Friday, August 29, 2008

House price plunge fuels recession fear

House price plunge fuels recession fear

Fears of recession this winter intensified yesterday after the CBI reported the weakest high street activity in 25 years, the Nationwide building society said house prices were falling at £150 a day and a Bank of England policymaker warned of two million unemployed by Christmas. Amid predictions that 2009 could witness the first year of falling output in Britain since 1991, government hopes of mounting an autumn political comeback suffered a setback when employers' organisation the CBI and Nationwide both said they saw no let-up in the tough conditions facing retailers and the property market.

Posted by housebear @ 08:55 AM (1238 views)
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11 thoughts on “House price plunge fuels recession fear

  • Tail wags dog?

    Falling house prices aren’t causing the recession. The unsustainable increase in lending eventually ran out of steam, leading to the credit crunch. In turn the credit crunch is causing both a fall in house prices and a (probable) recession. With a reckless headline like “House price plunge fuels recession fear”, the Guardian (and other papers) are perpetuating the myth that if we could just ‘rescue’ the housing market, everything else would be ok.

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  • tyrellcorporation says:

    Spot on Drewster, this well spun message is now etched onto the minds of all politicians hence the absurd knee-jerk policy responses of hose-piping tax-payer cash at anything housing related.

    On a seperate note: I went back to my home town in Somerset last weekend and house prices are falling fast. Houses that were going for £250k about 6 months ago are now going for £190k – not bad eh?

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  • David ‘Danny’ Blanchflower admits that he is not following the remit of the MPC, and is more concerned with the possibility of recession.

    (Not a judgement on whether he is right to do so or not).

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  • Indeed Drewster @ 1.

    The perception that the house price crash is causing the recession is as misguided as thinking the market could go on rising and rising at the rates people appear to have become accustomed to. House prices simply rose too quickly and as such created a bubble in the market. The credit crunch was the trigger for the (inevitable) crash.

    The recession in this country IS partly based on the housing crash because so much of our recent ‘economic miracle’ was based around the housing market. Builders, DIYers, amateur property developers, lets not forget the thousands of hours of property porn and advertising on it, the housing market has been allowed to ramp itself up until it was not only a bubble in the actual market but also a bubble in the associated businesses and services that helped support/fed off it.

    That aside they are not the same thing. The recession is partly due to the MASSIVE amounts of personal debt. With the credit crunch we are simply not being allowed to borrow any more to fund our excessive lifestyles. But again this is also associated with the housing market as I would hazard a guess that a huge chunk of this was based on mortgage equity release and other ‘get rich quick’ schemes engouraging people to use their homes/property portfolios as a giant piggy bank.

    Still it might be a pimple on the bum with regards to how bad this could get if Gordon “I’m an economic miracle maker” Broon destablises the economy more, trying to support the housing market by borowing more and more.

    With regards to guv’mints borrowing money, If the banks can’t borrow on the international market anymore, where will the guv,mint get the squillions it wants to prop up the market?

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  • All this talk of “house price plunge fuels recession fears” is just mud-headed garbage.
    A recession PRODUCES a fall in house prices, NOT THE OTHER WAY AROUND.
    Recession = CAUSE, house price fall = EFFECT, and effect the reinforces cause, deepening the decline.

    I think it was Warren Buffett who nailed it – he said something like, “whatever the official numbers say, under a common sense definition of recession we are already in one.”

    House prices falling, masses losing jobs, the currency in decline and the public finances in ruins.

    That counts as a common sense recession, no matter what the Office of National Statistics’ numbers (i.e. comedy show) say.

    Common sense recession is here and damn the statistics!!!

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  • IF the remit of the MPC is to target inflation, then….
    EITHER committee members who do not follow the remit should be removed.
    OR the remit should be changed to “keep the economy growing stably” in some more loosely-targetted way

    Inflation targeting is vogueish but ultimately of dubious merit as, amongst other weaknesses, it ENCOURAGES official statistics to be cooked, and thus prevents policy from being preemptive and forcibly makes it more about politics and presentation than truth and honesty.

    See http://en.wikipedia.org/wiki/Inflation_targeting#Shortcomings

    Any system that relies to heavily on measurement and targeting will end up being gamed and manipulated, as “New Old” Labour are finally learning. They gave up on trying to centrally plan the economy and instead switched to trying to centrally plan society. THAT WILL FAIL FOR THE SAME REASON: it is impossible for a central planner to know everything, because even geniuses have cognitive limits, and in any case you can’t successfully plan centrally because data is always imperfect, even if it doesn’t suffer from “wishful thinking” as our current statisicians seem to. They don’t even believe their own work, in fact!!!

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  • @Drewster – brilliant commentary – and nice joining of the dots that for some reason eludes most newspaper commentary.

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  • sneaker @ 5

    Let us not forget that the Labour party learnt all it’s tricks about manipulating statistical data from the previous masters of the scme – The Conservatives

    I fully expect the next government (tory obviously) to take all their previous experience at manipulating the public and combining it with the stuff they have learnt from this present shower and we will al finally give up on trying to see through the lies as EVERYTHING will be spin-lies-deciept and forgery.

    Gawd help us aall !

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  • And moreover — it’s utterly amazing that a government that is so obsessed with management consultancy’s evil offspring (metrics, Key Performance Indicators) doesn’t understand the metrics of the housing market: price-to-income ratios, rental yields etc.

    How about if the government started publishing league tables of affordability ratios, by county and borough? Would they then insist that these affordability ratios kept decreasing (i.e. housing becomes less and less affordable) each year?

    The obsession with CHANGE and GROWTH rather than STASIS (of a good, stable system) is a massive failing of the modern paradigm. The same hollowing-out process is seen everywhere: house prices, public exam results, inflation statistics, unemployment statistics, even the quality of our food. Strange times indeed and it makes me wonder if the Anglo-Saxon obsession with doing things cheaper rather than better naturally results in this being so. Does Anglo-Saxon capitalism, at the extreme, suck things dry as a by product of its bubbles? Our continental brethren who are schooled in Renaissance-style capitalism may have their era in the years immediately ahead.

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  • Believe low house prices cause recession and you’ll believe anything. Quite the opposite In Fact.

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  • Larry Elliott is firmly stuck in the ” house price inflation good; wage inflation bad” school of thought which has put people through the economic mangle for thirty years.The First World War generals were quicker on the up take than this: they adapted in four .There is still a lot of this just one more push with low-interest rates strategy around.

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