Inflation, IR's, & House prices

FaTB

Just a few thoughts -

I think its been proven in the past that house prices are strongly linked to IR's, and judging by Mervyn Kings comments today on inflation (may hit 3.1%), I think we could be heading for more rises in the near future.

My guess would be a rise to 5% before the end of this year, and maybe 5.25% by early/mid 2007. After that who knows.

IMO this can only have one effect on house prices, as many are already well overstretched even at these "historically low" rates.

God only knows what would happen if IR's returned to their long term average, which I believe is around 7.5% !!

Anybody got any thoughts on this, as I am not claiming to be an expert, but its a strong gut feeling.

F_T_Buyer

It's blindingly obvious what's happening, i've said many time inflation is in the system. Originally I didn't think rates would hit 5% until 07, but now I have a few doubts, they might hit 5% before year end.

Investing in property now, especially for a FTB, will probably turn out to be a bad mistake. I've argued many times rates need to rise, inflation is on an upward path, but these warnings (from me and others) have been dismissed by many - and now i've been proved right, and it looks like i'll be proved right again.

Cycles are cycles, and people won't see the downturn until it's too late. Stop falling for spin, and you'll do well in life!

falancan

I agree it is a cycle thing.I wanna buy a house and even my partner is on 40k+5k car allowance +annual bouce.(I m full time student).we still found ourself uneasy to buy any house around 120-130k.Simple cool our brain down a little bit,we imagine if the rate rise and rise,the house price coming down and down and what u bought was a rubbish apartment or 3 bedroom semi located in doggy area etc.
We offer a house a month ago,this house was a new built 3 storey house with 2 bathroom and 1 toliet.Everything is new and we offered the prices 6k lower that the adv price too.However,we turned it down although the seller has agreed the price.The reason we did that because UK at the moment is simple not a place to invest in property.Even more,when people think about how much rent they can get out of their investment,it simple not worth it.
At the moment,still no strong sign to show house market will going down alot in the near future but I agree the rate will rise and rise again very soon

BobProperty

Anyone see the front page of the Express today?

dccarm

Wasn't it round about this time last year (or maybe earlier) that meanmachine was warning us all that a crash of 30% or so would happen by October. I'm afraid you just need to look to Ireland to see how high they could go - and they've been threatening a crash there for the past ten years! (admittedly interest rates there are half ours).

F_T_Buyer

dccarm wrote:

Wasn't it round about this time last year (or maybe earlier) that meanmachine was warning us all that a crash of 30% or so would happen by October. I'm afraid you just need to look to Ireland to see how high they could go - and they've been threatening a crash there for the past ten years! (admittedly interest rates there are half ours).

Yes, they were a few that predicted it to early, but you have to look why they didn't crash then. Look at the interest rate cut (which is now proved to have been a wrong decision), banks loosening of credit, media spin (about house prices and lower interest rates to come), and long term interest rates.

Now, look at all those things..!

meanmachine_2

dccarm wrote:

Wasn't it round about this time last year (or maybe earlier) that meanmachine was warning us all that a crash of 30% or so would happen by October. I'm afraid you just need to look to Ireland to see how high they could go - and they've been threatening a crash there for the past ten years! (admittedly interest rates there are half ours).

That's right. I was predicting a 30% crash, an outbreak of ebola virus and the end of the world.

Or was I in fact suggesting that house prices, compare to earnings, seemed remarkably high and were incredibly vulnerable to rate rises?

In fact, my later argument was that we'd need to see a 50% rise in prices for us to reach "absolute unaffordability" as reached in 1989, based on current interest rates@ 4.5%.

Since then prices have continued to rise (by around 5%) and interest rates have also gone up.

You do the maths chum.

dccarm

Sorry "chum" - I must have been mistaken about your predictions.

meanmachine_2

dccarm wrote:

Sorry "chum" - I must have been mistaken about your predictions.

NO, you deliberately caricatured my argument to support your own - whatever that might be.

"House prices to triple by 7.30pm this evening" was it? Or am I stooping to your level?

dccarm

Oh you're well below that already. Funnily enough though, the point I made about Ireland is one you've made yourself on these boards.

I lived in Ireland at the start of the Celtic Tiger, and all the time I was there people were predicting the bubble would burst. Ten years on it's still going strong. And before I hear any rash replies, that is a warning, not a prediction or a celebration!

meanmachine_2

dccarm wrote:

Oh you're well below that already. Funnily enough though, the point I made about Ireland is one you've made yourself on these boards.

Quite so.

Odd then to so distort my argument, seeing as I am anything but dogmatic on the subject.

Some might say I blow in the wind. Personally I think I learn as I go along and read more on the issue.

And yes, we could go "Irish", but I don't think the BoE wants to see that happen - for very obvious reasons.

And yes, I do think Ireland is heading for a very nasty crash. There, I've said it. But not by October. This one could unfold over an entire generation.