<a href="http://www.newstatesman.com/200711190001" target="_blank">http://www.newstatesman.com/200711190001</a>
Not sure if it's been posted / moved to another forum area already.
Full Version: New Statesman 19.11.07
A good article as ever FP. I love the fact that a VI/BTLer has made a comment about "he's been calling the crash since 2002 yadda, yadda...
Isn't there someone who left almost exactly the same comment about Davis on one of the youtube clips?
Does he have an online stalker of the bovine persuasion?
GT
Does he have an online stalker of the bovine persuasion?
GT
Some balance in the comments now 
QUOTE
It was NOT because unemployment had risen – that came after the crash. It was NOT because interest rates were high – rates FELL by around a half during the crash.
It was because speculators, who had driven up prices by buying, buying, buying stopped, er, buying. Thus, prices dropped as demand fell away.
It was because speculators, who had driven up prices by buying, buying, buying stopped, er, buying. Thus, prices dropped as demand fell away.
The last crash was nothing to do with ramped up interest rates or high unemployment?
Why don't you do some basic RESEARCH into the economy from 1988 to 1993 before spouting such rubbish.
Look up the impact of us joining the ERM and the effect it had on our (export) businesses wrt the high IRs and the exchange rate.
We couldn't bring down rates as fast as we wanted BECAUSE of the ERM rules. Sure, they crept down slowly but we sank into recession with massive unemployment and this made the HPC worse than it could have been.
Also, if you REALLY believe IRs weren't the trigger then why did you post this on HPC over a year ago when the UK had its first 0.25% rise in the base rate?
QUOTE
I tell you now, buyers will pull out immediately; the market will die going into winter and we will see negative movement by the year end. Finally the HPI is dead. Long live the HPD.
So much for Gordon Brown controls the MPC!!!!!!!!!!
This is a great day.
For the first time in history the trend in IRs has been solitary ie the cut last time has been reversed without being added to.
There may or may not be another increase - there doesn't now have to be for an HPC.
Bravo to everyone on this site and particularly to Greg the Webmaster.
We have fought them on the beaches. We have fough them on the streets and in the EAs and in the lenders. We have succeeded and we have prevailed. I salute you Greg (Churchill). DDDRRRRRRRRRRRRRRum roll
God save our gracious Guvner. Long live our noble Guvnor. God save the Guvnor.
Hats in the air
Three cheers for the HPC
hip hip......hooray
hip hip......hooray
hip hip......hooray
fp
So much for Gordon Brown controls the MPC!!!!!!!!!!
This is a great day.
For the first time in history the trend in IRs has been solitary ie the cut last time has been reversed without being added to.
There may or may not be another increase - there doesn't now have to be for an HPC.
Bravo to everyone on this site and particularly to Greg the Webmaster.
We have fought them on the beaches. We have fough them on the streets and in the EAs and in the lenders. We have succeeded and we have prevailed. I salute you Greg (Churchill). DDDRRRRRRRRRRRRRRum roll
God save our gracious Guvner. Long live our noble Guvnor. God save the Guvnor.
Hats in the air
Three cheers for the HPC
hip hip......hooray
hip hip......hooray
hip hip......hooray
fp
as usual your enthusiastic HPC prediction turned to mush in 2007... (2007 HPI looks like it will be at least +6% YOY)
Warren Buffet called the dot.com a couple of years early, though the end result it still crashed. By prolonging the boom it will make the Crash worst. Though not to worry we have our super duper Strong Economy to take care of us 
QUOTE (SlumpmonkeyII @ Nov 19 2007, 06:32 PM) 
A good article as ever FP. I love the fact that a VI/BTLer has made a comment about "he's been calling the crash since 2002 yadda, yadda...
a bit like me going upto a woman 5 years after she's had her baby and say "You said that he was gonna be an adult one day....see you were wrong".
QUOTE (Without_a_Paddle @ Nov 19 2007, 07:08 PM)
We couldn't bring down rates as fast as we wanted BECAUSE of the ERM rules. Sure, they crept down slowly but we sank into recession with massive unemployment and this made the HPC worse than it could have been.
when interest rates peaked at just under 15% (One weekend only) we left the ERM the next working day.
Rates were then free to be lowered as you say, and in fact they were. This didnt stop the recession that followed nor the continuing house price crash, with the consequences of rising unemployment.
A credit crunch for consumers followed and at least one major high street bank had to be rescued by the BoE.
This time around, the credit crunch is here first, this is going to make it much more difficult for banks to lend as loosely as they have been used to. so we have an extra factor in at the off this time, apart from unaffordability and sentiment turning, lack of loans/cash which came much later in to play last time
QUOTE (Bloo Loo @ Nov 19 2007, 07:26 PM)
A credit crunch for consumers followed and at least one major high street bank had to be rescued by the BoE.
......many people lost their houses and many carried negative equity for at least a decade ....however bearing in mind the High Street banks had a small mortgage book then ...which one needed BofE rescue...?....I was overseas at this tiime...
QUOTE (Without_a_Paddle @ Nov 19 2007, 07:08 PM)
The last crash was nothing to do with ramped up interest rates or high unemployment?
