Saturday, Jun 09, 2007
MSN:House prices: what’s going on?
MSN: House prices: what’s going on?
Diana Choyleva of Lombard Street Research says: “We are now clearly at the end of the house price boom. We think there will be a correction next year, although it is unlikely to be as severe as the last crash.”
Posted by alan @ 10:00 PM (185 views) Add Comment
15 Comments
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1. mike said...
I think I shall wait to see what Mrs. Flange has to say on this....
2. Scott said...
It is the high prices, not the interest rates, that are deterring first time buyers. 4.5%, 5%, 5.5%, inflation, oil, MPC, boring, boring, who cares? The fact that someone could be earning 20k but a house being 200k in their area is the fundamental problem. The rest is just noise.
Therefore, even if rates drop to 3%, the 20k first time buyer will still not be able to afford the 200k house and the market will eventually collapse due to no first time buyers.
3. Pr said...
So, the article says that things will start to go wrong if interest rates reach 7%. I seem to remember 6% being touted as the pain threshold some time ago. Is there any consensus here on how high interest rates must go to trigger a crash, or are we already at that point?
4. This comment has been removed as it was found to be in breach of our Blog Policies.
5. Orwell said...
Mrs. Flange says no correction, that would mean a 10% (at least) fall in prices!
The market just does not behave like that long term...eh Paul?
6. Deadman said...
Scott sums the whole thing up in one short paragraph.
I'm sick to the back teeth of 'economists' and 'experts' feeding us with this utter tripe. Nobody tells it like it really is!
7. talking rot said...
Mrs Flange says falling prices are nonsense. The Government won't allow so many people to be ruined - these people are voters, even though they do not live in a constituency with a small majority. Pensions and investments are outdated affiars which are run by unscrupulous City people who make money off other peoples' suffering. The only sensible path to financial security is through property - if only more young people would realise this. If every generation bought houses from the previous generation, then no generation would be poor. It's only because young people don't know the meaning of hard work. One had the cheek to refuses to pay Mrs Flange, her increase in the rent; and had the audacity to move out. Clearly this young man doesn't know the value of money. He's the third one this month and, despite the BoE not putting up interest rates this month, Mrs Flange is wondering who'll pay for her 4th holiday this year.
Mrs Flange is secure in the knowledge that until interest rates are very high, and unemployment rises dramatically, house prices will continue to rise - her Estate Agent friend told her so.
8. Orwell said...
Ha ha TR ...
9. Orwell said...
TR, Is that EA who is advising Mrs. Flange the same who got successfully prosecuted recently in the South West (along with an EAy called Connells) for property misdescription?
I wonder?
10. Semi-detached-from-reality said...
Hi everybody (and Mrs Flange).
We here in NZ have what was reported as the 'developed' world's highest interest rates now, 8%. Also recently reported was news the average Kiwi spends 130% of their income. The Finance Minister seems to be acting as though we don't have a problem, although the opposition parties blame Government spending. The Reserve Bank governor has now publicly admitted he wants to break the housing market, his personal pet hate, and raised interest rates again last week saying high dairy prices 'may' encourage farmers to spend more. (???)
Keep an eye on NZ, a lot of people are coming off 2 year fixed rate mortgages quite soon - it could well go pop here first
11. Mark Wadsworth said...
Chatting to a knowledgable old chap yesterday, who concurred that it was highly likely that house prices would fall from currently 7 times earnings to a trough of 3 (like in 1955 or 1975 or 1995), i.e. in real real terms, by more than 50%. He reckoned that the government would fudge this by allowing much higher inflation, say 15% a year fro three years so that nominal house prices do not fall (like in 1970s - even in 1990s, nominal house prices only fell ten or twenty percent), and the banks would also fudge it by allowing borrowers to roll up the interest that they can't afford to pay (interest rates would have to hit 18% or so in this scenario).
Seemed quite plausible the way he said it.
12. Time To Raise Petrol Prices said...
Who the hell is Mrs Flange?
13. This comment has been removed as it was found to be in breach of our Blog Policies.
14. Pr said...
If interest rates were 3%, then a 180k mortgage, assuming a 10% deposit, would cost just over £100 a week. It is ALL to do with interest rates, the problem with prices is, that the risk of higher interest rates has not been priced in by buyers. A bubble is always about not pricing risk and that's what's happened.
180k mortgage at 6%, well, that's just over £200/week, which will be a significant chunk of the £20k worker's pre tax income of about £380/week. So, its affordable at 3% but unafordable at 6%. But remember that most first time buyers are couples in their early 30's, so expect a £30-40k joint income.
If current prices don't put a price on the risk of 6% interest rates, then they certainly don't factor the risk of 7-8%, which may well be on the way.
15. Andy H said...
I don’t think that the government can actually afford to prop up the housing market. It is worth something like £350Bn a year. This money is being pumped in to the economy (which is why the UK has been booming and UK residents have been buying up the rest of the World).
If people stop buying then this money will disappear and the whole economy goes in to recession. Tax income falls so the government can’t afford to spend any extra cash. They may have an overall budget of a few hundred billion but any unplanned expenditure, even of a few billion, hurts. Just look at the pain associated with a few billion losses on Black Wednesday or the Olympic costs. We have sold off most of our gold reserves and our state owned industries so they can’t create cash from nowhere.
I think the government is more like the gentle hand on the tiller of a really large boat. Just recently they have been full steam ahead without really paying attention to where we are going.