Flat Bear
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24 minutes ago, hughjass said:
Flat Bear you do put a lot of effort in on this forum so thanks for that but are you overthinking things??? From a personal viewpoint in two years time Id say things will be very similar to today, there will be two cars outside every house on my street , we will still have running water , internet, electricity at the flick of a switch and food in the shops. I can see some things like food costing more presently spend about £50 a week for nothing flashy, could be 65 plus then. Hopefully will have had the windows and kitchen replaced in my house expecting to spend 30k plus on those things. Might be looking into a new motor another 10 k maybe a new push bike 6-7 k .
Nothing will stop people in this country spending on flash cars and overpriced houses and useless tat,.
Public services wont be any better maybe my dentist will have gone private but I can cope with that. I can see some inner city areas becoming like a zombie movie but Ive no need to visit such places so wont lose any sleep over it.
Do you think thats a fair appraisal or should I change plans?
You are right in one thing, I do analysis things to death. What if? type thing.
I wouldn't say you should change your plans unless you want to.
The truth is much of what will happen is beyond our control and there is not many specific things we can do to mitigate things.
Young lad up my club has just put an offer in for a house, it looks nice. I congratulated him and although I mentioned the property market could see a tough time for a few years i said it was probably the best decision for him at this time. If prices did drop 25% it may still be the right thing to do as most of us are buying a home. Also there is the case for high inflation, possibly even higher than I predict, pushing prices up including the price of his new house.
There are so many people advising on getting into or out of various financial adventures it is best to do what you think is right then whatever happens you will feel better for it.
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5 minutes ago, scottbeard said:
Sorry but on this one I simply don't agree.
Asset price increases are a symptom of inflation, not an alternative to it.
Credit doesn't "find its way" into assets and then stop. If I buy a house say from someone the money doesn't evaporate, instead the seller has it and buys something else etc. That money circulates and drives more demand.
You are correct that cheap credit drives expansion that is in some cases malinvetsment as companies exist on cheap credit who really shouldn't exist, and who Go bust when interest rates normalise. However again that might keep prices of some consumable e things down temorarily but prices of assets shot up. Its only because you're focusing on inflation as measured by CPI and not overall jnflation that you're seeing it backwards.
Asset price increases are a symptom of inflation, not an alternative to it.
This is exactly what many of us have been saying on this forum for ove 20 years. The CPI RPI inflation figures are a complete joke and do not represent inflation at all. How can you exclude the biggest and most important item that just about everyone will buy and expect a figure to be accurate.
We had HPI at 20% but the CPI inflation figure was 0.1% and the BOE droped rates to 0.1%. Why, how could they do that with inflation (real inflation) running at 20%? What they did was divorce "assets" from day to day living expenses simply because it suited them politically.
ALL the QE money was lent out through the banking system and all this ZIRP money was used by the bank to buy the very safest assets they could which meant government debt and very safe assets. A sizeable proportion of this QE money was used to purchase UK property which sent prices higher and in turn created a self fulfilling market for this plentiful cheap QE money. The banks made more money during this period than ever before in their history and the Government was happy because they had someone who would lend them back the money they had created to buy their bonds and debt. (you couldn't make this bit up could you)
We are still in the tail end of this period and I am still getting daily offers of loans albeit at much higher interest rates. The banks relied solely on QE it distorted everything. The banks no longer needed customer deposites as they had all the capital they needed at rates so low they were touching the floor. We are likely to see a period of 6 months or more where banks will offer fixed rate mortgages at or just above BOE base rates because there is still so much QE money still in the system.
If you buy a house for £1,000,000 with a mortgage of 0.1% or if you buy the same house for £100,000 with a mortgage of 11.5% Which one should show as the higher in the inflation figures?
Credit doesn't "find its way" into assets and then stop. If I buy a house say from someone the money doesn't evaporate, instead the seller has it and buys something else etc. That money circulates and drives more demand.
Unfortunately it does. Credit is created and once it is paid back it disappears.
