Over the last 2 years or so, I have engaged in some discussions with David Smith, Economics Editor of The Times. (OK, I should get out more I know).
He posts his Sunday Times article onto his own blog for discussion during the week on
www.economicsuk.com .
I commented on his story from Dec 14th, 2006 “Inflation expectations - encouragingly low, or disturbingly high?” .
See my comments here .
I have snipped the important paragraph out of my Dec 21st posting …
“In my experience, a graphical plot of “number of households” vs “debt levels” would be a bathtub shape, with a large number (I think I read it is 47% or so) of households with no mortgage debt. Then falling to a low number of households with moderate debt, then a large number with massive debt. Several of my friends (thirty somethings) are up in the £250,000, £400,000 and even £500,000 mortgage levels.”
And a story from him for the Times “Economic Agenda” a few weeks later “Debt’s a burden, but not for most” And on his website here . I was amazed how a few blog comments can affect a million or so readers a few weeks later.
In which he says, I quote:
“More than half of households in Britain have no debt at all, says the OECD. That includes most pensioner households but also quite a number of working-age homes. So the £1,278 billion of debt is divided among the minority.
The Bank’s latest annual survey found that three-quarters of households with debt spent less than a quarter of their income servicing it (paying interest and principal). But for one in six, debt-servicing accounted for more than 35% of income even before recent rate rises, and a tiny minority, 2%, apparently commit more than their entire income to it. These are the ones who will be turning up at the bankruptcy courts in the coming weeks.”
Then I followed up on that one today here:
http://www.economicsuk.com/mt/mt-comments.cgi?entry_id=433
his answer:
“Nick,
I think your analysis is spot on. My anecdotal observation is that many properties that come on to the market are taken off by the vendors when they don’t get enough interest - comparatively few are cut in price in order to generate that interest. So no transaction occurs and, as you say, people stay put. The risk is that we get the worst of both worlds - high prices but relatively low levels of activity. I’m not sure what the answer is to stimulating supply in this context.
Posted by David Smith at January 9, 2007 10:11 AM”
I later tried to raise some finer points about how low inflation, low interest rates but high asset (property) prices mean that over a 25 year period 30% of income goes on paying back the debt compared to 11% with high inflation, high IRs, lower asset prices. Because inflation base debt reduction helps much more than low interest rate payments on expensive assets ….. but that’s a topic for another posting.