Monday, Sep 18, 2006

Interesting article comparing the American and British perspectives on HPC

MSNBC: The Long View: Looking for signs of a hard landing over the white picket fence

Americans do not share Britons' obsessive interest in house prices. But this has not made the US immune to housing bubbles. How US homeowners react is now a key question for the global economy over the next two years. If, as many expect, the fall in house prices leads to what economists call a "wealth effect", and homeowners cut down their consumption in response to their reduced wealth, the US could be in for a "hard landing". This would mean reduced interest rates and a fall for the dollar, and have knock-on effects across the globe.

And that is why it is suddenly important to study how American homeowners' behaviour might differ from those in Britain.

Recent international experience suggests that a fall in house prices need not trigger a recession. Britain suffered a decline in house prices early last year, while Australia suffered the same fate some years earlier. In neither case has a housing downturn gone on to have a severe impact on the economy.

Posted by little professor @ 01:26 AM (626 views)
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10 Comments

1. autopilotengage said...

Interesting how the article says this:

"Britain suffered a decline in house prices early last year"

Wonder where they get their data from?

Monday, September 18, 2006 08:08AM Report Comment
 

2. autopilotengage said...

It's also fascinating (to me anyway!) the language used when discussing house price falls. When talking about anything but houses at the moment it seems, price falls are good for the consumer wheras price rises are bad, gas, oil, and energy being prime recent examples. However Britain "suffered" a "decline", notice how "decline" is a very negative word for decrease, and clearly everyone's suffering when they fall(???)
A collegue of mine made a very good point recently when talking about house prices; being a "homeowner" himself (another term which amuses me as most people nowadays who say they are a "homeowner" are in hoc up to their eyeballs with the bank, who of course hold the deeds to the house anyway). Anyway, he said "my dream is to wake up tomorrow and my house is worth a penny, because then i can buy one twice as good for 2 pennies."

Monday, September 18, 2006 08:31AM Report Comment
 

3. tyrellcorporation said...

Exactly the point economics editor Evan Davies made a while ago on the BBC. (I've just re-read the article and had to rub my eyes - it was written 2 years ago!!!).

http://news.bbc.co.uk/1/hi/business/3701070.stm

Monday, September 18, 2006 08:38AM Report Comment
 

4. inbreda said...

I love the way that if house prices rise, it's talked up and splashed across the front page of every newspaper.

When there's a price fall, you only get to hear about 18 months later when it is referred to as "that bit of a decline that is now well and truly over and it's only up from here and it goes to show that if you hold on to your property for long enough you are bound to be rich"

If you ask me, it is this media tactic that the VIs have manipulated that has kept the market afloat for so long.

I also think that it has delayed the inevitable. People might THINK that their property has gone up in value, but when they come to sell, there is no way of disguising the truth. Instead of looking at price data we should be looking at sales volumes and supply. These will be the key factors.

Besides, a property developer, who holds property for relatively short periods of time, is going to be the first to feel a fall in prices. Given how long it takes to buy a property, renovate it and put it back on the market, and the fact it might take more than a year to sell, means that the developers who bought at the peak will only just be starting to feel the real pain having had their laminate flooring boxes on the market for a year or so. Not that many will be panicing yet, it will be a little while before the snowball picks up speed, but it surely will.

Monday, September 18, 2006 09:20AM Report Comment
 

5. harold said...

Looking for signs of a hard landing over the white picket fence? Look no further:

http://usmarket.seekingalpha.com/article/16995

"Recent international experience suggests that a fall in house prices need not trigger a recession. Britain suffered a decline in house prices early last year, while Australia suffered the same fate some years earlier. In neither case has a housing downturn gone on to have a severe impact on the economy."

Bunkum.

Monday, September 18, 2006 10:07AM Report Comment
 

6. inbreda said...

Harold - I think they're referring to the falls in prices that were quite small and nobody got to hear about rather than the 30 to 50% falls that are likely to be seen shortly.

I think the journalist is jumping the gun a little. He makes out the worst is already over. We all know that the fun is barely started yet.

Monday, September 18, 2006 11:31AM Report Comment
 

7. harold said...

Inbreda, sure. The bunkum however, is the implicit message that the Oz and UK (and US) economies are supported by something other than consumer spending generated by rising house prices. The consumer spending spree of the above countries is rapidly coming to an end - particularly in the US and Australia and with it sever recession. Our time will come. But don't worry (according to MSNBC) it won't have a sever effect on the economy: "The argument against this doomsday scenario comes from the UK and from Australia... As Chris Watling of Longview Economics in London points out, equity extraction in both Australia and the UK bounced back after the initial shock of house price declines." Etc.

Monday, September 18, 2006 11:51AM Report Comment
 

8. Nick said...

Equity extraction, a lie, it's real name is debt

Monday, September 18, 2006 01:35PM Report Comment
 

9. nick said...

equity extraction is a lie, it's real name is debt

Monday, September 18, 2006 01:37PM Report Comment
 

10. Boarder said...

and debt is foregoing future income to purchase now.

Monday, September 18, 2006 02:38PM Report Comment
 

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