Has the crash finally bugun?

tr3mor

Terry_Tibs wrote: »

The bank of England has managed the current situation , each 1/4 point had a measured effect until they reached the point of slowing home growth and inflation, there is no need for them to go any further, as soon as they see the market turn they will manage it in the opposite way by reducing IR slowly to a point when value returns and prices will rise again. So on and so forth it will go all in a managed manner, devoid of crash, just a little seesaw and liquidity to keep the markets viable.

You're forgetting that the Bank of England doesn't use interest rates to regulate house prices. If they did they would have raised them higher years ago.

Terry_Tibs

tr3mor wrote: »

You're forgetting that the Bank of England doesn't use interest rates to regulate house prices. If they did they would have raised them higher years ago.

I don't think that is the issue, its cause and effect, and they have effectively done so. House prices, interest rates and inflation are intrinsically related. House price rises were not a problem when inflation was inline with targets, hence no need to raise IR.

IMHO The defining moments that prove bank market management and intervention (unofficially or officially) was the European bank shoveling in liquidity into the currency markets after the last US sub prime scare and the BOE following suit with Northern Rock, they have shown their hand, first sign of HPC we will see IR cuts to manage it. 1.01 nailed on.

WTF?_2

Terry_Tibs wrote: »

Exactly underlines my point about people not having the foggiest.

Spreads currently predict a 72% chance on NO CHANGE dec 08 interest rates.

The bank of England has managed the current situation , each 1/4 point had a measured effect until they reached the point of slowing home growth and inflation, there is no need for them to go any further, as soon as they see the market turn they will manage it in the opposite way by reducing IR slowly to a point when value returns and prices will rise again. So on and so forth it will go all in a managed manner, devoid of crash, just a little seesaw and liquidity to keep the markets viable.

Perhaps you failed to notice the recent problem with LIBOR (which tracks the rates at which large financial institutions trade money between themselves) deviating considerably, in an upwards direction, from central bank base rates....

You might also want to consider that the Bank of England Monetary Policy Committee officially targets inflation rates with their interest rate changes and not house prices.

But then again, you are clearly the fount of all knowledge so none of these trivial facts matter.

Terry_Tibs

But then again, you are clearly the fount of all knowledge so none of these trivial facts matter.

Talking through your rent book?

There will be no HPC, your out of luck.

hgllgh

Terry_Tibs wrote: »

I cant be arsed to get into a long winded debate, but suffice to say that most people do not understand the nature of the way modern finance markets work and the housing market has changed into one, this is underlined by those who base prediction on market swings over the last 30 years, there is a basic math calc between the cost of a mortgage , the rent able value of a home and the % ROI that means that whilst the interest rates are being managed we wont see another crash , what we may see in the short term is a lumpy market, short in liquidity , but as soon as the market becomes viable in regard to ROI it will stop falling as money gets moved back into property (and I dont mean private buyers).

IMHO We will see a continuing slight % correction until next spring, followed by around 3 years (max, prob more like 2) of stagnation, as soon as a point is reached when value returns to the market it will start to rise again.

Good argument, but, you are viewing the world from a purely financial point of view. If there is one thing that the Northern Rock issue showed us, it is the herd mentality we have in the UK. Market Psychology may play a larger role than you think. You argue above that "as soon as a point is reached when value returns to the market it will start to rise", but market psychology and sentiment (as well as credit crunch etc) will decide at what level that point is reached and if things are heading down, buyer psychology will say "wait for price levels to go even lower"

saxmund

Housing costs (or house prices) are not included in CPI inflation, so have no effect on it and therefore no effect on the Bank's decisions about rates. This is a bit strange, as I would have thought that house prices are one of the biggest inflationary effects on an economy, but CPI was designed as a common European measure and it was decided to ignore housing costs as housing markets differ so much.

One problem with controlling inflation through interest rate cuts is that many people have fixed rate deals and therefore it has no immediate effect. However, as they come off a fixed rate deal and have to be another then it will have quite a large effect - over £100 a month in many cases. If this is starting to filter in then the last year or so of rate rises will start to have its effect; even before the N Rock problems CPI inflation had dropped back significantly. The increase in LIBOR rates has meant that interest rates have crept up alittle bit further without the Bank having to do anything. The housing market now appears to be at least slowing, and the Fed has cut rates by 0.5%, all of which suggests to me that rates have peaked and may start to fall.

WTF?_2

Terry_Tibs wrote: »

Talking through your rent book?

There will be no HPC, your out of luck.

Some excellent, well researched and well informed points in that post there, Terry.

The rest of us truly don't know what we are talking about - lucky we have someone as learned as you to fill us in :rolleyes:

movilogo

Average Joe doesn't understand maths or doesn't analyze market. He listens to TV news and believes what he hears.

Media say market is going down, so he won't buy now.

95% people are like average Joe. So, now go figure.

wibble68_2

mr.broderick wrote: »

bugun...it's actually a type of bird you know, wouldn't believe that would you..

African or European?

seraphina

The BofE has its hands tied when it comes to interest rates. It's been lucky so far in that the housing market has survived (?) its interest rate rises.

The BofE has to target inflation - if the predicted inflation for two years' hence (IIRC) exceeds 3%, the Governor has to write to the Chancellor explaining why and what he intends to do about it. The cost of mortgages is NOT included in the inflation figures. However, the cost of oil, amongst other things, is. Oil is nearing record high prices so prices will eventually have to go up, increasing inflation, and forcing the BofE to raise interest rates.

Raising interest rates may or may not have a knock-on effect on house prices - but despite this being such a huge issue, there is very little scope for the BofE to factor any potential effect on the housing market into their decision. To be honest, they've been lucky they've gotten away with it so far.

So the BofE can target inflation, meet its 3% obligation and the housing market will have to suffer the consequenses, or the BofE will risk doing even more damage to the economy by encouraging inflation.