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Mervyn King "rules Out New Housing Boom"

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Interesting article...

Guardian article

Bank of England governor rules out new housing boom

Larry Elliott

Thursday May 11, 2006

The Guardian

Mervyn King, the governor of the Bank of England, yesterday ruled out the possibility of a new housing boom when he stressed that even after the slowdown two years ago, property valuations looked "remarkably high".

His warning came as the Bank's quarterly inflation report - its prime tool for analysing the state of the economy - suggested that households may be faced with slightly higher mortgage rates over the coming months if the government's 2% inflation target is to be met.

Mr King's comments in the summer of 2004 about the likelihood of lower property inflation were a factor in cooling the market, and yesterday he rejected the idea that the pick-up in activity and prices over the past nine months constituted the start of a new boom. "House prices are high relative to the measures that help to put them into context - average earnings and incomes. By some measures they are remarkably high," he said, adding that there had been some recent signs that the number of new mortgage approvals was slowing and that there had been a waning of interest among new buyers.

In its quarterly overview, the Bank said inflation would move above its 2% target over the coming months as higher energy prices fed into the cost of living. But on the assumption that interest rates move in line with expectations in the financial markets, Threadneedle Street believes inflation will ease back to 2% in two years time. The City is predicting a quarter-point increase in the Bank's repo rate by the end of the year.

Mr King said that market expectations should not be considered a forecast of what the Bank's monetary policy committee would decide to do. "No one knows where interest rates are going," he told a news conference after the report was published. "It's a mistake to try and get into this business of nods and winks of where interest rates may or may not go."

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Regardsless of this, I'm sure we'll get the London Evening Standard tonight telling us how property is booming and encouraging first time buyers to buy with their friends because renting is "dead money".

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Karhu - you've been looking at your Crystal ball again :lol:

hahaha. good point - 2005 I meant!

Even bears can make mistakes. Although, not very often in the current climate :P

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Mervyn is trying to talk the housing market "calmer"

The BOE have tried to talk the housing market down for some time. At the same time they have talking up the economy and keeping rates low enough for people to spend. At the same time they have been worrying about problems with debt (they have no answer). At the same time they have kept rates low to "help" manufacturing, retail and business in general.

They have been crossing their fingers, hoping that the debt situation would get better on its own. It is now too late as any significant rise in rates would put a too larger proportion into liquidation (bankrupcy)

They are all at sea and until external forces come to bear, rates will stay the same.

The most important single factor IMO will be the Japanese rate rise expected in 3 months? This will dictate how far and high rates will go and the size of the coming re-ajustment (property prices being one part of this)

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  • 301 Brexit, House prices and Summer 2020

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      • down 5% +
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