Has Mervin Just Swerved The Market?

[smiley]

Seen Mervin King saying he thinks house prices are overvalued? Last time he commented on this, in June 2004, he spooked the market, and prices suddenly stopped rising. Might he just have precipitated the Big Crash?

[simon99]

Nope, Merv has said this before, people would rather listen to people on the telly.

Edited May 10, 2006 by simon99

[Disillusioned ftb]

I guess we'll find out sooner or later

It's not as if there is anything a FTB in the same position as me can do about it.

Keep our fingers crossed shall we !!!

[Guest]

Trying to talk the market down so he doesn't have to raise rates.

BUY HOUSES PEOPLE BUY BUY BUY!!!!!

[GAL BEAR]

Seen Mervin King saying he thinks house prices are overvalued? Last time he commented on this, in June 2004, he spooked the market, and prices suddenly stopped rising. Might he just have precipitated the Big Crash?

SMILEY - This is very interesting - where did you hear this ?

Your'e right last time Merv said this it was reported on the radio all day. (it was on a Sunday from what I recall). I remember clearly cos Mr. Gal Bear and I were thinking quite seriously about buying somewhere and my sister phoned me up and told me not to cos what he had said. Interestingly the house we were thinking of buying stayed on the market for over 9 months, eventually dropping about 20 grand!

And yes it really did affect the market.

Do give us more info on this.

[Tonester]

There had also been 4 interest rate increases by that point.

2004 Aug 5 up 4.75%

Jun 10 up 4.50%

May 6 up 4.25%

Feb 5 up 4.00%

2003 Nov 6 up 3.75%

Jul 10 dn 3.50%

[smiley]

Here are the comments:

From the Telegraph today -

King sounds warning over economy

(Filed: 10/05/2006)

House prices are overvalued and consumer bankruptcies risk becoming a large social problem, the Bank of England Governor Mervyn King has warned.

Speaking at the launch of the Bank's May Inflation Report Mr King said: "The level of house prices still seems remarkably high relative to those measures that put it into context."

Recent gains in house prices had been more than the Monetary Policy Committee, which sets interest rates, had expected but Mr King warned this may not carry on as house prices are still high compared with average earnings.

Mr King also warned a potentially large social problem of consumer bankruptcies may be materialising.

He said: "The proportion of unsecured debtors reporting their debt as a serious problem has gone up, the number of calls to the National Debt Helpline has risen quite sharply, so I think the signs are that a potentially large social problem, with many households getting into difficulty with their debts, is materialising."

Last week, official figures showed that the number of people declaring themselves insolvent was at its highest since records began - at 23,351 in the three months to March.

However, Mr King added: "The rate of increase in unsecured borrowing has fallen very markedly in the last year. The position on secured debt looks relatively benign."

Credit-card debt fell by £579m during March, showing that cardholders are cutting back on their spending, according to figures from the British Bankers' Association last week.

The country's current account deficit at around 4pc of GDP would need to be addressed, according to Mr King, but he was unsure over what time-frame this would need to be tackled.

He said: "We keep running current account deficits which means that we're spending as a country more than we're producing. And there is a limit in the long run to that."

[simon99]

I tend to agree that this is just an attempt to scare people from paying too much for their homes. The BoE have said before they'd keep raising rates if people keep spending, they have yet to follow this up with action now house prices are at an all time high. I have little faith they will follow up their words in future. Empty threats.

Edited May 11, 2006 by simon99

[GAL BEAR]

Here are the comments:

From the Telegraph today -

King sounds warning over economy

(Filed: 10/05/2006)

House prices are overvalued and consumer bankruptcies risk becoming a large social problem, the Bank of England Governor Mervyn King has warned.

Speaking at the launch of the Bank's May Inflation Report Mr King said: "The level of house prices still seems remarkably high relative to those measures that put it into context."

Recent gains in house prices had been more than the Monetary Policy Committee, which sets interest rates, had expected but Mr King warned this may not carry on as house prices are still high compared with average earnings.

Mr King also warned a potentially large social problem of consumer bankruptcies may be materialising.

He said: "The proportion of unsecured debtors reporting their debt as a serious problem has gone up, the number of calls to the National Debt Helpline has risen quite sharply, so I think the signs are that a potentially large social problem, with many households getting into difficulty with their debts, is materialising."

Last week, official figures showed that the number of people declaring themselves insolvent was at its highest since records began - at 23,351 in the three months to March.

However, Mr King added: "The rate of increase in unsecured borrowing has fallen very markedly in the last year. The position on secured debt looks relatively benign."

Credit-card debt fell by £579m during March, showing that cardholders are cutting back on their spending, according to figures from the British Bankers' Association last week.

The country's current account deficit at around 4pc of GDP would need to be addressed, according to Mr King, but he was unsure over what time-frame this would need to be tackled.

He said: "We keep running current account deficits which means that we're spending as a country more than we're producing. And there is a limit in the long run to that."

Thanks Smiley - Excellent !

[AFineMess]

I tend to agree that this is just an attempt to scare people into paying too much for their homes. The BoE have said before they'd keep raising rates if people keep spending, they have yet to follow this up with action now house prices are at an all time high. I have little faith they will follow up their words in future. Empty threats.