If you buy a house from someone the money is given to the vendor and you get one house it is as simple as that. The money/credit created in the whole property system stays in the property system. Occasionally people trade down and get "equity release" from a property and where the money generated goes to purchase day to day items then this would have an inflationary effect. But in general there is more money going into this property system than coming out so it is deflationary as there is less descretionary spending.
Its only because you're focusing on inflation as measured by CPI and not overall jnflation that you're seeing it backwards.
I do not focus on inflation as measured by CPI, you should know that by now. Real inflation is running at around 15% excluding house prices which have stagnated or have already dropped a couple of percent.
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32 minutes ago, hughjass said:
Flat Bear, you are a real doom and gloom merchant, so lets take your scenario that inflation is going to be high are we going to be a basket case in 2 years time?
What advice would you give us on here to position ourselves to best survive the oncoming scenario?
ok
2 years time. August 2025
The QE experiment will be seen as the disaster that no-one had seen, although there will be many who will say they knew all along. QT will only tentively start to happen.
Inflation will be high and it will be recognised for the real danger it is. People and Governments will take it very seriously, or start to.
We are likely to be in a slump or in an economy slower than today.
Although you may feel poorer because of the economic slowdown and probable higher unemployment and more expensive imported goods you will not be much worse off practically. Lack of cheap Chinese imports may well make you feel poorer.
The economy and Government services are likely to start changing and healthcare, policing, social services et all may well become not fit for purpose.
A new political debate may well have begun. Labour in power???
How do you see August 2025
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11 minutes ago, scottbeard said:
You have two conflicting posts here - one suggesting cheap GBP is deflationary, and another that it is inflationary.
Your first post from June is incorrect. QE has always been inflationary - the difference is that when it was started post-credit crunch it was a fiercely deflationary environment: we were hours away from a banking collapse that could have wiped 50%+ of the economy away, and probably would have wiped 20% of it away but for QE. So the QE turned a 20% deflation into inflation of 0-3%. But because 0-3% is so low people missed that it was inflationary at all.
However, come 2021, there was no such deflationary force, so the 2021 QE added to the inflation already on the cards from Brexit and Ukraine war and made it worse.
Hello scottbeard.
QE is a real paradox and it seems no one really understood it. They played with fire and because it did not burn them straight away they carried on doing it over and over again.
You would think that any money introduced into a system would be inflationary wouldn't you? whether it was helicopter money or if introduced in the form of "quantitative easing". BUT no.
QE was first invented and introduced in Japan before the turn of the century IIRC and instead of stimulating the economy into an inflationary cycle it had the effect of doing the exact opposite starting a period of deflationary stagnation. Much of it comes down to moral hazzard as the affect was to introduce very cheap credit which as we know found its way into safe secure assets which in turn increased the price of those assets. This cheap credit made the cost of living very low and as interest rates came down as a result people were able to buy what they wanted without having to earn any more. The very cheap credit gave companies and individuals the means to expand easily and keep the cost down as the main driver of business, capital, was so very cheap.
This could not go on forever and as Japan has found out they are indebted more than any other nation. At some point this money has to be paid back or more precisely "tightened" (got rid of) but although this SHOULD BE deflationary in the same way QE was deflationary QT will be inflationary. A real paradox.
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Inflation in a complex economy is a very difficult thing to see for ordinary people.
"Gas prices and Electric prices are coming down so inflation is beaten right?" Wrong.
Inflation is an illusion. We know that money (fiat) is an illusion therfore inflation is also an illusion.
It is all about perception and once it is perceived that money is becoming more worthless over time then people will demand more of it for their "services" which is what inflation is.
With your average joe having to pay 10% more for his rent (30% more for his mortgage) 50% more to run his car and 20% to feed himself he knows he needs to earn a lot more to stand still. Human nature as it is people expect to earn/have more in the future than they have now so they will want more than to just stand still. During this time there will be a lot of turmoil as people try and make sense of it and move to where the money is.
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1 hour ago, hughjass said:
Why will it go higher? Wheat has dropped in price Gas has dropped, these interest rates will start to bite. Bad news for over leveraged mortgage holders . Last winter they were saying worst recession for 100 years that hasnt happened .I think we will have a soft landing and stumble along the bottom as we have for last 20 years.
Why will it go higher?
