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Trading Lessons

UK House Prices Boom Propelling GDP Economic Growth to Above 3%, Interest Rates Pressure Cooker

Housing-Market / UK Housing Nov 18, 2013 - 03:13 AM GMT

By: Nadeem_Walayat

Housing-Market

Britain's house prices bull market momentum as a consequence of 5 years of ZIRP and rampant money printing is finally and rapidly starting to translate into positive economic data as illustrated by the unemployment rate tumbling to 7.6% and GDP growth rate of 0.8% for Q3, which prompted many academic economists from the Bank of England downwards to busily revise doom and gloom forecasts of in some cases just 1% GDP growth to now a high 2.5% as illustrated by Money Printing Mark Carneys latest quarterly Inflation report forecast for 2014, that in my opinion could easily exceed 3% with Inflation consequences for in excess of CPI 3% that will result in far more than mere hints of interest rate hikes that the mainstream press has been busy scrambling over these past few days to commentate on the risks of.


UK house prices as measured by the Halifax (NSA) are now rising at a rate of 8% per annum as opposed to falling at a rate of over 2% per annum when I flagged an imminent UK housing multi-year bull market over a year ago.

08 Sep 2012 - UK Home Extension Planning Rules Relaxed to Boost Economy, Trigger Housing Bull Market

I am continuing to see positive signs towards a multi-year bull market, so I am giving you another head start on an emerging probable multi-year bull market in UK housing.

However, UK house prices momentum of 8% per annum whilst taking many academics by surprise lags my forecast expectations of house prices to be rising by 10% per annum for October data (19 Aug 2013 - UK House Prices Bull Market Soaring Momentum, 10% Inflation by October?). In my opinion this suggests that UK house prices will continue accelerating over the next 3 months to target an inflation rate of at least 11% per annum for January 2014 data.

In terms of forecast trend trajectory, UK house prices trend currently stands approx 1.5% below my forecast expectations.

The mainstream press is now correctly (over 6 months behind the curve) pointing to George Osbourne's Help to Buy Scheme and its recent expansion as a significant factor in helping to drive house prices momentum to 8%, which in my opinion could result in a doubling of housing market demand during 2014.

20 Mar 2013 - George Osborne Boosts UK Subprime Housing Market Ahead of Election Boom

Creating a UK Subprime Housing Bubble

The chancellors announcement of £130 billion mortgage guarantees effectively amounts to seeking to ultimately create a UK version of U.S. Fannie Mae and Freddie Mac that will eventually blow up in spectacular style as more and more house buying voters expect to be bribed at each election and therefore the £130 billion will mushroom to one day stand at well over £1 trillion of liabilities, off course the bust will come AFTER the next housing boom, so this and the next government need not worry themselves for the consequences of creating a UK subprime housing bubble as the consequences of which tax payers will be liable for in a decade or so's time which means another financial crisis as this repeats the SAME mistakes of mortgage backed securities i.e. the lenders are not liable for the risks so can take on more risky loans for commission as the liabilities will be with tax payers.

This scheme will be extended from the 1st of Jan 2014 to allow prospective home buyers to buy ANY property (not just new builds) with the government financing 20% of a deposit upto £600k, or £120

UK Interest Rates Pressure Cooker

The mainstream financial press after having swallowed Bank of England Propaganda for virtually the whole of 2013 that UK Interest rates would be kept on hold until 2016 as a consequence of the Bank of England targeting a 7% Unemployment rate, are now following hints by Mark Carney that rates could rise before the end of next year and so can be seen scrambling to write reams and reams of commentary that nearly always stands at least a year behind the curve.

Whilst my expectations have remained consistent since March 2011 in expecting UK Base Interest rates to target 4.5% by the end of 2014, which is still something far beyond anything that the collective consciousness of the mainstream financial press even after Mark Carneys recent statement as warned of several months ago of what to expect would happen to the UK inflation and interest rates as the UK converged on an 7% Unemployment rate.

19 Aug 2013 - UK House Prices Bull Market Soaring Momentum, 10% Inflation by October?

Expect when UK Unemployment falls to 7% for the UK Inflation rate to have also risen to 7%.

Interest Rates to Rise Sooner than Anyone Expects?

So, according to the Bank England the next interest rate rise is at least 3 years away. Well I'll let you you into a little secret, and that is when the government or one of its institutions makes a definite statement that x is going to happen for many years, a bandwagon on which over 90% of the media jumps onboard, then there is a very high probability that the exact opposite is going to happen!

Therefore forget about 0.5% UK interest rates in 3 years time, far more probable is 4.5% interest rates by the end of NEXT year! This is not something that I've plucked out of thin air but is based on the conclusion of my long standing analysis dating back to March 2011 (08 Mar 2011 - UK Interest Rate Forecast 2011 - Conclusion and Implications - Part 2 ), I even wrote a whole ebook explaining why I expected UK interest rates would rise to 4.5% by the end of 2014. (The Interest Rate Mega-trend - FREE DOWNLOAD). Which implies significantly HIGHER mortgage interest rates than anyone expects today.

The point is that the Bank of England does NOT control interest rates, instead interest rates are controlled by the money markets. All it would take for interest rates to rise is for a relentless flow of foreign currency out of the UK. The reasons for which will become apparent with the benefit of hindsight, which I can only speculate about at this point in time, such as worsening inflation expectations, or that the flaws in the Euro-zone are fixed, or any one of a 10 other possibilities, which I am sure the academics looking in their rear view mirrors will happily write about for many years AFTER the fact!

Off course when interest rates rise by the end of next year the academics and the mass media that have swallowed the 0.5% interest rate economic propaganda hook line and sinker will all suffer collective amnesia and march on as though they had always anticipated high UK interest rates all along, as will Mark Carney at the Bank of England.

