Monday, February 11, 2008

“I have a dream…”

Inflation rise puts rate cut hopes in jeopardy

David Smith is fast at work... curious to see how he will be able to turn a basket case into a plea for another rate cut "Halifax, the country's largest mortgage lender, has pencilled in at least another quarter-point cut in interest rates this year. Martin Ellis, its chief economist, said that further rate cuts depended, however, on whether the Bank believed that it could keep inflation under control." MAU AH HAHAHH AHHAHAH pencil pencil

Posted by confused76 @ 12:35 PM (1476 views)
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27 thoughts on ““I have a dream…”

  • “Separate figures out today from Connells, the country’s second-largest estate agency network, revealed that mortgage approvals last month were the weakest January since Bank of England records began in 1994.
    Mortgage volumes rose 3 per cent to 75,300 from December’s record low, Connells calcualates, but further rate cuts are needed to restore confidence across the entire market.
    Official figures out today from the Department for Communities and Local Government reported that annual house price inflation retreated to a 12-month low of 9.1 per cent in December, from 9.7 per cent in November and a 28-month high of 12.3 per cent in July.
    Analysts at Global Insight predict house prices to fall 5 per cent on average this year and next.
    Halifax and Nationwide, the country’s largest building society, predict that house prices will be flat on average during 2008.”

    Here we go it is the beginning of the crash!!

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  • I had a dream last nite about a Cloverfield monster rampaging round London, knocking it down and eating estate agents. mUA HAHAHHAHAH HAHAHA HAHHA

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  • Perhaps headlines like these will start to convince the sheeple that interest rate INCREASES, not cuts, are needed. The government can fiddle the CPI figures all they like but we all know:

    ‘Crude oil prices rose 70.3 per cent on the year in January, the highest rate in nearly eight years, while domestic food prices soared 36 per cent on the year, a record high.’

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  • This statistic is always very indication as it gives an indication of the direction of future RPI/CPI data. The BOE take it very seriously.

    For Our Merv and his merry men, it could hardly be worse. If he is to make any attempt at keeping to his remit, the bank rate needs to be increased – and quickly.

    But will he..? Not just yet I fear..

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  • voiceofreason says:

    I walked past two of the biggest EA shops in Southampton at lunchtime.
    One customer in one of them.
    About 5 staff sitting at their desks in each.

    It’s simple maths. 6x salaries is unsustainable.

    Were is Dave_90210 when you need him ?

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  • OK, I just re-read my post and spotted the typo.. I wish we had an edit facility….!

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  • Things are getting worse for the UK ecomomy on a daily basis.

    Daft house prices & debt lie at the heart of the problem.

    Just checking my saved properties on Rightmove, none have sold and I have had them saved for around the last 8 months……

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  • FTB’s can ignore the ‘jump in now to bag a bargain’ [email protected] propaganda by the vested interests, just need to sit back and enjoy the show.

    Momentum is picking up, wasa bit slow, but we can see sentiment change direction as fast as the direction of the wind now. Watch them all run for the exit as rates go higher.

    We need a Nigel lawson type dude to whack up rates to 15% !!!

    WOO HOO!

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  • crash bandicoot says:

    This market is beyond saving with rate cuts. They only work if you are pushing yourself to burn up all of your disposable income on a mortgage in a desperate attempt to “get on the ladder”. Once you can see for yourself that prices actually can go down as well as up, and 6x your salary is probably not something a house should actually cost. All impetus to buy at any price is removed. The joker in the pack this time round is the freedom of availability for Land Registry data. It makes it hard to plead poverty when your purchaser can see that you are trying to sell your house for 2-3 times what you paid for it five years ago.

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  • The residential market is not governed by logic and sound financial sense whilst the commercial market is. Hence a massive fall in commercial prices but no real effect on residential prices yet

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  • Why i think property will not crash…….

    Higher income multiples
    Higher LTV (smaller deposit)
    Introduction/increased availability of Self cert mortages
    Increase in Mortagage provider competition
    Population growth Vs building new homes
    Introduction of Buy to Let products
    Historically low interest rates
    Increase in money supply (eroding mortgage debt quickly)
    Higher single ownership (apposed to married couples)
    DIY materials cheaper (owners able to increase value)
    New Tax Incentives (18% CGT)
    Underperforming pensions (buy to let is alternative)
    Demand exceeds supply
    Shared ownership mortgages

    And my favourite Government & BOE manipulation(I.e inflation figures, taxes etc) – ensuring property prices remain stable(As a minimum)

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  • Maddison
    that is probably true, but like Mervyn said “price is opinion, debt is reality”
    Record indebitedness and insolvencies will restore logic in the market

    sorry I sound a bit gloomy today

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  • Thanks Greenbay.
    Whilst I still believe we are in for a crash its good to see you ststing points for your argument. Are there any current factors that, as a landlord, worry you? The banking crisis for instance?

