I hoped this was wrong -Your second mortgage from Gordon Brown

But its beginning to look like Gordon Brown is going to destroy our future as well as our present in his desperation to stay in office. ( See my previous blog -Your second mortgage from Gordon Brown )

Its a shame, a very expensive one, that the Labour party is so spineless as to allow this nutter to remain in office.

House price crash deniers

I've been blogging about house prices since Nov last year ( see figs at end.) I then had a go at calculating the direction of house prices - if you assume that something has changed about the economy and avoid using time averaged data from a period with different underlying assumptions. Now finally the BBC has caught onto the house price crash - with Evan Davis refusing to be cowered on R4's today program this morning and the following graph being placed on their web site.

However two groups of people are desperate for you to keep spending ( though lending is going out of fashion fast ) - those associated with the estate industry and the government. They try to assure us in every way they can, but the results of those assurances will be costly mistakes for those who believe them (which shows the form of cynicism New Labour is famous for ).

The truth is that the New Labour/Estate agent narrative and reality are diverging at a unsustainable rate, soon the dam which is holding the truth of these matters from the public will burst, you can see the cracks opening today.

PS If you want to scare yourself witless nip over to housepricecrash.co.uk and look at the predictions being made, and just as important who is making them. Those who's jobs depend on high house prices predict little drop (even amazingly growth), those whose jobs depend on getting right predict drops from 10-30% !! (Hat tip to the Wat Tyler if the TPA who had a link to this site ). Update: The IMF - whose job getting these things right is - predicts a house price drop of 10% today and a halving of the growth rate, ouch !


Update: The panic is now officially bad - even the RICS is admitting things are grim !

Signs of the times

Just a few observations:

1. I now get spam email about debt counselling - not just the usual pharmaceutical and biological enhancements.
2. Last night I saw an actual bank advert about saving up for something in the future - rather than taking a loan out to have it now.
3. Labour MPs have suddenly discovered the budget they were cheering over a year ago is going to cost them lots of votes (which they care about) and their hard working but low income constituents money (which they obviously only care about once the electoral results become obvious ).
4. BBC interviewers are starting to question housing experts on why there isn't a house price bubble - and the experts spin and twist like their jobs depended on it - which we are all starting to realise they do. ( Ref conversation with Halifax spokesperson on R4 this morning - update The TPA has a great post on this point - and rightly congratulates Evan Davis on a purposeful interview. Like Wat Tyler I has to check at the end of the interview that the Halifax economist wasn't a Treasury official or junior minister. Wat Tyler's best line is the reference to the greatest house price crash since the Black Death !).
   

Its a sign of the times.

How honest is it to talk about house price inflation at 1.1% ?

The BBC is finally catching on to what is actually happening to house prices. A few months ago they were supporting their government by reporting the yearly average - without taking into account what is actually going on.

We've been here before when the last but one Labour government started choosing the time period to calculate inflation over, to keep the headline figure down.

House price inflation is reported at 1.1%. Doesn't sound that concerning, until you consider CPI inflation is at 2.5% and RPI in excess of 4% ( many people are experiencing far higher rates on inflation ).

So house prices are dropping over the last year at about -1% to -3% (roughly).

But the look at the data over the last year and you see something far more alarming.

I posted on this a few months ago in Nov and predicted house prices could drop by 7% (others have predicted 10%) - that's still not making the BBC's reports yet, but its just based on the current rate of change. I attach the graph again to show how this could have been easily foreseen 6 months ago - but too many people have an interest in maintaining denial about property prices. They refuse to accept something fundamental has changed.

The greatest fury will be in the South of England where people are mortgaged to the hilt - dropping Bank of England interest rates aren't translating into lower mortgages and vindictive council tax rises (Labour moving money to its core voters in the North) and vindictive stamp duty rates will cause rising anger.

But the greatest losses will be in the North and West, just as some of the greatest gains have been there.

No wonder Gordon is getting his brown pants and bicycle clips ready for addressing the PLP in panic mode next week !

