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Why The H P C In America Is Going To Hit Us

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Home slump may batter Uncle Sam

Sam Fleming, City Focus, Daily Mail

1 September 2006

COULD the US housing market pull us into a global recession?
Half a decade after the dotcom crash, the American economy is once again on the edge of a precipice, and the effects can be felt from London to Beijing.
US homebuilding has suffered its biggest slump in a decade, and the glut of unsold houses has grown to record proportions. With home values poised to decline for the first time since the early 1990s, some experts warn that the Federal Reserve may have to slash interest rates again to prevent the economy from plunging into the mire.
The global significance of all this is hard to overstate.
Fuelled by ultra-low borrowing costs, the US property market has generated more than half the growth in the economy and as much as a third of the new jobs.
A slump would take a terrible toll on middle America's purses, throwing tens of thousands out of work.
Paul Ashworth of Capital Economics says: 'For a long time US consumers have been the spenders of last resort and the housing market has been the rock that this is based on.
'If you remove that support you remove an important source of growth in the global economy.
The risk is that if US house prices fall precipitously it could have a marked effect on us all.'

When the world's largest economy and our 2nd largest trading partner goes down it will not do so in isolation. It never has. :o

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Why trying to spin the economy doesn't work

By Laurie Osborne, Editor
Published 1st Sep 2006, (a Friday) at 09:00AM
We‘ve heard a lot about the US housing bubble this week. But what of our own, carefully nurtured, lovingly tended little house price bubble here in the UK, ask Moneyweek....../
There seems to be this idea that as long as we all pretend that everything’s OK, then everything actually will be OK. It’s as if there’s no real underlying economic picture at all - the actual amount of money in our bank accounts and debt on our credit cards doesn’t matter. As long as we close our eyes and believe we can afford to keep spending, we can.
So pushing the spin aside, what’s the underlying reality of the housing market? The market recovered last year because interest rates fell - but importantly, also because lending was relaxed. More money was made available, so people took advantage of it and dived into buy-to-let and got on the ladder by taking out interest-only mortgages with no way of paying back the capital.
Lenders are still finding ‘creative’ ways of slackening lending criteria. Kent Reliance building society’s concept of the ‘deathbed’ mortgage, whereby you pass your mortgage onto your children, is one innovation. Another is the gradual acceptance of the idea that borrowing over 30, or maybe even 40 years is perfectly reasonable.
And people still believe that house prices will keep rising. Why? Because they’ve been rising for about 10 years now. It’s exactly the same as in early 2000 - people thought stocks and shares would keep rising. They had done in the past - why change now?
The trouble is, people are now making very expensive investment decisions based on the notion that house prices will keep rising. In The Telegraph at the weekend, they spoke to one amateur buy-to-let couple who freely admitted that their first investment property - a two-bedroom flat in Bournemouth - would be costing them about £50 to £100 a month as the rent didn’t cover maintenance and mortgage costs.
“It‘s such a good investment,” they said.
This is like buying a share and paying the company an annual dividend to hold onto it, simply because you believe the capital growth will outweigh the costs in the long-term. Sounds ridiculous - but my colleague Cris Sholto Heaton reliably informs me that something very similar to this actually happened in Japan. When? Just before the stock market bubble burst in the early 1990s, of course.
Deathbed mortgages, “good investments” that cost you £100 a month to subsidise someone else’s living costs - property investors have lost their grip on reality. But with interest rates rising, unemployment rising and the world’s biggest economy heading for a massive slump, reality is about to bite back hard.
And all the spin in the world won’t make a bit of difference.

It's different this time? :o

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  • 302 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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