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Originally Posted by Graham
The CML said that (as part of a much longer statement), to stop the housing market dead in its tracks would require at least a doubling of the current interest rate. They did *not* however, at any time say that this was either desirable or intended!
The Sunday Telegraph, however, grabbed that line, took it out of context and blew it up into a massive article, then the other papers saw that and decided to run with it.
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But even at a tiny growth, we still have a situation where first time buyers cannot afford to get on to the ladder. One of two things financially would have to happen - either salaries increased at way beyond the rate of inflation or a decrease in the cost of housing to even the balance. If the value of houses falls, then you're on the way to a crash - even if it not of the scale of the late 80's, there will still be a lot of people left with negative equity. If the interest rates rise astronomically, then many people will not be able to afford the payments - as people are now having to borrow the absolute maximum possible, sometimes more to get a house - it's a catch 22 situation unfortunately.
[QUOTE=Graham]
Frankly I'm not worried about a housing price crash like the '80s. The situation is completely different, we don't have the problems with staying in the ERM at a ridiculously high exchange rate and having to jack up interest rates to keep the value of Sterling up, nor do we have the millions of unemployed from that time, so it's simply not going to happen like that.
No, you're right - there were a lot of external forces that contributed to situation of the 80's. There are quite a few similar external forces this time around though, such as the Euro referendum - for example what will happen if the country votes to keep the Pound - will the rest of the EU vote to have us out? Unlikely as we are one of the strongest economies in the Eurozone, but it is a consideration.
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Originally Posted by Graham
Put it this way, I'm a very "risk averse" investor, but I'm planning on re-mortgaging my flat on a "buy to let" and getting myself a 3 bed house in the not too distant future and there's *NO WAY* I'd be doing that if I thought there was a sizable risk of a housing market collapse!
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I'm not saying you're right or wrong to do this - everyone needs to be aware of risk, and there is no way that even the most competant economist (and I'm not one of them!) can predict whether there will be or not. It is always a possibility. Also you already have the equity there, the current situation affects first time buyers the most right now.