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?

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.

This often has made sense though, moving frequently is expensive & FTBs are older so cut out certain steps. Plus it's often been the case that the mortgage is cheaper than any rent that was being paid though.

3. Increase taxation for those over £50k

I don't believe in more hits to income, it's disproportionate for the young. I think we need some kind of land tax.

Well precisely. Everyone has fixed for 2 years at least.

As long as we don’t talk ourselves into recession will be absolutely fine just keep doing what we’re currently doing. Get your hair done, go for a coffee, have lunch out.

The guy that runs the cafe need you to support him in order to pay your wages if you work in the council offices (council tax/business rates) if you work for the electricity board (utility bills) if you work in food manufacturing etc everyone is interdependent.

It becomes a self-fulfilling prophecy if you panic and keep all your pennies to yourself because next thing you know everybody else is doing the same and your job isn’t required either.

And £50K is the new £20K now anyway nobody is particularly living the dream on £50,000 year.

There's no doubt things are tough but if people stop spending out of fear we will hit recession

Fuel prices have risen so much in the last year, even before the war in Ukraine they were rising, during the pandemic I was paying 1.11 for diesel and now its 1.79 . We all know how much energy prices have risen and are expected to rise again in the Autumn. We are seeing food price rises above the official rate of inflation. Interest rate rises don't only effect mortgages, so anyone with debt of any kind may see the need to pay more to service that debt, so credit cards, store cards, loans, car finance etc. It is the combination of all the rises occurring at the same time that has such an impact on peoples spending power, not people being scared of spending.

I agree. 50k also isn’t a huge salary particularly if you’re the main earner. You already have to pay back a percentage or all of your child benefits. DH is on just over 50k and I’m on minimum wage and we are petrified. We are rubbing pennies together by the end of the month (2 kids in childcare) and when we planned our family we didn’t see all these huge cost of living increases coming.

Interesting thread.

I was out for dinner in London last
night. Once a year event for
me. I really noticed how empty some of the bars were on a Saturday night in central london.

I'm concerned about food inflation. I'm a farmer and the price rises we are seeing are nuts. Literally nuts. To the poster upthread who said we arE talking ourselves into a food crisis we really aren't. Fertiliser costs have gone through the roof. Wheat prices through the roof. Diesel has gone up. Machinery and parts are getting hard to source. I don't think the inflation in the food sector has hit yet. There will need to be some hefty price increases soon otherwise many farmers I know won't (or can't) restock.

As long as we don’t talk ourselves into recession will be absolutely fine just keep doing what we’re currently doing. Get your hair done, go for a coffee, have lunch out.

mentally it's quite hard though. All the talk of energy bills in the winter has made me cut back as I want more of a buffer & my s&s ISA performance is crap with is worrying.

I totally understand it is difficult but literally that is the only answer, people always think it will happen to somebody else, that they are immune from being surplus to requirement and literally in the UK none of us are because we don’t really make/do anything.

I'm on £50k and the reason I said it is because they can take another £100 off me - we are undertaxed in that bracket and above

I'm really pissed off about the increase in the standing charge for gas/electric - I've got to pay £40 a month for NOT using it - that money is just going to rich people (shareholders)

We pay a lot less income tax than other countries in Europe

We voted for greed and profit above people and planet and we are heading for a shit storm. There are very wealthy people who have gained from the policies of the last few years and they will be ok. The rest of us are fucked. You reap what you sow

CLIMATE CHANGE is the only thing that matters now. Who gives an actual shit about the economy not growing when in all likelihood, by 2050, things could be soooooo much worse for everyone. It's like COP26 never happened. Short term financial gain or loss does not matter a jot.

We pay a lot less income tax than other countries in Europe

But a lot of other countries in Europe have better rent controls & more childcare support. And cheaper energy bills.

Salaries have been so devalued & many jobs that paid 50k a decade ago still pay that. There is huge inequality unrelated to salaries so for me to only target income doesn't make sense.

Plus everyone talks about climate change but we a huge demographic change on the horizon with our ageing population. The new health & social levy will be a drop in the ocean compared to what the NHS/social care is going to need.

