henry the king

Exactly as I predicted. We start to see serious nominal falls around September once a lot of the lag from mortgage rates rising in May is factored in. Great news for the country. Most of the falls will still be in real terms vs earnings though, until a recession. Vs earnings prices are down about 13% YoY. MASSIVE change. Prices are now LOWER than pre-covid. This is a proper crash with no end in sight.

Bailey has no control anymore. If the data is inflationary he will be forced to hike. If it isn't he will be forced to hold. His personal views haven't been relevant since mid 2022. The market has been in control since then

You pick up stuff from people just by being in an office. The junior people over-hear things and pick things up much quicker. You can also pop over to someone and just find out something. Often for entry level roles they will have a task being held up by something which requires a 2 second conversation like "What do I do here?". The answer could be "Do this first". And then the rest of the task opens up following that. Having to fire off an email and wait for a response isn't the same. I guess an analogy that I think fits is imagine learning a new language. Its quicker to just live in that country that speaks the new language so you are surrounded by it. It is still possible to learn by online lessons but its way slower.

Depends on the business ofc. But a lot of large businesses have entry level intakes where the knowledge is passed down to them, and this is only really effectively done when those giving the knowledge and those receiving the knowledge are in an office situation. It doesn't matter to the experienced person, I am sure they can WFH just fine. But the experienced person needs to pass on their skills and experience to the new person for the business to continue to thrive. I think the big businesses will continue to push for more time in the office, and I think part of the reason this hasn't be THAT fast up to now is the employees have the power due to a tight labour market. As soon as there are 3 unemployed dudes who can do every job, then businesses no longer will need to pander to those who want to WFH if they think it is not as productive. It will simply be: Come in 3-4 days a week or you lose your job as we are looking to cut people anyway.

They won't be immune to cuts if the economy falls down and unemployment rises. And the easiest way to cut without paying large redundancy packages is to say for people to get into the office.

If the employment market weakens then WFH will die in mere months. Everyone knows that people in the office is better for the business in the long term (how else can the graduate people get up to speed to be the leaders of tomorrow?). But the businesses cannot do it yet because the labour market is so tight and it is hard to find the workers. As soon as the unemployment rises then businesses will say "Get in the office or lose your job" as a way to cut staff.

Job losses will happen suddenly and will cause pay rises to decrease/people to WFH less. So less disposable income and that is when the nominal crash happens. Seems likely based on the PMI data showing contracting economy across the western world including in the UK. But it takes time to show in the employment data as it is a lagging indicator.

I disagree. We are back to the same price-earnings ratio as pre covid now.

Its just the lag really. Lag is finally over for the high inflation reading back in April or whenever it was I still know of people buying in September on the back of 4% mortgage rates. These should fully filter out of the data probably by the October/November data

Totally accurate. And the BoE have hammered that point home. Rates are going to stay in the 5%+ range for quite some time.

This is the important point. The last 30 years was the exception not the rule. Covid was the final party before the hangover. Central banks will be looking to reduce their holdings not increase them. The next 10 years will be defined by QT and a return to normal money.

And increasingly at risk of down valuation

It is funny that we have a whole generation of people now whose attitude is to get into as much debt as possible. Prior to probably the 1980s there was huge resistance from people to getting into a lot of debt as it brings a lot of risk. If you end up in 500k worth of debt and your earnings are 100k a year pre-tax then that is an awful lot of money to be in debt. People now don't bat an eyelid. But I know our grandparents and parents would have avoided getting into debt as much as possible. I expect now QE is over (forever most likely as it came with a huge cost which is only now being realised), it means that the debtors will be punished (as they are currently - with people seeing mortgages go up £800/month and things). And gradually that will show people that debt is bad again. The bailouts have ended basically. We can't afford it anymore. The governments have to balance their books now (see downgrade in the US and acceptance they are soon required to balance things). The UK government (whoever it is) will have to balance the books soon too. Probably even sooner. All whilst the BoE is demanding £200bn+ to pay for QT losses. So now there is no government or BoE bailout left for debtors. Simple as that.

Remember this also includes new builds being sold for "400k" when it is actually 400k with giveaways worth 50k.

13% YoY falls vs earnings. Incredibly good news.

Most rate projections are that rates won't even peak till Spring 2024. Dunno where he gets the idea rates will be cut this year.

Yeh this move will help to lower house prices as it will force banks to up their savings rates and therefore need to up their mortgage rates,

I can't imagine it will go soon but could be wrong. It seems like the aim is to drive up bank savings rates. If anything I'd suspect another hike to premium bond rates might be coming.

We are at the point where hikes or not are less important. It is about how long rates stay "higher" than an expected default rate of 2-3% or something. The only outcome for house prices to increase is that somehow inflation falls, wage growth falls, and yet there is no recession and no job losses. If a recession comes and rates are cut to 3-4% then house prices will continue to fall and more of the falls will be in nominal terms and less in real terms vs earnings. It is really hard for house prices to not continue to fall basically, regardless of the BoE's views. They have already done the damage.

Its possible but only if wage growth and inflation come in lower imo. Looks like inflation is spiking again in europe so I think another soft inflation reading is unlikely here too. If wage growth surprised to the downside then I think they will pause provided inflation isn't an upside surprise. Either way I think a pause is more likely in November at the following meeting.

Rates are now higher for longer. They might drop a bit or rise a bit. But we are back to normal. The era of 0% rates and QE is over. They wrongly thought there was no negative consequences. They were wrong. So they will now be careful about 0% rates and QE again. This will correct house prices vs earnings. The only question is how much is in real terms vs nominal terms. Prices will come down and are coming down. There is nothing to debate really beyond how much will be in real vs nominal terms. End of free money will bring down house prices vs earnings as it already has a lot.

There is value in being in debt less of a % of income. As there is a cost to being in debt more of a % of income. This is becomes interest rates change. This is what people are finding out now who are in debt to the tune of 6x their earnings. That was fine at 1% mortgage rates, not so fine at 6% mortgage rates. If they were in debt just 3x their earnings then they would be fine at 6% mortgage rates too. You accept that there is a value to being in less debt despite short term interest rates - as interest rates can and will change? It is a risk issue.

A hike (or not) will be dictated by the wage and inflation data due out in September. I don't think they care at all about money supply. They think it is meaningless.

If the economy weakens and unemployment rises then that is the final thing required for absolutely rapid nominal house price falls. Either way, the current situation is very nice right now as debt to earnings ratios are reducing about 10-11% YoY to buy a house. So getting in less debt as a multiple of earnings is a huge positive.

Not sure this data means an awful lot even if it is bearish as usual. We know prices will come down. We know it will be mostly in real terms until wage growth stops going up so much. All in all though, if you have cash and a job, then houses are getting way more affordable as you will be earning 6%+ on your cash, whilst house prices are going down 3-4%. And you wages are up 7-8%.