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Lower Interest Rates, Lower House Prices?

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GDP growth looks like its going to under-shoot forecasts, retail sales going through the floor, confidence figures out this am lower than forecast, BUT inflation rising - I always thought the primary remit of the BoE was inflation, but its clear that the political members of the committee are likely to be pushing for a lowering of interest rates - just wondering whether we could see a situation of lower interest rates and declining house prices - does anyone know whether this has occurred historically? Anyone any ideas on when Gordon is likely to start raising taxes, we all know its coming, but when it does, it's not going to help affordability.

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GDP growth looks like its going to under-shoot forecasts, retail sales going through the floor, confidence figures out this am lower than forecast, BUT inflation rising - I always thought the primary remit of the BoE was inflation, but its clear that the political members of the committee are likely to be pushing for a lowering of interest rates - just wondering whether we could see a situation of lower interest rates and declining house prices - does anyone know whether this has occurred historically? Anyone any ideas on when Gordon is likely to start raising taxes, we all know its coming, but when it does, it's not going to help affordability.

You've answered your own question. Affordability is the key and lowering the rates will only suck a few more fools into the market before inflation goes out of control and they have to whack the rates back up.

Also, did rate cuts help the Japanese? ;)

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Sure just look at Japan

House prices have slid from their 1991 peak and over the last 14 years the country has flirted with deflation.

There is a strong case that this may happen to the west over the next 5 years though my moneys on 'rampant inflation' leading to a devaluation of the dollar.

this article explains it perfectly

http://news.independent.co.uk/business/com...ticle315150.ece

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Sure just look at Japan

House prices have slid from their 1991 peak and over the last 14 years the country has flirted with deflation.

There is a strong case that this may happen to the west over the next 5 years though my moneys on 'rampant inflation' leading to a devaluation of the dollar.

this article explains it perfectly

http://news.independent.co.uk/business/com...ticle315150.ece

Thanks for the link that's great - but why do u think we are heading for rampant inflation if one assumes the oil price stays around these levels from here (although I'm not suggesting it will)?

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ummm ... last crash, 89-92, prices dropped after several months of interest rates being raised (i think maximum IR at one point was 15% ?). Then when the IRs dropped continuously, the prices dropped slightly then flattened and then recovered come 95/96. We have not had dropping interest rates and dropping prices for any long period of time.

Gordon can raise taxes, but he doesn't have to do it to general public. He can get much more buy windfall taxing the oil and utility companies. They make huge profits at expense of public, so..... come on Gordon show them what you're made of! Tax the rich corporations!

The last time around is a little complicated by the high inflation levels.

At the start of 1990 base rates were 15% and remained there until about September time... with nominal house prices pretty much constant (falling in real terms) for this nine month period, based on HBOS monthly numbers.

Then the base rate started to fall (it hit 7% by July 1992). Over this period house prices fell by about 7-8% in nominal terms. In real terms (after RPI adjustment) they fell by 20%.

So, in short, average house prices fell despite hefty IR cuts in the last crash (and fell quite heavily in real terms). And this is in a period of almost two years of generally falling interest rates.

It is entirely possible that house prices can fall as interest rates are cut - especially if they start from massive overvaluations and it is against a backdrop of worsening economic conditions (arguably where we are today). With no inflation to hide real losses this time around it COULD be that nominal falls in the face of IR cuts could be greater.

I believe this is still Capital Economics' central theory - house prices will fall against a weakening economic backdrop with IRs cut to compensate. I would agree this is entirely possible perhaps even likely.

Edited by London-loser

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Thanks for the link that's great - but why do u think we are heading for rampant inflation if one assumes the oil price stays around these levels from here (although I'm not suggesting it will)?

if we assume that last year the production of goods and services grew by 3% and the population increased by 0.3% then factor in that M4 - (the amount of money in the economy grew by over 10% fact) you will see that there is much more money chasing goods and services than previously. Therefore more people are prepared to pay more.

This has not just occurred in the last year but every year since the mid 90s.

The stockmarket bubble was inflation.

The property bubble is inflation

The commodity price bubble is inflation.

It is growing and spreading.

Gradually the dollar and sterling will be worth less and less each year in relation to other currencies.

Unfortunately the currency exchanges are ruled by sentiment and whilst they appear to move gradually they are actually ruled by events. A series of shocks will lead to dramatic movements and eventual devaluation.

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  • 301 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
      • up 2.5%
      • up 5%



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