Are we expecting BOE to remain at 4.75% on 8th February 2025?

lmitchell

naf123 said:

Intresting. If house prices fell, debt becomes cheaper and then inflation will go up again ....

Basically 2%= inflation is 2 or 3% BoE rate ? Is that the best we can hope for ? 

Personally speaking, I see the neutral rate for BoE bank rate sitting at between 3-3.25%. It probably needed a jolt like the last couple of years to get away from the ultra-low bank rates. Therefore most people could get a mortgage for circa 4% or just a shade under. That's my best guess heading into 2025-26.

Sarah1Mitty2

naf123 said:

Intresting. If house prices fell, debt becomes cheaper and then inflation will go up again ....

Basically 2%= inflation is 2 or 3% BoE rate ? Is that the best we can hope for ? 

UK house prices don`t control global inflation, the UK is at the mercy of global inflation and having a property bubble doesn`t help us to navigate this situation very well. People would still be paying more normal monthly payments on their debt with higher rates it is just that if prices crash they will need less debt for shorter to get a house.

michaels

naf123 said:

RelievedSheff said:

They wont get that far. 5.5% then hold and gradually creep down over the next couple of years to around 4% by 2026.

Just in time for the "great crash" of 2026 if the 18 years cycle is to be believed. If the cycle is accurate what we have now is a minor blip and house prices will rise another circa 20% in the run up to 2026 when they will fall back again.

Not sure I believe it myself but it proved right in 1990 and 2008. 

What would happens to intrest rates in the event of a massive housing crash eg will it go back to above zero or will it go higher than 6%?

In the UK house prices falls tend to be deflationary for two reasons:
The reduce 'wealth effect' spending where people feel wealthy because of the value of their house and therefore spend more (equity withdrawal is an extreme example)
When prices fall transactions volumes do too (various reasons, not wanting to sell at a loss/less than what it is worth/downsizing doesn't bring expected windfall, buyers are afraid to buy a depreciating asset, lenders are cautious on deposits) and this then also reduces other economic activity (estate agents, solicitors, lenders, new kitchen/bathroom, carpets, furniture etc etc)

This reduction in overall demand cools the economy in the same way as interest rate rises which then (in theory ) reduces internal inflationary pressure as unemployment climbs.

Thus a period of falling house prices is very likely to be followed by low/negative growth, falling inflation and thus interest rate cuts.

HTH

Sarah1Mitty2

michaels said:

naf123 said:

RelievedSheff said:

They wont get that far. 5.5% then hold and gradually creep down over the next couple of years to around 4% by 2026.

Just in time for the "great crash" of 2026 if the 18 years cycle is to be believed. If the cycle is accurate what we have now is a minor blip and house prices will rise another circa 20% in the run up to 2026 when they will fall back again.

Not sure I believe it myself but it proved right in 1990 and 2008. 

What would happens to intrest rates in the event of a massive housing crash eg will it go back to above zero or will it go higher than 6%?

In the UK house prices falls tend to be deflationary for two reasons:
The reduce 'wealth effect' spending where people feel wealthy because of the value of their house and therefore spend more (equity withdrawal is an extreme example)
When prices fall transactions volumes do too (various reasons, not wanting to sell at a loss/less than what it is worth/downsizing doesn't bring expected windfall, buyers are afraid to buy a depreciating asset, lenders are cautious on deposits) and this then also reduces other economic activity (estate agents, solicitors, lenders, new kitchen/bathroom, carpets, furniture etc etc)

This reduction in overall demand cools the economy in the same way as interest rate rises which then (in theory ) reduces internal inflationary pressure as unemployment climbs.

Thus a period of falling house prices is very likely to be followed by low/negative growth, falling inflation and thus interest rate cuts.

HTH

Transactions are already massively down but prices have not fallen much yet, that is mostly to do with the price of debt and very little to do with people not wanting to take a loss IMO, PropertyLog is full of price reductions just now so people are still trying to sell but in many cases at quite silly aspirational prices for the market we have now (U.S mortgage applications were down the other day to 1995 levels, that is what the fastest historical re-pricing of debt will do to a debt based asset class) The inflation hitting the UK is from global forces, very little to do (basically nothing to do with) falling U.K house prices, we could easily have a situation where house prices crash but inflation and interest rates keep rising.