Why don't you do some basic RESEARCH into the economy from 1988 to 1993 before spouting such rubbish.
Look up the impact of us joining the ERM and the effect it had on our (export) businesses wrt the high IRs and the exchange rate.
We couldn't bring down rates as fast as we wanted BECAUSE of the ERM rules. Sure, they crept down slowly but we sank into recession with massive unemployment and this made the HPC worse than it could have been.
Also, if you REALLY believe IRs weren't the trigger then why did you post this on HPC over a year ago when the UK had its first 0.25% rise in the base rate?
as usual your enthusiastic HPC prediction turned to mush in 2007... (2007 HPI looks like it will be at least +6% YOY)
Why don't you do some basic RESEARCH into the economy from 1988 to 1993 before spouting such rubbish.
Look up the impact of us joining the ERM and the effect it had on our (export) businesses wrt the high IRs and the exchange rate.
We couldn't bring down rates as fast as we wanted BECAUSE of the ERM rules. Sure, they crept down slowly but we sank into recession with massive unemployment and this made the HPC worse than it could have been.
Also, if you REALLY believe IRs weren't the trigger then why did you post this on HPC over a year ago when the UK had its first 0.25% rise in the base rate?
as usual your enthusiastic HPC prediction turned to mush in 2007... (2007 HPI looks like it will be at least +6% YOY)
All very true. But 2008 is not really shaping up that way. Why I sold my house last week. Got to be worth a punt on an hpc next year or the one after that. I wanted to move somewhere bigger anyway.
pip pip.
QUOTE (South Lorne @ Nov 19 2007, 07:32 PM)
......many people lost their houses and many carried negative equity for at least a decade ....however bearing in mind the High Street banks had a small mortgage book then ...which one needed BofE rescue...?....I was overseas at this tiime...
I think it was Midland Bank, however, they all had huge "provisions" for losses though as defaults increased. It was like a mini version of the current situation
QUOTE (Bloo Loo @ Nov 19 2007, 07:26 PM)
when interest rates peaked at just under 15% (One weekend only) we left the ERM the next working day.
Rates were then free to be lowered as you say, and in fact they were. This didnt stop the recession that followed nor the continuing house price crash, with the consequences of rising unemployment.
A credit crunch for consumers followed and at least one major high street bank had to be rescued by the BoE.
This time around, the credit crunch is here first, this is going to make it much more difficult for banks to lend as loosely as they have been used to. so we have an extra factor in at the off this time, apart from unaffordability and sentiment turning, lack of loans/cash which came much later in to play last time
Rates were then free to be lowered as you say, and in fact they were. This didnt stop the recession that followed nor the continuing house price crash, with the consequences of rising unemployment.
A credit crunch for consumers followed and at least one major high street bank had to be rescued by the BoE.
This time around, the credit crunch is here first, this is going to make it much more difficult for banks to lend as loosely as they have been used to. so we have an extra factor in at the off this time, apart from unaffordability and sentiment turning, lack of loans/cash which came much later in to play last time
The last crash started approx in 1990. Rates were at 15% in 1990. We left the ERM in late 1992 with a devalued £. Unemployment levels fell after this date and the economy started to show growth. (you imply things got worse after we left the ERM?)
Look at the graphs below
QUOTE (Without_a_Paddle @ Nov 19 2007, 07:50 PM)
The last crash started approx in 1990. Rates were at 15% in 1990. We left the ERM in late 1992 with a devalued £. Unemployment levels fell after this date and the economy started to show growth. (you imply things got worse after we left the ERM?)
Look at the graphs below
Look at the graphs below
all very nice, but Lamont raised interest rates to their max, and had to immediately leave the ERM-- the rates were at their peak.
I remember it was all over the news and the man was totally embarrased by it all
On September 16 the British government announced a rise in the base interest rate from an already high 10% to 12% in order to tempt speculators to buy pounds. Despite this and a promise later the same day to raise base rates again to 15%, dealers kept selling pounds, convinced that the government would not stick with its promise. By 19:00 that evening, Norman Lamont, then Chancellor, announced Britain would leave the ERM and rates would remain at the new level of 12%
Wed, 04 Sep 1991 10.38 Fri, 12 Jul 1991 10.88 Fri, 24 May 1991 11.38 Fri, 12 Apr 1991 11.88 Fri, 22 Mar 1991 12.38 Wed, 27 Feb 1991 12.88 Wed, 13 Feb 1991 13.38 Mon, 08 Oct 1990 13.88 Fri, 06 Oct 1989 14.88 Fri, 08 Sep 1989 13.75 Mon, 04 Sep 1989 13.88 Thu, 31 Aug 1989 13.84 Thu, 25 May 1989 13.75
The above rates are from the BoE and do not correlate with your graph.
You will notice the very high rate was just one working day.
Furthermore, as according to the halifax, house prices continued to fall until 1996, 4 years after we left the ERM
QUOTE (Bloo Loo @ Nov 19 2007, 08:02 PM)
all very nice, but Lamont raised interest rates to their max, and had to immediately leave the ERM-- the rates were at their peak.
