Credit deflation and the reflation cycle to come (part 3)

[Innkeeper]

8 hours ago, DurhamBorn said:

Ok,iv road mapped UK house prices by cross marketing them from my inflation work and with likely interest rates.Im seeing base rate hitting 3.25% next year.One year out from here i see down 6%,down 16%ish inflation adjusted,then another 4% down,10% with inflation,so a real 26% fall over two years.The 2% increase with 5% inflation so 29% down,then another 15% off (inflation adjusted) to end the cycle,so 44% down inflation adjusted.

To stop this would need a lot more props from government.Housing benefit increases would lower the falls.

Out of interest i did a quick look at construction costs.There is a point on my roadmap where you cant build houses at a profit.The housebuilders could be Fubar.

Do you make any assumptions or take into account the price of land i.e does house building become unprofitable even if the land costs zero?

As I see it, the price the house builders are prepared to pay for land is as much as it costs to keep it from the competition but not too much to prevent making profits.  So ultimately all government props simply drive up land values. The house builders who have ‘land banked’ or had permissions granted and projects started before the latest prop, always cash in handsomely (as we have seen from HTB).  After that it’s back to moaning about how they can’t make money.   This is because they’ve paid too much for the land to support what people can pay/banks will loan for houses, so instead of developing it they sit on it. 

At the end of a housing boom this scenario will always occur so any government policy demanding hundreds of thousands of homes be built by the private sector will not happen until land values start to fall.

Unfortunately yet another reason for governments to keep house prices from falling.....

[wherebee]

2 hours ago, WICAO said:

https://www.abc.net.au/news/2022-05-31/about-to-get-harder-to-get-a-big-home-loan/101112904

The Australian banking regulator, APRA, warning some institutions to cut back on risky loans.  In response:

• ANZ reduce debt to income levels from 9x to 7.5x
• NAB reduce debt to income levels from 9x to 8x

Good to see everyone being super vigilant  

And this is why the banking regulators in every western country have failed miserably.  They should be taking the punchbowl away when things are doing well in the economy, not on the verge of a depression.

fuckers.

[WICAO]

1 minute ago, wherebee said:

And this is why the banking regulators in every western country have failed miserably.  They should be taking the punchbowl away when things are doing well in the economy, not on the verge of a depression.

fuckers.

It's almost as though they want to ensure boom and bust.

[feed]

Print and they will come.  So long as the banks are prepared to lend and people are prepared to take on the debt.  

Transition as WFH shifts money from the SE to the rest of the country and more hollowing out of the middle ground.
Shit holes where no one will lend or borrow move to the professional rental services and nice middle class areas with retirees prices increase but value is eaten away by inflation.  Stealing from old people slowly.  

London property, well that just becomes more an asset class for the global wealthy.  
 

https://www.mansionglobal.com/articles/foreign-ownership-has-grown-in-london-despite-travel-restrictions-01646850620

London’s foreign-buyer contingent owned £59.3 billion (US$78.1 billion) worth of property in the capital during 2021, an uptick from 2020 despite widespread travel restrictions, which only began to lift at the tail end of the year, according to a report Wednesday from London-based lettings and estate agent Benham and Reeves.

The total value of homes owned by overseas residents in the city last year was £6 billion more than 2020, and equated to 85,451 properties in foreign hands, 4% more than the 81,872 the year before

 

[Democorruptcy]

B&M are having a bad day so far. They are the cheaper end of the market and like for like sales are well down. No wonder the governbankment wants to up bennies.

Quote

 

B&M Value Retail on Tuesday said chief financial officer Alex Russo would be replacing Simon Arora as chief executive and warned that margins would take a hit this year as Britain's cost-of-living crisis hit household budgets.
The company said UK like-for-like sales over the first eight weeks of the current financial year were down 13.2% and 11.5% against 2022 and 2021 respectively amid inflationary pressures which are forcing shoppers to cut back on non-essential items.

Group statutory profit before tax remained flat at £525m for the year to March 26, while adjusted core earnings were down to £619m from £626m.

B&M, which sells food, homewares and DIY products, said it expected markdowns to return and warned of a "adverse impact from category mix as customers shift spending away from more discretionary higher margin general merchandise categories" in favour of food and other consumer products.

As a result of this gross margin dilution, B&M UK adjusted core earnings margin is expected to fall between 70 to 130 basis points, it added.

Core profit this financial year was expected to be £550m - £600m, lower than last year but ahead of 2019 pre-pandemic levels.

