"please, Do Not Scream 'unsustainable Housing Boom'"

[R K]

http://www.bbc.co.uk/news/business-26819969

UK's recovery not debt-fuelled

The publication of the 2013 national accounts contained a number of positives, not least of which was an upward revision to exports, and confirmation that business investment is recovering.

Or, to put it another way, although the belated escape of the UK economy from the long years of stagnation has been too dependent, many would say, on growth in consumer spending (in the traditional British way), the recovery is not as unbalanced as some have feared.

And there is another benign trend, noted by Michael Saunders of Citi, which is that national income is at last growing faster than our debts.

Or, to put it another way, the burden of our debts is - for the first time since the great crash of 2008 - diminishing.

To be clear, those debts remain big by historic standards, and the falls are not transformative of the UK's prospects.

But there does appear to be a trend of gentle deleveraging, or a reduction in debts as a percentage of income, after the many years of binging on credit.

And please, at this juncture, do not scream "unsustainable housing boom" and point to the current surge of households - especially in London and the South East - taking out big mortgages.

Of course, there is a bit of that going on, but in 2013 at least the big trends were of a more prudent sort.

Please, do not scream "unsustainable housing boom"

"There is a bit of that going on"

But let's not talk about it eh?

[Quicken]

http://www.bbc.co.uk/news/business-26819969

UK's recovery not debt-fuelled

Please, do not scream "unsustainable housing boom"

"There is a bit of that going on"

But let's not talk about it eh?

It's not a boom, it's a mega-bubble.

[zugzwang]

[zugzwang]

Naturally, no word from the establishment gimp about the £100+bn in off-balance-sheet spending that's got to be added to the national debt in September.

[wonderpup]

And please, at this juncture, do not scream "unsustainable housing boom" and point to the current surge of households - especially in London and the South East - taking out big mortgages.

So what he's saying is that we have a sustainable recovery as long as we ignore the unsustainable housing boom at it's center. And if that boom should become a bust- would that impact on his projected recovery in any way?

Well- it might.

[R K]

Naturally, no word from the establishment gimp about the £100+bn in off-balance-sheet spending that's got to be added to the national debt in September.

Very obvious axis of spin going into over-drive now pre-election.

London media/finance/politicos are loving their unsustainable London boom. They would - they've all got their snouts deep in the trough.

[Olebrum]

Does it mean we can now afford to bail out another massive financial crash?

[19 year mortgage 8itch]

Scream if you want to go faster.

[tio]

Housing bubble fears grow as UK property price recovery gathers pace - August, 2013

http://www.euromoney.com/Article/3247058/Housing-bubble-fears-grow-as-UK-property-price-recovery-gathers-pace.html

Just months into the recovery in the UK housing market, prices are beginning to look stretched as loose monetary policy and government aid to buyers drives the gap between valuations and incomes ever wider, according to analysts. Are the seeds being sown for a horrible correction in 2015?

..

Choose any benchmark and be fearful: The average UK house price, at £162,621, government figures show, is more than six times median incomes. According to the OECD, this means UK house prices are 21% overpriced against incomes and the eighth most overvalued in the world

Housing bubble forming in London, warns Ernst and Young - 3 February 2014

http://www.bbc.co.uk/news/business-26006214

It says the average price in the capital is expected to reach around £600,000 by 2018, 3.3 times the price in the north-east of England.

Asset-price bubbles occur after swift price rises set values at unsustainable levels, which then collapse.

Meanwhile, the independent think tank Civitas says curbs should be placed on overseas buyers of London property.

Civitas says these are needed to rein in "rampant" house price inflation.

Recent official figures from the Office for National Statistics showed average property prices rising strongly across the country.

Osborne Told to Curb U.K. Housing Aid to Prevent Bubble - Mar 14, 2014

http://www.bloomberg.com/news/2014-03-14/osborne-told-to-curtail-u-k-housing-stimulus-to-prevent-bubble.html

U.K. Chancellor of the Exchequer George Osborne should scale back his housing-market stimulus next week to prevent prices spiraling, according to a survey of economists.

Almost three-quarters of 33 analysts in a monthly survey by Bloomberg said property in the U.K. is at risk of overheating. The poll, published today, also showed that more than 80 percent said Osborne should use his March 19 budget to curtail the Help-to-Buy program, which allows people to buy a home with a down payment of as little as 5 percent.

This is no recovery, this is a bubble – and it will burst - Monday 24 February 2014

http://www.theguardian.com/commentisfree/2014/feb/24/recovery-bubble-crash-uk-us-investors

We are heading for trouble.

OECD, Ernst and Young, Civitas .. pah

All the above from one google search (approx 5 seconds work), maybe he hasn't use of his hands? Naughty boy.