They are probably trying to influence the market without having to actually raise rates. They only have the one lever, and there are conflicting economic problems to deal with. At least they'll be able to say "told you so" if it all goes pear shaped...

[CrashConnoisseur]

'King sounds warning over economy':

http://www.telegraph.co.uk/money/main.jhtm.../10/uking10.xml

[Casual Observer]

Nope, Merv has said this before, people would rather listen to people on the telly.

You can only use this tactic once. It proved to be untrue then so no-one will believe him this time.

[padders]

He is worried about the amount of debt people have leading to bankruptcies and overvalued house prices. He is also one of the few people in the country that can do anything about it. Um ... act?

[Freelance Mycophagist]

I was at an investment seminar in London today. I spoke to a guy from JP Morgan who had attended a talk by a (recently) ex-MPC member who stated that Merv is DEAD against a rate cut and makes this abundently clear to the rest of the committe. I asked whether it was Andrew Large, but he would not be drawn!

[bubbleturbo]

I think this is "softly softly".

Today has quashed any hopes of a rate cut, which most of the press have been ramping for months and months, since August.

Mervyn has made several careful statements over the time, most of which are very bearish in tone.

In a couple of months, we may see the inflation reports start to sounds more and more Hawkish. If they had said today, "that is it, world rates are going up, expect rates to be nearly 5.5 to 6% in 12 months time, all hell would have broken loose.

Today the MPC have formally stated rates are going to rise.

[the end is a bit nigher]

He is worried about the amount of debt people have leading to bankruptcies and overvalued house prices. He is also one of the few people in the country that can do anything about it. Um ... act?

you want him to do what??????

think u r dead right - he knows that we are in a massive bubble and it's going to get worse, however, as long as the 'official' rate of inflation is within target, there isn't a fat lot he can do except try and influence the market through his speeches

[HousePriceLottery]

Nope, Merv has said this before, people would rather listen to people on the telly.

Like Krusty, Fill and their inter-pedant experts for example!

Mervy boy is trying to talk the market down from the latest window ledge of the building it's trying to jump off. He did it before back in the day, the fact he's doing it now again speaks volumes.

This is a direct reaction to the lastest press stories about a "resurgent market".

They are playing a manipulation game and you have to be a moron not to see it. Market heads up they talk it down. Market heads down they talk it up. Market goes too far one direction they cut or raise rates to influence it.

That's the game, get used to it, it's going to be going on for a while.

[Pablo-silver or lead?]

Merv is just ensuring that when rates go up as they will and property price crash as a result. No one can say he hasn't consistently warned people about over extending their exposure to debt to buy an asset the value of which is just a matter of opinion. Debt is real____!

Pablo Silver of Lead?

[frugalstar]

I think I heard on the radio that this story is the leader for the MAIL, but I can't find anything?

[FTBagain]

Many people here seem to think Merv would not act! Actually I think he would and strongly. Why else would the government, via the ONS, manipulate the CPI figures!

If the high asset prices start to feed through into higher wages or prices rise generally, making swaping in cheeper alternatives impossible, the CPI will start to rise, then Merv will put rates up.

I think the government is sowing the seeds of its own down fall. When inflation becomes general, it could rise strongly, driving rates up way beyond where they would otherwise have gone.

It could yet be the mother of all Busts.

Edited May 11, 2006 by FTBagain

[smiley]

The cost of housing is certainly a real factor in our office - we've just done our annual pay round, and everybody's been complaining that house prices make our wahes feeble.

Has Mervyn said, ever, whether he thinks the BoE has a role in control asset-price inflation?

[Guest]

Alan Greenspan once said that he wouldn't use IRs to control asset price inflation, he'd rather just let bubbles pop of their own accord.

It's a shame Alan Greenspan isn't setting the UK interest rates, otherwise we would have already seen Sarah Beeny and Kirsty Allsop showing a bit on knicker leg on street corners.

[ellenmyfanwy]

Seen Mervin King saying he thinks house prices are overvalued? Last time he commented on this, in June 2004, he spooked the market, and prices suddenly stopped rising. Might he just have precipitated the Big Crash?

radio 4 today programme reported on this...also that merv was concerned at high level of personal debt in uk. not sure what time..i think between 8.30 and "thought for the day".

pretty amazing huh?

[Guest mattsta1964]

Many people here seem to think Merv would not act! Actually I think he would and strongly. Why else would the government, via the ONS, manipulate the CPI figures!

If the high asset prices start to feed through into higher wages or prices rise generally, making swaping in cheeper alternatives impossible, the CPI will start to rise, then Merv will put rates up.

I think the government is sowing the seeds of its own down fall. When inflation becomes general, it could rise strongly, driving rates up way beyond where they would otherwise have gone.

It could yet be the mother of all Busts.

Listening to Radio 4 this morning, halfway through 8am News, the Mervsta issued a veiled threat about the state of the housing market saying, "People shouldn't expect house prices to rise indefinitely."

I certainly ain't expecting anything drastic to happen this summer, but the Mervsta has deffo been getting more vocal about the perilous level of borrowing lately.

Maybe this is a subtle warning that interest rates will have to rise later in the year. The state of the dollar is looking ever more dodgy and the Federal Reserve will have to raise IRs in the US soon to prop up the dollar.

I wouldn't expect a crash in the housing market yet though. Things will have to get much worse before that happens.