1- A friend story
In the past few days I didn't have time to update the blog as I went to London for a business trip.
While I was there, I met an old friend that is currently working for an Investment Bank. As Usual after a pint of good lager, we started to chat about the housing market in London among other interesting subjects...
I was surprised and shocked by some revelations : He told me that he bought a flat back in 2005 and asked a real estate agent to estimate the value of his flat beginning of 2007. They told him that He could sell it 20% higher...at this time my friend went on holiday and was too busy at work to consider selling it ... Although, three months later He asked again an evaluation, this time they told him that He could sell it at a price that is 50% higher...He couldn't believe that and thought maybe it's good time to sell as things were getting crazy..He finally sold it in june 2007 at 55% higher than the original price...
It's important to note that He did sell it before the credit crunch started to byte in the U.S. , U.K. and world wide. Second, He is a smart guy, you see the seller is not the one that commit a mistake but instead the buyer that is purchasing an inflated asset...
He thinks that price will go down at least 20% in U.K. by christmas. He shared the same view as other non related friend I met during my London visit...
2- Real estate investment Craze
You just have to walk through any london street to see that heavy investment has been redirected toward real estate. Old buiding, old commerce are being destroyed and appartment block being created. With some British humour, it looks like people are able to create gold from lead other there...
Advertisement regarding real estate are everywhere. You could find them in the london tube. For example, one is pushing people to buy room for rent...in hotels! "why not making money while other sleep" that's the moto and say as well that they can use the room for free whenever... you could start to see that speculation is now moving toward hotels...of course, you can fins as well lots of advertisements about partly own flat (30%) where you put a small deposit (30 to 60.000 pound, little but maybe not for everybody)...
3-Easy Mortgage drying up
The time of easy money is vanishing very fast in London. You can't hardly find a mortgage broker willing to give 100% or 130% mortgage instead they are asking first time buyer 25% deposit...
Conclusion
At the end, it looks like the supply and demand is reversing as the number of properties on the market is growing faster than the number of people looking for it.
A crash is likely to happen in the U.K if both interest rate and unemployment rise sharply (icome shock) because of the continous credit crunch and a possibility that U.S. economy will fall into a (deep) recession.
U.K. is the canary in the coal mine for Europe as it was back in the late 80's. If U.K. has a severe recession that Europe will be affected... again there's the domino effect: when the first wave is being hit, the next will fall too but with a time lag...and so will interest rates in Europe...
It's worth to note that Mervin King, the governor of the Bank Of England, warned that the economy will slow down (sharply?) end of the year and that property price will eventually fall in the same period. At the same time, lots of banks and investment banks will be hit by the credit crunch (let's call it the end of the credit cycle that started in the mid 90's or even in the 80's), so thousands of jobs will be lost in london...
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