Housing troubles are resurfacing

I'll regret saying it but housing troubles are resurfacing

Over the years the housing market has been one of my favourite subjects – and one that has provided rich pickings for my critics. It is time to face their ire again.

By Roger Bootle
Published: 8:19PM BST 05 Sep 2010
47 Comments

Wishful thinking? Mortgage approvals have been low all year.

 

Last week's Nationwide house price figures showed a second successive monthly fall, this time of 0.9pc. What's more, this data followed other signs of weakness. Mortgage approvals for house purchase have been low all year, while the RICS new buyer enquiries balance has been negative for the past two months. Could the market be on the turn?

Lower house prices would make a lot of economic sense. In the UK, as in the US, a surge in house prices was right at the centre of the wider economic boom which ultimately ended in the financial crisis. 

Since then, most asset markets have undergone a major adjustment. In the US, even though the housing market never got as overvalued as ours did, house prices fell by 32pc. In the UK commercial property prices fell by about 45pc. Equities fell by about 50pc, and still stand 20pc below their peak. The pound fell by about 25pc. Although average UK house prices initially fell by 20pc, they then recovered and currently stand only about 10pc below their highs. So the UK housing market sticks out like a sore thumb.

 

Moreover, as a multiple of earnings, average house prices are, at 5.2, way above the long-term average of 3.7. Admittedly, this indicator has been flashing red for ages. And measures of so-called affordability – the ratio of mortgage payments to take-home pay – show no sign of undue strain. Mind you, if housing is not affordable when official interest rates are at virtually zero then when will it be? My view is that official interest rates will stay at this level for ages. But at some point they will go up to something like 5pc, probably taking mortgage rates to about 7pc. At current prices, how affordable would housing be then? In any case, many potential buyers find that even if they can afford the mortgage payments they cannot save enough to meet the now larger deposit requirements.

Nevertheless, movements in house prices need a catalyst. There are a few candidates. Mortgage availability is getting tighter as lenders wake up to the risks, face closer regulation and anticipate the imminent expiry of the Bank of England's special liquidity scheme.

Meanwhile, the pressure on personal finances is set to intensify as the rate of increase of average earnings edges down, higher taxes reduce disposable income and job losses in the public sector both reduce total personal incomes and erode confidence about job security. At the top of the market in London, support from foreign buying in the wake of sterling's collapse has softened as sterling has recovered. The higher rate of income tax and continued doubts about the outlook for the City point in the same direction.

That said, there are no certainties. The housing market has seen false dusks before. This could be another one. Because of low interest rates, it is possible the market will hold these levels and that housing is eventually returned to reasonable value by the continual upward march of salaries, rents and the general price level. But I doubt it. The issue is whether the market falls sooner or later.

So bring on the ire. (You know who you are!) Doubtless I shall soon be told that there is no such thing as "the" housing market but rather umpteen micro markets, or that I have forgotten about supply and demand. (A pretty bruising criticism to an economist.) Or that I have ignored the fact that we are a small island, that we don't build enough houses and that Aunt Mabel is set to remain in her three bedroomed semi, despite having a gammy leg etc.

Let me say that the average level of house prices is determined by the balance of supply and demand. But the supply is the stock of houses, and that stock does not change much from year to year. So movements in prices from one year to the next are principally caused by shifts in demand. And demand does not mean the airy aspiration to live somewhere nice, or the "need" for housing, neither of which has any economic content. Rather, it means the willingness and ability to pay the going price.

Ability is affected by income, interest rates and the availability of credit. Willingness is affected by many things but one of them is what people think will happen to prices in future. Like other asset markets, therefore, housing is subject to a substantial speculative influence. If prices are expected to fall then much "demand" which was present when prices were expected to rise will evaporate. I suspect that both the ability and the willingness are about to fall.

roger.bootle@capitaleconomics.com
Roger Bootle is managing
director of Capital Economics
and economic adviser to Deloitte

The brain speaks: Scientists decode words from brain signals

Enlarge

This magnetic resonance image (MRI) of an epileptic patient's brain is superimposed with the locations of two kinds of electrodes: conventional ECoG electrodes (yellow) to help locate the source of his seizures so surgeons could operate to prevent them, and two grids (red) of 16 experimental microECoG electrodes used to read speech signals from the brain. University of Utah scientists used the microelectrodes to translate brain signals into words -- a step toward devices that would let severely paralyzed people speak. Credit: Kai Miller, University of Washington.

