Thursday, Jul 16, 2015

Deposits dominate?

Liberty Street Economics: How Sensitive Is Housing Demand to Down Payment Requirements and Mortgage Rates?

Liberty Street Economics seems to be a blog for the Federal Reserve Bank of New York. The article explains some American research that suggests that property buyers are more influenced by deposit requirements than interest rates: "The price of available financing (that is, the mortgage rate) may play a less important role than commonly thought." Long term blog readers may recall some statistical investigation by another contributor to this site who found that the correlation between UK house prices and interest rates was surprisingly low. The implications are also significant w.r.t. UK government policy. Deposit boosting schemes such as 'Help to Buy' may affect the market more than ZIRP. Hat tip to 'northshore' on the forums.

Posted by quiet guy @ 11:55 PM (4931 views)
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1. khards said...

Certainly seems to be the case among many first time buyers I know. Their decision is usually made by what the bank will give them for a £5/£10k deposit before their bank notice that their first child is about to pop.

Friday, July 17, 2015 07:57AM Report Comment

2. taffee said...

Deposits matter because nzirp has inflated prices.if rates were 5% then prices would plunge
But so would deposits required in % and cash terms.

Current situation is extraordinary and history says unsustainable

Sunday, July 19, 2015 09:09AM Report Comment

3. hpwatcher said...

Current situation is extraordinary and history says unsustainable

Sadly, it's starting to look like a pretty permanent state of affairs; central planning in every market and in all major countries.

Fiat currency allows it, and given that the central banks of the world are now acting in unison, I fear we are looking at a long term timescale.

The only thing that would bring the current situation to a close, is widespread dollar rejection.

Sunday, July 19, 2015 12:29PM Report Comment

4. taffee said...

There have already been consequences to this stance many of which are unintended.instead of inflation we are
Now tackling deflation. And there has been a misapplication of capital inflating property prices stock prices and
Things like classic cars

Bearing in mind policy makers used to spend all their time trying to avoid being caught in a spiral of money printing
And other props including zirp....I cannot believe there will be no consequences.

If zirp and qe are so effective and sustainable why not just keep them forever?

Sunday, July 19, 2015 01:08PM Report Comment

5. hpwatcher said...

If zirp and qe are so effective and sustainable why not just keep them forever?

That's exactly what is happening. The central banks of the world are talking it in turns to implement massive QE. The batten has been handed by the US to Japan, and then to ECB; I don't doubt that in time, it will be handed back to the US.
Widespread devaluation is obscured by the unity of the participation; you won't even see the devaluation reflected in the price of gold, it's now capped, this can be seen with the obvious paper/derivative selling. Literally, very few places for the investor to run, aside from overpriced assets and equities, they are all being closed off. Forget free markets and ''normal'' economics.

Sunday, July 19, 2015 02:25PM Report Comment

6. taffee said...

Interesting points...I wonder how it will all turn one really Japan prices fell for 20 years but
As you say everyone's doing the same thing is for sure once bubbles burst you won't see 'investors'
For quite a while In my experience

From what you say the bubble may be pumped up Indefinitely however I've never seen a useful example

Suffice to say these are extraordinary times in the financial world

Sunday, July 19, 2015 03:55PM Report Comment

7. hpwatcher said...

Suffice to say these are extraordinary times in the financial world

Times of financial repression together with widespread corruption and theft.

Sunday, July 19, 2015 03:59PM Report Comment

8. taffee said...

Quite right I guess the question for people here is

1/will they trash property by letting market crash/correct then sweep up

2/will they let stocks crash/correct then sweep up

3/or will it all collapse under its own weight

4/ or will prices will be propped forever?

Sunday, July 19, 2015 04:11PM Report Comment

9. clockslinger said...

I am a bank. Apart from being a corporate entity, which makes me by definition psychopathic, I can also, unlike a normal corporation, generate this electronic currency thing (particularly if you give me a 10% deposit as equity to lever against.) I can then punt the loan out to someone else. Then I can generate more electronic currency stuff for the next sucker, sorry, customer. Rinse, repeat.
There's only one problem with being able to do this. Electronic impulses aren't very useful because they are inherently worthless. Which means there's nothing I'd like more than the opportunity to convert little binary signals into real stuff like, er, your house, or Greek harbours and reservoirs, or land. So yes, I'll trash whatever it takes to get myself some real stuff for a pennies on the pound.
I have form for this. Glass beads to Indians used to do it. Opium to China, that worked. The odd war. Whatever it takes. I'm a f***ing entrepreneur, me.

Sunday, July 19, 2015 08:25PM Report Comment

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