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FTBagain

A Prediction

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My first post this Year, so a Happy New Year to you all. I would make a prediction and an observation as that is what people like to do at this time of the year. :)

One of the hardest things to predict is the turning point of a market. So i am not going to do that because I think we are just about through that phase of the cycle anyway. :)

My prediction is that Unemployment will rise this year. I hope the unemployment spike will be one of the small ones as unemployment is a miserable thing and even small rises can bring the housing market down to affordable levels.

HPIvUn.jpg

Unemployment has traditionally risen when house prices have fallen. Back in the 70's and early 80's unemployment rose first then HP fell, but that was in the days when the UK made things and the majority of people worked in industry. If things went bad in the economy the workers started to lose their jobs and stopped buying houses (or sold them). In the late 80's and 90's most people worked in the service sector, selling things for the (housing market?), so HP falls triggered rising unemployment.

If you look at the current situation unemployment as been rising recently. Once the unemployment figures turn they have inevitably risen for a couple of years. If things a really bad, they rise quickly for a couple of years. The effect on the housing market has always been the same. Down.

I think unemployment will continue to rise because of two things. Oil and interest rates.

OILvINTvUN.jpg

Unemployment has in previous cycles risen sharply when IR and oil go up together, although it can take sometime for unemployment to fall again after oil and IR fall. Oil as been rising strongly for the last three years or so, but as had no impact on unemployment. The answer could be that the global interest rates have fallen, cushening the effects of rising oil prices. Now that the interest rate have started to rise, even a little, then the cushening effect is being removed and unemployment as started to move up. I think that even if interest rates fall there is a good chance the unemployment will continue to rise, because the oil price is showing no signs of significant falls, and that is starting to hurt industry and the consumer who is cutting back on spending.

Inflation is still stubornly low, a situation that may well change this years as oil prices start to feed through, but I do not think that that really matters as the central banks appear to be moving pre-emtively. This will hurt employers forcing them to make saving elsewhere. Thus rising oil prices do not necessarily mean rising inflation, at immediately, because companies may be reluctant to pass on the cost due to the possibility of the competition picking up the business. Instead they can cut costs. In other words jobs.

Hence I think rising unemployment, not inflation, will drive the coming HPC.

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Inflation is still stubornly low, a situation that may well change this years as oil prices start to feed through, but I do not think that that really matters as the central banks appear to be moving pre-emtively. This will hurt employers forcing them to make saving elsewhere. Thus rising oil prices do not necessarily mean rising inflation, at immediately, because companies may be reluctant to pass on the cost due to the possibility of the competition picking up the business. Instead they can cut costs. In other words jobs.

Hence I think rising unemployment, not inflation, will drive the coming HPC.

Hi,

I too am fresh back to the UK from the Christmas vacations and was quite surprised by the post new-year rises in london transport prices. They seem to have quite quickly passed on oil rises to the consumer so it will be interesting to monitor how other enterprises react over the coming weeks, given the propensity to introduce price hikes at the physiologically important time of a new year transition. If you haven't used London transport over the past week, 50% rise on many journeys for the tube network, 25% rise on the standard bus journey. Inflation is already up on that basis.

Happy new year!

Boomer

Edited by boom_and_bust

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yes, house price booms/slumps have always been initiated by economic factors..........but as they progress the cause/effect relationship goes into reverse.........and instead of the economy driving the housing market........the housing market drives the economy....and this effect is more pronounced in Britain than elsewhere owing to our obsession with owner occupation (for mainly the right reasons......no suitable alternative!)...........and the fixation with variable rate mortgages..........

Prior to financial deregulation ...certainly pre-1970.......the fact that British mortgages were variable rate(adjustable) and American and Continental ones generally weren't was immaterial as IR's were always low because governments could ration credit through strict controls on lending without having to resort to aggressive IR policies.........Since 1970 the British fixation for variable rate mortgages has been identified by the Treasury as something that makes the economic ups and downs more volatile than elsewhere...........

In The US and Continental Europe it is considered financially reckless.. if not financial suicide to take out variable rate mortgages but even there these are more common than before...........Prices to fall 5-10% this year in nominal terms..................My two penneth!

BTW, I thought the legendary ZZG would be back from back from China by now............... :blink:

Edited by Michael

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Hi,

I too am fresh back to the UK from the Christmas vacations and was quite surprised by the post new-year rises in london transport prices. They seem to have quite quickly passed on oil rises to the consumer so it will be interesting to monitor how other enterprises react over the coming weeks, given the propensity to introduce price hikes at the physiologically important time of a new year transition. If you haven't used London transport over the past week, 50% rise on many journeys for the tube network, 25% rise on the standard bus journey. Inflation is already up on that basis.

Happy new year!

Boomer

Boomer,

Sorry to hear about your New Year price hit. If as you say the oil price rises are starting to feed through, then we could yet see IR rise with oil prices, producing the Unemployment shock I see predict will cause the HPC.

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  • 336 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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