Sunday, May 27, 2007
Economics editor of the Torygraph peers into the future of the housing market and predicts doom
Torygraph: Word on the street
You may remember I predicted that this would be the year the housing boom came to an end. More specifically ...
Posted by buddleia @ 10:16 AM (334 views) Add Comment
14 Comments
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1. Cromwell said...
Whatever the politics Mr Conway has been correct in his prediction since his article late last year and even now can the Bank of England manage a soft or hard landing is his question? Pity more people have not had his courage the usual bland fence sitting is unbearable.Everything to play for but for one this prediction appears to be correct and everybody else seems to be coming to the party late..The rate rise in January set the tone the warnings have been there .
2. royston said...
Older homeowners who are concerned about passing their wealth down to the next generation should sell now, before the downswing gains momentum, and move into rental. Cash, bonds, shares and commodities will be much better ways of preserving wealth from here on in.
3. Orwell said...
I was thinking of buying bonds in Kennsington
LOL
4. enuii said...
Come on Royston, are you sure about the shares?
5. Scott said...
I disagree Royston. Getting little old lady landowners to sign something and then clubbing them over the head is a better way of preserving and accumulating wealth in the future, not that I approve, I am just making a point.
6. royston said...
Enuii,
Shares are a good hedge against inflation. As inflation rises, so do sales revenues and profits. That makes them very attractive when you think about the state of the world that we are clearly heading into.
7. sold 2 rent 1 said...
No no no no no no.
Shares and commodities are in for their biggest pounding since the 1930s depression.
Cash and gilts now. Add in gold after the first leg of the stocks crash.
Inflation is a red-herring. Once the economies turn down, inflation will drop too.
BTW: Oil is loose cannon and could go in any direction.
8. sold 2 rent 1 said...
The Chart Wall Street Doesn't Want You to See
9. royston said...
s2r1,
I don't see how inflation is a red herring. There is too much money/credit in circulation. Money divided by Quantity of Goods equals Price level. The increase in money supply should have led to inflation already. What has stopped is that it has been diverted into asset prices because of the boom-market frenzy. Our current inflation measures ignore asset price inflation. How can that money be removed from the economic system? As I see it, when the boom runs out of steam that money will be re-directed back to spending. It will take very high interest rate levels to divert it into savings.
10. iguana said...
The graph ties in well with the circumstances seen prior to the collapse of the Japan housing market 10 or so years ago, the tipping point was marked by a rise in base rate to only 6.25% as I recall.
11. sold 2 rent 1 said...
royston,
When the boom runs out of steam assets will fall in value, borowers will default on loans, and the money supply will fall.
12. royston said...
s2r1,
Your argument on consumer inflation makes sense. However, I am still not entirely convinced about shares being a bad investment. Firms have accumulated huge reserves of cash through the recent boom. Business leaders typically have much of their wealth/income linked to thier share prices - either through stock options or through owning shares outright. I believe this will lead to substantial share buyback programmes in order to maintain their stock prices in the face on any substantial decline. In addition, in the absence of substantially higher interest rates, the private equity phenomenon that is currently puffing up stock price looks set to continue unabated. These factors should sustain the share price boom for the next few years. Do you disagree?
13. sold 2 rent 1 said...
Royston,
I completely disagree.
Corporate profits and consumers debts are at record highs.
When the boom ends there will be no consumer money left to provide these growing company profits
US bosses are selling shares at levels not seen since the 1987 crash. This has been reported several times on this site.
Later this year there will be a liquidity crisis where the whole private equity game will be over for this cycle.
14. bidin'matime said...
Royston - if companies buy back their own shares to try to prop up their value, it has to be a sign of things going badly wrong - it might work to 'correct' a very brief blip in the price, but ultimately they are on a hiding to nothing.
And as for Edmund - I've always said he was one of us, but if you look for his column, it's tiny - hidden away in the inner pages of the property section, amidst all the positive spin around him - no wonder he normally tones it down, but he's clearly feeling more confident now...