UK House Prices Continue Fall

According to Britain's largest building society, The Nationwide, UK property prices fell 2.5% last month. This is the biggest monthly fall since records began 17 years ago.

Whilst some analysts expressed surprise at the rate of the decline it is obvious that the decline should be short and sharp. Housing is a non-perishable product. If everyone from the Council of Mortgage Lenders to the Government is predicting a 10% decline over 12 months, why would any purchaser not hold out for a reduction against asking prices set in a more buoyant environment? In essence these forecasts, particularly those from more credible sources, tend to be reflexive. That is self-fulfilling prophecies. As sellers, buyers and lenders lower their price expectations.

Bill Gates Buys into Carpetright

According to a report in today's TIMES, Microsoft founder Bill Gates has bought into UK furnishings retailer, Carpetright. The 3% investment has been made via the Cascade Investment LLC, the personal investment company of the billionaire. The investment is thought to be worth £15 million.

The UK furnishing market has been going through a tough time. The credit crunch and the consequent reduction in home moving activity has reduced underlying demand. The early May hot weather also saw demand for products such as beds drop as consumers directed their attention to outdoor activities. Gates' advisers have obviously spotted a European buying opportunity. The UK remains outside of the Euro, which has strengthened significantly against the US Dollar.

Carpetright is led by Lord Harris of Peckham, who founded the business in 1988. Carpetright has stores in Belgium, the Netherlands and Poland.

Denis MacShane MP Calls for Tax Cuts

In today's Telegraph, Labour MP Denis MacShane calls on Gordon Brown to cut taxes.

Here is a direct quote from MacShane's article.

Any prime minister in office today would feel the voters' anger as they see their cherished plans to spend their own money as they see fit destroyed by rising prices combined with the insatiable greed of the state in all its manifestations to take the people's money for its own, often incompetent and counter-productive ends.

I particularly like the reference to "insatiable greed". Denis MacShane, the MP for Rotherham is acutely aware that the real backlash against Brown is that he is obsessed with tax and spend. Brown is an unreconstructed socialist obsessed with destroying the middle classes ability to become independent of his client state. To problem now though, as MacShane observes, is the way the tax burden has risen for those on average incomes. It is these people that are deserting Labour in their droves.

Mortgage Lenders Predict House Price Decline

The Council of Mortgage Lenders have predicted a 7% fall in UK housing prices during 2008. This a 6% decline from existing prices, already down 1% on 2007. As I have mentioned before, such forecasts tend to be reflexive. Or in laymans terms, self-fulfilling. Once the people who control the vast majority of the finance markets for houses decide your house is worth 7% less than a year ago, they will lend proportionately less to fund its purchase. The prices therefore come down. A problem is the speed at which this happens. In previous downturns sellers failed to respond to the new, lower, price expectations and property remained unsold. If this happens, the market will ground to a halt, leaving estate agents, solicitors and DIY stores with much lower levels of business. This of course leads to more unemployment. Only this week, Economist Roger Bootle forecast that unemployment will rise by 750,000.

In my view the market will adjust more sharply. There will be a bigger price decline as buy to let landlords and those with highly leveraged borrowings bring a glut of property to a difficult market.

Oil Hits $130 per Barrel - before the fall

According to a report on Telegraph.co.uk, the price of crude oil has now reached $130 per barrel. Worse, the price of future oil is rising. With prices for deliveries next month rising $15, and prices for 2016 rising $25. The figures indicate that the market for oil speculation is taking on further momentum.

In my opinion, just when everyone climbs on the speculation bandwagon we should start looking for an oil price fall. Sophisticated economists may well talk about the decoupling of underlying GDP from oil prices, and vice versa. I suspect, however, that once all the liquidity pumped in to prevent the credit crunch destroying the housing market is used up oil prices will at first stabilise and then fall. As an asset, unlike shares, oil doesn't pay a dividend and is expensive to store. When the GDP downturn bites, speculators will move out of oil as quickly as they deserted sterling back in 1992.

