Saturday, May 26, 2007

Notorious optimist turned cautious

End of house price boom is in sight

David Smith is hedging his bet "If I’m right that a housing slowdown is in the air, then what we will see in the coming months is a sharp slowdown in house-price inflation, in direct response to the interest-rate hikes we have seen, and in prospect"

Posted by confused76 @ 11:33 PM (811 views)
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12 thoughts on “Notorious optimist turned cautious

  • Wow! The end really must be nigh!

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  • Yep, the end is nigh… have a look at another article in the times. This is a real disaster for the country, one that can only be corrected (and will be correctied) by a giant debt write off

    Because we’re worth it

    “the real national debt is, in fact, 130% of GDP, not the 40% claimed by Gordon Brown. And Martin Weale of the NIESR also estimates that the boom amounts to a transfer of assets from the young to the old of £1.3 trillion since 1987. Weale writes: “Working through the chain, the capital gains of the house-owners are transfers from first-time buyers. The political appeal of this situation is easy to grasp. The burden of rising house prices falls on current and future first-time buyers.
    Understanding this is crucial, because it casts serious doubt on the common boomer habit of using their homes as their pension fund. If they simply held onto their houses and passed them on to their children, their cash value would be much less important. What would matter is they had passed on a place to live. But if they consume the value of the house in the form of a pension, then they deny their children both the cash value – hence the staggeringly high figure of £1.3 trillion – and the home, thus burdening them with the need to get on the housing ladder as quickly as possible. Boomers are therefore leaving their children in a society catastrophically in thrall to the idiot god of property values. No less than 21% of the average household’s income goes on mortgages; in 1996 it was 11%.”

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  • Noshbag Smith jumping on the cause as a “johnny-come-lately” is like a C-listed celebrity doing charity work through gritted teeth.

    They don’t like it but they’ve got no choice if they want to gain any credibility. In the article he says the complete opposite too “Does that mean a house-price crash? Not in my view.”.

    He smells his own bullshit though : “I’m often characterised as a cockeyed optimist”.

    No just an idiot, and not of the savant variety.

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  • Confuse76,

    So you start to see what all the ‘easy bankruptcy’ , IVA, and now (I understand) ‘debt relief’ orders too, are really all about?….and how , maybe, it could really be in all of ‘our interests’ if the inflation figures were fudged for a little while, just, perhaps, while the scale of the problem was reduced (by stealth obviously) a little?

    I have found that much of the anger ( & the sense of betrayal) is considerably soothed by realising just how much trouble we may, as a Nation, be in.

    While certainly not helping you to sleep more soundly, realising the true scale, scope, and potential significance of the contemporary situation, may make some of our gripes (just) a little easier to bare.

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  • “…Housing slowdowns of varying intensity have hit America, Spain and Ireland, which to some is evidence of global bubble about to burst.

    So what is happening to Britain’s housing market, and what is going to happen?

    London… [prices have risen]… 14.3%. But in the Midlands, the north and Wales, house-price inflation has slowed to between 4% and 6%.

    Does that mean a house-price crash? Not in my view.

    Housing-market bears usually argue that such is the overvaluation of housing, 50% on conventional (and I would argue irrelevant) measures like the house-price /earnings ratio, that prices have to fall. However, a new analysis by Lehman Brothers, which has reworked its model of the UK housing market, suggests a more modest overvaluation of 15%…”.


    “…The Bank, with its tougher language, is getting things back under control. House prices have always been most vulnerable when the authorities have lost control of monetary policy…”


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  • Someone posted this comment at the end of David Smith’s article

    “Congratulations David,
    You have made the first page on

    I guess free publicity for our blog…

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  • Whiteknight says:

    The largest problem of all actually is that there is so much lying , manipulation and exaggeration going on (of corporate figures, government figures, ‘independent’ figures etc.) that what will occur is a correction from the people basing their analysis on the fabricated data to having to base their analysis on the reality.

    David Smith is one who continues to declare for example “the global economy looks reasonably strong.” . No it doesn’t and isn’t . Its a horrible mess of people,enterprises and banks rolling around debts and hoping people won’t notice.

    The shift from the fabrication to the reality will be entirely digital (by this i mean a step function or a move from one to the other almost instantaneously).

    Rather like the evacuation from Saigon. “Don’t worry .. stay where you are .. its alright … no thats not the sound of my private escape helicopter firing up .. you must be mistaken.”

