Economist: Britain's fallen start

zcacmxi

As well as listening to my local Estate Agent who is trying to talk up the market, I've also been reading articles like this in the Economist that paint a particularly grim picture of the state of our ecomony:

http://www.economist.com/world/britain/displayStory.cfm?story_id=13110366&source=hptextfeature

Recently there have been quite a few fact based articles describing job losses, market volatility, the economy shrinking etc. I can't see how in this environment, what my estate agent says can be true about the market recovering and prices going up quickly!

zcacmxi

The problem for the agents in our area appears to be that they overvalued last year, and have set the sellers expectations too high.

Now they can't get them to reduce adequately. They reduce 5%, even though the market has fallen 20%.

All the repos are going to auction, so no money for the local agent....

zcacmxi

I feel sorry for the people that don't read the Economist, FT or see any of the figures coming out.. Even from the Government.

They read the Property section of the local rag that is sponsored by the local agents, and believe the article from the local agent saying that the local economy is booming and now's the right time to buy as mortgages are cheap!

nomoneytoday

On the other hand, with interest rates at only 1%, rather than saving some people will start to buy cars and house again. If you earn £1000 on £100,000 it doesn't leave much incentive to save.

Also as more money hits the economy inflation will go up, aided by GBP fx rates being hit, so any debts are eroded quicker in real terms too...

zcacmxi

Yes, it's always good to spend any money you have and not save any for a rainy day... :money: Also, now's a good time to buy stuff, as you'll save the 2.5% in VAT. That could be as much as £25 on a TV, or £400 on a car.

Besides, when it's raining and you've been laid off work and can't afford the petrol for the 4x4, you can always sit at home and watch the Plasma screen that you bought when you were working!

Any when we need to pay all the debt back, we can all convert the $ back to £.... Pitty those in this country that are still paid in £, and not in $ or Euros. Pity those without jobs even more.

Mini_Bear

I agree with zcacmxi - i read the property supplement from the london standard the other day. one of the articles was about young professional property developers still being able to buy flats at auction, do them up and sell them for decent profits. this is just needless hype at a time when very few people have the resources to take such risks. the underlying message of the whole article was - buy now or you will regret it. these articles should come with an FSA style investment warning "house prices may go down as well as up, you may not get back what you initially invested" etc.

lostinrates

nomoneytoday wrote: »

On the other hand, with interest rates at only 1%, rather than saving some people will start to buy cars and house again. If you earn £1000 on £100,000 it doesn't leave much incentive to save.

Also as more money hits the economy inflation will go up, aided by GBP fx rates being hit, so any debts are eroded quicker in real terms too...

Regardless of low interest rates ATM by not spending while prices are dropping there is still a theoretical increase in spending power of my savings though and it is this that provides some incentive to save.

zcacmxi

Lostinrates has hit the nail on the head. If you have £100 saved to buy a house, and prices are reducing by £1 per month, then even if interest rates are 0%, you will be able to buy more with your money by waiting.

Even when the government is trying to stimulate the economy by reducing interest rates, those that can see that we've entered a deflationary period will gain overall by waiting.

E.g. Average price of house in this area was £250K last year. This year it is £200K.
Even if you had £250K last year and were being offered 0% interest to save it, by waiting a year you'd still have £250K, but could buy the same property for £200K.

Rochdale_Pioneers

Some interesting facts presented in that article that fly in the face of the spin being put about by our resident doom-mongers:

"Some fret that things could get even worse. They portray Britain as Iceland writ large, horribly exposed because of its big banking sector and intimate involvement in the sort of global finance that has gone so spectacularly wrong.

This is overwrought stuff. Little Iceland had banking liabilities worth close to ten times its GDP, all piled up by its own banks and mostly in foreign currency. Britain’s banking liabilities are equal to some 4.5 times GDP. Over half of these are attributable to foreign-owned banks that have clustered in the City; they hold two-thirds of the British-based banking system’s liabilities and assets in foreign currencies. As a result, Britain is much less exposed to a run on its own banks by depositors holding foreign currencies than Iceland was.

And although Britain has exceptionally high external liabilities, thanks to the City’s status as the world’s biggest international financial centre, it also has very large foreign assets. The gap between the two peaked at the end of 2006, when Britain owed £370 billion—28% of GDP—more than it owned. Since then it has narrowed, helped by sterling’s fall (almost all of Britain’s external assets are in foreign currency but only around 60% of its liabilities). The gap is now some £150 billion, or 10.5% of GDP—hardly cause for alarm. The current-account deficit has fallen from an average 2.2% of GDP in the ten years to 2007 to 1.6% in the first nine months of 2008."

"If Britain’s bill turns out to be more like Japan’s than Sweden’s, the Treasury would gulp but could swallow it, for Britain’s official debt has been relatively smaller than that of other G7 countries. In 2007 Britain’s gross government debt was 47% of GDP; in France, for example, it was 70%."

Davesnave

lostinrates wrote: »

Regardless of low interest rates ATM by not spending while prices are dropping there is still a theoretical increase in spending power of my savings though and it is this that provides some incentive to save.

Bang-on, LIR! Although much of my stash is still paying-out at over 6%, I realise this won't be for ever. Nevertheless, sitting here in my rental, which costs me about £1000 extra a month, I know that target properties are losing more than that, so why worry?

chucky

Mini_Bear wrote: »

these articles should come with an FSA style investment warning "house prices may go down as well as up, you may not get back what you initially invested" etc.

why will you be buying your family home for 2/3/4 years?

most people who have bought or will buy family homes will go through a couple of recessions during the time their family owns it. why wouldn't you get what you invested in it in this time?