; that's a lot of people.

And fully agreed with by those who don't.

Every property boom in Britain has been followed by a bust and economic recession, but this only matters to those who didn't cash out in time.

George Osborne & David Cameron -- who have nothing else to offer the British people except another round of economic boom & bust to compound the existing ongoing recession, and who knowingly started this latest boom for electoral reasons -- are praying that their soothing words of denial will keep it going until after the 2015 General Election. Amazingly, people continue to buy into it.

And most MSM "news show" presenters are happy to "smile it up" because they have property on mortgage, just as they talk up Zirp and ignore the effect on savers.

RadioactiveRant's picture

Whats equally fascinating to me is why anyone would put so much effort into being the captain of the Titanic; who wants to be at the healm when this shit storm goes down?

Director of Financial Stability at the BoE, has tonight said he believes the next TBTF is the asset management business, currently worth US$87tn/£53tn (Guardian, London).

smacker's picture

I guess it's because the taste of power and a place in history caps all other considerations.

Add into that a large helping of inability to see further than the next election.

 

 

Emergency Ward's picture

What about all those trillionaire Russian oligarchs lining up to buy, buy, buy.......?