Tuesday, Aug 22, 2006

At the top of a slippery slope...?

The Times: House prices fall as higher rates bite

The Bank of Englands decision to raise interest rates earlier this month is already having an impact on the housing market, according to the latest survey of asking prices.
Rightmove, the property website, reported that prices are down 1.6 per cent in August indicating that the mini boom in house prices could already be over.

Posted by onyerhike @ 08:26 AM (602 views)
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1. Lvmreader said...

Mr Conway,

RE: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/08/19/pword19.xml

I enjoyed your piece in the Telegraph "Word on the Street" on Sunday, 20th August 2006.

You may be completely correct - things are afoot. I know a lot of people in the Mr X position. Are you sure it's not 1,700,000? I know people who put far less deposits down and got larger mortgages than 700,000. Their AFTER-TAX mortgage payments alone are 240,000. Madness, sheer folly and lunacy.

They feel wealthy now, but just wait and see what happens even if interest rates don't rise sharply; The consumer has spent himself/herself to a standstill, but more frighteningly, this money did not go towards business investment in theUK or even education reinvestment - it was invested in the economies of other countries.

"Mortgage" - from the Latin - "Bound until death".

It is interesting to note why banks don't just buy all the property (being such a great investment) and rent it out to us peasants. After all, why would they want to share the spoils of such a good thing. Could they know something we don't - like it is far more lucrative to lend money to suckers, idiots, morons, small-time borrowers to "buy" those houses?

Same with the "Rich Dad, Poor Dad" author. Took a page right from PT Barnum - "there's one borrowing a mortgage every minute" (and by latest statistics, one going broke every minute too).

It is interesting to note that the people who benefitted most from the Spanish conquest of South America's gold weren't the Spanish - within a number of years (perhaps 2 generations) almost all that gold was in France and England - who actually DID something / provided some service/products that the Spanish overpaid for. Is the same true for our inflated house prices. Will people in China keep sending us finished goods, people in Africa keep sending us food because WE (and we alone) decide that our house prices are worth so much? The Japanese went this way not so long ago.

Compared to the real estate prices of the 1980s Bubble Economy, today's office rents are dirt cheap. Back then, a 100-dollar bill wouldn't buy the land it covered in downtown Tokyo, the Imperial Palace was worth more than California, and all of Tokyo could have bought all of the US. In theory, the Japanese could have bought the entire world by selling their archipelago. At the height of the bubble, Tokyo land prices reached $350,000 per square meter. Since that peak, prices have fallen by more than $5,000 billion, over 110 percent of Japan's GDP.
Source: Japan's Big Bang, by Declan Hayes (Tuttle Publishing)

The scary thing is, those Japanese MAKE things the rest of the world values and they export them too and continued to do so even during their 15 year slump.

BOOKS WORTH READING (you probably have these already and they are very basic introductions)



London in a Parallel Universe where countries actually perform valued services / produce goods from raw materials and sell them to people for other services/ products.

Tuesday, August 22, 2006 09:12AM Report Comment

2. Surfgatinho said...

Why all the articles stating the recent IR hike is responsible for lowering house prices. Most don't seem to mention the drop last year is the only thing that saved them at the time.

Tuesday, August 22, 2006 09:28AM Report Comment

3. denzil said...

What complete and utter nonsense! This is little more than the voice of the VI's to the MPC saying, "dear MPC house prices are under control so don't put rates up anymore".

Base rates went up just two and a half weeks ago. Does any sensible person believe that the .25 has already had an effect on asking prices in less than 20 days? Surely not. I'm not disputing prices are falling but this has just about nothing to do with .25 increase. In fact Rightmove say prices have dropped in August. The date in Somerset today is the 22nd August. How can people serious produce stats for the month of August when it is not 3/4 completed defies common sense and should be seen for exactly what it is i.e. VI spin.

Tuesday, August 22, 2006 09:32AM Report Comment

4. inbreda said...

It is such a desperate attempt by a VI to convince the BoE not to raise rates further. The BoE would have to be incredibly stupid to listen to this, and even I credit them with more intelligence.

Tuesday, August 22, 2006 11:12AM Report Comment

5. Inflation Is Eating My Savings said...

Forgive my impudence as a new contributor to the site.
The MPC acts as the MPC sees fit and has access to far more real information than we will ever do (what their agenda is and where their agenda comes from is a different story- they presumably must balance everything to prevent financial chaos whilst keeping a few grouse hunters happy).

I think a big burst is far worse for the VIs than a gentle return to sanity, and negative stories such as this are sometimes necessary for their long term interests. If people carried on insanely buying, it would be bad for the VIs. Remember how many banks collapsed in the US in 1930-33. With interest rates on the rise, this makes a lot of sense from their perspective. The target is the public, not the MPC.

Tuesday, August 22, 2006 11:57AM Report Comment

6. Tinecu said...

The RM index was out too early for it to truly register any real effect of the IR hike.
My take on this is that prices were already falling and IRs are an easier scapegoat than contrition i.e. admitting that 'Flying off the shelves' type nonsense was in nobody's interest but that of RM shortly before their floatation.

Tuesday, August 22, 2006 02:18PM Report Comment

7. Joel said...

1 interest rate hike of .25% down a while back saves prices and now 1, yes 1, up and the sky is falling. Obviously an exagerration, or a fragile house of cards. If the market is that fragile, who cares about interest rates,the smallest thing could start the snowball.

Tuesday, August 22, 2006 05:01PM Report Comment

8. Sam said...

I think what a lot of economist forget to mention it that while there is an immediate effect in confidence when the MPC changes the interest rate, the overall effect on the economy (goods, services, manufacturing, cost of living etc) of that change only really registers in about 12-24 months. The figures they use consider year on year trends so that can get a better picture of where UK plc is going, therefore potential anomalies in recent data are in theory ironed out and not used to dictate mid to long term economic policy. Thats why they really wont bother with what VIs are saying.

What will be interesting is when inflation goes over targets set by Mr Brown, Mr King has to write him a letter explaining why. I hope Mr King has a sense of humor and makes lots of references to Mr Browns Neighbors who are the best example of why some BTLers have got whats coming to them.

Wednesday, August 23, 2006 12:15PM Report Comment

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