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munimula

Unemployment Will Trigger The Crash

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A lot of people using this forum seem to think that the only way that a full scale crash is going to happen is if interest rates go up. There is a lot of focus on if and when rates might go up.

Well this might happen, but what is definitely happening is that unemployment is increasing - dramatically.

In the last crash interest rates were dramatically cut as house prices went down - did it stop house prices going down? No - because unemployment was going up at the same time. Does anyone see anything positive on the horizon for the UK economy that could halt the increase in unemployment?

All companies are swallowing massive increases in input prices - massive inflation but they are not passing this onto consumers. So how will they maintain profitability - that's right, they will cut their work force (See graph below)

producer_prices.gif

I predict that UK will be in recession in 2007 with a full scale crash that not even Halifax or Nationwide can deny starting towards the end of this year.

Boom and Bust is back - just look at these news items

http://news.bbc.co.uk/2/hi/business/4902294.stm

http://money.guardian.co.uk/businessnews/s...1752596,00.html

The claimant count is up in every month bar one since February last year and the rate of increase seems to be accelerating. The average monthly rise over the last six months was just under 10,000, the average of the past two 16,000.

Weakness in the labour market is hardly surprising. For unemployment to fall, growth needs to be in excess of 2% a year - and in 2005 it was 1.8%. What is more, the job-rich sectors of the economy in recent years - the high street, restaurants and hotels - felt the pinch from belt-tightening by consumers. As a result, employers are more cautious. Some are laying off staff; those still hiring are offering temporary contracts.

http://news.ft.com/cms/s/7f34fb5c-ca89-11d...00779e2340.html

http://www.telegraph.co.uk/money/main.jhtm...3/ixportal.html

The news is the latest sign that the labour market's long period of improvement has come to a decisive end.

It comes with job prospects in many sectors hanging by a thread. The National Health Service has announced some 6,000 cuts in recent months, and hospitals are expected to make further cuts in the coming year.

It looks like our time is coming, no more will be ridiculed for suggesting that house prices can crash.

Save hard and the future will be yours.

post-852-1144918340.gif

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It looks like our time is coming, no more will be ridiculed for suggesting that house prices can crash.

Yeah!! I'm sick of being ridiculed by TTRTR. :angry: :P

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The latest claimant count comes after February's rise of 14,600 - the biggest monthly increase since the end of 1992.

It means jobless claims have now risen for 13 of the last 14 months.

It's all there in black and white. Economies move in cycles, we've had the good times - now come the bad times. This all make the latest upswing in property prices (if there really is one) a traditional suckers rally but as more and more people feel less secure in their jobs there will be less people buying. Remember that most people don't have any savings for a rainy day - "savings - what's that?" - so it won't be long after losing their jobs that most people won't be able to pay for their super-sized mortgages, it could all happen quite quickly

No it won't. Interest rate rises will cash a crash.

Not if there aren't any interest rate rises which is a probability. Do you really think that GB, with desires to get to Number 10 is going to let interest rates go up and smash his miracle economy on his watch? Dream on.

And why won't unemployment cause the crash? It did last time.

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Great post.

IMHO it will be a combination of factors: higher unemployment, credit squeeze, public sector freeze as tax receipts faulter, higher inflation as £ weakens and economy faulters.. all the ingredients of a good old fashioned recession.

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Great post.

IMHO it will be a combination of factors: higher unemployment, credit squeeze, public sector freeze as tax receipts faulter, higher inflation as £ weakens and economy faulters.. all the ingredients of a good old fashioned recession.

Agreed, it will be a combination of factors all working together but as users of this site we spend a lot of time analysing data and a lot of time gets spent talking about interest rates and when they are going to go up.

This is all speculative guessing when all around us things are deteriorating - rapidly. GB helped keep unemployment down with his massive public sector hiring scheme which is now coming off the rails - look at the NHS jobs cuts, he can't afford all the public sector workers that he has taken on. And the other big generator of jobs - the retail sector as we all went on a spending party over the last 10+ years to fit out our homes is also shedding jobs by the thousands. This is a self fullfilling cycle - as people spend less then then retailers cut jobs so people spend even less. This is partly why economies deteriorate and it's hard to stop it once it's started. And it has started. 13 out of the last 14 months have seen unemployment increase.

Does anyone have an argument for why there might be a halt in unemployment going up now that the economy is moving into the downward swing of the cycle? I'd be interested to know.

It's payback time for those of us that stepped back and didn't buy overpriced houses with super-sized mortgages. I have not pity for anybody that suffers from the fall out.

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A lot of people using this forum seem to think that the only way that a full scale crash is going to happen is if interest rates go up. There is a lot of focus on if and when rates might go up.