I remember it was all over the news and the man was totally embarrased by it all
On September 16 the British government announced a rise in the base interest rate from an already high 10% to 12% in order to tempt speculators to buy pounds. Despite this and a promise later the same day to raise base rates again to 15%, dealers kept selling pounds, convinced that the government would not stick with its promise. By 19:00 that evening, Norman Lamont, then Chancellor, announced Britain would leave the ERM and rates would remain at the new level of 12%
Wed, 04 Sep 1991 10.38 Fri, 12 Jul 1991 10.88 Fri, 24 May 1991 11.38 Fri, 12 Apr 1991 11.88 Fri, 22 Mar 1991 12.38 Wed, 27 Feb 1991 12.88 Wed, 13 Feb 1991 13.38 Mon, 08 Oct 1990 13.88 Fri, 06 Oct 1989 14.88 Fri, 08 Sep 1989 13.75 Mon, 04 Sep 1989 13.88 Thu, 31 Aug 1989 13.84 Thu, 25 May 1989 13.75
The above rates are from the BoE and do not correlate with your graph.
You will notice the very high rate was just one working day
I remember it was all over the news and the man was totally embarrased by it all
On September 16 the British government announced a rise in the base interest rate from an already high 10% to 12% in order to tempt speculators to buy pounds. Despite this and a promise later the same day to raise base rates again to 15%, dealers kept selling pounds, convinced that the government would not stick with its promise. By 19:00 that evening, Norman Lamont, then Chancellor, announced Britain would leave the ERM and rates would remain at the new level of 12%
Wed, 04 Sep 1991 10.38 Fri, 12 Jul 1991 10.88 Fri, 24 May 1991 11.38 Fri, 12 Apr 1991 11.88 Fri, 22 Mar 1991 12.38 Wed, 27 Feb 1991 12.88 Wed, 13 Feb 1991 13.38 Mon, 08 Oct 1990 13.88 Fri, 06 Oct 1989 14.88 Fri, 08 Sep 1989 13.75 Mon, 04 Sep 1989 13.88 Thu, 31 Aug 1989 13.84 Thu, 25 May 1989 13.75
The above rates are from the BoE and do not correlate with your graph.
You will notice the very high rate was just one working day
I'm aware of the events of sept 1992 but I was questioning your claim about rising unemployment and a recession that followed AFTER this date.
QUOTE
Furthermore, as according to the halifax, house prices continued to fall until 1996, 4 years after we left the ERM
Depends on what you mean by fall. The NW graph below shows the meaningful falls (in nominal terms) were over by the end of 1992. It looks pretty flat up to 1996 after that.
QUOTE (Without_a_Paddle @ Nov 19 2007, 08:15 PM)
I'm aware of the events of sept 1992 but I was questioning your claim about rising unemployment and a recession that followed AFTER this date.
OIC, no i was questioning your logic on house prices and the falling interest rates. I didnt mention unemployment.
QUOTE (Bloo Loo @ Nov 19 2007, 08:24 PM)
OIC, no i was questioning your logic on house prices and the falling interest rates. I didnt mention unemployment.
Who wrote this in your post then?
QUOTE
Rates were then free to be lowered as you say, and in fact they were. This didnt stop the recession that followed nor the continuing house price crash, with the consequences of rising unemployment.
QUOTE (Without_a_Paddle @ Nov 19 2007, 07:08 PM)
The last crash was nothing to do with ramped up interest rates or high unemployment?
Why don't you do some basic RESEARCH into the economy from 1988 to 1993 before spouting such rubbish.
Why don't you do some basic RESEARCH into the economy from 1988 to 1993 before spouting such rubbish.
'Nothing to do with' will always be incorrect as all these things have some effect but the above two factors did not cause the crash. I was there at the time having just bought my first property and Lawson's dual MIRAS thing seemed to have the biggest effect.
Your graphs are very interesting but totally incorrect if I try to apply then to my experience in the early 90's (they are averages and therefore actually fit very few real examples). I bought a flat for £47k in 1990 and could not sell it in '93 for £38k. One of the flats had sold for £60k in late '88.
£38k is over 33% down from the peak (a level of loss which is not seen on your graph) but here's the rub. The flat was right next to Heathrow Airport where unemployment was never a factor and flats are sought after. Wages are also some of the highest in the country which softens the impact of interest rate rises.
People who can find the money will pay silly prices for something they want, particularly if they think they will profit from the venture.
In the early 90's people stopped wanting for a while. It is refered to as 'sentiment' which to me is far too polite a term but whatever you call it, it is the main cause of any crash. You will never predict it or explain it with a graph as it often defies logic whether it is causing a boom or a crash.
QUOTE (Without_a_Paddle @ Nov 19 2007, 08:47 PM)
Who wrote this in your post then?
OK, Unemployment was a consequence, I did mention it. We were talking about causes.
You however, were implying one of the causes of the house price crash last time was unemployment. I would argue that it was the other way round, as it will be in the coming period. Subesequent unemployment compounded and lengthened the length of time House prices lanquished at their bottom.