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  • Hahahahaha! Greenbay is joking right?

    Anybody care to put together a list of reasons why property will crash? I would suggest starting with most of the reasons put forward for property not crashing, followed by many many more that must have slipped their mind.

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  • voiceofreason says:

    Greenbay @11. Keep up the winding up – nice work 🙂

    “Increase in money supply (eroding mortgage debt quickly)”

    In other words inflation. And what happens with inflation, err…. oh yes, the real value of your assets fall.
    Have you heard of discounted cashflow ? Calculating your returns after allowing for inflation ? Real as opposed to nominal price growth…

    “Government & BOE manipulation(I.e inflation figures, taxes etc) ”
    Yes, the govt can give secret bail-outs to future Northern Rocks, so they could keep pumping the market. Though I guess at some point the funny money has to come out in the open (audit, ONS etc). This effectively puts an upper limit on the money supply. One I think we have already reached with the £100bn of NR on the govt books.

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  • Greenbay – you’ve got it – all this house prices built on steady fundamentals is just fluff – ‘

    Government & BOE manipulation(I.e inflation figures, taxes etc) – ensuring property prices remain stable(As a minimum)’……………………

    This government will do absolutely anything to keep house prices where they are to encourage the feelgood factor which ensures consumerism continues, the only way the UK economy works – the only fly in the ointment is that sentiment is turning, don’t know how far it will dive, but it’s definitely going that way. Commercial property is always an investment whereas residential is , or has been, until the onset of the BTL boom, a heart decision, based less on financial investment and more on the ‘every Englishman’s home is his castle’ mentatlity. As the returns on BTL (excepting those who first bought in the 1990’s) continue to be less than mortgage repayments, then I can see the residential market going the same way as the commercial market, in other words it is a less financially viable option. Hopefully this will encourage a correction and allow people to think of bricks and mortar as a home, rather than an investment.

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  • it_is_going_with_a_bang says:

    Greenbay …. a few points

    Higher income multiples – is it not lower mutliples that are required ?
    Higher LTV (smaller deposit) – exactly the opposite has been occurring lately
    Introduction/increased availability of Self cert mortages – put simply – fraud in many cases and likely to be less tolerated
    Increase in Mortagage provider competition – meaningless
    Population growth Vs building new homes – Bangledesh also has a population issue does not ALWAYS mean high prices long term
    Introduction of Buy to Let products – not news
    Historically low interest rates – yes they WERE weren’t they
    Increase in money supply (eroding mortgage debt quickly) – Credit Crunch mean anything to you?
    Immigration – That old chestnut – already covered with Population Growth.
    Higher single ownership (apposed to married couples) – Variable you can’t rely on.
    DIY materials cheaper (owners able to increase value) – Oh please – most DIY is terrible.
    New Tax Incentives (18% CGT) – Incentive to sell 🙂
    Underperforming pensions (buy to let is alternative) – I’ll give you that one
    Demand exceeds supply – Population a 3rd time maybe???
    Shared ownership mortgages – Of no interest to 99.9% of the population

    And my favourite Government & BOE manipulation(I.e inflation figures, taxes etc) – ensuring property prices remain stable(As a minimum) – No government in History has been able to ‘make’ things work just because they want it to medium to long term. Short term fix long term pain.

    There, thats better. Next.

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  • Greenbay – yesterdays post (which is linked to today’s)

    “I agree to a certain point, but i believe some economic cycles are myths and i believe this is the case with the property market.

    .. the cycles are being tampered with by the government, one example… Inflation is caused by the continual printing of paper money by profligate governments.

    The government will not allow a crash…


    My response:

    1. Cycles in housing are sadly anything but myths. Fred Harrison notes an approx 18 year cycle. Now what i would say is that in the one before the 90s the price falls were only in real terms and disguised by rampant inflation.

    2. I would generally agree that the cycles cycle upward (if that makes sense) so that each cycle has a higher high and a higher low than the cycle before, however i believe thats about to change. Fred notes that we missed a recession in 2001.

    3. How we missed that recession was interesting – normally a keynesian will increase the demand side by increasing direct spending via the public purse, this time the personal indebtedness paid for consumption via low interest rates, re-mortgaing (ring any bells?) etc.In any case inflation is not just caused pby printing money, its also caused by debt / credit inflation due to the multiplier, thats how they increase the money supply.