Because the value of GBP is losing value and you need more of it to buy stuff.
Wheat has dropped in price Gas has dropped,
The price of bread (wheat) will continue to rise and the Gas price has doubled since 2018. The fact there was a spike in the prices is irrelevant.
Last winter they were saying worst recession for 100 years that hasnt happened .
Bubbles last much longer than anyone predicts. We are in a real slowdown at this time as well as changes in work patterns and supply (the way we get our goods) It may be delayed but we will see a "cost of living" crisis not seen for a very long time.
I think we will have a soft landing and stumble along the bottom as we have for last 20 years.
The last 20 years has been the anomaly, you just do not know it yet.
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8 hours ago, Housepricecrash91 said:
Probably temporary. i.e. inflation should drop to 'normal levels' within the next 12-24 months.
However, the damage has been done. It's unlikely that any of life's essentials will drop below todays prices, apart from maybe food?
What do you think will be the new "normal" level over the next decade?
You know this thread was started 12 months ago so I suppose what we have now is the new normal level (12-24 months)
Can not see inflation staying at this new normal level of 6.8%CPI it has to go higher.
What is a normal inflation level? It seems many believe it to be 2% to 3.5% with a neutral BOE base rate of 5.5%. We will probably have the neutral base rate at the next BOE meeting but inflation has got a long way to come down.
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It looks as if Ukraine has hit another important milestone in this war.
It seems they have now reached parity with the Russians on Artillary systems on numbers alone. The quality of these pieces of equipment you can decide for yourself.
Tank parity has been surpassed some time ago.
So we now face the situation where the Ukrainians are out gunning the Russians with heavy equipment.
I would suggest that the Ukrainian equipment is much more advanced and effective.
The balance of power can only go more into Ukraines favour as the Russian bring more and more obsolete and useless hardware to the front line.
How long can the Russians last out?
With all the other problems Russia is facing If the Russians are still holding parts of Ukraine by the end of this year I will be suprised.
See one minute in on video
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1 hour ago, petetong said:
Yes, I got it the wrong way around. Still don't think they will increase IR's though.
Even if, and I doubt it very much, the FED freezes increases, the BOE will still have to increase by 0.25%. There would be major consequences if they do not irrespective of CPI figures. A rise to 5.5% "baked in"
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5 hours ago, Dreamcasting said:
Yep, they definitely want higher rates. The government greenlighted the BOE to raise, although they'll also let them take the blame for any fallout.
But anyway, let's just keep an eye on what the Fed does as the UK will mirror regardless.
No, no, no.
The Government has done everything in its power to keep the cost of borrowing to an absolute minimum. They are quite pleased to see the value of money falling as it erodes the massive debt they have accumalated which is now well over annual GDP.
Every extra 0.25% rise puts massive pressure on the finances and increases the deficit/debt by enormous amounts.
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The "Collective", so far, seem to think that the base rate and the CPI figure will be around the same at 6%? early 2024. Interesting
"Collective"? We are Borg
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On 29/08/2022 at 21:31, Flat Bear said:
It will be very interesting coming back to this thread in a years time. What we understand then about what is happening now will be more than a little interesting. How many will have changed their view from temporary to persistent?
Well it will be a year in 10 days time. Did anyone change their mind in any direction?
I think it is more likely we have all got even more entrenched in our own views.
Was I wrong? I have underestimated the speed of the economic decline, again. (I seem to underestimate this every time) I have also underestimated the resilience of the UK economy. The biggest of all mistakes was underestimating the resilience of the Chinese economy. If you looked back at the Chinese economy and the collapse in the property sector who would have thought it would still be afloat today.
I still believe this inflation is persistent and we are only at the very beginning of a very long term problem.
Interested to here anyone else's take on the last 12 months.
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It would be very interesting to know what the collective view is on the direction of inflation over the next 12 months.
I am predicting the Bank of Englands base rate at the beginning of 2024 to be in the range 6.0% to 6.25% depending on the FED decisions. I predict that by January we will see the CPI figure at over 9% and quite possibly over 10%
What do you think?
This is a public vote and your vote will be seen so be brave.
