Housing market continues to slow....

Pal

I agree with everything apart from your assertion that (3) is unlikely to happen. In practice some kind of economic shock is definitely going to happen. The question is not "if" but "when" and to what extent.

Given that house prices are not going to rise, the balancing act between stagnation and falling is going to be almost impossible for the BoE to control, particularly as that is not their main remit. Cutting interest rates is a very blunt tool to try and control an entire economy. The scope for something to go wrong is pretty high.

That doesn't mean a crash, but a long slow fall back to reasonable levels might be the best outcome.

Certainly an interest rate cut that encourages more people to take on even more debt, especially when buying houses, has to be a very bad idea in the long run. Not that it will stop it happening though...

EdInvestor

That doesn't mean a crash, but a long slow fall back to reasonable levels might be the best outcome.

Looking at the Irish, the Dutch and the Aussies, whose markets all peaked before us, the central banks seem to be avoiding a crash: from what I can see it's not so much a "long slow fall back" of prices - in nominal terms they stay much the same - but slowly as inflation rises over a few years they end up being effectively lower.

In real terms a 15-20% reduction could be achieved over 5 years or so at current rates of inflation: there's no real need to have a damaging crash to improve affordability.Time will do the job.

Pal

Difficult outcome to achieve in practice though over any reasonable time period. Although Australia etc look OK for now, it has only been a short time and there have not been any economic shocks as yet.

Time will tell though.

bridiej

Australian prices in some areas are already plateuing (sp!) and some dropping slightly, I think the main consensus is that they will drop further, which could be good news for us if the UK market is starting to drop at least we wont lose out.

frugal_dougal_3

Woby_Tide wrote:

If your parents hadn't taken the plunge you'd be sharing their rented house instead.;)

LOL Deemy is a KIPPER !!!!!!!

deemy2004

frugal_dougal wrote:

LOL Deemy is a KIPPER !!!!!!!

Quite true....

I'm in no rush to buy a house as my bank balance grows on a monthly basis...

deemy2004

Editor wrote:

That doesn't mean a crash, but a long slow fall back to reasonable levels might be the best outcome.

Looking at the Irish, the Dutch and the Aussies, whose markets all peaked before us, the central banks seem to be avoiding a crash: from what I can see it's not so much a "long slow fall back" of prices - in nominal terms they stay much the same - but slowly as inflation rises over a few years they end up being effectively lower.

In real terms a 15-20% reduction could be achieved over 5 years or so at current rates of inflation: there's no real need to have a damaging crash to improve affordability.Time will do the job.

The key is US interest rates....

They sparked the global housing boom, and so they are likely to spark a global housing market slump

For I have to tell you that its not going to be a gradual process, but rather a shock to the system

Why do I say this ?

Well because somethign very strange is going on with US interest rates and that is that whilst short-term rates have risen from 1% to 3%, long-term rates have FALLEN by 1%!!!

What this means is that the impact of interest rate rises in the USA and throughout the world has NOT really been felt yet !

This suggests two things

1. That the bond markets are right to price in lower long-term yields as this suggests a recession in the future and hence lower interest rates.

2. That the bond market are out of sync due to speculative interest which is a temporary phenomena and likely to lead to a sharp reaction i.e. like an elastic band

At the moment I am leaning more towards no 2 than no 1. Which implies at somepoint in the near future there will be a major financial shock to the system - Perhaps October 2005 ? When the bond markets snap back inline with the traditional yield curve !

I am personaly eyeing short tbond positions .... .... though not yet.

meanmachine_2

Forgive me Deemy, my knowledge of money markets is very basic. I'm not quite sure what long term rates in the US have to do with the UK housing market.

Does it mean that once US long term rates rise that there'll be less money in system, and therefore banks will have to tighten up their lending criteria?

Or does it mean that int rates in this country - and elsewhere - are set to rise?

EdInvestor

deemy2004 wrote:

This suggests two things

1. That the bond markets are right to price in lower long-term yields as this suggests a recession in the future and hence lower interest rates.

2. That the bond market are out of sync due to speculative interest which is a temporary phenomena and likely to lead to a sharp reaction i.e. like an elastic band

You mean that either 1) the bond markets are right in thinking there will be a recession and interest rates will go down, hence their lower yields

or

2)The lower yields are due to completely unrelated matters such as demand from Japanese life companies, nothing to do with the property market.All this non related demand might end at which point, and then bond yields might move in the opposite direction....

.....or not.



Love those bond markets, they're so very clear, aren't :rolleyes:

But aren't they saying something like this:

"We don't know if politicians and central bankers can deliver a soft landing for the housing market and avoid an associated retail spending recession. We reckon at this stage that they'll probably need a little help from lower interest rates to achieve this."

All sounds quite logical to me. UK markets are pricing in lower interest rates later this year as well.

The trick will be to make sure the cut is big enough to get people spending a bit again, but not so big as to reignite a price boom.And to get the timing right of course.

deemy2004

The only reason why UK interest rates are pricing in a cut is because of long-term yeilds following US T-BOnds lower.

What it is last year virtually everyone was betting Long-term Yeilds being higher this year instead the opposite has occured.

NOW Those SAME persons are suggesting that Yields will continue to fall... which strongly suggests the end of the trend is due anytime now !

Yeh the japs, europeans and chinease are the ones stuffing all their surplusses into the $ so as to stop it from falling.

I am to the view that T Bonds will start tumbling fast and hard sometime this year... and will likely put money on it !

Just got to pick the time to enter and hold on for what will likely be a bumpy ride....

When they do start tumbling it want be lower interest rates that people will be talking about in the UK but when the next hike will be which will also likely be the trigger to deliver the sharp quarterly drop in the house price indices so it all seems to be tieing quite nicely to gether.

I mean even the stock market is moving in the right direction which suggests economic growth and thus higher interest rates.