Well this might happen, but what is definitely happening is that unemployment is increasing - dramatically.

In the last crash interest rates were dramatically cut as house prices went down - did it stop house prices going down? No - because unemployment was going up at the same time. Does anyone see anything positive on the horizon for the UK economy that could halt the increase in unemployment?

All companies are swallowing massive increases in input prices - massive inflation but they are not passing this onto consumers. So how will they maintain profitability - that's right, they will cut their work force (See graph below)

producer_prices.gif

I predict that UK will be in recession in 2007 with a full scale crash that not even Halifax or Nationwide can deny starting towards the end of this year.

Boom and Bust is back - just look at these news items

http://news.bbc.co.uk/2/hi/business/4902294.stm

http://money.guardian.co.uk/businessnews/s...1752596,00.html

http://news.ft.com/cms/s/7f34fb5c-ca89-11d...00779e2340.html

http://www.telegraph.co.uk/money/main.jhtm...3/ixportal.html

It looks like our time is coming, no more will be ridiculed for suggesting that house prices can crash.

Save hard and the future will be yours.

Thing about unemployment at the minute which is not being picked up is the fact that there is growing unemployment of the indeginous population in great part because the huge numbers of economic migrants who are filling lots of the available vacancys,willing to work for the minimum wage helping skid marks miracle economy and allowing the boe to play with massaged wage increase figures,hey im no racist but this is going to be(is) a serious problem what do the goverment want high unemployment figures or a low wage inflation figure to keep our "economy" on track........

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It's all there in black and white. Economies move in cycles, we've had the good times - now come the bad times. This all make the latest upswing in property prices (if there really is one) a traditional suckers rally but as more and more people feel less secure in their jobs there will be less people buying. Remember that most people don't have any savings for a rainy day - "savings - what's that?" - so it won't be long after losing their jobs that most people won't be able to pay for their super-sized mortgages, it could all happen quite quickly

Not if there aren't any interest rate rises which is a probability. Do you really think that GB, with desires to get to Number 10 is going to let interest rates go up and smash his miracle economy on his watch? Dream on.

And why won't unemployment cause the crash? It did last time.

A very good post and I think you're correct.

Lots of people get hung up on interest rates. My contrarian view is that rising rates = a strong economy and vice versa, so if the BOE do cut rates, it will strengthen my claim that we're in a recession NOW.

Let's focus on FACTS;

1. Unemployment is rising

2. Bankruptcies and insolvencies are rising

3. Consumer spending is falling

4. Household debt is rising DESPITE historically low interest rates and the conumer spending less

5. Business costs are rising by between 6-8%

You tell me if IRs really matter against this background

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I've noticed where I work that people who leave aren't being replaced all of the time, and being in retail, we have a fairly high turnover of staff.

Though saying that, when I told them I'd have to leave at the end of this month due to hubby working away for 5 months this year, they did do me a deal that fits around childcare and uni....

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A very good post and I think you're correct.

Lots of people get hung up on interest rates. My contrarian view is that rising rates = a strong economy and vice versa, so if the BOE do cut rates, it will strengthen my claim that we're in a recession NOW.

Let's focus on FACTS;

1. Unemployment is rising

2. Bankruptcies and insolvencies are rising

3. Consumer spending is falling

4. Household debt is rising DESPITE historically low interest rates and the conumer spending less

5. Business costs are rising by between 6-8%

You tell me if IRs really matter against this background

While I understand historical precedent with Japan, I feel that a rise in rates is necessary here. The difference in the UK is BTL, which has permitted the continuation of a bubble which should have burst years ago. As long as muppet investors, who think less than 5% is a good yield, have the means to continue buying then prices will not start to fall.

Whether the BTL model can continue is another debate, but to me until rates rise, equity rich investors will hold the market steady. I haven’t lost my uber bear credentials, all asset UK markets are in for a tumble soon due to the stupidly lax monetary supply of the last few years, but for property I cant call CRASH just yet.

Looking at the rates movements worldwide, the question for me is how long GB can go against the tide. While he’s no economist, he’s a very shrewd politician who, by his track record, doesn’t give a sh1t about the long term health of UK plc.

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While I understand historical precedent with Japan, I feel that a rise in rates is necessary here. The difference in the UK is BTL, which has permitted the continuation of a bubble which should have burst years ago. As long as muppet investors, who think less than 5% is a good yield, have the means to continue buying then prices will not start to fall.