QUOTE (Nickolarge @ Nov 19 2007, 08:50 PM)
'Nothing to do with' will always be incorrect as all these things have some effect but the above two factors did not cause the crash. I was there at the time having just bought my first property and Lawson's dual MIRAS thing seemed to have the biggest effect.
Your graphs are very interesting but totally incorrect if I try to apply then to my experience in the early 90's (they are averages and therefore actually fit very few real examples). I bought a flat for £47k in 1990 and could not sell it in '93 for £38k. One of the flats had sold for £60k in late '88.
£38k is over 33% down from the peak (a level of loss which is not seen on your graph) but here's the rub. The flat was right next to Heathrow Airport where unemployment was never a factor and flats are sought after. Wages are also some of the highest in the country which softens the impact of interest rate rises.
People who can find the money will pay silly prices for something they want, particularly if they think they will profit from the venture.
In the early 90's people stopped wanting for a while. It is refered to as 'sentiment' which to me is far too polite a term but whatever you call it, it is the main cause of any crash. You will never predict it or explain it with a graph as it often defies logic whether it is causing a boom or a crash.
Your graphs are very interesting but totally incorrect if I try to apply then to my experience in the early 90's (they are averages and therefore actually fit very few real examples). I bought a flat for £47k in 1990 and could not sell it in '93 for £38k. One of the flats had sold for £60k in late '88.
£38k is over 33% down from the peak (a level of loss which is not seen on your graph) but here's the rub. The flat was right next to Heathrow Airport where unemployment was never a factor and flats are sought after. Wages are also some of the highest in the country which softens the impact of interest rate rises.
People who can find the money will pay silly prices for something they want, particularly if they think they will profit from the venture.
In the early 90's people stopped wanting for a while. It is refered to as 'sentiment' which to me is far too polite a term but whatever you call it, it is the main cause of any crash. You will never predict it or explain it with a graph as it often defies logic whether it is causing a boom or a crash.
Sentiment has its part to play, but unemployment was still running at 10% in early 1993, businesses were still suffering from the prev years of recession. I can only guess as to why your flat fell in price in line with the rest of greater London.
Maybe people prefer to live further away from the airport as a first choice? If further away is cheaper then local prices will fall too. That's purely a guess mind as I don't know anything about the area except for the fact I wouldn't want to live near such a busy/noisy airport.
In late 1988 rates were at 8% approx.
A £60k repayment mortgage with double MIRAS relief would have been quite low. (below £400pm?) (assume couple earn £15k between them and take home £910pm)
In 1990 rates were 15%. That £60k mortgage would have been close to £700pm with single MIRAS and their take home pay would have been maybe £1020pm. That's quite a kick in the wallet and explains the fall in consumer spending and the initial fall in house prices.
To clarify this, the net pay was >£510 in 1988.
By 1990 the net pay had fallen to £320 and then you have to take off maybe 15% for inflation leaving under £280pm when adjusted to the 1988 figure of £510pm.
QUOTE
In the early 90's people stopped wanting for a while.
I reckon they had little choice due the high rates and deepening recession. However I would agree that negative sentiment held prices flat during 1994-1996.
QUOTE (Bloo Loo @ Nov 19 2007, 09:20 PM)
OK, Unemployment was a consequence, I did mention it. We were talking about causes.
You however, were implying one of the causes of the house price crash last time was unemployment. I would argue that it was the other way round, as it will be in the coming period. Subesequent unemployment compounded and lengthened the length of time House prices lanquished at their bottom.
You however, were implying one of the causes of the house price crash last time was unemployment. I would argue that it was the other way round, as it will be in the coming period. Subesequent unemployment compounded and lengthened the length of time House prices lanquished at their bottom.
I didn't mean to imply unemployment was an initial cause. But it certainly helped drag down house prices during 1991-1993 as forced sellers had fewer and fewer employed buyers to attract. Those that still had a job had reduced security and were less likely to want to commit to a mortgage. I guess that's sentiment mixed with reality...
More on the sentiment thing.
When there is a boom you hear folk talking in glowing terms about the crappiest little house or flat in a duff area. They talk with an almost religious fervor about nothing more than living in an ordinary house and paying through the nose for the privilege. Worst of these are the 'Right to Buy' ex-council tennants.
Then there's a crash and suddenly they are 'trapped' in a 'dump' and yet it is the same house.
I always remember a Tory mate of mine telling me that he voted that way because Thatcher had made his Dad a home owner for the first time in his life (by selling him a council house in Southall ).
I reminded him that Labour had provided him a cheap rented house for decades.
I also thought (but did not say) that if his Dad, who had a good job, had put his hand in his pocket he could have bought a proper house somewhere nice 10 years earlier, instead of sponging off his local council.
When there is a boom you hear folk talking in glowing terms about the crappiest little house or flat in a duff area. They talk with an almost religious fervor about nothing more than living in an ordinary house and paying through the nose for the privilege. Worst of these are the 'Right to Buy' ex-council tennants.
Then there's a crash and suddenly they are 'trapped' in a 'dump' and yet it is the same house.
