Some Proper(ty) Perspective

To some it is just a place to live, to others a useful investment for the future, but for the
British our house has not been our castle (that was just a Norman fetish), but rather our
national fixation. Over the years we have all had to suffer those dinner party bores
trumpeting their astuteness at being able to buy at the right time in the right place and
how much they have made as a result. This of course became even more tedious in the
nineties as their lectures lengthened to include their overseas property speculations in
places like Dubai and latterly their range of buy to let investments which they have just
bought off plan. Property bores, though, do move in regular waves as the price of real
estate oscillates from ludicrous value to unutterable stupidity, and with it they
accumulate little or no collective memory of the last downswing or property price crash.

Not a week goes by when we don’t have to suffer the deliberately worrying hyperbole of
various mortgage providers telling us that all our houses have dropped in value again
last month. This data is both stupid and erroneous. A single month of data is not really
valid in any case, but when based on the actual transactions they become even more
ludicrous - because there are barely any to speak of! Those few sellers that are around
are either probably “forced sellers” through unfortunate circumstances (foreclosures
etc.), or they have died; and as for buyers - there can’t be many anyway as they can’t
get a mortgage! No wonder most of the country is so depressed.

So perhaps we should put this into perspective. According to the Nationwide, UK house
prices have dropped by 17.6% over the past twelve months. This has been hailed as a
disaster, with cries of the return of negative equity and rising rates of foreclosure. No
doubt this is true, but in fact rising from a very low level and normally affecting those
who were either amongst the last into the housing boom, or with a horrendously overextended mortgage. However, to counter balance some of this negativity the
Nationwide’s (equally invalid) monthly figure last week showed a slight increase in
house prices!

In fact for most of us our house is our home and we don’t trade it very often. I
understand that we used to move every seven years, but this has grown out to a far
more extended period of eleven to fifteen years. This is longer than the usual decade-long housing cycle. So what has happened over that decade to prices? Well figures show that from 1997-2008 our house prices had risen by some 150%, thus meaning that most house buyers would still be considerably in the black even taking account of any recent fall. It is fair to assume then that, apart from a few exceptions, it would only be those who bought just at the peak that will be suffering and they may well have to wait for the full cycle to come around again to get their value back - but for the rest of us the
question is more psychological than anything else, and thus only adds reinforcement to
the irresponsible and ill-informed doom-laden economic messages from certain
elements of the media.

***

Well the City “riots” were somewhat overstated. With much appreciation to the police
actions, I actually felt that there seemed to be more spectators and cameramen than
real demonstrators in some areas. You could also argue quite soundly that the
demonstrators were the best advert and promotion that the meeting of the G20 could
ever had. Without them I think the world may have just yawned.

Apart from some litter, tiresome graffiti and a few broken windows, I couldn’t see much
effect. I suspect most inner city Saturday nights are probably more violent and
unpleasant. Oh and as for the simpering City folk dressing down to avoid attention -
spare me. Those that did often were worse dressed than the protestors. At least
Swampy had pride in his protest.

The outcome of the G20 of course is primarily political rhetoric and grandstanding for
domestic audiences, but behind it the intentions are right and it is important that both
those with the financial reserves and those with deficits speak to each other as they
both will depend upon each other. Now we need to get back to the tasks of trying to
ensure that we end up with more credit back in the system and less crunch - and get
the money system working properly again.

Perhaps we should be starting a straw in the wind indicator - if only to stop people
referring to green shoots. The number of these straws blowing past is in fact increasing.
In the US we have had increased mortgage applications, approvals and fulfilments, an
increase in new housing build sales and even a modest increase in the forward looking
Institutes of Supply Management’s (ISM) Index. The figure still indicates a contracting
demand but at a slightly better level than before from 35.8 to 36.3; this is the
fourteenth month of this figure being below 50, which still indicates contraction.

***

Who on earth thought that we should hold a conference for the 20 most influential
leaders of the world in a shed in East London? The French would have wowed them all
with the palaces at Versailles or Fontainebleau; we could have at a minimum managed
Leeds Castle - at least it’s got a moat.

***

And finally...

Life may be tough for its full-time residents, but for Miss Universe a day out at the US
prison camp at Guantanamo Bay was simply "a loooot of fun!"

Venezuelan beauty queen Dayana Mendoza visited the centre and wrote about it on the
Miss Universe blog on 27 March. Her remarks that she "didn't want to leave" the "calm
and beautiful" place attracted some scathing reactions. Did she perhaps confuse ankle
jewellery with shackles?

P.S. If you are celebrating Passover this week may I wish a relaxing holiday with the
family, and for those waiting for Easter you must remember to buy lots of Eggs and
support those Cocoa producers.

Have a good week,

Justin A Urquhart Stewart
Director
Seven Investment Management Limited

For previous editions of our Weekly Update, please click here

This article represents a personal and light-hearted view from Director, Justin Urquhart Stewart of Seven Investment Management Limited, and is based on current financial news and events around the world. Its content should not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision. Seven Investment Management Limited is authorised and regulated by the Financial Services Authority. Member of the London Stock Exchange. Head office: 23 Austin Friars, London EC2N 2QP. Telephone 020 7760 8777. Registered in England and Wales number 4092911. Registered office: 3 More London Riverside, London SE1 2AQ.