Are we heading for Economic Disaster and a Housing Crash??

[TonyTeacake]

Are we heading for Economic Disaster?

UK wage growth failed to keep up with the rising cost of living new figures show. Wages rose, but when taking rising prices into account, regular pay showed a 1% fall from a year earlier, the Office for National Statistics said. As the country heads into recession 1 in 5 companies are planning to sack workers. Many tech companies are slowing or outright freezing hiring, while others are going a step further and laying employees off. We are already seeing this happening as consumer spending is tightening which affects business’s profits This list could potentially be a thousand times longer if things do get worse in the economy and overall at the moment, consumer confidence is very low in the UK.

The Stock Market

Well, this is the worse start to a year since 1939. The markets have been bear for 7 consecutive weeks, this has only ever happened 5 times since 1929. We have seen Amazon lose 200 Billion in one day, Netflix down 70% and many more tech companies in decline, even major retailers like Walmart are significantly down. So with the stock markets in decline how does this look for the economy?
Well to be honest it doesn't look good at all and to be honest, it looks really bad.

What about this inflation monster

With rampant inflation at an all-time high in 40 years it just paints a darker picture. To be honest I really don’t see any easy way out of this one as we can’t just flick a switch and turn this inflation monster off. To be honest we really only have 2 choices. There is a bad choice and a worse choice. The bad choice is to fight inflation and let interest rates go up so everything will collapse. The worse choice is to continue to create inflation to avoid that and postpone to consequences of hyperinflation. If you look at the history books the last time we had inflation this high was from the late 60s through to the early 80s. WoW, that is a very long time and it created a lot of pain. The chairman of the fed in the early 80s Paul Volcker raised interest rates to 20% and by doing this he brought inflation back down. I do believe we are heading into a stagflation period by the end of this year, a recession with high inflation and high unemployment.

The Housing Market

Just like the stock markets, the housing market has been on steroids for the last 2 years. House prices have now hit their peak as for April growth was 0.3% which is a big drop if you compare to previous months of this year. Expect house prices to decline, although this will vary depending on where you live. Within the next 2 years we will see a housing crash like nothing before. All of this pent up demand we have seen during the pandemic will evaporate. You can forget the supply and demand argument because the economy is going to take a real significant downturn. The bond market is having its worst year in history and we are only in May. This will have a devastating effect on all housing markets. They are selling all over the world as interest rates are rising globally. This will hurt all financial assets. My advice is to people don’t get too confident about house prices not going down in the near future because you will be in for a big shock.

A lot of people are saying this is different to 2008

I agree this is much worse. Only this time around we have had a global pandemic, 100s of billions of money printed for QE, rampant inflation, the highest records recorded for personal debts, war, and supply chain problems.
This will be a lot worse than 2008, the demand for buying houses will just evaporate.

Unfortunately, all of this money that was printed during the pandemic which has created these artificial markets will be coming back to bite us all really hard. We are just at the beginning of a very long bumpy road.

The Russian – Ukraine war doesn’t look like it’s going to end anytime soon which is so sad for many innocent people whose lives have been turned upside down and destroyed. I think we should all start preparing for a turbulent couple of years.

Please share your thoughts on what you think may happen?

Perhaps they should just hand the cyanide pills out now?

Seriously, none of this stuff is anything that any of us can influence on a personal level. I'm very blessed to rent a council house, so my home is safe, but will rent for life. I do feel for people who have borrowed as much as they possibly could, in the either in the expectation that their salaries will rise or the value of their home will rise when neither is guaranteed. Although the long-term trend is usually up, so if they can stick it out if might be ok.

And I remember the 80’s and the 90’s crash where no one thought housing would ever crash etc etc

interest rates need to be more than inflation to get things under control- it will crash the entire economy though as the national debt is over 100% of GDP.

Irresponsible fiscal policy since the 2008 crash has a lot to do with this. Interest rates at stupidly low levels, too much money printing & inevitable inflation. The housing market should never been allowed to get so out of control & now the pay back has to happen.

I'm glad people are finally noticing this. There could be issues with food supply too as some countries are banning exports. I expect this will affect developing countries the most.

There is a lot of crazy stuff going on in the world and the world's finances have been monumentally mismanaged. Living in a debt based economy and lots of QE (from prior to the pandemic as well as during) is really about to catch up with us. Other world events haven't helped, but please don't believe this is all COVID and Ukraine war. The ball got rolling well before then.

I've been watching a guy on YouTube called market sniper. Very interesting indeed.

I wonder if the lockdown fanatics would have advocated for locking up healthy people it if they had known they were screwing themselves over financially in the long run.

@ChrisReasBathEggs yes and most people have never known anything other than runaway house price growth and low interest rates. The chickens are about to come home to roost but most people are in total denial about it

And there really really isn’t any more government money to bail out the housing market

Mmm, not convinced it will catastrophic. But yes, next 18 -24 months will be bumpy ride.

Sorry because I have never studied economics and am too dim to join up all the dots but -

What are the likely ramifications downstream if the housing market does drop? For the broader economy?

We are renters - so for example will rents soar, if people can't afford to buy?

Again I'm not smart enough to know but if they do fall by 10% rather than anything bigger - can the economy cope with that?

