Thursday, Sep 28, 2006

Examining the link between house prices, debt and economic conditions

The Independent: Till debt us do part? Rate rises will test our ability to live with credit

A well written article that dispels the aura of pending economic doom. It is pragmatic and realistic - worth a read.

Posted by talking rot @ 10:02 AM (541 views)
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6 Comments

1. John_coller said...

Where are the two graphs referrenced in the article?
"You can see this in the top two graphs. Overall debt relative to income took off around 2001 but over the past couple of years the rate of increase of consumer debt has fallen sharply."

It was my understanding that the average debt was rising by approx 10% a year, and rather than just writing pages of unsupported dribble I'm going to quote the www.creditaction.org.uk website:
"Total secured lending on homes has exceeded 1 trillion (1,000 billion) and in July 2006 it stood at 1025.4bn. This has increased 11.2% in the last 12 months."
"Total consumer credit lending to individuals in July 2006 was 211.9bn. This has increased 7.2% in the last 12 months."

Thursday, September 28, 2006 12:03PM Report Comment
 

2. d'oh said...

Any article that uses the word "hope" in the context of financial institutions is "talking rot"; just look at the BBC Debt Diary for an indication as to how the banks will behave when things go sour. Interest rates may not hit the highs of the last crash, but they wouldn't need to, as the article itself states: people are more leveraged due to a sustained period of historically low rates. The article also presupposes that economic growth and employment will continue to rise, but we require a sustained increase in productivity to continue consumer spending growth and pay off the that which has been consumed on credit at the expense of reduced consumption in the future. I cannot see how a recession is not coming. Yes, it WILL be different this time, but then no two recessions have ever been the same. However, the basic underlying features are all there.

Whether it is due to a recession, currency revaluation, or the soft landing of a long period of wage "stability" in the face of hidden inflation, the standard of living in the UK must drop in the nearish future...or productivity must increase greatly. Now which seems most likely? As far as I can see we are in an economic corner and our goverment, both directly and indirectly by their kid gloves approach to the "debt industry" just keeps on painting.


Thursday, September 28, 2006 01:03PM Report Comment
 

3. inbreda said...

I agree - the article is terrible.

"...low interest rates: the housing boom. That was both the creation of low rates (because it reduced the burden of servicing the debt) but also the justification for further borrowing because rising prices made getting into debt a sensible financial decision."

So what he's saying is that getting into more debt than you could hope to pay off is fine... not just fine but a SENSIBLE FINANCIAL DECISION ...because prices went up. I can't wait to see his article next week on pyramid selling and why it's great.

What happens when the prices come down? He doesn't even consider it. Hardly surprising for someone who argues that rates aren't going to go dangerously high because we are in "a new era of low inflation". Yeah - rates won't go up - like - just because - innit

Well that's all the proof I need.

Thursday, September 28, 2006 02:58PM Report Comment
 

4. P. O. O. R said...

A very interesting article - something he mentions is "..A lot of people may simply be paying off credit cards by increasing their mortgages.." - Whilst out last weekend, a couple of my friends said they were doing just this, as they were now starting to struggle to meet the monthly bills. The problem was they were borrowing an additional 10 to 20 K more than required to assist repaying the additional on-going debt (On the basis that their salaries would increase over the next couple of years to cover for when their "spare" cash ran out) - Crazy.

Like me, they were both hit hard by the housing crash of the late 80's /90's, however they do not believe that the market will crash this time.

What happens when the additional money they borrow runs out, and the banks then refuse them more. At the moment I believe the crash is coming, however the longer it takes the further it will fall.

Friday, September 29, 2006 09:33AM Report Comment
 

5. talking rot said...

Well, I'll shut up then.

Friday, September 29, 2006 01:44PM Report Comment
 

6. indiablue19 said...

I think this was a constructive exercise, although the veterans have shot holes through the piece. There is so much of this stuff out there that can be quite convincing on first glance. To specifically dismantle the arguments may be constructive for some reading this site to get a "drift" of arguments that are being put up and why they just don't hold water. Worth having done, "talking rot," just because it is rot.

Friday, September 29, 2006 08:12PM Report Comment
 

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