Facts NOT Fiction

UK house price inflation shows few signs of slowing, according to a Bloomberg report on the latest analysis by RICS, the Royal Institution of Chartered Surveyors, citing the number of properties being put on the market had fell for a 10th month, thereby reducing supply as demand increases, buoyed by an improving economy and low borrowing costs.

This all sounds logical, except, as we have been at pains to point out within these postings, “Socionomically, it’s never been about supply/demand as in the main human beings are logical when it comes to non-financial decision making, think Bogof (buy one and get one free,) but when it comes to financial matters, they buy high and sell low, as evidenced by the UK average house price (Lloyds Halifax data) versus UK house sales and UK mortgage debt.

10 Dec 2015 Blog 2

As can be seen from the first chart, the higher that prices rise, the more house sales and mortgage debt rise and vice-versa when price falls, such as during the 2007/09 financial rout.

Returning to those “low borrowing costs,” the report goes on to forecast that the Bank of England will keep its record-low borrowing costs for now, with the RICS chief economist in agreement.

Once again, our postings have often observed that whilst central banks set a “bench-mark or base-rate,” at 0.5% in the UK, the market sets interest rates for mere mortals who wish to borrow to buy a house, and those “market rates” have been rising for some time, as evidenced within the second chart:

10 Dec 2015 Blog

 

As can be observed, the 2-year and the 10-year interest rate have risen by a respective 690% and 40% since their all-time lows (the dots.) Furthermore, with “inflation,” turning negative, currently at -0.1% pa, the “real cost” of servicing the mortgage debt is rising.

With liquidity disappearing fast, as outlined within our mid November piece, “Liquidity Scares,” it really is time to study the facts, not fiction.

 

 

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