I would think that most taking on BTL today are subsidising the investment and therefore I think that rising unemployment will also have a direct impact on the BTL sector. A lot of the amateur property investors have jobs too, these paying for their own homes and subsidising their BTL investments. Thefore the impacat of rising unemployment could be magnified. If somone with a BTL property that they are subsidising loses their job then they might lose their own property and the BTL property and I would imagine there are many in this position and many that have even more properties.

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I would think that most taking on BTL today are subsidising the investment and therefore I think that rising unemployment will also have a direct impact on the BTL sector. A lot of the amateur property investors have jobs too, these paying for their own homes and subsidising their BTL investments. Thefore the impacat of rising unemployment could be magnified. If somone with a BTL property that they are subsidising loses their job then they might lose their own property and the BTL property and I would imagine there are many in this position and many that have even more properties.

Good points raised. However, to play devils advocate, the employment figures, if they can be taken at face value, are coming from an historical low. Unemployment will have to rise dramatically for your scenario to happen. I'm not saying it wont, but that it will take so long that other factors - global rates, political considerations, oil prices, etc. , may well come into play before unemployment starts to affect the HPs. Whatever happens, it will take a long time for the correction to play out. All the factors mentioned, including unemployment, will have kicked in by then.

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Good points raised. However, to play devils advocate, the employment figures, if they can be taken at face value, are coming from an historical low. Unemployment will have to rise dramatically for your scenario to happen. I'm not saying it wont, but that it will take so long that other factors - global rates, political considerations, oil prices, etc. , may well come into play before unemployment starts to affect the HPs. Whatever happens, it will take a long time for the correction to play out. All the factors mentioned, including unemployment, will have kicked in by then.

It isn't just the unemployment happening - the threat of unemployment will have a big effect. As people start to feel less secure in their jobs and less secure about getting other employment it will stop them buying. Also, I don't think it matters where unemployment is coming from - it is the increase in numbers of people becoming unemployed as for each extra person becoming unemployed there is someone that can no longer pay for a mortgage, pay off debt etc. The increase also means less money to be spent in the economy and therefore companies do less well and will cut their work forces - unemployment could really take off as that cycle begins, we could be at the beginning stages of an exponential growth rate in unemployment.

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What about unemployment in the City ? Is it also increasing ? So far, the stock and credit markets have been booming, and the large bonus distributed have supported the London housing market (according to Halifax and Nationwide).

I've been contacted by a recruiter to told me about going to London. But if the market crashes, aren't they going to cut in workforce too (especially in late arrived and foreign employee) ? Is it safer to stay at home or it is still time to take an opportunity in the City where wages (but also housing costs) are higher than in Paris ?

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It isn't just the unemployment happening - the threat of unemployment will have a big effect. As people start to feel less secure in their jobs and less secure about getting other employment it will stop them buying. Also, I don't think it matters where unemployment is coming from - it is the increase in numbers of people becoming unemployed as for each extra person becoming unemployed there is someone that can no longer pay for a mortgage, pay off debt etc. The increase also means less money to be spent in the economy and therefore companies do less well and will cut their work forces - unemployment could really take off as that cycle begins, we could be at the beginning stages of an exponential growth rate in unemployment.

One question to ask. Where will the effects of rising unemployment be felt. Will it be uniform across society?

If so if you currently rent with a big deposit saved and you lose your job and cannot quickly replace it. What will happen to your benefit claim? Are savings taken into consideration? If so this could destroy anyones hope of buying once prices have fallen. Credit tightening will mean significantly higher rates than now if you have less than 10% deposit. I would also imagine lenders will be very wary of lending to anyone with less than 2 years stable employment.

Wishing for a recession might not be the panacea you hope it will be.

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What about unemployment in the City ? Is it also increasing ? So far, the stock and credit markets have been booming, and the large bonus distributed have supported the London housing market (according to Halifax and Nationwide).

I've been contacted by a recruiter to told me about going to London. But if the market crashes, aren't they going to cut in workforce too (especially in late arrived and foreign employee) ? Is it safer to stay at home or it is still time to take an opportunity in the City where wages (but also housing costs) are higher than in Paris ?

The city has done well recently, the FTSE has only really been doing well on the back of M&A activity and IMO is due a fall anytime soon.

The city is however going through a massive exercise of offshoring work, I know as I have friends working in ABN AMRO and it's the same in all the banks.

IMO the good times of the city, since mid 2003 when the stock market bottomed won't continue into 2007

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The city has done well recently, the FTSE has only really been doing well on the back of M&A activity and IMO is due a fall anytime soon.

The city is however going through a massive exercise of offshoring work, I know as I have friends working in ABN AMRO and it's the same in all the banks.

IMO the good times of the city, since mid 2003 when the stock market bottomed won't continue into 2007

So you would advise me to take my in chance in London more in 2010, after the housing crash, when the City will bounce up ?

