Monetizing the UK Housing Market Bubble with 20% Discount Election Bribes
Housing-Market / UK Housing Oct 05, 2014 - 06:24 PM GMTBy: Nadeem_Walayat
Many people continuously ask how can UK house prices continue rising from already a very high levels to what appear to be new bubble extremes, especially when average wages have been falling in real terms for the past 5 years and only likely to turn marginally positive this year. The answer to this remains the same in that all governments of whatever party will always seek to monetize the UK housing market in an attempt to keep inflating the housing bubble in perpetuity by literally printing money (QE and and debt that will never be repaid but inflated away).
Why? Because this is the time tested formula for WINNING elections by means of the wealth effect which I have covered many times over the years -
19 Aug 2013 - UK House Prices Bull Market Soaring Momentum
What Academics and Journalists Will Never Understand About Markets
In having immersed by myself in the markets for 30 years now, I know that what many academics tend to take for granted rarely matches reality. Whilst I covered many aspects of trading markets in my last Ebook (Stocks Stealth Bull Market 2013 and Beyond - Free Download). However in terms of economic trends what academics will always fail to grasp is that markets are NOT driven by fundamentals but by SENTIMENT and it is SENTIMENT that CREATES the fundamentals! Which is why the academic economists rarely have any real clue as to what is going in the markets because they are nearly always looking in the WRONG direction i.e. they are looking at the CAUSE rather than the EFFECT, as in reality it is the EFFECT that makes itself manifest in the price charts long before the CAUSE appears in the economic data that academics focus upon, which is why the SAME economic data can and is used by economists and pseudo-economist (journalists) such as that which we see on TV news shows to explain EITHER price rises OR falls.
You can only know the markets IF you TRADE the markets! The pseudo and academics economists will never get you on the right side of trends years ahead of the herd, in fact most press media commentators will be some of the LAST people to jump on-board trends, usually just before they end!
Momentum Drives Housing Market Sentiment and Economic Growth
As house price rises continue to accelerate, many people sat on the sidelines waiting for prices to fall or even crash will realise that it is just not going to happen, and in their despair at the relentless accelerating trend of rising prices, in increasing numbers will feel no choice but to jump on-board the housing bull market as a they see the houses they have been viewing sold and asking prices trending ever higher.
As house prices rise, home owners see the value of their houses rise £x thousands per month, in many cases by more than their salaries, this will encourage many to borrow and spend more, and save less which will meet the governments primary objective for inflating the economy by means of the housing market. Everyone will be playing the game of how much has my house value increased by, a quick analysis of my own housing portfolio (based in Zoopla estimates) shows a 5.5% increase in housing wealth over just the past 6 months! Does this make me feel richer, more willing to spend? Well, being only human, YES it does!
And so it is the case today, where politicians of both Labour and Conservative parties have been busy making a series of new bribes to voters to get a leg onto the UK's ever more relatively expensive housing market with many freebies so as to ensure that -
a. House prices continue to rise at a rapid pace, at least into General Elections
b. Many that can no longer afford to get a leg on to the housing market are given FREE money to do so.
Hot on the heels of Labour promising to double the number of first time home buyers, the Conservatives announced their own first time buyer bribe for all you 'youngsters' out there, that’s the Under 40's! so as to appeal to a very wide range of potential voters. The promise / bribe is vote for the Conservatives to get on top of all of the housing bull market bribes to date such as the Help to Buy Scheme, that following an election victory will PAY 20% of the price of your new build home! Giving 100,000 home buyers an instant 20% profit! This will encourage many sat on the sidelines wanting to buy to say ME, ME, ME! Thus perhaps as many as 1/2 million voters will now be encouraged to vote Conservative as they assume that they will be the lucky ones to take advantage of this Tory bribe that could potentially benefit them to the tune of as much as £80,000 EACH! Imagine if a political party promised you £80k for your vote!
And whilst today the bribe is 20%, fast forward to election 2020 and given the exponential house price inflation trend then the bribe could easily have doubled to 40%!
Understand this, UK House Prices are NOT meant to FALL! The 20% bribe will SUPPORT and further INFLATE house prices. If the Tories or Labour really wanted affordable housing then they would take actions such as taxing to decimate the buy to let sector that now represents 20% of Britains housing market! Only that would result in much cheaper mostly first time buyer properties coming onto the market.
UK House Prices 5 Year Forecast
It is now over 9 months since the excerpted analysis and concluding 5 year trend forecast from the then forthcoming UK housing markets Ebook was published as excerpted below-
UK House Prices Forecast 2014 to 2018 - Conclusion
This forecast is based on the non seasonally adjusted Halifax House prices index that I have been tracking for over 25 years. The current house prices index for November 2013 is 174,671, with the starting point for the house prices forecast being my interim forecast as of July 2013 and its existing trend forecast into Mid 2014 of 187,000. Therefore this house prices forecast seeks to extend the existing forecast from Mid 2014 into the end of 2018 i.e. for 5 full years forward.
My concluding UK house prices forecast is for the Halifax NSA house prices index to target a trend to an average price of £270,600 by the end of 2018 which represents a 55% price rise on the most recent Halifax house prices data £174,671, that will make the the great bear market of 2008-2009 appear as a mere blip on the charts as the following forecast trend trajectory chart illustrates:
Additionally, a video version of excerpts of the forecast was posted during early January 2014 -
Current State of the UK House Prices Forecast
The updated Halifax average house prices (NSA) graph to July 2014 of £189,726 is set against the forecast index level for July 2014 of £188,244 which illustrates that house prices have shown <1% deviation from the forecast trend and therefore the long-term trend forecast remains on track to achieve a 55% rise in average house prices by the end of 2018.
My article of June 2014 further concluded that house prices momentum was expected to continue to accelerate over the summer months and therefore to result in a slightly above trend forecast trajectory which has came to pass.
Source and Comments: http://www.marketoracle.co.uk/Article47617.html
By Nadeem Walayat
Copyright © 2005-2014 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
Nadeem Walayat Archive |
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
