I haven’t written a blog post for a while. Partly as my keyboard isn’t working very well, and partly as I have been concentrating my thoughts on my quest to become Britain’s oldest new-qualified architect (on course for about 40, at the moment…).
But partly also as, for some reason, housing has taken over
the news agenda (briefly) and the amount of column inches wasted on the topic
has made me reluctant to add any, but I have decided to add 6 inches worth here
as I can’t help myself. If you measure it, and say “this isn’t 6 inches! This
is clearly about 3!” THEN YOU ARE A GIRL AND KNOW NOTHING.
But, for what it’s worth, I am now certain that we are
economically going to hell in a handcart.
We are doomed.
Latest Goldman tentacle and asset-inflator in chief Mr
Carney (small hands, smells of cabbage) has, you may have noticed, committed to
forward guidance on interest rates. I have (probably, can’t remember or
be bothered to re-read) said in the past that I’m worried about an
un-sustainable re-inflated housing bubble.
I’m going to put my balls on the line here and say,
actually, this isn’t going to happen, however hard the Tories try to make it
happen to get re-elected. I think we are being fooled into thinking they can manipulate
the market forever, but history tells us pretty much unanimously that they can’t,
and I keep forgetting this: or if they do, they will do severe damage to our
long-term prospects as a country, which is arguably even worse.
House prices are rising above inflation, and wages are
rising below inflation, and somehow we are in a recovery. WTF.
In fact, we are, I
decided about 5 minutes ago, going to see the beginnings of a housing crash,
starting in the autumn, which will wipe at least 30% off headline values,
possibly more given a market’s tendency to over-shoot. Okay, maybe that’s a bit
strong: but the risks to the downside are stronger than most market
commentators believe. And I don’t think I have ever been proved right on a
house-price prediction before, SO IT’S ABOUT TIME I CALLED ONE RIGHT, HUH?
This is basically down to long-term interest rates: Mr
Carney (small hands, smells of cabbage) has done his best to keep down the expectation
of future rate rises, by saying “if nothing makes us put up rates in the future
and we have no reason to and want to keep them low, then we won’t put up
interest rates”. He managed to say this in such a hypnotic Goldman Sucks-way
that media heard this as “rates will stay low FOR EVER” whilst the markets and
everyone else heard what he actually said, and LT rates have started to climb already,
as they received the confirmation that they had suspected: that rates could
indeed go up if the conditions merit. No idea when 10yr govt bonds are doing
today, but I’m guessing they’re up too (ie they are recently, I know this and
am trying to appear knowledgeable).
But even if base rate does
stay at 50 bips, this doesn’t mean much: over two-thirds of mortgage lending is
linked to long term rates anyway, whilst ignoring the MPC totally, and these
are being dictated at the moment primarily by guessing when QE in the US will
enter TAPER PHASE 1 (NOT-IMAGINED). When they do, rates will rise here by at
least 1.5% following a US rise of 2% (which is generally predicted), which most
bank models (that I have stolen, anyway) reckon will cause a 30% drop in
average property values here, as house prices are basically a leveraged bet
against long-term interest rates. The Help to Buy bullshit will make no
difference I have now decided, as the scheme will be limited to such an extent
when govt start to get worried about exposure, that this will be not enough to
dictate margin prices given falls. I think this is where commentators have got
it wrong: they assume govnt is underwriting all mortgages, but ignoring the
fact that they can limit this guarantee as much as they like, which could be a
lot once prices start to fall (you’d think/hope).
An interesting point was made to me recently by the head of
mortgage strategy at a major high-street bank, which I will not name (oh
allright, Lloyds): ignore the crap about housing shortages/nothing being built
etc – there are a million or two buy-to-lets which are held by small investors,
and if house prices start to drop, a significant portion of these could all come
onto the market in months, which would dwarf any long-term structural housing
drought in the short term.
IE: “There’s a housing shortgage, and nothing to bu….oh look, a million flats have
just come on stream in about a minute.”
If house prices do actually fall by double digit numbers, all
bets are off and we really are in trouble. Don’t forget that private debts are UP,
staggeringly, since the period of stagnant growth and uber-cheap credit started
(who’d have thunk it?), and are now frankly, f*****g massive compared to most
countries in the Western world (if not all). Interbank rates could explode in
minutes (and we’re not even allowed to rig them now, which doesn’t help), and
we have nothing to fire at the next crisis.
So there you have it: my prediction, which will change completely
after I’ve had another cup of coffee and am feeling more bullish about life. But
then, it’s my birthday tomorrow, which may explain why I think the world’s
going to end.
Happy Birthday to me.
