A measure of the ignorance of economists, and the politicians who rely on them, is the current frenzy over house prices in Britain.
Is the economy locked into a housing bubble that will burst? That’s the question occupying the pundits, who fail to locate current events in their historical context.
True, the sub-prime mortgage has returned to the UK. High loan-to-value lending (defined as loans that exceed 4.5 times a borrower’s income) now accounts for 20% of mortgages. And an increasing number of borrowers are putting down deposits of 15% or less of a property’s value. So when the next price crash occurs, many more people will find themselves saddled with negative equity.
But when will that happen? With London house prices rising at horrendous rates since the trough of the depression, the general assumption is that a price “correction” is just around the corner – somewhere, sometime, no-one actually knows…
Well, according to the 18-year cycle theory, the mid-cycle downturn is still five years away. That means the agonising over bursting bubbles is premature. But it also means that the house price take-off, which began early this time, will be all the more painful next time.
Most of the pain, of course, will not be felt by London property owners. The proportion of high loan-to-value mortgages has reached 25% in the north-east, compared to 7% in London, according to data provided by chartered surveyors e.surv.
The economics of apartheid continue to operate, with a vengeance, thanks to the cash subsidies and indemnities from Cameron’s coalition government.