Housing Bubble Bungle

The housing market. It would be the done-thing normally to imagine that one might learn from mistakes that have been made in the past; and not only learn from them, but make sure that they don’t happen again. That is especially when they are serious enough to bring about the fall of more than just the average economy, result in the collapse of the global financial markets, the folding of banks, companies and countries, the dishing out of money left, right and center so that the taxpayer might feel as if he were partaking in the woes that were begun by the bankster gangsters, lest he should forget. Oh, and wipe out all of the pensions that are linked to those financial markets so that people end up with nothing.

Housing Bubble

Housing Bubble

That might have been just a tad enough to allow for the powers-that-be to make sure that the worst shouldn’t happen again. But, no. MOAR, please Sir, in true Oliver-Twist fashion as we decide to gorge ourselves yet again on inflated housing prices and stagnant salaries, but yet still continue giving money to people who wouldn’t have otherwise got mortgages! The UK has a housing bubble that will explode right up their Union Jack thanks to decisions that have been taken by the British government recently to make sure that the housing market inflates and booms.

All in the hope that the economy might be relaunched by the housing market seeing increases in prices, the British government recently made sure that people who were usually largely unable to get mortgages should be able to get them. They set up two schemes.

  • The first was the Help to Buy program that gave cheap mortgages, although it forgot to do anything about the housing supply in the UK.
  • The Help to Buy Scheme enables borrowers to get mortgages with a deposit as low as 5% and to borrow an extra 20% of the purchase price of the property from the British government (interest-free for the first 5 years).
  • The property must be under £600, 000 and must be a new-build property.
  • The second was Funding for Lending, which was launched in July 2012 in order to try to increase the lending of banks and building societies to the real economy in the UK.
  • The idea of the second scheme was to provide funding for those financial institutions based upon their performance via the borrowing of UK Treasury Bills exchanged against eligible collateral.
  • The second scheme will last until January 2015 and has just been extended to that date, which is an extra year.

Both the International Monetary Fund and the previous Bank of England Governor Mervyn King have both stated that the two schemes that have been set up decidedly smack of memories of the US mortgage guarantee programs that were one of the major causes of the world financial crisis in 2008. Subprimes disguised?

  • Average housing prices in the UK are now at an all-time high not seen since June 2008, when prices stood at £172, 415 across the country.
  • Today they are at £170, 825 ($260, 098).
  • That was an increase of 0.8% from June to July 2013 and a 3.9%-increase since July 2012.
  • But housing prices are still 10% below the pre-financial crisis levels that were seen in 2007.

    UK Housing

    UK Housing

However, the British government should be very wary of screaming from the City rooftops that the housing boom is proof that the economy is taking off again. The signs may well be there, but the proof is not showing through at all. The housing prices are simply inflated, according to some, due to the lack of availability and construction in the UK and also because lending has been made easier. ‘Easier’ means lending has been made available to people who otherwise would not have been in a position to get a mortgage.

Prices are higher than they should be an increasing today despite the fact that salaries and incomes are remaining at the same levels. Interest rates are low in the UK at the present time, so spending on mortgages is not stretching the budget of buyers, but when that changes, the problems will set in.

  • Mark Carney, the present Governor of the Bank of England has already stated that there shouldn’t be a rise in interest rates until about 2016, when unemployment should be below 7%.
  • The latest unemployment figures show that in July 2013 there was a steady unemployment rate of 7.8% in the UK (2.51 million people) according to the Office of National Statistics.

However, just like the USA which probably has a real unemployment figure that is closer to 14% rather than 7.4% announced by the US Bureau of Labor Statistics, the UK probably has double the level also that is being announced. The Office of National Statistics in the UK announced in the middle of the recession earlier this year that the UK has reduced the unemployment figure by 185, 000 in comparison with the same time in 2012. Wonderful feat of magic wizardry to reduce the unemployment rate in the midst of an economic slump, don’t you think? People have the cheek to stare open-mouthed in awe at the lying that goes on around the Chinese trade figures and yet our own handling of the statistics in true spin-doctor fashion is acceptable? Of course the British unemployment figures do not take into account the fact that there is heightened use of zero-hour contracts that guarantee no minimum hours to anyone that has signed such a contract; nor do they use in the calculation of those figures the number of people that work part-time (sometimes just for a few hours a day or week). Doctoring the figures has always been a good remedy for economic worrying times.

Unemployment is falsely down and salaries are stagnating at levels that are lower than inflation at the present time. However, housing prices are increasing and people are getting mortgages more easily than they should. The same mistakes are being made as those that started the global financial recession.

Same causes, same effects. But, hey the British government is getting some spin on it all right now, but they might just have completely bungled the housing sector in the process.
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