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Amazing, House Prices Up So More Money To Spend ...

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Just reading this:

http://www.bloomberg.com/apps/news?pid=100...2r7ikI&refer=uk

and I was struck by this:

House prices had risen ``a little faster'' than expected in the August inflation report and activity had recovered, which ``we feel will add a little to support consumer spending.''

House prices going up means that people are poorer. They have to spend more money on their houses, so why on earth would that add to consumer spending? There are only three ways:

a) Grannies who sell their houses and buy smaller ones are going on spending sprees

B) People are taking further equity out of their house.

c) Property investors sell their houses and go on spending sprees.

It seems to me the quote should be rewritten:

House pirces had risen 'a little faster' than expected in the August inflation report and activity had recovered. Strangly, this nominal rise in house prices has caused consumers to further finance consumer spending by withdrawing equity from their houses.

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I think its unlikely to fuel another boom, even a little one. When people were MEWing like mad I think they were punting on a rise to cover the difference. (eg. if my house that cost 40K can be MEWed for 100K and the price rises to 180K, I can spend 60K and then if I sell I will still have 80K in the hand) I think the spend spend spend tide has turned, and people are no longer in the mood bet, particularly when they find themselves actually owing exactly what they owe, and not expecting an offset when they sell.

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I think its unlikely to fuel another boom, even a little one. When people were MEWing like mad I think they were punting on a rise to cover the difference. (eg. if my house that cost 40K can be MEWed for 100K and the price rises to 180K, I can spend 60K and then if I sell I will still have 80K in the hand) I think the spend spend spend tide has turned, and people are no longer in the mood bet, particularly when they find themselves actually owing exactly what they owe, and not expecting an offset when they sell.

The problem with that logic is that people don't sell their houses and downsize very often. Only the very old and infirm generally do this, most people don't sell their house and move smaller even after they get rid of their kids. That money they have taken out of their house they have to put back into it again.

In fact most people want bigger houses. Ask 20 people how many say they are thinking about moving to a smaller/cheaper house soon. I can't imagine the number is very big.

If anything, rising house prices should make people spend *less* because when they want a bigger house or to buy a holiday home they will need more money. MEWing becuse property prices rise is completly illogical.

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  • 302 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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