How far will house prices fall [volume 4]
Discussion
p1stonhead said:
I think the current level (+/- 1 or 2%) is the new 'normal'. IMO they will never go back to where they once were. Too many people would be crippled by it, sending us into another huge mess.
I think the government would suffer most so suspect it won't be going back to 'normal' anytime soon.Of course, the BoE is independent so the government don't have a say at all in IRs, no no, so you never know.
The problem is that the almost inevitable result of printing money is rampant inflation.
We have seen that in hard assets (property and equities) but it is yet to filter down through other items such as consumables as the supply glut counteracted that effect and huge levels of unemployment put a lid on wage growth.
If inflation DOES start to build back up again then the ONLY relief valve the central banks have is to raise rates.
So they either make everyone poor by allowing very high CPI OR they make everyone poor by making their mortgages unaffordable.
I am not a macro guy so I have no idea what it will take to push inflation back up again but looking at history, inflation ALWAYS follows money printing.
Imagine for example we are a year from now and wage inflation is at 5%, oil is at $50 (so up 70% y/y) and there has been a bad harvest so food is up too.
The Bank HAS to raise rates if they expect inflation above 2% and that could easily happen.
We have seen that in hard assets (property and equities) but it is yet to filter down through other items such as consumables as the supply glut counteracted that effect and huge levels of unemployment put a lid on wage growth.
If inflation DOES start to build back up again then the ONLY relief valve the central banks have is to raise rates.
So they either make everyone poor by allowing very high CPI OR they make everyone poor by making their mortgages unaffordable.
I am not a macro guy so I have no idea what it will take to push inflation back up again but looking at history, inflation ALWAYS follows money printing.
Imagine for example we are a year from now and wage inflation is at 5%, oil is at $50 (so up 70% y/y) and there has been a bad harvest so food is up too.
The Bank HAS to raise rates if they expect inflation above 2% and that could easily happen.
p1stonhead said:
I think the current level (+/- 1 or 2%) is the new 'normal'. IMO they will never go back to where they once were. Too many people would be crippled by it, sending us into another huge mess.
I'm not disagreeing but it is worth reading Galbraith's book "The Great Crash of '29" He quotes legions of people saying exactly this about the US stock market in the late 20's. I also remember the Japanese commentators saying the same thing in the late 80s about their stock and property markets.Usually, it is accompanied by a statement that "the government" or "the banks" have too much to lose and that they will stop it from happening.
Crashes take on a life of their own and can rarely be stopped by government action. Governments act to head them off before they can develop.
contango said:
...an argument could be put forward for the next move to be a cut...
It may well be that the next move is to 0.25 or no move and a further significant period of time where we are now.As per Sweden for example along with others, there's no reason to reject out of hand the possibility of negative interest rates here.
Pork said:
p1stonhead said:
I think the current level (+/- 1 or 2%) is the new 'normal'. IMO they will never go back to where they once were. Too many people would be crippled by it, sending us into another huge mess.
I think the government would suffer most so suspect it won't be going back to 'normal' anytime soon.Of course, the BoE is independent so the government don't have a say at all in IRs, no no, so you never know.
and you're right the government's interest in this as elsewhere is remaining in government.contango said:
Rates will go up one day(?), if something has worked well, that is the new normal, you can see why many are still jumping into the housing market.
Something will work well, the eventual deflation of debt by rampant inflation.At that point interest rates will go up.
It's been the goal since day one of the 2007/2008 crash. They bailed out to stop a crash. They want to do an inverted crash and it'll happen once they've pumped enough pretend money into the system.
turbobloke said:
It still looks as though a BoE rate rise is some way off, so that promotion might just arrive in time 
Either that or redundancy. Careers nowadays are a bit like a game of Snakes and Ladders, you can't rely on only landing on the ladders, you've got to be prepared for the odd snake. I do a fair bit of work up in Aberdeen and it's shocking how grim things have got so quickly, many people are just a pay cheque or two from financial disaster and that disaster has hit the oil industry. Let's hope Brexit doesn't have the same effect on our financial services industry...
RYH64E said:
turbobloke said:
It still looks as though a BoE rate rise is some way off, so that promotion might just arrive in time
Either that or redundancy. Careers nowadays are a bit like a game of Snakes and Ladders, you can't rely on only landing on the ladders, you've got to be prepared for the odd snake. RYH64E said:
Let's hope Brexit doesn't have the same effect on our financial services industry...
Let's hope Brexit. Stop there Mr Whippy said:
Something will work well, the eventual deflation of debt by rampant inflation.
At that point interest rates will go up.
It's been the goal since day one of the 2007/2008 crash. They bailed out to stop a crash. They want to do an inverted crash and it'll happen once they've pumped enough pretend money into the system.
By my math, the volume of liquidity applied multipled by wage inflation achieved equals sweet fanny can we please denounce Keynes as wrong.At that point interest rates will go up.
It's been the goal since day one of the 2007/2008 crash. They bailed out to stop a crash. They want to do an inverted crash and it'll happen once they've pumped enough pretend money into the system.
Edited by 010101 on Wednesday 17th February 20:06
010101 said:
Mr Whippy said:
Something will work well, the eventual deflation of debt by rampant inflation.
At that point interest rates will go up.
It's been the goal since day one of the 2007/2008 crash. They bailed out to stop a crash. They want to do an inverted crash and it'll happen once they've pumped enough pretend money into the system.
By my math, the volume of liquidity applied multipled by wage inflation achieved equals sweet fanny can we please denounce Keynes as wrong.At that point interest rates will go up.
It's been the goal since day one of the 2007/2008 crash. They bailed out to stop a crash. They want to do an inverted crash and it'll happen once they've pumped enough pretend money into the system.
The liquidity is sat in banks and bubbled balance sheets far away from the plebs salaries... for now.
turbobloke said:
RYH64E said:
Let's hope Brexit doesn't have the same effect on our financial services industry...
Let's hope Brexit. Stop there Edited by fido on Thursday 18th February 11:43
anonymous said:
[redacted]
If it's reflected in wage inflation too.Today, if you're on £30k a year, a pint of milk is £0.50p and have £120k mortgage.
If inflation rockets, you're earning £60k, milk is £1, your mortgage is £120k still.
Nominally, your morgtgage remains the same but is now twice your earnings not four times, as it was. Unfortunately, everything else has doubled in price so although the mortgage is more manageable, your pension is only going to go half as far. But let's not worry about that much, much, MUCH bigger problem, that'll be on someone's else's political watch.
That's my simple understanding anyway.
anonymous said:
[redacted]
Think of it in BigMacs. Your 250k of debt is currently worth 50,000 BigMac (£5 each). Rampant inflation makes you £250k debt worth 50 BigMacs, but a BigMac now cost £5000. You can see the problem for society as a whole ..
Like Zimbabwe? Everyone's a billionaire but a loaf of bread costs 500,000,000 scoobies or whatever the currency is?Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff