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fru-gal

House prices 'will hit 15 TIMES the average income', leading economists warn

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Jayzus wept!  I don't even begin to know where to begin to take apart the lunacy and naivete of this twits assertions. Then again, why bother?

Edited by anonguest

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So their model assumes that house prices will grow to 15 times wages due a lack of transformative commuting technology or infrastructure projects, but why is there no feedback mechanism built into the model that accounts for the impact of house prices on the economy itself? If the house-price to income ratio did expand to this kind of absurd level then aggregate demand would shrink as housing gobbled up wages, and those commuter jobs would start to become unsustainable as firms consolidated. The failure to include house prices as a dynamic in the model makes the whole exercise a headline-grabbing intellectual flop. I'd expect nothing less from a pea-brained former member of the BoE's MPC, but there you go.    

Edited by Darby Ram
extra vitriol

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31 minutes ago, Darby Ram said:

So their model assumes that house prices will grow to 15 times wages due a lack of transformative commuting technology or infrastructure projects, but why is there no feedback mechanism built into the model that accounts for the impact of house prices on the economy itself? If the house-price to income ratio did expand to this kind of absurd level then aggregate demand would shrink as housing gobbled up wages, and those commuter jobs would start to become unsustainable as firms consolidated. The failure to include house prices as a dynamic in the model makes the whole exercise a headline-grabbing intellectual flop. I'd expect nothing less from a pea-brained former member of the BoE's MPC, but there you go.    

Good post, fully seconded

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I currently live in Seattle where the locals are scared that a new property bubble is in the making. It makes me laugh because most newly created jobs here are paying 6 figures. There are many world famous companies headquartered here, so the prices are anchored to reality. I visited England recently for the first time in 4 years. I didn't anticipate such a melancholic atmosphere, what with all the new cars, abundance of jobs and expensive houses prices. Coffee shops have flourished but that's about it. Friends and family appeared to be struggling to make ends meet. Perhaps they are struggling because they work in the private sector? For the first time ever England felt cheap compared with Seattle. Dirt cheap. The pound has been destroyed; it's virtually halved in value in the 10 years since I've been gone. I don't see an economy that can possible sustain such high house prices. I see an economy on the verge of recession. I'm not convinced about foreign house buyers snapping up English property either. Many foreign investors have been burned from the currency collapse.

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19 minutes ago, Xurbia said:

I'm not convinced about foreign house buyers snapping up English property either. Many foreign investors have been burned from the currency collapse.

Yep, its all hype, the markets run out of steam. All next steps are hypothetical until the exit is confirmed, but normally in times of uncertainty, the economic output drops... In normal circumstances the central bank would cut the base rate of borrowing to stimulate the economy, but the consumer market is overleveraged. Its not rosy as the media have portrayed.

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35 minutes ago, Xurbia said:

I don't see an economy that can possible sustain such high house prices.

The UK economy was in pretty rough shape in 1997. Since then it has basically further weakened by this credit-fuelled house price bubble and the attempt to live with it (rather than see it burst and take our lumps). I think the foreign money has been fairly significant in London since the financial crisis, but that is a tide of speculative money that will go out just as fast as it came in, sooner or later.

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5 hours ago, fru-gal said:

I hate this kind of thing.

Here's how the article described the 'source'

Quote

David Miles, a former member of the Bank of England's Monetary Policy Committee and now a professor at London's Imperial College, and colleague James Sefton argue in an influential report that house prices could continue to defy gravity. 

(Emphasis added)

Here's your supposedly 'influential report' (the only place I could find it was on David Miles's staff webpage on the Imperial College website. It's a discussion paper published by the CEPR

Goodness knows what the CEPR really is but here's who pays its bills:

Quote
  • APG
  • Axa
  • Citigroup
  • Columbia Threadneedle Investments
  • Commonwealth Opportunity Capital
  • Department for International Trade
  • European Investment Bank
  • European Stability Mechanism
  • Goldman Sachs
  • Grupo Santander
  • HM Treasury
  • ING
  • Intesa San Paolo
  • JP Morgan
  • La Caixa
  • Moore Europe Capital Management
  • Morgan Stanley
  • Norges Bank Investment Management
  • Prudential
  • Rothschild
  • Sparebank 1
  • UBS
  • UniCredit
  • Wadhwani Asset Management
  • Wellington

Source

Fans of David Miles will remember that he wrote the Miles Report for Gordon Brown on reforming the mortgage market (the point of the Miles Report, as per erstwhile fellow MPC member Kate Barker, was to see if you  could wean UK households of variable rate mortgages so that we could join the Euro). Hence you'd think that maybe this discussion paper for the CEPR, sponsored by all these banks, has a role for mortgage credit in its model.

In reality, not so much.

Quote

5.2 Caveats and Limitations:
There are two important aspects of housing markets that play no role in our stylized model:
the availability of mortgage credit to facilitate house purchase and the impact of planning
(or zoning) restrictions on housing supply.

Looks to me like a completely daft piece of modelling which will predict house prices up to 2110 (they rise gently according to David's model, obvs) which is somehow the basis for the claim that is the headline in the article.

