Tuesday, October 30, 2007

UK housing prices slow, interest rates decision, O'Neal out

After almost 15 years of continuous upward momentum, UK prices seem to have started slowing down and even fallen in most parts apart from London. The main reasons are the recent credit crunch, OTT income/price multiple (in most places, average prices are 6 times average salary), widening gap between rents and mortgages and the 1.25% increase in interest rates which is now being felt by many who are coming of their 2/3 fixed mortgage terms. The situation is temporary and prices will continue to rise because of demand and supply aspects. A recent report basically says that even if 3m houses are built in the next 20yrs, these won't meet demand. In the short-term however, interest rates will need to come down not just to revive the housing market, but because inflation has slowed down and the economy may slowdown too.
I am a fan of the way the Labour govt has worked the economy no more so than its first big decision which was to make Bank of England independent. This depoliticised interest rate decisions.
I think the next 9 months will see two or three rate cuts to revive the housing market and the wider economy. So don't go buying that house/flat yet.
As anticipated, O'Neal, Merill Lynch's and the only black CEO in the investment banking world, got fired for messing up on sub-prime write-offs. Given that every investment bank apart from Goldman Sachs took a heavy hit, I think the decision is little bit unfair.

On majimbo, Macharia Gaitho's piece mirrors my thoughts.

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