    4. The fact that we missed a mid-term recession in the general cycle means that when this one ends or is ending (and i take your view that it may not be) it will cause alot more pain than previously.

    5. So yes Governments CAN manipulate the extent of the cycle to an extent, but clearly EVERY politician wants to guarantee continuous economic propesity for the electorate (and maybe for themselves). They have been having a go for centuries and have never done it yet. Now they might do it but its not something I am going to put any money on (whereas you are throwing them there dice big time). Which of course leads to my personal favourite (which has often been put forward on this site).

    “The government will not allow a crash…” – Your faith is completely misplaced, its true they dont want one and will try to manipulate things so there isnt one but …..the rest is history !!

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  • Personally I think this is going to be a very long play. In 20-30 years when lots of the 30-40’s need to draw on their houses for a pension, the government has finally started to build enough houses for everyone and all the migrant workers have gone back to their home countries when their economies have finally picked up. Then we might have a problem or the long awaited fall in property values. Its basically a demand/supply thing.

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  • I thought it was a “love thing” 😉

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  • Greenbay…

    Higher income multiples – these were only higher because lenders were willing to overlook the increased risk of default as house prices were rising quickly, so they felt secure that any repossessed properties would cover the amount outstanding when sold. This reasoning does not apply in a “stalled” market (let alone a falling one). Add to this that the credit crunch has made the lenders wake up and smell reality when it comes to risk, and that interest rates have risen (and with them the cost of servicing those higher mortgages), and you won’t see so many/any lenders offering such high multiples of income for a while (until the next boom – short memories these people). PS. even at low interest rates, if you lend someone 10 times their income, then 100% of their take-home pay will dissappear in mortgage repayments, leaving nothing for little luxuries like food, clothing, heating, etc. Higher lending multiples could therefore only ever go so far – you only need a calculator (not a crystal ball) to work that one out.

    Higher LTV (smaller deposit) – % deposit required was reduced during the boom for the same reasons as multiples were increased (see above). This trend has already been reversed by many mortgage lenders since the credit crunch has hit, so again this WAS true during the boom but isn’t now.

    Introduction/increased availability of Self cert mortages – again, lenders were prepared to overlook the risks in a rising market, much less so now. Self-cert mortgages count as sub-prime and there has been an 80% reduction in the number of such products available since August, with many such lenders in trouble financially/already gone bust. Stories of “liar loans” have got the industry spooked and more and more examples of fraud are being uncovered now that the market appears to be turning – yet you think this type of mortgage will continue to be a growth area???

    Increase in Mortagage provider competition – new competition from the likes of Northern Rock and Paragon, I presume you mean? Or are you referring to the others that have actually gone bust already, rather than these two nearly-bust entities?

    Population growth Vs building new homes – if people can’t afford to participate in the market, it doesn’t matter how many of them there are – that’s basic economics. There are millions of people who would like a house in Rio you know – but most ot them can’t afford it so they live in the slums. Perhaps you would like to rent them a BTL – I’m sure they could afford a rent that will allow you to remain solvent? Without your vaunted higher lending multiples, lower LTVs and liar-loans, normal people won’t be able to buy houses and push prices up whether they want to or not.

    Introduction of Buy to Let products – this is actually something relevant at last – well done! We don’t know how BTL will play out in a situation like this because there’s never been so much of it before. I don’t personally see how BTL, with house prices as high as they are relative to rents, can continue to be viable for new purchases without strong capital gains. But then strong capital gains will make the rent versus costs sums look even worse, requiring even stronger capital gains. And so on. That’s the definition of a pyramid scheme if you ask me, so it con’t work long-term (again, my caluclator tells me this, not mystic meg). I could accept an argument that BTL might have reset the “long-term average” for house prices to a level higher than of the past, but not that they can carry on buying like billy-o at current (over)valuations. Even if no BTLs sell, the reduction in new purchases will be enough to knacker the market for a while.

    Historically low interest rates – you’ve made my argument for me there! If they’re “historically low” then there’s a good chance they won’t stay that way for keeps, in which case they can’t maintain the current housing market for keeps either. Or has mystic meg told you that interest rates will never go up again, for ever and ever amen??

    Increase in money supply (eroding mortgage debt quickly) – what you mean is inflation, and if inflation becomes high, then your lovely low interest rates will be raised. So you’ve actually argued against yourself there.

    Immigration – immigration is a constituent of population growth, so you’ve basically had to use one argument twice! So see above!

