Tuesday, Apr 21, 2009
Don't try and stop the housing crash, Bank of England official warns Darling
Daily Mail: Don't try and stop the housing crash, Bank of England official warns Darling
A top Bank of England official today warned the Government against trying to prevent the housing crash.
In a controversial call, Markets Director Paul Fisher said it would be ‘dangerous’ for policymakers to try to stem the relentless slump in the value of property.
Posted by becky @ 11:02 PM (1772 views) Add Comment
26 Comments
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1. devo said...
Hardworking families: Will you really let housing crash, Gordon?
Brown: Of course not! Now try to get some rest, you sillies!
2. japanese uncle said...
He argued it is also ‘sensible’ for families to be forced to save up for bigger deposits, rather than returning to the days of near-100 per cent mortgages.
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Don't make me laugh too much. Why did this clown not mention this all too obvious common sense four years ago?
This man's real intention is, 'Unless there is full crash to the real bottom, how can we engineer the next even bigger housing bubble, idiot!''
3. str 2007 said...
JU
You have become very sceptical. Surely to get these coments is a good sign and puts pressure on the government to stop meddling.
I guess this official has successfully sold the last of his BTL portfolio (now I sound as sceptical as you ;-)
Seriously though the amount and speed houses are selling round here (South Hampshire) they should be raising interest rate quite sharply to calm things down. Seriously it's like boom time at the moment. I think they've actually done far too much to help the housing market.
4. general congreve said...
Don't listen Darling, do everything you can to bankrupt the country, I want my gold payback and I want it big.
5. devo said...
"how can we engineer the next even bigger housing bubble"
Do bubbles ever repeat? South Sea, tulip. dotcom...
'Green' was meant to be the next bubble, but they overcooked the housing one.
6. tyrellcorporation said...
STR2007. Same in Exeter in Devon. I see little if any reduction in prices here. :(
7. phdinbubbles said...
"In recent years potential buyers were unable to get onto the property market because ‘houses were just so expensive,’ he went on. "
Really - well bugger me sideways with a fishfork. Thank jebus we have "top Bank of England officials" to inform us of these things.
However, the tide has turned - common sense is now starting to prevail. When common sense dies again and everyone thinks that prices only ever go down, buy a house.
8. mander said...
It is a lot better to sell 5 houses (new build or old ones) at the right price (like 3.5 income-to value) in real time rather than selling 1 house at an astronomic price in one year time. And the person who bought it would need to get rid of it when realising he/she is negative equity.
That would make sense unless some other type interests are in the middle.
9. crashpad4me said...
str@3. There's currently quite a lot of activity here in North Devon too. My take on it is that a good deal of the interest is coming from sold-to-renters who are starting to panic about the vulnerability of their cash. Quotes from EA's in the local press talk of this group wanting to "get on with their lives", which translates to me as not wanting to be worried sick by every new government brainwave to destroy their savings. If I am right, and if it is panic buying by this "micro market", then it is likely to be fairly short lived and ironically (or perhaps predictably) it would have nothing to do with any government plans to help the housing market.
10. sparky300 said...
Don't panic folks , this pick up in the market is merely the people with the large deposits and those who have sold to rent, when all these sales die out the crash will continue again , this will take months to play out but I think its better to wait , I honestly think the prices have a lot further to fall , eg 25% houses are still too expensive for the average person
11. Ketha said...
It's not a 'crash' it's a correction. It might be semantics but 'crash' implies the higher price is closer to 'true value'. Correction implies the opposite. That said the LTV issue isn't really the point. 95% mortgages will be back. The issue is income multiples, risk models and a period of 'moral hazard' when lending was kept too cheap for too long. If we'd had a 'correction' in the early 00s when it was due we'd not have this issue.
12. Spectator said...
BEAR TRAP ALERT!
13. george monsoon said...
"Analyst Vicky Redwood of Capital Economics said: ‘The housing market correction has to happen and we may as well get it over with sooner rather than later. "
At last.. someone out there with a bit of common sense !!
14. Uncle Tom said...
If senior BOE staff are capable of common sense reasoning today, what stopped them from speaking out before?
I don't buy JU's theory that they want a full blown crash so they can profit from another boom - people in public life never think that far ahead.
The oscillations in the market over the last half century have got steadily more extreme - now it has gone too far, the market has finally broken, and for the next generation, if not longer, the need for market stability will prevail in people's minds.
That said, I still expect an over-correction and rebound before things settle down, so there will be opportunities for those who get their timing right.
15. str 2007 said...
I think what is frustrating is that asking prices in the 'good' areas barely sem to have dropped, there are a few exceptions, but I'd say about 10% drop on average, that's all.
This pick up I fear will simply encourage people to hold out for their asking prices, or until 'next' spring if things die down in a couple of months.
Having said that, these are just short term frustrations of mine. The long term picture will be down, mainly due to what will be the worsening state of the economy.