So what is missing from recent optimistic press reporting on accelerating UK GDP growth that I expect will exceed 3% for 2014, is the INFLATION consequences and that is RISING INTEREST RATES! Not hints of, but actual rate hikes far beyond anything that is being imagined today.

What many need to remember is that a 0.5% base interest rate is not NORMAL, it is a PANIC MEASURE purely to prevent the bankrupt Banking crime syndicate from imploding. Unfortunately, interest rates having been at 300 year lows for 5 years has conditioned many people into perceiving them to be the norm when they are NOT. The norm is more like 4.5% and NOT 0.5%.

Rising Interest Rates Impact on the Housing Market

Again, I refer to my earlier article - 19 Aug 2013 - UK House Prices Bull Market Soaring Momentum, 10% Inflation by October?

I am sure that many people reading this will naturally conclude that higher interest rates will be a big negative for the housing market that could imply a bear market or even market crash. I am sure such expectations will become prevalent in the mainstream press as soon as interest rates start to rise, but I am going tell you now, long before even the first interest rate hike takes place that interest rate hikes are NOT going to make ANY difference to the housing bull market, for the rate rises would reflect a normalisation of the UK interest rate market and NOT a panic event.

Again the primary driver will be SENTIMENT!

When house prices are rising at a pace that is more than people earn, will their mortgage costs rising by approx 1/3rd make such an impact on sentiment? I don't think so, not by the end of 2014 when the UK housing market will be rising by at least 10% per annum, or on average prices of £230k of about £23k per annum! TAX FREE! (own properties).

So

1. Prepare for interest rate hikes long before anyone in the mainstream media or academics can imagine today.

2. That the rate rises will NOT result in a bear market or worse a crash as the trend momentum by then will have a couple of years under it's belt and the longer a trend goes on the more likely it is to continue towards the final blow off bubble stage, that would still be many years away.

Though off course the Banking crime syndicate has not waited for the detached and largely irrelevant base interest rate to rise, for they have already been hiking borrowing rates for several years now to well above base rate.

U.S. House Prices

Whilst UK house prices rising at 8% per annum are lagging my forecast expectations of 10%, US house prices have soared to an inflation rate of near 13%, significantly beyond my forecast expectations of prices rising by 10% per annum, which implies plenty of scope for US prices to moderate over the coming months that I am sure will be taken by many commentators to imply that the boom is over when in reality it would just be the US housing market unwinding from an overbought state in preparation for their next leg up in a trend that targets a 30% rise in US house prices.

12 Jan 2013 - U.S. Housing Real Estate Market House Prices Trend Forecast 2013 to 2016)

US House Prices Forecast Conclusion - As you read this, the embryonic nominal bull market of 2012 is morphing into a real terms bull market of 2013, with each subsequent year expected to result in an accelerating multi-year trend that will likely see average prices rise by over 30% by early 2016, which translates into a precise house prices forecast based on the most recent Case-Shiller House Price Index (CSXR) of 158.8 (Oct 2012 - released 26th Dec 2012) targeting a rise to 207 by early 2016 (+30.4%).

Whilst US house prices may be significantly ahead of my forecast trend trajectory of Jan 2013, However when compared against expectations by prominent market commentators such as Peter Schiff of just a few months ago of expectations for literally a CRASH, the US housing market is literally galloping up a mountain of worry.

6/4/13 - Great Reflation Produces Mirage Of Recovery In Housing

By Peter Schiff - concluding -

Of course the real risks in housing center on the next leg down, in what I believe will be a continuation of the real estate crash. We can’t afford to artificially support the market indefinitely. When significantly higher interest rates eventually arrive, the fragile market will again be impacted. We saw that movie about five years ago. Do we really want to see it again?

U.S. house prices now stand 12% higher on the published data (Feb 2013) at the time of Peter Schiff's article, and therefore US house prices would need to fall by 12% just for Peter Schiff to break even on his US housing market expectations. Though off course when house prices do correct such 'technicalities' will be ignored by the mainstream financial press which is why it just amounts to a sales propaganda industry.

The Exponential Inflation Mega-trend

The primary consequences money printing debt monetization programmes that all governments are engaged in, in an attempt to buy votes through deficit spending, is to feed the exponential inflation mega-trend. Which this article should act as a timely reminder of that asset prices are leveraged to and oscillate around the exponential inflation mega-trend which currently has UK inflation compounding inflation at the rate of 2.2% per year which resolves in the following exponential trend.

Whilst the current U.S. CPI stands at a highly beguilingly mild 1.2% which still revolves in an EXPONENTIAL Inflation Mega-trend.

As I pointed out near 4 years ago in the Inflation Mega-trend ebook (FREE DOWNLOAD), Governments only have one answer which is to PRINT MONEY! No matter what names it goes by, be it called QE, or government bonds, it is all money printing that results in Inflation.

The above graphs also continue to illustrate why the perpetual warnings of always imminent deflation are in denial of the reality of exponential inflation and are thus not only delusional but for those that espouse such deflationary scenario's year on year, then they must be suffering from a form of mental illness i.e. perpetual unwavering belief in something that does not even exist, much as one can say about the followers of the litany of cults that believe in the all knowing and seeing man in the sky.

The bottom line is this, a huge transfer of wealth us under way as a consequence of the exponential inflation mega-trend from those that work and rent (wage slaves) to those that own the assets (housing and stocks etc) as inflation both erodes purchasing power of earnings and inflates leveraged asset prices.

Ensure you remain subscribed to my always free newsletter for ongoing in-depth analysis, detailed trend forecasts, and strategies attempting to protect from and capitalise on the exponential Inflation mega-trend.

Your analyst.

Source and Comments: http://www.marketoracle.co.uk/Article43160.html

Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2013 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of four ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series.that can be downloaded for Free.

The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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