Monday, April 9, 2012

Volumes

Housing market slows to 2008 level

Activity in the housing market slowed last year to its weakest level since 2008, according to a respected measure, as worries about the economy and problems scraping together a big enough mortgage deposit weighed on demand.

Posted by dill @ 11:29 AM (4964 views)
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14 thoughts on “Volumes

  • markj69 str05 says:

    At what point in the life cycle of a bubble does realization occur (That is realising house prices are too expensive)? QE and low IR may have postponed an outright crash, but at what cost to the economy? The only options we have is either price crash, or wage inflation. So what’s it to be?

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  • High wage inflation is unlikely, due to the global nature of the economy; high unemployment; low levels of job security; changing patterns of employment, ie more part-time, short-term contract work; and weakness of trade unions – I am sure there are other factors too.
    So, a price crash is inevitable, except in the scenario that more and more property is bought up by the BTL crowd and we gradually become a nation of renters, putting an ever-increasing share of national income into the pockets of the monied few, which seems to be the strategy of the government.

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  • mark wadsworth says:

    Markj69, the cost to the economy of the bank and land owner bail outs was absolutely colossal, however you quantify it.

    Ever the bear-optimist, I’m hoping that we are now finally going into the second leg down in the life cycle of a bubble, for the reasons that SK suggests. And who cares if we end up a nation of renters – politically that will make replacing taxes on income with taxes on land values much easier 🙂

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  • @2 or to anyone..
    What are the consequences of wage inflation in the UK, internationally?
    Imagine you’re explaining it to a GCSE student…
    Does it necessarily include the need to money print so that the higher wages can be paid?

    Mike

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  • general congreve says:

    You can’t have wage inflation without destroying the pound yet further. The money has to come from somewhere and therefore it has to be printed, which devalues the pound and causes inflation. While it may bring wages closer in line with house prices, the effect on all other prices from inflation (especially the knock on effects of fuel costs to everything else) will just mean all those inflated wages going on other bills. Therefore the overall cost of living will not fall and people will be no more be able to budget to afford a house than they can now.

    There is no free lunch to be had. House prices must fall and the fallout be accepted, or else we will just face a stagflationary collapse instead, if we are not already in one. Bear in mind that there is usually a several year lag between printing and inflation, e.g. within just 3 years of starting QE, petrol is already 50% more expensive and they have dumped another £125Bn of QE in the economy within the last year, God knows how expensive it will be in 5 years time.

    Just buy some bloody gold and silver and protect yourselves. It’s currently being suppressed, like a beach ball held underwater, so it’s cheaper than it should be and packed with positive leverage. When the crooks finally lose control of the debt-fuelled beast they have created you’ll be so grateful you did.

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  • And of course, wage inflation accompanied by our historical inability to deliver a commensurate increase in productivity will mean that we become even less competitive in the global economy.

    The corollary of this is firms going out of business, meaning more unemployment so as SK says, a price crash would appear inevitable.

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  • Should read:

    “a price crash would appear inevitable if wage inflation took off.”

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  • general congreve says:

    @7 – Agreed. Contrary to popular opinion, economies that experience high inflation also experience falling real and nominal property values, as everyone spends money as fast as they can on rapidly inflating essentials like fuel and food, leaving nothing to bid up house prices. Happened in Argentina and everywhere else hyper or high-inflation has taken hold.

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  • “At what point in the life cycle of a bubble does realization occur”

    When interest rates and the cost of borrowing rises. It really is that simply. You will have to wait for a while for the crash if current policies have anything to say. Alternatively they could bring it all the way to hyperinflation if they are not careful. We are currently following that trajectory.

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  • stillthinking says:

    I’ve seen that picture used before…

    I don’t think that wage inflation is all that likely. Usually consumers save up, their savings go into productive investment i.e. companies take on the debts, then the consumers buy the high end stuff from this productive investment.

    In the UK the companies have the savings, the consumers have the debt. Its the wrong way round ! UK companies already have the cash, the reason for their existence, the game of business, has already been played and they won. UK businesses should absolutely not invest, they should close and give the money to the owners. Who exactly would they be investing for?… unless exports and I think the export dream is only going to work for a small slice of UK endeavours, there are a lot of businesses that are intrinsically unsuitable for the export market.

    I do not see interest rate rises for this reason. Without investment (no point~) or spending (no ability~) where is the demand pull, or the supply shock? I mean no inflation from growth anyway, maybe an oil shock or something. Possibly a loss of confidence in the currency, so this is the broken transmission mechanism afflicting the central banks. Interest rates at zero and thats it.

    The UK is going to limp along for decades and housing is going to limp along eventually getting to the big boomer sell off. There is no point buying in the UK any more. Interest rate risees are not going to clear the market, the country is now full of zombie households.

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  • stillthinking says:

    Sorry one last bit..

    Say prices are even -quadruple- what they should be, you as a potential purchaser know that, the seller knows that, everybody knows. If interest rates are at/close to zero why should the seller ever realise the loss? There is no reason to, and in many cases they get the use of a home while dragging out their loss. They can sit on that for ever. This sadly also totally shafts the UK.

    Mervyn absolutely needed to grasp the inflation of the last few years, and raise rates accordingly. This would have cleared the market and if clear the market, prices would have gone down and people would have started borrowing to buy and invest again. But he didn’t do that, to rescue the borrowers, instead he has led us straight into a liquidity -trap- not understanding that those debts are turkey either way, whoever ends up taking the loss.

    What I think the media myth and popular understanding is, that because 5 years on from 2007 therefore things start to get better because its a cycle innit. But they do not consider that actually it does not get better and this is it, like doctors arguing over the prescription for a dead patient.

    Our only hope IMO, is that as the savings rate goes negative, which is starting just about now as the first boomers head off out of the workforce, that we get some inflation that way that gives us the need for an interest rate rise and so market clearance. This is potentially years off though. Most families, women, cannot wait that long. So the choice becomes take on suicidal levels of debt or don’t own a house, or leave the UK which is the best option I think in that it would contribute to -our only hope- mentioned previously.

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  • stillthinking says:

    Also…cough…

    There will be additionally an inevitable shortage of properties as the economy stalls. This property shortage will not drive up prices, because current prices are already unaffordable, and so supply will not rise to meet demand.

    Property companies are sitting on landbanks financed at zero. They cannot do anything with them without realising their losses. They cannot sell them to somebody who wants to build without realising a loss. They cannot build on them themselves because they cannot extend credit further because they are sitting on a loss. They are zombie property land banks frozen by low interest rates. Without market clearance nothing. That land will just sit there. The busted companies that should sell their capital assets to others are in the same boat. This is the lost decade type economy.

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  • Property prices will fall across the UK, but not in London – there is simply too much support there.

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  • @13 – yes. The essence of neoliberalism is that workers in ‘advanced’ economies have to compete with workers in China etc. The result is that wages in the two types of economy start to converge – real wages here decline and real wages in China rise. In the meantime business owners and managers (look at their salaries & other remunerations) get richer because they can play off one set of workers against the other (and fall between the cracks between tax regimes). Hence – money for the international rich to bid up the prices of high end residences in London and the likes of Sandbanks, no money (without a credit bubble) for workers to bid up prices of residences elsewhere.

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