Thursday, Aug 24, 2006

Soft Landing or Crash

Times Online: Slowing house prices will help crush inflation

Has the Fed engineered a soft landing or is this the start of something more severe for the housing market?

Posted by james @ 10:44 AM (590 views)
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1. waitingfor hpc said...

Hmmmm.... well lets see, if we had raised rates in line with the US every time, would we have a soft landing?

Thursday, August 24, 2006 11:20AM Report Comment

2. paul said...

This article is built on a very unsound premise, given away here:

"(most consumers) will avoid petrol-consuming trips to the malls and save a larger portion of their incomes"

The lag between the effects of alling house prices and consumer behaviour is well known. The idea that consumers won't go to the mall any more and will - what - go out set hunting traps or something??! is just ludicrous.

Thursday, August 24, 2006 11:40AM Report Comment

3. The Bald Man said...

What will effect consumer spending are debt levels which can not kept being re-mortgaged as house prices fall.

Thursday, August 24, 2006 12:54PM Report Comment

4. Surfgatinho said...

Didn't I read an article last week saying despite a slow down in the US they were predicting record levels of MEWing?

Thursday, August 24, 2006 01:14PM Report Comment

5. inbreda said...

Seems to me as though they are confusing inflation with growth.

If falling/level house prices are deflationary, then surely rising/rocketing house prices are inflationary, so why didn't they raise rates at the appropriate time? Seems like a slightly better attempt at VI spin trying to prevent any more rises for their own selfish gains.

Thursday, August 24, 2006 02:00PM Report Comment

6. Ontheotherhand said...

In fact rising unemployment and a slowing economy in a recession can cause inflation which fundamentally comes from there being too much money sloshing around the system. If there is less economic activity but the amount of money stays the same then there is too much money per unit of trading activity. Alas the amount of money in the UK is not staying the same, rather there is record money printing - M4 money supply growth is at 13.5%, the fastest in 15 years.

Thursday, August 24, 2006 02:39PM Report Comment

7. paul said...

I'm with the yank that said "there's no such thing as a soft landing".

Thursday, August 24, 2006 08:40PM Report Comment

8. indiablue19 said...

In re: an HPC.... I just don't think the USA situation has much import for the UK, unless there is a massive worldwide crash that engulfs everyone. From what I've been told by those living in the midst of the housing crash in the US, prices have fallen drastically in Florida, Arizona, and California, where they had soared for the reason that everyone suddenly thought they wanted to live in the sun. Houses were built like mad to accomodate this. Then people found out there are not only beaches and golf courses, but weird things like hurricanes, a water shortage in the desert and lousy water quality in Phoenix, plus forest fires and mud slides and crime on the West coast. There is apparently a serious glut of homes in several parts of the US now. Anyone notice any spare homes here? Please call me if you do!

From my own experience, there is practically no parallel between USA and UK economic thinking anyway. There are vast tracts of open land in the States for anybody who wants to run power and water to them. There are a ton of cities that can still attract suburban sprawl and get away with it. You can fit the UK into part of the State of Arizona but it's got one fifth of the US population. Now there's a challenge.

There is absolutely no relationship between what people in the USA can do without and the situation here. We walk everywhere here in the UK. Our friends and family in the States can't get anyplace without a car. It's not a choice on their part. Not only malls, but the grocery store, movie theatre, doctor's office, DIY, chemist and etc. are generally MILES away. Plus there is little provision for walkers, cycle riders. You could just get run down. There's little or no public transportation because places are so far apart and there aren't obvious routes to include a majority of the population.

Also in relation to fuel expenses...there are loads of homes and entire malls in the US that have air conditioning. I've never seen an air conditioned house, or store, in the UK. Too far North to care. There's also still a huge amount of manufacturing over there. More fuel. In relation to the size of any problem in the US it's just not that easy to turn an ocean liner. But maybe not all that tough, if memory serves, to sink one.

In five years of living in the UK, our family has learned to live smaller and with lots less selection. There are cultural compensations, so we don't care. In the US there are no such compensations for living small and frugal -- so cutting back would have a much different tone to it; much more of a feeling of being deprived for most people. There's a lot more "stuff" there, a lot of beautiful stuff too, and a lot more room to accumulate it. Plus Madison Avenue advertising is in constant overdrive. Here there's lots less to buy to begin with. For a long time, any shop we went too here looked nearly bare to us. We have also found that the quality of many things, including a good bit of housing, just isn't generally to a high standard, so not as enjoyable to spend money at all. [Sorry, not to offend, but it's fairly obvious if you compare.] Makes saving far easier and we have far less junk to polish and store in the long term.

In a worst-case scenario, the only parallel I see between the two countries is that if you plummet from on high with little to cushion the blow, you are very likely to suffer severe damage. And having spent a great deal of time in both places, I believe that, if the downturn is of reasonable duration, there is a great deal more cushiony excess of everything in the US to soften any fall. I believe that people in the UK will not only suffer from these events even in a short term; I think they will FEEL the suffering to an extreme the US will not.

Friday, August 25, 2006 12:24AM Report Comment

9. Retiredbanker said...

indiablue 19-

Interesting post, but I would dispute one or two points that you make. My younger brother ( a senior
consultant lecturer for a major US computer company ), worked in the States for more than 3 years,
lived near Princeton and married a girl from Pittsburgh.
He was most derogatory about the quality of housing in the US, often saying that if you tripped over
indoors you could well find yourself in the garden, the apparently brick walls being only cladding over
some flimsy wooden framework.My own observations from British TV programs would appear to confirm
that whilst American houses are pretentious in appearance and have lots of gizmos, they are very much
"thrown together". They do however have the merit of being very reasonably priced, at least by S.E. UK
London is one of the shopping centres of the World, and I doubt that anything available in States cannot
be bought here, albeit rather more expensively. Away from London however, you probably do have a point.

From what I have been reading on many websites, Americans are very concerned about the rapid decline
of their manufacturing industry, and the outsourcing of jobs to the Far East.

The American consumer is at the moment propping up a large segment of the global economy, by spending
borrowed money, and if the US economy takes a dive, this would have a major impact on other countries,
and could well result in a severe depression in the UK, including an HPC.

Friday, August 25, 2006 12:24PM Report Comment

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