Wednesday, Nov 28, 2018

BOE Predicts House Prices could fall by a third in the case of hard Brexit

BBC: Bank warns no-deal could see UK sink into recession

I am getting fed up with the expression "No one voted for a worse economy" etc.
If house prices dropped by 1/3 but wages only came down 15% then many people would benefit.
Although I own my bungalow a price drop would make a bigger one that much cheaper.
Obviously the over-indebted wouldn't benefit at all.

Posted by tenyearstogetmymoneyback @ 09:11 PM (2096 views)
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14 Comments

1. stillthinking said...

and even more fervent here

https://www.telegraph.co.uk/politics/2018/11/28/mark-carney-accused-project-hysteria-bleak-no-deal-analysis/

Actually Carney will just be caught out that he has relied on european immigration to mask the effects of his policies. He has keep interest rates near zero for a decade and printed money while denying all the while that wages are held down by the constant supply of marginal labour.

Thursday, November 29, 2018 01:09AM Report Comment
 

2. taffee said...

People forget that rates are near zero and all the props mean things are really bad!

The consequences of these actions have yet to be seen or felt and are in fact unknown

Thursday, November 29, 2018 07:29AM Report Comment
 

3. mombers said...

Nequity is a much smaller problem now than it was before. Hardly anyone can move anyway! At the margins a few more people could move up in the event of a crash. We certainly would be able to. If prices went back to Dec 2013 when we bought, we'd save almost a hundred grand on moving from a flat to a house. We came in with a 15% deposit and have paid it down a lot so we could stomach a fall of a third. But at current prices, we can't move anyway...

Thursday, November 29, 2018 02:13PM Report Comment
 

4. stillthinking said...

I don't think that the UK is on heart support. Its more likely that everybody loves zero interest rates. What started out as a rescue maneuver just got stuck, high asset values, low borrowing costs, what is there to dislike. But it went on too long. There was never the case that low inflation would stick. I read the other day that in the case of a hard brexit, so that imported food wouldn't have to come from the EU, that the prices would fall 8%.
Ho ho ho
The basket of goods WILL go up in price at the target of 2% (3.5 in reality) every year. There is, and will not be any falling prices.
If robots fell from the sky and starting making half the stuff we consume for free, the BoE is mandated to increase the prices of the other half to enforce a rise in the general price level of 2% (3.5 in reality). Robots, and joking aside any increase in productivity for UK workers, will not bring prices down. The basket of goods goes up to 2% every year, its as simple as that.
James Grant, of the Interest Rate Observer, has pointed out that at some point, something will go wrong and that inflation will come back. What happens when prices start to fall, ok so there is a reluctance to engage with the market, but after that the number of transactions is going to go way higher. Money will change hands faster. I think when interest rates go up, transactions will go up. Perversely, when interest rates go up so will inflation. However, thats only my own opinion and I am broke so don't bet anything on it.

Thursday, November 29, 2018 03:15PM Report Comment
 

5. jack c said...

Interesting "House Price Crash" phone in with Jeremy Vine today - well worth a listen www.bbc.co.uk/programmes/b006wr3p

For many the crash has already started !

Thursday, November 29, 2018 03:38PM Report Comment
 

6. tenyearstogetmymoneyback said...

I have always thought that the BOEs inflation calculations are suspect. According to their calculator the "starter" house I bought in 1986 should be worth £67K. A similar one in the same road recently sold for £200K.

As for food prices falling they will probably be offset by a fall in the £

What will be interesting is whether they will change their tune if food etc is going up 5% a year and house prices are dropping.
Back in the eighties boom a colleague had the theory that house prices were rising because everything else was getting cheaper.
Things like TVs are cheaper in £ now than they were in the 80s. I paid £440 for a 25" Toshiba in 1989.

Thursday, November 29, 2018 10:54PM Report Comment
 

7. taffee said...

There is a basket of over 645 items..new labour removed house prices on early 2000s I believe along with other manipulations

Any one know if the number of items has increased over the years in order to dilute the essentials of life which have absolutely increased dramatically like gas elect and council tax and petrol

Friday, November 30, 2018 05:31AM Report Comment
 

8. stillthinking said...

I think the BoE looks at wages mainly, because inflationary wage spirals mean its out of control, and in the end nobody can spend more than they earn for ever. Plus they only look at the last year so high inflation periods drop out and the cumulative inflation rate, well where is it? Oh cumulative inflation isn't part of the target...

And for all the talk of free market by the Conservatives, the number of wage caps which trigger the change in job seekers versus jobs (via non-EU migration) are not only quite low, but also really extensive, you'd struggle to find a job with a salary set entirely by the open market in the UK. Corbyn proposes to remove wage caps, which is a bizarre accusation to make against the Tories.

@tenyearstogetmymoneyback, I think your colleague is absolutely correct, all of this persistent devaluation to compensate for falling prices from China/productivity increases, of course shows up against property and gold. The real average rate of inflation for the UK since 1971 against gold is 6-7% per annum. Inflation should be measured against price adjustment. If it costs 100, then oh new manufacturing process goes to 80, but hey, has to increase by 2%, make all the adjustments and what has happened is that you have inflated from 80->102 i.e. 27% inflation of the money supply.
Thats not to say that 2008 wasn't a debt fuelled bubble as well, which it was.

I would also say that food prices will stay the same because of the pound falling, the fall in the pound is not the currency markets making a decision on what the pound is worth, the BoE & government have ENTIRE control over the value of sterling, because they control interest rates, QE/QT, and the regulations controlling credit expansion by the banks. The -only- thing the currency markets can do is to front run these administrative decisions in the end. The speculators do not cause the pound to fall, they -measure- its future discounted value as fallen. The pound collapsed after the brexit vote because the currency markets -measured- the BoE response to the uk exiting europe, and measured that the BoE would pump additional funds into the economy devaluing the existing stock of money.

