Sunday, Dec 06, 2009

Anglo-Saxon economies are the problem

Sydney Morning Herald: Property prices on way down, warns bank

Is there a correlation between massive property price to income ratios and the level of "Anglo-Saxon-ness" of a country ?
I guess it also holds true to Anglo Saxon economies are too soft on their exploitative banks.

Posted by voiceofreason @ 08:21 AM (1357 views)
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1. mark wadsworth said...

I used to assume that this was the case, but I did a comparison of percentage increases in house prices in European countries (plotted against the level of owner-occupation) and there is a mild correlation but it's not that striking.

Sunday, December 6, 2009 11:22AM Report Comment

2. drewster said...

MarkW, VoR,

I refer you to my earlier post:
Cleveland Fed: Why Didn’t Canada’s Housing Market Go Bust?

Canada is very much an "anglo-saxon" country, with a 68.4% home-ownership rate (source: 2006 census). They haven't had a bust either.

In Australia interest rates haven't gone below 3% during this 'crisis', and they are now back up to 3.75%. Still no bust. As per the article I posted, lax lending standards (high proportion of liar loans) seem to be the biggest risk factor. On that metric it's not surprising to see Dubai crash - the whole country is a lie!

Sunday, December 6, 2009 01:50PM Report Comment

3. tom101 said...

Any views on New Zealand....?

Sunday, December 6, 2009 02:28PM Report Comment

4. voiceofreason said...

I see your point. What I take from this is that you can get a higher standard of living in a country with tighter lending rules, because you don't have to get into debt like everyone else to put a roof over your head......

What are the chances of the UK lending rules being tightened ?

Sunday, December 6, 2009 07:11PM Report Comment

5. mark wadsworth said...

Drewster, agreed, Canada is a good counter-example (I did read your earlier post, that all makes sense).

Sunday, December 6, 2009 07:45PM Report Comment

6. drewster said...

Thanks MW, glad to know somebody reads these things!

VoR: It's not black and white. Some debt is good, e.g. borrowing money to grow a business. However (and as MarkW constantly points out) borrowing money to buy land is not productive, it just creates speculative bubbles in land value.

In response to your question, I suspect the UK will always be a country where loan sharks operate and questionable loans are granted, simply because investors consider us to be a 'safe' country where laws are fairly enforced (unlike e.g. Dubai or even Italy). This means loan-to-income ratios will always be structurally higher in the UK compared to other countries.

We tend to forget that the UK has a tight system of credit-references and a tiny clique of banking (the Big Four of Barclays, HSBC, RBS/Natwest, Lloyds - now the Big Three). It's hard to run away and hide, compared to the USA or to other European countries. This means that it's harder to run away from debt here; and that UK citizens are effectively more willing to become debt slaves.

Sunday, December 6, 2009 09:17PM Report Comment

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