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What If Quantitive Easing Kicks In Again In A Few Months ?

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What if Quantitive Easing kicks in again in a few months ?

If prices do start to stabalise / rise again would you buy, or wait for another dip after 1 / 2 years ?

or would you do something else ?

Edited by Crashman Begins

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What if Quantitive Easing kicks in again in a few months ?

If prices do start to stabalise / rise again would you buy, or wait for another dip after 1 / 2 years ?

or would you do something else ?

For what it's worth, I think the UK will re-start QE. The USA have and the UK generally follows. QE 1 boosted the FTSE and house prices and I've no doubt QE 2 will be used to maintain the FSTE and house prices in the future. Also, Sterling has, for a number of reasons, generally strengthened recently and could probably weather a dose of QE 2.

For those waiting to buy a cheap house, this is bad news. Prices may drift down and the house selling market may stagnate with but I don't believe for one moment that the BoE, the Gov or the financial sector would stand for a HPC and these very powerful bodies will do everything to prevent a crash.

A few days ago, Bloomberg TV reported that IBM can sell 10 year bonds at 1%, assuming I heard this correctly. Also USA 10 year treasuries are 2.6 % and I think Japanese 10 year bonds are 1.1%. To me this doesn't signal a near term interest rise hike, so, low, low mortgages will be around for a while, maybe years & years.

Whilst house buyers are waiting for a crash, their net wages may decrease, savings rates will remain effectively negative, LTV may decrease but longer mortgage terms ( over 25 years) may be offered. That's a mixed bag that I find difficulty in thinking about.

One other issue that is rarely discussed here is overseas buyers. I spend time in the Middle East and my brother lives in the Far East. Both these wealthy regions consider London house prices to be cheap. Our domestic house buyers simply cannot compete. How this effects the greater UK housing market, I don't know but I'm certain there is an effect.

Fundamentally, we live on an over crowded little island with the 6th largest economy in the world ( ??? is this right) with much of it concentrated in the south east. As a free market, house prices will be expensive ( particularly in the SE).

As to what to advise, god knows. I have three kids of my own, two who will be thinking about buying a house of their own in a year or two. I suspect if they wish to remain in the UK, they will save/beg/borrow/steal the biggest deposit they can and negotiate the longest/lowest mortgage rate possible, bite the bullet and buy. The alternative is a life within the UK private rental sector which can be grim.

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I'd buy physical gold/guns/baked beans then sit back and watch the hyper-inflationary death spiral.

Inflation in the US is low, intact they could even be facing deflation. Another round of QE there will keep the deflation monster away and still leave inflation at an acceptable level.

In the UK it's a very different story...

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Our monster is inflation, not deflation. QE would serve to feed the monster. A very dangerous game with too many ifs and assumptions.

Very true. Same actions will result in two very different outcomes.

If Merv prints with inflation raging out of control then the currency will be sunk, like parity with the Dollar sunk.

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Forgive me, but how will QE halt the fall of prices, given that banks aren't likely to lower lending rates and unemployment will rise as public sector cuts kick in?

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The rebound in house prices was mainly caused by demand outsripping supply, and now they are falling again because supply is outsripping demand.

QE has very little to do with this. It might have prevented a complete collapse in prices, since it allowed banks to continue lending, which in turn might have suckered a few into buying, but I seriously doubt that any QE2 would be on a scale anywhere large enough to prop up house prices in general. The only exception might be London if QE2 causes the pound to slide, because more foreign buyers might pile in. But I doubt if the pound will slide that much since it looks like the US is about to embark on QE2 as well, and the euro is about to rip itself to pieces.

And regarding inflation: yes the UK is going to get some cpi inflation but it won't be accompanied by wage inflation. Instead it will be accompanied by cuts. I can't really see how that will push up house prices. In the same way that we've just had a decade of low cpi accompanied by high hpi, I think we could be in for a decade of the reverse.

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the euro is about to rip itself to pieces.

Bloomberg:

China Favors Euro Over Dollar as Bernanke Alters Path

http://www.bloomberg.com/news/2010-08-15/china-favors-euros-over-dollars-as-bernanke-shifts-course-on-fed-stimulus.html

Chinese seem to like the Euro. Perhaps they are following Buffet's words of being greedy when everyone else is fearful ??

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The rebound in house prices was mainly caused by demand outsripping supply, and now they are falling again because supply is outsripping demand.

QE has very little to do with this.

Depends how it's done. If it's linked to pressure on banks to lend at lower rates and higher earnings multiples, it may affect demand directly.

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Bloomberg:

China Favors Euro Over Dollar as Bernanke Alters Path

http://www.bloomberg.com/news/2010-08-15/china-favors-euros-over-dollars-as-bernanke-shifts-course-on-fed-stimulus.html

Chinese seem to like the Euro. Perhaps they are following Buffet's words of being greedy when everyone else is fearful ??

Yes the dollar has come under the spotlight more than the euro recently. But neither of them are looking much better than the pound. I suspect the euro will come back under the spotlight when the ECB et al get back from their extended holiday breaks.

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Forgive me, but how will QE halt the fall of prices, given that banks aren't likely to lower lending rates and unemployment will rise as public sector cuts kick in?

More liquidity, more SLS. Cheap money for banks to lend on mortgages. No massive funding gap when the current scheme ends mortgage rates nice and low for the foreseeable future.

Aslo combine this with the resulting surge in inflation and seriously negative real interest rates on savings makes a crack up boom style rush for hard assets such as housing/gold/stocks likely.

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I'd buy more gold, silver and other commodities and plan for the long game.

House prices are still too high (even though they have fallen a lot here in NI) and I'm not buying in until FTB mortgages are comparable to rental costs, at a realistic long term interest rate.

