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Entries in housing (4)

Friday
Jun222012

The UK under the loop - Safe Haven for How Much Longer?

One of the extraordinary effects of the euro zone debt crisis has been the manner in which the market and media have taken the notion of safe haven investment to heart. Consider for example the fact that the situation we are currently in largely comes down to too much debt tied to real estate, mortgages, and property development.  Consider then Denmark with the largest ratio of mortgage and private household debt to income in the world and you wonder why international money is pouring into the Danist mortgage backed securities to such an extent that interest rates are now negative. I mean, wasn't this the very products that got us here in the first place?

The same reverse logic can be applied to the UK where yields on Gilts are heading for new lows even as we learn from the most recent McKinsey study on global deleveraging that the UK is now the most indebted economy in the world even surpassing Japan. 

Ben Davies and his team at Hinde Capital have also been wondering about the UK and the result is a timely and very detailed report on the UK economy, its challenges and how to solve them. The report has been published in two parts, with the first part coming out earlier this week causing a flurry of debate as it was picked up by Izabella over at FT Alphaville

You can get part 1 here and part 2 here

It is well worth reading, preferebly before you stuff yourself with more Gilts. 

Friday
May042012

The Denial on Housing in Spain

I am sure many of my readers will have caught this Bloomberg piece earlier this week, but if you haven't it is a brillian piece of journalism by Bloomberg reporters Sharon Smyth, Neil Callanan and Dara Doyle. The story takes us to Spain and Ireland and the former's denial with regards its housing market. 

Quote Bloomberg

In the stages of death of a real estate boom, Spain is still in denial. In Ireland, they’re moving toward acceptance. The first auction of one of 2,000 unfinished housing estates takes place tomorrow at the Shelbourne Hotel in central Dublin, with sales expected to fetch cents on the euro, showing the Irish may be closer to the end than the beginning.

“Ireland faced up to its problems faster than others and we expect growth there rather soon,” said Cinzia Alcidi, an analyst at the Centre for European Policy Studies in Brussels. “In Spain, there was kind of a denial of the scale of the problem and it may be faced with many years of significant challenges before full recovery takes place.”

Spain, Europe’s fifth-largest economy, is the current focus of attempts to contain the region’s sovereign debt crisis, as Prime Minister Mariano Rajoy struggles to quell speculation it will need a bailout. Developers are showing similar optimism. They continue to build even with 2 million homes vacant around the country, new airports that never saw a single flight being mothballed, and property appraisers and banks reporting values have fallen only about 22 percent, said Encinar, who estimates the real decline is probably at least twice that.

Another passage that was staggering to my mind was the comments by Miguel Angel Garcia Nieto, mayor of Avila (a town showcased in the article) that this is just an interim soft spot as a result of the crisis and that oversupply and overcapacity will eventually be absorbed. 

Quote Bloomberg

“When we approved the first urban plan back in 1998 there was an unprecedented demand for homes,” Nieto said in a telephone interview on April 19. “Yes, there is oversupply at the moment because of the financial crisis and everyone’s gone back home to live with their parents, but it’s not because there is lack of demand. When the economy gets back on track I am confident the supply will be absorbed.”

Hope as they say, springs eternal.