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boom_and_bust

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Everything posted by boom_and_bust

  1. Hi, I posted below. I looked at the figure breakdowns and their approval dates, I think these could contain a large number of pre-SIPPS announcment approvals. If that was the case, we have already heard how many investors have already pulled out of the approvals, in many instances leaving reserve and deposits behind. That needs to be considered before we read too much into the the spring bounce. SIPPS was an issue, many would-be-investors who took the gamble before the announcement were quick to bleat about it all over the news just before christmas. It's one to watch, I guess we may have a clearer indication in the next couple of months. Boomer
  2. Hi, Hold on a minute! Is this the first affect of SIPPS we are seeing here? These approvals relate to the latter end of the year, predominantly November. Wouldn't these have conceivably been approvals made on investment properties by eager SIPP'ers? This would have been before, during and just after the anouncement by Gordon Brown that the SIPPS vehicle was not to be adopted. Could - if we were to be very cynically minded - make a judgement that a number of these approvals were made afterwards, when the would be investor has already pulled out of the deal? We keep hearing about all those poor soles who put down reserves and deposits on the back of the SIPPS gamble and since pulled out of the purchases. It was splattered all over the news just before christmas. The SIPPS issue could have a bearing on whether this is a backlash of speculative investor deposits or a genuine upturn in home starts. Just a thought to keep monitoring over the coming months. Boomer
  3. Hi, It may do. If we are honest, many people might even stretch, if they can stretch far enough, to dive in now if they thought that they will most likely not lose money (even though not make any either). The point to watch now is if the UK has really shook off it's reliance on housing based consumption, if BoE inflation targeting has transported the economic situation to a different place. You are talking of historically one of the most volatile property markets within the industrialised world. In the last crash in particular, MeW rose sharply and then gradually fell off while unemployment rose and the economy floundered and house prices fell further. That was well before the big ERM interest rate rises later on. The link has traditionally been in the UK for economic recovery to initially fuel house price booms that then expand broad money supply to an extent that natural retraction causes house price falls, leading to economic recession in a downward spiral until the next economic cycle. An almost parasitic relationship has existed in the post war years between the UK economy and UK house prices. The real question for me? Has this cycle been broken by Gordon Brown and an Inependent BoE when structurally the economy has changed little since the last house market cycle and many of the similar economic conditions and timings of the last cycle appear once more? I do not say it is impossible, I do say it is very probable in the absence of any new developments. If the spring bounce emerges and the economy improves at the same time as the savings ratio significantly improves, for a period of 12 months or more, I will take that as the sign that the UK structural cycles have changed. If we continue to see MoM rises and falls, overall in a downward direction, with rising unemployment at a time of interest rate cuts and continuing lacklustre econimic performance over a year, I will take that as the cue for a pretty big crash to come in the same context as the last cycle. As things stand, we are in the early stages of a crash with the current indicators. Boomer
  4. Hello IMUPN, Mortgage approvals are generally a good indicator. Many of these assumptions you are making apply to a rising market and the future direction of house pricing. The market is trickier to read at this point than probably any other time in the past due to low inflation, record debt, unstable energy prices and political conflicts around the globe. However, in a falling market, in years gone by, rising mortgage approvals in that falling market have, of olden days bygone, later shown further price falls. This happened on a few separate occassions in the early ninetees when the market was in gradual decline. Improving volumes were on the back of falling prices, sometimes rising, overall downwards. Unfortunately, like many things in life, it is not that easy and history does not exactly repeat itself each time. There has shown to be a difference, historically, to the market condition the approvals occur and even if the approvals occur at all. As point of reference, hop over to the BoE web site and check the Monetary Policy Commitee website and peruse the minutes for September, October, November 1999. Despite a large surge in mortgage approvals 6-12 months earlier, only half of those approvals were ever taken up during the coming year. Quite a strange statistical blip that the Committe were unable to decipher. And finally, check out this piece of work by Bank of England Structural Economic Analysist Robert Wood that explain the link between rising approvals in a falling market and those in a rising market. http://66.102.9.104/search?q=cache:dOvGnhJ...als++1992&hl=en
