World Bank predicts global recession

18th January 2012

16 thoughts on “World Bank predicts global recession”

  1. IPIN Global says:

    As your point under “Number Crunching” illustrates – the way figures are compiled for house prices and the housing market in general leave a lot to be desired to say the least.

    Entire country averages are fine when the whole country is progressing at the same kind of rate – problem is that’s no longer the case. The London property market operates on an entirely different level now.

    Aside from that – take a good look at where average house price stats come from. Mainly mortgage providers, most don’t cover the entire country and many make decisions on what figures to include and what to leave out. (More in depth on the futility of average house price stats here: http://www.ipinglobal.com/ipin-live/406286/average-house-prices-explained )

    1. Jan says:

      The only reliable figures to use are the figures from the Land Registry of sold prices.  Sellers can ask what they like but the only thing which counts is the price properties sell for.

      Prices and statistics (averages etc) from parties with a vested interest such as property websites/mortgage companies/estate agencies etc are meaningless.  

      1. Anonymous says:

        Hi Jan

        I entirely agree that the most reliable numbers/statistics come from actual trades or purchases. The catch is the time lag in receiving them….

        Ideally their would be a database updated within a week say of any sale.

      2. Anonymous says:

        Thank you Jan, as Shaun so rightly says, there are a lot of vested interests out there looking for growth in their commissions. We should ignore them and look at LR figures and fundamentals of borrowing affordability, plus availability of funds to lend. Those show a likely continuation of falling prices, unless of course foreign buyers in London get so desperate that they continue to bid prices up there. Of course it does not matter if you bought in the early part of the last decade or before, as you will simply lose your ‘equity’ that you thought you had, by no effort, built up. Non-London recent buyers on the other hand may not be so happy.

        Also, may I agree with D Lilley’s comments above, and add one of my own. If the government is really serious about curtailing Housing Benefit (which as a PAYE taxpayer with zero avoidance possibilities I hope they are), the BTL world is in for a shock. A quite large percentage of BTL’s are in fact financed by the taxpayer and may turn out to be something of a revenue and capital disaster if HB is limited in future.

    2. Anonymous says:

      Hi IPINLive and welcome to my part of the blogosphere

      You are entirely right to say that there are issues with many of the housing market statistics we receive. Many have the clear moral hazard of being produced by bodies with a vested interest in what they would consider to be a “healthy” aka rising market….

      However sometimes it is a matter of perspective. I follow property related issues in Ireland and they envy our statistics/measures and consider their number collection to be inferior! Perhaps less bad might be a better way of putting it…

  2. Ian_jones says:

    The housing market is frozen the same as the rest of the economy as asset prices do not reflect the fundamentals. QE and ultra low interest rates may have saved a banking crash from falling assets but now the system is frozen. Who would lend money at such low rates when the risk is high?

  3. PieterC says:

    Hi Shaun, according to ONS figures issued some time ago, it’s likely that in the period 2002-2007 the amount of annual equity withdrawal from property funded by increased borrowing equated to 2% or so of GDP. According to the Tullett Prebon Armageddon Report, after stripping out all increased borrowing effects, true GDP growth in that period was 1.5% or less. If so, it’s hardly surprising that the current growth figures are disappointing.

    Given the amount of support for the housing market through low interest rates, foreclosure delays, interest only payments etc. etc., and the real earnings position, it wouls seem that unless things improve rapidly, the market is on “borrowed time”

    It could well be that the Armageddon Report’s view that house prices have a further 20% to fall is correct.

    1. MickC says:

      But mortgage rates are not low!

      Whilst the base rate may be low, the lending rate (apart from teaser rates)is, in fact, high. 

      1. Anonymous says:

        Hi MickC

        You make a good point about what mortgage rates are actually being paid in a world where we have returned to restrictions in supply. The numbers quoted by the Bank of England rely on accurate reporting which of course hits the issue of the Liebor scandal. We may find that the situation is actually worse than reported.

    2. Zak. says:

      20% is good… 30% better. Would be really nice to see the buy-to-let brigade get well and truly burned.

      1. Anonymous says:

        The people who want to save for retirement need to choose where to put their money.