TerryTeacake

With the UK now entering a situation in which prices have increased dramatically over the last couple of years, people are paid more in their jobs, which then causes the price of goods and services to increase again, and so on. Price increases. What we also must remember the inflation rate was just over 6% before the energy crisis and the drops we have seen recently in the inflation figures are only the energy shocks coming off.

If they were to use the old model in the way inflation is measured which would include mortgages and rents we could easily double the figure of 6.8%. We must also talk about core inflation as I see this is going to be really sticky. I am expecting interest rates to carry on this upward trend and they will stay higher for longer.

TerryTeacake

Sarah1Mitty2 said:

michaels said:

naf123 said:

RelievedSheff said:

They wont get that far. 5.5% then hold and gradually creep down over the next couple of years to around 4% by 2026.

Just in time for the "great crash" of 2026 if the 18 years cycle is to be believed. If the cycle is accurate what we have now is a minor blip and house prices will rise another circa 20% in the run up to 2026 when they will fall back again.

Not sure I believe it myself but it proved right in 1990 and 2008. 

What would happens to intrest rates in the event of a massive housing crash eg will it go back to above zero or will it go higher than 6%?

In the UK house prices falls tend to be deflationary for two reasons:
The reduce 'wealth effect' spending where people feel wealthy because of the value of their house and therefore spend more (equity withdrawal is an extreme example)
When prices fall transactions volumes do too (various reasons, not wanting to sell at a loss/less than what it is worth/downsizing doesn't bring expected windfall, buyers are afraid to buy a depreciating asset, lenders are cautious on deposits) and this then also reduces other economic activity (estate agents, solicitors, lenders, new kitchen/bathroom, carpets, furniture etc etc)

This reduction in overall demand cools the economy in the same way as interest rate rises which then (in theory ) reduces internal inflationary pressure as unemployment climbs.

Thus a period of falling house prices is very likely to be followed by low/negative growth, falling inflation and thus interest rate cuts.

HTH

Transactions are already massively down but prices have not fallen much yet, that is mostly to do with the price of debt and very little to do with people not wanting to take a loss IMO, PropertyLog is full of price reductions just now so people are still trying to sell but in many cases at quite silly aspirational prices for the market we have now (U.S mortgage applications were down the other day to 1995 levels, that is what the fastest historical re-pricing of debt will do to a debt based asset class) The inflation hitting the UK is from global forces, very little to do (basically nothing to do with) falling U.K house prices, we could easily have a situation where house prices crash but inflation and interest rates keep rising.

This is exactly what Peter Schiff said and he also mentioned going into a recession will not fix the inflation problem. Just for people who don't know who Peter Schiff is, he predicted the Financial Crisis back in 2004-2005.

michaels

Sarah1Mitty2 said:

michaels said:

naf123 said:

RelievedSheff said:

They wont get that far. 5.5% then hold and gradually creep down over the next couple of years to around 4% by 2026.

Just in time for the "great crash" of 2026 if the 18 years cycle is to be believed. If the cycle is accurate what we have now is a minor blip and house prices will rise another circa 20% in the run up to 2026 when they will fall back again.

Not sure I believe it myself but it proved right in 1990 and 2008. 

What would happens to intrest rates in the event of a massive housing crash eg will it go back to above zero or will it go higher than 6%?

In the UK house prices falls tend to be deflationary for two reasons:
The reduce 'wealth effect' spending where people feel wealthy because of the value of their house and therefore spend more (equity withdrawal is an extreme example)
When prices fall transactions volumes do too (various reasons, not wanting to sell at a loss/less than what it is worth/downsizing doesn't bring expected windfall, buyers are afraid to buy a depreciating asset, lenders are cautious on deposits) and this then also reduces other economic activity (estate agents, solicitors, lenders, new kitchen/bathroom, carpets, furniture etc etc)

This reduction in overall demand cools the economy in the same way as interest rate rises which then (in theory ) reduces internal inflationary pressure as unemployment climbs.

Thus a period of falling house prices is very likely to be followed by low/negative growth, falling inflation and thus interest rate cuts.

HTH

Transactions are already massively down but prices have not fallen much yet, that is mostly to do with the price of debt and very little to do with people not wanting to take a loss IMO, PropertyLog is full of price reductions just now so people are still trying to sell but in many cases at quite silly aspirational prices for the market we have now (U.S mortgage applications were down the other day to 1995 levels, that is what the fastest historical re-pricing of debt will do to a debt based asset class) The inflation hitting the UK is from global forces, very little to do (basically nothing to do with) falling U.K house prices, we could easily have a situation where house prices crash but inflation and interest rates keep rising.