    Oh sure, it will be blamed on some trigger factor in retrospect. These things always are, either because what really happened was too complex to understand or because people don’t want to admit that they were far too foolish to figure out what they were being told was cobblers at the time.

    You know you have a problem when billboards are advertising commercial property to Pa & Ma and when the PM is trying to introduce draconian police measures only normally used in wartime. (oh .. whoops did i mention something that could be considered conspiracy theorist …. Or is that logical.. i forget which).

    Yep. Its the much predicted melt down of the middle class (by this forum in any case). The scratching and clawing will be something to behold. Never get in the way of a man who has thought he made it only to find out it was an illusion and he has a life of drudgery facing him. Much worse a woman in the same boat.

    Make sure you are well out of it.

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  • tony marshall says:

    My comment just added to the Times site – but I suspect like others I have submitted, will not pass the censors:-

    It’s too late, David – you have established your reputation as a “cockeyed optimist” and this reputation is well earned. On your blog, back in November 2006, I set out the three phases when I explained
    “The current surge in demand must leave a vacuum in its wake, as people find they have overstretched themselves and others become more cautious. That’s when the bubble will burst – when the default position changes from ‘pile in regardless’ to ‘don’t touch it with a barge-pole’. In the meantime we shall get the ‘wait and see’ stage, but the slow-down from this (unless ‘cured’ by another rate cut, which seems unlikely) will lead to a cooling in demand and some fall in prices, then we move into phase 3 and it’s down-hill all the way.”
    You pooh-poohed this view then, but I would suggest that we are just entering phase 2. Isn’t it time you just accepted the inevitable, rather than keep on saying it wont happen?

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  • sold 2 rent 1 says:

    As usual Smith doesn’t look more than 6-12 months ahead.

    He can only read business cycle indicators and does not understand secular cycles or k-waves.

    Most importantly he doesn’t recognise the debt bubble as a huge problem.

    As the bad news rolls in from now to 2010 he will keep downgrading his forecasts of HPC from 15% to 20%, 25%, 30% and beyond.

    He has the ability to maintain the brightness of that 100W bulb up his ass.

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  • I have submitted the following in “Have Your Say (but only if I like it)”:

    Your analysis of the housing market is a sober, rational reflection using the perspective of history. Does this not ignore two familiar forces that don’t operate rationally?

    One, the herd instinct. A 15% fall may not be much after recent gains but how will that sit with the “A Place in the Sun” and “Property Ladder” mentality that is so pervasive and so heavily promoted.

    Two, the over-exuberant bank lending. The unexpected surge in price after the pause in 2004/5 you mention can be explained by this factor alone.

    Inflation is the key. You wrote in April 8, 2007, “The Centre for Economics and Business Research says consumer-price inflation, now 2.8%, will be down to 1.9% by July. …that forecast looks quite secure.”.

    Is this still your view?

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  • David Smith says:

    With one or two exceptions, what a collection of ill-informed rubbish and half-truths. Let me try to put you right on a few things, though I fear many of you are beyond saving. Is the global economy strong? Of course it is, on many measure – this is the fourth successive year of 5% growth, which is getting on for the best since the Second World War. What is the level of household debt in the UK – about 100% of GDP. What is government debt? Under 40%, slightly more than 40% if you add in PFI. You can, of course, add in unfunded public sector pension liabilities, but those have existed under all governments, so why should we suddenly start counting them now.

    Tony Marshall came to my site with predictions of imminent doom a few months ago, He was wrong then, as he is wrong now, But I have been a little too pessimistic about house prices over the past year or so – they’ve been considerably stronger than I expected.

    I ignored the ABN-Amro report because it was just another re-run of the house price-earnings ratio argument. The Lehman research is much more sophisticated.

    In case anybody misunderstood it, as they appear to have done, I’m not predicting a 15% fall in house prices, just a slowdown in house-price inflation.

    As for the insults, just what I’d expect from sad little people, desperately clutching at long waves and other pseudo-scientific nonsense.

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  • I’ve been a Times reader for years, but unfortunately for a long time now, Smith has had no credibility with me. Main reason is that he is just a popularist economist, he tends to blow in the wind of opinion (I think it is VI, but more to sell papers than houses). I don’t think he has any real insight or knowledge/talent, he is saying the things now that have been obvious to a lot of people for 2-3 years, nothing clever about that is there?!

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