  5. Hi, Yes, people will still leap lemming like into financial oblivion, it was the same in the last crash, even a few years into it. There is no doubt at all that London is way out of kilter with reality. We saw in the last crash that the drag downwards came from the outer lying suburbs. For me, the 7-8% falls in areas like Merton and Bromley last year could conceivably fit the profile of the downturn, the bellwethers, outlying districts. Add to that the similar falls in new builds, it's all looking very familiar. Some crazy prices will always be sustained around central London, given it's location and the role of the city, maybe. For most of the rest of London, I think it is looking far more overvalued than the seventies or late eightees. But each crash is different, there is alot more to playout yet, whatever it's final path downwards may be. But what can you do apart from look out for yourself? I do not talk about the subject at all to most people I know, it is only really my daughters I try to provide my perspective to. It is an amazingly emotive and often irrational subject. The one thing that did surprise me today, after returning from the christmas vacations was an annecdotal. Fellow I know seemingly had the mother of all domestics over Christmas and has regrettably sought to end his marriage after several years of bickering. This is a chap who has done very nicely thank you very much on a London home and has always seemed to me very upbeat on the buying process, as far as I know, very bullish infact. And with good cause, having probably watched his house treble in value over the past 10 years. So when asking about his future plans, he said he was looking to rent for a couple of years. You would really have to know the chap to realise what a big sentiment change that represents for him. He even used the words 'biggest bubble in history, I've heard'. Sentiment is changing. Slowly, surely, many people who find themselves in a positon to buy and maybe gear up debt are starting to see what's going on with the miracle HPI economy. I could see the soft landing scenario if Gordon really pulls out the stops to prop it up but the consequences for the economy over the coming decade looks also unpalatable in that scenario. Japan or bust, difficult to say which way, either way the falls have started. And do well to ignore the Halliwide clowns as well. Spin will go into overdrive henceforward. Boomer
  6. Hi, I too am fresh back to the UK from the Christmas vacations and was quite surprised by the post new-year rises in london transport prices. They seem to have quite quickly passed on oil rises to the consumer so it will be interesting to monitor how other enterprises react over the coming weeks, given the propensity to introduce price hikes at the physiologically important time of a new year transition. If you haven't used London transport over the past week, 50% rise on many journeys for the tube network, 25% rise on the standard bus journey. Inflation is already up on that basis. Happy new year! Boomer
  7. Hi, Interest rates could fall. They could rise as well. If they fall, will that help? Lenders have been increasing further bad debt provisions all through this year and tightening their lending requirements. Some of the big players in BTL loaning have pulled out altogether. If you can't get finance, you can't pay leveraged debt. Also, sterling is a high-value currency. Infact, the composition of the UK economy virtually requires a high currency value to sustain the UK trade and budget defecits. A point not lost on the currency markets (think : George Soros). Falls in uk interest rates could be brought about due to the continuing deterioration of the underlying economic position in business and industry but, if the slide continues, necessatating rate cuts, that would be in the face of further economic detrioration and loss of confidence. Hardly a recepie for joe consumer to wratchet up debt positions. If the lower rates then cause a knock on the currency in the face of a faltering economy (combination of which often has in the past), import and energy costs go up, headline infaltion rate then goes up, BoE has to raise rates again to control inflation. Unless the underlying economy further subdues, further knocking consumer confidence and spending power. That is the point of the property market position we find ourselves in at this time compared to