Connection of recession to house prices

caveman38

Although we are continually led to beleive that the HPC and the recession are connected. Surely they are independant to each other.
In the grand scheme of things or the chicken and egg example, what is the order of these problems. What really led to what. I know it sounds a bit uneducated but can you smart guys explain to the less clued up what really is the real problem or are there a number of them that have all come at the same time or does one lead to another and what is first.

mewbie_2

Here's a simplistic answer. Britains' economy was propped up by a rising house price bubble - we don't make anything anymore, or have any natural resources. The bubble reached its absolute limit and stopped, then popped. The economy which is built on....etc... also stopped. Here comes recession.

I know... it's a lot more complicated than that really.

ad9898_3

mewbie wrote: »

Here's a simplistic answer. Britains' economy was propped up by a rising house price bubble - we don't make anything anymore, or have any natural resources. The bubble reached its absolute limit and stopped, then popped. The economy which is built on....etc... also stopped. Here comes recession.

I know... it's a lot more complicated than that really.

It may be more complicated but this is a good summary, house prices are the economy according to Clown, you only have to look at him doing everything in his feeble power to prop it up, the sole reason for this is simple, Browns chances of re-election go down with house prices.

WTF?_2

caveman38 wrote: »

Although we are continually led to beleive that the HPC and the recession are connected. Surely they are independant to each other.
In the grand scheme of things or the chicken and egg example, what is the order of these problems. What really led to what. I know it sounds a bit uneducated but can you smart guys explain to the less clued up what really is the real problem or are there a number of them that have all come at the same time or does one lead to another and what is first.

Britain's 'economic success story' and the incredible eternally expanding property market were both products of the credit bubble originating in the US.

In the case of forever rising house prices, they fed back into the creation of even more credit and thus underpinned a hell of a lot of the UK economy.


The real problem here is that the UK (and much of the Western World) has been living well beyond its means for quite some time and using the aforementioned credit to do so. Now that credit has been taken away, we are reverting to a sustainable level which is going to be quite some way below what we had come to expect. The bigger the boom, the harder the fall - and the boom in Britain was bigger than most.

Once we've found a stable base we can work on sustainable growth of the economy.

purch

In the case of forever rising house prices, they fed back into the creation of even more credit and thus underpinned a hell of a lot of the UK economy.

It's hard to quantify just how much of Browns economic miracle was due to the overall asset bubble, but you can guarantee it was most of it was.

The Recession and HPC should be seperate and isolated occurances, and even in these times they are seperate, but the "trigger" was the loss of easy credit that was the foundation of it all !!!

Conrad

Caveman, a couple of points;

1) Think of property like tyres. If you pump air in, the tyre inflates, and if you pump in easy come and cheap mortgages property prices inflate.
If you withdraw the air the tire deflates, and course if you withdraw the lines of easy credit, then naturally those house price deflate.

2) If we were not surprised pennies fell from heaven in the form of magically rising prices, then we MUST also agree that that magic money can also return to heaven.

The real issue for many sellers is they mentally banked any rises, but oddly they can't get thier brains around those same prices flowing in another direction. Odd really

GDB2222

purch wrote: »

It's hard to quantify just how much of Browns economic miracle was due to the overall asset bubble, but you can guarantee it was most of it was.

The Recession and HPC should be seperate and isolated occurances, and even in these times they are seperate, but the "trigger" was the loss of easy credit that was the foundation of it all !!!

Well, it's not that hard to quantify. We do know that about 4% of spending came from MEWing. That's stopped, so we should have an immediate 4% drop in GDP. The figures for MEWing are on the BOE website. Similarly, credit card spending, I don't have the figures but I guess another few %. Allowing for some paying back, say 10% off GDP.

On the other hand, we were so profligate in our spending, that some of it won't be missed too badly. I can manage (have managed actually) without designer clothes. In fact, I will be pleased not to see the manufacturer's name on the outside of other people's clothes. You can save a few hundred quid off the price of a car by having wind-down windows and cloth seats, etc etc etc. It may do us good.

kennyboy66_2

GDB2222 wrote: »

Well, it's not that hard to quantify. We do know that about 4% of spending came from MEWing. That's stopped, so we should have an immediate 4% drop in GDP. The figures for MEWing are on the BOE website. Similarly, credit card spending, I don't have the figures but I guess another few %. Allowing for some paying back, say 10% off GDP.

On the other hand, we were so profligate in our spending, that some of it won't be missed too badly. I can manage (have managed actually) without designer clothes. In fact, I will be pleased not to see the manufacturer's name on the outside of other people's clothes. You can save a few hundred quid off the price of a car by having wind-down windows and cloth seats, etc etc etc. It may do us good.

It's clearly a fair bit harder to quantify than you have made out.
MEW will have no (or very small effect) on GDP in the following circumstances.

1) MEWing to purchase a BMW or other imported cars (or imports in general).
2) MEWing to put a deposit on a BTL.

GDP = consumption + gross investment + government spending + (exports − imports

The minus imports is the critical one.

Clearly a decline or reversal in MEWing and personal debt will have an impact, but to suggest that a 1% decline means a 1% reduction in GDP is nonsense.

purch

:eek: .....funny how I suddenly begin to lose interest when everyone starts using these abbreviations

MEW ?

Does anyone expect a normal 'sane' person (ie. not someone who spends all day on an internet forum) to have a clue what that means ?

kennyboy66_2

the sound a cat makes ?

mr_jetlag

purch wrote: »

:eek: .....funny how I suddenly begin to lose interest when everyone starts using these abbreviations

MEW ?

Does anyone expect a normal 'sane' person (ie. not someone who spends all day on an internet forum) to have a clue what that means ?

And I thouught I was the only one.

IIRC, MEW while HPI the cause of HPC? or am I just spouting gibberish?