16. Mick said...
House prices have to crash and we are only 30% of the way through it
And if green bay and the daily express don't like it they are not going to change it with there rose tinted glasses that they look through.
17. inbreda said...
Agreed with UT. Over correction, rebound, settle down.
Specifically I do not esee another housing boom. I honestly don't think it will ever see the increases like it has over the last decade ever again. The more I think about it the more I think that the economy is ruined and as a result immigration will stop altogether. Combined with the baby-boomers downsizing (to a small 6 foot deep plot) I see population falling slowly for the next few decades, and (post the massive correction currently happening) house prices slowly declining as a result.
18. str 2007 said...
Inbreda
That said, for alot of Spanish, the cooler climate and lower unemployment might make this Island look a little rosier than their own desert of dried up Cactii and empty holiday homes.
19. house said...
@9 Crashpad
Similar activity appears to be happening where I live. Although things have started to slow down in the last couple of weeks. It would appear more properties are coming on the market than selling. However, the asking price has not come down much. You have to offer between 20% and 25% less than the asking price's as this is expected by the sellers. Some of them may get upset but that is life.
Do you agree ?
20. phdinbubbles said...
My engineering bias tells me that an overshoot is less likely with the govt and BoE doing everything they can to cushion house price falls with their IR policy. I'm in the long, lingering death camp - the red line in the graph below with high damping. A faster correction (blue line with lower damping) is more likely to create an overshoot.
And then the whole thing starts again........Although the scar on the collective memory and regulation will prevent the next boom from being as big.
21. str 2007 said...
Inclined o agree with you there PHD
Dropping interest rates to what is a ridiculous low level has pushed the housing market on artificially.
With the level of activity I'm seeing (South Hampshire) I am almost beginning to wonder if we could see more of a dead cat bounce than anticipated.
Perhaps more like a double top to the house price chart pattern. IE re-reaching 2007 house price levels but this time on unsustainable interest rate levels only to completely collapse once the rates do go up ?
22. Enoughalready said...
If just one person is prepared to pay an over-inflated asking price, then everyone in that area will try to sell at a similar level. Why oh why does someone always come along and pay these crazy prices? It just takes one - then word gets out and suddenly there's a mini-boom again!
23. crashpad4me said...
house@18. We've been watching the N. Devon market for over two years now. In Spring 07 the prices rocketed, and there are still a few houses stubbornly holding out for 2007 prices. Until early this year there was a pattern of screen prices holding steady for a while, followed in some cases by a pretty significant drop. I have noticed one or two smaller drops of late, but for a couple of months now the trend seems to be that vendors are sticking to their guns and not considering offers on the basis that the new asking price = mv. Having spoken to one or two EA's in the last week or two I am hearing tales of buyers offering asking prices because the property is "what they want", and for those houses which look good value there seems to be quite a bit of bidding. So far I haven't heard of gazumping though. The problem generally is that this seems to be a pretty affluent area, and maybe vendors in general aren't too desperate to sell. I get the impression that the local economy has done very well parting incomers from their money, certainly where property is concerned, and the EA's seem to be on familiar territory.
24. matt_the_hat said...
PHD - I think the housing market is a little more complicated than your 2nd order model - but I would settle for a 2^-.5 damping factor :)
25. letthemfall said...
phdinbubbles:
I don't think the damping analogy works where money and housing is concerned: I don't think it is possible to judge economic stimuli such that prices can be controlled to that degree. House prices usually overshoot because of people's behaviour as much as anything. Now that credit is very tight there is nothing to prevent prices continuing to fall, despite little spring bounces and the ghettos of the rich in certain areas.
Nor do I think comparisons to stock market behaviour are valid either, because houses can't be bought and sold so freely. As before I expect we will see occasional upturns in the figures before the slump continues, finishing in flat prices over a longish period. Whether there will be another boom is an interesting question. The obsession with housing has not gone away and may easily get refreshed even if subdued by falling prices - one of the more unfortunate aspects of this country.
26. phdinbubbles said...
Sorry for coming back to this ridiculously late in the day - been out all day doing stuff. Obviously it's not as simple as the system shown (nicked from wikipedia) however the damping analogy is perfectly valid imho (for the downward part of the cycle). I don't think house prices do 'overshoot' - they would wobble around a price after an adjustment if there were overshoots - admittedly because prices don't stay the same long enough following an adjustment before the next round of nutiness ensues, but mostly because of the slow rate of change of prices (which at the moment are unquestionably being slowed by dropping IRs). I'm never convinced by arguments about short-term bounces and the like - nationwide's plot is a smooth as a baby's bottom from 1989 to 2004-5 (obviously slightly smoothed by plotting quarterly data - removing fluctuations but not the lower frequencies of the trend). The only vaguely interesting thing the housing market's done in the last twenty years is the will it won't it wobble of 2004-2005 - the rest is actually really straightforward behaviour.
Completely agree that a comparison with stock market behaviour isn't valid.