previous boom-bust cycles. Boe and Gordon are in an awkard dammed-if-you-do, dammed-if-you-dont position, at the mercy of a housing bubble backed with record personal debt levels. You could get out of it by a surge of exports or a home-grown economic renaisance in undelying fundementals, business-services and industry. Somewhere along the line, real economic bills (growth) has to be paid for. Next year should be very interesting to see if a debt based economy can correct itself and support the current level of housing valuations or whether the imbalance will have to be corrected as in previous cycles, with house price falls. Unless of course Tony pushes us quickly into the single currency? On 1-1 euro-sterling valuations, British house prices would be nearer the long term average and the lower EU rates could support industry recovery. Although it did the opposite in Eire. Of course, that is completely far fetched at the present time with British-Euro hostility. Interesting times ahead. Boomer
  8. Hi, Aw! It's christmas and goodwill to all etc., I really was going to let this go BUT it is my last post for a couple of weeks so here goes my final few words for 2005. There is a way to go yet. Bootle's report has not been published yet in the mainstream. You will notice that the only converage really given so far has been a couple of one or two sentence quotes by a lender and a couple of pro-property pundits. It's like everything we read in media, it can be selectively quoted. You will notice also that a couple of the early quotees have already removed their initial comments. Unless you have full access to capital economics as a subscriber, it is difficult for us to guage their work until we get a series of detailed reports from both bull-bear reporters as to its contents before we can add it to the 'for' or 'against' pile of hpc. It is a bit frustrating that it is getting no in-depth coverage at this time from either side. I am hoping to get access to it after the holidays. It will be an interesting perspective from either viewpoint. It is too early to call. This present time does feel abit like the begining of the last crash where there was much confusion and contradictions in statistics and media reporting, a cloud of confusion. Are we there now? Only time will tell, if we are, it will not be fully exposed until there is no doubt and by then it is too late. That is what happened last time. Crash? Correction? That is another area of debate. Did you know that the BoE definition of a softlanding was put forward as a 15% initial fall over 24 months followed by several years of sub-inflation or zero percent rises over several years thereafter. Depends what your position is. If you are a cash investor, that is a pretty big hit in the wallet. If you are a home buyer using a wage packet to pay off mortgages, that could be possible to take the hit on, if you avoid the intial 15% fall bit. Particularly until the economy and job security show some improvement over the coming year or two. Considers where you live as well. Let's use land registry figures. Say you were a buyer in the past year in the London Boroughs of Bromley or Merton. You've seen a fall of 7%-ish in property values in a year. Add inflation to that. Then add Bottle's guess of 5% falls for two years to that as well as inflation of say 2%, if that is what he is saying. Then the two more years of 0% and again inflation figures of 2% as an assumption. That is 25% real falls over 5 years. And at a time of high risk where sterling has been subject of attention in the currency markets and consumer indebtness has been at record levels as personal bankruptcies have also reached record levels and economic growth slumped. It could all turn out OK but equally, one shock to the UK economy or the world economy and many people in that bracket will have very little room to manoueuvre compared to times in the past. It's a bigger risk than it's possibly ever been for some. It's a personal choice to them. Let's hope it ends up OK. In a dream world, wages and productivity in UK plc would rocket in the face of another economic boom in business, services and industry and everything will work out OK. It is christmas, I am trying to be optimistic for the market. PEACE AND GOODWILL, boomer
  9. Hi, Absolutely. That was partly my point. I am surprised they did make the ammendments given my own personal observations of their reporting over the intervening period. Well done to both. Boomer
