For the lower orders of society, winning the national lottery is the most popular get-rich-quick fantasy. For the middle classes, it is property. Buy-to-let, gentrification and renovation - these are words that ring out as if they were sung by a heavenly choir, chanting of material salvation and escape from the daily drudgery of the office.
Newpaper editors know this. This is why all the quality newspapers have expansive property sections. That, and the fact that real estate advertizers are also quick to prey on the incurable middle class weakeness for housing speculation.
More recently, it is not so easy to offer up fantasies of untold riches for risk-taking professionals diving head first into the property business. Most housing market indicators are weakening. It is hard to sell a story based on the idea that prices will be up 10 percent next year.
However, editors know that the fatal attraction to property remains, regardless of market conditions. All that is needed is a slight twist on the easy money story.
This week's Sunday Telegraph offered up an enterprising alternative to the exhortation "buy property because prices never fall". Today's headline offered the "Top 20 ways to profit from the downturn" and promised that "Canny homeowners can take advantage of the dip in the housing market."
Those twenty tips are reproduced below. They range from the bizarre to the surreal, with a strong dose of "blindingly obvious". If some seem incomprehensible, I suggest you look at the original article if any further clarification is needed.
Newpaper editors know this. This is why all the quality newspapers have expansive property sections. That, and the fact that real estate advertizers are also quick to prey on the incurable middle class weakeness for housing speculation.
More recently, it is not so easy to offer up fantasies of untold riches for risk-taking professionals diving head first into the property business. Most housing market indicators are weakening. It is hard to sell a story based on the idea that prices will be up 10 percent next year.
However, editors know that the fatal attraction to property remains, regardless of market conditions. All that is needed is a slight twist on the easy money story.
This week's Sunday Telegraph offered up an enterprising alternative to the exhortation "buy property because prices never fall". Today's headline offered the "Top 20 ways to profit from the downturn" and promised that "Canny homeowners can take advantage of the dip in the housing market."
Those twenty tips are reproduced below. They range from the bizarre to the surreal, with a strong dose of "blindingly obvious". If some seem incomprehensible, I suggest you look at the original article if any further clarification is needed.
- Buy to Let - Carefully choose where and what to buy. (Of course, we have to start with BTL)
- Nab a bargain - If you’re buying, try to find out why sellers sell.
- Let out your driveway or garage.
- Buy a show home.
- Be like Sarah Beeny - If you buy a wreck at auction and then renovate as economically as possible, you could make a serious profit.
- Buy a holiday home to rent out - Invest where prices are unlikely to fall and where there is year-round renting.
- Buy a cheap house and convert to student lets.
- Let out your home to event organisers.
- Self-build - This is the hardest way to make money, but when you finish a house it gains about 20 per cent on its build costs.
- Extend a short lease.
- Separate your house into apartments.
- 'Fractionalise’ an overseas holiday home .
- Filming - Get your home into the movies, or at least in a television commercial, and the money rolls in.
- Sell, rent, then buy at auction.
- Extend your house.
- Get a bargain new home.
- Public sector leasing.
- Buy farmland.
- Win planning consent before you sell
- Use your home as a B&B
- Buy shares that will go up in value and avoid ones that don't.
- Don't buy shares in companies that are about to go bankrupt.
- If you are considering a speculative housing purchase, find a home in a rapidly gentrifying area and avoid those in areas that are about to see a sharp rise in crime, poverty, and urban desolation.
- Avoid taking out loans with high interest rates. Try to find loans with low interest rates.
- If you have a spare room in your house, take in a lodger.
- If you have a lodger, make sure she has a job, so that she can pay the rent.
- Buy low, sell high (or is it the other way round?)
- Don't invest in products with interest rates lower than the inflation rate. This is called a negative interest rate.
- Don't buy things you don't want.
- Finally, don't buy things in expensive shops when you can buy the same things in cheap shops.
Since early October, the yield on 10 year UK government bonds has crept up 73 basis points. That is equivalent to three typical hikes of the Bank of England's bank rate.
Should we worry? Have financial markets finally realized that the government may have difficulties in repaying the huge amounts of debt it has issued since the financial crisis began?
There are at three reasons for taking a calm and measured approach to rising bond yields:
- Yields were higher earlier this year - In February, the yield hit 4.23; currently the yield stands at 3.69. Back then the investors were worrying about an election, and the possibility of a renewed Brown mandate. As the election approached, investors calmed down as New Labour's poll numbers declined.
- The government has announced a fiscal consolidation plan - The coalition has what appears to be a credible plan to reduce the deficit. It is also prepared to enact difficult measures, such as hiking university fees, increasing the coalition's credibility in terms of dealing with our huge fiscal difficulties.
- Rates need to rise anyway - If the UK economy is to return to anything looking like normality, then interest rates will have to rise, including bond yields. Therefore, the recent increase reflects better growth prospects and a move towards stability. As such, we should welcome this modest upward shift in yields.
If inflation were to pick up further, then yields would begin to pick up extremely rapidly. Financing new government debt will become more expensive. If yields increase dramatically, then the government's fiscal reduction strategy may be in jeopardy. There would also be negative effects on private consumption and investment.
An early hike in the bank rate would go a long way to reducing these concerns. It would send a signal that the MPC will tackle any inflationary pressures. It would also signal that the UK economy has started to take the first tentative steps towards the exit in terms of the financial crisis.
Unfortunately, the MPC have one eye on the large rollover problems that UK banks have to face next year and 2012. You see, it is always about the banks. The UK economy would benefit from a rate hike, but that banks would be squeezed.
In any choice between the interests of financiers and and the rest of us, the financiers always seem to win.
