Nationwide. 29 May 2008. -2.5 (month) -4.4 (year)

merlinthehappypig

This is the FT's take on it. Quite interesting especially in relation to the problem facing the BOE and speculation about interest rate increases.

House prices have suffered their biggest annual fall since the property slump of the early 1990s, a leading index revealed on Thursday, in news that sent shares in some of Britain’s largest home lenders and builders tumbling.

Year on year, house prices are now 4.4 per cent below their levels of May 2007, according to the Nationwide house price index. On an annual basis, that is the biggest fall since December 1992, when the UK was in the throes of a severe housing downturn.

In May alone the index recorded a 2.5 per cent drop, its biggest one-month fall, wiping £5,000 off the average British home. The three month moving average, which smoothes out unreliable single month volatility, also slid sharply. In the three months to the end of May house prices fell by 2.9 per cent compared with the three months to the end of April.

Fionnuala Early, Nationwide’s chief economist, said the streak of falling prices has lasted seven months, the longest consecutive period of declines since 1992.

Separately on Thursday, the CBI employers group released a survey showing retail prices were rising at their fastest rate since February 1990, which underscored the quandary facing the Bank of England as it considers future interest rate policy. Yet retail sales were reported to be below average levels for May and are set to remain so in June.

The Bank of England has said it does not believe falling house prices lead to a drop in consumption. However, the fact that inflation remained so stubbornly high – and was likely to rise further according to the Bank’s own forecasts – made it hard for its Monetary Policy Committee to consider rate cuts even if consumption slowed sharply.

Ms Early said: “As higher prices of essential items squeeze consumer spending power and housing market weakness weighs down on confidence, the balance of risks to inflation in the medium term could shift enough to lead the MPC to cut rates sooner than the markets currently expect.”

But traders did not share such expectations: sterling futures markets last night were pricing in two quarter-point rises in interest rates over the next year. The moves suggest markets have been so unsettled by inflation data they are now over-shooting.

Danny Gabay, economist at Fathom Consulting, said inflation alone was reason to believe that consumption was likely to slow this year, dragging the UK economy down with it. “Now real disposable income is being crushed by higher food and utility bills,” he said.

Gary Styles, economics director at Hometrack, cautioned against viewing the latest data from Nationwide as a precursor to the wave of negative equity in the early 1990’s. “A lot of those people who are now in negative equity that we are talking about are those who had little or no equity in the first place,” he said.

wisbech_lad

Maybe it really is different this time? I am surprised by the speed of the nominal fall. Possibly what is different this time is high RPI inflation without compensatory income inflation, so disposable income (from what one can pay out from for mortgage) is being squeezed too (real falls in income)
1989-1993, if you were in a job, pay kept up well with inflation, so it was people losing jobs that drove the declines. This time, the hits look to be bigger, faster

wymondham

wisbech_lad wrote: »

Maybe it really is different this time? I am surprised by the speed of the nominal fall. Possibly what is different this time is high RPI inflation without compensatory income inflation, so disposable income (from what one can pay out from for mortgage) is being squeezed too (real falls in income)
1989-1993, if you were in a job, pay kept up well with inflation, so it was people losing jobs that drove the declines. This time, the hits look to be bigger, faster

True, lots of people I know (myself included) have not had any wage rises this year - In my case this is the first time ever this has occured, despite being busy and the company doing well. With increased fuel/food etc disposable income has shrunk at a dramatic rate in our household. I am very consious I'm not 'spending' on things I normally would - times this by thousands/millions and there must be an effect! Had I not cleared the mortgage earlier this year this would be hitting us hard.

Generali

phlash wrote: »

Its a shame just a few 'real' economists couldn't of used their noddle, a bit of their degree knowledge and common sense regarding economic cycles.

I reckon economic history is as useful as economics when looking at extraordinary times. Unfortunately, the great and good tend to be one or the other.

pickles110564

brit1234 wrote: »

Thats nice, I'm sure your children will appreciate all the debt you put on them with your interest only portfolio especially at the higher interest rates predicted then.

So my mortgages are interest only?
I did not know you could get into my personal details, I will be informing the internet police about you.Watch Out
:rotfl: :rotfl: :rotfl: :rotfl: :rotfl:

pickles110564

boinging wrote: »

Just remind me again how you finance these extra purchases?

From the money in my bank account, made from suckers like you who missed the boat.:rotfl: :rotfl: :rotfl: :rotfl:

Generali

pickles110564 wrote: »

suckers like you who missed the boat.:rotfl: :rotfl: :rotfl: :rotfl:

What's your take on all this then? If prices fall then the suckers haven't missed the boat, rather they've missed an opportunity to lose a load of cash by buying at inflated levels. I don't really understand your point unless you're just looking for a reaction.

pickles110564

boinging wrote: »

Just remind me again how you finance these extra purchases?

What I dont understand is how you think only you renters can save money?
So me broders etc cant save because we have BTL's?

meanmachine_2

pickles110564 wrote: »

From the money in my bank account, made from suckers like you who missed the boat.:rotfl: :rotfl: :rotfl: :rotfl:

Onh yes, that mythical boat again. The one that sets sail, and then sinks mid-ocean.

Hope you've got your lifejacket.

And I'm guessing the abundance of smileys is some kind of overcompensation?

m00m00

Miss the boat

todays Bull Bingo prize goes to Pickles

with a special runners up prize for his other login, which mysteriously thanks every one of pickles posts ........