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5 "Tells" that the Stock Markets Are About to Reverse

Real UK House Prices and the Inflation Mega-trend

Housing-Market / UK Housing Dec 20, 2013 - 03:27 PM GMT

By: Nadeem_Walayat

Housing-Market

The latest inflation data shows CPI falling to 2.1% for November 2013 (RPI 2.6%, Real inflation 3.6%) which was received as good news as inflation was finally starting to home in on the Bank of England's 2% CPI target rate. This prompted the usual mantra amongst the academics of the risks of dis-inflation and in some cases even deflation which were coupled with benign inflation forecasts by government institutions such as the Bank of England and the OBR that repeated their forecast that UK inflation would resolve to 2% in 2years time that is always the case and I mean ALWAYS, for more than a decade now the Bank of England has been spouting the same mantra of what amounts to nothing more than economic propaganda aimed at keeping the wage slaves sedated as the actual inflation graph below illustrates that in reality there is an over 90% probability for UK Inflation being significantly above 2% in 2 years time.


If you have been reading my inflation mega-trend series of articles this year, then you would know that I would not be surprised if UK inflation reaches as high as 7% in 2 years time! Which is well beyond anything in the collective consciousness of what passes for economic analysts from within ivory towers such as the OBR and a litany of economic Thick Tanks.

However, the inflation truth is far removed from that which the media focuses upon with the annual percentage rates of inflation that masks the truth of what is an exponential inflation mega-trend which is the primary consequences of perpetual money and debt printing monetization programmes that the government is engaged in, in an attempt to buy votes through high deficit spending, an inflation trend that asset prices are leveraged to and oscillate around which currently has UK inflation compounding at the rate of 2.1% per year that to date has resolved in the following exponential trend.

The below graph again illustrates how much Inflation we have experienced that most people are likely unaware of is that of the loss of purchasing power of the British Pound which is now worth less than 40% of its value of 25 years ago as governments continue to relentlessly erode its value all the way towards zero.

This IS the reason why your real experience of day to day living expenses does not match government / BBC propaganda. However, it is even worse because as I keep iterating that the rate of Inflation is EXPONENTIAL. What this means is that if you stuffed money under your mattress 20 years ago, today it would have been inflated away by 50%.

The debt / money printing induced inflation mega-trend is forcing people to either spend or put their hard earned cash into the bankrupt banks for a pittance in interest that is TAXED, so that it is near impossible to consistently get a return that is greater than even the official rate of inflation let alone the real rate of inflation that is currently about 4%, as governments continuously tinkering with the methodology to reduce the official inflate rates as you will likely experience when you go to do you weekly shops experiencing inflation rates nearer to 9% then 2%.

As I pointed out 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 Great Savings Interest Rates Crash Continues

The below table for the cash isa rates as offered by the Halifax shows that savings interest rates crashed directly in response to the Bank of England's Funding for Lending Scheme announced in July 2012, which sought to provide the Banks with cheap money to entice lending to the general public that originally would total an estimated £80 billion over 18 months but which subsequently was indefinitely extended. The effect of which has been for the Banks to rely on Bank of England / UK Treasury for funding of lending instead of savings and thus savings interest rates continue to crash despite a strengthening economy.

Halifax ISA's May 2012 Sept 2012 Nov 2012 Mar 2013 May 2013 July 2013 Dec 2013 % Cut
Instant Access
3%
2.75%
2.35%
1.75%
1.35% 1.35% 1.10% -63%
1 Year Fix
2.25%
2.05%
2.05%
1.75% 1.75% 1.50% -33%
2 Year Fix
4.00%
3.25%
2.25%
2.5%
2.10% 2.10% 1.65% -59%
3 Year Fix
4.25%
3.75%
2.35%
3.00%
2.25% 2.25% 1.85% -56%
4 Year Fix
4.35%
3.80%
2.40%
3.05%
2.30% 2.30% 2.00% -54%
5 Year Fix
4.50%
4.15%
2.60%
3.10%
2.35% 2.35% 2.10% -53%

Just take a second look at this table at the degree of theft of purchasing power from savers, even the long 5 year Halifax fix fails to match RPI of 2.6%, instead the rate paid is a pittance of 2.1% when it should be at least 4.5%! This is systemic banking system wide theft! This is why the banking system operates as a crime syndicate to systematically STEAL money from their customers be it LIBOR, PPI, SWAPS or PURCHASING POWER as a consequence of far sub inflation interest rates.

Furthermore, the Bank of England's recent announcement that it would restrict use of funding for lending to target businesses instead of mortgages has instead of increasing savings interest rates that the mainstream press ran with as the consequences of, instead has to date had the opposite effect of resulting in further cuts in the rates of interest. This is why we need to take our money out of the banking crime syndicate because just as a leaped cannot change its spots, so the banking crime syndicate WILL STEAL YOUR EVERY PENNY it is in their DNA!

Again, the consequences of the exponential inflation mega-trend stealth theft of savers wealth is worsened by the 20%-40% additional theft by means of double taxation on savings interest that ISA's at least attempt to protect against i.e. Inflation steals the value of your savings by currently about 1.5% then the government taxes you by 20% to 40% on the sub inflation interest rate that you will be in receipt of which means that savers are guaranteed to lose 2% of the value of savings per year which the following graph illustrates that over the past 5 years for the top 20% interest paying instant access accounts, on the CPI + tax measure over 8% has been stolen and on the real Inflation measure over 16% has been stolen.

