One comment on “Timmy Elsewhere

  1. For all sorts of reasons, the downstream consequences of Northern Rock are going to run and run.

    Besides the questions of reforming the tripartite regulation of Britain’s financial system and what is going to happen to the Bank of England in that reform, there is also the nagging question of house price inflation.

    Now an awful lot of house owners like house price inflation – because they can use their rising equity in home ownership to borrow whether for essential medical care or for that holiday of a lifetime. But the tripling of house prices over the last decade [1] is well in excess of the increase in average earnings so what keeps the house-price inflation going?

    In a phrase: Sub-prime mortgages. Curb the growth of sub-prime mortgages, where lending has been authorised for larger and larger multiples of borrowers’ earnings, and house price inflation will be reined in.

    “It is quite likely there will be a ‘significant fall in real house prices’ within the next two years, a leading economist [David Miles] says in a report published today.

    “Research by Morgan Stanley states significant falls are needed relatively soon for house prices to match demand and supply.

    “The report, which questions how sustainable current house prices are, says predicting house price drops is very difficult, but anticipates prices coming down after another year or so of rises.”
    http://www.aboutproperty.co.uk/news/house-prices/economist-predicts-sharp-fall-in-house-prices-$458947.htm

    “The house price boom of recent years has brought ‘misery’ to thousands of people and represents a ‘failure’ of policy, a leading economist [Roger Bootle] has argued.”
    http://news.bbc.co.uk/1/hi/business/6990357.stm

    [1] The extraordinary extent of house price inflation in Britain compared with other major economies can be seen from the graph in this issue of The Economist in May:
    http://www.economist.com/world/britain/displaystory.cfm?story_id=9267826

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