The coming worldwide credit crunch

"The Credit Institute is an arm of the Spanish treasury, used to promote technology and green energy."

So now tax payers money meant for technology and green energy, is being used to rescue over greedy developers and reckless homeowners. Oh well as long as it looks ok until the election. When will all this corruption  and greed end?

My guess is Spain will be forced out of the EU. Spreads between German debt and Spainish Debt are widening. An ominous sign that investors think the same.

Hi Tj,

I think Zapatero's days are numbered anyway,the common consesus is that he only gained power because of the Madrid bombings and the removal of troops from Iraq and his policies are dated and out of touch,i think they may be a shift of power come March although whether a change of governement will see a change of policy is another thing!

I would be interested to hear your views on the fact that analyst's predict that the UK housing market will fall by 35% over the next 5 years TJ,what will this do the economy........

35% !!!!  that sounds a bit much to me, not that I am expert. Our Estate agent tells us that property valued below £200K  has only dropped by 2% and does not think there will be a disaster at that end of the market.

We were thinking of renting our UK property and living in Spain but maybe we should sell before the value drops to much ?

Hi Georgia

Thanks for the info, I know very little about politics in Spain. but it sounds like they are determined to make the same mistakes as the US - if they do it will be very sad and we will all end up paying for their stupidity. I think as foreigners we are quite vulnerable to be taxed to death to clear up this mess, not to mention the bill from inflation.

In the UK I hope 35% is a bit pessimistic. There are as I keep saying important structural differences between the UK and Spain:

1. In the UK planning laws and simple unavailability of land has put pressure on the supply side for decades. If you beieve the reports, then they can't build houses fast enough. The situatiuon could not be more different here.

Add in what looks like uncontrolled immigration and you have an explosive mix for high prices.

2. In the UK jobs are currently still plentiful and you can earn a very decent wage. This is supportive of higher prices and higher rental income, which in turn supports higher prices.

3. Despite what we tend to think here, many people obviously still regard the UK as a very desirable place to live, good infrastructure, health care benefits, jobs, ammeneties etc. Can't see it myself but then I have chosen to move.

The problem is that under Brown we have adopted an economic model based on consumption and debt, copied unfortunately from the US. This has been supported by ever increasing non productive jobs in the government sector. This model is unsustainable and its just a question of time before it all starts to fall apart.

The evidence is in the ever increasing debt loads of the average family and the deficits in the government. However it does not take an economist to figure that you can't go on borrowing and consumeing for ever.

The key to watch for in the UK is the jobs data. If we see steady jobs and no great increases in unemployment, then I think the UK will be OK. As long as house prices hold up then consumers will keep spending and the ball will keep rolling.

If houses in the UK drop 35% then the UK will go into a sharp recession as the economy is much too reliant on it as a source of confidence and jobs and funding. If this is the case then expect to see foreign inflow of investment to Spain to dry up completely. Then 50% drops in Spain will be optimistic I feel.

Much of the UKs fate unfortunately rests in the hands of the US, I know that seems odd, but its true and its why all foreign stock markets slaveishly follow the US lead. While the US makes up 25-30% of WORLD gdp, this will remain.

Thanks Tj,

I can see the common sense in the points you have outlined,what was discussed last night was the fact that wages to prices especially to the first time buyer were way out of perspective,the example they used was a trainee firefighter on £20,000 per annum could only afford to get on the property ladder by buying with his brother at 9 times there income!!!

When i worked in the UK the buy to let boom was in full swing and a majority or our business was of this type.

For anyone who is not aware of the system buy to let mortgages are granted on a sliding scale not earnings,so in essence if you say that the rental income will be £1,000 per month then you can have a mortgage with the equivalent repayments,we were aware at the time that this would kill the first time buyer market as the cheaper properties were snapped up by investors therefore pricing young people out of the equation.

There was one guy on Panorama last night that took a morgage of £500,000 to buy 2 properties at £299,000 each,when he failed to find the rental levels they were repossessed and put back to the market through an agent at £180,000 each making a total loss of £240,000,with him still owing the difference to the bank.

This is the worrying factor,prices if overinflated will be realised in the cold light of day and you get a "magic bean" scenario.

I think this will be a factor in a percentage drop although i hope not 35%

Zetog

Hope you have a safe journey and don't have to wait for too long. Atleast you can spend some time ruminating about the follys of our respective governments. Infact you would need avery long long wait to do that lol.

Actually the figure is 52billion, not million. You are correct of course in that the gov. does not have the money, so it prints it up. We all then pay thru inflation and taxes.

The EU recently had to pump 50billion euros into the banking system to stop it collapsing. Once again the money was printed.

If  printing money ended in anything other than disaster, Zimbabwe would be the richest country on earth. We all know its one of the very poorest.

its been going on for years pat.

The point i was trying to make never got an answer to was the fact that people are saying that the housing market in Spain is overvalued and do not buy now because prices will drop and it is better to rent...........