        Gordon Brown robbed the pension funds. Bank accounts lose money in real terms, even before tax. Bonds are unattractive at current interest rates and shares contain risks that the average investor cannot control. Many of the investment funds charge very high fees, such that the fund manager is very well paid regardless of investor profit.

        Small wonder that property looked like such an attractive bet, aided by restrictive planning rules and generous housing benefit that often pays for substandard, otherwise unrentable property.

        I’d suggest a stable macroeconomic environment with a balanced budget and low inflation would be a better way of encouraging investment in productive industry.

    3. Anonymous says:

      Hi PieterC

      I do not think that we have seen the end of measures to help the housing market. Or rather measures that those implementing them think will help the housing market. There are clear dangers in a stamp duty holiday for 1st time buyers followed by a house price fall.

      However if we take out Central London it seems clear that house prices will come under downwards pressure. How that will play out is not easy to say as some of the fall could be in real terms as we have already seen. If we get a long drawn out lost decade scenario then a 20% fall could look optimistic.

  4. Chris, Leeds says:

    The flip side of the housing market is that The Time today reported that the value of homes in London’s “core prime” districts are now on average 42% higher than at the 2007 peak.

    1. Anonymous says:

      Hi Chris

      Extraordinary isn’t it? If we go back to the 08/09 dip I do not recall anyone forecasting it and in truth it would have been a fluke because of the way events have developed.

      Reading some of the Hometrack analysis gave me a surprise about Cambridge.

      “Cities such as London and Cambridge have seen capital values rise almost 30% off the lows of 2009 with prices around 10% above their peak levels. In the very central, prime residential areas of London values are over 40% above their peak levels. At the other end of the spectrum there are many markets where values are bumping along the bottom with little impetus for growth. Liverpool and Glasgow are examples of cities where there has been limited growth since the lows of 2009 and where capital values remain 15% off peak levels.”

      Below is a link to the full article.

      http://www.hometrack.co.uk/our-insight/commentary-and-analysis/can-london-continue-to-buck-the-national-trend-in-house-prices

  5. Spacemanc says:

    Hi Shaun, regarding the TV figures – the way it works is that they weight the panel to represent households throughout the UK. Each home on the panel has a box which records how many people are watching and what channel they’re watching.

    They then extrapolate the results to get the total viewing figure. (My Sister was on the panel a few years ago)

  6. David Lilley says:

    My comments on house prices.

    1. UK house prices rose threefold in a decade between 1997 and 2007.

    2. The measure of the value of a house is of course “what you can get for it”. At the moment the difference between asking prices and achieved sale prices is 14%. Thats a sales price 14% below the asking price.

    3. The traditional measure of the value of a house is that “the average house price equals 3 times the average salary”.  The US went to 6 and the UK went to 9.3. Hazel Blears said “it is different today due to low interset rates”. And Gordon Brown said the market was wrong and what was needed was “fixed interest rates for life and this could be done and he would do it”. Capital Economics said house prices were unsustainable but were drummed out by the clamour for Hazel Blear’s rehtoric and first time buyers had to get on now or they would never get on the escalator. The bubble was growing and all that we could turn to for common sense have subsequently declared that they didn’t see the housing bubble.

    4. But the bubble was quite simply, a three fold increase in a decade. It was staring you in the face. Alan Greenspan’s advice to Ben Benancke at the handover was to worry about house prices and Ben immediately increased the Fed base rate from 1% to 3.5% by 25 basis points every 6 weeks and we followed to 5.5%. It worked and the house price bubble was burst but it led to the sub-prime defaults and we all know the rest of the story.

    5. The house price bubble was Keynes multipier in motion. We always turn to the multipier on a rainy day but we had been using it fulltime under GB. It is fairy dust. GB borrowed £30 to £40b every year from 2004, pumped up PPI which was off balance sheet to £300b and benefited GDP from £400b of home equity release.

    6. 1m were driven into buy to let as the only thing going up was house prices. The FTSE 100 was nearly 7,000 before the millenium bell and the £15b pa snatch from personal and company pensons all but eliminated our pensions industry.

    7. UK house prices have fallen 20% from their 2007 peak, excepting London, despite near xero base rates and QE. They have fallen much further in Ireland and Spain.

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