Wednesday, February 6, 2008

How do we rate this “expert”?

U.K. Housing Market Slump `Won't Be Very Big,' Nickell Says

The U.K. housing market slump won't last long, and interest rates are unlikely to decline quickly, former Bank of England policy maker Stephen Nickell said.... ``The actual size of the downturn is minute,'' Nickell, who now advises the government on the residential property market, said in an interview in London yesterday. ``How big is it going to be? I don't know, but it won't be very big.'' He is now a professor at Oxford University and chairman of the National Housing and Planning Advice Unit, a group set up to counsel government ministers on how to protect the interests of people priced out of the property market.

Posted by alan @ 02:06 PM (5814 views)
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55 thoughts on “How do we rate this “expert”?

  • This guy is an idiot.

    He claimed fairly recently that house prices would rise to be in the order of 10x average wage fro FTB; and that house prices at 7x weren’t overvalued.

    http://business.timesonline.co.uk/tol/business/money/property_and_mortgages/article1896229.ece

    “Professor Nickell, a respected economist who until last year sat on the Bank of England’s Monetary Policy Committee, which sets interest rates, said: “Demand for housing is growing and unless action is taken, pressure on the market will only get worse.”

    Hey prof! You’re a laughing stock.

    The trouble is they are all so out of touch.

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  • oooh this has got to hurt you doom sayers ha, a very well respected economist says this…

    I don’t want to give instructions to the MPC,” Nickell said. He was prepared to offer some advice to investors.

    “If you’ve got half a million to invest, I could well imagine buying some property,” Nickell said. “It’s still not entirely clear you’d be better off putting it in the stock market. And if you’re a sensible person with half a million pounds, you want to spread your portfolio

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  • stillthinking says:

    There is no way to protect the interests of people priced out of the housing market without damaging the interests of property owners.
    There are mutually exclusive groups. There is no middle ground. Unfortunately the house owning group is dominant politically, hence all this tragic nonsense.

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  • ”a group set up to counsel government ministers on how to protect the interests of people priced out of the property market”

    Well he hasn’t done a very good job has be? Should be sacked.

    Talk about a vi with a conflict of interests……

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  • yes i must say a very well respected individual is actually advising to buy property….. the will certainly add to the sentiment that property will rise again.

    it does make you wonder at times if the market will stay steady and us doom sayers are wrong.

    I feel at times ive been to hasty in selling my house recently…

    🙁

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  • “If you’ve got half a million to invest, I could well imagine buying some property,” Nickell said. “It’s still not entirely clear you’d be better off putting it in the stock market. And if you’re a sensible person with half a million pounds, you want to spread your portfolio.”

    Yeah, I could imagine buying some property with my half a million, too! For now I’ll keep dreaming.

    Half a million doesn’t really go very far in the property market these days, so it doesn’t give you a lot of scope to ‘spread your portfolio’

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  • This guy really knows his stuff and for him to advise on buying property today really makes me think if we are wrong…

    If property continues to rise i will regret selling my house for years to come, i just hope my gamble has paid off, but im beginning to doubt myself now.

    any thoughts?

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  • sold 2 rent 1 says:

    If this is going to be a 1948 style HPC then over the next 18 months we may see real incomes decline by quite a bit (maybe by as much as 10-15pc). House prices may stay relatively static (dip 2-3pc yoy by Q4 2008 but go up by 3-4pc yoy by Q2 2009.

    If this happens then we may see the ratio approach 9.

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  • sold to rent, problem is this is not a great indicator as from 1973 when disposable incomes were the same as today, prices actually increased rapidly for the following 10 years arrgh! hope this doesnt happen again?

    Q4 1973 9,767
    Q4 1974 10,208
    Q4 1975 11,288
    Q4 1976 12,209
    Q4 1977 13,150
    Q4 1978 16,823
    Q4 1979 21,966
    Q4 1980 23,497
    Q4 1981 23,798
    Q4 1982 25,580
    Q4 1983 28,623

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  • Stillthinking,
    “There is no way to protect the interests of people priced out of the housing market without damaging the interests of property owners.
    There are mutually exclusive groups.”

    I disagree. I think there are a large group of homeowners who would like to move up the property ladder. Convincing them that house price crash will be a good thing is often a different matter, as they are busy patting themselves on the back for the amount of money they think they have made on their crappy bottom rung properties.

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  • This is coming from someone who claimed that buy to let had no effect on prices for first time buyers, and that a high proportion of people renting eases labour mobility.

    In other words, he cites as many reasons as he can that as someone “representing the interests of the outpriced”, he should have an easy life and there’s very little work to be done.

