Sunday, Jul 08, 2007
Comparisms to the 1990's crash are becoming more frequent
Independent: Homeowners bear brunt of latest interest rate increase
"While interest rates at this level don't appear high, compared to the early 1990s when base rates reached 15 per cent, the level of consumer indebtedness - 2.5 to 3 times the level back then - makes consumers more sensitive to even modest rate rises."
Posted by planning4acrash @ 12:17 AM (1432 views) Add Comment
13 Comments
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1. deepak said...
I must add here that, your net pay as a percentage to your gross pay falls as your salary increase. (ie. you pay 40% tax rather than 22%).
So if your debt is three times the 1990 level, and if your salary is also three times.
You are still worse off. as you get less in hand.
Confusing but simple.
2. planning4acrash said...
And net wage growth has not been close to x3 between 1990 and the present time!
3. Scott said...
Well done deepak, none of the other pessimists have brought this argument forward before. Well done.
4. Retiredbanker said...
planning4acrash-
Nowadays £30/35k p.a. seems to be considered quite a reasonable salary, but in 1990 was nothing much to write home about for
junior management positions ( most of which jobs have now disappeared ).
Obviously a declining standard of living is one of the "benefits" of globalisation for the middle classes.
5. planning4acrash said...
How the average family in London can afford 3-400k mortgages or rent to provide yields on these properties is beyond me! I still say that this will be as bad if not worse than the last crash. Average prices dropping to 110k within the first couple yrs of a crash, then another 4-5yrs of small losses down to 95k, before the new cycle begins, a direct extrapolation of what happened last time! That will still have the average house price at approx 3x the combined salary of the average house. To be expected "when" interest rates reach 8%, when most of the buyers are first time buyers with no built up equity. Last time, prices went from 110k average down to 70k average. Why should this time be different?! House prices were an average of 110k just FIVE YEARS AGO (sorry for shouting), but it needs to be said.
6. planning4acrash said...
has anybody noticed that the current shallow plateau in house prices is almost a carbon copy of the one just before the 1992 crash and, looking back, also of the 1980 crash?! (look at the home page). We don't have stats going back far for house prices, but, I reckon there will be a degree of recognisable periodicity over the long term, as in any other market.
7. Scott said...
London will be where the hammer falls hardest. Perhaps it will make the country more balanced and reduce the north/south divide. Something to consider anyway.
8. harold said...
"as anybody noticed that the current shallow plateau in house prices " planning4acrash
Yes, it's the crest of a tsunami. I got onto dry land, i.e., sold up and rented, 12 months ago.
9. planning4acrash said...
Harold, that's a beautiful analogy, in many ways the graph looks like a wave, maybe housing cycles follow a similar pattern to ones in nature? A wave grows until its underlying structure becomes unstable, it goes down until it can't go down anymore, then goes back up again, and the cycle starts again, put more energy (liquidity, no pun intended!) and the waves get bigger. I look forward to surfing this crash to shore, doing some sick tricks on the way! Its gonna be like Hawaii in the summer of '69 dude!
10. sold 2 rent 1 said...
"In many ways the graph looks like a wave"
It is - with a wavelength of approx 17-18 years according to Fred Harrison in Boom and Bust..
This wavelength fits in nicely with the stocks and commodity secular cycles too.
And to top it all - 4 of these cycles make up a k-wave of approx 70 years.
I'm back from a wet holiday in France and ready for a nice k-winter stocks crash this autumn.
11. george monsoon said...
What graph?
12. auntie said...
planningforcrash "We don't have stats going back far for house prices"
You might like to check out this link, it is US figures, but goes back to 1890, scary huh! You have to scroll down to see the graph. The video is worth a watch if you haven't seen it.
http://www.speculativebubble.com/videos/real-estate-roller-coaster.php
13. planning4acrash said...
George, the graph on the top left of the homepage.
S2R, I keep hearing about k winters, k waves, etc. what are they please?!