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A recession is a boom that goes into reverse. The current boom in the UK started in 1996/97 and will go bust in 2015/16 which means that the boom will have lasted nearly twenty years. When the recession, or more accurately the depression, starts in 2015/16 it will effectively be the boom going into reverse in that the boom will unwind and all the cummulative rises in house prices that have occurred over the past twenty years will disappear overnight.
The purpose of the recession will be to return the economy back to a more normal equilibrium and revert the economy back to the state it was in prior to the boom having started in 1996/97. It will take around twenty years for the current boom to be completely dismantled which means a twenty year long recession in which the money supply is relentlessly squeezed until every last drop of inflation from the boom has been squeezed from the economy.
The boom right from its very inception in 1996/97 was inflationary and you may well ask why is it that the inflationary effects of the boom did not become apparent during the boom until it was too late and the answer to this is that whilst the boom is in a bubble the inflationary pressures are encapulated within the bubble and it is not until the bubble bursts that all the inflationary effects of the boom become apparent at which point the economy will have to contract and the money supply squeezed to reverse the inflationary effects of the boom.
The economic boom goes bust when the productive power of the economy finally exceeds the consuming power of the market. In other words, the boom is like a pyramid selling scheme or ponzi scheme in which it requires more and more new entrants and an increasing flow of money to feed the base of the pyramid to keep the pyramid selling scheme going but eventually the amount of money dries up and it is at this point when the scam collapses.
It is just when the boom begins to look rock solid and stable and set to go on forever that it begins to crack and fall apart as the foundations of the boom which is the increasing money supply begins to dry up as inflation begins to rise and in order to control rising inflation the money supply will have to be contracted and this will undermine the foundations of the boom causing house prices to crash.
The lawson boom of the 1980’s started in 1983 and ended in 1990/91 and lasted seven years and that was followed by a seven year long recession that started in 1990 and went on to 1997. The economist Andrew Oswald of Warwick University predicted that the next property crash will start in 2003-2005 in his paper “The great house price catastrophe of 2003-2005” and this was partly based in his assumption that house prices follows a cycle consisting of a seven year boom in which house prices are rising followed by a seven year long bust in which house prices are falling and so based on this economic model it meant that since the boom started in 1997 that after seven years have elapsed in 2004 that the boom will come to an end and house prices will crash. However this assumption that house prices follows a regular pattern of seven years of feast followed by seven years of famine was always misguided because as Karl Marx pointed out the cycles of boom and bust have been getting bigger and bigger and it was obvious from the way in which the last recession of the early 1990’s was so devastating that it will inevitably sow the seeds of another boom that will be much bigger and much longer than the previous seven year long boom and it now appears that the current boom that started in 1997 will last right up to 2015/16 which will be a twenty year long boom!
A typical three bedroom house in Walthamstow/Leyton in East London currently costs around £300,000 but in 1996/97 these properties were on sale for around £75,000. You may well ask how can house prices revert back to what they were back in 1996/97 and the answer is that when the economy is going through a painful recession that seems without end in which the recession is getting worse and worse year after year then this will eventually return some sanity to the property market and cause sentiment towards property to become negative and the recession will be so severe that house prices will indeed revert to something like what they fetched back in 1996/97 prior to the boom having started.
You may well think that the buy-to-let people will step in during a crash and buy properties which will provide some floor to house prices and prevent house prices from falling any lower but even they will not be prepared to buy property during a period in which property prices are falling and they will wait when property prices have reached the bottom before buying property.
The next recession that will start in 2015 will occur when the funding for lending scheme comes to an end and the Bank of England ends it money printing “Quantitative Easing” in January 2015 and when bubbles can no longer be fed they burst and this will result in the collapse of the pyramid selling scheme Ponzi economy resulting in a devastating twenty year long depression. Another housing boom will not take place until a twenty year long recession has occurred starting in 2015 which will mean that there won’t be another housing boom until the year 2035.
As far as house prices in Spain are concerned, house prices are set to fall by another 50% from what they are today and around the year 2015 house prices in Spain will be 50% from what they are today, particularly when the UK economy and house prices finally crash.
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@katy wrote:
I think you are correct…get him off
No honestly, what goes around comes around and goes back to the beginning again. Spanish property prices are still way overpriced and the only thing that is currently propping them up is low interest rates but eventually house prices in Spain will revert back to what they were prior to the boom having started in 1996.
The Spanish property boom started in 1996 around the same time as in the UK and the Spanish property boom came to an end in 2007/2008 which is a twelve year long boom so you should expect the recession which started in 2008 to go on for a similar period of twelve years until 2020 which means that Spanish house prices will continue to fall another 50% from todays values until 2016/17 and then remain at the bottom until 2020.
My reckoning is that 2015 will be the crunch year in which house prices in Spain reach the floor as unemployment in Spain reaches 50%, Spanish government bonds will go above the criticial 7% and Spain will have no choice but to exit the Euro.
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