Sunday, May 27, 2007
The party is over!
Times: Housing market appears to be slowing sharply
Where are the buoyant demand and the scarce supply, the planning restrictions, the immigrants and the divorcees? Evaporated in a second... obliterated by the IR rises! “We expect the headline rate of growth to slow relatively quickly over the rest of the year towards 4 per cent as affordability pressures put a continued squeeze on purchasing power and more supply comes to the market. Hometrack reported that an increasing number of homes were coming on to the market as vendors in London and the South East sought to cash in on strong market conditions"
Posted by confused76 @ 10:51 PM (346 views) Add Comment
6 Comments
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1. confused76 said...
Glorious Sunshine, Paolo,
where are you with your arguments on supply and demand? and the "everybody need a roof on their heads"? properties prices can only go up? The music has changed, "interest rates can only go up" is the new tune!
2. paolo88888 said...
Interest rates are going up to counter inflation. But apparently there is to be chronic deflation. So that should take the pressure off interest rates. I must admit to having lost the plot on this site when forecasts of deflation started to be interwoven with the $100 oil price. "Dow 3000" is much worse than most of the bearish house price forecasts. Iknow, Iknow, we should buy gold. As a hedge against inflation or deflation? After reading all these conflicting theories about the macroeconomic future, I concluded that perhaps property is not too bad an idea after all! If you have a genuinely good house, in a good location, it should hold its value.
3. Samone said...
Agreed Paolo, as long as you have one house in one location, and a secure job you should be fine (this happened to my dad in the 80s/90s).
if you've got 3+ properties, and plan to pass on your increased costs onto your tenents then you are in for a bumpy ride at best.
4. Andyh said...
I think perhaps you are missing the point - it is possible to have deflation of assets occuring at the same time as inflation occurs elsewhere in the economy. A good example is happening as we speak in the US - house prices (the biggest asset that most people own) are deflating whilst the cost of energy, and everything that stems from the cost of energy, is going up. This pattern is in the process of beginning elsewhere in the developed world. The main problem that the authorities face is that their usual tool for curbing inflation, ie interest rate rises, is an extremely blunt one when the major causative agent of inflation is a resource (ie oil), which because it is geological based rather than a a purely economical based resource (which is in the process of depleting) is no longer capable of responding to classical 'demand is up so more must be found and produced' theory. The inflation surge we have seen in the past few years all stems, IMO, from the increasing cost of energy, specifically oil, and this problem isn't going to go away, until energy demand retrenches (ie in a recession). Even then the relief from rising energy prices may well be short-lived, as the wheels of resource depleting grind on. All the price rises you are now seeing can be traced back to the surge upwards in oil prices that started in the early years of this decade - from increases in the price of food (partly from the extra oil costs of agriculture, and indeed natural gas costs for fertiliser, and partly becuase of the madness of biofuels production, as a flawed attempt to deal with the cost of increasing oil), all the way through to the now increasing costs of Chinese made imports (as the Chinese themselves suffer an energy crunch).
So what can central banks do? Hammer away with the old tool of interest rate rises seems their only option it seems to me; and yet this medicine will only kill this form of inflation once recession has occurred - there can be no middle way this time. Asset price deflation with general goods price inflation seems the outlook for the next few years, followed by a more widespread deflation once the recessionary phase is reached.
5. confused76 said...
paolo,
with rental yields in central london struggling to make 3% houses are far more overpriced than the stock market. I do not see deflation here in the UK quite yet, and do not have a crystal ball to tell you if IR will peak at 6% or 6.5%. Oil has got something to do with inflation but the BoE overplayed the role of energy sources to keep the illusion of the "IR won t grow"
"A genuinely good house, in a good location, it should hold its value" -- I can t agree more with you... but not now and in the UK. Buy just anywhere else... Berlin, the French Riviera, a Swiss chalet... buy whenever you feel that house prices have not gotten so ahead of themselves because a) people feel must be jumping on a runaway train, b) there is massive speculative demand (BTL sales approach half of the total) c) there is no limit to liquidity... properties de facto "buy themselves" with a self-certified "rental coverage of 100%"
Please open your eyes... it is not supply/demand of houses that is setting prices here, but instead the supply/demand of money
6. confused76 said...
Paolo
http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=cf34d6a4-9977-4fa8-8bcb-34fb9535dc68
"I certainly think that the behavior of interest rates is a large reason why prices have risen. But I think...the role of supply, the fact that we haven't had enough supply is a part of it,"
She thinks... she is the person who engineered the current mini-bubble by cutting IRs in 2004... the fact is she is not even sure of what she s done, and she is still in charge.
do you still think it is a good idea to buy? can you be sure these jokers will still be calling the shots in three years? because they are your only insurance policy when you are mortgaged up to your neck