Tuesday, 18 January 2011

A Bold Expression Of The Truth

In my blog post Capitalism And The Importance of Lying, I set out why it was that hiding the truth, from the majority of citizens, was a necessary part of the way Capitalism works. I'm grateful for the BBC News Channel for alerting me to a classic example of that. Every night they have a brief look at the next day's papers. Last night, the two newsreaders, on the change over, responded with a bit of a giggle to the headline in the Daily Express - then again who could take that rag seriously - proclaiming in large letters that house prices were about to surge. I was drawn to this because it is contrary to all my own analysis of the housing market, prices and the economy, and more importantly it is contrary to what every other survey has been saying, and what pretty much every economist thinks is likely to happen to house prices. At the later review, where a representative of the press goes through the papers, even more scorn was poured on the headline, and the following story, which talked about an expert saying that confidence was rising. As the reviewer from the Independent said, how this could be interpreted to justify the headline about a house price surge was not clear. So today, I had a look at the actual story in theDaily Express

It quotes a spokeperson from the Royal Institure of Chartered Surveyors, saying,

"Price falls have steadied and more homes coming up for sale will boost confidence, reports the Royal Institution of Chartered Surveyors.

Its latest housing study, a closely watched indicator of the market’s health, is upbeat about the direction sales are heading, with a growing number of experts forecasting them to rise over the next three months."

In fact, an increased Supply of houses is more likely to lead to further falls in prices not rises, and RICS argument as with others is that prices have stabilised in the last month due to a reduction in Supply. They continue,

"Just 39 per cent of surveyors reported values falling last month, down from the 44 per cent who did so in November."

But, this is either lazy journalism, a failure to understand basic statistical information or a misrepresentation.
RICS did not say that.

Here is what RICS actually said,

Pessimism still surrounds current house prices, with 39 per cent more surveyors reporting prices fell rather than rose in December, although this is an improvement from -44 per cent during the previous month. Expectations for house prices over the next three months saw 29 per cent more surveyors predicting prices would fall than rise (from -41 per cent more in November)”

On the Express's version of reality more suveyors reported house prices rising than falling - i.e. only 39%. But, in fact what the RICS statement says is that more surveyors reported house prices falling than rising i.e. 39% MORE. In other words, on the Express account you might understand that 39% reported falling house prices, whereas the remaining 61% would have recorded them rising. But, in fact, the RICS figures suggest something like 69% recorded falling prices, with just 30% recording a rise i.e. 39% MORE reporting a fall than a rise. The same is true of the other figure here. If, as RICS say, 29% MORE surveyors are predicting a fall than a rise, then contrary to the Express's interpretation of this meaning a surge in house prices, it means a majority of surveyors see a continuing FALL. It would mean something like 65% see prices falling with just 35% seeing them rising! Giving the difference of 29% more seeing a fall than a rise.

RICS continue.

“The level of completed house sales stabilised at the end of 2010, but the outlook for the property market remains mixed, says the latest RICS UK Housing Market survey.”

“New buyer enquiries, which signal demand for property, fell for the seventh consecutive month. Surveyors continue to report that lending constraints, particularly to first-time buyers, remains the biggest barrier to any strong improvement in the market.

“Although bad weather hit the housing market during December sales levels have remained stable. While lack of supply, and more importantly demand continues to impact heavily, surveyor sentiment does appear more positive for the coming months.

The key issue now is mortgage finance. However, with commentators suggesting lending constraints are unlikely to be eased, it is hard to envisage a meaningful increase in sales levels in the near term.”

RICS Press Release

The Express also quote from Rightmove to back up their headline. But here again is what Rightmove actually says,

“Miles Shipside, director of Rightmove, comments: “The opening skirmish in the 2011 price battle looks to be going marginally in favour of scarcer sellers, especially in locations preferred by tooled-up cash buyers or those packing a hefty deposit. With the number of new sellers at a two year record low, prices are being under-pinned by muted new supply just managing to fight off the downsides of lender reticence. However, in less popular locations, the smokescreen of New Year price optimism is temporarily masking the collateral damage that the new era of tighter credit will continue to inflict”.

“It is not unusual for traditionally optimistic. January sellers to ask more for their property, though 2008 and 2009, post the Northern Rock and Lehman Brothers collapses, did record falls of 0.8% and 1.9% respectively. Sufficient confidence had returned by January 2010 for new sellers to increase their prices by 0.4%.”

But in the October HPI, Rightmove also commented about higher asking prices.

“Why would new sellers test the market at asking prices 3.1% higher than a month ago?...

* Bullish pricing is a normal characteristic of the autumn selling season with average asking prices increasing in every October for the past decade

* Vendors struggle to react to the increasing stock as most are unwilling or unable to adjust to new market conditions

* Post-HIP speculative sellers can now test the market at minimal cost
Disappointment is the likely outcome for many sellers as evidence shows high launch price damages chances of securing a later sale”

In fact, a friend of mine I saw the other day told me that the terraced houses near him are now selling for around £40,000, a price he can never remember seeing in many years. More ecently, he says, they had been selling for around £70-80,000, something again backed up by the Rightmove recent HPI.

The Express talk about rising consumer confidence, but pretty much every available survey shows the opposite, as the Bloomberg analysis, based on Nationwide's survey, I provided previously demonstrated.

Besides the fact that I wouldn't even trust the Daily Express to provide me with reliable information about what was on the TV, let alone on anything more important, why would they come out with this rubbish?

The Daily Express is a died in the wool, Tory rag. Its target audience are the over 60, working-class Tories who think they are middle class, because they were lucky enough to have been born at a time when they were able to buy a house very cheap, back in the 1960's and which is now anything up to 60-70 times the price they paid for it. They don't want to disillusion their readers with the thought that the policies being pursued by the Tories, which are once again leading to economic decline, large increases in unemployment, and inflation once again on the rise as today's huge rise in CPI from 3.4 to 3.7% (a 10% rise in one month) signals, and is likely to once again result in higher interest rates, mortgage rates and a crash in house prices, just as happened in 1990, under the last Tory Government.
Then the Tories economic mismanagement led to inflation in the first years of the Thatcher Government of nearly 27%, mass unemployment of around 5 million, and economic and social collapse. Having deregulated the Banks, Thatcher's Government then opened the monetary spigots and let loose a torrent of cheap money on to the economy sending house prices soaring. Then with millions having turned themselves into debt slaves – many in order to buy their Council Houses on cheap mortgages – the Tories were forced to increase interest rates to 15%. Even when that came down, mortgage rates stayed at around 15% for several years. The consequence was a 40% fall in house prices in 1990, which was not recovered even in nominal terms until 1996.

Today, after a further two decades of the monetary spigot being opened full bore to keep the Capitalist economy afloat, house prices have climbed into the stratosphere, way above the bubble levels of 1990 – in fact, today around 5 times even their bubble level of that time. Its no wonder the Express doesn't want to scare the pants off its Tory readers, and is trying to do its bit to keep the bubble going with a version of reality that would give the Ministry of Truth a good run for its money.

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