Mark Carney Smoke and Mirrors Warning of UK Housing Market Bubble Crash
Housing-Market / UK Housing May 19, 2014 - 05:10 AM GMTBy: Nadeem_Walayat
Mark 'Money Printing' Carney continued to put up a smoke screen of a UK housing market bubble that needs to burst as he acted to cover his and the Bank of England's backs for being the architects of the current UK housing bull market that continues to accelerate towards an average inflation rate of 10% per annum, which looks set to break to a new all time high within the next few months, whilst the London bubble already stands at a 20% premium to its 2007 bull market peak following waves of foreign buying that seek a safe haven from their own corrupt and always eager to steal the peoples wealth governments.
Mark Carney speaking to Sky News warned:
"There was evidence that large-value mortgages – with loans of more than four times a borrower's salary – were on the rise again. The Bank has the power to issue recommendations on the scale of loan-to-value ratios."
"The biggest risk to financial stability, and therefore to the durability of the expansion – those risks centre in the housing market, and that's why we are focused on that,"
"We don't want to build up another big debt overhang that is going to hurt individuals and is very much going to slow the economy in the medium term.
"We would be concerned if there were a rapid increase in high loan-to-value mortgages across the banks … we have seen that creeping up and it is something we are watching closely."
"The level of higher loan-to-income mortgages, ones above four and a half, five times loan-to-income, potentially could store up bigger problems for the future and we need to be careful."
Mark Carney also addressed the key issue driving Britians' housing bull market which was the shortage of new homes of just 123,000 years which was well below what academic economists consider as a minimum of 200,000 needed per year.
"We're not going to build a single house at the Bank of England and we can't influence that," and said that UK house building was half that of his own country, Canada, despite the UK having a population twice the size.
As I pointed out at the start of this article, Mark Carney's statements are pure smoke and mirrors back covering, it's just so that when he leaves for his next job he can point out to his future employer that he did warn of x,y,z when the truth will be that in actions he did the exact OPPOSITE to INFLATE the housing bubble.
Understand this fundamental truth of the British economy - Inflating the housing bubble is the ONLY thing that can prevent the British economy from collapsing ! The BANKS! The BANKS! are STILL BANKRUPT! There is NO WAY, ZERO chance of the Bank of England acting to burst Britain's housing bubble instead they will act to SUSTAIN it!
Perhaps Mark Carney has only just realised this fundamental fact that his job is as it was when he was the Governor of the Central Bank of Canada was to INFLATE housing bubbles for that is what he did for Canada and the primary reason why he was hired by the British Government to INFLATE UK house prices so that the debt slaves fall for the illusion of increased wealth and go and borrow more for consumption and pay ADDITIONAL high taxes such as Stamp Duty.
The dynamics of the ever inflating housing bubble are not by chance but by design! We have high Immigration by DESIGN, we have LOW house building by DESIGN - None of it is by chance as I will illustrate further in this article and in far greater depth in my latest UK housing market ebook. So don't be fooled by the likes of Carney and his bankster brethren warning of a housing bubble and for actions to be taken that NEVER WILL be taken for these are the people who CREATED the bubble and it is in their Interests to PERPETUATE it for as long as they can, even if it means the British Pound loses 99% of its value.
The bottom line is that Mark Carney is a pretty polly that squawks warnings every now and then, nothing more whilst the beat goes on.
Below follows an excerpt on the huge annual shortfall in UK house building from my latest ebook on the UK housing market available for free download (ETA 21st May 2014).
UK House Building and Population Growth
The below graph shows the UK annual population change against annual new housing build completions.
The graph illustrates a major long-term shift took place in the UK housing market dynamics by 2000 when the annual increase in population started to far exceed the number of new builds that ended the preceding trend for construction to exceed population growth in terms of addressing the UK's chronic long standing housing shortage, especially considering that the average size of households has continued to shrink falling from 3.1 in 1960 to just 2.25 in 2013 (one of the lowest in the world) as a consequence of the increase in single person households and single parent families. Therefore instead of increasing house building during the immigration catastrophe the exact opposite has taken place as far fewer houses were built each year than during the preceding decade This ratio is only trending in one direction i.e. lower which means that even if the UK population suddenly stopped increasing then the falling ratio towards 2.15 by 2030 would imply demand for an EXTRA 1.25 million properties.
The below graph further illustrates the ratio between the accumulative change in population since 1970 against the accumulative number of new housing builds also since 1970 as a ratio that shows the level of UK over crowding.
