Why is MoneyWeek magazine so negative about the housing market?

Critical comment on the housing market is to be welcomed but why is MoneyWeek so relentlessly negative?

MoneyWeek2 Why is MoneyWeek magazine so negative about the housing market?

You can count on one hand the number of people in the media who are persistently bearish about the housing market.

There are the colourful folk over at Housepricecrash, there’s Roger Bootle of Capital Economics, and there’s MoneyWeek Magazine, currently edited by Merryn Somerset Webb.

These voices are a valuable and necessary corrective to the general upbeat coverage of the property market.

What I find fascinating is the lack of balance in MoneyWeek’s discussion of the subject,

Somerset Webb, for example, recently pitched in with a piece on renting vs. buying, confidently arguing (on the basis of Zoopla research, and more robust Capital Economics analysis) that it’s better to rent at the moment and warning first-time buyers to stay out of the market.

That may or may not be the case. But while she warns first-timers to steer clear she also warns investors that property is a disaster waiting to happen.

This seems inconsistent. If it’s a great time to rent (and this ignores the rising cost of renting, the insecurity, and the desire of many to own a home), then surely it’s a good time to be a landlord?

Money Week Why is MoneyWeek magazine so negative about the housing market?

It seems that MoneyWeek is happy to collapse the difference between landlords and first-time buyer because they are opposed to any involvement in property.

On the home front, property, they insist, is too expensive, and you’ll be scorched by negative equity; while on the investment front this hardnosed financial magazine can see no good whatsoever in making money from the housing market – indeed, they strike a decidedly moralistic tone on this:

Between 1996 and 2007, investing in property looked like a dead cert.

All you had to do was buy property and then sit back and watch it soar in value without lifting a finger. It was the nearest thing to free money you’ll ever see… and people got drunk on it.

Fair enough, it all got out of control (though in fairness, for many it was a dead cert!). And it should be added that the housing market is not unique in being prey to irrational exuberance.   The equity markets, after all, come with risks and are not noted as bastions of sobriety and well-meaning philanthropy.

For MoneyWeek, curiously, there’s simply no upside to property. Ever. It’s bad to buy if you need a home (they warned against it relentlessly during the boom, and now they warn against it repeatedly during the bust), but it’s even worse to buy if, you lazy tyke, you want to make money from bricks and mortar.

Is there, you have to wonder, ever a right time to buy a property?

Now these are not stupid people, so why the absolutism and the moralism when it comes to property?

They tell us “here at MoneyWeek magazine we don’t have an agenda, or any vested interest in telling you one way or the other”.

But with property, the advice is, as far as I can tell (happy to be proved wrong on this), is always one way.

Why? I don’t know for sure, but there are a couple of possibilities. The first is that there’s interest to be generated from taking a view at odds with the general consensus.

The second, perhaps more cynical way to explain this, is to take a look at their advertisers (spread betting firms, investment trusts, financial institutions) – all vying for the money that gets invested in property – and draw your own conclusions.

 

 

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  1. Is it possible that MoneyWeek are negative about house prices because they are stupidly overpriced and coming down despite interest rates having been at a historic low for years? Surely it doesn’t take a genius to see what is going to happen when interest rates revert to something more normal, maybe just someone who does not have a vested interest.

    • I agree prices probably have further to fall and yes a rise in rates would be a serious blow – not just to housing but to the economy as a whole. No arguments there. What I find surprising is their long-standing negativity – as I note in the piece, they have, to my knowledge, never suggested it’s a good time to buy property – which is unfortunate given that most of us have to have a roof over our heads, and renting isn’t ideal for many.

      As for VI – my point in the piece is that they are so one dimensional about property that they may well have a VI of their own. I agree that prices are massively out of reach for many and I would like to see more people able to own (if that’s what they want.). I have no interest in talking up the market – my point is that MW are as one dimensional as the cheer leaders by striking a single and to my mind un-nuanced note on the subject,

      • According to Wikipedia, MoneyWeek started in November 2000, at which time house prices had already been rising for some years and were nearly up with the previous peak, in real terms. I think it would not be unreasonable then, if they have been bearish on house prices for the entire duration of their existence.

  2. This seems inconsistent. If it’s a great time to rent (and this ignores the rising cost of renting, the insecurity, and the desire of many to own a home), then surely it’s a good time to be a landlord?

    Err… no. The idea is it’s a great time to rent as they believe that a drop in prices is likely to happen – this would meant that it’s a bad time to be a landlord. Perfectly consistent.

    • Thanks for the feedback – I agree that prices are falling, but also that

      1. it’s a segmented market so some places will fall by a lot more than others
      2. Investors are generally good at finding bargains in a falling market and
      3. they look to rental income as well as capital growth – I think a lot right now are focusing on rental income (rents and rental demand are strong) in the short term and capital growth in medium top long-term.

      Of course they may be wrong and MW may be right that the market is due a more serious collapse, but in the current environment there aren’t many safe havens for capital – what I find surprising about MW is their broad brush approach and their refusal – long-standing and going back many years – to recognise any value in property investment. What ever happened to a balanced portfolio?!

  3. Money Week are also bearish on shares, so your last point doesn’t stack up (i.e. it’s the piper calling the tune). The only thing they are bullish on is Gold. But you can’t eat gold, you can’t live in it and it doesn’t pay the rent.

    • Thanks for the feedback – you make a fair point .. still think, though, that they have a long track record of negativity about property that maybe doesn’t apply to other investments (the moral tone is a bit of a giveaway, I think). I suspect a lot are investing in property right now for the same reason that they’re looking at gold – tangible assets in a low interest environment. Of course gold may be safer .. though as you rightly note, it has its limitations too.

  4. The property bubble is deflating, house prices are simply overvalued. It is barely holding its head above water with interest rates at 0.5%. Landlords are in a vulnerable position as many are highly geared. As prices fall their equity levels become dangerous. After all buy to let has the highest percentage of repossessions in the housing market. Just like Fergus and Judith Wilson who use to own a 1,000 properties and on the Times rich list.Now they are no longer in the rich list and the banks have taken many of the properties over.

    Once interest rates rise buy to let will be in big trouble.

    Moneyweek are right to highlight the dangers in a world of property speculator vested interest media propaganda. The economics say prices will fall.

    • Thanks for the feedback Gavin. I don’t have a problem with them highlighting the dangers – that’s absolutely fine. But there’s a lack of nuance – for example, they talk about the market as if it was a single entity, which I don’t think it is.

      On repossession – good point: figures from the Council of Mortgage Lenders (CML) show that buy-to-let repossession rose from the 1st quarter to the second quarter – from 1,700 to 1,900 an increase of 9%.

      But that needs to be read in context of an outstanding number of buy-to-let loans of 1.34 million. More will struggle, I have no doubt – a lot piled in when it was foolish to do so, bought the wrong properties in the wrong places, over extended etc … but there will be opportunities for others in the scenario you paint.
      .
      last point – I agree the media is too upbeat about property – but being completely downbeat is not necessarily the answer.

  5. Is it being negative or being a realist? Don’t believe RE salesman they are one up the ladder from diamond dealers. The media are blind puppets with very few calling things as they really are. One only has to look around the world to discover the joys of owning most real estate purchases made recently or in the boom years. Saddling people with negative equity is wrong – markets go up and they go down. The fundamentals of England’s and the world’s economy don’t exactly inspire confidence for many things rising for many years to come that is for sure. What generally follows a credit boom….. a credit contraction. Interest rates at record lows and an economy in contraction. Good luck if you think prices will be going up anytime soon. Maybe only the best spots of London where rich money is parked – not suburbia. Most of England’s, the EU and US banks are totally insolvent so I suspect the worst is yet to come. Australia’s banks have borrowed money offshore (good luck to them as and when the lenders want their money back). Perhaps an age of de leveraging might have something to do with their beliefs that now is not the right time to buy in the UK or elsewhere. Ask the Japanese whether their house and share prices are up or down after 22 years of declines following similar credit expansion?

  6. Rents are on the up, but there is much more rapid growth in people defaulting in rents. It doesnt take a genius to work out with 5% inflation and maybe 2% pay increases – that we are getting poorer. There is a ceiling to what people can afford to pay and more and more people are slipping into that Red Zone where there outgoings exceed their income. That gap is only likely to increase with further Quantitive Easing.
    There is a shortage in housing, and we have record low interest rates, which we know will not last forever.
    The Global Economy looks to be on the brink.
    Its a dangerous time.

    I believe in balance, reporting the facts. I believe anyone else promoting a form of investment, or to purchase a house without highlighting the risks to be shameful. So MoneyWeek may be guilty of this to a certain degree.

    Although I liked your article I would rather it be directed at the Daily Express. They are upbeat, many would be forgiven for thinking that property prices were rocketing from reading their rag. This is far, far more dangerous, because I know some poor Joe will read that, stretch themselves for a property they think will be out of reach in the future, without realising that in a year or two they will lose it all because they wont be able to afford it.

  7. “last point – I agree the media is too upbeat about property – but being completely downbeat is not necessarily the answer.”

    But then then would be what I call balance; Moneyweek’s persistent (justified) negativity to the completely unjustifiable over exuberance of other parts of the media, eg an Express front page, last week… “Property Prices UP 68%”.

  8. I think your point is valid that Money Week are unduly negative regarding property , And ANY Asset class has a case for Upside .

    One of the differences is where normally rational business folk develop evangelical beliefs , by this I mean it becomes a matter of faith they cant see past it , Like Property Bears and Gold Bugs .
    Money Week has been spot on with loads of trends (I subscribe to it and Bought Gold in 2006 loaded up on Silver when Lehmans collpased etc ) One of the problems you have when you make some money is when to sell out , and calling the top is impossible .
    Property Investors for years had no such problems as the rise was inexorable and there was a Whole Govt and economy based on Houses , now they have been given a soft landing of sorts as QE and record Low rates have kept the wolf at bay whilst everybody pasy back debt . the fact that the BOE has done this never occured to me , I was fully expectinga 90′s style bust , its a measur eof just how serious this crash is that we are on Life support like we are , before we can even go through the recovery .
    What is going to happen is that property and debt is going to be inflated away

  9. They Give the Third Reich as an example of how broke a country can get.. How in That case did they build up a war machine which nearly conquered the whole world.
    Tanks Battleships Stuka Planes Guns etc etc cost big money.. Doesnt make sense to me..

  10. There’s no inconsistency in the rent / don’t buy property argument. It does not necessarily follow that if it’s a good time to rent, then it’s a good time to be a landlord. Rental commitments are typically 6 months, but buy to let mortgages are at least ten years. If there is a high risk of property values falling in the short to medium term then it is better to rent so you are not invested in depreciating assets.
    In the case of the Nazis, they financed their attempt at world domination through theft from Jews and by the dreaded B word – borrowing.