"The Recession" is Still On Track - House prices to fall

Radiantsoul wrote: »

The third scenario is interest rates remain very low and the economy recovers. The surplus capacity in the economy is perhaps 10%(two years of lost growth at 3% plus the 4% fall this year). So assuming the economy grows at 3% per annum we can have growth of 3%(or less) without being especially inflationary and in fact the output gap would increase. That seems the most likely outcome for this year and next. It is an interesting issue when and how that output gap will ever be filled. It will certainly act in a deflationary way on consumer prices, nevermind the occasional commodity price spike or tax rises.

I think it is quite hard to speculate the impact this would have on houses prices, but it seems to point to neither a crash nor a surge.

Spare capacity does not seem to have been much of an boon after previous recessions. Sounds like wishful thinking to me. Any sustainable recovery is not going to be based on finance and services, and just cannot just restart factories that have been stripped or demolished.

Well Brit I see the stimulus as having essentially worked as a stimulus, you seem to see it as a life support which is needed forever, so we'll see who's right on that one in due course. I have to say you're not spectacularly good at predictions historically though.

The cornerstones of risk analysis are assessments of likelihood, impact and mitigation, you really just focus on impact, which is why you worry rather than predict accurately. You wouldn't need dodgy Youtube videos if you understood risk, you'd be able to construct an argument which would stand scrutiny and be borne out by events.

The housing markets in the US and UK aren't linked except in the very loosest sense of the word, that they're affected by the same tide of events. You don't look at prices in Washington DC before buying a semi in Ruislip. The US supply/demand equation was distorted by criminally reckless lending in a country where the supply can be increased without too much trouble, and the debt sold onto banks on the basis of the lie that they were safe investments. That was the causal factor beyond the bank crisis. UK house prices weren't a causal factor.

In the US there was a different situation to here where we have heavily constrained supply, so even if demand slackens off there's still upwards pressure on prices.

As we saw in 2009 with prices rising into a credit squeeze and general economic depression.

The other downside risks still exist, certainly, but they're not likely to combine into crisis. Toxic debt is priced into expectations, risk of sovereign insolvency is low and has always been overplayed anyway. Credit downgrades are less significant than you seem to believe, and again can be anticipated so they can be priced in.

Sir_Humphrey wrote: »

Spare capacity does not seem to have been much of an boon after previous recessions. Sounds like wishful thinking to me. Any sustainable recovery is not going to be based on finance and services, and just cannot just restart factories that have been stripped or demolished.

Where are the factories that have been stripped or demolished exactly?

This isn't a 1980s recession where we have excess uncompetitive capacity. Manufacture here is either highly efficient (with associated capital investment), or outsourced with value add done here. There's not much to close. In my direct experience the reaction has been to mothball capacity or turn off the tap to external suppliers.

Finance and services can provide growth perfectly well. It's a myth that wealth can only be created by manufacture. You can add value to raw materials and sell the result (manufacture), you can lend someone the money to buy that (finance), and you can keep it working (service). In many business models, service is the most valuable part. You don't have to exchange a tangible new object to generate value for a customer.

Really2 wrote: »

It is easy to do way off predictions when you wont be in power by then.

Our debt repayment plans are based on these figures plus house prices rising by 5% a year for the next 5 years when you take into account how much they plan to raise from stamp duty.

So where will the extra money come from to Pay the debts then? Hamish and others are telling us the Tories will not any real worse cuts than Labour are suggesting

In risk assessment terms, Sir Humphrey, there's a risk of increased supply lowering prices. The impact is that if this continued unchecked that lenders' balance sheets would be adversely affected. The likelihood is medium to high. The mitigation is to throttle supply.

Unless householders decide en masse to exit the market regardless of price, the supply would only increase substantially on forced sales. To get there, they have to be repossessed. That puts the mitigation into play, and the lenders are able to do that, most likely by operating divisions offering homes for rent, probably back to their former owners. Individuals needing to move have the same option.

So it's a closed loop, more or less. Big HPI is one thing, big falls seem to me very unlikely. There'll likely be some jittering up and down as the system regulates itself.