"Given the uncertain macroeconomic outlook, it is difficult to predict the net impact of a number of factors such as customer down-trading, category mix shift and the impact of inflation on sales volumes," B&M said.

https://www.hl.co.uk/shares/shares-search-results/b/b-and-m-european-value-retail-sa-ordinary-10p/share-news

 

[Pip321]

49 minutes ago, Barnsey said:

Certainly the less is more model of housebuilding is prospering right now, there's a prefab development of what I would call "micro homes" popping up next to Beeston Station, fascinating to see the pace at which the trucks have offloaded them and now looking almost ready. Shared ownership of course. Must be 2 beds. Development on the other side looks to be HA rentals only.

When I first saw the former railway land being cleared, assumed it was for a small warehouse or something, crazy just how many homes can be squeezed into these plots now. 

https://ilkehomes.co.uk/2021/03/ilke-homes-partners-with-emh-group-to-deliver-42-affordable-homes-on-former-network-rail-land/

Cheers Barnsley. Interesting. In my investing days I always steered clear of Leeds because it was so mixed but Beeston always came up on the radar as being super super cheap. And a tad rough? 

You know the world has gone mad when a company is building affordable houses in Beeston. I have just had a quick look (expecting to illustrate you can pick up a terrace for £20k) but the prices of older housing seem to start from about £90k now. So admittedly I am well out of touch  

Interested to know what a 50% stake in one of these boxes would be….and whether those little terraces dotted around Beeston are a better prospect.

The screams of profiteering under a banner of sustainability, affordable, environmental. Rabbit hutches for little tax batteries. Love that it’s my favourite scheme too ‘shared ownership’ ie new owner buys half the ‘box’ but gets 100% of the maintenance. I wouldn’t want to be responsible for the maintenance of these shipping crates. 

[Napoleon Dynamite]

2 minutes ago, feed said:

Transition as WFH shifts money from the SE to the rest of the country and more hollowing out of the middle ground.

Seeing this in the North West, IT jobs. People leaving jobs which were relatively well paid and safe (~£60K) to get 100% remote jobs for companies in London paying toward 100K.

[Democorruptcy]

11 minutes ago, Pip321 said:

Cheers Barnsley. Interesting. In my investing days I always steered clear of Leeds because it was so mixed but Beeston always came up on the radar as being super super cheap. And a tad rough? 

You know the world has gone mad when a company is building affordable houses in Beeston. I have just had a quick look (expecting to illustrate you can pick up a terrace for £20k) but the prices of older housing seem to start from about £90k now. So admittedly I am well out of touch  

Interested to know what a 50% stake in one of these boxes would be….and whether those little terraces dotted around Beeston are a better prospect.

The screams of profiteering under a banner of sustainability, affordable, environmental. Rabbit hutches for little tax batteries. Love that it’s my favourite scheme too ‘shared ownership’ ie new owner buys half the ‘box’ but gets 100% of the maintenance. I wouldn’t want to be responsible for the maintenance of these shipping crates. 

Article is Beeston, Nottinghamshire not the Leeds one. Funnily enough I thought it might be the one in Cheshire.

[M S E Refugee]

I have just worked out my Pension Pot and it makes for depressing reading.

If I was on the old Royal Mail Final Salary Scheme my Pot would be worth around £277,000 instead it is worth £234,000 and that is only because I have put in around £40,000 of my own money through Salary Sacrifice.

I think many of my colleagues are in for a big shock.

[feed]

6 minutes ago, M S E Refugee said:

I have just worked out my Pension Pot and it makes for depressing reading.

If I was on the old Royal Mail Final Salary Scheme my Pot would be worth around £277,000 instead it is worth £234,000 and that is only because I have put in around £40,000 of my own money through Salary Sacrifice.

I think many of my colleagues are in for a big shock.

How many years service?

 

[Pip321]

5 minutes ago, feed said:

Print and they will come.  So long as the banks are prepared to lend and people are prepared to take on the debt.  

Transition as WFH shifts money from the SE to the rest of the country and more hollowing out of the middle ground.
Shit holes where no one will lend or borrow move to the professional rental services and nice middle class areas with retirees prices increase but value is eaten away by inflation.  Stealing from old people slowly.  

London property, well that just becomes more an asset class for the global wealthy.  
 

https://www.mansionglobal.com/articles/foreign-ownership-has-grown-in-london-despite-travel-restrictions-01646850620

London’s foreign-buyer contingent owned £59.3 billion (US$78.1 billion) worth of property in the capital during 2021, an uptick from 2020 despite widespread travel restrictions, which only began to lift at the tail end of the year, according to a report Wednesday from London-based lettings and estate agent Benham and Reeves.

