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Mervin King Predicts Crash..

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I think they've given up trying to buck the market - looks like MK and GB and going to be fall guys when it happens...

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Third, Mr King is nervous that homeowners may not realise that although low interest rates make mortgage repayments affordable, high inflation will not erode the value of their borrowing, as it did in the 1970s - and when they do catch on, house prices will plunge.

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Third, Mr King is nervous that homeowners may not realise that although low interest rates make mortgage repayments affordable, high inflation will not erode the value of their borrowing, as it did in the 1970s - and when they do catch on, house prices will plunge.

So, how long until they catch on? Perhaps it's happening now?

Those that bought a shoebox in 2003 or later with a partner (remember, you have to assume 2 incomes for an average FTB) are probably now thinking of kids, or perhaps even have one on the way. Traditionally this is trade-up time, and a point where people are willing to take on more of a mortgage. But, the mortgage they have was on a high multiple, it has not been reduced (IO?), their wages are the same and they've hardly built any equity in their current place. Not to mention that they're now 36.

What chance do they have of owning that dream home? What chance those buying for the first time today?

Credit tightening isn't required to reduce the amount of cash sustaining this bubble. In fact credit must be loosened further to have a hope of it being maintained.

T&T

Edited by ToilAndTrouble

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I think MKs mistake was to misunderstand at which point the realisation sinks in that the debt is not being eroded.

For most people it will be 10 yrs or more after they buy. 25 yrs is such a long time that most will assume their personal circumstances will improve (why??) to take care of the problem.

Same with pensions.

Most people are too thick to make truely rational choices. Of those that aren't too thick they've probably got a partner or family putting undue pressure on them to conform. It's a very small proportion of the public that will go against the herd.

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Mr King warned that the economy was too reliant on consumer spending, propped up by roaring house prices.
Hmm. Has he forgotten he said that? The MPC's toothless handling of interest rates would suggest so.

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Hmm. Has he forgotten he said that? The MPC's toothless handling of interest rates would suggest so.

That's what you're supposed to think. In reality the MPC are about as independent as a newly born kitten.

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Those that bought a shoebox in 2003 or later with a partner (remember, you have to assume 2 incomes for an average FTB) are probably now thinking of kids, or perhaps even have one on the way. Traditionally this is trade-up time, and a point where people are willing to take on more of a mortgage. But, the mortgage they have was on a high multiple, it has not been reduced (IO?), their wages are the same and they've hardly built any equity in their current place. Not to mention that they're now 36.

T&T

I think this is an crucial point. With the money lending process so much more efficient now than it was last time around, I actually don't think we will see the banks limit money supply, certainly not until we are well into crash territory. So with FTB's still able to buy that 100k starter flat, they will continue to do so (grudgingly). However, without wage inflation or continued prices rises, there is no way those people will ever be able to trade up as they will never have the 50k worth of equity to allow them to by the 200k house.

If the bottom rung is priced by affordability, then the next is a function of how much has been made from the flat whilst living in it for 3 years. Stagnation will propagate upwards.

How many people who own a 400k house could have afforded to pay that much for it without owning equity through the boom? If they couldn't, then without a rising market, no one else ever will (sans inflation).

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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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