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Prices Are Always Set At The Margin

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For those of us who may start despairing at the length of the current 'dead cat' bounce, here is an extract of a very good article published in The Guardian about 6 months ago, plus the emails I have exhanged with the author - goods things await those who wait

So what of the housing market? That house prices are overvalued is beyond dispute. But experts remain divided as to whether we are in for a long period of stagnation while average earnings catch up or whether outright falls in house prices are needed to get back to their long-term trend.

David Smith at the Sunday Times recently presented a very coherent argument as to why house prices were not going to fall: the economy is strong, employment high and interest rates still relatively low. People would rather stay put in their houses than reduce the price to sell them.

My feeling is that prices could fall, and soon, especially if the slowdown in consumption lasts and raises unemployment. House prices, too, are set at the margin, in the jargon. About 8% of the market changes hands each year. Some of those people will have to sell, for whatever reason, and they may not be too bothered about lowering their price if they can get a price cut on the property they might be moving to.

Where does this leave Mr Brown? His problem is that the public finances are deep in the red and running right at the limit of his own golden rule. If consumption weakens and the economy slows, VAT receipts, in particular, will be hit. He will have to raise taxes to keep the public finances within his own limits, even though the last thing a slowing economy needs is tax rises.

It's easy to boast of an economic record when house prices are rising, inflation is low and unemployment is falling. But if all that goes into reverse, Labour's third term could be distinctly uncomfortable. Mr Brown has regularly boasted that fiscal and monetary policy worked in harmony to keep the economy growing after the dotcom bust early in the new millennium. He now faces the prospect of them pulling in opposite directions, if the Bank has to cut interest rates because of a slowing economy while Mr Brown is busy putting taxes up to finance the ongoing spending on public services.

Dear Mr Seager,

Congratulations for your excellent article in today's Guardian - how refreshing to read a cogent and intellectually honest analysis of the mad UK housing market.

Like many others, I am firmly convinced that UK house prices are heading for a massive crash which, due to the staggering trillion pound plus personal debt and the disproportionate importance of the retail sector in the economy, will lead to a severe recession.

Watch out for bargain two-bedroom 'executive appartments' being offloaded by distressed developpers - Docklands, Leeds and Manchester should see some interesting price adjustments (!!!) later this year with year-on-year price inflation goes negative - not to mention the effect of the huge stock that is being built and due to be released in the coming months.

Anyway, well done for making people aware of what is coming. I would refer you to

www.housepricecrash.co.uk as a great source for future articles (hopefully you will have already received hundreds of messages quoting that link).

Enjoy the summer ....

Dear ........, thanks for your mail, with which I completely agree! I am aware of housepricecrash.com which is great. best regards, Ashley

Ashley Seager

Economics Correspondent,

The Guardian, 119, Farringdon Road, London EC1R 3ER

[Telephone numbers removed by moderator]

email: ashley.seager@guardian.co.uk

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For those of us who may start despairing at the length of the current 'dead cat' bounce, here is an extract of a very good article published in The Guardian about 6 months ago, plus the emails I have exhanged with the author - goods things await those who wait

So what of the housing market? That house prices are overvalued is beyond dispute. But experts remain divided as to whether we are in for a long period of stagnation while average earnings catch up or whether outright falls in house prices are needed to get back to their long-term trend.

David Smith at the Sunday Times recently presented a very coherent argument as to why house prices were not going to fall: the economy is strong, employment high and interest rates still relatively low. People would rather stay put in their houses than reduce the price to sell them.

My feeling is that prices could fall, and soon, especially if the slowdown in consumption lasts and raises unemployment. House prices, too, are set at the margin, in the jargon. About 8% of the market changes hands each year. Some of those people will have to sell, for whatever reason, and they may not be too bothered about lowering their price if they can get a price cut on the property they might be moving to.

Where does this leave Mr Brown? His problem is that the public finances are deep in the red and running right at the limit of his own golden rule. If consumption weakens and the economy slows, VAT receipts, in particular, will be hit. He will have to raise taxes to keep the public finances within his own limits, even though the last thing a slowing economy needs is tax rises.

