Sunday, Apr 27, 2008
Britain will escape a repeat of the negative equity crisis of the 1990s
FT: UK housing slump fears overplayed
Britain will escape a repeat of the negative equity crisis of the 1990s unless there is an unprecedented fall in house prices, according to Financial Times analysis that suggests talk of a disastrous housing slump is overplayed.
Posted by wojtek @ 01:48 PM (609 views) Add Comment
4 Comments
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1. paul said...
I think the actual wording in the printed article was:
UK housing slump fears 'overplayed'
2. montesquieu said...
Indeed. The quotes come from VIs. Others have come up with a different analysis of the same figures
What the data shows - based on past figures - is that progressively increasing levels of price fall cause an exponential rise in negative equity (that's fact based on known patterns of prices and loans from the CML database).
Comment on what percentages falls will actually happen reached - 12%, 20%, 30% or more - are a matter of opinion but the general consensus emerging from more dispassionate commentators suggest that after 300% rise in 10 years, 30% falls over a total of 2-3 years seem perfectly plausible given such a massive sucking of money out of the system, along with smaller LTVs, larger deposits, tighter controls around income checking, disappearance of sub-prime deals etc etc.
Demand - as the FT said itself not so long ago - has two components, a desire to buy at or near the asking price, but also the means to buy or to pay the asking price. No means = no demand, while unwillingness to pay the asking price also = no demand. Falls in demand must inevitably mean falls in prices, even if it takes a while for this idea to become a widely accepted norm.
What beats me is: aren't these VI commentators ashamed of spouting such barefaced nonsense? Or do they really believe it?
3. Amjidk said...
seems to me that this is the last attempt by the VI's to get people suckered into buying.. they don't care if it means a lifetime of slavery for the pour souls, all that matters is the fat profits they make. No one can seriously believe that houses can just carry on upwards towards infinity, whilst wages are almost stagnant and the cost of living is spiraling.. can they?
4. Bangybongo said...
the more loans you write, the more money there is, the more house prices go up. fear of recession causes slowdown in said money demand and everything wobbles dangerously at the thought of a vicious circle of losses. there are two likely options: (1) the BoE goes truly soft on the banks (it hasn't yet) and the pound collapses as the actions are seen as too desperate. outcome raging inflation. (2) the BoE stays tough, banks collapse, and we have, erm, hyperinflation once our main ``industry'' is holed below the water line. i don't say we've reached this calamitous moment yet. but it is sure to arrive sooner or later.