The inflation that hit the UK was caused by global commodity price increases.  However these have now largely stabilised or even reversed and yet we are not seeing deflation.  Sure there are lags but the majority of the continuing inflation is about wage increases from a tight labour market being passed on resulting in price increases resulting in wage increases - ie a spiral

michaels

TerryTeacake said:

With the UK now entering a situation in which prices have increased dramatically over the last couple of years, people are paid more in their jobs, which then causes the price of goods and services to increase again, and so on. Price increases. What we also must remember the inflation rate was just over 6% before the energy crisis and the drops we have seen recently in the inflation figures are only the energy shocks coming off.

If they were to use the old model in the way inflation is measured which would include mortgages and rents we could easily double the figure of 6.8%. We must also talk about core inflation as I see this is going to be really sticky. I am expecting interest rates to carry on this upward trend and they will stay higher for longer.

According to the ONS private rents increased by 5.1% in the most recent 12 months so lower than the headline CPI and thus including rents in the calculation would reduce the inflation rate.

HTH

Strummer22

TerryTeacake said:

people are paid more in their jobs, which then causes the price of goods and services to increase again, and so on. Price increases.

Or not - wage increases have been below inflation for almost the last 2 years, and substantially below at times. Take home pay has increased more slowly than gross pay (due to stealth tax). So there’s less money in real terms = demand falls and it’s likely that prices follow. Ok it’s probably true that inflation would fall faster if wage increases had been lower, but we are not seeing a wage-price spiral now. Wage growth has only just in the last month exceeded inflation. If wage growth is a driver and we really are going to enter a wage-price spiral, then after a certain lag, inflation will stop falling and start rising again. If that happens I’ll be willing to stand corrected. 

TerryTeacake said:

We must also talk about core inflation as I see this is going to be really sticky. I am expecting interest rates to carry on this upward trend and they will stay higher for longer.

Core inflation will drop dramatically by June next year, to no more than 3.5% (my prediction, feel free to hold me to it)

TerryTeacake

michaels said:

Sarah1Mitty2 said:

michaels said:

naf123 said:

RelievedSheff said:

They wont get that far. 5.5% then hold and gradually creep down over the next couple of years to around 4% by 2026.

Just in time for the "great crash" of 2026 if the 18 years cycle is to be believed. If the cycle is accurate what we have now is a minor blip and house prices will rise another circa 20% in the run up to 2026 when they will fall back again.

Not sure I believe it myself but it proved right in 1990 and 2008. 

What would happens to intrest rates in the event of a massive housing crash eg will it go back to above zero or will it go higher than 6%?

In the UK house prices falls tend to be deflationary for two reasons:
The reduce 'wealth effect' spending where people feel wealthy because of the value of their house and therefore spend more (equity withdrawal is an extreme example)
When prices fall transactions volumes do too (various reasons, not wanting to sell at a loss/less than what it is worth/downsizing doesn't bring expected windfall, buyers are afraid to buy a depreciating asset, lenders are cautious on deposits) and this then also reduces other economic activity (estate agents, solicitors, lenders, new kitchen/bathroom, carpets, furniture etc etc)

This reduction in overall demand cools the economy in the same way as interest rate rises which then (in theory ) reduces internal inflationary pressure as unemployment climbs.

Thus a period of falling house prices is very likely to be followed by low/negative growth, falling inflation and thus interest rate cuts.

HTH

Transactions are already massively down but prices have not fallen much yet, that is mostly to do with the price of debt and very little to do with people not wanting to take a loss IMO, PropertyLog is full of price reductions just now so people are still trying to sell but in many cases at quite silly aspirational prices for the market we have now (U.S mortgage applications were down the other day to 1995 levels, that is what the fastest historical re-pricing of debt will do to a debt based asset class) The inflation hitting the UK is from global forces, very little to do (basically nothing to do with) falling U.K house prices, we could easily have a situation where house prices crash but inflation and interest rates keep rising.

The inflation that hit the UK was caused by global commodity price increases.  However these have now largely stabilised or even reversed and yet we are not seeing deflation.  Sure there are lags but the majority of the continuing inflation is about wage increases from a tight labour market being passed on resulting in price increases resulting in wage increases - ie a spiral

Fuelled by the money printers going into overdrive expanding the money supply and the world going into lockdown. This was the root cause of all the inflation we have had.