I'm very concerned about global food shortages It feels like a lot of blows are going to be dealt at once to a lot of people everywhere.

It’s interesting- from a theoretical point of view. There is still a shortage of housing in the UK so if people are still being paid and still have chunky deposits I can’t see a big crash. And mortgage lending has tightened since the mid 90s so in theory people ought to be able to withstand interest rate shocks better. But how we are going to get inflation under control I don’t know. Not the traditional interest rates I don’t think as the reasons for inflation are things like wars and sanctions which aren’t the traditional reasons.

I think this is why we have a shit government at the moment with captain useless and his smirky men. They aren't even trying to project an image of caring anymore and are just clinging on their gravy train until the bitter end, as they know the shit is hitting the fan soon and they know their time is numbered. Economic crashes end a party's rule.

The BoE and government are bickering and blaming each other already too, which isn't a great sign.

I hope when this blows over we demand much better. Some people have gotten very rich these past 10 years and the working class and the young have really paid the price to make these people very wealthy.

Well if you really want to get serious, google 'How Civilisations Fall' by John Michael Greer.
Subtitle 'A Theory of Catabolic Collapse'.
Author's slogan: 'collapse now and avoid the rush'

I'm a renter too, but I think if someone gave me a deposit tomorrow I probably wouldn't buy just yet, even though with inflation it would lose value over time.. Far too much uncertainty. Over inflated house prices, plus interest rate rises looming, high inflation and fuel and food insecurity. Not a great mix! I do believe things move in social and economic cycles so things will stabilise eventually, but it is a period of crisis it seems.

I think the average mortgage rate on US mortgages are going up and are back to levels seen after the 2008 crash, so might be the case here. I think for most it won't be great, but it is the worst for people who are FTB recently or landlords with multiple properties, as I think the section 21 notices are going to go too, so evicting tenants who are in arrears might get more tricky. Correct me if I'm wrong though, as I'm not a landlord!

Land/housing shortage in UK ,I'm not worried about a housing crash.
Worried about inflation.
Going to try and over pay the mortgage even a little for next few Years, worried About interest rates.
I can see from previous article's posted that there are parallel to other crashes but this is a unique situation.
This has been a Pandemic and people want to get out and unemployment isn't bad yet.

Alright Vlad?

What are your proposals?

Yes, yes, yes.

I am old enough to remember the sky high interest rates in the double figures in the early 90s and I swore then that we would never ever buy anything where we couldn’t still afford the mortgage at that rate ourselves. I had friends who lost their homes and spent years in negative equity as a result of those rates and we stayed in a little two bed terrace far longer than we would have wanted.

I squirm inside when I see DC’s friends committing to mortgages on houses far bigger than they need right now because the banks have lent them a huge amount of money on a tiny interest rate. I hope their fixed rate lasts any recession and inflation madness.

There is as much government money to bail out the housing market as the government has an appetite for, none of the numbers exist they’re all made up numbers on a screen the money isn’t real.

what’s actually happening here is over lockdown people were paid not to work people also thought of other ways of driving income baking cakes selling puppies they saved an absolute fortune by not going to work. People became quite self sufficient and enjoyed a simple life.
And now naturally nobody wants to go to work for the man.

Well the powers that be can’t have that can they ? so the only way to force people is to announce that there’s a recession on, put up the cost of food and fuel, make everybody shit themselves and go back to the office and accept that they’ll be working for 20% less than they were last year due to inflation and tax rises but actually it’s business as usual that’s the truth of it .

I think we are definitely in danger of talking ourselves into a deeper problem than necessary . Papers are littered with doom n gloom and people react to it eg fuel scarcity , food prices . There's no doubt things are tough but if people stop spending out of fear we will hit recession .

Not everyone is wearing a hair shirt but we don't hear about them because they aren't as interesting as a family of four on the bare bones of their a@rse and aren't spoken of in the media .
You only have to look on MN to see affluent / ok people shouted down .
It's wrong to think most people won't survive this , maybe some belt tightening but not the carnage the media wants .

I don't believe there will be unemployment

So many people went home after Brexit there are literally thousands of jobs - a glance at Indeed today shows about 250 jobs in my specialist area I can do in London

I think they should:

1. Impose a windfall tax as most other European countries have done and reduce gas/electric bills

1. Lower duty on petrol

1. Increase taxation for those over £50k

1. Increase business taxes

Unfortunately, all of this money that was printed during the pandemic which has created these artificial markets will be coming back to bite us all really hard. We are just at the beginning of a very long bumpy road.

I don't think it was just the pandemic, it was the over reliance on QE since 08 that has inflated assets & devalued wages.

I do think interest rates are going to return to more average levels eg 4/5% which may not lead to big drops will see stagnation as so much growth is driven by equity but it's hard to make loads of that these days.

but surely if your house crashes in price everyone else's does too so moving would be proportional. If I make any sense

it's generally easier to move up the ladder in a falling market as opposed to a rising one. However it depends on when you bought/equity etc.

It's the fear of unemployment that worries me. On the one hand we have a skills shortage but then we are a service based industry & when so many people reign in their spending this will have an impact.