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One question to ask. Where will the effects of rising unemployment be felt. Will it be uniform across society?

If so if you currently rent with a big deposit saved and you lose your job and cannot quickly replace it. What will happen to your benefit claim? Are savings taken into consideration? If so this could destroy anyones hope of buying once prices have fallen. Credit tightening will mean significantly higher rates than now if you have less than 10% deposit. I would also imagine lenders will be very wary of lending to anyone with less than 2 years stable employment.

Wishing for a recession might not be the panacea you hope it will be.

A 2%-5% deposit held now could quickly become a 10%+ deposit in a crash.

In 1998 I would have only needed £5K for a 10% deposit on a 3-bed in Bristol. Today I would need £18K.

Credit tightening won't necessarily mean higher rates, rates may be dropped but how much banks will lend and to who will be where the credit tightening takes place. The two things, creidt tightening and interest rates are not necessarily linked.

A recession is going to be the only thing to return things to normality. Is the current situation any better? See my signature below to see what high prices are doing to this country.

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Great post.

IMHO it will be a combination of factors: higher unemployment, credit squeeze, public sector freeze as tax receipts faulter, higher inflation as £ weakens and economy faulters.. all the ingredients of a good old fashioned recession.

Every time I think a recession is on the cards, the service sector has come to the rescue. Perhaps time has run out for the service sector now?

I happen to beleive the current price surge is temporary and be in reverse perhaps by this autumn.

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So you would advise me to take my in chance in London more in 2010, after the housing crash, when the City will bounce up ?

No, as far as I'm aware employment in the city is currently very good. I'm just saying that it might not always be that way, but right now is probably a good time to be in the city. I believe that the FTSE has ridden high on the back of merger and aquistion activity and when this falls away the fundamentals won't support the FTSE at the current levels. There is a lot of risk out there in the world and the markets have become very benign to risk - a very dangerous thing.

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If so if you currently rent with a big deposit saved and you lose your job and cannot quickly replace it. What will happen to your benefit claim? Are savings taken into consideration?

It used to be if you were made unemployed and you'd paid enough NI you got unemployment benefit for 12 months then went on to income support. I believe the payment period was shortened to 6 months a while back. Unemployment Benefit wasn't means tested, Income support was. If I remember right you could have up to £3,500 savings without affecting your benefit. Anything above that reduced income support on a tapering scale (think it might have been £1.00 per £250 of capital). If you had savings above a certain amount (it was either £8k or £16k) you got nothing. This was some time ago (circa 92) but I don't expect things have changed that much, especially given Gordo's propensity for means testing. Income Support might be called Jobseeker's Allowance now.

Edited by LTD

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A 2%-5% deposit held now could quickly become a 10%+ deposit in a crash.

In 1998 I would have only needed £5K for a 10% deposit on a 3-bed in Bristol. Today I would need £18K.

Credit tightening won't necessarily mean higher rates, rates may be dropped but how much banks will lend and to who will be where the credit tightening takes place. The two things, creidt tightening and interest rates are not necessarily linked.

A recession is going to be the only thing to return things to normality. Is the current situation any better? See my signature below to see what high prices are doing to this country.

Firstly, if you're unemployed and benefits are means tested what will you live on? Your deposit savings are likely to be eroded very quickly. You may have no deposit so no matter how low house prices fall how will you take advantage?

Secondly, credit tightening will mean a bigger mark up between base rate and the mortgage rate. This used to be at least 2% it's only reletively recently been slashed because of the competition. Banks will need to make profits on their loan books, if the volume isn't there the mark up will have to be increased.

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A 2%-5% deposit held now could quickly become a 10%+ deposit in a crash.

In 1998 I would have only needed £5K for a 10% deposit on a 3-bed in Bristol. Today I would need £18K.

Credit tightening won't necessarily mean higher rates, rates may be dropped but how much banks will lend and to who will be where the .

I agree. One of my collegue bought a 2/3 bedroom flat in Paris in 1998 for 1 MFRF with a 60% cash deposit. He borrowed only 400 KFRF (eg 40 k£). I asked him: why did not you borrow more (these days, you need to borrow 400 K € !!! not 400 K FRF to buy), you would have bought a bigger flat in a fancier area. He answered me: I had been several times unemployed the previous years (after 1992 crisis) and I did not want to borrow more; and the bank did not want to lend me more money. Banks had a lot of bad debts after 1992 housing crash, they were very carefull.

In 1998, you could get a fixed 15-year rate at 4.5 %

Rate were the same in 2003, but pricew were twice as big as 98.

So when I heard: "buy now to enjoy the low rate", I disagree

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  • 337 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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