  10. Hi, Maybe, the only thing I would say about the Indie is that they are the worst offender, after the BBC, within the media who will not even mention the "F" (fall) word, you will never see any deeper analysis in that paper about the current economy that will enter into "F" word territory. As the course of day to day business I pretty much read all the broadsheets each day. At the least the Times are pretty consistent on their tack and don't skirt around the issue, even if I don't agree with them. I've said it before, they (the Independent) are the most hypocritical of all the papers on this theme, I have just never had reason to express this before here but I have been following their analysis closely alonside the others, particularly over the past 24 months or so when it became obvious that something seriously wrong had already developed in the housing market. During the course of day to day things I also have opportunity to keep an eye on the exchanges in the commons and the legislate. Now, SIPPS was as much a political climbdown by NuLab as it was a financial, cost-prohibitive one for the chancelor to pursue. There was quite an active pursual of the subject by several MPs over the previous two years and was a key issue amonst the LibDems, particularly those representing rural districts where second home ownership and lack of affordabilty were key issues to the constituency. The Independent were about the only broadsheet that gave NO commentary on the subject. Even the Times gave some space to it. I am not sure what the position is there for them but as a paper that proports to be "independent", it's very strange that they are about the only one who seem to have no commentary or issue either way with something that even NuLab have developed draft policy to tackle. Very odd. Maybe most of their Journos have just bought or something. Still, they are happy to play the socially conscious, bleeding heart liberals when it comes to Global warming, third world famine, naughty Mr Bush, nuclear power or, yes, single-parent lesbian dolphins and fluffy white seal pups sitting on artctic flows. Terrible, terrible, hypocrisy by faux-tree huggers. Not that there is anything wrong with hugging trees at all, just as long as you are consistent on tree-hugging issues. Boomer
  11. Hi Sam, I am here. Apologies for the delay, I can't always patricipate instantly, hence why sometimes the voids in posts. I had in no way envisaged that my posts seem to dwell so deeply into your psyche! I hope you will not start stalking me. I can't comment on this story yet. I know you wait for my lead but you must be patient until I can digest this and draw some conclusions on what the author has to say and if I consider these findings to contribute to market trends. I checked your link but it was maybe two sentences quoted on the Halifax website. I have not seen the full article, I don't use capital economics myself so I don't have access to their research myself. I don't know what they have said until I see it myself and have some time to digest it. In the meantime, PM me any other issues you consider relevant and I will include them in my report findings at that time. There are still several issues to grapple with within the economy and one of those that has changed this week is a draft summary circulated in parliment about the real risks and signs of deflation emerging now in sectors of the UK economy. If that is where CE are pointing towards, with government reaction to faltering business and industrial output during next year (think interest rate cuts), that is where I am guessing they are going with that. I will get back to you as soon as is possible, within the limits of time I have. Kind regards, Boomer BTW, just to clarify your Bull-Bear thing you direct at me (as I am neither a present or future buyer or seller of property, at least in the UK), I will remind you of my recent post ;
  12. Hi, Just check the links here for the media coverage of the last crash. Just look at all the conflicting news stories we are getting day after day, aiming to create a cloud of confusion. I remember the last crash vividly. Even well into it you would be reading every week in the papers and the telly about how "the market has turned", "next year the market is set for a big boost", blah, blah, blah. Infact, exactly what you hear now. The media only really got very truthful about the whole situation last time when it was nearly over and when they were starting to receive some backlash from the public. It just seems that the biggest purchase most people will make is just about immune to any kind of responsible behaviour or codes of conduct in the Uk. Could you imagine some media-exposed economist or spokesman or other coming on the Telly or the newspapers and saying "I confidently predict XYZ and for this reason share values will surge next year, now is the time to purchase shares bigtime! It's now or never". No, there are only very limited circumstances in which such claims could be made through mainstream media and even then would have to be qualified and tagged with the usual mantra of "share prices can rise and fall". When it comes to houses? No problems. Boomer
  13. Hi, Well, the HPC'ers have a party every couple of months or so in the city. You should come along and judge! Some very witty and interesting chaps, some very lovely and engaging ladies. See you there!
