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The End Is Nigh - For Soaring House Prices

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Reading this cheered me up...

"You’d think it was the end of the world.

The outcry about rising interest rates was quite spectacular - at least, if you read the tidal wave of emailed press releases that engulfed the MoneyWeek offices following yesterday’s entirely predictable rate hike.

The Bank of England as good as said last month that interest rates would rise to 5.75% this month, but June’s 5-4 hold vote seemed to have given a few pundits the false hope that Governor Mervyn King would be outvoted again.

No chance…

Let’s just take a quick look at some of the economically sound, not even remotely self-interested statements that various lobby groups put out after the news that the base rate had gone up to 5.75%.

The National Association of Estate Agents was “disappointed that this action has taken place, as it believes the property market was already showing signs of levelling out.”

David Bexon, managing director of property website SmartNewHomes.com was less laid back. In fact, he reminded me of those “angry from Manchester” letters that they used to read out on that BBC reader-response program, “Points of View”.

Mr Bexon was “appalled by today’s decision to further increase interest rates. Has the Governor forgotten that the ordinary home-owning public is already stretched to capacity and will struggle to pay these escalating home loan payments?” He went on: “This latest rise could seriously damage the market as buyer confidence falls to an all-time low.”

The strangest objection came from Robert Bryant-Pearson, head of Allied Surveyors, who fretted that: “this upward spiral of rate rises must stop or 2007 will see more rate rises than has been experienced in any other year over the last decade.”

We’re confused - it’s not the scale, but the number of rate hikes that has Mr Bryant-Pearson worried. So would two half-point hikes have been better than four quarter-pointers?

Anyway, We’d just like to point out to Mr Bexon, Mr Bryant-Pearson, and all the other property pundits – it’s not just about you. There is more to an economy than house prices. If house prices were all that mattered, then we could just cut interest rates to zero and leave them there. In fact, we could give money away - which is pretty much what we‘ve been doing for the past six years or so. But that’s how you end up with an inflation problem - and if you want to know why that matters, read yesterday’s Money Morning, where my colleague Jody Clarke looked at why Ireland’s housing market is collapsing..."


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