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Annual Hpi 12% By Jan 2014

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Nadeem Walayat's latest:

In terms of the bull markets current momentum, the UK housing market is accelerating towards an annual inflation rate of at least 10% per annum. Given the markets current trend trajectory, UK house prices could be rising by 10% per annum as early as on release of the Halifax data (NSA) for October 2013 (in November), and continue accelerating to a rate of more than 12% per annum for January 2014 data (released Feb 2014).

....

Therefore forget about 0.5% UK interest rates in 3 years time, far more probable is 4.5% interest rates by the end of NEXT year!

....

I am sure that many people reading this will naturally conclude that higher interest rates will be a big negative for the housing market that could imply a bear market or even market crash. I am sure such expectations will become prevalent in the mainstream press as soon as interest rates start to rise, but I am going tell you now, long before even the first interest rate hike takes place that interest rate hikes are NOT going to make ANY difference to the housing bull market, for the rate rises would reflect a normalisation of the UK interest rate market and NOT a panic event.

Again the primary driver will be SENTIMENT!

When house prices are rising at a pace that is more than people earn, will their mortgage costs rising by approx 1/3rd make such an impact on sentiment? I don't think so, not by the end of 2014 when the UK housing market will be rising by at least 10% per annum, or on average prices of £230k of about £23k per annum! TAX FREE! (own properties).

So

1. Prepare for interest rate hikes long before anyone in the mainstream media or academics can imagine today.

2. That the rate rises will NOT result in a bear market or worse a crash as the trend momentum by then will have a couple of years under it's belt and the longer a trend goes on the more likely it is to continue towards the final blow off bubble stage, that would still be many years away.

http://www.marketoracle.co.uk/Article41905.html

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lets see, leveraged product rises in price due to more leverage and lower cost of said leverage.

cost of said leverage rises, and people continue to pay more and more for said leverage.

Prices continue to rise.

How does that work?

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Not sure I can belive any chat about rate rises yet, although they have to happen sometime and the economic climate just keeps getting worse in the meantime. To think that Osborne considers things are better today than they have been since Lehmans.

So 10 - 12% HPI

Wage inflation 1%

How in the name of all god is that a viable economy

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lets see, leveraged product rises in price due to more leverage and lower cost of said leverage.

cost of said leverage rises, and people continue to pay more and more for said leverage.

Prices continue to rise.

How does that work?

Maybe like Aug 2005 to Aug 2007 when the base rate rose from 4.5% to 5.75%

http://www.housepricecrash.co.uk/graphs-base-rate-uk.php

The price rises more to do with increased lending?

Banks can have £10 of cheap money next year for every £1 they loan this year on the FLS

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All of these price rise predictions seem to blithely assume that banks are going to lend at ever greater multiples, Something I don't think they'll be doing in a hurry.

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Maybe like Aug 2005 to Aug 2007 when the base rate rose from 4.5% to 5.75%

http://www.housepric...ase-rate-uk.php

The price rises more to do with increased lending?

Banks can have £10 of cheap money next year for every £1 they loan this year on the FLS

base rates may have risen, but that was the era when the "WALL OF MONEY" really was going for broke ( literally), margins for mortgages, quality, risk, all unneeded in the time when FEES were what bankers craved.

Lend to you and a friend, IO, 125%, all in full swing, some mortgages even BELOW base rate...no one cared, the sale of mortgages was all that mattered...

Is the artical suggesting we are already returning to that?....the re issue of Off balance sheet scams in banking? If he is then we are in for the mother of all collapses.

Other than that, he seems to be implying that sentiment is all....bugger the means....however, this is the very same Canute speak Politicians love....and housing indexes are most likely very very easy to corrupt.

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All of these price rise predictions seem to blithely assume that banks are going to lend at ever greater multiples, Something I don't think they'll be doing in a hurry.

Yes, there is that. And the huge flak being dished out to Osborne for HTB, it has intensified recently from already high levels.

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So 10 - 12% HPI

Wage inflation 1%

How in the name of all god is that a viable economy

What was wage inflation between Jan 2002 and Feb 2003?

The Bank of England has surprised City analysts by cutting interest rates by one quarter of a percentage point.

After 14 months on hold, rates have been cut to 3.75%, taking borrowing costs to their lowest level since 1955.

It is a sign of how worried they are about the economy

The move surprised City analysts, who had thought that the Bank would maintain rates at 4% to keep a lid on the housing market and general inflation.

House prices last month were 24.9% higher than in January 2002, Halifax, the UK's biggest mortgage lender, said on Wednesday.

....

"This is one of the biggest gambles any central banks has done - cutting rates when house price inflation is close to 30% and inflation is already above target," said John Butler, UK economist at HSBC.

"It is true to say [the Bank is] playing with fire."

http://news.bbc.co.uk/1/hi/business/2732645.stm

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base rates may have risen, but that was the era when the "WALL OF MONEY" really was going for broke ( literally), margins for mortgages, quality, risk, all unneeded in the time when FEES were what bankers craved.

Lend to you and a friend, IO, 125%, all in full swing, some mortgages even BELOW base rate...no one cared, the sale of mortgages was all that mattered...

Is the artical suggesting we are already returning to that?....the re issue of Off balance sheet scams in banking? If he is then we are in for the mother of all collapses.

Other than that, he seems to be implying that sentiment is all....bugger the means....however, this is the very same Canute speak Politicians love....and housing indexes are most likely very very easy to corrupt.