In addition, I have little faith in the stock market (software bots and bets by the big banker boys rule) and I can't see businesses here thriving in the global market, while the cost of doing business here is so high (red tape, office costs etc).

They need to let the boom crumble into a bust, before anything good and sustainable is going to happen here. I hope they let the necessary unwind happen, rather than stretching out the pain and uncertainty.

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Prices may drift down and the house selling market may stagnate with but I don't believe for one moment that the BoE, the Gov or the financial sector would stand for a HPC and these very powerful bodies will do everything to prevent a crash.

I don't think BoE will intervene to stop house prices falling. They may restart QE but personally I'm doubtful even on that. I say this because despite its alleged independence King is clearly does what ever the gov want, and I've seen no appetite in the current gov for the interventionist style economics pursued by brown. Publicly the current gov will make sympathetic noises to assuage current home owners when the HPC comes but privately I think they know its an economic and social necessity and will not undertake any radical action to fight it.

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More liquidity, more SLS. Cheap money for banks to lend on mortgages. No massive funding gap when the current scheme ends mortgage rates nice and low for the foreseeable future.

Aslo combine this with the resulting surge in inflation and seriously negative real interest rates on savings makes a crack up boom style rush for hard assets such as housing/gold/stocks likely.

Can anyone argue against this as a likely outcome?

Certainly I think this was probable under Labour, but I am hoping that the Conservatives will focus any further liquidity into business rather than the mortgage market. If they continue to bring about the ambitious cuts to the public sector then this seems to to be their intention don't you think?

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Depends how it's done. If it's linked to pressure on banks to lend at lower rates and higher earnings multiples, it may affect demand directly.

Yes but there are a lot more houses on the market now than there were a year ago. Besides I doubt if any QE2 would be accompanied by silly mortgage lending. Those who took out silly mortgages a few years ago have had their chance to pay off a large part of their debt, and this government will be more willing to allow those who still have mortgage problems to get repossessed while they can still blame Brown.

To me it looks like they are preparing the ground for several years of controlled house price falls. Whther they succeed or not is another matter.

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Can anyone argue against this as a likely outcome?

Certainly I think this was probable under Labour, but I am hoping that the Conservatives will focus any further liquidity into business rather than the mortgage market. If they continue to bring about the ambitious cuts to the public sector then this seems to to be their intention don't you think?

Yes. That's exactly my take on it. They've got to keep the banks lending to business while at the same time trying to deflate the housing market.

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Can anyone argue against this as a likely outcome?

Certainly I think this was probable under Labour, but I am hoping that the Conservatives will focus any further liquidity into business rather than the mortgage market. If they continue to bring about the ambitious cuts to the public sector then this seems to to be their intention don't you think?

I think, as MV said earlier, that it does depend how they go about QE. It can be engineered to make lending to businesses more attractive without easing the mortgage Market swell.

Look at the replacement scheme for SLS, the deposit window facility. This was discussed a few weeks ago on here and from what it seems this will be not help banks with mortgage lending but seems to be designed more specifically to gives banks the incentive towards business

This government is certainly more passive with regards to the housing Market than the previous. Maybe they do get it?

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It's a big if.

Although the BoE is supposed to be independent, I don't think the tories are natural printers and political will has a knack of feeding into the MPC.

In any event, QE wasn't really the catalyst for a recovery in house prices, it was the ZIRP, that saved so many (particularly BTL) from mortgage oblivion.

In someways QE might hasten a HPC, because if it did stoke inflation and adversely affect sterling too much, we might see much higher interests rates much sooner in an attempt to put the fires out.

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Although I can't see the BOE printing again without a considerable drop in inflation and inflation expectations. Even the BOE itself doesn't think this is likely until the second half 2011

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Very true. Same actions will result in two very different outcomes.

If Merv prints with inflation raging out of control then the currency will be sunk, like parity with the Dollar sunk.

Gold is probably in a bubble.

Merv recommend a 30% devaluation of the pound when the coalition took over.

Foreign currency account time?

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It's a big if.

Although the BoE is supposed to be independent, I don't think the tories are natural printers and political will has a knack of feeding into the MPC.

In any event, QE wasn't really the catalyst for a recovery in house prices, it was the ZIRP, that saved so many (particularly BTL) from mortgage oblivion.

In someways QE might hasten a HPC, because if it did stoke inflation and adversely affect sterling too much, we might see much higher interests rates much sooner in an attempt to put the fires out.

You won't see QE and an a raise in interest rates. At least not straight away. They are opposites. you wouldn't throw petrol on a fire then a bucket of water. It defeats the object. Only if they printed and realised it was a mistake would they then try and remove the stimulus and raise rates.

This is why they won't do it.

Edited by Pent Up

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What if Quantitive Easing kicks in again in a few months ?

If prices do start to stabalise / rise again would you buy, or wait for another dip after 1 / 2 years ?

or would you do something else ?

It does not matter how much money is 'printed': it cannot possibly cause retail price inflation - or even asset price inflation - unless it gets into the hands of people willing and able to spend it - as opposed to paying off debt or saving it - and even then only to the extent that there is not a surplus of productive capacity.

The inconvenient truth is that most of us are, quite simply, pretty much bust: many are insolvent in terms of income and expenditure, while an increasing number are insolvent in terms of assets and liabilities. No monetary policy makes a blind bit of difference because the fundamental problem is that 90% of us are now in debt to the other 10%, who also own most of the unencumbered assets, particularly land.

Only systemic fiscal reform could work - and I do not mean the insane voodoo economics of the liquidationists now in office - but there is not a cat in hell's chance of this government or any alternative on offer ever enacting such reform.

Apart from that, everything's fine :-)

Edited by Chris Cook

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  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
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      • up 5%



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