John Ward – UK Property Prices: Boom, Surge And Bollocks – 2 March 2013

forsalesignsWe are 48 hours into March, and so ‘tis the season for pretending that UK property prices are on the rise again. This is a tactical programme organised on an annual basis to complement the overall ongoing strategy of hype about everything returning to normal.

‘House prices surge for second month in row’ proclaimed the Express this morning, and indeed they have gone up: ‘a typical three-bed semi now costs £162,638, a rise of £393 in four weeks.’ So that’d be £166,000 by the end of the year if the trend continues. It is unlikely to.

The source of the study, Nationwide, talked enthusiastically of a rise by 0.2% in January and 0.5% last month. But in the small print towards the end of the Express piece, Robert Gardner, the Nationwide’s chief economist, pointed out that “buyer confidence is also likely to remain fragile until there are signs that the wider economic recovery is firmly entrenched.”

What recovery is that then? The trend last year was to a speeding-up rate of slowing down in Q4, with very disappointing output figures for last month. Mervyn King still says the EU is a “black cloud” likely to stop any recovery dead (it is getting worse over there, without doubt) and the world economy is heading inexorably into widespread recession.

But as far as the number of sales is concerned, the HMRC joined in the bollocks bonanza, talking of ‘…a five per cent increase on 2011 and the highest since 2007′. However, the later tables point out that sales are still half the levels we saw in 2007.

The Coalition’s Funding for Lending Scheme (FLS) has been getting much of the credit for this ‘surge’ in the market. If the banks were running it fairly – and if it was of some wider benefit to the economy – there might be some feeble grounds for optimism. But as always, neither of these things are true. By providing an alternative source of funding to customer deposits for the banks, those fine chaps have been able to slash savings rates since the FLS’s introduction. Sylvia Waycot, a financial expert at Moneyfacts, said: “Savers are being persecuted without borrowers getting the rewards.”

But as I’ve posted a dozen times since 2008, cutting rates for savers only reduces still further the disposable income of the Baby Boomer generation, who have the most money available to spend but the least inclination to do so while rates are poor, and the economic outlook even worse. Also – from every viewpoint except the politician’s – further house-price inflation is bad for the economy….and will make the correction even more disastrous when it finally comes.

The big con in the FLS, however, is that it was established to provide banks with cheap state-backed funding on around £80bn of loans….primarily for small business. That would in theory reduce bank borrowing costs by about £800m a year. The idea was that savers would have more to spend, and small business would get more loans.

Both these, Osborne felt, wouldn’t stimulate the economy. £800m wouldn’t stimulate the muscle of a lab rat anyway: but more to the point, neither of the expected results have occurred anyway, because the banks as usual have simply pocketed the extra margin and cut rates, while focusing largely on property borrowers with big deposits.

Launching the scheme last July, the Chancellor told the media the scheme would “demonstrate that Britain is not powerless to change its economic destiny”. Predictably, it is doing the opposite. Meanwhile, anyone imagining that buyer confidence, credit availability, UK fiscal credibility, and economic growth can be sustained in Britain this year sufficiently to underpin a house-price boom is bonkers. Prices must and will fall.

Related: Reasons to hate bankers, Nos 8703 to 8709

www.hat4uk.wordpress.com / link to original article

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