UK House Prices - Lets Get Jiggy With UK INTEREST RATES
Housing-Market / UK Housing Jun 28, 2022 - 09:57 PM GMTBy: Nadeem_Walayat
UK House Prices - Lets Get Jiggy With UK INTEREST RATES
There have been so many interest rate hike false dawns over the past decade that one has become skeptical that this time could be different, and YES THIS TIME COULD REALLY BE DIFFERENT DUE TO OUT OF CONTORL INFLATION that worries the CENTRAL BANKS for they understand that it risks igniting the wage price spiral which once it takes hold is not easily brought back under control, hence there is a very high probability of high inflation for a decade because the central banks will not do what needs to be done! FORGET THE NOISE ABOUT Interest rates soaring to ridiculous levels for Central banks know their banking crime syndicate brethren would go BUST! Instead rates will rise but NOT to the level needed i.e. to ABOVE the rate of INFLATION. The UK base Interest rate to control inflation would need to be ABOVE the rate of Inflation i.e. at about 10%! which is clearly not going to happen! Not even to HALF that level, and probably not even to 1/4 of that level, 2% is what the Bank of England is targeting! Whilst INFLATION rages to 10%! That is not going to cool inflation OR the HOUSING MARKET!
The Bank of England is targeting a joke interest rate of just 2%. For UK Interest rates to have any significant impact on the UK housing market the base rate would need to be above 5%, and even then the impact would be relatively mind. People are NOT STUPID! They understand Inflation of 10% vs a Mortgage rate of say 4% is a NO BRAINER i.e. BORROW to the HILT and let inflation do it's MAGIC!
Today's typical UK mortgage rate is 4% which is NEGTAIVE 4.5% against RPI of 8.5%! IT'S A NO BRAINER! Fixed for as long as 10 years! Whilst Americans have it THREE times better for they get to fix their mortgages at even better rates for 30 years! What are you waiting for? The seller to drop his asking price by 10%? Fat chance of that happening! Will Smith needs to give every procrastinating UK home buyer a slap!
You had the whole of 2020, and the whole of 2021 and STILL sat twiddling your thumbs all whilst you have sleep walked into 1970's inflation 2.0! Please note this is not financial advice to buy a house, instead this is Will Smith SLAP IN THE FACE to STOP WASTING TIME THAT YOU CAN NOT GET BACK!
The bottom line is UK interest rates rising to 2% to fight inflation of 8.5% is like a fireman using a water pistol to put out the towering inferno. Still it gives savers who do not understand that inflation is stealing the real terms value of their life time savings to earn 2% pittance interest before TAX! What a CON! People work hard, save some money that gets stolen by the government via the inflation stealth theft tax as they ponder whether they should buy a house or not (shaking my head). Put your savings in the bank for 10 years or burn it all today the net result is near the SAME!
I remember fixing bonds in October 2008 at 7.2% for 3 years when CPLIE was around 5%. The good old days that have yet to return. As once upon a time CASH WAS KING! You could park most of your money in cash in fixed rate bonds safe in the knowledge that the rates would keep pace with the likes of RPI, but then the Bank of England bailed them out, stuffed them full of QE money, and so Banks no longer needed cash from savers, hence the collapse in savings interest rates which since have NEVER kept pace with inflation.
A blast from the past - 7th Oct 2008 : UK Interest Rate Forecast 2009
What can Savers and Investors do ?
Savers - To reiterate what I have been saying over the last 6 months, savers still have a a golden opportunity to lock in high fixed savings rates which in the UK are above 7% . These rates won't stay around for much longer, were talking perhaps in the days rather than weeks or months. So the time for action is now ! - Yes, banks can go bankrupt but savings are protected which includes accumulated interest. In the UK the protection is for the first £50k per banking group.
So when you look at the breakdown of my assets and see that I currently hold what looks like a large amount of cash at 30% of my total assets, however just over 10 years ago my total cash holdings were as high as 80%! There was a time when CASH really was KING! Instead since despite volatility and transaction costs HOUSING is KING, and to a lesser degree stocks, CASH IS POOP! Hence why I am seeking to expand my exposure to stocks despite the fact that we are in a bear market and I am likely accumulating some distance from where stocks will finally bottom, at least stocks give me a fighting chance of keeping pace with inflation, whilst holding cash is a guaranteed LOSS. Yes I could buy another property, and probably will do so if an opportunity presents itself, but it truly is a time wasting exercise to do so as every prospective home buyer well understands.
Understand this there is plenty of upside to interest rates for NORMAL RATES equate to rates at WELL ABOVE CPLIE which translates into a UK Base rate that should be rising to about 9%! Of course that is not going to happen! Hence the housing bull market will continue whilst the Banking crime syndicate continues to suckle at the teat of the Bank of England.
This article in an excerpt from my most recent extensive analysis focused on UK House Prices Three Trend Forecast 2022 to 2025, where I pealed away multiple layers of the UK housing market of to arrive at a high probability trend forecast.
UK House Prices Trend Forecast 2022 to 2025
THE INFLATION MEGA-TREND
WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING
High Inflation Forecast for Whole of this Decade Due to Rampant Money Printing
Fed Inflation Strategy Revealed
Russian Sanctions Stagflation Driver
RECESSION RISKS 2023
UK Debt Inflation Smoking Gun
Britains' Hyper Housing Market
UK Population Growth Forecast 2010 to 2030
UK House Building and Population Growth Analysis
UK Over Crowding Ratio
Overcrowding Implications for UK House Prices
UK Housing Market Affordability
UK House Prices Real Terms Sustainable Trend
UK House Prices Relative to GDP Growth
UK House Prices Momentum Forecast
UK House Prices and the Inflation Mega-trend
Lets Get Jiggy With UK INTEREST RATES
Is the US Yield Curve Inversion Broken?
UK house Prices and Yield Curve Inversions
Interest Rates How High WIll they Go?
Work From Home Inflationary BOOM?
Formulating a UK House Prices Forecast
UK House Prices 2022 to 2025 Trend Forecast Conclusion
Peering into the Mists of TIme
Risks to the Forecasts
US House Prices Trend Forecast 2022-2024
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By Nadeem Walayat
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Nadeem Walayat has over 30 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
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