I have been talking with land and estate agents in mid-Dorset & Southampton, plus my friend who runs (ran!) a mortgage brokerage.
Here is my take on where we are now and how the massive interest rate (IR) falls over the last 4 months have drastically altered the economy – see [A] and [B] below.
[A] Where we are now:
1. Savers have lost 75% of their income stream.
2. Housing sales volumes have virtually stopped
3. Land values are rising
[B] Where we go next:
1. A lot of savers will look to property and land and gold. They won’t spend it, just look for other investments. Stocks are way too risky.
2. 75% of the property industry will cease to exist in 2 year’s time because property owners can afford to sit it out, killing transactional revenues.
3. Inflation of asset values will take off again making houses even less affordable. Because of lack of supply.
[C] Where we should be:
1. IRs should stay at higher levels to ward off a return of asset price inflation.
2. Asset prices should fall to pre-securitisation (i.e. sustainable) income multiples. Namely 40% fall.
3. Inflation will be negative temporarily, but will revert to 2% when asset prices hit trend.
4. Saver’s funds stay in bank accounts where they can be used, rather than in assets where they cannot be used for economic activity.
In other words. We have a choice between [B] and [C]:
The choice: Stagnation or business as usual
[B] – the status quo where we have a long and drawn out recession/depression that wipes out saver’s earnings, and bails out the minority of over-borrowers by keeping asset prices artificially high for many years.
[C] – we have a short sharp asset price reduction and bout of deflation followed by business as usual. The minority of over-borrowers are punished, everyone else (property industry included) can get on with business.