    He’s arrogantly incompetent. “He was interviewed after speaking at a conference organized by the British Property Federation in London.” Yeah right, just before he’s taken out for lunch and patted on the back for saying all the right things.

    Says it all really.

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  • Amazing, it seems there are tonnes of ready, willing and able buyers prepared to jump in support property prices when they fall by an amount thats not very big, so all this so called pent up demand will suddenly be unleashed when prices fall by a small amount, say for arguments sake 2-3%? Hmmmmmm.

    They’ll let anyone into Oxford nowadays.

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  • During the the early stages of the Wall St Crash various “respective” business “academics” were wheeled out to deliver
    the “everything is OK” message and looked total fools a fewof years later. They also were wheeled out to call the bottom of the
    market … on NUMEROUS occasions.

    Take a look at Galbraith “The Great Ctash, 1929” http://en.wikipedia.org/wiki/The_Great_Crash,_1929

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  • Can’t see how 1948 applies, the shape of owner occupation vs rental sector was very different then and housing supply was extremely constrained post-war for all sorts of factors (no residential building 1939-45, war damage, large numbers returning from overseas including ex-colonies, the baby boom). The supply crisis was followed of course by a massive social housing construction programme, new towns, and inner-city slum clearance which got rid of a raft of old-style Rachmann-type landlords (which New Labour of course decided to re-invent via the tax system, rather than have an equitable housing policy).

    Of the other two dates, there’s no oil shock or black monday 18% interest rates, but the credit crunch may well qualify the a ‘trigger’ event in bursting the Crash Gordon ‘no return to boom and bust’ asset bubble.

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  • The guy is an idiot.

    He’s the one last year whose report claimed that FTB would have to pay 10x average salary to get on the property ladder (the old supply myth trotted out); and that the then 7x salary was somehow OK. They just don’t get it – fantasy-land property prices had become unsustainable.

    http://business.timesonline.co.uk/tol/business/money/property_and_mortgages/article1896229.ece

    “Professor Nickell, a respected economist who until last year sat on the Bank of England’s Monetary Policy Committee, which sets interest rates, said: “Demand for housing is growing and unless action is taken, pressure on the market will only get worse.”

    ‘Prof’ Nickell is – or soon will be – a laughing stock, though he is in good company with Brown, Balls, Cooper and her replacement. Another govt. stooge.

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  • mark wadsworth says:

    Sold 2, that’s a nice chart, where did you get it from?

    As to Nickell, he’s a complete buffoon. Six months ago he was warning that price-to-earnings would continue to rise forever and would reach 11 or something by 2025.

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  • Sold 2 rent: Interesting graph, though the situation is 1948 was genuinely different in that a large part of the housing stock had been destroyed during the war – a real housing shortage rather than a credit driven demand shortfall as today. Even if real incomes go into decline in the next few years, money to support current prices has to be available – ie more cheap credit. Pounds from a Brown helicopter??

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  • makes me laugh you all think you konw better than the Proffessor of Economics….for [email protected]*k sake wake up children.

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  • ”someone who claimed that buy to let had no effect on prices for first time buyers”

    I think that speaks volumes about where his head is at…….

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  • You have to remember that this guy’s whole existence is based on him convincing the government to build millions of new houses across vast swathes of the British countryside – hence the reason he is so “pally” with the British Property Federation. There is no way he is going to admit that prices may plummet because that would blow his “not enough houses” argument out of the water. I do find it strange that people who on the face of it claim to be acting in the interests of those priced out of the property market, and yet are so close to the developers. It’s like having hairdressers advising on whether people should be having more haircuts – ludicrous.

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  • I think he has got nothing but Nickel in his head as his name suggest. Expert!! My @rse!!!!!

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  • mark wadsworth says:

    Uncle Chris, to be fair, I think the interests of the priced out generation and the homebuilders are pretty much aligned, aren’t they?

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  • yet another idiot, i bet he won’t be available for interview in a few months time..

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  • Uncle Chris, to be fair, I think the interests of the priced out generation and the homebuilders are pretty much aligned, aren’t they? – @mark wadsworth

    Yes they are aligned to the point people priced out want a house, and the homebuilders want to build them a house, but that is where the similar interests diverge significantly. The people priced out want a house they can afford, and the homebuilders want to make a profit, in todays market the two are as far apart as the poles. A correction may make the gap smaller, but it will, unfortunately always be a battle between greed and need.