The 2% mandated general price increase is NOT the level of inflation which is much higher. I think the irresponsibility of Carney is to just blithely assume he can get away with it forever. So for a mortgage deposit, well maybe the amount a couple can save into their deposit -cannot keep pace- with price increases of housing. It would in gold. In gold you definitely get to the point you can put a deposit down, in pounds maybe not.

Anyway blabbed on a bit oops

Friday, November 30, 2018 06:43AM Report Comment
 

9. tenyearstogetmymoneyback said...

To answer Taffee

I know that they keep changing things in the basket

https://www.theguardian.com/business/2018/mar/13/quiche-in-pork-pies-out-uk-inflation-goods-basket-changes2018

The one that sticks in my mind was replacing Camera Film with Digital Memory Cards.
The original article has gone but Google found me

"17 Mar 2008 - Flash drives enter National Statistics' shopping basket ... Once a year the basket of goods is tweaked to more accurately reflect UK consumer spending in order to offer a proper snapshot. ... Camera film has been replaced by portable digital storage media such as memory cards and USB flash drives"

I always thought that was a particularly poor thing to do given the way Memory Cards plummeted in price.
In 2004 I paid £100 for a 1GByte Compact Flash Card. Nowadays one 16 times the size costs 1/20th of the price.

I have just been looking at the differences between CPI and RPI, but even RPI only seems to include the "cost" of housing (i.e mortgage payements) rather than the price of houses.

Friday, November 30, 2018 06:06PM Report Comment
 

10. taffee said...

Thanks for input @8 and @9

Its difficult to believe that when essentials of living have gone up so much that inflation has been so low

Higher inflation normally meant a rise in interest rates

The last 20 years economic policies leave me scratching my head

Either there is a master plan or the can has been kicked down the road and the consequences are unknown

Saturday, December 1, 2018 05:52AM Report Comment
 

11. tenyearstogetmymoneyback said...

I suspect that the only essential that has outstripped inflation is House prices

http://www.totallymoney.com/news/cost-food-increased-rate-house-prices/

There is a similar report by Shelter that is even more dramatic

I know that my house, complete with central heating,, cost £12500 in 1974.

I mentioned the central heating as neither my 1980 or 1984 built properties had it when built, probably because it would have increaseed the price significantly

Saturday, December 1, 2018 08:04AM Report Comment
 

12. stillthinking said...

House prices have not exceeded inflation, they accurately reflect it over a long period. Here is the link to house prices in gold. Stable basically. House prices may go up and down buts its around a long term average and its visually very clear. You can see the Lawson boom and bust, all of the UK economic history writ large. The inflation that we have is 2% plus whatever is required to stop prices dropping, inflation over my life time has been substantial. Around 6-7% a year.

http://www.goldchartsrus.com/chartstemp/USHLSPOG.php

Or here, japanese yen. Prices in japan haven't changed in 20 years apart from the purchase tax. but take a look at sterling. So the baby boomers were lucky in that oh back the 70s when they were buying houses, wow look how the value went up. -Except- , they could have bought yen instead and they would have made exactly the same gains. You could have bought pretty much anything with a loan in sterling because interest rates in real terms are, and have been, negative.

https://www.poundsterlinglive.com/bank-of-england-spot/historical-spot-exchange-rates/gbp/GBP-to-JPY

Sunday, December 2, 2018 12:21AM Report Comment
 

13. stillthinking said...

The only thing the BoE can ever do is create winners and losers from enforcing transfers of real wealth. The inequality in the UK, which is dramatic, principally shown by the difference between home owners and non home owners, is only a reflection of the transfers of wealth through their policy decisions.
I take some solance from the fact that the baby boomers who have so deliberately pushed these proceedings though, have failed to realise quite how badly their pension incomes are affected, perhaps some now are looking at annuity rates and wondering if they bet on the wrong horse.

Sunday, December 2, 2018 12:34AM Report Comment
 

14. tenyearstogetmymoneyback said...

Still thinking wrote "You could have bought pretty much anything with a loan in sterling because interest rates in real terms are, and have been, negative.".

The question in the past is whether you would actually have been given a loan. A factor that limited house prices back in the early 1980s was that it was almost impossible to borrow more than three times you salary. In fact when a friend applied for a mortgage they wouldn't lend him 3x as he had an outstanding car loan, taken out to buy a second hand Renault 5, so he was hardly being extravagant. The Building Society deducted his outstanding loan amount from the 3x salary maximum limiting his purchase to a small flat.

Just before I bought my first house I lived in a house owned and occupied by a Musician. Being self employed he couldn't get a mortgage at all, so he had had to buy his house using a ten year bank loan. His four lodgers paid most of his monthly loan repayment.

Nowadays he would probably have been able to have a string of Buy to Lets. Until the late 1990s I don't recall there being such a thing as a Buy to Let mortgage. The only way you could have a loan on more than one house would be with a bridging loan at a punitive rate of interest.

Back to car loans in 1991 I got turned down be Halifax for a £3000 loan, despite having about £15000 equity in my house. I ended up having to take the garages Hire Purchase scheme at about 23% APR. Taking 10 months to pay the interest on my 3 year agreement, that taught me it is better to save up for items you want.

Summing up there are plenty of ways other than interest rates to limited prices. It is a shame that none of them seem to have been applied this century.

Monday, December 3, 2018 08:05AM Report Comment
 

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