Humberts Crunched by Property Slump

FT.com reports that leading estate agents Humberts have suspended their shares pending a clarification of their financial position. Humberts are a highly reputable and long established firm of chartered surveyors and estate agents. The news comes on a day when it was reported that despite successive cuts in BOE interest base rates, mortgage companies continue to push up the interest rates charged to borrowers. Humberts specialised towards the upper end of the housing market. And it would appear that it is this part of the market that has seen the greatest fall in transaction activity.

A year ago Humberts' shares traded at over 80 pence (See chart).

UK Housebuilder Hit by Property Downturn

Barratt, iconic builder of shoe box houses, reports more bad news from the UK property market. Barratt has a huge stock of unsold houses. Many buyers who have already paid deposits are dropping out as they struggle to raise mortgage finance. The bad news from Barratt comes just days after Redrow, another large house builder, announced thousands of redundancies. This comes on top of dire predictions about the number of estate agencies that will be forced to close. Only yesterday government minister Caroline Flint managed to have her briefing notes photographed by a long range photographer. See photo above right. The notes revealed the government's own predictions on the housing market. These were for price falls of 10% or more.

Whilst it's doom and gloom in the house building and estate agency market, the market for property management could hardly be better. As first time buyers, and many others on the margins of the market, struggle to raise finance the market for rental property is booming.

Chancellor Cuts Tax for Basic Rate Payers

Chancellor of the Exchequer Alistair has cut income tax for basic rate tax payers. He has done so by raising the basic rate threshold to £6,025. This is particularly advantageous for ow earners, many of which have been penalised by the 10p tax rate.

The cut is effective for the whole of the 2008/9 income tax year, although most tax payers will have to wait until September before they see any change to their take home pay. It appears that higher rate tax payers will not benefit from the move, as adjustments will be made to the higher rate threshold.

The cost of the move is estimated to be £2.7 billion. The Conservative Party have attacked the move on the basis of the timing. The Government faces a crucial by election on Thursday - just two days after the announcement.

Handling Euros

Does anybody know how long it should take for a bank to process a cheque drawn in Euros? Previously, all my Euro transactions have been done electronically. This seems to take two or three days. I took a Euro denominated cheque to my bank on 30th April. They were totally confused. I was then told to post it to their international department. Since then, eight days have passed and no word of any action.

House Prices and Reflexive Forecasting

Lloyds TSB is the latest bank to jump on the house prices are falling band wagon. According to a report in the Daily Telegraph Lloyds TSB's acting finance director Tim Tookey believes that prices will fall 10% over the next 12-24 months. Mr Tookey may well be qualified in finance but he has the equivalent of an ABC in forecasting. The reality is prices have already fallen. As every leading commentator is forecasting a fall, and the cash isn't there to make the market do otherwise, nobody but an idiot would pay a price that didn't reflect the new market circumstances. Why pay more for an item now, incurring interest charges of 6% per annum, when you can buy the same item for 10% less in 18 months time?

Increased Market Liquidity Fuelling Inflation

Has anyone else worked out that the collective attempts to improve housing market liquidity are doing more harm than good? The Bank of England is pouring money into the house financing system but somehow mortgage rates and mortgage approvals are falling. Why is this happening? My suspicions are that the big players in the financial world have had their day with housing and are using the liquidity provided to invest in commodity speculation. This way banks make a fast buck on rising prices of oil, wheat, rice etc causing massive inflation, whilst the housing market remains stuck.

After sub-prime, we now have alt A and toxic debt. Meanwhile the money meant to alleviate these problems is fuelling oil at $120 per barrel and diverting food from our tables to huge warehouses. It wasn't so long ago that we had grain mountains and wine lakes. The current apparent food shortages are created by aggressive financial speculation rather than any real break down in the world's ability to grow and distribute food.