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  • Mark, I see your point and I would agree with you if developers priced houses at what people can actually afford. Sadly, however, we see hundreds of unsold new build houses in the local area (near Wrexham) that are way out of reach of the average FTB. Average wages around here are £16,000-18,000 (mostly factory and warehouse jobs), whereas typical new houses are well in excess of £160,000 – i.e. around 10 times the average wage. Yes, we need houses, but not at “executive” house prices. In that sense, the interests of the priced-out and homebuilders remain pretty far apart and it is only the homebuilders that can address this issue by dropping their prices, cos disposable income is dropping, not rising.

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  • Hi I am new here!
    House prices are controlled by the lending rate, so if you increase how much can be borrowed you will speed up the housing market.
    House prices probably peaked years ago but the lenders raised multiples to 4x salary and prices rose again and then to get people back on the ladder again they raised it to 5 x and so on. That is where the engine of this has stemmed from. Some people say it is supply and demand but where I live flats remain unsold???

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  • Like his maths -2 out of 10

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  • In fact, Prof Nickell contraddicts himself… read the 2004 speach below

    http://www.nuffield.ox.ac.uk/users/nickell/papers/House%20Prices%20and%20Consumption%20Growth.pdf

    “The level of house prices today is apparently very high in the sense that it is well above its
    average level relative to earnings (see Figure 3). Currently, house prices are close to six
    times average earnings and this ratio would have to fall by around 32% to reach its
    average level since 1982. As we shall see, however, there are good reasons for believing
    that today the ratio of house prices to earnings in equilibrium may be higher than the
    average ratio since 1982. Precisely how much higher is very uncertain. Furthermore, the
    length of time it will take for house prices to get back to the equilibrium ratio relative to
    earnings is also very uncertain. This double uncertainty explains why commentators and
    analysts produce such a wide variety of prognoses for the housing market, from the very
    softest of soft landings to crashes of dramatic proportions.”
    …………..
    “Given the above discussion, it is obvious that there is a significant probability that house
    prices will fall at some stage. Despite this, it is quite possible that house prices will not
    fall at all, although they are very likely to go down relative to earnings (that is, house price
    inflation will fall below around 4.5% p.a.).”

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  • @confused: “Despite this, it is quite possible that house prices will not fall at all”

    In other words: “I’ve covered all bases, so in years to come, I can tell people I was right whatever happens.”

    As you’ve implied – he’s not only hedging both options, I can’t remember anything he’s said either. Maybe a career as a rose-tinted EA beckons ? 😀 whahahaaahaaaa

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  • I can’t stop laughing.

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  • According to this guy, there’s no bubble at all. It’s purely supply and demand.

    Handily though, no-one ever presents figures for this.

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  • Growler,
    well actually he made quite a strong statement…
    “Given the above discussion, it is obvious that there is a significant probability that house
    prices will fall at some stage. Despite this, it is quite possible that house prices will not
    fall at all, although they are very likely to go down relative to earnings (that is, house price
    inflation will fall below around 4.5% p.a.).”

    A. The probability house prices will fall is said is “significant”
    B. But a possible outcome is also that prices will not fall. However, in that case, it is VERY LIKELY that the “real / salary growth-adjusted” prices (using a salary deflator of 4.5%) will fall

    In conclusion, in 2004!! when house prices were half today!!, he was saying that it is almost certain that real house prices will fall. Go back to his wording and you will agree it was quite strong

    We should post the Nickell link on David Smith’s blog… see what he says, he likes to read academic literature without understand it

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  • European-bear says:

    Greenbay….I think you have made a valuable contribution to the debate and I certainly enjoyed reading the 111 odd responses to your last outing. Your investment strategy is correct, if the rent makes a profit over the mortgage, then it makes good business. But one question on this….how do you find such property NOW when rents (yields) are less than interest on the mortgage. That is the problem with BTL NOW for new entrants, the yield is so low it makes lousy business sense. Secondly, you said you withdraw equity as fast as the prices rise. How is the capital gains tax then going to be paid then once you do sell (as you have no equity) or when you have parted this life (the latter probably does not matter to you)

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  • Greenthing…
    I AM a professor of Economics

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  • i-cld-murder-a-blt says:

    Greenbay

    I am supprised you are not off counting all of your hard earned money, or driving you Aston Martin.

    I personally think you have no friends which is why you have to post on sites like this.

    You know what I think cos I know you’re looking, and it is that you have had it so good for so long that you can no longer see reality.

    P.S We are all children here, but I would rather be a child than an puppet

    Have a nice day

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  • re HPWatcher Comment 9.

    Yes House prices might have been going up in the 1970s but so was everything else.

