Property Investment News

As a small property investor, I always keep an eye on what is going on in the news, particularly what is being reported as "news" by the so-called professional news suppliers. It is becoming increasingly obvious that the newspapers are attempting to "talk the market up," in an effort to re-inflate the property bubble that allowed their advertisers to keep paying their bills. But - reading between the lines and comparing the actual news stories with the spin tells a very different story.

In response to the recent Halifax report that house prices are on the rise again in the UK, a recent headline from the Times reads "UK house price falll slows to 1.9%in March" and the lead in reads "Halifax price index adds to small signs that turbulence in the housing market is beginning to stabilise."

Which if you think about it, is a bold-faced lie. The story goes on to say: "The ratio of average house price to earnings is now at 4.34, its lowest level since 2003, which may indicate that the housing market is returning to normality."

But, with house prices in the UK still at an average of £150,000 and average wages still at £25,000 the actual house price to earnings ratio is still 6:1. If prices were at 4.34:1 we would have an average house price of £108,500. The Times lies to their readers.

Halifax House Prices 1975-2006

So be warned when reading the vested interest "news" - we have a ways to go in the UK before the housing market "returns to normal." One thing to bear in mind is that the Halifax index does not include any cash sales whatsoever - only prices for houses they wrote a mortgage on. And as they are not writing any mortgages at the moment - draw your own conclusions as to the value of this piece of information.

The Telegrah ran the exact same story, but at least had the decency to ask, "House prices - is the worst over?" and quote Howard Archer IHS Insight as saying

The unexpected rise in house prices in March revealed by the Nationwide, follows on from the Bank of England reporting that mortgage approvals rose to a nine-month high of 37,900 in February from 31,791 in January and a record low of 27,330 last November. In addition, estate agents are now consistently reporting significantly rising buyer enquiries.

"However, housing market activity remains extremely low and any pickup in activity over the coming months is likely to be gradual and fitful given ongoing very poor economic fundamentals and still tight credit conditions.

"Soaring unemployment, muted wage growth, a suspicion that house prices still have some way to fall, and an unwillingness of many people to commit to buying a house when they are so worried about the outlook are all factors that are likely to continue to weigh down on the housing market for some time to come.

"Furthermore, housing affordability ratios are still above their long-term norms, despite coming down sharply from their peak levels. Meanwhile, it is still very difficult for many people to get mortgages, particularly first time buyers – and this situation is likely to improve only gradually.

"Consequently we believe that house prices will fall significantly further, although we do expect the rate of decline to gradually moderate over the coming months. There is also likely to be increasing volatility around this trend. In total, we see house prices falling by another 15.2pc from the March level of £150,946 on the Nationwide measure to trough at of £127,948 around mid-2010. The Telegraph sort of tells the truth to their readers.

Myself, I see British property prices continuing to decline at least to the point where affordability is "around three times average income." which means considerably further to go.

Another thing I watch is the condition of the "professional real estate investors," i.e. the banks. We all know the other real estate shoe to drop this year will be the commercial real estate defaults, but the New York Times ran an interesting story on just how much money the financial institutions are predicted to have lost in the Chinese property market. A staggering $10 billion - which will have to come off their balance sheets somewhen this year. So if you were eying up those banking stocks and thinking they might be a good deal - think again. I am just surprised they missed the opportunity to title the story, "Big Trouble in Little China."

Banks set to lose another $10 billion this year on bad bets on the Chinese property market

“They were greedy,” says Andy Xie, an independent economist who once served as Morgan Stanley’s chief economist in China.

“They were all in a hurry to make quick money in the stock market. So they were telling developers to go out and buy more land,” he says. “They ruined a lot of good companies.”

While the scale of the property downturn is still unclear — sales have rebounded slightly after falling more than 50 percent in some big cities — investment in big property projects has stalled.

What is clear is that the real estate boom was fueled in part by foreign investors, who over the last four years pumped tens of billions of dollars into the Chinese property market, hoping to snap up office buildings, luxury villas and stakes in big developers.

A Morgan Stanley real estate fund bought a tower in Shanghai for more than $240 million; the Carlyle Group acquired luxury villas; and in 2008 J. P. Morgan Asset Management held a 12 percent stake in R&F Properties, a big Chinese developer. The New York Times