Denseman on the Rattis

Formerly known as the Widmann Blog


Irrational exuberance

Originally uploaded by ffi

“Consumers now expect house prices to rise by an average of 1.6pc during the coming 12 months, with 61pc of people expecting a price rise and only 15pc anticipating a further fall”, according to an article in The Telegraph.

Are they barking mad?

Probably not, but the majority of people have been so accustomed to the good times that they think the boom must return.

They’re forgetting that most banks are now only willing to lend you three times your salary, which means that most houses are out of reach of the people who’d like to live there.

However, it does explain something that I had been wondering about, namely why house prices haven’t fallen much more rapidly than they have.

If 61% of people are irrationally exuberant, that means that a lot of people are putting money into housing when they shouldn’t, and that will be sustaining the bubble for a little longer.

Not for ever, of course, at some point the prices will have to come down to a point where houses only cost three times the salary of the people living in them.

It’s also worth remembering that the state is still printing money, although deflation now seems unlikely.

At some point that will have to be paid for, too.

So I’m seriously worried that an unholy alliance of Labour politicians, central bankers and 61% of the population is trying to keep things running as if nothing had happened, but they’re just delaying the problems till tomorrow.

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