UK house prices see annual fall

Prices fell by 1.1% in April, the sixth monthly decline in a row, and were down 1% from the levels seen in April 2007, the building society said.

Via BBC

Ps: the top of the index was October 2007 371.1 now it is 355.5, that's a 4.2% drop from the top.

So what with the housing market?

For the last 8 years the price of property have been going up and up and a bit down but soon after more up and up. Until a month ago few were the ones who were expecting that it will go down. Brick and Mortar always go up!

Since the last 2 months the picture has changed totally, so how come people did not see that coming, how come people went that high! how come it did not crash in 2005? Is the slump the consequence of the credit crunch, is it the fault of the American?

All these phenomenons are related. In the USA the end of the house price bubble started the credit crunch, but the credit bubble is responsible for part of the house bubble, and the house bubble is responsible for the credit bubble.

These two market were reinforcing each other on the boom, now they are sinking each other in the slump.

Now for the UK, the banks saw that coming, after the fall of the MBS in USA, bank in Europe started checking their position, step by step incrementing their standard. Preparing for the shock of repossessions and bankruptcies – it is not there yet btw -. The pull out of the 100% , 125% mortgages, is not due to the credit crunch it's due to the realisation by the banks that the risk on these product was heavily underestimated. They won't be able to pay back, they will default more than expected. Therefore more people were able to buy than there should have been, a lot of the demand was created by the underpricing of the mortgages and that lifts house prices. That's probably what happened in 2005, a lot of people were given access to mortgage they should not have. That follow the boom of the MBS.

And that why the government can't save the housing market, because this not the credit crunch that pull mortgages of the market, it's a repricing of the risk, a return to normal condition after the credit bubble.

Keep that in mind

66% fall corrects a 200% increase
60% fall corrects a 150% increase
50% fall corrects a 100% increase
40% fall corrects a 60% increase
30% fall corrects a 42% increase
20% fall corrects a 25% increase
10% fall corrects a 11% increase

House prics "gap"

Via FT

It's all over paper/tv/radio

House prices 'see sharp decline'

Is it the start of a new phase of accelerating downward trend? Hard to say, put the trend is definitly tend, a lot of people bet their home that it would not. That's only the beginning - see the mortgage market.

Talking about mortgage market, it's more of a return to normal than a crunch for the moment. Who could think that a 125% mortgage is a sensible idea?

2 days later

South London

London Zoo

Scary title

House prices 'will crash soon': Bank chiefs warn YOUR home is overvalued by 30 per cent


UK housing - “Sell everything!”

Cost of living

What is the cost of living index?

The cost-of-living index, or general index, shows the difference in living costs between cities. The cost of living in the base city is always expressed as 100. The cost of living in the destination is then indexed against this number. So to take a simple example, if London is the base (100) and New York is the destination, and the New York index is 120, then New York is 20% more expensive than London. Similarly, if London is the base and Budapest is the destination, and the Budapest index is 80, than the cost of living in Budapest is 80% of London's.
...

The figures below indicate the sum of individual weights attributed to all the items which compose each of the index categories. They are as follows:

Shopping basket   25.0 
Alcoholic beverages   3.5 
Household supplies   4.5 
Personal care   4.0 
Tobacco   2.5 
Utilities   6.5 
Clothing   13.0 
Domestic help   3.5 
Recreation & entertainment   18.0 
Transportation   19.5 
TOTAL   100.0

Pouvoir d'achat = PIB

Pour les francophones tres interessants article sur le lien entre le pouvoir d'achat et la croissance

Le pouvoir d’achat n’existe pas, chez Optimum

For the non-french speaker, it basically says that increasing the purchase power is equivalent to increasing the GDP, so we should evaluate policy on their capacity to increase GDP.

The report on immigration

I agree with that "absence of proof is not proof of absence".

There are loads of hidden effect, like better service in the Pubs, restaurant better quality of the plumbing labour, that are not taken into account because hard to price.

If the Fed is responsible for the crisis

We should get rid of it.

Alex Tabarrok points to that article while criticizing the position of those who thinks the Fed is responsible but propose more regulation to solve the problem.

Life, Book and Survival

In the book I read recently 3 are Economic centric subject. They are

- The Natural Economist, Robert H. Frank : nice to read applied economy, but kind of repeat it self over and over as the stories are kind of not that different. Nice read though but not as a continuous read.
- Logic Of Life, Tim Harford : I love it, a must read. Well written, funny. Always go from the example to the theory behind.
- Discover Your Inner Economist, Tyler Cowen : Good read, in my opinion it lacks the exposition of the theorical framework. Does not give much insight in the Inner Economist.

If you have to read one go for the Logic of Life.

Not on the economist list, another unmissable read is Survival of The Sickest, DR. Sharon Moalem. It's really informative and entertaining, and full of surprising discovery. A very nice exposition of evolutionary knowledge.