Friday, Sep 14, 2018

Carney throws housing market to the wolves

Torygraph: Mark Carney accused of spreading 'gloom' with no-deal Brexit prediction of 35pc house price crash

Carney would prefer to throw the housing market to the wolves instead of raising interest rates. Clearly, if the central bank itself, which has effectively set housing prices and the cost of credit, starts talking about a dramatic crash then nobody will pay. Nobody will take out a mortgage, and Carney will achieved through fear what he refuses to do from market pricing.

Posted by stillthinking @ 03:09 AM (5475 views)
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1. tenyearstogetmymoneyback said...

I saw the same story last night on The Huffington Post and this moring it is on the BBC just to make sure that anyone thinking of buying in the near future gets the message.

Friday, September 14, 2018 07:30AM Report Comment

2. tenyearstogetmymoneyback said...

Just looked at the Telegraph article and have to say the other two were far less biassed - along the lines of No deal is unlikely, but this is what Mark Carney thinks will happen if there isn't oneself.

Stillthinking I didn't understand the comment about interest rates. IMHO raising interest rates would be the equivalent of jumping into the Lions Den to avoid the wolves. A good point he makes is that there are few levers left to pull. What would they do? Reduce interest rates to a negative percentage. The only think I can think would be to abandon inflation targets and devalue the the £.

Friday, September 14, 2018 07:40AM Report Comment

3. jack c said...

Mark Carney with a property price crash prediction preceded by "Crash" Gordon (Brown) with 'The world is sleepwalking into a financial crisis' – Gordon Brown
Former PM delivers scathing analysis of how the problems of 2009 remain unresolved (Source - Guardian). Drip feed the bad news fore it happens and the public then shrug their shoulders and say "well we knew that was coming". Conversely at this mornings breakfast investment/property meetings I'm told everything is positively booming !

Friday, September 14, 2018 10:30AM Report Comment

4. stillthinking said...

@tenyearstogetmymoneyback interest rates go up to stop people taking out loans, which is credit expansion. there would only be a certain amount of real savings, so people with the most credible investment ideas would bid for the savings. probably this is a very outdated idea now ...
But of course if you scare people from making loans because they are only bidding amongst themselves for existing properties then no credit expansion, money supply stops expanding and inflationary pressure reduces. Not how this is supposed to work.
I could go on... and will, all my own personal opinion and I am broke as you like

Most importantly, what kind of central banker publicly goes out and says asset prices are going to collapse!! He is supposed to be in charge of financial stability!!!!!!

The BoE decide prices in the UK, as everybody who has sadly been on this site since before the financial crash, there was widely held expectation that there would be a deflationary crash and lo and behold it arrived. The BoE responded by printing money and tamping interest rates to the floor. There has been zero attempt to rein in QE.

The ultra loose monetary policy was tempered by scores of people flooding to the UK to work and limiting wage increases. As Lawson so infamously said, unemployment in the North is a price worth paying (to control inflation by)

Now Carney, c*nt that he is, is starting to look at the reality that there was never going to be an easy way out and I think is just now making excuses having blown policy for the last decade. He certainly can't raise interest rates because they would be impossible to pay by either the government or the private sector. He is basically having his last kick of the can. He has pumped additional money into the system on the back of falling import prices and wage controls from immigration, and is now looking at the possiblity of an exogenous price increase, for which there is no plan, even despite the UK running a current account deficit for several decades so you could have reasonably had a plan.

I suppose the summary would be, who other than Carney dictates UK housing prices? They are based on the affordability and availability of credit.

Friday, September 14, 2018 02:14PM Report Comment

5. quiet guy said...

This story also made the front page on The Times. Project Fear ?

Some commentary from Shaun Richards:

Friday, September 14, 2018 07:18PM Report Comment

6. tenyearstogetmymoneyback said...

A better analysis here. apparently what he said is that they had stress tested the banks for a 35% fall in case of no deal.

Stillthinking said "who other than Carney dictates UK housing prices?"

made me think of exchange rates. The BoE controlled those until Black(/White) Wednesday when they suddenly found that they couldn't.

It also surprises me that the Government hasn't made more interventions such as restricting mortgage multiples. I think that Carney himself suggested something like that once, but doesn't have the power to implement it.

A 35% drop would put my house back to where it was when I bought it just 7 years ago so wouldn't concern me much

Friday, September 14, 2018 07:40PM Report Comment

7. tenyearstogetmymoneyback said...

