House Price Poll

[andrewducker]

From

You'll note that the ratio is still well above the maximums of the bubbles in the 1970s and the 1990s.

[Poll #1337633]

Comments

[the-locster.livejournal.com]

Yeh I guess it would be worth a look. I actually started out looking at property price and interest rate correlations back in 2001ish. Off the top of my head I'd say my main gripe with such a metric is that interest rates do tend to change very abruptly, so that what is affordable today might not be tomorrow due to government and central bank rate setting; which in turn is an artificial manipulation of markets. In fact in the global sense it is possible to define a 'true' interest rate, albeit one that we can't ever know for sure, but then again we don't know what the official rate will be for sure tomorrow and thus effectively today. Yes you can take out a fixed rate loan, but that just hits the bank or yourself when the rate changes, thus if everyone took out such loans then the rate becomes unsustainable either for the banks or the debtors - the *true* rate always wins in the global(mathematically speaking) case, as we are witnessing right now.

The crux of my argument is that official rates are not indicative of the *global* or *true* rate, which, getting back to basics, is the rate at which capital is able to produce new capital and goods(+money supply rate). As such you might take the view that the official rate is effectively a random variable that at best only loosely correlates with the true rate.

Another way of looking at it is as short term chaotic fluctuations in official interest rates versus what is clearly a slower cyclical dynamic observable in the graph. That is, the main characteristics of the slow dynamic are perhaps largely independent of the short term dynamics of interest rates by way of a multitude of feedback mechanisms that we barely understand + the reactionary dynamics of politicians that are entirely predictable in these situations.