Wednesday, December 12, 2007

Property market: Word on the street

If you think things are bad now - just wait

Edmund Conway is Economics Editor of the Daily Telegraph At last, someone who knows what he is talking about!

Posted by wdbeast @ 01:43 PM (1207 views)
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11 thoughts on “Property market: Word on the street

  • “This isn’t a product of the credit crunch. The present slowdown is due to the high level of Bank of England interest rates over the past year or so. High rates plus massive debts equals big problems for many families.”

    At last, someone admits that the housing price downturn is not a product of the credit crunch.

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  • I wouldn’t have said BoE IR rates have been high “over the past year or so”.

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  • planning4acrash says:

    Wait a second Paul, I thought high Libor rates, a lack of re-mortgaging options and high set up fees, all caused by the credit crunch were the main cause of defaults. BOE rates are pushing on a string.

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  • japanese uncle says:

    What have these ‘someones who know what they are talking about’ have been up to until now?

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  • I think the credit crunch is not the main issue. its the straw that broke the camels back. Just the same as the end to Double MIRAS was in 89. It might just have more quickly brought about the down move. The whole market was a balloon looking for a pin, the balloon would eventually have popped all by itself. Im not aware of a credit crunch in Japan in the 90s and there was obviously no double MIRAS there……but someone may inform me of the former otherwise.

    The pushing on a string remark is Keynes terminology that describes a lack of ability to stimulate an economy by IR policy (i.e. cuts – at some point the cuts make no difference so then you are pushing on a string), and then whats needed is to use budget deficets to create demand. The example given is for one set of workers to dig a whole and another to fill it. So long as both get paid that creates consumption. We are not at the pushing on a string point (although for the housing market in the US it might be going that way) – its just LIBOR is decoupling from BoE IRs.

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  • Housing in this country has become like a pyramid scheme….but in order for the pyramid to remain stable, first time byers i.e. those at the bottom of the pyramid are needed. Now, FTB are effectively excluded from the housing market due to the hugely inflated prices. The outcome – providing FTB hold off – will be a collapse. Unfortunately that still is, a very long way off.

    FTB simply don’t realise the power they have…if they acted, with one voice, they could effectively smash house prices in this country.

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  • techieman – I agree, house prices could fall without a credit crunch. The dot-com bubble collapsed without a credit crunch, when everybody realised that they were paying far too much for something of questionable value. In housing, the yield on BTL property is lower than mortgage rates: that is enough to trigger a downturn.

    However the credit crunch will make the fall faster and harder for all the reasons that P4AC pointed out. If the last decade of credit expansion is followed by credit contraction, this will cause asset values to tumble across the board.

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  • Tech,

    What do you know of Keynes? You sound suspiciously well informed.

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  • What was it that finally popped the dot com bubble? I can’t remember. Was it the debacle over Arthur Anderson and Worldcom, or maybe the botched merger of AOL & Warner Bros.?
    In my opinion, a crash begins with the sudden realisation that investments have much less intrinsic value than previously thought – then it becomes a vicious circle as money becomes tighter and people start to lose their jobs etc.
    Up till now, the dire state of UK plc has been hidden but it will gradually become more obvious from now on thank goodness. 10 years of economic growth based on credit/borrowing, selling off public assets and exporting production capacity overseas.

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  • HP WATCHER, why is unfortunate that a crash is “a very long way off”? i can not understand this mentality…
    In simple terms surely we are just bearing witness to a market shift. Yields will increase dramatically if capital values falter in the short term making property more attractive to those with less faith in the markets long term potential. In the long term the market is surely underpinned by supply and demand. If you are trying to imply that confidence will never return to the market and that supply & demand will fail to add pressure to the market without said confidence then surely yields will increase changing the dynamic of the asset class. for what it’s worth I would also disagree.

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  • Orwell its all smoke and mirrors – its just you have to respect anyone whose middle name is the same as the manufacturers of wine gums. Actually its only A level economics – in them days when A levels actually meant something!!! Ouch. Looks like the LIBOR might be about to get coupled back to the BoE rates -a lovers tiff or the sart of a divorce?!

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