Can the East Dulwich micro economy survive a recession?

[karter]

This could be discussed to death but pockets of areas like ED will not see reposessions as poorer areas would if the worst were to happen. Many people in the area that I know own their property outright. Paid bonuses have paid for properties. Many people in the area are wealthy and have cashed in from more expensive areas and have moved into ED.Alot of the shops in the area are owner occupied and do not have to pay astronomical rents that we are seeing now by the likes of the few new places that are opening . Domitianus is saying that shops will not "likely last" but most of them would last.I cannot see LL turning into a ghost town even in a recession.

Domi, you are going on figures run by people in the city. When do you predict the worst to happen as you say its "early days yet"?!?!?.

Tell us.

K

[Domitianus]

I said that the good-times "may not last", not that business won't. Also there is no reason at all why ED should be immune from the forecasts of experts despite what you say. Repossessions strike at every level of financial status, poor, middle-class or more affluent. Indeed, poor areas tend to have more social housing that mitigates against the repossessions etc suffered by more affluent areas where there may well be a higher proportion of owner-occupiers with crippling mortgages. And whilst there may be some in ED who own their properties outright for some of the reasons you suggest, I suspect they are a small minority.

I quote figures from people in the City as that is where the folks who look at these types of things tend to work. When might we see this crunch? Well, the figures from a few sources are as follows:

Royal Institute of Chartered Surveyors - zero percent house price inflation in 2008 and a one-in-ten chance of serious falls (revised from earlier forecast of 3% inflation).

Nationwide - 3% growth in 2008 at best.

Savills Estate Agency - zero percent inflation between now and New Year and perhaps as much as a 5% downturn in same period.

Other figures who have seriously questioned stability of UK housing market include (as mentioned before) Alan Greenspan and ABN Amro. I am sure there are more. We have also seen serious decline in value of buy-to-let (40%) and, overseas, big problems in property prices in the US, Ireland and Spain.

From these forecasts I think we could expect to see a very dramatic change in UK property prices between now and end of 2008 (Savills see things getting worse within three months).

[Asset]

"I am chuffed to think I could have such influence, I must say. smiling smiley ".

I didn't mean you specifically, I meant 'one'.

Downsouth - so people started predicting the recession not that long after we were coming out of the last one then? It's only really in the last year that it has been discussed with any seriousness which is one reason for the lack of confidence in the economy, prior to that we were all being told how great the world economy was.

Are people being made redundant in any greater number of late?

Indeed, I don't think ED will be immune if it happens, which looks likely now we are all talking about it. I bet quite a few people - especially first time buyers - have been tempted by interest payment only mortgages on the assumption that the value of their property will pay off the loan. These are the people who will find themselves in extreme difficulty if there is an increase in interest rates and loss of value in property.

Karter may know people who own their property outright but I reckon it is still a minority of owners in ED that do. Saying that I don't think ED will suffer a dramatic loss in value, maybe just less of an increase.

[downsouth]

In 2001 and 2002 post 9/11 the US went into recession and in the UK lots of jobs were shed. There were many articles about an impending recession in the UK http://property.timesonline.co.uk/tol/life_and_style/property/article1171221.ece but it didn't transpire. Again in 2004 thru 2006 doom mongers have continually called the peak of the economic cycle. We are now told there are new factors - the BRIC countries - high commodity prices and greater competition for resources. Whether that plays out or not it is apparent the the big banks are making deep cuts as profits have fallen away or reduced. Now it seems Deutchse will be making a gloomy announcement tomorrow. So yes there are some key industries shedding jobs, it is telling that these losses are in the countries largest net contributor to GNP.

[Domitianus]

Asset Wrote:

-------------------------------------------------------

> "I am chuffed to think I could have such

> influence, I must say. smiling smiley ".

> I didn't mean you specifically, I meant 'one'.

> Downsouth - so people started predicting the

> recession not that long after we were coming out

> of the last one then? It's only really in the

> last year that it has been discussed with any

> seriousness which is one reason for the lack of

> confidence in the economy, prior to that we were

> all being told how great the world economy was.

> Are people being made redundant in any greater

> number of late?

