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A Goldilocks Crash To Follow A Goldilocks Boom?

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Economists have long held the view that the last 10 years was split into an economic recovery for 5 years and a debt fueled boom for the last 5 years. I have also held the view that this applied to the housing market as well.

I have not expected interest rates to rise much higher than 6% as I felt that the debt bubble would burst at this point. It seems that the debt bubble has burst in America and will follow here shortly.

By a Goldilocks crash I am mean a fall in house prices not because of high interest rates making debt repayments unaffordable leading to a 90's repossession crash which hurts the economy. But a withdrawal of credit crash, where the monthly repayments on a mortgage remain affordable to the majority, however the credit supply is withdrawn by lenders. Say going from a 4.25 joint lending back to a 2.5 joint lending that existed 5 years ago.

So the couple each earning £20k that buy a new build flat for £170,000 mortgage plus £10,000 deposit, will only be able to get credit for £100,000 mortgage plus £10,000 deposit. They may be able to (or think they can) afford the mortgage payments on a higher mortgage.

This will work the way all through the chain and lead to a 30/40% drop very quickly with little real financial pain for existing homeowners.

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What if those existing homeowners want to move up or along? Oh, actually I can answer that having just thought your post through - the house they own would be cheaper by your logic therefore things would be ok. Hmm. Sounds right... What if they've remortgaged and need to sell their house for that new amount?

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What if those existing homeowners want to move up or along? Oh, actually I can answer that having just thought your post through - the house they own would be cheaper by your logic therefore things would be ok. Hmm. Sounds right... What if they've remortgaged and need to sell their house for that new amount?

What about those that have MEW'd to near full current value or have bought recently - their houses will be worth less than which they can sell at. Will this mean they are stuck in the neg equity trap?

HAL

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What about those that have MEW'd to near full current value or have bought recently - their houses will be worth less than which they can sell at. Will this mean they are stuck in the neg equity trap?

HAL

The losers in the Goldilocks crash are those who have stretched themselves and bought or MEW. they will find themselves in NE . BUT the difference between this time and GC1 is that they will be able to afford their mortgage payments as IR will not go higher.

IR will stay at this level to keep the economy on a course between expansion and inflation. House prices will fall significantly and all those who can afford to buy but held back as they thought prices were significantly overvalued will be able to pick up a correctly priced house

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The losers in the Goldilocks crash are those who have stretched themselves and bought or MEW. they will find themselves in NE . BUT the difference between this time and GC1 is that they will be able to afford their mortgage payments as IR will not go higher.

IR will stay at this level to keep the economy on a course between expansion and inflation. House prices will fall significantly and all those who can afford to buy but held back as they thought prices were significantly overvalued will be able to pick up a correctly priced house

Asset prices in any market reflect all the information available to the market at that time, except for two cases. One, a greed driven, speculative boom, and two, a panic driven rush for the exits.

The goldilocks crash scenario ignores the fact that there will be panic selling, which will push prices lower and for longer than they would normally go.

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Asset prices in any market reflect all the information available to the market at that time, except for two cases. One, a greed driven, speculative boom, and two, a panic driven rush for the exits.

The goldilocks crash scenario ignores the fact that there will be panic selling, which will push prices lower and for longer than they would normally go.

You are right - the trend price would be around 30/40% lower, however as with any sell off the price will drop below trend price.

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The losers in the Goldilocks crash are those who have stretched themselves and bought or MEW. they will find themselves in NE . BUT the difference between this time and GC1 is that they will be able to afford their mortgage payments as IR will not go higher.

IR will stay at this level to keep the economy on a course between expansion and inflation. House prices will fall significantly and all those who can afford to buy but held back as they thought prices were significantly overvalued will be able to pick up a correctly priced house

.....but are you sure that interest rates will not go higher? Is it not possible that the credit crunch will lead to higher IR's because lenders will start to factor in risk again? Therefore in order for banks to raise capital to lend out they will have to pay a higher rate for this capital and this will be passed onto the borrower. If peoples appetite for taking on ever greater amounts of debt to buy houses recedes banks will print less money as there will be less demand for it thus by definition making it more expensive, don't you then end up in a vicious circle of increasing IR's?

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For what it's worth I believe we will have 6%+ by the end of 2007, 7%+ 2008 and 8%+ 2009.

That's when the banks can rape the system by buying back cheap assets again. History will no doubt repeat itself until we all wise up and there's little chance of that when most watch TV for their information.

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For what it's worth I believe we will have 6%+ by the end of 2007, 7%+ 2008 and 8%+ 2009.

Not looking a good bet now

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:o:o:o

Sorry I thought this was a 'Bruno' thread! :P

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I reckon they're going to drop for a couple/three months to allow resets a more reasonable lock-in for a further couple of years then we'll see further hikes after this to attempt to rein inflation back in again to somewhere just enough above target to help eat at those debts-poor Merv looks a bit like he's sat on top of a wild-ass bucking bronko at the moment..this i think is the cunning plan ;) The smarter of the stupid ones would be well advised to take the chance and spend the time looking at ways to make headway into the capital of their debts-those that dont? Well who knows but nothing would surprise me any more <_<:unsure:

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