[Bloo Loo]

Naturally, no word from the establishment gimp about the £100+bn in off-balance-sheet spending that's got to be added to the national debt in September.

actual income from imputed rents will balance that out nicely.

[Smyth]

This is actually a nice empirical test; academic economists and finance guys say that it is necessarily impossible to identify a 'bubble' before it bursts, because there is no such thing as 'real/fundamental' value, and market prices already incorporate all available public information about expected future price movements (so you cannot distinguish a 'bubble' from rationally justified beliefs in rising future prices, without hindsight), Those who dont understand economics think that you can just point to something that you believe costs too much, and claim its a 'bubble'. So if this 'bubble' doesnt burst in the next couple of years then we will know who is right.

The reality is that prices are high because there is a chronic supply/demand mismatch that is unlikely to be resolved in the near future. Unless the demand for housing declines sharply (it won't) or the supply of housing drastically increases (unlikely due to planning laws etc) then there isn't likely to be any real drop in housing costs. Of course its possible that a cataclysmic event will happen like the complete breakdown of the Euro or some sensible political party getting in power and imposing restrictions on low-skilled immigration and associated benefit payments, putting non-trivial caps on housing benefits, and ripping up zoning laws and building/planning regulations. But current prices reflect the fact that both these events are unlikely.

Edited March 31, 2014 by Smyth

[Dorkins]

Seems like the usual innumerate journalist obsession with 0.1% changes while being totally blind to the absolute values.

In 1982 Peston graduated from Balliol College, Oxford, with a degree in PPE (Politics, Philosophy and Economics)

link

[Dorkins]

The reality is that prices are high because there is a chronic supply/demand mismatch that is unlikely to be resolved in the near future.

So in 2008/9 when UK house prices dropped by 25% was that because a quarter of the population died of plague, or did we suddenly build 9 million houses that year?

[Smyth]

So in 2008/9 when UK house prices dropped by 25% was that because a quarter of the population died of plague, or did we suddenly build 9 million houses that year?

Demand temporarily decreased due to banks being reluctant to lend, but this was mainly a short-term drop in liquidity that had no real effect on the underlying point that we have a chronic housing shortage, so prices have unsurprisingly came back to the same level now that liquidity has returned.

Edited March 31, 2014 by Smyth

[Dorkins]

Demand temporarily decreased due to banks being reluctant to lend, but this was mainly a short-term drop in liquidity that had no real effect on the underlying point that we have a chronic housing shortage, so prices have unsurprisingly came back to the same level now that liquidity has returned.

So what you are saying is that a contraction in credit can lead to falling house prices even during a chronic housing shortage?

[Bloo Loo]

So what you are saying is that a contraction in credit can lead to falling house prices even during a chronic housing shortage?

financialisation...its hard for Mr Pickles to grasp.

[R K]

This is actually a nice empirical test; academic economists and finance guys say that it is necessarily impossible to identify a 'bubble' before it bursts, because there is no such thing as 'real/fundamental' value, and market prices already incorporate all available public information about expected future price movements (so you cannot distinguish a 'bubble' from rationally justified beliefs in rising future prices, without hindsight), Those who dont understand economics think that you can just point to something that you believe costs too much, and claim its a 'bubble'. So if this 'bubble' doesnt burst in the next couple of years then we will know who is right.

The reality is that prices are high because there is a chronic supply/demand mismatch that is unlikely to be resolved in the near future. Unless the demand for housing declines sharply (it won't) or the supply of housing drastically increases (unlikely due to planning laws etc) then there isn't likely to be any real drop in housing costs. Of course its possible that a cataclysmic event will happen like the complete breakdown of the Euro or some sensible political party getting in power and imposing restrictions on low-skilled immigration and associated benefit payments, putting non-trivial caps on housing benefits, and ripping up zoning laws and building/planning regulations. But current prices reflect the fact that both these events are unlikely.

Again, complete drivel. A feature of your posts.

Bubbles are readily identifiable in advance.

Prices are high in London because there is no price discovery at all. The global criminal fraternity are willing to pay any price to offshore their roubles, renminbi etc. coupled with unsustainable 'stimulus' measure and negative real rates.

Withdraw cheap money, stimulus and tax haven privileges and the London bubble will collapse.

Your arguments are classic VI 'it's different this time' delusion.

Edited March 31, 2014 by R K

[Georgia O'Keeffe]

This is actually a nice empirical test; academic economists and finance guys say that it is necessarily impossible to identify a 'bubble' before it bursts, because there is no such thing as 'real/fundamental' value, and market prices already incorporate all available public information about expected future price movements (so you cannot distinguish a 'bubble' from rationally justified beliefs in rising future prices, without hindsight), Those who dont understand economics think that you can just point to something that you believe costs too much, and claim its a 'bubble'. So if this 'bubble' doesnt burst in the next couple of years then we will know who is right.