Why wouldn't you lend as much as you could next year if you were a banker?

What's your downside?

Help to Bail Banks has landed taxpayers with 20% of the lending risk (75% to 95%)

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HTB is the last gasp for those striving for a place to live. However if HTB successfully inflates to bubble to bursting point we could see a new class of BTL leeches. The worlds rich gloating the appreciation of their empty Belgravia pads would make idea HMNO rentiers for the plebs in Shepherds Bush.

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Meanwhile,

Property prices in the rest of Europe are falling.

Real wages in US/Europe are falling.

It might take less to pop a new bubble than last time, as peoples disposable incomes are less this time around.

[edit] If they do manage to create a new property bubble, then [they] are planning to make money on the downside rather on the limited upside.

Edited by Gone to Ireland.

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Higher rates....more interest only debt or extend the term or roll it over onto the equity......do governments now repay debt?....don't do as they say do as they do. ;)

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Nadeem Walayat's latest:

... about as useful as moneyweek i.e. classic stopped-clock-is-eventually-right punditry. Those that can, trade, that than cant, peddle "investment advise".

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Maybe like Aug 2005 to Aug 2007 when the base rate rose from 4.5% to 5.75%

http://www.housepric...ase-rate-uk.php

The price rises more to do with increased lending?

Banks can have £10 of cheap money next year for every £1 they loan this year on the FLS

Nadeem Walayat, the stealth boom loon.

FLS is a 4 year collateral swap + fee. Nothing in the provision of FLS requires the creation of new mortgages, the BoE is happy to accept existing loans and unsecured debt as collateral. What earthly motivation would lenders have to create a fresh cohort of soon-to-be delinquent loans on top of the crap they're about to get back?

And then there's the Bank Rate to consider. In exchange for their collateral the banks get a fistful of Treasury bills which they then swap for money on the Repo market at the expected Bank Rate. That makes a lot of sense when you can borrow at 0.5% to refi loans at 5%, not so much if the Bank Rate is 4.5%.

Not to mention inflation and the expectation of more to come. In 2007 median wage earners were 13% better off than they had been in 2002. In 2013 median wage earners are nearly 10% poorer than they were in 2007.

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So 10 - 12% HPI

Wage inflation 1%

How in the name of all god is that a viable economy

Firstly wage inflation is, or soon will be, a bit higher than that. And secondly HPI isn't going to run at 10-12%, it'll be fairly flat for the next ten years or more.

But to answer your question, it's all perfectly viable from an economic perspective. Fewer and fewer people will ever be able to buy a house so will continue in private sector rented accommodation for their entire lives, the top 20-25% of the population will increasingly use BTL in place of traditional pensions, and the net result is owner occupancy rates will keep falling down to the typical European level of about 50%.

Whether or not that's viable from a social or political perspective is a different question.

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Fewer and fewer people will ever be able to buy a house so will continue in private sector rented accommodation for their entire lives, the top 20-25% of the population will increasingly use BTL in place of traditional pensions, and the net result is owner occupancy rates will keep falling down to the typical European level of about 50%.

I am guessing that you move in fairly affluent circles so have a distorted view of how many BTL landlords there are in the UK.

Private landlords constitute about 3% of the population now and many are already losing money or at best breaking even in cashflow terms despite very high levels of taxpayer subsidy courtesy of housing benefit. I am not sure how the private rented sector could support 8 times as many landlords as there are now.

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But to answer your question, it's all perfectly viable from an economic perspective. Fewer and fewer people will ever be able to buy a house so will continue in private sector rented accommodation for their entire lives, the top 20-25% of the population will increasingly use BTL in place of traditional pensions, and the net result is owner occupancy rates will keep falling down to the typical European level of about 50%.

Problem being that the BLT owners will have essentially have to fund the rent payments of those retired life long renters from their own taxes since there's nowhere else for the money to come from.

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Firstly wage inflation is, or soon will be, a bit higher than that. And secondly HPI isn't going to run at 10-12%, it'll be fairly flat for the next ten years or more.

But to answer your question, it's all perfectly viable from an economic perspective. Fewer and fewer people will ever be able to buy a house so will continue in private sector rented accommodation for their entire lives, the top 20-25% of the population will increasingly use BTL in place of traditional pensions, and the net result is owner occupancy rates will keep falling down to the typical European level of about 50%.

Whether or not that's viable from a social or political perspective is a different question.

The problem is, what makes you confident of wage increases that keep up with inflation? (sorry if that was not what you implied)

Unless wages grow at inflation, housing becomes more expensive. BTL has to be rooted in a satisfactory yield (in order to make it a worthwhile investment proposition), and without wages keeping place with living costs it seems that tenants are increasingly not in a position to back the yields required to make it worthwhile. As Dorkins says, plenty of new-entrant landlords are discovering the sharp end of current entry prices. LLs often have a very myopic view of their pricing power on rents- on one hand, they will jack them up to match the market, so they appreciate that their cost base is a variable which is independent of rents when opportunities to increase rent present themselves, but when the prospect of softening rents is approached(as many parts of the country are experiencing now), many simply say that "I won't go lower than £x/month since I can't afford to", as if that somehow changes anything.

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Problem being that the BLT owners will have essentially have to fund the rent payments of those retired life long renters from their own taxes since there's nowhere else for the money to come from.

Yep....it will be the renters dictating the rents.....take it or leave it. ;)

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