This better illustrates the change in trend that started to take place during the mid 1980's that coincided with the Thatcher governments reversal of the policy for the construction of social housing and implementation of the right to buy programme that resulted in the sale of millions of socially owned local council housing that ignited the property boom of the nineties AND noughties, the trend that was set in motion was for the inability of supply to keep pace with population growth which ensured continuously persistent upward pressure on house prices that despite the great recession still showed an accelerating trend as new build supply that currently stands at an estimated 140k per year is set against government estimates for a requirement of at least 250k per year, with 300k a more realistic estimate when the trend for a falling household size is taken into account, which thus ensures that the UK's over crowding situation is expected to continue to worsen year on year going forward, especially if the size of average households continues to shrink which would require 70,000 new builds per year even if the population stopped increasing.
And this analysis does not even consider the fact that each year the total number of properties remaining empty continues to rise either as a consequence of being for sale, let, legal issues or falling derelict. This totals now more than 1 million empty properties at any one time, a number which despite demand looks set to continue to rise as many of the derelict buildings will only come back on the market when they have been demolished and rebuilt, so erroneously counted as new builds when they should be classed as rebuilds.
Implications for House Prices
New build supply plays an important role in the housing market as it tends to average at approx 10% of the total number of annual transactions, which is more than enough to have a significant effect on the UK housing market especially as supply over recent decades has been consistently below that which is deemed necessary to meet the demands of a growing population which meant that the UK housing market was never destined to replicate the housing busts of countries such as the United States or even closer to home of countries such as Spain, where that housing bust has prompted many hundreds of thousands of British ex-pats to cut their losses and return to the UK, closely followed by unemployed Spanish and other PIIGS citizens seeking employment in a far more liberal and robust UK jobs market and thus introduce new demand into the UK housing market.
This suggests that the often put forward academic standards in terms of valuing the housing market affordability ratios such as X3.5 salary towards the likely path for the UK house prices does not take into account that of new demand against new supply trend that implies affordability ratios look set to be pushed ever higher to new trend extremes, and therefore supporting long-term rising price trends for UK house prices in real terms, i.e. expensive UK house prices look set to be here to stay for as long as the lack of new supply exists, especially as the UK population is expected to grow by at least another 5 million over the next 10 years and probably nearer 6 million which demands at least an extra 2.5 million homes to be built which is set against an realistic estimated construction of just 1.4 million new homes, which means UK over crowding is going to continue to get much worse and thus drive house prices ever higher.
The bottom line is Britain's over crowding ratio insures that no matter what the arguments are put forward by academics that many people just cannot afford to buy so house price rises must be unsustainable, instead the population growth fundamentals are such that their argument just does not matter, the only thing that can effect this fundamental trend is if the UK literally doubled the number of houses built per year, and even then it would not result in a fall in house prices but tend to index house prices to inflation. But off course that is not going to happen, the UK is not going to build anywhere near 300,000 homes per year, as the reality is that for most years UK house building will be short by as much as 150,000 completed new builds each year which will just compound the housing market demand vs supply pressures and thus exert further upward pressure on house prices.
Britain's Demographic Time Bomb Has Gone Off!
Britain's demographic crisis as illustrated by an ever growing ageing population that despite an increasing number of workers due to immigration cannot maintain ratios of the past, where 20 years ago there were 8.9 million pensioners against 28 million workers or a ratio of 3.15 workers to every retiree (15.5% of the total population), today there are over 11.5 million pensioners to 30 million workers, a ratio of 2.6 to 1 (18.1% of the total population). Britain's growing elderly population demanding an ever greater share of the economic pie that puts an ever increasing burden on the welfare state services such as the NHS that will continue to severely impact the economy.
There is no end in sight to Britain's demographics crisis as an ageing population looks set to see the number of retirees increase from approx 11.5 million today to 13.5 million by 2020 the impact of which is partially being offset by Britains rising population from 62 million (2010) to at least 67 million by 2020, which whilst putting Britain in a far better state than many other countries who's total population and worker base is already shrinking as well as experiencing an increasing ageing populations such as Japan, however an 8% increase in the total population against a 17% increase in retirees is not going to offset the impact of the increasing number of retirees as the ratio of workers to retirees continues to fall, especially as this trend looks set to continue to 2030 and beyond by which time the number of over 75's looks set to literally double in number, rising from 8% of the population today to more than 13% and in total approx 25% of Britain's population will be over 65 which suggests an unbearable ratio of 1.9 workers per retiree 1, which implies that huge amount of purchasing power of workers will be lost over the next 20 years, something that I will cover at length in my next in-depth analysis focused on wages and house prices (FREE Newsletter)
The consequences of Britain's demographics are as I pointed out 4 years ago in the Inflation Mega-trend ebook of Jan 2010 (FREE DOWNLOAD), that governments only ever have one solution which is to PRINT MONEY be it called debt that will never be repaid or QE or a multitude of other examples such as Funding for Lending, and the consequences of the perpetual exponential money printing is as I have written about on a near monthly basis for at least 7 years is continuous exponential inflation. This is why whenever I hear warnings of deflation, I consider the proponents as being delusional because there has not been nor ever will be DEFLATION!