Sorry - missed out the link

Friday, September 14, 2018 07:41PM Report Comment

8. stillthinking said...

i don't mean set them in an absolute sense, i think the BoE can set them as long as they keep rising, and I can well imagine that they might lose control of the process. I see the losing of control being inflationary, just in the one direction.
it seems to me that in the UK over the last ten years we have carried out this relatively large devaluation, without a wage spiral, and that now with Brexit the bank are facing having to do -another- devaluation and are worried how they will get away with it. imo, you cannot use interest rates so effectively after QE because there is money out there without an offsetting debtor. you could raise rates, but where is the debtor to pay with the larger costs. so the bank wants to use other tools and a great one would be if people stopped borrowing by themselves, and clearly in the UK the mortgage market is a major component. to what extent interest rate rises are effective in a world of QE is kind of unknown but there have been statements in the past that the bank would withdraw QE before raising interset rates as clearly to do so would be to transfer teh costs of QE to debtors.
so I believe that Carney is aware that we might be leading up to a time when it makes a -huge- amount of sense to purchase housing because he won`t be raising rates should an inflation surge come along. at the same time if you don`t know what the boe will actually do then it could only ever be a gamble to put money down in the uk compared to say dollar based assets.
Coming to the point of when the UK dropped out of the exchange rate mechanism, the boe didn`t have any control over the foreign basket of currencies. so this doesn`t seem to match uk credit/interest rates vs the relatively slowly changing quantity of property.

It is though, a staggering thing for him to say after a decade at the bank himself, even though now he is trying to play it down, and what he is saying is effectively to intervene in market expectations negativelyk.

Saturday, September 15, 2018 08:52AM Report Comment

9. reticent said...

FWIW, I am buying a house, largely because I don't want to rent with a young family. I am fully expecting to lose 15% in the next few years, even if no-deal doesn't happen.

Contrary to what you learn on sites like this, the BoE targets IRs first and arguably, the exchange rate second. Asset prices are a secondary or tertiary consideration. His point is that if there is no deal, he will likely have to raise rates to protect the pound, and avoid imported inflation. What good is a cheaper pound to exports if you just messily left your biggest trade deal?

IRs are going up everywhere and the UK has been lagging because of Brexit's effect on the economy (uncertainty thus far having dampened growth). No deal means potentially having to front run IR rises to protect the pound. That would exacerbate the BTL sell-off and so there would be forced sellers at least in areas where OO rates are low.

Don't believe my opinion or anyone else's. Study orthodox economics and make your own mind up.

Saturday, September 15, 2018 10:11AM Report Comment

10. tenyearstogetmymoneyback said...

Reticent good luck.

The reason I bought this property seven years ago was having to move three times in three years when renting.

As many people (other than politicians) have said a house should be somewhere to live, not an "investment".
That is why I would put a heavy tax on BTL mortgages and use it to bring back MIRAS (for one property only)..

Saturday, September 15, 2018 01:48PM Report Comment

11. reticent said...

@10 Thanks for the kind words. Funnily enough, I often think of your username and backstory regarding the '89 crash, when questioning why I'm going through with this purchase.

In a stable market, the temptation to time your purchase wouldn't be there. Instability is largely caused by speculation. STR is a form of speculation, albeit one that goes against trend. It shouldn't be an investment, as you say, so I'm just buying what I need while I can. That's my moral argument against waiting. In practical terms, I just want to quit my job and go freelance. It might be quite difficult for me to secure a mortgage in a few years' time. Ultimately, you have to do what is right for your family. In any case, trying to time the market has cost me dear in the past (reading this website obviously didn't help). I am older and better-educated now, and I think a crash is probable. I think a nationwide correction is probable even if there is a deal. Clearly, in London a correction is already well underway.

My only saving grace would be inflation: if there is enough of it and enough of it feeds through into wages, a 35% fall would be very unlikely. Sadly, I think stagflation is more likely. But luckily for me, I do a job that is likely to benefit from a falling pound and a drain of foreign talent, regardless of our relationship with the EU.

Saturday, September 15, 2018 03:20PM Report Comment

12. tenyearstogetmymoneyback said...


My advice would to be as sure as you possibly can that you will be happy to stay in the property you buy for ten years. I was actually advised not to buy my 1989 property by my solicitor who questioned the number of owners it had had in the previous four years. It turns out I had the equivalent of the Simpsons on one side and the cast from South Park on the other !

The good news was that the property had low running costs. I doubt if I spent more than £1000 in repairs and improvements in the ten years I was there. It would be interesting to compare mortgage costs against rental costs over the 1989 - 1999 period.

Saturday, September 15, 2018 08:28PM Report Comment

13. reticent said...

Hi 10ytgmmb,

Sorry for not replying earlier. I just wanted to say that I appreciate your advice and took it on board when I read it 2 weeks ago.
Upon reflection, I think I can stay there forever. Like all people of my generation, I'd rather have more space. But I could make do forever if need be.

Thanks again.

Friday, September 28, 2018 06:31PM Report Comment

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