    I have found in an FSA document that you could get 15% in a National Savings Account
    http://www.fsa.gov.uk/Pages/Library/Communication/PR/2001/038.shtml

    Another article claims that in August 1974 inflation was 26.9% so a rise of 10% in house prices was
    actually a fall in real terms (which ties up nicely with the graph).

    The one thing no one had to worry about in the 1970s was Negative Equity. My parents double
    glazing (bought in the 1980s cost more than their house bought in 1967).

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  • @ Greenbay – I’ll give you the benefit of the doubt with regard to your recent visits and postings on this site ie you are not just a wind up merchant – you do bring a different point of view to the blog, however based on your age and wealth profile (stated in previous postings) how are you going to take your wealth with you? my understanding is that there are no pockets in a shroud.

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  • crash bandicoot says:

    Hey Greenbay what’s happened dude? There are still loads of £80k flats in Newport on rightmove. I thought that you were going to be buying up a load of dead cert money makers there. You know that we are too stupid to invest in them but I thought better of you. Have you got too much money or something?

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  • @confused – yes i must say a very well respected individual is actually advising to buy property….. the will certainly add to the sentiment that property will rise again.

    it does make you wonder at times if the market will stay steady and us doom sayers are wrong.

    I feel at times ive been to hasty in selling my house recently…

    🙁

    ……..I take it you are being sarcastic???….or has a VI stolen your identity???????

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  • Seen It Before says:

    People keep saying that houses are bound to go up because the demand is too strong.

    If there was no choice and you had to buy this would be true – but because the option of renting exists then people would rather rent when there is any fear of prices comming down and wait. Let’s face the fact that people who really wanted to get on the housing ladder when the prices were going mad only wanted to because they felt they were being left out of making money. When prices fall they will be happy to carry on renting.

    In HP watcher’s chart he has not factored inflation

    Q4 1973 9,767 Inflation rate 11%
    Q4 1974 10,208 19%
    Q4 1975 11,288 21%
    Q4 1976 12,209 15%
    Q4 1977 13,150 11%
    Q4 1978 16,823 10%
    Q4 1979 21,966 15%
    Q4 1980 23,497 11%
    Q4 1981 23,798 10%
    Q4 1982 25,580 5.5%
    Q4 1983 28,623 5.3%

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  • Can we all just ignore this Greenbay character. He’s never got anything insightful to say.

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  • During the last crash the puppets were saying we reached the bottom in 91,92,93,94 and each year the market dropped even though interest rates were the lowest in decades.

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  • Might be worth pointing out that “respected professors” sometimes know what they’re talking about, but they are as capable of talking rubbish as the next person. This may be truer in the case of economics – we all know the jokes. How do I know this? Well, I’ve worked with lots of professors over the years.

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  • All you have to do is look at the wider economy. There is no feasible way that House prices can continue to rise at previous rates, they may just become static for a few years, but link into this the credit crunch, the subprime market, oil related inflation, UK GDP and the bias towards imports and the only logical conclusion is that House prices will fall. Just look at the number of people and business paying significant interest in the economy keeping tracks of recession pointers….
    If you are young and do not own you are hoping prices crash by a lot, if you are looking to step up the ladder and already own, a HPC will not be a bad thing either, it will only truely affect BTL and people looking to downsize…. but it is coming and will happen, a so called expert making statements is called “Marketing”

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  • I did not post comment 7 nor comment 9.

    Some vi must have swiped my details.

    Just to clarify, there will be both a HPC and recession in this country….just accept it!

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  • new user 2007 says:

    Greenbay.

    Using your logic on “respected professors”. He is an interest rate dove, who made no sense in his recent paper on BTL not pricing FTB out of the market…he used the average house sample (all sizes of housing) to come up with an average number, whereas the price pressures from BTL have been in a specific housing segment that FTB would buy i.e. flats and small houses.

    More generally, the only reason central banks have had an easy time over the last 10 years is China buying into US debt and so artificially keeping rates low in the West. The cost of sterilisation was zero there as rates there were lower than the West. It is now paying to buy Western debt as local rates are now lower. Its inflation level is now at recent record highs so it cannot reduce its own rates. At the same time, it is now exporting inflation, whereas before it was exporting deflation.

    The biggest difference is that all Western central banks took out any relevant goods out of the CPI basket i.e. they changed the goal posts on what they target and what they target is now meaningless. Greenspan was a moron…he knows full well that markets did not have to react to his policies in the direct sense (he makes a big play on this) BUT he knows he gave them the confidence to take on more risks with his “put”. Yet he is a lot better than this academic.

    Most real world economists who do not work for VIs are currently making bets in the futures markets that prices they will fall. This is interesting as many are also previous investors with bonuses (even though some are no doubt using futures to hedge their property portflios).

