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Debating With David Smith ...

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This page is worth a read - http://www.economicsuk.com/mt/mt-comments.cgi?entry_id=255 - as much for what it doesn't say as what it does. David Smith is interrogated by a variety of posters, including your correspondent, about his recent article pointing out the crash hasn't happened.

A couple of things emerge. One, Smith can't bring himself to agree there's going to be an economic downturn. Two, he can't bring himself to contemplate what will happen when US dollar rates come up to sterling rates. Three, he's not even sure there's a bubble at all.

I am the last person blithely assume that a crash, or a downturn for that matter, is a done deal; but I find it strange that someone of Smith's profession should be so determined to look away from the downsides of his position. Denial?

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Some of this is scary:

The proportion of first-time buyers is indeed low; it seems to have settled at around 30%. But it has been there for the past three years. Why has it declined? I wouldn't deny that affordability is a problem for many first-time buyers but many are taking the deliberate decision to leave it until later to buy. Other sources of housing demand, including those arising from marriage break-up, also affect the composition of the lending data and may have reduced the first-time buyers' share. The average loan-to-income ratio for first-time buyers is 3.21 according to the Council of Mortgage Lenders. The average for existing home-buyers is 2.92.

On buy-to-lets in general, they have replaced some of the first-time buyer demand and they have been an important source of demand in themselves at the margin. I don't think the changes in Sipps (self-invested personal pensions) will have a huge impact on demand but it argues against a collapse from this source. I am not, by the way, a buy-to-let landlord, nor do I have a big mortgage on my single property - no vested interests here.

The UK economy has slowed, but it does not appear to be heading into recession. I suspect the official GDP numbers overstate the slowdown, and retailers do not appear as gloomy as they were.

As for higher interest rates worldwide, it is not unusual for the UK and global cycles to be out of synch. We had a rate-raising period, from November 2003 to August 2004, when America and Europe did not.

The £30,000 figure is my extrapolation into this year from the ONS's 2004 number for male full-time average earnings.

To summarise his points:

1) FTBs at 30% of market

2) Loan to mortgage ration of 3.21 for FTBers (CML statistic)

3) GDP is not that low really

4) He's not a VI

5) Average man in UK earns 30K, based on extrapolation from 2004 ONS statistics

This is one for the new members of this forum; under 100 posts only, please. Please demonstrate to the site the flaws (if any) of these claims.

Your time starts now.

Edited by RichM

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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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