In an early step toward letting severely paralyzed people speak with their thoughts, University of Utah researchers translated brain signals into words using two grids of 16 microelectrodes implanted beneath the skull but atop the brain.

"We have been able to decode spoken words using only signals from the brain with a device that has promise for long-term use in paralyzed patients who cannot now speak," says Bradley Greger, an assistant professor of bioengineering.

Because the method needs much more improvement and involves placing electrodes on the brain, he expects it will be a few years before clinical trials on paralyzed people who cannot speak due to so-called "locked-in syndrome."

The Journal of Neural Engineering's September issue is publishing Greger's study showing the feasibility of translating brain signals into computer-spoken words.

The University of Utah research team placed grids of tiny microelectrodes over speech centers in the brain of a volunteer with severe epileptic seizures. The man already had a craniotomy - temporary partial skull removal - so doctors could place larger, conventional electrodes to locate the source of his seizures and surgically stop them.

Using the experimental microelectrodes, the scientists recorded brain signals as the patient repeatedly read each of 10 words that might be useful to a paralyzed person: yes, no, hot, cold, hungry, thirsty, hello, goodbye, more and less.

Later, they tried figuring out which brain signals represented each of the 10 words. When they compared any two brain signals - such as those generated when the man said the words "yes" and "no" - they were able to distinguish brain signals for each word 76 percent to 90 percent of the time.

When they examined all 10 brain signal patterns at once, they were able to pick out the correct word any one signal represented only 28 percent to 48 percent of the time - better than chance (which would have been 10 percent) but not good enough for a device to translate a paralyzed person's thoughts into words spoken by a computer.

"This is proof of concept," Greger says, "We've proven these signals can tell you what the person is saying well above chance. But we need to be able to do more words with more accuracy before it is something a patient really might find useful."


Enlarge

This photo shows two kinds of electrodes sitting atop a severely epileptic patient's brain after part of his skull was removed temporarily. The larger, numbered, button-like electrodes are ECoGs used by surgeons to locate and then remove brain areas responsible for severe epileptic seizures. While the patient had to undergo that procedure, he volunteered to let researchers place two small grids -- each with 16 tiny "microECoG" electrodes -- over two brain areas responsible for speech. These grids are at the end of the green and orange wire bundles, and the grids are represented by two sets of 16 white dots since the actual grids cannot be seen easily in the photo. University of Utah scientists used the microelectrodes to translate speech-related brain signals into actual words -- a step toward future machines to allow severely paralyzed people to speak. Credit: University of Utah Department of Neurosurgery.

People who eventually could benefit from a wireless device that converts thoughts into computer-spoken spoken words include those paralyzed by stroke, Lou Gehrig's disease and trauma, Greger says. People who are now "locked in" often communicate with any movement they can make - blinking an eye or moving a hand slightly - to arduously pick letters or words from a list.

University of Utah colleagues who conducted the study with Greger included electrical engineers Spencer Kellis, a doctoral student, and Richard Brown, dean of the College of Engineering; and Paul House, an assistant professor of neurosurgery. Another coauthor was Kai Miller, a neuroscientist at the University of Washington in Seattle.

The research was funded by the National Institutes of Health, the Defense Advanced Research Projects Agency, the University of Utah Research Foundation and the National Science Foundation.

Nonpenetrating Microelectrodes Read Brain's Speech Signals

The study used a new kind of nonpenetrating microelectrode that sits on the brain without poking into it. These electrodes are known as microECoGs because they are a small version of the much larger electrodes used for electrocorticography, or ECoG, developed a half century ago.