Bank of England's Smoke and Mirrors
The truth about the Bank of England's warnings are one of pure smoke and mirrors for the BoE has ENGINEERED the current housing bull market via a successive series of EXTREME measures from ZERO INTEREST RATES into their 6th year, to QE4EVER debt monetization that continues to funnel cash onto the balance sheet of the still mostly bankrupt banks, to the Money for Lending scam that PAYS the banks NOT to borrow money from depositors and thus the scandal of sub inflation savings interest rates stealth theft of purchasing power continues. Thus the Bank of England's primary remit it is NOT to control inflation but instead to INFLATE house prices!
The Bank of England actions speak volumes over propaganda as the BoE continues to funnel cold hard cash (tax payer funded profits) to its bankster brethren whom it ultimately serves and is staffed by.
What the banks desire for further artificial profits is a housing bull market that inflates the value of the property assets on their balance sheets that as a consequence of fractional reserve banking and the £1 Quadrillion+ derivatives market that they are leveraged to i.e. a relatively small percentage change in house prices results in a huge swings in profits which is why a few percentages drop in house prices in 2008 was enough to start bankrupting virtually EVERY UK BANK that ultimately resulted in tax payer bailout liabilities that SPREAD the price paid for the bailout out over the subsistent 6 years, as year on year average wage slave earnings failed to keep up with the Bank of England debt monetization inflation consequences.
The truth about the the UK housing market as illustrated at length in the new UK Housing Market ebook (free download ETA 21st May 2014) and excerpted below is that of continuing exponential inflation resulting in average UK house prices being far from the bubble stage -
The implications of the real trend in UK house prices are:
1. The forecast real terms trend trajectory of June 2010 proved remarkably accurate in terms of mapping out where UK house prices would likely bottom several years later both in terms of price and time. Thus this indicator will again play a pivotal role in the extension for my existing forecast.
2. This supports my long standing view that the UK housing bull market can be sustained for the WHOLE of the remainder of this decade (6 years) and probably beyond.
3. That my existing expectations for a 10% per annum trend trajectory is more than sustainable, in fact the average rise in UK house prices over the next 6 years could easily exceed 80%! Which translates into an average of over 13% per annum that is well beyond anything that most housing market commentators, academic economists and journalists who think they are economists can comprehend today.
UK General Election 2015
And don't forget that a general election is just 12 months away so instead of putting the housing market into reverse gear the Government will instead be putting the pedal to the metal and ACCELERATE UK house prices inflation. So watch for the Bank of England to come under even more pressure to NOT take any action that will stop the head lines of average house prices rising by more than £2000 per MONTH. Instead expect more of the same of Bank of England back covering statements so that they can say many years from now, we told you so! When the truth of Bank of England actions will continue to be the exact opposite of what spouts from the likes of Carney's mouth.
My long standing forecast is for a UK housing bull market induced election boom to deliver a Conservative outright election victory as illustrated by the excerpt below -
30 Dec 2013 - UK House Prices Forecast 2014 to 2018, Inflation, Trend Trajectory and General Election 2015
In conclusion a May 2015 general election at an average house price inflation rate of 8.5% would result in a Conservative overall majority of at least 30 seats. Therefore this is my minimum expectation as I expect UK house prices to start to average 10% per annum from early 2014 with my actual forecast converging towards average UK house prices breaking to a new all time high just prior to the May 2015 general election which would be a significant boost for housing market sentiment and thus the Conservative's election prospects.
At the time opinion polls put Labour 6 points ahead of the Conservatives that translated into a 74 seat majority (Independant on Sunday).
Today, some 4-5 months on the latest opinion polls show that Labours poll lead has plunged to now being only 1 point ahead at 32% to the Conservatives on 31% (ICM 4th May 2014), which would translate into a hung parliament which is precisely inline with the forecast trend trajectory as I don't expect the Conservatives to start nudging into the outright election victory zone until around September by which time the UK economy will be entering the election economic boom phase of growing at the rate of more than 1% per quarter.
The bottom line is that we are going to hear such bubble talk for the duration of this UK housing bull market that looks set to last for the remainder of this decade! Just as the now over 5 year stocks bull market has been followed by highly vocal ramblings of an always imminent crash or bear market for its duration.
Ensure you remained subscribed to my always free newsletter for the latest in-depth analysis and my latest ebook in the Inflation Mega-trend series on the UK Housing Market (ETA 21s May 2014) which goes beyond housing market analysis and detailed trend forecasts by covering many home buying and selling topics such as -
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- Analysis of buying vs renting
- 15 detailed guides on how to increase the value of your home
- Costly home improvements to avoid.
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- Maintenance that can save you a lot of money long-term
- Regional house prices analysis
- Surveying properties - what to look for
- and even how to get on with your new neighbours.
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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 four 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
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