There could be a high price for creating a price boom

Graham_Devon

More negativity towards increasing house prices in the media...

Help to Buy is in the time-honoured British tradition. For the politicians, the idea of house prices rising over the next couple of years gets the taste buds going. More consumer wealth, more confidence, more transactions and more housing-related economic activity. The fact that this will result in millions of people – often the young strivers the Government supposedly wants to encourage – being shut out of the housing market gets obscured.

This may be the right judgment politically but economically it is a disaster. If I told you that car prices were going to rise by 10pc you would think that was bad news because it would signal that not enough cars were being supplied to meet consumer wants. But somehow, in the case of houses, this logic gets lost. The malfunctioning housing market, with its combination of copious subsidies to boost demand and umpteen restrictions to constrain supply, is probably the greatest area of failure in British post-war economic policy-making. It is at the root of the sharp booms and busts in the economy and of the perennial tendency for the economy to seek escape from its travails through inflation.

I fear a heavy price will be paid for whatever recovery the Government’s measures may bring in the housing market. If they cannot get property prices into line with earnings then, when interest rates have to go up, there will be a crash in the market which will cause untold misery to many people – and force losses on the taxpayer through ill-judged mortgage guarantees.

We will only get out of this recurring mess when the Government allows market forces a freer hand in the housing market – ending the subsidies to home ownership and easing the restrictions on the supply of building land. Don’t hold your breath.

http://www.telegraph.co.uk/finance/comment/rogerbootle/10094859/As-safe-as-houses-There-could-be-a-high-price-to-pay-for-creating-a-boom.html

Welcome article if you ask me.

I don't know how someone can think that buying a house, with 20% of it on an interest free loan (for five years) which will atract interest at probably the most likely time that interest rates will also rise....at the end of your mortgage fix so you have no where else to go....

Madness.

HAMISH_MCTAVISH

It's Roger Bootle of Capital Economics.

He has been saying the same thing for a decade now.

Pretty good track record on interest rates, but on house prices, not so much.

Mr._Pricklepants

...If I told you that car prices were going to rise by 10pc you would think that was bad news because it would signal that not enough cars were being supplied to meet consumer wants. But somehow, in the case of houses, this logic gets lost...

Sigh. Another one who doesn't know the difference between a commodity and an asset.

Graham_Devon

HAMISH_MCTAVISH wrote: »

It's Roger Bootle of Capital Economics.

He has been saying the same thing for a decade now.

Pretty good track record on interest rates, but on house prices, not so much.

Don't care who it is, it's yet another story in the media.

By the way, Capital Economic seem to be getting more and more attention, for whatever reason. They are often interviewed on the BBC. They were on the other day when Hugh Pym took a "deeper look into house prices".

They certainly don't speak in the way you make them out to. They just appear to look to the future and what may happen a little more than other economists....and thats the only real difference I can see.

somethingcorporate

I am sure Roger Bootle has been forecasting the death of inflation:

http://www.amazon.co.uk/The-Death-Inflation-Surviving-Thriving/dp/1857881486

Check out the solitary review!

Roger Bootle is wrong as often as he is right.

Graham_Devon

somethingcorporate wrote: »

I am sure Roger Bootle has been forecasting the death of inflation:

http://www.amazon.co.uk/The-Death-Inflation-Surviving-Thriving/dp/1857881486

Check out the solitary review!

Roger Bootle is wrong as often as he is right.

That book is 16 years old?

I'm sure we could catch everyone out if we went back that far and compared to what they say today!

HAMISH_MCTAVISH

Graham_Devon wrote: »

They certainly don't speak in the way you make them out to. They just appear to look to the future and what may happen a little more than other economists....and thats the only real difference I can see.

For anyone that doesn't know their history on "looking into the future" on house prices....



That CE are now again actively warning of the dangers of house price falls is an incredibly bullish sign for the housing market.

:beer:

somethingcorporate

Graham_Devon wrote: »

That book is 16 years old?

I'm sure we could catch everyone out if we went back that far and compared to what they say today!

Was it ever right?

If he has been 100% wrong on a number of major issues why should we think it any better than a lucky guess on the ones he does get right?

I met him quite a long time ago, he seemed a reasonable chap though

Graham_Devon

Hamish, we know most were wrong. But absolutely NO ONE predicted the extent to which the government would step in.

Therefore, while capital economists (along with everyone else) was wrong, no one was right.

You can ignore the whole article if you wish. BUT, do you not think there is anything wrong in what I and Roger described?

That being buying a house with a 5 year interest free loan.

The interest free period will expire in 5 years, when it's much more likely interest rates will be rising. It's also the time when you will be out of your mortgage fix, with NO WHERE else to re-mortgage. How are you going to re-mortgage such a product?

Do you not see the same issues I see?

wotsthat

I don't know how someone can think that buying a house, with 20% of it on an interest free loan (for five years) which will atract interest at probably the most likely time that interest rates will also rise....at the end of your mortgage fix so you have no where else to go....

Madness.

I wish I'd been able to buy my first home with 20% of the mortgage interest free for five years.

It's possible to plan ahead for the end of the five year period you know.

dryhat

Never mind whether some self-promoting chancer is right or wrong in his articles.

A rising majority of PEOPLE are waking up to the fact that high house prices are economically and socially damaging.

The only ones left who don't realise this are the over-leveraged debt-junkies and they have to fight their corner, regardless of the facts put before them.

They trust what the government does and says over the evidence they see and hear with their own eyes and ears because it comforts them.

They are idiots and not worth arguing with.
Do yourself a favour Dev, ignore them.