For patients with severe epileptic seizures uncontrolled by medication, surgeons remove part of the skull and place a silicone mat containing ECoG electrodes over the brain for days to weeks while the cranium is held in place but not reattached. The button-sized ECoG electrodes don't penetrate the brain but detect abnormal electrical activity and allow surgeons to locate and remove a small portion of the brain causing the seizures.
Last year, Greger and colleagues published a study showing the much smaller microECoG electrodes could "read" brain signals controlling arm movements. One of the epileptic patients involved in that study also volunteered for the new study.

Because the microelectrodes do not penetrate brain matter, they are considered safe to place on speech areas of the brain - something that cannot be done with penetrating electrodes that have been used in experimental devices to help paralyzed people control a computer cursor or an artificial arm.

EEG electrodes used on the skull to record brain waves are too big and record too many brain signals to be used easily for decoding speech signals from paralyzed people.

Translating Nerve Signals into Words

In the new study, the microelectrodes were used to detect weak electrical signals from the brain generated by a few thousand neurons or nerve cells.

Each of two grids with 16 microECoGs spaced 1 millimeter (about one-25th of an inch) apart, was placed over one of two speech areas of the brain: First, the facial motor cortex, which controls movements of the mouth, lips, tongue and face - basically the muscles involved in speaking. Second, Wernicke's area, a little understood part of the human brain tied to language comprehension and understanding.

The study was conducted during one-hour sessions on four consecutive days. Researchers told the epilepsy patient to repeat one of the 10 words each time they pointed at the patient. Brain signals were recorded via the two grids of microelectrodes. Each of the 10 words was repeated from 31 to 96 times, depending on how tired the patient was.


Enlarge

An array of 16 microelectrodes -- known as a microECoG grid -- is arranged in a four-by-four array and shown next to a US quarter-dollar coin with a Utah state design on its "tail" side. University of Utah researchers placed two such microelectrode grids over speech areas of a patient's brain and used them to decode brain signals into words. The technology someday might help severely paralyzed patients "speak" with their thoughts, which would be converted into a computerized voice. Credit: Spencer Kellis, University of Utah

Then the researchers "looked for patterns in the brain signals that correspond to the different words" by analyzing changes in strength of different frequencies within each nerve signal, says Greger. 

The researchers found that each spoken word produced varying brain signals, and thus the pattern of electrodes that most accurately identified each word varied from word to word. They say that supports the theory that closely spaced microelectrodes can capture signals from single, column-shaped processing units of neurons in the brain.


One unexpected finding: When the patient repeated words, the facial motor cortex was most active and Wernicke's area was less active. Yet Wernicke's area "lit up" when the patient was thanked by researchers after repeating words. It shows Wernicke's area is more involved in high-level understanding of language, while the facial motor cortex controls facial muscles that help produce sounds, Greger says.

The researchers were most accurate - 85 percent - in distinguishing brain signals for one word from those for another when they used signals recorded from the facial motor cortex. They were less accurate - 76 percent - when using signals from Wernicke's area. Combining data from both areas didn't improve accuracy, showing that brain signals from Wernicke's area don't add much to those from the facial motor cortex.

When the scientists selected the five microelectrodes on each 16-electrode grid that were most accurate in decoding brain signals from the facial motor cortex, their accuracy in distinguishing one of two words from the other rose to almost 90 percent.

In the more difficult test of distinguishing brain signals for one word from signals for the other nine words, the researchers initially were accurate 28 percent of the time - not good, but better than the 10 percent random chance of accuracy. However, when they focused on signals from the five most accurate electrodes, they identified the correct word almost half (48 percent) of the time.

"It doesn't mean the problem is completely solved and we can all go home," Greger says. "It means it works, and we now need to refine it so that people with locked-in syndrome could really communicate."

"The obvious next step - and this is what we are doing right now - is to do it with bigger microelectrode grids" with 121 micro electrodes in an 11-by-11 grid, he says. "We can make the grid bigger, have more electrodes and get a tremendous amount of data out of the brain, which probably means more words and better accuracy."