To protect oneself from the global inflation war against savings, savers need to risks i.e. if you invest in the stock market then you need to appreciate the fact that it will be far higher risk than leaving it in the bank even if it WILL lose its value at approx 2% per annum even in the best instant access savings account. For much of 2012 and for the whole of 2013 I have been flagging that the UK housing market presents one of the best opportunities for not only protecting against the stealth inflation bankster and government theft but also by profiting from the inflation mega-trend as my existing UK housing market forecast into Mid 2014 illustrates.

Existing UK House Prices Forecast 2014

UK house prices as measured by the Halifax (NSA - November) are now rising at a rate of 8.5% 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.

UK House Prices - Momentum - Annual % Change

The trend trajectory continues to home in on my forecast expectations for UK house prices to be rising at a rate of more than 12% per annum for January 2014 data, by which time I expect halifax house prices data will likely converge with my forecast trend at that time, and that I expect house prices to average 10% per annum into at least mid 2015 that I will seek to extend beyond the Mid 2014 trend forecast in my next in-depth analysis.

UK House Prices Forecast 2014 - By Nadeem Walayat

19 Aug 2013 - UK House Prices Bull Market Soaring Momentum

In terms of the bull markets current momentum, the UK housing market is accelerating towards an annual inflation rate of at least 10% per annum. Given the markets current trend trajectory, UK house prices could be rising by 10% per annum as early as on release of the Halifax data (NSA) for October 2013 (in November), and continue accelerating to a rate of more than 12% per annum for January 2014 data (released Feb 2014).

The bottom line is that the UK bull market is only just getting underway and will likely last the remainder of this decade, yes there will be overbought states when prices run away to more than 20% per annum followed by corrections that see virtually zero or even negative growth for a month or two, but the over-riding trend will be that of a strong bull market, that in terms of momentum will average at least 10% per annum.

UK House Prices and the Inflation Mega-trend

My analysis and concluding trend forecast of 3.5 years ago laid out the the implications of inflation for the UK house prices trend over subsequent years towards a housing market bottom as illustrated below -

17 Jun 2010 - UK House Prices Inflation Adjusted Long-term Trend Analysis

The implications of the real trend in UK house prices are:

a. The housing market is nowhere near reaching another boom phase which only coincides when house prices pass their previous peak in REAL terms i.e. after inflation, this suggests that any upward trend in house prices is going to be shallow where the next boom could be as long as a decade away.

b. That the housing market in real terms has barely lifted off of its March low and is thus highly susceptible to a prolonged period of stagnation in real terms, i.e. the housing market basically goes nowhere for several years in real terms.

c. That it is highly likely that we have yet to see the low in UK house prices in real terms, which either means a sustained period of inflation or that the UK house prices revisit there 2009 March Bear market lows.

Conclusion

This analysis suggests that the value of UK house prices will continue to be eroded in real terms as a consequences of high inflation and weak nominal house prices trends which implies several years of stagnation to be followed by several more years of weak house prices growth in real terms. Thus those looking for a return to the boom times over the next few years are likely to be disappointed, especially the buy to let brigade that rely on capital appreciation in real terms to generate investment returns after costs.

The updated graph shows how things panned out in terms of a housing market bottom and what that bottom now implies for house prices over the remainder of this decade.

The implications of the real trend in UK house prices are:

1. The forecast real terms trend trajectory of June 2010 proved remarkably accurate in terms of mapping out where UK house prices would likely bottom several years later both in terms of price and time. Thus this indicator will again play a pivotal role in the extension for my existing forecast.

2. This supports my long standing view that the UK housing bull market can be sustained for the WHOLE of the remainder of this decade (6 years) and probably beyond.

3. That my existing expectations for a 10% per annum trend trajectory is more than sustainable, in fact the average rise in UK house prices over the next 6 years could easily exceed 80%! Which translates into an average of over 13% per annum that is well beyond anything that most housing market commentators, academic economists and journalists who think they are economists can comprehend today.

To find out precisely what inflation along with GDP and debt dynamics implies in formulating a detailed trend trajectory for UK house prices that extends towards the end of this decade then ensure you are subscribed to my always free newsletter as this depth analysis will be emailed out within the next few days.

Source and Comments: http://www.marketoracle.co.uk/Article43660.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.

Nadeem Walayat Archive

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


Comments

upwarddog
21 Dec 13, 02:25
US Inflationary Mega Trend in Housing

Nadeem,

Does your US housing model have the same 80% increase over the next 6 years as well? In your November article you foresee 30% by 2016 in US house prices, but I'm curious as to whether the US forecast and the UK forecast are parallel going beyond 2016 into 2019.

It's interested to see contrarian points of view from other authors on the site, right next to yours, but time and time again you're proven right on the money.

Thank you for your continued insight and sharing with us all!

Cheers!


Nadeem_Walayat
21 Dec 13, 07:52
US Housing Market

Hi

The US housing market forecast for 30% gain is as of January 2013 analysis and trend forecast.

MY current focus is wholly on the UK housing market as its existing forecast is only into Mid 2014, which I aim to extend well beyond this time period in the final trend forecast graph.

The US housing market forecast still has over 2 years to run, so I don't plan on extending it any time soon, probably at least 6 months away.

However until I have actually done the in-depth analysis I won't know what the US housing market will do beyond 2016, just as it has taken a good 4 months of analysis to reach this point for the UK housing market.

The sites objective is to present multiple views so that it is grounded in reality and does not vear off on a tangent and become a perma this that or other site.

Best

NW


Yuriy
23 Dec 13, 12:44
house market leading indicator - London and SE

Hi Nadeem,

when you give your housing market prediction, do you take into an account London and SE trends, as these regions are at least a year aheadof let's say North East.

Do you still expect South East to head higher till the end of the decade?

This will make London fantastically expensive.

Thank you


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