I always remember a Tory mate of mine telling me that he voted that way because Thatcher had made his Dad a home owner for the first time in his life (by selling him a council house in Southall
).I reminded him that Labour had provided him a cheap rented house for decades.
I also thought (but did not say) that if his Dad, who had a good job, had put his hand in his pocket he could have bought a proper house somewhere nice 10 years earlier, instead of sponging off his local council.
QUOTE (Without_a_Paddle @ Nov 19 2007, 09:34 PM)
Sentiment has its part to play, but unemployment was still running at 10% in early 1993, businesses were still suffering from the prev years of recession. I can only guess as to why your flat fell in price in line with the rest of greater London.
Maybe people prefer to live further away from the airport as a first choice? If further away is cheaper then local prices will fall too. That's purely a guess mind as I don't know anything about the area except for the fact I wouldn't want to live near such a busy/noisy airport.
In late 1988 rates were at 8% approx.
A £60k repayment mortgage with double MIRAS relief would have been quite low. (below £400pm?) (assume couple earn £15k between them and take home £910pm)
In 1990 rates were 15%. That £60k mortgage would have been close to £700pm with single MIRAS and their take home pay would have been maybe £1020pm. That's quite a kick in the wallet and explains the fall in consumer spending and the initial fall in house prices.
I reckon they had little choice due the high rates and deepening recession. However I would agree that negative sentiment held prices flat during 1994-1996.
Maybe people prefer to live further away from the airport as a first choice? If further away is cheaper then local prices will fall too. That's purely a guess mind as I don't know anything about the area except for the fact I wouldn't want to live near such a busy/noisy airport.
In late 1988 rates were at 8% approx.
A £60k repayment mortgage with double MIRAS relief would have been quite low. (below £400pm?) (assume couple earn £15k between them and take home £910pm)
In 1990 rates were 15%. That £60k mortgage would have been close to £700pm with single MIRAS and their take home pay would have been maybe £1020pm. That's quite a kick in the wallet and explains the fall in consumer spending and the initial fall in house prices.
I reckon they had little choice due the high rates and deepening recession. However I would agree that negative sentiment held prices flat during 1994-1996.
15K between them and a 60K mortgage????- do be realistic they would have got a 45K tops
The banks didnt lend stupid multiples in those days.
And the recession would only have hit them if theyd lost their jobs or had a business and struggled with profit.
Prices just got too high, and the market dried up. Interest rates led to reduced consumer spending and the recession followed. People got scared, banks lost money, mortgages got harder to get even when rates came down.
I just dont know where you are coming from- your comments are against my own true life experience of the time.
QUOTE (Bloo Loo @ Nov 19 2007, 09:49 PM)
15K between them and a 60K mortgage????- do be realistic they would have got a 45K tops
The banks didnt lend stupid multiples in those days.
And the recession would only have hit them if theyd lost their jobs or had a business and struggled with profit.
Prices just got too high, and the market dried up. Interest rates led to reduced consumer spending and the recession followed. People got scared, banks lost money, mortgages got harder to get even when rates came down.
I just dont know where you are coming from- your comments are against my own true life experience of the time.
The banks didnt lend stupid multiples in those days.
And the recession would only have hit them if theyd lost their jobs or had a business and struggled with profit.
Prices just got too high, and the market dried up. Interest rates led to reduced consumer spending and the recession followed. People got scared, banks lost money, mortgages got harder to get even when rates came down.
I just dont know where you are coming from- your comments are against my own true life experience of the time.
OK, I'll look again at a £45k loan and £15k joint income in 1988. (althought there was a sharp buying frenzy in 1988 due to the MIRAS announcement in the prev budget)
With double MIRAS relief in 1988 I would guess their repayments would be approx £280pm on the £45k loan (if I've got the double MIRAS relief right)
Takehome salary £910pm = > £630 net each month
In 1990 an FTB couple would be looking at nearly £500pm repayments with single MIRAS and 15% rates.
Takehome £1020pm.
net = £520pm less 15% inflation = £442pm adjusted for 1988.
It's still a significant difference.
QUOTE
mortgages got harder to get even when rates came down.
Depends what year you are referring to. I got my first FTB mortgage quote in early 1994 and the banks/bsocieties were fighting for my business.
Later in the year I borrowed (approx) 3.25 times salary despite the fact I had just bought a nearly new sports car on finance. The Halifax didn't care and they offered me a 2yr discounted rate (1.8% discount) with £1500 cashback.
QUOTE (Without_a_Paddle @ Nov 19 2007, 11:08 PM)
Later in the year I borrowed (approx) 3.25 times salary despite the fact I had just bought a nearly new sports car on finance.
Wow
QUOTE (Without_a_Paddle @ Nov 19 2007, 09:43 PM)
I didn't mean to imply unemployment was an initial cause.
Good.
You got owned there WAP.
Can we take it that we wont be hearing you trot out this nonsense again in the current context?
@Bloo Loo - held your ground and didnt get waylaid or distracted. Excellent stuff.
One of the better threads on here for a long time.
(Added to bookmarks for future bull-slapping reference.)
