Wednesday, September 30, 2009

Well, what did they expect if they slammed the base rate into the floor.

House price bounce leaves Bank of England stunned

The Bank of England has been taken aback by the recent rebound in house prices and is watching the market carefully for any signs of excessive 'exuberance'. The Mail understands that chief economist Spencer Dale yesterday told economists the strength in property values had been surprising. Officials would start to get worried if the revival gets out of hand, he said, although we are not there yet. This comes only a week after Dale said in a speech that the Bank's money-printing programme could lead to 'unwarranted increases in some asset prices that could prove costly to rectify'.

Posted by wanderinman @ 05:31 PM (2636 views)
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28 thoughts on “Well, what did they expect if they slammed the base rate into the floor.

  • The FTSE has the best 3 months in its history during the worst recession in our lifetimes. Does that count as excessive exuberance?

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  • Hang about a minute, I thought they flattened the base rate, printed money and torched the currency so we could keep alive this ponzi scheme? Now they tell us they are ‘taken aback.’ Genius.

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  • Considering they missed 12 years of ‘excessive exuberance’ what hope is there for them noticing any this time round???

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  • little professor says:

    Here’s a proper central bank:

    South Korea eyes more loan curbs as house prices climb
    South Korea’s top financial regulator said he was ready to impose more controls on home loans to calm the property market.

    The threat on Friday came as fresh evidence showed the housing boom is alive and kicking despite previous controls, adding to investor belief that the Bank of Korea will raise interest rates as soon as November to keep any potential asset bubbles in check.

    South Korea imposed controls on mortgage lending in key areas early this month, but data released on Friday by its top local lender showed apartment prices across the country rose for a 16th consecutive week.

    ‘We are closely watching details on loans by financial companies. If their lending is found to reduce the effect of recent measures on banks as concerned, we are preparing more steps,’ the chairman of the Financial Services Commission, Chin Dong-soo, told reporters.

    South Korea’s central bank has repeatedly hinted that it was ready to lift interest rates to arrest the housing and mortgage boom.

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  • Frankly you’d have to be more than a bit clueless to believe the banks denials at this point. This is the same bank who claim not to be talking down sterling after all.

    Little known fact: the Bank of England’s chief press officer is Jenny Scott, who used to be a BBC presenter and economics correspondent. She knows a thing or two about spin.

    http://www.bbc.co.uk/blogs/theeditors/andrew_jenny_203_bbc.jpg

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  • BOE are irresponsible criminals.

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  • When the BOE increase interest rates,it’s then that houseprices will fall,
    All what you see now is just hype and nothing more,don’t be taken for a
    Mug,just hang in there and wait.we haven’t seen nothing yet !!!

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  • Got to give the South Koreans credit. They are at least trying. Lovely spicy food too.

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  • TC, no, I wouldn’t think so as that would be doubling any damping effect. Think we can expect more of same on rates and tax cuts to persuade an increasingly sceptical market to keep buying (some) gilts.

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  • Sorry that should be “spending cuts”…can’t blame Elvis though!

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  • Excessive exuberance detatched from reality comes about when the BOE and all other parties try to promote just that.

    What they are really saying is that they are seeing problems in the future storing up because of there failer to accept deflation

    and a contraction of our economy for want of a better word. future Inflation is the fly in the ointment. Cause and effect.

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  • Exactly shipbuilder. When does this enormouse jump in equities start to worry the bank – answer never, they have paid to bail out the financial instituitions and have deliberatly created a massive liquidity bubble in the markets. I don’t know how this will play out, but when we come out of this I fear the world will be a much much darker place with more greed is good idealism and the societal breakdowns will magnify. Shit the world is f*cked, and f*cked by greed.

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  • So next Thursday can we expect an end to QE and the first tentative increase in IR? That is if they are really worried of course.

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  • Mervyn is probably aware the whole snag in the UK is that only a fool would invest in an SME when you can invest in a tax free profit house.
    Its a bit like unearned house price increases due to government work near by such as a new tube station. Houses benefit from investments and high employment, investments -do not- benefit from high house prices.

    People are indeed waiting for the tide to turn, at that point you could invest in business, take a risk, or invest in shares price to earnings 14/1 i.e. 14 years to get your investment money back. Or just invest in a house at the bottom and wait 4 years to get *4X* your investment back. Or think of it another way, imagine a dream scenario, loads of foreign investors start companies all over the place, everybody in the UK is going to work, and the side effect is that house prices will rocket, so any sneaky investor putting money into property would easily outperform the fools who put their cash into productive companies. The value of properties in the UK is pretty wide, and can soak up 50 million as a single residence in London, yet the gains are totally tax free.

