House Price Crash Discussion Thread

merlinthehappypig

Not absolutely related to house prices, but close enough (and the bit about the government employing shoppers made me smile). It's bit long, but i couldn't get the link to work.

The Federal Reserve well and truly lost its nerve yesterday.

[FONT=Verdana, Arial, Helvetica, sans-serif]Just a week before a scheduled interest-rate meeting, Ben Bernanke and team decided, against a backdrop of plummeting global stock markets, that they couldn’t wait to cut interest rates any longer.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Rates were slashed by three-quarters of a point, to 3.5%. That’s the biggest cut in 23 years, and from a much lower base than rates were then. And it’s far from being the end of the cuts. Plenty of commentators now expect US rates to fall to 2.5% by April, which would put real interest rates firmly in negative territory (in other words, below inflation, thus penalising savers).[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]The move arrested the decline in markets somewhat. The FTSE 100 bounced back, and the Dow Jones had a much less brutal day than expected, falling ‘just’ 128 points at 11,971, compared to an early collapse of 465 points.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]But can the rate cuts save the economy from recession? I don’t think so – here’s why…[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]In the era of Alan Greenspan, the ‘Maestro’ who got us into all this trouble in the first place, the power of interest rate intervention acquired an almost mystical air. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Any crisis that came along seemed to be soluble simply by Mr Greenspan waving his magic wand and lopping off a quarter point here, a half point there. Tech bubble? Rate cuts. Terror attack? Rate cuts. Bond crisis? Rate cuts. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]But let’s go back to basics here for a moment. Why is the Federal Reserve cutting interest rates?[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Well, the US economy is very dependent on consumer spending. Therefore, to keep that economy out of recession, the Fed needs to boost consumer spending. So they’re trying to make credit cheaper, so that more people are able to borrow more money to keep spending. They’re so keen to do this, that they are willing to cut interest rates to below inflation. Let’s make this very clear – when real interest rates are negative, that means that your savings are being destroyed by inflation for every minute that they remain in the bank. That’s a big incentive to spend – negative real interest rates are one good reason that so many Chinese have been willing to gamble all their savings in the stock market, because there’s no point on keeping them in the bank.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Meanwhile, the US government is also planning on giving consumers tax rebates – free money, in other words – in the hope that they’ll spend that too.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]So all the interventions are basically aimed at one thing – get those shoppers out there spending. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]More stupid ways to get people spending [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Well, here’s a suggestion. Why doesn’t the US government set up a government-funded Department of Retail? It could hire professional shoppers, and then give them a big bag of money that they’d have to spend in the nation’s malls every week. If they missed their spending targets, they’d be fired. It’d be a tough job, but I’m sure they could find someone to do it. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]These crack consumption troops would be there, ready to strike when the nation’s lazy unpatriotic consumers decided they’d spent a bit too much and just didn’t want any more flat-screen TVs or new cars.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Or why not just make saving illegal? Thriftiness has been seen as more of a vice than a virtue for nigh-on decades now, so it wouldn’t take much effort to re-brand ‘saving’ as ‘hoarding’. That’d get spending up.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]These of course, are all stupid ideas. But then, so is the idea that slashing interest rates can somehow make your economy better in a painless, consequence-free manner.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]I know I keep coming back to this, but no one else seems to be saying it. If you spend more than you earn yesterday, then that means you have to spend less today. If you go on a rampant decade-long spending binge fuelled by cheap credit, then that means you have to spend less for rather longer than just one day. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Once again. If the world’s central banks had wanted to prevent the hangover we’re facing, then they shouldn’t have happily been adding jet fuel to the punch bowl all the way through the boom. It’s too late now to do anything to stop the crash, and the fact that the Fed is panicking and the government is clutching at straws just proves that.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Bank of England looks set to cut rates too [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]As for the UK – well, we’re pretty much in the same boat. Mervyn King warned yesterday that he may have to write another letter, maybe more than one, to the Chancellor later in the year. He clearly believes that inflation could be a problem.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]But it’s also clear that he’s simply covering his back so that when inflation does go above target, he can say, “well, I did warn you.” And the reason he’s covering his back is because regardless of what happens to inflation, the Bank of England is going to cut interest rates. We’re all herd animals at heart – and just as with ordinary retail investors, when one central banker panics and runs, the rest of them get the urge to run right alongside him. Even if all he’s racing towards is the edge of a cliff.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]There isn’t going to be a soft landing. That’s for sure.[/FONT]

moonunit42

Any one interested in this subject should read:

'Boom, Bust: House Prices, Banking and the Depression of 2010' by Fred Harris.