QUOTE (Without_a_Paddle @ Nov 19 2007, 09:50 PM)
Very interesting. Actually one of the more interesting things is the period just leading up to 1990. Note that IR's and HPI are both increasing at about the high rate.
Even though variable rates were changing frequently (I remember getting lots of letters from 1989-90) It didn't stop the bubbling up of HPI. People were well aware of the direction of IR's but were still buying houses at higher and higher prices for much of 88-90. I remember being tempted to trade up at the time as I was only borrowing 1x my salary for my modest house. Glad I resisted that temptation.
A bull might explain this apparent lack of correlation between IR's rising and HPI in terms of time lag, but psychologically I just think it shows that in a buying frenzy people become less IR sensitive.
Its a bit like now. Even if rates were lowered it wouldn't change sentiment, and it wouldn't affect mortgage rates directly because of the credit crunch.
Me thinks "Without a Paddle" is now starting to get a little jumpy. Why don't you go and join all the other VI trolls such as Casual Observer who jumped ship in the Summer.
WE ARE NOW ENTERING A VERY SEVERE CRASH! Get used to it!
WE ARE NOW ENTERING A VERY SEVERE CRASH! Get used to it!
Good piece there FP. I particularly liked your emphasis on the fact that prices fell because of lack of buying - it's amazing how few people understand that. The BTL sector believe that in order for house prices to fall everyone has to sell and then rent, which means that BTL is quids in. But then again, they believe a lot of ridiculous things.
I wouldn't bother conversing with this guy, Bloo Loo. He has little undertstanding of macro economics or how markets work and when he realises that his arguments do not stand up to scrutiny, he launches personal attacks rather than learns. Not worth engaging.
QUOTE (Bloo Loo @ Nov 19 2007, 08:24 PM)
OIC, no i was questioning your logic on house prices and the falling interest rates. I didnt mention unemployment.
I wouldn't bother conversing with this guy, Bloo Loo. He has little undertstanding of macro economics or how markets work and when he realises that his arguments do not stand up to scrutiny, he launches personal attacks rather than learns. Not worth engaging.
QUOTE (needle @ Nov 20 2007, 06:02 AM)
Good.
You got owned there WAP.
Can we take it that we wont be hearing you trot out this nonsense again in the current context?
@Bloo Loo - held your ground and didnt get waylaid or distracted. Excellent stuff.
One of the better threads on here for a long time.
(Added to bookmarks for future bull-slapping reference.)
You got owned there WAP.
Can we take it that we wont be hearing you trot out this nonsense again in the current context?
@Bloo Loo - held your ground and didnt get waylaid or distracted. Excellent stuff.
One of the better threads on here for a long time.
(Added to bookmarks for future bull-slapping reference.)
What point are you trying to make? That the unemployment drop was irrelevant to the severity of the 1990-1993 crash?
In 1990 the cause of the crash was the huge step in interest rates and the effect it had on affordability. Also, we went into recession as businesses suffered from the higher rates and the knock on effects on rates and the £ exchange rate from the ERM. Exporters were hit hard.
This caused unemployment to rise and this made the house price crash worse. Consumer spending fell and this hit business as well, causing more unemployment.
It was a downward spiral that we couldn't pull out of because of the ERM restrictions that prevented us from cutting rates as fast as we wanted.
Falling house prices made the unemployment worse, but the main reasons for the unemployment was the recession made worse by the ERM problems.
I still maintain that there won't be a 40% drop in nominal UK average house prices without an associated huge rise in unemployment.
QUOTE
Can we take it that we wont be hearing you trot out this nonsense again in the current context?
Please provide a link to an example nonsense post of mine on this subject, or post up a text quote on here.
QUOTE (Extradry Martini @ Nov 20 2007, 08:35 AM)
I wouldn't bother conversing with this guy, Bloo Loo. He has little undertstanding of macro economics or how markets work and when he realises that his arguments do not stand up to scrutiny, he launches personal attacks rather than learns. Not worth engaging.
Are you suggesting that my explanation of why we had a HPC last time (re higher rates, ERM, recession, unemployment, poor income security) was wrong?
If so, what is the correct explanation?
prices were too high. same now.
QUOTE (Without_a_Paddle @ Nov 20 2007, 09:10 AM)
Are you suggesting that my explanation of why we had a HPC last time (re higher rates, ERM, recession, unemployment, poor income security) was wrong?
If so, what is the correct explanation?
If so, what is the correct explanation?
I dont know what EM is suggesting, but I do know that houses got too expensive to buy in the 1989-1990 period, and there came a point where buyers said " Whoah" that is risky, ill hang on.
The housing market then got very slow, the high streets, which were full of estate agents and phone shops and clinton cards, began to lose the first two.
Banks started to sell their estate agencies.
High streets began to get full of empty shops. People got more worried and held back spending. Bankruptcies began to increase, both private and corporate.
Unemployment of course began to climb as Interest rates choked the spare cash in peoples pockets, people were afraid because of the layoffs they saw all around, House prices continued to fall.
Banks were losing money and their "provisions" went through the roof. They grabbed cash where they could to keep themselves afloat, cutting OD facilities for small business and sending many people to the wall.