The total value of homes owned by overseas residents in the city last year was £6 billion more than 2020, and equated to 85,451 properties in foreign hands, 4% more than the 81,872 the year before

 

My bold above “London property, well that just becomes more an asset class for the global wealthy.” 

This is interesting because I think I am seeing some evidence of this in t’north.  

There are particular towns and cities that are fairly affluent and within them maybe 2/3 areas of old mansion style houses which have always been prime ie £1m plus. So we are not talking traditional northern BTL properties.

Recently a few houses (in these very specific areas in very specific streets) have been bought for a high price, renovated to a daft standard ie scaffolding, stripped out, new roof, everything….then either left or put up for short term rentals.

The prices paid make no commercial sense but it occurred to me these are NOT investments but may well be an ‘asset holding’ ie you already have gold, watch, art, cash, shares etc and £2/3/4m is a small drop in your £500m portfolio.

I think we have seen this for a while in ‘country estates’ but there has been a tendency for those to be homes (or second homes)….whereas these more central purchases seem more like the empty houses we hear about in London  

I guess this has been around a while but it just a handful I have noticed that make me wonder if it’s more of a trend.

I will have a dig around to see what I can find out without giving away too much preciseness on my location but typically I mean York, Harrogate, Leeds (not Beeston😆) and even smaller towns like Ilkley, Wetherby but only in the prime, prime locations within those areas.  Also further south like Huddersfield, Halifax and Sheffield but there a tendency to be ‘countryside’ areas or edge of town  rather than city centre. Also unlike London a preference for a grander house rather than a ‘posh flat’. (not always detached and could include a gentleman’s town house)

[M S E Refugee]

3 minutes ago, feed said:

How many years service?

 

Nearly 33 years total but 32 years in the Pension.

[Yadda yadda yadda]

2 minutes ago, Pip321 said:

My bold above “London property, well that just becomes more an asset class for the global wealthy.” 

This is interesting because I think I am seeing some evidence of this in t’north.  

There are particular towns and cities that are fairly affluent and within them maybe 2/3 areas of old mansion style houses which have always been prime ie £1m plus. So we are not talking traditional northern BTL properties.

Recently a few houses (in these very specific areas in very specific streets) have been bought for a high price, renovated to a daft standard ie scaffolding, stripped out, new roof, everything….then either left or put up for short term rentals.

The prices paid make no commercial sense but it occurred to me these are NOT investments but may well be an ‘asset holding’ ie you already have gold, watch, art, cash, shares etc and £2/3/4m is a small drop in your £500m portfolio.

I think we have seen this for a while in ‘country estates’ but there has been a tendency for those to be homes (or second homes)….whereas these more central purchases seem more like the empty houses we hear about in London  

I guess this has been around a while but it just a handful I have noticed that make me wonder if it’s more of a trend.

I will have a dig around to see what I can find out without giving away too much preciseness on my location but typically I mean York, Harrogate, Leeds (not Beeston😆) and even smaller towns like Ilkley, Wetherby but only in the prime, prime locations within those areas.  Also further south like Huddersfield, Halifax and Sheffield but there a tendency to be ‘countryside’ areas or edge of town  rather than city centre. Also unlike London a preference for a grander house rather than a ‘posh flat’. (not always detached and could include a gentleman’s town house)

Just type YORKSHIRE as it is quicker.

[Castlevania]

Gold Fields have announced a merger with Yamana at 0.6 Gold Fields shares for every one in Yamana.

[geordie_lurch]

42 minutes ago, Democorruptcy said:

B&M are having a bad day so far. They are the cheaper end of the market and like for like sales are well down. No wonder the governbankment wants to up bennies.

I do a lot of work with online retailers large and small and nearly all of them have seen sales down at least 30% for several weeks now which just further reinforced my view that we are already deep in a recession but the 'official' numbers just haven't confirmed it yet.

[feed]

47 minutes ago, Democorruptcy said:

B&M are having a bad day so far. They are the cheaper end of the market and like for like sales are well down. No wonder the governbankment wants to up bennies.

 

Would have thought the discounters to be the first to not be able to pass on the inflation to customers.  

[DurhamBorn]

3 hours ago, Yadda yadda yadda said:

Good stuff, thanks. Where do you see base rates going after next year? Is 3.25% a likely medium term peak or would they continue climbing in 2024?