The reality is that prices are high because there is a chronic supply/demand mismatch that is unlikely to be resolved in the near future. Unless the demand for housing declines sharply (it won't) or the supply of housing drastically increases (unlikely due to planning laws etc) then there isn't likely to be any real drop in housing costs. Of course its possible that a cataclysmic event will happen like the complete breakdown of the Euro or some sensible political party getting in power and imposing restrictions on low-skilled immigration and associated benefit payments, putting non-trivial caps on housing benefits, and ripping up zoning laws and building/planning regulations. But current prices reflect the fact that both these events are unlikely.

which are fundamentally opinions, in which case the same nonsense you are denigrating, Ireland used the same things will carry on as they have been nonsense and proved it was nonsense less than a decade ago, as did Spain half a millennia ago, as did Rome a couple of thousand years ago

The reality is somewhat different current prices reflect current beliefs, tomorrows prices reflect tomorrows belief, yesterdays prices reflect yesterdays belief, as you arent here tomorrow now then reality is somewhat irrelevant to what may or may not happen tomorrow

[tio]

http://en.wikipedia.org/wiki/Market_distortion

In neoclassical economics, a market distortion is any event in which a market reaches a market clearing price for an item that is substantially different from the price that a market would achieve while operating under conditions of perfect competition and state enforcement of legal contracts and the ownership of private property.

In this context, "perfect competition" means:

all participants have complete information,

there are no entry or exit barriers to the market,

there are no transaction costs or subsidies affecting the market,

all firms have constant returns to scale, and

all market participants are independent rational actors.

Many different kinds of events, actions, policies, or beliefs can bring about a market distortion. For example:

almost all types of taxes and subsidies, but especially excise or ad valorem taxes/subsidies,

asymmetric information or uncertainty among market participants,

any policy or action that restricts information critical to the market,

monopoly, oligopoly, or monopsony powers of market participants,

criminal coercion or subversion of legal contracts,

illiquidity of the market (lack of buyers, sellers, product, or money),

collusion among market participants,

mass non-rational behavior by market participants,

price supports or subsidies,

failure of government to provide a stable currency,

failure of government to enforce the Rule of Law,

failure of government to protect property rights,

failure of government to regulate non-competitive market behavior,

stifling or corrupt government regulation.

[iamdamosuzuki]

Economists are a bit like the art establishment persuading people they can't understand something because they haven't been schooled in the history and assumptive framework of their respective fields. ********.

I did a bit of economics as a student and I always say no other subject would have got away with the overarching assumptions (rationality etc) that these twonks took as fact and used as the basis of whole models. I guess it's the money behind it all.

When the hot money runs (which has f'all to do with the price of 'housing') London will find a new, lower, level. I've been investing long enough (and badly enough on occasion) to know there is money to be made, long, when an equity is detached from fundamentals and in bubble territory.

Peston is either (I suspect) a lazy barsteward or a VI idiot a la Evan Davies. Either way his analysis is a disgrace.

Edited March 31, 2014 by iamdamosuzuki

[Dorkins]

Peston is either (I suspect) a lazy barsteward or a VI idiot a la Evan Davies.

The BBC is fully on board for this Recovery™. These days Andrew Neil aggressively quotes forecasts from the OBR at any guest who dares to suggest that things might not be all that great as if they were hard facts.

[wonderpup]

so you cannot distinguish a 'bubble' from rationally justified beliefs in rising future prices, without hindsight

If it's true that there is no way to know if an asset price is accurately reflecting the true state of the market or is simply in a bubble then your claim that prices always transparently reflect supply and demand is incorrect- those prices might be inflated by bubble dynamics that will only reveal themselves when the bubble bursts.

[BlokeInDurham]

Demand temporarily decreased due to banks being reluctant to lend, but this was mainly a short-term drop in liquidity that had no real effect on the underlying point that we have a chronic housing shortage, so prices have unsurprisingly came back to the same level now that liquidity has returned.

So we don't have a housing bubble at all. It was all about liquidity, not houses. Gotcha.

By liquidity, I assume you're using a fancy word to mean credit. I mean I think when it comes to buying houses, it's about being able to borrow the money to purchase, not that one is good for the price of a house, but has temporary cashflow issues after splurging on Hobnobs at Tesco's this week.

So it's not an unsustainable housing boom, it's an unsustainable credit boom.

And that makes it all okay. Right?

[Errol]

If, as Peston thinks, this is all sustainable, let's remove help to buy, QE, low interest rates etc etc. Everything will be fine if Peston is right.

[R K]

If, as Peston thinks, this is all sustainable, let's remove help to buy, QE, low interest rates etc etc. Everything will be fine if Peston is right.

Quite agree.

He's a typical London centric establishment lickspittle being paid an insane multiple of average wages to finance his own over inflated house price and telling everybody else not to talk about it.

Why do people accept this London garbage?