House Price Outlook (4th February - 18th February 2008)

This website is about the coming house price crash. But in order to understand the drivers for house prices going forward we first need to understand current economic conditions and anticipated future trends. Which Way Home provides a quick summary of these factors twice a month in the “Latest Market Outlook” section of the website. I hope you find it useful…

More financial losses were reported this period, notably at Swiss banking giant UBS and insurer AIG. AIG fell 9% this week after auditors suggested that the insurer inflated the value of sub-prime related securities. AIG said credit derivative asset values fell $4.9 billion between October and November last year, far worse than first reported. UBS lost $11.2 bil in Q4 including a $13.7 bil write down for U.S. sub-prime mortgages. It quite rightly sees a tough 2008 ahead.

The bond insurer crisis continued to grow as FGIC Corp asked to split its safe municipal bond business (insurance of bonds issued by a state, city or other local government) from its structured finance business (which insures riskier products involving complex legal and corporate entities) a day after rating agency Moody’s slashed its AAA rating by 6 notches.

As a result Fed chief Ben Bernanke told congress that he is ready to cut rates further if necessary in order to avert a recession.

In an attempt to help struggling homeowners, six major U.S. lenders agreed to halt foreclosure activity for 30 days on mortgages for borrowers who qualify under certain criteria and respond to letters that will be sent to them. Unfortunately this crisis is far too big for small initiatives like this to make a dent. The massive credit bubble which has inflated needs to be unwound, and this is a nasty process which will take time.

Continuing the rising trend in the commodity markets, wheat soared, oil climbed. Silver made a powerful move, simultaneously breaking out against USD, EUR and GBP.

The downward trend in the stock market continued. Following January’s interest rate cuts the Nasdaq showed some signs of a short-term rebound but remember that the longer-term trend in equities is downward, so don’t go chasing the bounces. The fledgling rally hit resistance as heavy selling on Thursday 21st thwarted the rebound attempt.

So in summary, weak stock market, companies struggling with bad debts and the limited availability of credit, rising commodities, and weak economic data suggesting further pressure on house prices. Have you spotted the trend yet?

Keep reading and keep updated.

Which Way Home