Last nights Panorama stated that Uk houses could be overvalued by as much as 60% and will fall by 35% in the next 5 years.

Now consider if this was stated on this forum concerning the Spanish market,there would be a mass of doom and gloom and Spain would be the worst place to liver in the world!!!!!!!!

so considering what you heard last night from the same analysts that you listen to regarding Spanish property, in essence you should follow these steps immediately...

That you should not buy property in the UK for at least five years you should rent,you should all sell up while you can and now it is clear that the organisation behind property sales in the UK are just as if not more corrupt than Spain you all should flee the shores in your droves...............................

last one out turn the lights off.....................................

last one out turn the lights off.....................................

Hi Pat,

The answer to your question is no i do not think house prices will fall that much and i dont think it is all doom and gloom,i think as normal there will be highs and lows and eventually you will still continue to make money.

Xetog-the analyst on there last night spoke of an OVERALL price hike and sale level and the lady in question paid £304,000 and it is now valued at £200,000.

Anyway this is not the point i am trying to make,the real point is that decisions and opinions are based on perception.

There are many people on here that will tell you not to buy in Spain because prices are falling,rent untill they change.

Last night we were told that prices are falling in the UK  and therefore if you follow the instruction of people on here using the same formula you would not buy in the UK you would rent untill it changes.

So in essence nobody in their right mind(in the opinion of some) would buy a house in the UK in the next five years.

you cant have a formula for one situation and then change it to suit your needs.

now if you are sitting there and saying that will never happen in the UK, people will still continue to buy can someone please explain to me the difference.................

Hi Georgia

Sorry you have me totally confused. Not sure what the point is you are trying to make.

Property has been the investment darling for atleast the last decade, dinner table talk etc - even the taxi man has property investments. Professionals will tell you that when you start get share tips from taxi men its past time to run like the wind. Property has been done to death, for me the real warning sign was all the shows on tv about making money from property. Every Tom Dick and harry was at it and to be kind most of them had less of a clue then GW Bush has about diplomacy.

Warren Buffet the second richest man in the world and argueably the most shrewd investor in the world, had lots of saying for times like this.

He said amoungst others : "A riseing tide lifts all boats"

"Its not until the tide goes out that you see who is wearing any trunks."

In other words in a screming bull market even the biggest idiot can make money betting with the tide. Complete clowns get to look like investment geniuses. Unfortunatly history shows that most people don't see the tide turning.

When property yields 2-3% gross and property is 9 time earnings, then its not sensible to buy property anywhere, wether it be the UK, Spain, or Timbuktoo.

If you already own property which you bought at far lower levels and its your home, then thats a different matter. Most people would sensibly decide to stay put and not worry about it. Its you home and thats all that matters.

Unfortunatley people in the Uk and US and I guess spain have borrowed against their homes in the illusion that they were somehow rich. Then when houses go down they are left hoplessly in debt, with little or nothing to show for it. A home is to be lived in, and when it became an investment tool, it was time to stay very alert for trouble.

What most people don't recognise is that house price cycles are typically a decade long, so that after 10 years of boom we are likely to get around 5 years of bust. sadly once the slide starts in earnest, then property tends to overshoot on the way down, just as it did on the way up, as people are driven by emotion. So prices are likely to go much lower than anyone thinks.

efforts by the governement to slow the slide tend to make things much much worse, as the market is prevented from cleansing itself of all the btl brigade and get rich types that have been much to blame.

sadly I feel that the outlook for Spain is much worse than for the Uk as for the reasons I have mentioned before on this thread. Also people will ditch holiday homes in order to shore up finances back at home.

If i did not own property in the uK, I would certainly not be a buyer now. The risk to capital is very significant, and you can rent for much less than buying.

Zetog - I accept your points, except you say people who have bought don't need to worry about the price. This is often not true. many people have to move for 1001 different reasons and are forced to try and sell in an impossible mkt. Maariage, divorce, illness, parents, children, moving house etc the list is endless. Altho I get your general point.

You blame the btl brigade and so called investors, but anyone who buys now in Spain regardless for the reason right or wrong, will suffer from their actions by having to paying inflated prices.

sorry TJ,

I am not conveying my thoughts well enough into words.

The analysts state that property is overpriced in Spain by 30%,last night one analyst stated that property in the UK was possibly overpriced by 60%.

Following the rule of thumb as in the last paragraph of your last post "anyone buying in Spain will suffer by paying inflated prices".

Do we take that to mean we should not buy in Spain,UK or the USA for at least another five years untill things have steadied by renting instead.

Or should we still buy in the UK and ignore them but listen to them over here???????

The reasons you give for renting are that prices will fall in Spain,does this apply to the UK as well?

I am confused,surely there is a double standard creeping in here?