All these effects were in a self reinforcing cycle- spending droppped, business went down, unemployment rose, banks reigned in, spending dropped, business went down- and so on in an apparently never ending spiral- the exact reverse of the conditions before the bust.
The recession was now in full swing and no amount of interest rate cuts were going to help the market because people were afraid.
It was the fear that killed the HP bubble, and it will be fear that does it this time.
This time though, we have credit crunch at the START!!! Things are different this time!!
Just thinking to myself and I came to the conclusion that I can see myself in the postings of Withoutapaddle.
This self, is the one that existed BEFORE the last recession.
WAP, if he is in the UK hasnt lived in a recession.
He hasnt experienced how bloody things get.
I can recall, whilst buying a large house in 1987, actually sitting at my computer and doing a spreadsheet computing the price of my purchase and what it would be worth in 10 years time! And this was my justification for doing the purchase!!!!
I really didnt know any better. The whole atmosphere in which I existed was one of BOOM, and "houses are safe invest all you can in your house", you cant lose.
And as I was just 31 then, had three nice cars and a thriving business, there was nobody in my world, nobody, saying "whoah".
I fell for it hook line and sinker.
I know many people today, who have fallen for it too.
I hope there is a lesson there for all of us.
This self, is the one that existed BEFORE the last recession.
WAP, if he is in the UK hasnt lived in a recession.
He hasnt experienced how bloody things get.
I can recall, whilst buying a large house in 1987, actually sitting at my computer and doing a spreadsheet computing the price of my purchase and what it would be worth in 10 years time! And this was my justification for doing the purchase!!!!
I really didnt know any better. The whole atmosphere in which I existed was one of BOOM, and "houses are safe invest all you can in your house", you cant lose.
And as I was just 31 then, had three nice cars and a thriving business, there was nobody in my world, nobody, saying "whoah".
I fell for it hook line and sinker.
I know many people today, who have fallen for it too.
I hope there is a lesson there for all of us.
QUOTE (Bloo Loo @ Nov 20 2007, 10:11 AM)
I dont know what EM is suggesting, but I do know that houses got too expensive to buy in the 1989-1990 period, and there came a point where buyers said " Whoah" that is risky, ill hang on.
The housing market then got very slow, the high streets, which were full of estate agents and phone shops and clinton cards, began to lose the first two.
Banks started to sell their estate agencies.
High streets began to get full of empty shops. People got more worried and held back spending. Bankruptcies began to increase, both private and corporate.
Unemployment of course began to climb as Interest rates choked the spare cash in peoples pockets, people were afraid because of the layoffs they saw all around, House prices continued to fall.
Banks were losing money and their "provisions" went through the roof. They grabbed cash where they could to keep themselves afloat, cutting OD facilities for small business and sending many people to the wall.
All these effects were in a self reinforcing cycle- spending droppped, business went down, unemployment rose, banks reigned in, spending dropped, business went down- and so on in an apparently never ending spiral- the exact reverse of the conditions before the bust.
The recession was now in full swing and no amount of interest rate cuts were going to help the market because people were afraid.
It was the fear that killed the HP bubble, and it will be fear that does it this time.
This time though, we have credit crunch at the START!!! Things are different this time!!
Just thinking to myself and I came to the conclusion that I can see myself in the postings of Withoutapaddle.
This self, is the one that existed BEFORE the last recession.
WAP, if he is in the UK hasnt lived in a recession.
He hasnt experienced how bloody things get.
I can recall, whilst buying a large house in 1987, actually sitting at my computer and doing a spreadsheet computing the price of my purchase and what it would be worth in 10 years time! And this was my justification for doing the purchase!!!!
I really didnt know any better. The whole atmosphere in which I existed was one of BOOM, and "houses are safe invest all you can in your house", you cant lose.
And as I was just 31 then, had three nice cars and a thriving business, there was nobody in my world, nobody, saying "whoah".
I fell for it hook line and sinker.
I know many people today, who have fallen for it too.
I hope there is a lesson there for all of us.
The housing market then got very slow, the high streets, which were full of estate agents and phone shops and clinton cards, began to lose the first two.
Banks started to sell their estate agencies.
High streets began to get full of empty shops. People got more worried and held back spending. Bankruptcies began to increase, both private and corporate.
Unemployment of course began to climb as Interest rates choked the spare cash in peoples pockets, people were afraid because of the layoffs they saw all around, House prices continued to fall.
Banks were losing money and their "provisions" went through the roof. They grabbed cash where they could to keep themselves afloat, cutting OD facilities for small business and sending many people to the wall.
All these effects were in a self reinforcing cycle- spending droppped, business went down, unemployment rose, banks reigned in, spending dropped, business went down- and so on in an apparently never ending spiral- the exact reverse of the conditions before the bust.
The recession was now in full swing and no amount of interest rate cuts were going to help the market because people were afraid.
It was the fear that killed the HP bubble, and it will be fear that does it this time.
This time though, we have credit crunch at the START!!! Things are different this time!!
Just thinking to myself and I came to the conclusion that I can see myself in the postings of Withoutapaddle.