Im not sure yet,3.25% could be the peak,but they might stay there all cycle.The government has no hope of funding the bennies etc without QE so a lot depends on if the BOE finish off the UK by helping them with that or not.If the BOE does its job,government will have to cut spending.I think sterling will go up now,never mind what those big US banks say,but the BOE could push us into a hoffific situation if they monetise anymore government debt.

[leonardratso]

58 minutes ago, Pip321 said:

Cheers Barnsley. Interesting. In my investing days I always steered clear of Leeds because it was so mixed but Beeston always came up on the radar as being super super cheap. And a tad rough? 

You know the world has gone mad when a company is building affordable houses in Beeston. I have just had a quick look (expecting to illustrate you can pick up a terrace for £20k) but the prices of older housing seem to start from about £90k now. So admittedly I am well out of touch  

Interested to know what a 50% stake in one of these boxes would be….and whether those little terraces dotted around Beeston are a better prospect.

The screams of profiteering under a banner of sustainability, affordable, environmental. Rabbit hutches for little tax batteries. Love that it’s my favourite scheme too ‘shared ownership’ ie new owner buys half the ‘box’ but gets 100% of the maintenance. I wouldn’t want to be responsible for the maintenance of these shipping crates. 

Leading modular housing company ilke Homes has agreed a deal with emh group for the delivery of an affordable-led scheme in Beeston, Nottinghamshire.

 

ah, see its corrected ealier.... ignore.

[BurntBread]

10 hours ago, DurhamBorn said:

Ok,iv road mapped UK house prices by cross marketing them from my inflation work and with likely interest rates.Im seeing base rate hitting 3.25% next year.One year out from here i see down 6%,down 16%ish inflation adjusted,then another 4% down,10% with inflation,so a real 26% fall over two years.The 2% increase with 5% inflation so 29% down,then another 15% off (inflation adjusted) to end the cycle,so 44% down inflation adjusted.

To stop this would need a lot more props from government.Housing benefit increases would lower the falls.

Out of interest i did a quick look at construction costs.There is a point on my roadmap where you cant build houses at a profit.The housebuilders could be Fubar.

Thank you DB: that's really informative! I am assuming the predictions of 6% nominal falls over 12 months, then a further 4% nominal falls the year after are for some national average of house prices? The last 20 years have seen increasing divergence between (for example) the SE (esp London) and the Northern half of the UK. Do you see regional differences persisting, or (as I think you said before) some reversal, with the re-industrialisation of the NE perhaps giving nominal rises there?

I guess I am being cheeky and asking if you had any idea of regional breakdowns for those numbers (with a personal interest in the the SE and SW)?

I also see your inflation forecast again of 10% over 12 months and 6% the following 12 months, then 5%, which I am taking to be reassuring us that your concerns for collapse remain an outlier, even if the risk is getting higher.

[DurhamBorn]

47 minutes ago, M S E Refugee said:

I have just worked out my Pension Pot and it makes for depressing reading.

If I was on the old Royal Mail Final Salary Scheme my Pot would be worth around £277,000 instead it is worth £234,000 and that is only because I have put in around £40,000 of my own money through Salary Sacrifice.

I think many of my colleagues are in for a big shock.

£468k its worth,youl double it on this thread  .

[DurhamBorn]

21 minutes ago, geordie_lurch said:

I do a lot of work with online retailers large and small and nearly all of them have seen sales down at least 30% for several weeks now which just further reinforced my view that we are already deep in a recession but the 'official' numbers just haven't confirmed it yet.

I had my own one man superb import business,built up to where i could of become the biggest in the country in certain areas,but i closed it down an took out all the capital,my roadmap showed me what was coming,and how the risk was going to go to extremes.That capital went into the likes of Harmony at $1.80,Sibanye,Eldorado etc etc then out mostly into the stocks we talk about on here in Covid March/April.I cant even imagine how tough importing would be now,the prices,the stress,its a mess.Massive onshoring is coming,even down to more simple items.I used to import dog cages,heavy duty ones,massive money spinners,i really should get a small unit and sort out making my own,but i just cant be arsed with all that goes with it.

Anything to do with dogs makes big money,PVC whelping boxes a big undeserved area if anyone knows how to work with PVC,or do a design of the bits and get them made at a window firm.

[Jeff2500]

14 hours ago, Chewing Grass said:

This will be a good one to watch as well, horseboxes and trailers, 20K for a knackered old ford one.