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29 minutes ago, Unmoderated said:
Annual rental increases are now 5.3% on average.
So are you trying to tell us that rents have come down?
With the lower measure of inflation CPI figure dropping right down to 6.8% this would still mean rents have FALLEN by 1.5% in real terms over the pat year.
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2 hours ago, ExeC-UK said:
Base rates have almost peaked based on current information so trend from now on should be levelling out.
Assuming rates do not fly over 6% and upwards you can only assume the downward price curve will begin to level out also over the 12 months from IR peak.
If there was going to be a 40/50/60% crash that people on here predict, you would have seen it beging snowballing by now.
The crash people want will only end up being a correctionIt sounds as if you have some vested interest. I believe you have come to the wrong conclusion.
Base rates have almost peaked based on current information so trend from now on should be levelling out.
I do not believe this to be the case at all. Do you still believe the BOE line of inflation being temporary and rates will "come back to normal" (ie less than 1%) within a year or two? If you do believe this then you would ofcourse be correct and there not be any "crash" or fall in house prices. I do not believe this to be the case.
As I have said many times before we will not see any real falls in house prices until the BOE base rate gets to the magic 6% which I still believe will be in Dec 2023 or January 2024. From there on we will start to see falls and, as I believe, the base rate is forced up towards 10% then falls will increase. Whether they are Real falls and nominal falls being much less depends on the inflation figures, the higher the inflation the bigger the real falls but the smaller the nominal falls.
You say there is no evidence of any falls in prices so far and I accept there has not been any obvious signs over the last 12 months BUT by the same token we have not seen any rises in prices. From my own reading of the situation and figures from various national sources it would suggest prices have actually fallen by a couple of percentage points nominally which is not really enough to write home about.
My own prediction, which has stayed the same for over a year, is that we will see nominal falls nationally of around 5% year on year at the end of 2023 early 2024. We will the see nominal falls throughout 2024 and early 2025 before a period of stagnation. I would guess at a total peak to trough fall in nominal prices to be in the region of 25% by 2026. This may not be enough to constitute a "crash" as such but definately a large correction. Real house prices I believe will have fallen by at least 50% by 2027/28 which does equate to a "crash" in my books.
2 hours ago, Casual-observer said:For those with a job, our sister company just made 2/3rd's of the staff redundant.
The labour market is starting to crack
There is definately a slowdown. Most people are still unaware but we should see upticks in unemployment and falls in economic activity in the official data over the coming months.
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16 hours ago, 70PC said:
Russia is fecked in every way possible. How much worse can it get for them? Militarily, financially, Politically, Morally. Russia has no redeeming qualities at all. It must be embarressing to admit to being Russian
This is a cruel death for a nation, BUT I think they deserve it and I have zero sympathy.
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1 minute ago, Unmoderated said:
Imagine having a long-ish fixed rate mortgage and getting a wage price spiral. Bliss.
Or even better
Imagine not having a mortgage at all and buying a home in a couple of years time. Even more Bliss.
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2 hours ago, Stewy said:
Energy prices have dropped by 80%.
No prices have gone up. In your selected short time frame maybe they came down and considerably, yes. Prices rise and fall and rise and at the moment we are in an inflationary environment ie money (sterling) is becoming less valuable.
Saying all that energy prices have come down over the short term as expected.
Actual electricity prices 1st October 2018 48 month contract at 14.3p kWh and 0.2346 £/Day
Quoted price today 26.3p kWh and 1.44 £/Day 1 year and 27.2p kWh and again £1.44 per Day standing charge 2 year.
I think energy prices may still have a little way to fall BUT because of inflation prices are slightly more than 80% up from 5 years ago.
The long term trend is definately up. We will not see energy prices in GBP£ at or below 20p kWh. Remember they were 7 times this during the spike in the last 18 months.
If we look at the long term trend taking out the pandemic volitility then we have an average energy inflation of around 12% a year over the past 5 years. If "real" inflation is running at around 14%? (RPI 10.71%) at the moment that would be about right.
They seem to be really uping the standing charges though from 24p to 1.44p a Day over 5 years. Although not really an issue for us it really piles on the cost for lower use customers.
