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Tempest

Do We Really Need Big Increases In Interest Rates?

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Not sure whether there is an obvious existing thread for this but the subject often permeates threads on HPI/HPC generally.

I checked my recollection of Japan's interest rates in the 80s and 90s. It seems you CAN have a low interest rate environment prevailing for many years leading to a massive property boom and have only low absolute increases in interest rates and cause a big crash.

Here are the official BoJ discount rates since 1970. Note that rates while Japans boom hit fever pitch were only 3% - 4.75%. The eventual ceiling hit was 6% but the crash had kicked in before then.

http://www.economagic.com/em-cgi/data.exe/bjap/ehdis01

Point is - if debt volume gets big enough due to prices little changes in rates and sentiment can cause HPC.

I think this is actually more relevant to the US rate tightening than ours but does show that if wider factors forced UK rates towards 4.75/5% that could be enough.

Any views?

PS not to take away from the fact that a "softening" of UK prices is already showing its face!

Edited by Tempest

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US will continue to increase interest rates, this will potentially cause a drop in growth, possibly into negative territory. Debt will falter the market faster that the fed estimated and we know that when the US economy gets a cold the UK gets bird flu...this in turn will impact the UK economy and we'll follow neatly behind.

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Interest rates are already at historic highs viz. house prices! If you take the rate of inflation and the amounts borrowed in relation to earnings IR have never been as high.

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Not sure whether there is an obvious existing thread for this but the subject often permeates threads on HPI/HPC generally.

I checked my recollection of Japan's interest rates in the 80s and 90s. It seems you CAN have a low interest rate environment prevailing for many years leading to a massive property boom and have only low absolute increases in interest rates and cause a big crash.

Here are the official BoJ discount rates since 1970. Note that rates while Japans boom hit fever pitch were only 3% - 4.75%. The eventual ceiling hit was 6% but the crash had kicked in before then.

http://www.economagic.com/em-cgi/data.exe/bjap/ehdis01

Point is - if debt volume gets big enough due to prices little changes in rates and sentiment can cause HPC.

I think this is actually more relevant to the US rate tightening than ours but does show that if wider factors forced UK rates towards 4.75/5% that could be enough.

Any views?

PS not to take away from the fact that a "softening" of UK prices is already showing its face!

look pal, you simply cannot compare the situation in Japan with that in the UK. For starters, Japan is a group of smallish islands that are densely populated, and we are... oh...

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look pal, you simply cannot compare the situation in Japan with that in the UK. For starters, Japan is a group of smallish islands that are densely populated, and we are... oh...

What I think will happen is that we will have a massive currency crisis which will cause an HPC. I for one and others with savings should really be looking at other currencies to invest in. Sterling and dollars look very shaky to me!

What currencies are worth investing in. I'm thinking of setting up an HSBC account in Euro's and Can$.

Could all western currencies suffer if the pound and the dollar lose their values?

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Not sure whether there is an obvious existing thread for this but the subject often permeates threads on HPI/HPC generally.

I checked my recollection of Japan's interest rates in the 80s and 90s. It seems you CAN have a low interest rate environment prevailing for many years leading to a massive property boom and have only low absolute increases in interest rates and cause a big crash.

Here are the official BoJ discount rates since 1970. Note that rates while Japans boom hit fever pitch were only 3% - 4.75%. The eventual ceiling hit was 6% but the crash had kicked in before then.

http://www.economagic.com/em-cgi/data.exe/bjap/ehdis01

Point is - if debt volume gets big enough due to prices little changes in rates and sentiment can cause HPC.

I think this is actually more relevant to the US rate tightening than ours but does show that if wider factors forced UK rates towards 4.75/5% that could be enough.

Any views?

PS not to take away from the fact that a "softening" of UK prices is already showing its face!

Anyone know what will force IR's up?

I agree that if they went to 5.5% - only 1% from NOW it would mean MASSIVE correction to house pricing. I PRAY all the time - please go up, please go up. Signs are they may go down.

So forget HPC, what will be the flame that lights the tinderbox, for IR's to rise?

Edited by teddyboy

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Not sure whether there is an obvious existing thread for this but the subject often permeates threads on HPI/HPC generally.

I checked my recollection of Japan's interest rates in the 80s and 90s. It seems you CAN have a low interest rate environment prevailing for many years leading to a massive property boom and have only low absolute increases in interest rates and cause a big crash.

Here are the official BoJ discount rates since 1970. Note that rates while Japans boom hit fever pitch were only 3% - 4.75%. The eventual ceiling hit was 6% but the crash had kicked in before then.

Any views?

An increase in interest rates is essential to create a crash as it destroys consumer confidence.

An increase DID cause the crash in Japan, despite what some say on this site.

However the corollary was not true, a reduction in IR did not stop the crash.

Interest rates are tangible, confidence is intangible, yet the two are vital to a crash.

No interest rate rise=no loss of confidence= no crash

No increase= no crash.

QED

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An increase in interest rates is essential to create a crash as it destroys consumer confidence.

An increase DID cause the crash in Japan, despite what some say on this site.

However the corollary was not true, a reduction in IR did not stop the crash.

Interest rates are tangible, confidence is intangible, yet the two are vital to a crash.

No interest rate rise=no loss of confidence= no crash

No increase= no crash.

QED

Hate to say it - but I second this.

We need a sentiment change - thats got to be the trigger imho.

TB

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Prices will crash because they are miles above where they should be on almost any measure. No need for massive changes in ir's.

I think we are already starting to see a crash with big falls in volumes and reports of BTL investors selling up.

Not long now. :)

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What I think will happen is that we will have a massive currency crisis which will cause an HPC. I for one and others with savings should really be looking at other currencies to invest in. Sterling and dollars look very shaky to me!

What currencies are worth investing in. I'm thinking of setting up an HSBC account in Euro's and Can$.

Could all western currencies suffer if the pound and the dollar lose their values?

If all western currencies fall, it doesn't affect us much -- it's better looked at as non-western currencies rising.

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If all western currencies fall, it doesn't affect us much -- it's better looked at as non-western currencies rising.

Or gold of course. :D I've made a few quid spread betting on in the last week or so, (thanks to posts by Dr Bubb et al). But this has made me think - the profits of the bet are paid in GBP, even though the contract is quoted in USD. Think this is called a 'quanto' in derivatives speak. You're exposed to the correlation of the gold/USD gold/GBP rates.

Therefore if gold goes to $1000 your profit measured in GBP would also have lost purchasing power, (unless the GBP holds it's strength while the USD goes down)

Maybe best to buy a gold contract denominated in GBP, thus hedging a devaluation of sterling directly? Whatever, you could still make a lot of money... but I'd rather make a lot of gold :D (some people love property - i'm starting to fall in love with GOLD :wub: )

Edited by no accountant

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One way or another house prices will return to trend whatever interest rates do. During the last correction (crash is a misnomer) IR's fell consistently all the time that house prices were falling.

If IR's rise it will act as an accellerant to the correction, but if they never rise above 4.5%, or even fall back to 3.5%, then house prices will still return to trend over the next few years.

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Or gold of course. :D I've made a few quid spread betting on in the last week or so, (thanks to posts by Dr Bubb et al). But this has made me think - the profits of the bet are paid in GBP, even though the contract is quoted in USD. Think this is called a 'quanto' in derivatives speak. You're exposed to the correlation of the gold/USD gold/GBP rates.

Therefore if gold goes to $1000 your profit measured in GBP would also have lost purchasing power, (unless the GBP holds it's strength while the USD goes down)

Maybe best to buy a gold contract denominated in GBP, thus hedging a devaluation of sterling directly? Whatever, you could still make a lot of money... but I'd rather make a lot of gold :D (some people love property - i'm starting to fall in love with GOLD :wub: )

the rest really depends on where you see sterling in relation to dollars in a few years time.

...what I'm betting on is sterling and dollar stay in their traditional range together,but weaken substantially against most other currencies.....especially euro and yen.

this scenario is good for sterling buyers of gold.

...and us can raise IR's and make this happen,if there is enough worry of future inflation or a bad trade defecit.

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Anyone know what will force IR's up?

I agree that if they went to 5.5% - only 1% from NOW it would mean MASSIVE correction to house pricing. I PRAY all the time - please go up, please go up. Signs are they may go down.

So forget HPC, what will be the flame that lights the tinderbox, for IR's to rise?

I wonder what banks will do when bad debts start to increase. I wonder what they will do to recoup some of their losses. I wonder if the people who are successfully servicing their debt on variable rate facilities will need to subsidise those that don't.

Hmmmmm....

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I wonder what banks will do when bad debts start to increase. I wonder what they will do to recoup some of their losses. I wonder if the people who are successfully servicing their debt on variable rate facilities will need to subsidise those that don't.

Hmmmmm....

Yes, I agree. Even if the base rates are low, the banks will factor in a risk premium to the rate that it offers people on loans, credit cards, etc. If people more people are defaulting on their loans and credit cards, then the bank will have to increase the interest rates it would offer the same loan to the same person, compared to the rate a year ago.

I think it will be the servicing of the (massive) debt that will screw the economy, even if interest rates are low. This will cause GDP to fall, then unemployment to rise, etc, etc --> the bust spiral ensuing. I believe this will cause the loss of confidence, as will forced sales (read reposessions).

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At the end of the day people cannot keep buying things... that debt is an enormous weight... I personally think an unknown will cause things to escalate suddenly... some terrorist strike, a war somewhere. It will be interesting to see China's reaction in the UN to US / EU demands to sanction Iran. Them simply saying "No!" could be the trigger that causes a crisis.

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Signs are they may go down.

So forget HPC, what will be the flame that lights the tinderbox, for IR's to rise?[/b]

Well four shops have closed in where I work (Fareham)

1. MVC (got some great bargains)

2. Unwins

3. Pine furniture shop (small local chain)

4. Fareham Sound and Vision (Privately owned one man band selling plasmas etc)

5. ?

6. ?

7. HPC

We just don't need interest rate rises. Unemployment/recession problems will suffice.

Huge debts + no income = .......

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  • 301 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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