    The IMF has far more hotshots than the BoE, yet they have screwed up many times. I realise that you are on a wind up as your profile in now way matches what you say you are, but I do like to help spread knowledge:) In fact, Mervyn King said house prices are at unsustainble levels. Does that mean you will be seilling up?

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  • new user 2007 says:

    that should read China’s rates are now higher.

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  • financial planner says:

    Sold 2 Rent : ‘If this is going to be a 1948 style HPC then over the next 18 months we may see real incomes decline by quite a bit (maybe by as much as 10-15pc).’

    Don’t buy that. NAE is now the same as RPI and double CPI. Can’t see NAE falling behind RPI.

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  • new user 2007 says:

    Seen it before.

    That is what many comfort themselves with right now. The 8% growth we have had for the last decade is in line with the long run average.

    BUT ignoring that the long run average had many dips and more importantly. The 8% average that is used as the example is from 1952 to 1998 when inflation and wage growth was incredibly high, so what debt was not eaten up by high inflation was easy to pay back via high wage growth.

    Using nominal growth now is silly as inflation and wage growth are far lower (even including the fact that inflation is higher than the BoE admits). So debt will not be inflated away (longrun problems with consumption and economic growth) and people will now be paying more interest and for longer.

    The adjustment has to be 1) inflation at pre-1990 levels, 2) wage growth at pre-1990 levels or 3) a fall in nominal (and so real) prices. The massive nominal and real house price fall in London during the last crash has been forgotten (it had the city and immigration then as well). I do not think 1 or 2…that leaves 3.

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  • new user 2007 says:

    Upto 2003 I thought the market was sustainable, from 2004-05 I thought it was definitely and increasingly very suspect and by mid-2006 I was sure.

    I found this site only 6 months ago, when on virtually any calculation/number/ratio ever generated in any country at any time, we are in an incredible asset price bubble.

    That was apparent ahead of the credit crunch i.e. there was nowhere to go but down even before that and it merely speeded up the process, but it does give VIs some cover as “temproary” factors.

    The most important indicator in all of this is the sentiment of market participants. So it warms my heart that since I first found this site, the last two weeks is the first time I have seen the likes of Greenbay (maybe they have been here for years but they were off enjoying their money) coming out from under their rocks.

    It warms my heart because it confirms that greed has now turned to fear…copying screen names is just a sign of this:)

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  • Good point new user.

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  • did anyone watch the barrett program last week? they have been giving false sale prices to the land reg, seems the housing market figures are not worth the paper written on

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  • so, the usa have an emergency rate drop and is on the verge of recession, gold keeps breaking all time highs…. banks losing billions …first run on a bank in the UK for over a hundred years…. a credit crunch thats caused mortagage approvals to plummet….

    oh, i almost forgot, the UK’s total debt now exceeds more than its GDP

    means absolutely NOTHING !!

    its just a blip.

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  • Simonspotatoes says:

    The amount of money that is offered for any house for sale is in most cases determined by what the banks will lend the potential buyers. The banks are getting ever shorter of cash to lend as each month goes by, and money will only get tighter as more and more people default on their loans. This will lead to a large reduction in house prices over the next few years.
    The same situation has happened in the labour market as well. Our wages are way too high in this country and will meet the same fate as the housing market. When we are all out of work we can spend time chatting about how cheap houses are, but few of us will be able to raise the money to buy one.

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  • new user 2007 says:

    Simon

    A debt driven economy was always one built on quicksand. I think many unfortunate people will suffer. But one of the problems here certainly has not been excess wage growth…inflation figures have been artificially suppressed, unions have weakened and outsourcing in manufactruing and services has frightened the workers. These mutually reinforcing mechanisms have removed the ability of workers to raise wages.

    The argument that this is part of globalisation and a longrun trend to cheaper locations is a whole different discussion. But as real world goes right now the issue is the creation os useless jobs more than it is about excess wage growth. Something has to give for asset and debt markets to come down to reality…high wage growth, high inflation or a fall in nominal asset prices.

    I think it will be the last one. I suspect that those who will suffer will be those who think piling more and more debt on is normal. I get the impression that the bulk of people on here do not fall into that category. Indeed, most seem to use facts and figures (something most BTL et al fail to do on their sites…I like to see all views) and dare I say perhaps they are value-added workers (are their jobs more secure? no idea).

    The conservative moralist in me is torn between sympathy for the human tragedy about to unfold and thinking serves them right for pricing the more rational out with their use of cheap debt and pushing up house prices with their “this time it is different” stupidity.

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