>

> Indeed, I don't think ED will be immune if it

> happens, which looks likely now we are all talking

> about it. I bet quite a few people - especially

> first time buyers - have been tempted by interest

> payment only mortgages on the assumption that the

> value of their property will pay off the loan.

> These are the people who will find themselves in

> extreme difficulty if there is an increase in

> interest rates and loss of value in property.

> Karter may know people who own their property

> outright but I reckon it is still a minority of

> owners in ED that do. Saying that I don't think

> ED will suffer a dramatic loss in value, maybe

> just less of an increase.

I think that Asset's summary of the situation is well-articulated. Only place I differ is that I think the situation might become a little more extreme than a mere slow-down. Point he/she makes that justifies this thread and doom-and-gloom talk is that there are naive and desperate first time buyers etc who are absolutely crucifying themselves financially at the moment to get a property with the view that there is a guaranteed upside and that the worst that can happen is you fail to buy a house when it is (just about, if you tighten the belt until it hurts and gear yourself to the limit) possible, and have to watch prices soar further and realise you have missed the boat and will NEVER be able to afford a house EVER again. That is not a balanced perspective for people to be making investment decisions upon, particularly when there is a distinct possibility that the boat might start sinking before it even leaves the quay.

I think it is useful for people to know that this is a far from certain scenario and that the urgency and desperation with which they approach house-buying may be inappropriate. If the market does correct itself significantly then there will be good deals to be had and people may be glad they have waited. Obviously no-one knows which will happen for sure but I think it useful for folk to at least be aware that there are different potential outcomes.

[Asset]

what about this then?

[SeanMacGabhann]

Hmmmm .... Just because something is in the Evening Standard doesn't mean it ISN'T true..... and yet, and yet

[downsouth]

There's a little steam left in the engine yet. It is after all London. But for how much longer...

[Domitianus]

Latest from Bloomberg citing Goldman Sachs and Morgan Stanley:

Gordon Brown is thinking about calling an early election. Among the

reasons to believe he should do so is the vulnerability of the UK to a

housing meltdown similar to that in the US. Since the run on Northern

Rock

was merely an indirect consequence of US turmoil, what would happen

if a crisis were home-grown? Nobody knows. However confident he is about

the UK economy, the prime minister might be wise not to wait to find

out.

Why might the UK go the way of the US? The answer is that it has very

similar vulnerabilities: house prices are high by any standards; in the

second quarter of 2007, household saving was only 3.1 per cent of

disposable income; as house prices have soared, so has residential

investment, which has reached 10 per cent of disposable income, up from

just 5.5 per cent six years ago; and the overall household financial

deficit is, in consequence, at the record level of 7 per cent of

disposable income.

Indeed, in several respects, the UK looks more exposed to a

housing-induced correction than the US: between the first quarter of

1996 and its peak 10 years later, the Case-Shiller index of US house

prices rose by 127 per cent in real terms, while the FT's price index

for the UK had risen by 144 per cent by the second quarter of this year;

according to the Organisation for Economic Co-operation and Development,

the US price-to-rent ratio for housing was 36 per cent above its

long-run average in 2006, while the UK's was 66 per cent higher; UK

mortgage debt was 126 per cent of gross domestic product at the end of

last year, against 104 per cent in the US; total UK household debt was

164 per cent of GDP at the end of 2006, against 140 per cent in the US;

and, not least, the UK's ratio of household debt to GDP jumped by 50

percentage points between 2000 and 2006, while the US ratio rose by just

37 points over the same period.

If US households are sinking in debt, UK households seem to be drowning

in it. All this strongly suggests the possibility of house price

weakness and a sharp reduction in the household financial deficit. While

corporate balance sheets are strong, business investment would surely

weaken if household consumption did. This would seem a recipe for a

slowdown, possibly even a recession.

In the context of a weak housing market, lower interest rates would work

more through the exchange rate and improvements in net exports than

through borrowing. The impact of such easing would be modest and, more

important, slow to arrive. Moreover, the state of the public sector

finances would not permit much fiscal expansion provided the government

stuck to its (self-imposed) rules for a balanced current budget over the

cycle and net public debt at below 40 per cent of GDP.