Currently 940 Horseboxes and 240 Trailers.

Remember you need a decent gas-guzzly motor to pull one tonne of horsemeat around.

https://www.horsemart.co.uk/horseboxes-and-trailers.php

Not necessarily. A previous colleague used a Nissan Micra for towing a horsebox. Admittingly he didn't go far with it but I dread to think how much wear and tear it put on the brakes and clutch

[Nomad]

10 hours ago, DurhamBorn said:

Ok,iv road mapped UK house prices by cross marketing them from my inflation work and with likely interest rates.Im seeing base rate hitting 3.25% next year.One year out from here i see down 6%,down 16%ish inflation adjusted,then another 4% down,10% with inflation,so a real 26% fall over two years.The 2% increase with 5% inflation so 29% down,then another 15% off (inflation adjusted) to end the cycle,so 44% down inflation adjusted.

To stop this would need a lot more props from government.Housing benefit increases would lower the falls.

Out of interest i did a quick look at construction costs.There is a point on my roadmap where you cant build houses at a profit.The housebuilders could be Fubar.

So only a 10% fall from today's nominal prices in the next two years?

[DurhamBorn]

53 minutes ago, Pip321 said:

My bold above “London property, well that just becomes more an asset class for the global wealthy.” 

This is interesting because I think I am seeing some evidence of this in t’north.  

There are particular towns and cities that are fairly affluent and within them maybe 2/3 areas of old mansion style houses which have always been prime ie £1m plus. So we are not talking traditional northern BTL properties.

Recently a few houses (in these very specific areas in very specific streets) have been bought for a high price, renovated to a daft standard ie scaffolding, stripped out, new roof, everything….then either left or put up for short term rentals.

The prices paid make no commercial sense but it occurred to me these are NOT investments but may well be an ‘asset holding’ ie you already have gold, watch, art, cash, shares etc and £2/3/4m is a small drop in your £500m portfolio.

I think we have seen this for a while in ‘country estates’ but there has been a tendency for those to be homes (or second homes)….whereas these more central purchases seem more like the empty houses we hear about in London  

I guess this has been around a while but it just a handful I have noticed that make me wonder if it’s more of a trend.

I will have a dig around to see what I can find out without giving away too much preciseness on my location but typically I mean York, Harrogate, Leeds (not Beeston😆) and even smaller towns like Ilkley, Wetherby but only in the prime, prime locations within those areas.  Also further south like Huddersfield, Halifax and Sheffield but there a tendency to be ‘countryside’ areas or edge of town  rather than city centre. Also unlike London a preference for a grander house rather than a ‘posh flat’. (not always detached and could include a gentleman’s town house)

Can you stop mentioning Leeds.I had a gorgeous girlfriend from there,Gipton,now that was rough,and i cheated on her with a high maintenance one from Glastonbury not worth shit,and she found out,it broke her heart and its one of my few regrets in my life.Taking someones whole trust who had had a shit life and abusing it.

Everytime i hear Leeds i think about that,i dont like my roadmap going into reverse,thats dangerous.Wonder if shes on Facebook?

[geordie_lurch]

There's nothing to worry about I'm sure... https://www.gbnews.uk/news/six-million-brits-could-face-power-cuts-this-winter-with-government-planning-electricity-rationing/305725

"Ministers have reportedly been warned of potential power cuts to as many as six million households this winter, with the Government drawing up plans for rationed electricity if supply issues deteriorate.

According to The Times, Government modelling of a “reasonable” worst-case scenario predicts major gas shortages in winter if Russia cuts off more supplies to the EU.

The paper writes limits could be imposed on industrial use of gas, including on gas-fired power stations, causing electricity shortages.

As a result, six million homes could see their electricity rationed, primarily during morning and evening peaks, in curbs that may last more than a month.

Worse modelling is reported for a scenario in which Russia cuts off all supplies to the EU.

A Department of Business, Energy and Industrial Strategy spokesperson told the PA news agency the UK “has no issues with either gas or electricity supply, and the Government is fully prepared for any scenario, even those that are extreme and very unlikely to pass”.

“Thanks to a massive £90 billion investment in renewable energy in the last decade, we have one of the most reliable and diverse energy systems in the world,” the spokesperson added, “and unlike Europe, we are not dependent on Russian energy imports.”

But threats to security of supply have prompted Business Secretary Kwasi Kwarteng to ask Britain’s coal-fired power stations to delay their planned closures."

And on lighter note, a recommendation on how to beat the petrol and diesel price increases