• 14 hours $120,000 Banana Gets Eaten At Art Basel
  • 2 days The Fastest Growing Energy Sectors Of 2019
  • 2 days How To Spy On Yourself: The Doorbell To End Civil Liberties
  • 4 days Analyst Predicts Tesla Stock Will Soar To $500
  • 5 days Australian Billionaire To Invest In $88 Million Struggling Solar Project
  • 5 days Twitter-Shaming: The Biggest Threat To Any Business
  • 6 days Canada Looks To Become A Major Source For Critical Minerals
  • 6 days Hedge Funds Are Piling Into This Key Commodity
  • 8 days Trade Deal Not Likely Before Christmas 2020
  • 8 days America's $16 Trillion Debt Bubble Is About To Burst
  • 8 days Black Friday Breaks Online Shopping Records
  • 9 days Tesla's Biggest Competitor Is Hiding In Plain Sight
  • 9 days Are Celebrities Good Or Bad For Cannabis Stocks?
  • 11 days Venezuela’s Crisis Continues As Maduro Spends $5 Billion On Oil Deals
  • 12 days Elon Musk Claims 250,000 Orders For Cybertruck
  • 12 days How To Survive Thanksgiving Politics With Cannabis Gravy
  • 14 days The Fragility Of Monetary Policy
  • 14 days 5 Oligopoly Stock Picks For Your 2020 Portfolio
  • 15 days $7 Trillion In Unfunded U.S. Pensions As Domestic Debt Hits A Record High
  • 15 days Retail Is Alive And Well, But Only For The Rich
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

Elliott Wave International

Elliott Wave International

Elliott Wave International

Elliott Wave International (EWI) is the world's largest market forecasting firm. EWI's 20-plus analysts provide around-the-clock forecasts of every major market in the world via…

Contact Author

  1. Home
  2. Markets
  3. Other

This is London Falling

Editor's note: The following article is adapted from the State of the Global Markets Report--2016 Edition, one of the most anticipated annual reports for technically minded investors and analysts around the world. For a limited time, we are making the report available 100% free of charge. After that, it goes to $99 per download, where it will stay for the rest of the year. Click here to get your free copy now >>


 

This Financial Times article alerts readers to another bygone bubble where a surging comeback has recaptured investors' imaginations:

Britons Pin Their Pension Hopes on Property
The UK has fallen in love with property as the best way to make money for retirement

--FT, Nov. 11, 2015

Once again, fast-rising home prices have "convinced the public that bricks and mortar are likely to provide the most comfortable retirement." (FT, 11/11/15)

A recent survey of 10,000 Britons finds that 44% believe property will be their biggest moneymaker during retirement. Pension income came in a distant second place at 25%, while stock investments took third.

Here's how one retirement specialist captures the magnitude of society's preoccupation with property: "For many people now approaching retirement, their property ... will be particularly relevant as a capital reserve for costs such as later-life care." (FT, 11/11/15)

By itself, the widespread belief that real estate is the financial equivalent to cash is one of the most dangerous ideas going. Cash is liquid by definition, whereas property requires time, energy and money to off-load. Cash generates income; homes generate expenses. Cash is boring and, as an investment, cash exists in a financial corner that is totally off the average investor's radar. Real estate, in contrast, is caught in the throes of another speculative frenzy that nearly everyone expects to continue.

Take the chart below, which compares London home prices to first-time buyer affordability (mortgage payments as a percentage of mean take-home pay).

London Homes Hit Peak Unaffordability

It shows a rising lower graph, which indicates the declining affordability of London homes, because a greater percentage of income goes to meet mortgage payments.

When buyer affordability hit 69.6% in the fourth quarter of 2007, London home prices promptly plummeted 20%. Prices bottomed in the first quarter of 2009, sending mortgage payments back below 50% of take-home pay.

But, today, nearly 66% of Londoners' income is going toward mortgage payments, just a few percentage points shy of the 2007 peak.

More important, the top graph depicts an extended fifth wave in London home prices, with wave (5) of 5 reaching equality with wave (1) of 5. This is a common wave relationship.

As the textbook Elliott Wave Principle observes, fifth-wave extensions "are typically followed by swift retracements," which usually return to the price territory of the "fourth wave of one larger degree." So, by common wave relationships alone, London home prices are set for a 30%-50% decline.

Either way, unaffordable homes are once again colliding with euphoric sentiment and complete Elliott wave patterns. The combination should prove to be even more deadly than it did in 2007.

 


Click here to continue reading the rest of the 50-page State of the Global Markets Report--2016 Edition 100% free >>

 

Back to homepage

Leave a comment

Leave a comment