  14. Hi, I would agree with that. Just as I think a little inflation in the property market per annumn is a pretty healthy thing in broad terms. There is a broader framework of several influences within this basket case we call the uk property market, not just one individual target, we all participate in it one way or another. When hyperinflation hits any sector of an economy, whether that is houses or bread, that is always destructive. History has shown us that, it is the stated (and failed) aim of the BoE. It is difficult to entirely fault one individual who is working within that system of hyperinflation. Boomer
  15. Hi, Around 85% of the loaning infact on remortgaging. As the 1.2 trillion pounds of personal debt in the UK is not going down, we can safely assume that this is in the most part for consolidating debt, paying for christmas and switching lenders. The high street is struggling, business is in the doldrums , unemployment rising, record bankruptcies, rising repocessions. Pessimism apart, the fact is that we are still depending on a debt funded economy even at this late stage of the game. This headline is not a health signal, it is a cry for help. I also agree with one of the earlier posts about the independent's commentary today as well regarding Jeremy Paxman on newsnight lastnight, thought it was great as he was reading off the following day's front covers, looked heavy browed, with a strong glint of irony in his eye, in the direction of the camera and said "The independent tells us house prices are rising....... and that is supposedly good news". I love his deadpan expressions! Boomer PS., different thread I know but have you ever noticed how the independent is always championing single parent lesbian dolphins, the environment, nuclear waste, global warming, weapons of mass destruction, blah, blah, blah, BUT they think that it is fine in their own country to operate a system of hyperinflationary house pricing and shakle young families and FTB's with debt ridden misery into one of the worst quality housing stocks in about the most ****ed up real estate "market" in western europe. Maybe those bunch of tree-hugging two-faced hypocrites want to tackle first more fundamental problems at home before they start trying to save the rest of the planet and meddle with other countries affairs! Just a thought.
  16. Hi, WoW! And that target market are the upper end of the baby-boomer generations, the asset-rich trade-downers. Even they realise that the legoland, plaster-board, "executive" retirement developments of today are rubbish. They even get 30% price reductions of the government as pensioners on new builds and they still think its crap. Boomer
  17. Hi, The Uber-bull "Marketeer", the Jedi apprentice of several years for the Property Guru, the son he never had, making an abrupt about turn and dumping his entire porfolio of BTL during the summer. That was an even bigger shock than the SIPPS reversal. And second SIPPS - I think SIPPS may have been underestimated by us all judging by the volume of horror stories emeging in the media now - that I was not expecting. Could this be the big trigger after all? Worth watching for next year, holding onto a depreciating asset while the clock is ticking ...... tick, tock, tick, tock. How long can you hold those if the economy continues it's sluggishness? 3 months? six months? Maybe a year? Be keeping an eye on that little bun in the oven for sure.
  18. Hi, Yes, but you bought at the trough of the last crash - 1989-1995 - you were able to buy after there had been several years of price falls, probably the seller took on a big loss. This time around, there are far more amateur BTL speculators who are the sellers. The real SIPPS greed-horror stories are only just coming out now. I have zero sympathy for them. Buying now would be like buying in 1990. You will face a big loss. Let the greed driven SIPPS BTL'ers take the loss, that is what I say. Boomer
  19. Hi, 1995 was a splendid time to buy for an investor. Couldn't go wrong. We had had nearly six years of HPC by then. Many people had been anhilated by negative equity by then, desparate to sell at a massive loss. You bought at the market bottom. If you had of bought at a similar period to now, say 1990, you would have been financially ruined instead. By waiting for the market to fall, you were able to buy at a reachable price. An important lesson! Boomer
  20. Hi, You need to qualify that. The top 5-10% of earners of FTB's (according to Halifax and Nationwide stats) can afford anything, even basic. Historically unprecendented, even during the last crashes. Now, your head should have a bell sound going off "ding ding ding danger! danger!" An economy could never run on that basis. The discencentives to hard work, social mobility and entrepeneurialship would kill off economic activity. It would also react political action. It was Liberal Democratic lobbying that in a large part killed off the SIPPS introduction due to it's devastating affects on FTB and rural communities. We are only just learning now the true levels of crazy investor speculation now. You're playing with fire on this one buddy if you are heavily geared at this time. You did not head the information provided to you here. You are living in the wrong era, you should have been born in Dickension England a couple hundred years ago. Why don't you hop back off to Oz. and crack a few immigrant's head's on Bonzi beach with yer breathern. Boomer