For the UK, then, very much depends on the sustainability of current

soaring house prices and the consequences of any correction. Recent

analyses from Goldman Sachs and David Miles of Morgan Stanley throw

interesting light on these questions. The low real and nominal interest

rates of recent years do justify higher prices of housing. But, argues

Mr Miles, expectations of further price rises seems to explain a bigger

part of the rise in UK prices than of US prices: to put it bluntly, the

UK bubble is even bigger.

Moreover, adds Goldman Sachs, if it is the overall balance between

demand and supply, rather than lower interest rates, that is supposed to

explain the exceptionally big jump in UK prices, the rise in rents and

in house prices should be similar: scarcity should increase rents and

house prices equally. Yet, in fact, net rental yields have almost halved

over the past decade. Goldman Sachs concludes that house prices must

fall by a good 20 per cent for the historic relationship between rental

yields and real interest rates to be restored.

A sustained period of real house price falls is perfectly conceivable.

That has happened in Germany and Japan over the past decade, or more.

With low inflation, that would mean falling nominal prices and so much

negative equity. The impact could be far worse than in the early 1990s,

when high inflation generated much of the real fall in house prices.

Nobody knows what such a correction would do to household spending. In

theory, it might do nothing, since higher house prices do not - contrary

to idiotic popular wisdom - make society as a whole a jot better off.

But the negative impact on spending by the heavily indebted is likely to

be both bigger and more immediate than the positive impact on those who

find housing cheaper. Moreover, there is little doubt that weaker house

prices would lower investment in housebuilding. The combined impact is

likely to be strongly negative: another Anglo-Saxon spending-and-debt

machine would then bite the dust.

Is such an outcome certain? No. But it seems likely. Will it be soon?

Nobody knows, since the timing of corrections is uncertain. What would

happen to the UK economy during a lengthy period of stagnant, or even

falling, real prices of housing is an intriguing academic question. For

the incumbent politician, however, it is a nightmare, to be avoided at

all costs. Mr Brown may not have all the time he wants. An election now

might at least postpone his day of reckoning.

[downsouth]

Domitianus - as informative as that was a link or a summary would suffice, also, in reference to the admonishment from Admin, how is this directly relevant to ED? The Chancellor, Alistair Darling (not Broon), has today said he sees the economy slowing and possibly stalling, this is relevant but how to ED? That I think is what we have all been discussing and ought to be the point of this thread otherwise this too will be lounged.

Out of interest a friend of mine worked for a large media company on Nutbrook Street (behind Goose Green) but the staff at that site were mostly made redundant (300 people) some months back. Another example of skilled/professional jobs no longer being provided in the area. Yes, there is more investment coming to ED but much of it is consumer focussed (retail) and that will be where the local economy will suffer as it does not seem to have a diverse enough work force. Our macro economy is fuelled by consumer demand and it won't be as strong going forwards.

[ChavWivaLawDegree]

People I call on you to put down your pens, discard those redundant desks, learn to build your own houses and grow yoor own food. Let us walk into the sunset, and head for them thar hills.

[Keef]

Fcuk it, it's Friday afternoon, I'm up for leaving early.... Chav I'll start building after a few pints! :)-D

[okcomputa]

A traders diary:

Sept. 5 (Bloomberg) -- So right after the Bear Stearns funds blew up, I had a thought: This is what happens when you lend money to poor people.

Don't get me wrong: I have nothing personally against the poor. To my knowledge, I have nothing personally to do with the poor at all. It's not personal when a guy cuts your grass: that's business. He does what you say, you pay him. But you don't pay him in advance: That would be finance. And finance is one thing you should never engage in with the poor. (By poor, I mean anyone who the SEC wouldn't allow to invest in my hedge fund.)

That's the biggest lesson I've learned from the subprime crisis. Along the way, as these people have torpedoed my portfolio, I had some other thoughts about the poor. I'll share them with you.

1) They're masters of public relations.

I had no idea how my open-handedness could be made to look, after the fact. At the time I bought the subprime portfolio I thought: This is sort of like my way of giving something back. I didn't expect a profile in Philanthropy Today or anything like that. I mean, I bought at a discount. But I thought people would admire the Wall Street big shot who found a way to help the little guy. Sort of like a money doctor helping a sick person. Then the little guy wheels around and gives me this financial enema. And I'm the one who gets crap in the papers! Everyone feels sorry for the poor, and no one feels sorry for me. Even though it's my money! No good deed goes unpunished.