Cutting through a lot of the statistics there are major and obvious differences in the countries. Ireland has many people who owned property worth very little and which have increased by huge amounts over a relatively short period of time. Wages also have risen and the educated young earn a good wage to sustain their lifestyles. Therefore many do not need to sell but will 'at the right price' and there is also a healthy demand from wage earners in the country. To a degree the same for the UK, the buy to let market if worked at and you know what you are doing, is very profitable and I know many examples of that with the owners buying out here using similar principles. Again there is healthy demand and with the immigrants needed homes, there is enough to go around - I think a smaller adjustment in some areas will be the more likely situation. People who wanted to move will be put off buying a bigger proerty and therefore remove their property from the market, as an example. There is enough industry to support workers and many building societies will try to keep people n their homes

I know repos have jumped up - its a natural cull, but these units will be sold off at a more marketable price and placed straight into rental.

However its totally different here in Spain. There is no underlying industry and no immigrant money to rely on - the governement doesnt pay out rents and money to immigrants - if you cant support yourself then you starve. So, no outlay there then. The costas are mainly a service industry, no nightime factory work to help prop up a daytime wage. Most people are seasonal workers or self employed - says it all really.

For the past x number of years we have been living off the wealthy who came to buy property and then wanted the attahcments, property management, cleaning etc, but now they cannot afford it, they are pulling their belts in. Many immigrants ar leaving and they are going in droves. Proeprties were not bought with homegrown wages and so cannot be supported by the normal buyers here. Most havent even got the deposit money to put down.

Main buyers were the Spanish and they are a canny lot - they buy within their means and so the higher priced in the main will not go to them.

Here is a heady mixture of wealthy people who are recession proof, people who live and work here with or without money behind them and the day to day workers eeking out a living as best they can. There are also the retired groups, comfortable and will also weather out any storm, but theres no getting away from the fact that the supply far far outstrips demand. And it is getting worse. So more property coming onto the market which will effectively drive prices down.

Its a natural cycle but only to a degree. When it happenend in the 70s, no one had mortgages - even the Spanish hardly had them. Then the early 90s ripple came in, again most people were cashed up and a percentage needed to get rid of assets but as there were so few around in relation to the demand for holiday homes, it didnt really cause too many problems.

Now its a totally different story and from the statistics I used to deal with in the early 90s where 70% had bought to flip, some have found end users but many not. Add to the pot that its 2 years ago buyers coming to completion and the real figures are not good.

However, there is a silverlining. There are many many buyers and at the right price, it sells. Its only a case of defining the right price, and its the buyer that determines that - not the seller anymore, not if they are SERIOUS about selling!

Gotta have a cup of tea now, Im parched!

"Do we take that to mean we should not buy in Spain,UK or the USA for at least another five years untill things have steadied by renting instead"

Yes and yes. I don't know if it will be five years or not, it doesn't really matter. What matters is that it doesn't make sense to buy property when its overvalued and likely to make you a thumping great capital loss. people say but eventually it will recover, but this is a lame arguement, because it simple means that you should wait a bit before buying. then when it recovers it means you will also do much much better.

This obsession with ownership is a very new thing. For centuries people have rented and done ok. In some countries on the continent very few people buy even today.

I much prefer to own my own home for lots of reason folks ahve given here, but it simply does not make sense if you are paying over the odds. I'm renting with my family now, right by the sea, in a fantastic location for half the cost of buying. Since I am new here it also gives me a good chance to look around and get to know the knowledge as they say. If it was dirt cheap and the mkt was riseing I would probably not be so relaxed, and would buy something quickly anyway, on the grounds that it would lock me into the current prices.

Presently however i think that I can be very relaxed, and so should others.

"However, there is a silverlining. There are many many buyers and at the right price, it sells. Its only a case of defining the right price, and its the buyer that determines that - not the seller anymore, not if they are SERIOUS about selling!"

To me this sums things up well. Everything has a buyer at the right price.

I think we are just debateing the price now.  No need to wait five years if you can negotiate the correct price now.

If tomorrow I found our ideal home and I could get it at a fair price (relative to yield, earnings etc) I would take it.

The problem is that very naturally sellers tend to remain in denial, and the process can take some time, before acceptance of a changed situation is fully apparent.

In the trevor Mc donald programme they follwed a guy who had his property up for sale at circa 350k - the buying price plus expenses.

When no offers were made he blamed the market and said "this is silly, there is no market"

In reality the mistake was his for over paying and trying to recoup all the money.

There were plenty at the auction with money, just not anyone dumb enough to pay his asking price.

Someone did offer around 240, but he rejected this outright.

I bet he is regretting that now.

At last.......................

thats what i was looking for.........................

In your opinion nobody should buy any property for the forseeable future.

Right i am off home no point having the office open really,all those people looking to buy or sell in the UK forget it,Candyfloss,no point going in tommorow,

I can see the headlines now,every single estate agent in Europe and Northern America closes its door for thr next five years!!!!!!!!!!!!!!!!!!!!!!

Of course i am only toying but you said it not me............

Mind you in five years the average person renting will have wasted about €40,000 on someone elses mortgage payments(food for thought)