  21. Hi, Goes back to what I say. FTB's - you hold the power now. The current, investor bouyed, stretched market has stalled. Chain sales have dried up because the bottom rung has been kicked away, the risks and returns for the temporary prop of BTL there no longer exists beyond the mind of the gullible and deluded. If you strike now, the market really will implode this year. Boomer
  22. Hi, The point is, they are not ego-driven alpha-males trying to over compensate for there own feelings of insecurity and inadequcy, lacking true friendships and love within their life. They are accomplished, professional heavyweights within their profession, several have accurately called previous markets and housing bubbles and earned literally billions for their clients, mutlinational banks and investment firms, they have stood the test of time. So let's keep the tone pleasant! No need for tantrums, it's only a debate. Jeese! Boomer
  23. Quotes; "James Ferguson:: I think we all agree that all families in this country aspire to house ownership, and probably to the best, biggest, most southeasterly house they can afford. The real question is at what point can they no longer afford to buy. It isn’t what they want, but what they’re capable of. When they can’t pay any more, the market crashes. That’s what caused the crash at the end of the 1980s. "John Calverley:The point is that our economy is basically fuelled by housing and the consumption that it encourages. But that’s coming to an end. Look at what’s happening in the run-up to Christmas. The retailers are being forced into doing massive sales well ahead of Christmas. "Merryn Somerset Webb: This comes back to what James was saying about houses that don’t sell not showing up in the indices. You only have to take a quick stroll around Paddington Basin to see there is trouble in the buy-to-let market. There are scores of one- and two-bed flats for sale. But no transactions. The sellers won’t drop their prices enough to get the flats away. But at some point, they’ll have to, and then we’ll see the panic in the numbers. In my building alone there are at least four flats for sale. When one of them finally sells it will go for £100,000 less than the last one sold, and suddenly the price of flats in my building will be down 25%. Hi TTRTR, I think I will go with the professional, non-VI economists who have accurately called markets (including the last HPC) than your view. For now. I will be the first to concede to you in a year or two's time but I think we have a least that timescale to go. The last crash showed the media and stats didn't come clean about it until nearly two years into the crash. Also, I find your behaviour strange. I have one particular friend who is heavily into BTL but really couldn't give a toss about what prices are doing. He bought nearly a decade ago - prices could fall 60% before he would start thinking about it, I am sure. He's in it longterm, his capital is pretty safe, he only cares about the rental returns and can take voids in the spread of his portfolio. Why do you devote so muchtime to being aggressive, pro-BTL? How heavily geared are you? Boomer
  24. Hi, Exactly! Stick to your guns. Do read also the opinions of the Roundtable economists as well, you will see that even amongst accredited, heavyweight economists who have called markets correctly before, there is alot of the price falls theory that just comes back to basic behaviour and aspirations of people. And that is one of the basics of the UK housing market in particular. When EA's etc, try to spin you the line about "how you should lower your expectations etc., etc.,", that is not how, or how ever in the past, the UK housing market has operated. Only at the sentiment driven, top of the market for a brief period. You look them squarely in the eyes and say"FECK OFF" in a loud voice. In basic terms, the economy would grind to a halt if the discencentives for hard work, social mobility and entrperneurialship was so disabled for anything more than a brief period at the bubble peek. It is straw clutching by VI's. I have lived through three previous crashes, it is no different this time. If you want the crash to go harder and faster, all it would take now is for say most FTB's to move in with parents or rent cheap B&B - hotel accomodation for just six months in the current market and overstreched speculators and BTL's would be anihalated. It is just bank's reluctances to pull the plug and strong media spin that is preventing the implosion now. Don't get suckered. Boomer