    Higher single ownership (apposed to married couples) – and so more houses required because fewer people per house? And what happens when, instead of having two incomes with which to secure a mortgage, you only have one? Think about it, think about it…I’ll give you a clue – can you afford to borrow more or less?

    DIY materials cheaper (owners able to increase value) – desperate! But OK I’ll bite anyway – with all those materials now being competed for by the booming economies of China, India, etc (and so commodity prices are rising – do you read the news or not?), and the booms in those countires leading to wage growth such that their cheap DIY goods for sale here in England won’t be so cheap anymore….do I have to spell it out?

    New Tax Incentives (18% CGT) – this might make more people consider BTL I’ll concede – but only if they can make their sums add up which I just can’t see being the case right now (see reference to pyramid scheme above)

    Underperforming pensions (buy to let is alternative) – it’s only an alternative if its doing better! Ask anyone who’s invested for their pension in a nice city centre new-build right now whether they think they’ve made a good move. Again, I concede this is a driver when the BTL maths add up, but again I don’t think those sums work at current valuations.

    Demand exceeds supply – amazing how many times you had to repeat yourself to make a case, eh? Is that demand from BTL or demand from immigrants or any of the other demands you’ve already mentioned above?

    Shared ownership mortgages – house prices are going to be maintained by housing association built, affordable housing developments? I’ve heard it all now!

    And my favourite Government & BOE manipulation(I.e inflation figures, taxes etc) – ensuring property prices remain stable(As a minimum) – and yet, with all this power, they haven’t been able to (a) stop the last crash (b) stop the current “stagnation” (c) stop the credit crunch (d) everything else they’d like to control but don’t have either the power or intelligence to do. Do you think Mr Lamont crashed us out of the ERM on purpose perhaps? You credit these fools with more ability than they have.

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  • Tried this one before, but, when we hear of great increase in food prices/oil costs/factory inflation at an all time high etc, why do we not hear about its potential effect on the CPI? (apart from saying it will go up, but by how much will it go up. How close is Merv getting to copy/pasting last years letter?) Am I not looking hard enough?

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  • little professor says:

    Oh come on guys, why are we still falling for greenbay’s trolling?

    And let’s try to switch the bold off

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  • it_is_going_with_a_bang says:

    My personal view is that in the last 15 years especially we have imported low inflation by taking advantage of as many near 3rd world slaves that we can ( which is nice )
    In the process almost completely losing our own manufacturing base on the basis that it costs more – hence the lack of inflation in that time – we’ve avoided the real costs of living in our society by buying it cheaper elsewhere.

    Everything has been done on the basis of ‘costing less’ – except for housing it would seem – probably because we all needed a way of paying for this new found lifestyle without actually having to manufacture something AKA earning the money we spend.

    With a country that runs on 75% service sector we are effectively rabbits in the headlights waiting for it to hit us – some believing it never will (Greenbay).
    This country can’t run on property speculation forever – eventually someone has to actually pay for it.

    Its going to be like Bognor Regis on a Wet and Rainy day.

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  • @voiceofreason

    I found both of your comments about money supply unconvincing w.r.t.

    “Increase in money supply (eroding mortgage debt quickly)”

    Increased money supply w.r.t mortgages simply means that banks are willing to lend more and hence the level of indebtedness increases. As we have seen, most people are happy with this as long as their property increases in value. The rise in asset values is driven by the rise in the supply of money (debt).

    Inflation is a rise in the value of living costs that results in increased wage and/or demands or a drop in the standard of living.

    We have had an incredible increase in money supply (debt) that has fuelled an asset price bubble. We have not seen significant inflation in wages (yet). The government for quite creditable reasons, is doing its best to suppress wage inflation hence the debts are not inflating away quickly. If we see wage inflation then we will see the value of debts eroded for those who can hang on and avoid repossession.

    Unfortunately, considering for the millions of households who are struggling to make ends meet, high inflation would probably bankrupt many of them before the longer term benefits of mortgage debt erosion could be realised. I’m not saying it cannot happen but there is no sign of it yet. An increase in repossessions looks far more likely.

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  • Ooops. Should have read:

    “living costs that results in increased wage demands and/or a drop in the standard of living.”


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  • I believe “Greenbay” has been created by an estate agent and is actually several EA,s who pass comment.They obviously have a lot of time on their hands to keep on posting,and will probably have a lot more time on their hands soon when they get the push.I love the way their simplistic arguments are chewed up and spat out by the Bears on this site.If anything this list that that they have posted gives a great platform to demonstrate why the crash is enevitable and cant be stopped.Why are the BULLS that visit this site so inept?

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