The November inflation numbers must have forced a cold shiver down the backs of many in the Bank of England. The Bank had been expecting winter moderation the inflationary pressures. Instead, prices are rising far faster than anyone at the Bank had anticipated.
In a speech last week, Charles Bean, the Deputy Governor, sad as much:
"While UK output growth has come in much in line with our expectations, the same cannot be said of our primary objective, inflation. Back in August of last year, our central projection was for CPI inflation to be around 1.5% now. But inflation has been markedly stronger than that – 3.2% on the latest reading."
The "latest reading" was taken in October. The November "reading" is even higher, with the CPI now at 3.3 percent and the RPI at almost 5 percent.
According to Mr. Bean, the higher inflation rate was due to three factors. The first two are old favourites - energy prices and the sterling depreciation. Well, if the Bank of England allows the currency depreciate, then higher import and fuel prices is inevitable.
However, the third excuse was the most intriguing. Here is how Mr. Bean put it:
The third potential ingredient behind higher inflation is a more moderate drag from the margin of spare capacity in the economy. Pay growth has been subdued during the recession, and that has helped to ensure that unemployment has risen far less than many commentators feared. Rather the puzzle is on the pricing side, as prices have been higher relative to costs than expected. That could indicate that the margin of spare capacity is not as large as the collapse in activity might suggest.
What does this mean? For the last three years, the Bank of England had assumed that the financial crisis had created enormous spare capacity within the UK economy. The lack of credit had prevented consumers from spending and firms from investing. This meant that unemployment rose and factories were operating at levels far lower than during the pre-crisis days. In principle, this should have limited the potential for higher inflation.
Furthermore, there was a danger that the price level might actually fall. This would worsen the balance sheets of the private sector, making a recovery more difficult. It was this fear of deflation that prompted the Bank of England to begin quantitative easing.
The inflation rate was working with another script. Rather than moderate, the rate has for most of the last three years remained stubbornly above the Bank of England 2 percent target.
As Mr. Bean's speech testifies, the Bank of England are now considering the possibility that contrary to earlier assumptions, the economy may actually be operating closer to full capacity than previously thought. Therefore, any further attempt at boosting activity, such as a further splurge of quantitative easing, will feed through into higher inflation.
Many in the Bank are harbouring two conflicting thoughts. Capacity may be tightening but the current inflationary spurt is still regarded as temporary.
This is how Mr. Bean explained it:
Ultimately, however, this period of elevated inflation should prove temporary. The standard rate of VAT is set to rise again at the beginning of next year, but once that drops out of the annual comparison a year later, so the inflation rate is likely to fall back sharply. The impact on prices of sterling’s past depreciation should be starting to wane. And the relatively moderate expansion that we expect over the next year or two should ensure that there is some, albeit uncertain, brake on inflation from spare capacity.
This statement reeks of self-doubt. With inflation well above target, and the economy approaching its supply limits, the sensible thing would be to raise rates. Despite the clear and alarming trends in the inflation numbers, the Bank of England isn’t quite ready to move.
In a speech last week, Charles Bean, the Deputy Governor, sad as much:
"While UK output growth has come in much in line with our expectations, the same cannot be said of our primary objective, inflation. Back in August of last year, our central projection was for CPI inflation to be around 1.5% now. But inflation has been markedly stronger than that – 3.2% on the latest reading."
The "latest reading" was taken in October. The November "reading" is even higher, with the CPI now at 3.3 percent and the RPI at almost 5 percent.
According to Mr. Bean, the higher inflation rate was due to three factors. The first two are old favourites - energy prices and the sterling depreciation. Well, if the Bank of England allows the currency depreciate, then higher import and fuel prices is inevitable.
However, the third excuse was the most intriguing. Here is how Mr. Bean put it:
The third potential ingredient behind higher inflation is a more moderate drag from the margin of spare capacity in the economy. Pay growth has been subdued during the recession, and that has helped to ensure that unemployment has risen far less than many commentators feared. Rather the puzzle is on the pricing side, as prices have been higher relative to costs than expected. That could indicate that the margin of spare capacity is not as large as the collapse in activity might suggest.
What does this mean? For the last three years, the Bank of England had assumed that the financial crisis had created enormous spare capacity within the UK economy. The lack of credit had prevented consumers from spending and firms from investing. This meant that unemployment rose and factories were operating at levels far lower than during the pre-crisis days. In principle, this should have limited the potential for higher inflation.
Furthermore, there was a danger that the price level might actually fall. This would worsen the balance sheets of the private sector, making a recovery more difficult. It was this fear of deflation that prompted the Bank of England to begin quantitative easing.
The inflation rate was working with another script. Rather than moderate, the rate has for most of the last three years remained stubbornly above the Bank of England 2 percent target.
As Mr. Bean's speech testifies, the Bank of England are now considering the possibility that contrary to earlier assumptions, the economy may actually be operating closer to full capacity than previously thought. Therefore, any further attempt at boosting activity, such as a further splurge of quantitative easing, will feed through into higher inflation.
Many in the Bank are harbouring two conflicting thoughts. Capacity may be tightening but the current inflationary spurt is still regarded as temporary.
This is how Mr. Bean explained it:
Ultimately, however, this period of elevated inflation should prove temporary. The standard rate of VAT is set to rise again at the beginning of next year, but once that drops out of the annual comparison a year later, so the inflation rate is likely to fall back sharply. The impact on prices of sterling’s past depreciation should be starting to wane. And the relatively moderate expansion that we expect over the next year or two should ensure that there is some, albeit uncertain, brake on inflation from spare capacity.
This statement reeks of self-doubt. With inflation well above target, and the economy approaching its supply limits, the sensible thing would be to raise rates. Despite the clear and alarming trends in the inflation numbers, the Bank of England isn’t quite ready to move.