2) Poor people don't respect other people's money in the way money deserves to be respected.

Call me a romantic: I want everyone to have a shot at the American dream. Even people who haven't earned it. I did everything I could so that these schlubs could at least own their own place. The media is now making my generosity out to be some kind of scandal. Teaser rates weren't a scandal. Teaser rates were a sign of misplaced trust: I trusted these people to get their teams of lawyers to vet anything before they signed it. Turns out, if you're poor, you don't need to pay lawyers. You don't like the deal you just wave your hands in the air and moan about how poor you are. Then you default.

3) I've grown out of touch with ``poor culture.''

Hard to say when this happened; it might have been when I stopped flying commercial. Or maybe it was when I gave up the bleacher seats and got the suite. But the first rule in this business is to know the people you're in business with, and I broke it. People complain about the rich getting richer and the poor being left behind. Is it any wonder? Look at them! Did it ever occur to even one of them that they might pay me back by WORKING HARDER? I don't think so.

But as I say, it was my fault, for not studying the poor more closely before I lent them the money. When the only time you've ever seen a lion is in his cage in the zoo, you start thinking of him as a pet cat. You forget that he wants to eat you.

4) Our society is really, really hostile to success. At the same time it's shockingly indulgent of poor people.

A Republican president now wants to bail them out! I have a different solution. Debtors' prison is obviously a little too retro, and besides that it would just use more taxpayers' money. But the poor could work off their debts. All over Greenwich I see lawns to be mowed, houses to be painted, sports cars to be tuned up. Some of these poor people must have skills. The ones that don't could be trained to do some of the less skilled labor -- say, working as clowns at rich kids' birthday parties. They could even have an act: put them in clown suits and see how many can be stuffed into a Maybach. It'd be like the circus, only better.

Transporting entire neighborhoods of poor people to upper Manhattan and lower Connecticut might seem impractical. It's not: Mexico does this sort of thing routinely. And in the long run it might be for the good of poor people. If the consequences were more serious, maybe they wouldn't stay poor.

5) I think it's time we all become more realistic about letting the poor anywhere near Wall Street.

Lending money to poor countries was a bad idea: Does it make any more sense to lend money to poor people? They don't even have mineral rights!

There's a reason the rich aren't getting richer as fast as they should: they keep getting tangled up with the poor. It's unrealistic to say that Wall Street should cut itself off entirely from poor -- or, if you will, ``mainstream'' -- culture. As I say, I'll still do business with the masses. But I'll only engage in their finances if they can clump themselves together into a semblance of a rich person. I'll still accept pension fund money, for example. (Nothing under $50 million, please.) And I'm willing to finance the purchase of entire companies staffed basically with poor people. I did deals with Milken, before they broke him. I own some Blackstone. (Hang tough, Steve!)

But never again will I go one-on-one again with poor people. They're sharks.

(Michael Lewis is the author, most recently of ``The Blind Side,'' and is a columnist for Bloomberg News. The views he expresses are his own.)

Love it >:D<

[downsouth]

I assume this was written by an adolescent.

[Domitianus]

International Monetary Fund has expressed concerns about stability of UK housing market..........

[snorky]

independantlocalstoreageddon

se22housemarketcollapseimplosionaggeddon

mootoonicknaktatageddon

[Jeremy]

snorkyproperyempireageddon

[snorky]

snorkyfullyhedgedtoavoidlossbutexploitanymarketfallageddon

[Jeremy]

>:D

[Alan Dale]

snorkyfullyhedgedtoavoidlossbutexploitanymarketfallageddon and firkin

[downsouth]

:))

[AnotherPaul]

IMFattackstheEDwayoflifeageddon

[macroban]

I walked down Lordship Lane this morning. No signs of a recession.

[downsouth]

http://www.propertysnake.co.uk/site/postcode/se22

[snorky]

howwillipaytheschoolfeeswithallthisnegativeequityaggedon