If we look ahead from here energy price rises may well fall back to 6 or 7% a year for a couple of years as cheap gas flows through but the 5 year plus range will see much higher prices made up of general inflation and net zero. So because of net zero I expect energy prices to be higher than the RPI figure and expect a trend of around 15% or more for the forseeable.
There are so many imbalances out there we will see jumps in prices where we least expect it. Watch out for jumps in food prices at some point over the next few years.
All this is exactly as was seen in the 1970s, I was there.
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10 hours ago, captainb said:
So you honestly think there are not enough buyers at levels between 10% and 40% lower to prevent that happening?
At the moment there are still buyers (bizarrely imo) at 5-10 off the covid peak.
This is a very good point and it will keep prices from falling, quickly. BUT eventually sentiment will change and the lack of available credit and higher cost of credit could well put some of those buying "bargains" at a few percent below what they percieve was the peak as simply a Bull trap.
Don't get me wrong, there is never a good time or a bad time for a paticular individual from purchasing a property as there are so many factors to take into account, but "caveat emptor" at all times.
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The US has seen rates dip right down to a very low floor. The CPI figures will trend upwards for a long time to come.
The FED will be vindicated for continuing to raise rates whilst certain commentators were talking about pivots.
The BOE are likely to see the CPI figure fall to around 6.6% ish but this is likely to be the floor in the dip and by the end of the year we will see "unexpected" rises and pressure on the base rate throughout 2024.
I believe the peak in 2022 was 11.1% ? Sunak said he would halve it, 5.55% I don't think he will get there anytime before the next GE. Maybe he can stop the small boats, this will be an easier task for him.
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19 hours ago, dugsbody said:
Price of housing is surely determined at it's most basic level as supply vs demand plus ability to pay.
We still have a growing population, so demand will remain high. On the other hand, we saw exactly what happened to prices when compared to rents when interest rates were low, meaning people had an increased ability to pay. Rents rose about in line with inflation, house prices soared far higher.
Now interest rates are back up again, the ability to pay has reduced, so you'd expect that to negatively impact prices, and that is exactly what is happening. Despite a growing population, house prices have gone nominally negative, proving that interest rates are a huge part of house prices.
So there is definitely downward pressure on prices.
But.. we still have upward pressure on prices in a few ways. There are a lot of people sitting on a lot of "money" generated by low interest rates, and that won't dissipate quickly. We still have a growing population. Wage rises are very high due to inflationary pressures. People can afford to pay more. Inflation has pushed up the cost to build houses, a lot. If I compare the costs to do a relatively standard extension, year on year, it keeps going up, a lot. So people looking for a larger house will always be comparing the cost to pay more for a new house vs building on to their existing, and as long as that is getting more expensive, they'll be willing to pay more for a new house.
This is why my prediction from last year was max nominal falls of 5-15%. I believe the upward pressure aspects will counter the downward pressure of interest rates.
Real terms of course prices will fall much more, but if you're looking at buying a house now or in a few years time, you only care about nominal terms.
I don't know what you mean by us being wrong, but I don't see a massive crash people are expecting.
This is a very good and thought through post.
I can not disagree with your logic and you mention many of the upward and downward forces.
The reason I think you are out in your forecast is that you, as well as nearly everyone else, has underestimated the inflation we will see in the short term and in the long term. I also believe a credit crunch must eventually arrive and a very serious recession is not that far off. To be fair I thought we would be in a deep recession by now, but I was wrong.
We have so much capital available at his time albeit at higher rates as you say BUT at some point this will change. The BOE has been wrong in its forecasts, a long way off, and I really believe they will be way off again.
With inflation taking off again at the end of this year and getting to unexpectidly peaks throughout 2024, 2025 and on, BOE base rates will not suddenly pivot at 5.75% or 6.00% or even 6.75% but will get to around 10% or god forbide even higher. This will put real downward pressure on prices.
With the supply of credit due to QE and the value of money becoming higher this will give an equally high pressure on prices.
We are already seeing the first signs of STAGFLATION as many employees can not get the pay they need to keep their living standards the same, they are working for less money even if the do get substantial nominal pay rises.