It's easy to boast of an economic record when house prices are rising, inflation is low and unemployment is falling. But if all that goes into reverse, Labour's third term could be distinctly uncomfortable. Mr Brown has regularly boasted that fiscal and monetary policy worked in harmony to keep the economy growing after the dotcom bust early in the new millennium. He now faces the prospect of them pulling in opposite directions, if the Bank has to cut interest rates because of a slowing economy while Mr Brown is busy putting taxes up to finance the ongoing spending on public services.

Dear Mr Seager,

Congratulations for your excellent article in today's Guardian - how refreshing to read a cogent and intellectually honest analysis of the mad UK housing market.

Like many others, I am firmly convinced that UK house prices are heading for a massive crash which, due to the staggering trillion pound plus personal debt and the disproportionate importance of the retail sector in the economy, will lead to a severe recession.

Watch out for bargain two-bedroom 'executive appartments' being offloaded by distressed developpers - Docklands, Leeds and Manchester should see some interesting price adjustments (!!!) later this year with year-on-year price inflation goes negative - not to mention the effect of the huge stock that is being built and due to be released in the coming months.

Anyway, well done for making people aware of what is coming. I would refer you to

www.housepricecrash.co.uk as a great source for future articles (hopefully you will have already received hundreds of messages quoting that link).

Enjoy the summer ....

Dear ........, thanks for your mail, with which I completely agree! I am aware of housepricecrash.com which is great. best regards, Ashley

Ashley Seager

Economics Correspondent,

The Guardian, 119, Farringdon Road, London EC1R 3ER

[Telephone numbers removed by moderator]

email: ashley.seager@guardian.co.uk

I just bet the guardian reporter loves getting his/her email AND mobile plastered over this forum!!!! way to go!!!!

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David Smith at the Sunday Times recently presented a very coherent argument as to why house prices were not going to fall: the economy is strong, employment high and interest rates still relatively low. People would rather stay put in their houses than reduce the price to sell them.

The simple answer is, low interest rates, "the economy", and "employment" apply pretty well across the entire country. If there have been cities or regions where prices have fallen noticably, then this blows out of the water any argument that says that prices "are not going to fall", because all it takes is the sentiment that has driven prices down in one area to spread to others.

Billy Shears

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Enjoy the summer ....

Dear ........, thanks for your mail, with which I completely agree! I am aware of housepricecrash.com which is great. best regards, Ashley

Excellent!

More HPC inspired articles in the Grauniad then, cool!

frugalista

The simple answer is, low interest rates, "the economy", and "employment" apply pretty well across the entire country. If there have been cities or regions where prices have fallen noticably, then this blows out of the water any argument that says that prices "are not going to fall", because all it takes is the sentiment that has driven prices down in one area to spread to others.

Billy Shears

That is an excellent argument.

frugalista

That is an excellent argument.

In fact, it's better than that. The areas now "enjoying" high HPI are precisely those where the "economy" was most fragile, e.g. more economically remote parts of the North of England, Scotland, and Northern Ireland.

Have these areas recently had big increases in the number of jobs available? Is the economy of these areas only taking off now, whereas 2 or more years ago there was nothing going on economically?

The answer of course is no. These areas had their economic boom at the same time as the rest of the UK, i.e. 1997-2003. It is just that bullish property sentiment is only reaching them now.

frugalista

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Enjoy the summer ....

Dear ........, thanks for your mail, with which I completely agree! I am aware of housepricecrash.com which is great. best regards, Ashley

Ashley Seager

Economics Correspondent,

The Guardian, 119, Farringdon Road, London EC1R 3ER

[Telephone numbers removed by moderator]

email: ashley.seager@guardian.co.uk

The Guardian!? But according to posters on this site that is a pinko propaganda rag, dedicated to supporting the government and stuffed full of BTL owning, bone-idle journalists who just recycle Haliwide press releases.

Is there another paper of the same name?

(Seriously, well done. I think having a dialogue with some journalists and creating links with them will only do the HPC cause good).

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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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