Available on Amazon or Google it for some potent reviews from bond traders, analysts and forecasters etc.

In doubt? Read this perceptive article on the book from 2005:

http://www.moneyweek.com/file/3075/housing-boom.html

See anything familiar? You could be at risk if you ignore it.

I sold all my UK property last year and have no intention of re-entering the UK market in the next few years. Buyers Beware.

KITCHEN1_2

If we are recommending books ,I'll give you this one... Author Paul Calverley ,Title "How to survive bubbles"...now I hated the title ,BUT the content is absolutely first class, This is not a blow hard opinionated text trying to sell copy because the author cannot find any other way to make some money (which is what I thought it might be when I read the title). No, this is someone who truly understands market behaviour based upon thorough historical research. This book was published in 2004 and if you had read it and understood it and even better formed a tactical plan to act upon it you would have benefited enormously.

WTF?_2

brit1234 wrote: »

The price of newbuilds are going to fall quicker than any other property. Reason because banks are only lending to selective people at the moment due to the credit crunch. Due to all the newbuild scams banks look very unfavorably on them especially at the moment.

There's plenty more scope for reducing prices on newbuilds as the huge increase in the asking prices of the builders/developers aren't driven by any underlying costs in building the house - thus plenty of profit margin to sacrifice in the name of shifting them quickly.

Plus, builders need to shift inventory to survive. They will be especially motivated to lower their prices.

Of course, that will put pressure on general prices too and in particular recently built houses now being sold by the original owner. Why buy a 3 year old house for x when you can get a brand new version for maybe >10% less?

cynic66

Would Paul Calverley by any chance be related to John Calverley who wrote "Bubbles and how to survive them"???

eco-friendly_2

cynic66 wrote: »

Would Paul Calverley by any chance be related to John Calverley who wrote "Bubbles and how to survive them"???

I buy a ' BIG ISSUE ' from a guy every week, I'm sure he said his name was .....................................Calverley.

Walter_J

ixwood wrote: »

I'd run for the hills and consider myself lucky.

Nothing more needs to be said.

brit1234

A crash is good for the economy, it allows us to blow out the cobwebs and become stronger. Should of happened a few years ago as now people will get hurt.

WTF?_2

brit1234 wrote: »

A crash is good for the economy, it allows us to blow out the cobwebs and become stronger. Should of happened a few years ago as now people will get hurt.

People get hurt in any recession. However, the coming one will be especially bad because so many past recessions have been deferred.

By my reckoning we should have had a recession in 2001, one in 2003 after that didn't happen and a bigger one in 2005 .. all avoided by ever looser monetary policy and each one potentially bigger because it was deferred by the government making money cheap to borrow.

If the US slips into recession despite savage interest rate cuts and a massive government tax giveaway it's going to be a huge and long lasting one as they have nothing left to deploy to fight it off and they look set to be hit with a huge dose of inflation courtesy of the suicidally low interest rates they've been running.

mystic_trev

!!!!!!? wrote: »

People get hurt in any recession. However, the coming one will be especially bad because so many past recessions have been deferred.

It sems to be a question of when, not if. Todays view on the current 'Economic climate' from Deloittes.

The UK economy is about to enter its weakest period of growth since the Exchange Rate Mechanism crisis of 15 years ago. There is a risk that the economy will slip in into a full-blown recession.
The increasing vulnerability of the housing market is at the heart of the downturn. Admittedly, the UK economy escaped a major economic downturn in 2004/05, when the housing market experienced its first ever “soft” landing. But the “big one” might now finally be upon us.
Not only is the interest rate environment far less favourable, but the global financial crisis and the associated credit crunch have brought an end to the period of easy credit that in recent years has been the bedrock of the rapid rises in house prices. Without this support, house prices may fall sharply, perhaps by around 5% this year and by something like 8% in 2009.
What’s more, a prolonged economic downturn may force employers to wield the axe more sharply than in briefer downturns, when they were more prepared to hoard labour. Slower employment growth – if not outright falls – together with sluggish income growth could undermine the housing market yet further and significantly reduce the ability of household spending to propel the economy forward. Household spending, which has been the engine of the economy for much of the last decade, is likely to falter, growing by less than 2% both this year and next.

http://www.deloitte.com/dtt/press_release/0,1014,sid%253D2834%2526cid%253D188524,00.html