Provided by University of Utah (news : web)

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The new young investor: Shunning stocks

By Hibah Yousuf, staff

NEW YORK (CNNMoney.com) -- When 18-year-old Robert White decided to jumpstart his retirement plan, he invested his life savings of $25,000 into an aggressive mutual fund.
Little did he know that just five years later, he would make a complete 180 and join the ranks of a new group of young investors who have become so risk averse by the wild market swings that they'd rather park their money in safety zones, like CDs or Treasurys.

Ultra safe to risky: How 10 Gen Y-ers invest

 

Surveys show young investors are strikingly less eager to take on risk now than they were in 2001. Why some are holding and others are folding. 

View photos

Today, only 22% of investors under the age of 35 say they're willing to take on a substantial level of risk, according to the Investment Company Institute. Compare that with 2001, when that same group outpaced every other age bracket.

"We're coming off a series of financial crises that hit this young generation at points in their lives where external events shape strong opinions," said Christopher Geczy, adjunct associate professor of finance at University of Pennsylvania's Wharton School.

When White's fund began to slip with the broader market in 2008, he yanked his savings, now at $35,0000, and put the money into a short-term certificate of deposit with an annual return rate of 4%.

"It's almost embarrassing to talk to anyone about my portfolio because I know how stupid it is to normally keep my portfolio in cash," said White, now a 23-year-old graduate of Northern Arizona University.

While most investors have become more cautious during the decade, the biggest change has come from White's generation.

"Many of them have witnessed a decline in the wealth of their families and seen their parents delay retirement or even return to the workforce," said Geczy, who also serves as the academic director of Wharton's Wealth Management Initiative.

A recent Merrill Lynch survey of 1,000 affluent Americans, who boast more than $250,000 in investable assets, showed 56% of young investors consider themselves to be more conservative today than they were a year ago -- the highest percentage among all age groups.

"If you're in your 20s and are just starting to save for retirement, you've seen the market drop 55%, climb 88%, and drop again in a short span...If you're in your 30s and have been saving for the past decade, you've seen the stock market return essentially 0%," said Vanguard Chief Executive Bill McNabb, at a recent conference.

Members of Generation Y are also having a tougher time finding a job than their counterparts. The unemployment rate for workers under the age of 35 in August stood at more than 13%, compared to the nation's 9.6%.

Prolonging retirement

White has mustered up the courage to return to the market but he is only dabbling in stocks with about 10% of his $60,000. That's a far cry from the 70% advisors typically recommend for young investors. The rest of White's cash is tucked away in a savings account.

He's hopeful he'll gain the confidence to boost his stock allocation to 75% this fall when he returns to his hometown of Maui and starts a job at a financial planning office.

"I'm just waiting to get the next piece of advice or news that will make me more comfortable about my decisions," said White.

Experts say White and his peers may be doing themselves a disservice by shunning stocks.

"The biggest risk for this generation is that they'll live too long. With medical breakthroughs, the reality is that many of them will live beyond 100," said Barry Nalebuff, a strategy professor at Yale's School of Management and co-author of Lifecycle Investing. "The only way they have enough assets to last them is to invest in stocks. If they don't, a lot of people will have to keep working way past when they want to because they won't have enough money saved up."

How to save $1 million by 65

Nalebuff argues that young investors have decades of earnings to rake in, so they could plow 100% into a diverse portfolio of stocks and still offset the market's risks.

But that's little comfort to people like Neil Sowinski, 30, who remains unnerved by the market's swings. He pulled his money from stock market in January and dumped it into a Pimco bond fund, and advised his wife to do the same.

"We watched the tech bubble bust and then the housing bubble bust, and we lost money left and right but rode it all out," said Sowinski, an industrial mechanic in Racine, Wisc. "After the market climbed back in 2009 and put us up about 15%, we pulled out because I felt that rally was just based on the government's stimulus and corporations cutting costs -- it wasn't sustainable."

0:00 /1:42Where to invest now

He has $95,000 in bonds and is pleased with the 8% return so far, but he hopes to move back into the stock market for the long term.

Stocks have yielded an average of up to 7% each year after inflation over the last 200 years, while bonds have had a hard time squeezing out a 1% return rate, according to Wharton finance professor Jeremy Siegel.

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