Monday, Mar 08, 2010
Surprisingly good points from a rabid bull
My Introducer: Fall in UK house prices in February is great for future price rises
Although the last few months has brought great news for house prices, every piece of positive news has been met with predictions that the rises are unsustainable. Like scratched records, commentators massage negative sentiment. So, the housing bears loved the data for February - Halifax said house prices fell by 1.5%.
We find it amazing how negative housing market sentiment is. Mentally, people just don't seem to be able to enter into the spirit of the current era of ridiculously cheap money and a government and bank stoking inflation. The phenomenal recovery in house prices didn't happen by accident. It happened because globally we have very high asset price inflation caused by very cheap money.
Posted by little professor @ 08:54 AM (2252 views) Add Comment
20 Comments
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1. little professor said...
What's particularly odd about peoples' reaction to rising house prices is that 6-12 months ago there was widespread speculation that the West would attempt to inflate its way out of its indebtedness. Now that it appears to be happening, nobody believes it.
2. Theemperorhasnoclothes said...
A great piece of satire! It is satire isn't it? :-o
3. estrader said...
"If the UK's situation does deteriorate significantly it's likely the same will be true for other countries enabling us to retain our relative position and to print as much money as necessary."
I knew people would utterly fall in love with Q.E sooner or later and cling to it like grim death.
4. South Island Expedition said...
Well, it is an interesting point - if in GBP terms house prices are going to rise over coming years if inflation kicks in, the pound is devalued, or QE continues.
But.....if any one of those happens, the question is is it rational to borrow significantly? Views?
5. hpwatcher said...
I knew people would utterly fall in love with Q.E sooner or later and cling to it like grim death.
It's a very powerful drug, far worse and far more potent than heroin!
6. estrader said...
"House prices are overvalued and need to fall by 30-40%. What do people mean by being overvalued? The average yield on our 12 central London buy to let flats is 4.2% (at today's prices). We think that makes property seem cheap compared to current deposit rates and a current FTSE 100 iShare yield of 2.9%"
You can 'prove' whatever you want by being selective in your 'facts'
Comparing like for like:
Currently:
1) iShares FTSE 100 (ISF) - Distribution Yield 2.86% (GBP)
2) iShares FTSE EPRA/NAREIT UK Property Fund - Distribution Yield 2.52%
7. jallan said...
Some of the small number of houses on the market are selling at 2007 levels, so what, the pound is only worth 75% of what it was worth in 2007. We could double house prices overnight if we print a trillion pounds, the down side is the pound would then be worth 10% of what is was worth in 2007. My figures are rough estimates to illustrate a point. Double the money in the economy and you will need 2 pounds to buy what used to cost a pound. Better of suffering deflation in my opinion because the BOE won't be able to extract all this printed money fast enough when hyper inflation takes off and quality of life will be even worse. I think the BOE and the goverment want to cause hyperinflation after the election anyway (to inflate away their debt), expect money to be handed out on street corners soon.
8. mark wadsworth said...
Ho hum, I had to give up after reading as far as this:
"the authorities know that the survival of the UK economy is dependant on rising house prices"
Firstly, it's spelled "dependent" (a "dependant" is a child or similar) and secondly it's not true. The more money the government borrows at ever higher interest rates to prop up the price of assets with a lower rate of return the worse things will get.
Keynesian spending is all well and good if it's new social housing or new roads or railways or power stations (and the marginal interest rate it pays is lower than the rate of return on those assets); but merely flogging the private sector to death to prop up the "value" of pre-existing assets which the private sector already owns leads to a Home-Owner-Ist death spiral.
9. Neil B said...
This article might be worth reading in a normal market, however the market is dead. We might as well report on the price fluctations of Jumbo Jets.
10. monty032 said...
Mark,
That's where I realised they had lost connection with reality too. The incomes of the readers of myintroducer.com might depend on ever-rising house prices, but houses just sit there and get lived in. How could the health of the economy depend on the price of a tangible asset keeping on rising forever? Even well-known financial commentator Matthew Parris (not) has asked how we can all become rich by selling the same houses to each other at ever higher prices.
11. need-a-crash said...
Is it not at least possible that if low IR's become entrenched (ie. next government keeps 0.5% base) banks may start to lend 2007 income multiples at these low mortgage rates (ie. lower rates than 2007) and asset prices could then exceed 2007 levels. I'm not saying this is sustainable but it could keep the 'balls in the air' for the duration of the next parliament?
12. Eviledna said...
What the author is saying is that the government can't afford to let house prices fall or the banks will go bust - which may or may not be true but it is a different claim to saying that house price inflation is some magical source of general wealth. The notion that house price inflation is a bad thing for society at large is consistent with the seperate claim that the government feel it absolutely necessary to maintain house prices. Lets face it this seems to be their policy.
13. mark wadsworth said...
NAC, yes it is possible, but there is the awkward topic of the £300 billion "funding gap" which banks need to maintain mortgage lending at current levels and which the government might or might not withdraw.
Let's assume they don't withdraw it, and keep throwing another £100 billion a year at it to keep the bubble going. The UK already pays a marginal interest rate of 6% on borrowing and the banks are lending it out at 4%, and this gap is going to get bigger and bigger as time goes on. And so on.
Personally, I don't think they can keep this going for another five years, I think their number is already up, but we will see...
14. taffee said...
gee wizz....are you lot mad?
japan had the same problem used the same solution and ended up with 19 years of falling house prices
ALL BUBBLES END IN TEARS
15. rumble said...
I'm with Taffee on this.
16. symo said...
It is not the government that decides if the UK goes bust by keeping IR's low but foreign investors not seeing returns on their investment. It is they that would provide excess in the system to keep the ponzi scheme going. All signs at the moment are showing that the UK is not a good investment full stop.
17. little professor said...
This is not Japan.
In the 90s/00s, all the money Japan was printing was taken overseas and used to stoke stock market and property bubbles across the Western Hemisphere. That's not going to happen with the BoE QuEasing. The rapid surge in inflation rates tells you that. Asset prices in the UK are rapidly rising in terms of devalued pounds
18. alan said...
I can't see why the government haven't let some more air out of the housing bubble. A 10% fall (for example) won't bring down the banks.
IRs will rise sooner rather than later in the US and Euroland, we may as well prepare for it. UK mortgage prices would rise as result, house prices would fall.
Bubbles always deflate (or burst). We have the opportuity to control the deflation for a short while - why not do it now?
19. Analysis said...
Starting to panic a bit, do you think? I note the author of this article owns 12 flats in London. Trying to re-mortgage these after precipitous price drops, when a 25% minimum deposit is now required will be tough.
I suspect there are a lot of speculators out there who came to the game late facing financial ruin. In a similar vein to the aftermath of the dot.com boom where similar numbers of 'late arrivals' lost their shirts.
Evidence that prices have now started falling again will inevitably lead to more of this kind of article.
20. tenyearstogetmymoneyback said...
Since it mentions houses, have a look at this advert from 1971 to see the effects inflation can have.
Will 2010 adverts seem so comical in 2049 ?