  25. Hi, C'mon, you're clutching at straws a little bit there! That is the author's opinion. If they detract that statement then I would be conceding a point there but you are being a bit like a tabloid hack there. He didn't seem to be heading in that direction last week in moneyweek's roundtable investment discussion on property prices ; http://www.moneyweek.com/file/2276/uk-prop...roundtable.html "Property prices. Will they rise? Will they fall? Will they stay stagnant? Our roundtable finds out ... This month, we asked eight housing experts to give us their views on house prices. Unfortunately, the prognosis is not good..." Go through that artcile, plenty on both sides of the argument to digest there. Capital Economics still seem to be predicting the falls - even if there own calculations of overvaluation are close to the OECD's at over 30%. Notably also is the predictions of John Calverley - another heavyweight economist who was one of those credited with accurately predicting the last house price crash ; "John Calverley: This is why I think we are living through a bubble. One of the characteristics of a bubble is that people start to regard an asset as something to buy because it’s always a great long-term investment. That’s what’s happening in the UK property market. Media interest around the market has reached extreme levels; prices are now at the fringe of affordability. That makes it very difficult, I think, to go up much from here. If things don’t go too badly for the economy now, prices may just drop next year, but if anything going wrong with the economy or with interest rates, then we’re going to go down a long way." "Adrian Ash: The other thing to bear in mind is that after house prices start to come off, it’s very difficult for policymakers to cut interest rates enough to make a difference. From 1990-1996, interest rates went down every year. And so did house prices. At least, house prices relative to earnings in real terms. In real terms, they were down just about 40%." "John Calverley:The point is that our economy is basically fuelled by housing and the consumption that it encourages. But that’s coming to an end. Look at what’s happening in the run-up to Christmas. The retailers are being forced into doing massive sales well ahead of Christmas. "John Calverley: Can I make another point about buy-to-let. You don’t need people to sell for a market crash. You just need them to stop buying. Buy-to-letters have been buying at the margin and supporting the market for years. First-time buyers just aren’t in there any more. What will happen when they’re both gone? "Merryn Somerset Webb: This comes back to what James was saying about houses that don’t sell not showing up in the indices. You only have to take a quick stroll around Paddington Basin to see there is trouble in the buy-to-let market. There are scores of one- and two-bed flats for sale. But no transactions. The sellers won’t drop their prices enough to get the flats away. But at some point, they’ll have to, and then we’ll see the panic in the numbers. In my building alone there are at least four flats for sale. When one of them finally sells it will go for £100,000 less than the last one sold, and suddenly the price of flats in my building will be down 25%. "James Ferguson:: I think we all agree that all families in this country aspire to house ownership, and probably to the best, biggest, most southeasterly house they can afford. The real question is at what point can they no longer afford to buy. It isn’t what they want, but what they’re capable of. When they can’t pay any more, the market crashes. That’s what caused the crash at the end of the 1980s. "James Ferguson: I think you are all getting this the wrong way around. What do you think caused the recession of the early 1990s? Do you know that unemployment was at a decade-low at the top of the last housing bubble? Unemployment is always low before a crash. House prices go down first, not last. And before housing goes down, what happens? Liquidity plummets. The first sign of a housing crash is a year of transactions diving. Like this one, for instance. Mortgage approvals are down 40% year on year, and houses that were on the market for £800,000 last year now won’t sell for £700,000. You haven’t seen that fall in the statistics yet, because that house at £700,000 is still not in the data. And it won’t be until it sells. Then it will be clear that prices are falling and everything else will follow. Every time housing collapses, within 12 months unemployment goes up by at least 40%. Why? Because suddenly we have fewer house purchases, which means fewer white good sales. Not only that, but any money from mortgage equity withdrawal used to finance consumption disappears completely. All these supports to the economy go "John Calverley:We haven’t really talked about the possibility of what I’d call a genuine soft landing - a fall in house prices of maybe 15% or so over several years, so that earnings rise and the house-price-to-earnings ratio comes back to reasonable levels. The pound falls a bit at the same time so the economy gets rebalanced abit more to manufacturing and industry, and so on. Inflation doesn’t pick up too much (it’s below target now). This is still not very good for anyone who has bought housing, because it means they may have to wait seven to ten years toget back to today’s level (prices fall 15%, stay there for a while, and gradually come up again). But it’s not too bad for the economy. I don’t give it a great chance of happening, because I think markets tend not to work like that. But it is possible, and I think that’s what the Bank of England would like."
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