Tuesday, Jan 19, 2010
Danny-boy joins HPC
Citywire: Blachflower: House price rises in 2009 point to unreliable property data
Last year’s house price rises are unbelievable and point to the fact that property data is unreliable, according to Danny Blanchflower, former member of the Bank of England’s monetary policy committee (MPC). Blanchflower warned there was more pain to come for the housing market.He said: ‘House prices have risen by about 6%, thanks to the weak pound. But the markets are thinly-traded, so I don’t believe the data and I think prices will fall a lot.’
Posted by little professor @ 08:57 AM (1647 views) Add Comment
11 Comments
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1. little professor said...
Blanchflower’s main argument is that, with unemployment rising, incomes stagnating and a massive reduction in the amount of credit available to would-be buyers, there was no justification for the rises in price seen in 2009.
The Halifax house price to earnings ratio also climbed last year in what Blanchflower said was a further example that the data currently coming out was untrustworthy.
Currently the ratio is around 4.8 times earnings, down from near six times prior to the housing market crash but still well above the historic average of less than four times earnings.
He said: ‘The ratio has risen despite unemployment rising, but it will return to the long-run average as it is simply unsustainable.’
Blanchflower said the Bank should drop the consumer price index (CPI) and revert to the retail price index (RPI) as its measure on inflation. Unlike CPI, RPI includes house prices and mortgage costs.
2. str 2007 said...
With interest rates so low, would returning to RPI also give a false impression as it takes in mortgage payments ?
For what it's worth I'd say in South Hampshire prices are now pushing above peak 2007 prices and selling.
I'm still not convinced hough you can solve a problem by dropping interest rates through the floor - not indefinately anyway.
Personally I se he current market as even more bubble like than 2007 as this time around it's based on historically low interest rates which won't last.
At least in 2007 everyone was flat out being busy and making money.
3. will said...
LP
Bad link for me.
David Blanchflower is one of my favourites - he sees things as they really are.
In Devon prices are also at peak prices. Sales above £500K have simply stopped - total denial.
4. Neilb said...
When will we stop this stupid fascination with house price rises?
The market is dead. There are hardly any sales because no-one can get the credit required for the rediculous asking prices.
5. mark wadsworth said...
"The Halifax house price to earnings ratio also climbed last year"
Maybe it did, if wages were falling faster than prices.
6. p. doff said...
So Blanchflower thinks that there is more pain to come and house prices are likely to fall. Better change to RPI then and include these falling house prices in inflation. If he believes high inflation is looming, that should help depress the figures a bit.
My view is you should pick your measure and stick to it; not flip-flop from one to another to massage figures either way when it suits. Our leaders are quite adept at this: it's a bit like changing our position in the business cycle, or changing the designation of your main home if you want to avoid some capital gains tax.
7. matt_the_hat said...
I would be interested to see if there were any evidence that the housing market is just freewheeling, retirees selling up downsizing or dying and then people going back in at the lower end of the market replacing the ftb.
8. Teeth said...
His agenda is that the economy is weak and that the government should pack in more stimulus. Increasing house prices don't fit with his analysis so he says that he does not believe the data. He is out there trying to explain things using a classic Keynesian model against the suggestion that the pump-priming is just re-inflating the housing market. The problem I have with his analysis is that he proposes that the government should pack in the pump-priming until growth comes...but where does it come from? The finance sector has suffered a huge reduction in productivity, the consumer is maxed out and unless GS are right and it is the export sector, I can't see the econonmy being weaned off government debt until real wages fall in the public and private sectors and the bad debt is cleared out, a situation delayed by the very pump-priming he supports.
9. str 2007 said...
NeilB
Not in South Hampshire, boomed since last March, ok quiet now but I expect it to pick up soon. Very few houses fell through either.
Teeth
Agreed.
10. paul said...
Danny Blanchflower is categorically NOT joining HPC!
Thhink more closely about the implications of what he's saying - like 'we can ignore house price inflation from last year'. He's basically paving the way for interest rates to stay low in perpetuity because house prices are not really going up (even though the bogus Haliwide surveys are the key influencers for sellers - and they know it).
11. stillthinking said...
Branchflower has already stated that he thinks we should abandon the 2% inflation target in favour of 5%, so he certainly views money as a social tool everybody can be forced to go along with rather than a store of value. He is a Labour suck ar*e IMO, irrespective of coming out belatedly with what everybody knows.
I think the reasons for the -localised- rises last year were many and all temporary. Many people saw repayments shrink, eurozone saw an opportunity in the UK as prices went down 40-50% against the euro so if sterling was oversold then possibly a winner, repossessions were blocked, housing benefit funding went from 12billion/annum up to 20 billion compensating for loss of incomes, and mainly because all the indices work on averages not median values so the collapse of FTBs would appear as a rise in prices. Taken together, this is a lot of support for pricing.