When Tony Blair entered Downing Street in 1997 there were around 30,000 Buy To Let mortgage approvals per annum in the UK. Last year there were 30,000 short of 1 million. That bit is different this time for sure. Every single one of those relies on capital appreciation as part of their financial proposition. With that prop removed they make no sense as yields are far less than money in the post office. As BTL portfolios are liquidated following insolvency the market is going to be swamped with distress sales.
Just look at any of the national property auctions and you'll see 50% losses going under the hammer by order of the mortgagees. Which is why rents are falling as those properties come back on the market for rents that only have to support half the mortgage finance cost.
Other than that its exactly the same as any house price bubble. Irrational investment made on leveraged debt.
There are no shortage of houses. People don't have to live alone. Poles don't have to stay in the country for jobs that no longer exist. Second homes are not essential. Holiday homes abroad make little sense for most without capital appreciation. The unwinding of the bubble is now apparent to most though a suprising number cling to the orthodoxy of the past decade.
What most still do not see is that for average prices to fall to normal average wage multiples of 3.5 you need a fall of 40%. This is inconceivable to many though it is true and essentially simple both to understand and to observe in the historical records.
The demand for houses is as unlimited as the demand for a Ferrari and private jet. The need and the ability to pay are totally different yet in a market they are the only arbiters of 'demand'.
The market is clearly signaling that prices are going to fall further and rationally buyers are sitting out the market as are lenders.
The rantings of the Vested Interests about lack of housing are being rightly ignored.
The debate has moved on from the housing market as, frankly, that one has been won by the bears. The debate now needs to be on the depth and length of the recession we are in. It is this, rather than the spot price of oil, which will determine the fate of the airline sector.
Even at todays oil price of double a year ago the fuel cost on a typical Ryanair flight to the South of France is only £30 per ticket. With oil at half the current price or double it then ticket cost need only move by a couple of tenners. Oil is therefore a sideshow.
The recession - the lack of people travelling at ANY price - compared to previous years is the REAL crisis facing the airlines.
I defy anyone contemplating a week in New York City to be put off by the £180 fuel surcharge when they'll spend that on the first night meal and a show. But a week in NYC on the razz when you're worried about your job, partners job, bonus or mortgage is easily deferred.
Same with low cost short breaks to Europe. I defy most people to not spend 10 times the airline ticket cost on parking, car hire, accommodation, sight seeing and dining. The flight cost is chicken feed but again, by deferring the whole trip the airlines will be crippled by their high fixed cost of unused capacity.
It was ever thus. An hour spent researching what happened to the airline industry and housing market in the 1990 - 1993 crash/recession is all you need to see the future of 2009/10.
2011/12 looks good though - as long as you are a long term optimist like me.
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"We are in the worst trading environment the industry has ever faced," said Willie Walsh this week...