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Housing Bubble May Pop Entire U.k. Economy

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http://www.bloombergview.com/articles/2014-07-28/housing-bubble-may-pop-entire-u-k-economy

You may not want to bring this up at any London dinner parties, but there are tentative signs that the bubble in U.K. housing prices that's helped boost the economic recovery by underpinning consumer confidence may be running out of puff. Given the British obsession with home ownership, any evidence of real-estate deflation will complicate the Bank of England's efforts to nudge borrowing costs higher.

July marked the first month of no growth in London house prices since December 2012, according to figures last week from research company Hometrack Ltd. A different gauge showed the slowest pace of London gains in 15 months in June, according to the Royal Institution of Chartered Surveyors.

And today, Lloyds Banking Group's mortgage-lending unit reported that only five percent of people say the coming year is a good time to buy a home, a 29-point drop in just three months.

House prices have been on a tear in the past decade, as this chart shows:

i28IW_8z1czo.gif Source: Bloomberg

With earnings still in the dumps -- wages grew just 0.3 percent in May, while annual inflation was 1.5 percent -- houses are becoming less and less affordable, hence the U.K. central bank's imposition of new rules on mortgage lending in recent months. Some 71 percent of U.K. couples with at least one child own their own homes, rising to 80 percent for childless couples; U.S. home ownership is 65 percent, while in the euro region the rate is about 67 percent.

..

The mismatch between inflation and wage growth means workers are already feeling worse off. Any expectations for a drop in the value of the asset dearest to the hearts of most Britons would threaten to derail a recovery that's returned the economy to its pre-crisis state. Add the prospect of higher mortgage payments to the mix, and you have a clear and present danger to growth. Until earnings recover, the Bank of England should refrain from raising its policy rate from 0.5 percent.

As the entire recovery has been based on increasing house prices and increasing debt it doesn't take a genius to work out there are substantial threats.

o-GEORGE-OSBORNE-570.jpg

Luckily we have an idiot in charge.

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He had a good chance in 2010 to sort out this mess. It woul dhave taken a strong man and perhaps a majority government,

All they have done is cause inflation through money printing, destroyed peoples savings/earning and keep house prices from collapsing nominally.

Now we have a real term house price but we still all need a nominal crash !!!

If they forced down prices 10% say and taken 3 years of pain and regulated the banks, we#d all be much better off.

If you ask me this nonsense london mega bubble has only insured we'#ll see a 2nd crash, this time nominally and a massive real term crash.

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http://www.bloombergview.com/articles/2014-07-28/housing-bubble-may-pop-entire-u-k-economy

As the entire recovery has been based on increasing house prices and increasing debt it doesn't take a genius to work out there are substantial threats.

o-GEORGE-OSBORNE-570.jpg

Luckily we have an idiot in charge.

His face reminds me of something.

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He had a good chance in 2010 to sort out this mess. It woul dhave taken a strong man and perhaps a majority government,

All they have done is cause inflation through money printing, destroyed peoples savings/earning and keep house prices from collapsing nominally.

Now we have a real term house price but we still all need a nominal crash !!!

If they forced down prices 10% say and taken 3 years of pain and regulated the banks, we#d all be much better off.

If you ask me this nonsense london mega bubble has only insured we'#ll see a 2nd crash, this time nominally and a massive real term crash.

The bigger the better, it is the only way to break the sheeple out of their property obsession. Cold hard financial losses all round, the only way.

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I have been hoping for US stocks to crash before the pound weakened.

It's going to happen.

My money's on H2 2008

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Nothing wrong with +38% in ten years, if it's from a sane startingpoint. And I suspect it's lower where not tainted by London-area spillover.

It's the +100% in under five years preceding it :ph34r:

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