This self, is the one that existed BEFORE the last recession.
WAP, if he is in the UK hasnt lived in a recession.
He hasnt experienced how bloody things get.
I can recall, whilst buying a large house in 1987, actually sitting at my computer and doing a spreadsheet computing the price of my purchase and what it would be worth in 10 years time! And this was my justification for doing the purchase!!!!
I really didnt know any better. The whole atmosphere in which I existed was one of BOOM, and "houses are safe invest all you can in your house", you cant lose.
And as I was just 31 then, had three nice cars and a thriving business, there was nobody in my world, nobody, saying "whoah".
I fell for it hook line and sinker.
I know many people today, who have fallen for it too.
I hope there is a lesson there for all of us.
I do recall the last recession and I was in the UK in my twenties just starting a career in design.
We were heading for recession even without the ERM effect but maybe you need to look at the fiscal and monetary policies of the tories in the 80s (eg generous budgets and £ targetting) that intensified the boom/bust.
Also the role Germany played in the ERM post 1990 wrt raising interest rates following their inflationary reunification problems.
We also had a record trade deficit in 1990 (in terms of GDP)
Couple this with the high rates caused by ERM rules on the £ exchange rate and you can see what this was a terrible time for UK business especially exporters who had to contend with a strong £.
This all contributed to the downward spiral in businesses/employment and the economy.
Had we not been handcuffed to the ERM I believe the recession would have been less severe and house prices would have fallen less.
However, it certainly is debateable as to whether this would have had a better long term effect. (eg some economists refer to Black Wednesday as White Wednesday)
QUOTE
This time though, we have credit crunch at the START!!! Things are different this time!!
What is definately different this time is that we have more control over our monetary policy.
QUOTE (Bloo Loo @ Nov 19 2007, 09:49 PM)
Prices just got too high, and the market dried up. Interest rates led to reduced consumer spending and the recession followed. People got scared, banks lost money, mortgages got harder to get even when rates came down.
I just dont know where you are coming from- your comments are against my own true life experience of the time.
I just dont know where you are coming from- your comments are against my own true life experience of the time.
Agreed, as I have already said, they don't match mine either.
The one inescapable fact is that the crash happened because the boom ended.
In any boom there are the doom merchants who don't join in (and who are always eventually right). But there are also many more who instinctively know that you never get something for nothing and that all booms end sometime but they still come along for the ride. When the 'sentiment' turns these guys get off the carousel and that is enough to crash the market on it's own. Add in those who are forced out (which, despite the headlines, is a much smaller group) and the crash is 99% certain.
You can argue all week about what makes these guys pull back. It can be one reason or a collection of reasons but I would say there are more reasons to choose from this time and apart from the lower interest rates they are all far more negative than the 90's.
QUOTE (Without_a_Paddle @ Nov 20 2007, 07:28 PM)
What is definately different this time is that we have more control over our monetary policy.
Do we? I am not so sure. You focus far to much on the ERM thing. The main effect of that fiasco was to destroy the Tories reputation for sound financial management. All other effects were strictly short term.
Have you not noticed that the current low interest rates are pretty much a worldwide thing. The days when one economy can be out of kilter with other major countries have gone. We are bound to them, like it or not, and this has been true for some time now.
So how much control (or freedom) do we really have?
QUOTE (Without_a_Paddle @ Nov 20 2007, 09:00 AM)
Please provide a link to an example nonsense post of mine on this subject, or post up a text quote on here.
Dont need to.
Ten minutes after you posted the above you went and did it yourself. (See below)
QUOTE (Without_a_Paddle @ Nov 19 2007, 09:43 PM)
I didn't mean to imply unemployment was an initial cause.
QUOTE (Without_a_Paddle @ Nov 20 2007, 09:10 AM)
Are you suggesting that my explanation of why we had a HPC last time (re higher rates, ERM, recession, unemployment, poor income security) was wrong?
Thats exactly what I'm suggesting...and if I'm not mistaken...you agree.....or disagree with yourself....or......
Just read the bit in Italics - that oughta help.
QUOTE (needle @ Nov 22 2007, 04:09 AM)
Dont need to.
Ten minutes after you posted the above you went and did it yourself. (See below)
Thats exactly what I'm suggesting...and if I'm not mistaken...you agree.....or disagree with yourself....or......
Just read the bit in Italics - that oughta help.
Ten minutes after you posted the above you went and did it yourself. (See below)
Thats exactly what I'm suggesting...and if I'm not mistaken...you agree.....or disagree with yourself....or......
Just read the bit in Italics - that oughta help.
I don't see a problem with what I posted.
Unemployment contributed to the crash but it wasn't the INITIAL cause of the crash. That initial cause was down to interest rates and the impact on affordability.
The ERM rules (and high IRs) caused business problems (export business was especially hit) which lead to increasing unemployment and a deepening recession.
This unemployment caused the the HPC to get worse as there were fewer employed buyers and lots of people with worries over job security (so they didn't want to commit to a huge mortgage at high rates)
It was a downward spiral until we dropped out of the ERM.
I really don't see why you are giving me a tough time over this? Which bit is incorrect?
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