MacroScope

Housing boom and bust lesson still not sinking in

Housing markets are booming again in parts of the U.S. and Britain and they haven’t stopped doing so in Canada for the better part of a generation.

What is most striking about the latest round, at least when you listen to those who ought to know, is how nothing much except the price has changed.

We were told a stern lesson in the months and years after the financial crisis, borne out of an over-inflated, over-leveraged U.S. housing market securitised up to the scalp by Wall Street and leaping ever higher up a steeper incline on a blind instinct never to look back.

But as most school teachers know, sometimes a lesson has to be repeated in order to be properly learned. And some students will still fail.

Scanning through the results of the latest Reuters surveys of property market analysts and economists would leave any reader with a memory stretching back before 2008 with a sense of déjà vu.

The big questions on the UK housing market: what the analysts say

Although UK house prices will head steadily higher in the next two years, analysts polled by Reuters are divided over whether the Bank of England can restrain the market if it overheats. Here’s what they said in the latest Reuters poll, taken this week: How confident are you in the BoE’s ability to moderate the housing market if necessary?

PETER DIXON, COMMERZBANK: “Not very. A cynical interpretation would be that the government wants to see a decent rise in house prices over the next couple of years and would not be best pleased to see the BoE take the steam out of it. Nor is it clear that the BoE has the policy instruments to target the housing market without causing collateral damage elsewhere in the economy. Finally, it would call into question the thrust of policy if Help to Buy is giving to the housing market with one hand whilst the BoE is taking away with another.”

PHILIP LACHOWYCZ, FATHOM FINANCIAL CONSULTING: “Not at all. The Bank of England through the FPC does now have the instruments and mandate to take specific action in the housing market. However, we find it unlikely that it will take any action as it would mean directly working against government policy.”

From 1999: Another UK housing bubble? No chance!

While debate rages on whether or not Britain is heading into a new housing bubble, here’s a Reuters poll from 1999 that asked the same question. The answer then was,  ”No, this time is different”, and it featured a lot of the same arguments we’re hearing today.

Here it is, posted in full:

POLL-UK property recovery not a 1980s bubble

By Penny MacRae

LONDON, Aug 18 (Reuters) – Is Britain seeing a rerun of the 1980s property boom?

As buyers scramble to beat rising house prices, it may seem to many as though the roaring 1980s have returned.

France on a budget

The French 2014 budget will be presented in full today with the government seeking to reassure voters with a plan that makes the bulk of savings through curbs in spending, having relied more heavily on tax increases so far.

The government has already said it expects 2014 growth to come in at a modest 0.9 percent, cutting its previous 1.2 percent prediction, and that after a 2013 which is likely to boast hardly any growth at all.

As a result, the budget deficit is expected to push up to a revised 3.6 percent of GDP from 2.9 next year. That puts Paris in line with IMF and European Commission forecasts but what Brussels thinks about the plan as a whole is another matter.

Britain’s Help to Buy – what the forecasters say

Now Britain’s housing market is showing real signs of life, should the government abandon its “Help to Buy” scheme to boost access to the market for homebuyers?

Economists and property analysts polled by Reuters over the last week were split. Two weeks ago, a majority of economists put the chances of another UK housing bubble forming at 50 percent or greater, catalysed by the Help to Buy programme.

Here’s a few comments on either side of the debate. Cancel Help to Buy:

“The housing market was slowly recovering already, it has been good for the sector, but in the long term it is throwing money at something that is not the solution. There is a danger we are creating the next bubble and not learning from what’s happened previously.” Mark Hughes, co-head of research, Panmure Gordon

Back when Yellen and Summers had the same boss

With all the back-and-forth in the Yellen versus Summers Fed chair showdown, it’s easy to forget that the two once played for the same team – the Clinton administration.

This incredible photo from the Reuters archive features many of the key players in U.S. economic policy over the last two decades, tracing the arch of the 1990s tech boom, the early 2000s housing surge and the financial crisis of 2008-2009. They include Fed Vice Chair Janet Yellen, then advisor to Clinton, and Larry Summers, then Deputy Treasury Secretary. Both are now seen as leading candidates to replace Ben Bernanke as Fed chair next year.

Also pictured are Treasury Secretary and Citigroup magnate Robert Rubin; budget director and eventual Fannie Mae chief Franklin Raines; chief of staff Erskin Bowles, who became famous for the Simpson-Bowles deficit reduction plan; national economic council director Gene Sperling, currently an advisor to President Barack Obama; and Jack Lew, current Treasury Secretary, who was the deputy director of the office of management and budget.

Darkening outlook for UK housing

The outlook for the UK housing market has darkened again. The usually optimistic bunch of property market watchers polled by Reuters, who have tended to predict ever-rising property prices no matter what the season or financial climate, now say the market will move sideways for the next two years.

housing1.jpgThey say that in the next few months, the small double-dip in prices that has begun will continue. Modest gains predicted less than three months ago for this year and next essentially have been wiped away.

No one should be surprised by this.  It smacks of an awakening to reality more than a slight change to a few variables in the statistical model. What’s perhaps most striking about these new poll results is that economists think houses are even more overvalued now than they were in July even after a few straight months of falls.

from Mark Felsenthal:

Greenspan slammed

Former Fed Chairman Alan Greenspan isn't getting the respect he used to.

Greenspan's op-ed in the Wall Street Journal drew withering criticism from High Frequency Economics' Ian Shepherdson, who was unimpressed with the Maestro's denial of any Fed contribution to the country' worst financial crisis since the Great Depression.

Greenspan: "Given the decoupling of monetary policy from long-term mortgage rates, accelerating the path of monetary tightening that the Fed pursued in 2004-2005 could not have 'prevented' the housing bubble."

Shepherdson: "We were appalled and outraged by Alan Greenspan's self-serving it-wasn't-my-fault op-ed... If Mr. Greenspan can say with a straight face that this was not a consequence of the Fed's excessively easy stance then either he is delusional or a very talented poker player."