PS Man in a Shed has decided to spend much of next week over at the National Statistics web site - as he thinks its going to be a good hunting ground for right of centre bloggers for the next year or two and probably contains lots on information that left wing journalists will be trying to ignore.

House prices to drop by 10% ?

We are slowly working through the period of denial as clever people who work in the property business run out of excuses for why prices for property should stay so high when people can't afford to buy at the bottom of the market.

I've posted on how the last months UK figures would allow for a 7% drop ( but the media prefers time averaged data of a +6% annual rise - which is only valid if nothing has changed - why do they do that ? ) Now in the Daily Mail we hearthat Morgan Stanley's chief economist is considering a record breaking 10% drop as likely.

Now the cracks are opening below and the drop looks big.

Lets be clear. This will destroy Labour and Gordon Brown and I think they know it. They may even have started planning for opposition - perhaps why they are willing to be a bit more flexible on party funding knowing that a partisan settlement won't stick and will be followed by a far less advantageous law on party funding.

It will also turn Northern Rock into the perfect storm for government incompetence as every bidder insists only only buying the sound mortgages business and leaving Alistair Darling and the rest of us with the stuff that's going to default. ( When you hear the BBC cheerily reporting that Branson and co will bay back £10billion or whatever straight away - remember he's buying the good stuff that's actually worth the money and leaving us with the dodgy stuff Labour have used our money to buy. - Don't get me wrong Branson and co are behaving quite properly they aren't charities or suckers - unlike HMG ).

Update: The FSA has apparently just issued a warning about business conditions to mortgage providers in the UK (FSA = Financial Services Authority). Ominously warning about some 'business models no longer being economic'. Well I think that stable door shutting is definitely post equine departure on that one ... Its more likely they're covering there behinds and of course the Dour One's behind whose complicated scheme has been failing so spectacularly with bank oversight.

Which way will bank shares head tomorrow.

By the way on the way to Woking's Homebase today I passed one of the many infill flat developments that New Labour have forced on the south east and there are piles upon piles of for sale and rent signs on the ground. I mean loads of them - perhaps they have got to a point that they are creating panic and dropping all the prices so have agreed to remove them all ?

Time averged housing data

Man in a Shed was at a meeting of engineers last night, where the presenter explained how control engineers love things like tank inventories as the smooth out disturbances. However this comes at cost else where as the trend is to reduce inventories in process plant to reduce any risks associated with them.

This popped back into my mind when looking at house price data. The headlines from the BBC web site say that annual house price inflation has changed from 9.7% reported in Oct to 6.9% now, with this month seeing a fall of 0.8%.

Now lets pretend we believe the CPI inflation index which is at about 2.1% ( RPI - the measure we used to use before Gordon changed things recently is at 200% that rate at 4.2% !!! but I digress ). A monthly fall of 0.8% - if it happened in every month of the year would be equivalent to about a 7.3% drop in house prices, even taking credit for normal inflation ( about 0.17% per month at current rates for CPI ).

So it is possible to argue that house prices are falling at a rate equivalent of 7.3%/year if you just use this months data!

Now house prices changes do vary from month to month - sometimes jumping up, sometimes down. So this is just a mathematical exercise. But the point of this exercise is to point out how historic data is being used to calm fears and panic. It is only valid if we are in an identical situation to the previous 11 months - I suspect this is not the case.

Given that the bubble aspect of recent housing price rises it is likely to pop (especially once people perceive an end to the price inflation), with people no longer fearing the escalator of future house price rises making them make unwise borrowing arrangements at the same time as many people will see their mortgages renegotiated for rises of up to 3% it is not unreasonable to expect a further house price correction.

PS Its worth looking at the NSO's inflation figures and to wonder a bit about RPI and Gordon Brown decision to switch to his new method of calculating inflation CPI. MiaS thinks something is up - and its inflation.NSO's inflation figures at Oct 2007. The RPI is a closer guide to what life is costing you if you have a mortgage.

Update: Morgan Stanley's chief UK economist David Miles warned that prices will drop 10 per cent next year. Reports the Daily Mail on 4 Dec 07. - see told you.