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14 minutes ago, Bland Unsight said:

I hate this kind of thing.

Here's how the article described the 'source'

(Emphasis added)

Here's your supposedly 'influential report' (the only place I could find it was on David Miles's staff webpage on the Imperial College website. It's a discussion paper published by the CEPR

Goodness knows what the CEPR really is but here's who pays its bills:

Source

Fans of David Miles will remember that he wrote the Miles Report for Gordon Brown on reforming the mortgage market (the point of the Miles Report, as per erstwhile fellow MPC member Kate Barker, was to see if you  could wean UK households of variable rate mortgages so that we could join the Euro). Hence you'd think that maybe this discussion paper for the CEPR, sponsored by all these banks, has a role for mortgage credit in its model.

In reality, not so much.

Looks to me like a completely daft piece of modelling which will predict house prices up to 2110 (they rise gently according to David's model, obvs) which is somehow the basis for the claim that is the headline in the article.

David Miles has also spoken out against "attacks on landlords", the poor dears. There was a whole thread about it back in July;

 

Edited by fru-gal

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2 hours ago, Bland Unsight said:

.2 Caveats and Limitations:
There are two important aspects of housing markets that play no role in our stylized model:
the availability of mortgage credit to facilitate house purchase and the impact of planning
(or zoning) restrictions on housing supply.

So this "influential" economic model doesn't take into account possibly the most important driver of demand - availability of finance?  That's akin to saying "if we give loads of people loads of cash the price of desirable stuff will go up" - true, but not particularly instructive.......

 

Edited by Exiled Canadian

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Really? I wouldn't put money on it, and neither would any bank manager in their right mind.

A whole generation of property owners are getting ready to leave this mortal coil. There will be literally hundreds of thousands of empty properties just waiting for the right owner. And the prospective owners? Poor Gen X'ers or even poorer Millenials.

So unless inflation hits Zimbabwe levels, I won't lose sleep.

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6 hours ago, Bland Unsight said:

I hate this kind of thing.

Here's how the article described the 'source'

(Emphasis added)

Here's your supposedly 'influential report' (the only place I could find it was on David Miles's staff webpage on the Imperial College website. It's a discussion paper published by the CEPR

Goodness knows what the CEPR really is but here's who pays its bills:

Source

Fans of David Miles will remember that he wrote the Miles Report for Gordon Brown on reforming the mortgage market (the point of the Miles Report, as per erstwhile fellow MPC member Kate Barker, was to see if you  could wean UK households of variable rate mortgages so that we could join the Euro). Hence you'd think that maybe this discussion paper for the CEPR, sponsored by all these banks, has a role for mortgage credit in its model.

In reality, not so much.

Looks to me like a completely daft piece of modelling which will predict house prices up to 2110 (they rise gently according to David's model, obvs) which is somehow the basis for the claim that is the headline in the article.

Excellent work. But that should be the journalists job.

Also

"Miles"

Quite melancholic and fitting when you think what his advice has done to "Children"

 

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Its very a sophisticated model and you plebs will not understand it.

It takes into account that loads of robots will need to live somewhere. I guess the likes of Bender and Robbie the Robot will want to live in West London away from the hoipolloi.

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Looks like I will have to alter my investments and up my Bitcoin investment from 2.7 Bitcoins(6% of my investments) to 6 + Bitcoins in order to buy a house one day:)

Because the days of house prices being in anyway related to wages, even good wages has long gone.

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13 hours ago, Exiled Canadian said:

So this "influential" economic model doesn't take into account possibly the most important driver of demand - availability of finance?  That's akin to saying "if we give loads of people loads of cash the price of desirable stuff will go up" - true, but not particularly instructive.......

I know I've posted about it before, but it always amuses me so people will have to forgive me if I post about it again for the benefit of lurkers and new members who I might not yet have had the opportunity to bore; Miles has form with this kind of pointless modelling idiocy.

The 2004 Miles report (link) is comedy gold regarding the problems of modelling. Compare these two sections:

Quote

A great many households – particularly amongst first-time buyers – attach overwhelming weight to the initial monthly repayment on mortgages. They focus much less on where the burden of debt repayments might be some way ahead, even though mortgage debt is long-lived. And where debt is at variable rates there is great uncertainty about how affordability will evolve.

(In a following paragraph Miles highlights that these "initial" payments are often on discounted introductory rates which are "cross-subsidised" by other borrowers on the SVR)

Then on the model for "optimal mortgage choice"

Quote

It is assumed that households make decisions by taking into account the levels of consumption they might expect to afford over their whole life cycle. They make estimates of future incomes and take into account the uncertainty both about those incomes and about future interest rates. House prices are also volatile and uncertain. Borrowers are aware of the degree of volatility in all these factors. Households do not know what the future will be like – it is intrinsically uncertain – but they are aware of the type and degree of that uncertainty, and of how uncertainties about inflation, interest rates, house values and future incomes interact with one another.

Once you're a shade over ten pages in Miles and his team have been totally upfront about the fact that they are going to model on the basis of something which they know is simply untrue, where in fact pretty much the opposite is true.

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  • 293 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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