    Result, everybody waits for the housing bottom causing deflation, and nobody squanders their cash on low profit production investment. Hence the mexican standoff, nobody invests -AND- nobody buys houses. I don’t believe Mervyn is worried about another housing bubble in the slightest, but I am sure he is fairly worried that the obvious outcome is a never-ending slide to economic oblivion because politically impossible to reset house prices relative to investment, so unemployment has only one direction which is up, do not pass go etc etc

    Until real economic investment has a better return than housing there is no hope for the UK. And given the huge gains to be made from housing, what chance does some widget company have? Even on this site, people are aware of the facts, and even sold to rent, but nobody wants to -invest- in a company, waiting for the housing bottom while somebody -else- rescues (with risk) the economy. Fair enough, that is our stupid system, but there is nobody else, and actively devaluing the pound demonstrates the principles for foreign buyers. In euros they think house prices have perhaps bottomed, identical goods are now cheaper in the UK, but they don’t see this as a “business” investment opportunity, no, because it isn’t, it is a house buying opportunity.

    But inevitable consequences, down down down we go.

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  • They’ve just created £175bn and are looking for signs of excessive exuberance – Priceless!

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  • TC @7 :

    I’m caught in a crash
    And I can’t go back
    That’s because I
    leveraged too much equity

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  • BOE surprised? They running out of time in resurrecting the idea of “buying a house as an investment”. I think American people gave the answer to this great investment idea already.

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  • Well this is interesting – BoE ‘surprised’! ‘The Sun’ backing the torries, ‘grumpy’ Brown from the morning after the night before — could this be the start of the ‘W’ shaped recession as the consciousness shift becomes reality – oh and Fast Forward started on Sky last night against a backdrop of another Tsunami and volcanic eruptions today in Indonesia. Enough navel gazing, YES interest rates will start to climb over the coming months

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  • Oh G-d.

    Those of us who comment on this esteemed ‘blog might be a little bit left-field or unconventional in our thinking (from which I cannot exclude myself) but that Daily Hatemail headline has gone round the clock. I had to check to make sure it wasn’t from The Daily Mash.

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  • Makebonohistory says:

    I think it’s time to organise a protest march against QE. No idea how to go about it, but I’d be willing to do some research. 13 months ago no one would have believed what the response to an investment bank going bust would be, and yet the only protests (London G20) were characterised as nutter, anti-capitalists.

    It’s time to do something.

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  • I have been seen houses since last one month and everytime I see a house, it is sold within 1-2 days at the asking price. It definitely scares me, since such a fast pickup in prices or increase in demand looks either artificial fishy. This may lead to another irrecoverable crash within short time. Can someone control this.

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  • The sudden surge in prices, and suddenly all properties out of sight ! It will be sad if someone is creating this artificial demand for houses and to increase hosue prices ?

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  • House price bounce leaves HPC forum stunned!

    Now you lot, close your mouths, you’re dribbling.

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  • @ smugdog – “House price bounce leaves HPC forum stunned!” – not the case I’m afraid – if you look back through the archives you will see a varied debate (3rd qtr 2008) regarding the prospect of a DCB – techieman called it, we debated it (I didnt agree with him at the time) and he ultimately got it right – so no surprises on here.

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  • 22. mugdog

    Come this winter you may be drawling like a rabbid dog.

    Your home will become your doghouse and interest rates your master.

    You see the “final round” of inflation this time will be deadly.

    No wage inflation.

    No more QE.

    No more mortgage help.

    Sorry to say it but it’s Chappie dog food and very cold nights unless your a Corgi.

    You aint seen nothing yet when it comes to price falls or rises.

    I guess you can’t teach an old dog new tricks, but you can’t say HPC did not try.

    The bone has already been eaten. Do not be fooled by the glossy empty pack.

    Try howling to this one.

    Went downtown thought I had a dime
    Got home this morning didn’t have a dime
    Lordy Lordy Lordy got the dog house blues
    No use talkin’ I got the dog house blues.
    Come home this morning about half past eight
    She said honey you’re out too late
    Lordy Lordy Lordy got the dog house blues
    No use talkin’ I got the dog house blues.
    I went in the house to start the fire
    She kicked me out in the middle of the night
    Lordy Lordy Lordy got the dog house blues
    No use talkin’ I got the dog house blues.
    I fell in the yard mad as I can be
    Said to my dog make room for me
    Lordy Lordy Lordy got the dog house blues
    No use talkin’ I got the dog house blues.

    Bill Monroe, Dog House Blues.

    You have been taken for a ride, but told it was a walk!

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  • Crunch @ 24

    excellent and very funny post.

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  • ”4. little professor said…
    Here’s a proper central bank:

    South Korea eyes more loan curbs as house prices climb”

    I have been researching the SK market as looking to live there for a bit and was shocked by what I found in terms of fundamentals.

    The price of new build one bed flats in a decent part of Seoul is around 10x a good wage, their max LTV is 60% and they are looking
    to reduce to 50% and rental wise you would only look to recoup 50% of your borrowing costs if bought for investment. But still the bubble (for surely it has to be?) grows and grows on demand alone. Cant figure it out.

    Todster.

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  • cynicalsoothsayer says:

    QE is the last throw of the dice.

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