49 degrees centigrade in Dehli this week

40 plus degrees in Spain

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

Yes much of what I'm reading has said this financial situation was always inevitable but current circumstances have been a bit of a catalyst.

A lot of people are comparing the current situation to other crashes, but when you look at debt to GDP now, it does seem very different. We have much more debt. We were supposed to have austerity to sort this problem out after the last crash, but the money saved from cuts to services doesn't seem to have helped this. Wonder where the money that was saved went.....

I think if those currently employed don't spend or are just spending much of their income on basics then some businesses will go unfortunately, and the larger businesses will pick up whatever custom is left (although a lot of them are in serious debt too). Bit shit really.

I'm definitely not a financial expert as I'm learning this now after my DP became interested, and we should have learnt all this as a teen. My son has quite a mathematical brain, so I will make sure he understands the basics and how social factors influence them.

The general feeling of the world stagnating and going backwards (especially for those under 50) is really overwhelming, but I do feel it's better to know what is going on and feel somewhat prepared than to have any nasty surprises. I have young kids who are reliant on me, so I think this is part of it. I think the best thing anyone who is overwhelmed can do is try to learn more and do their own research. It has helped me.

Luckily I have always been adverse to being in any debt, so I'm feeling lucky about that. I know some people who are in thousands and still not reigning it in!

I agree with pp that costs on various items - fertiliser etc but other commodities have skyrocketed. This is being felt across the world

there’s concern for poorer countries re impact of food shortage

but here one of main issues is limiting spiralling inflation

Turkey iirc has big issues atm with crazy inflation rises

I hope the people who are advocating buying coffee's etc aren't the same ones who chastise young people for not being able to afford a house because they spend their money on coffee's and avocado's ?

In contrast to this the impact and response to the Ukraine war is largely unavoidable but this part is annoying to think back on.

We were supposed to have austerity to sort this problem out after the last crash, but the money saved from cuts to services doesn't seem to have helped this. Wonder where the money that was saved went.....

Austerity did nothing to reduce debt, made many poorer. The government also haven't invested anything into the economy so we have the productivity issue.

The climate is in a category of its own.

We wilfully mis-prioritise at our own peril.
But there is very little transparency or disclosure about the impact of delaying significant mitigation. Cognitive dissonance; climate science is not informing fiscal policy, or any other policy, to the extent that could reasonably be expected if our elected representatives were to act as if the truth is real.

In terms of housing props the cynical part of me thinks the reluctance to do something like a windfall tax is they want to encourage older people to downsize. Obviously anecdotal but all my older relatives are now exploring it as they don't want to pay huge bills.

flowery curtain Thanks for sharing this. I sometimes doubt what I am reading, so it is good to hear from someone in the industry.

To those that think 50k is high enough to tax more, our household income isn't amazing but it is above average (we both pay lower tax rate, but work FT)and we are not huge spenders and live modestly. We still don't have a great deal left over at the end of the month. I think in some places in the UK 50k is a lot, but not where I live, and it's not a lot as a sole income if you have children who need childcare. An ex council 3 bed is 325k now here and that's not as bad as some places! I would rather the large corporations who dodge tax start paying up. I personally would set this level much higher.

I think the issue of people not spending is not necessarily the media, it is the fact they are going into the shops, looking at their bills and going to the petrol pump and seeing inflation in double digits and going up at a very quick rate too. I think it is just instinctive to hang onto money in these circumstances. Plus the fact that food is more expensive to buy and businesses are more expensive to run, so a nice pub lunch may soon increase in price, but people are spending more on the basics, so have less money to spend on treats like that.

To be fair I think that young people aren’t actually in a position to single-handedly support the economy with their avocado toasties, actually those with fat pensions and sitting on an awful lot of equity in their house that they paid buttons for are ones that we need to rally round.

They are probably worried sick about the heating bills though.

I work in connected agricultural industry and seeing farmers going under. Larger organisations are buying up these "fire sale" farms and will be taking on food production. I have to say I worry about free competitive food markets if we see this continuing

I know, they have been fucking self serving and useless to put it bluntly. It makes me angry when they pitch themselves as the party of financial responsibility and people naïvely swallow it, they are a million miles from being that.