Business are struggling, there is no question about that, and we have already entered a period of failing companies, lack of supply choice and higher unemployment.
None of these things are nice but because of them I believe we will see nominal house price falls this year of around 5% and by 2025 a nominal fall from peak to trough of 25% to 30%. Real falls I believe will be over 50% by 2026. I think we can call this a crash? or a very large correction at least.
The main reason for my prediction is much higher than expected interest rates and the supply of capital drying up.
PS
China is the Elephant in the room and we still have not seen the fallout from the economic collapse.
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9 hours ago, NoHPCinTheUK said:
I mean, surely they're not running a business only to pay their workforce's rents or mortgages?
For how long firms will agree on pay-raises
Inflation has been running at over 10% for some time and pay increases have averaged less than 8% so people are getting pay decreases of 2%. Expect pay rises and demands to go up.
This is called inflation. Inflation is when the value of the currency loses value as the GBP is at this time.
Firms have a choice of giving people pay rises or losing them. If they decide to pay less, then they will not get "quality" staff. This is simple economics.
Firms only have two choices 1. Increase prices 2. Somehow cut costs/ become more efficient.
I have decided to shrink back as much as possible and have four staff less than I did 18 months ago. Only 6 in total now. For smaller companies like us with relatively small overheads (around £85k "dead overheads plus the wage bill and the "live" overheads) and with zero debt we should make it through.
I see other companies within our sector trying to increase sales and advertise special deals in the vain hope of getting more short-term business and it not only looks like desperation it is. This for anybody that understands business is totally bonkers. Make hay while the sun shines, they are trying when it is raining.
There is nothing wrong with looking to carry out long term changes to a company or to invest in more efficient ways of running the company and use this expected longer quiet time to get things implemented as this is the best time to reappraise the business models you have.
Unfortunately, those companies that are over indebted or who are unable or unwilling to make the changes will not survive. We are very likely to see the number of insolvencies rise for the next two years at least.
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3 hours ago, Flat Bear said:
Will we have double digit mortgage rates in 2024?
Oh yes.
I have noticed traditionally mortgage rates have been approx 2% above base rate obviously other factors prevail.
The lower the base rate the lower the % above the base rate (obvious?) But at normal rates of 5% to 8% this was the norm. This will be truer today than it ever was as pre 2009 the markets had to rely on savers to balance the books incdg the carry trade which has disappeared completely. The carry trade kept prices high in the UK by keeping enough money in the system up until the era of QE and ZIRP. So in the past it was the differential between savers rates against the mortgage rate where as now it is just the BOE base rate which is still so low against the mortgage rate. When QT actually starts, which it must, and the BOE base rate rises to over 6% we will start to see a reversal and suddenly the banks will look to find cheaper sources of capital. This could happen quite quickly and we are entering very turbulent times. Expect the banks and other institutions to start offering 3% or even upto 5%! on your deposites.
I would guess there are still tracker mortgages at less than 1% above base rate (too lazy to check) but as the base rate rises and stays high and capital gets more expensive and less plentiful the percentage must rise to maintain margin
When the base rate is very low say 0.1% as it was for nearly 2 years the banks could offer base rate plus .25% and make a massive 250% mark up especially when this capital was so freely available.
When the base rate gets towards its normal range 6% then the banks will have to get base rate plus 9% (15% wow)to make the same margin.
This is all a case of supply and demand and although the actual margin does fall massively the money (capital) that they do lend out becomes much more valuable thus the bank will look to make much lower margins but will make more on each mortgage. So there will be a shrinkage of money being borrowed as the price/cost rises and the double wammy will be there will be less of it anyway due to QT and other tightening. The BOE know this and will be trying to co-ordinate money supply QT with demand but will hope that there is still enough of it to purchase their bonds.
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Will we have double digit mortgage rates in 2024?
Oh yes.
Is the current inflation temporary or persistent.
in House prices and the economy
Posted
Also there is a lot of stuff coming out of left field.
Will the property crash/crunch in China have real consequences for Western/UK banks? There must be some contagion but what is the extent? This is quite worrying.
There are so many other things that could have a bearing over the next 2 years.