Here at MoneyWeek, our main reaction to the house price slowdown has been why did it take so long?
The market has been clearly overpriced for a very long time. Yet people kept buying, and kept pushing prices even higher. Now, sure, a lot of that had to do with the free and easy availability of credit but even so, people have to take responsibility for their own financial decisions. No one forced anyone to take out a mortgage at six times their salary.
So how could otherwise sensible, intelligent people simply look at last year's house price growth and assume that the trend was going to continue? After all, as the old saying goes, trees don't grow to the sky.
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We're not sure what the answer is to that one but it turns out that the Government has been basing its Olympic financing requirements on the same flawed premise.
According to The Times, a £1bn black hole has opened up in the Olympic funding accounts. Now, black holes in Government budgets are ten-a-penny, but it's informative to look at the incompetent thinking that lead to this particular piece of fantasy budgeting.
Apparently, the Government expected to raise £1.8bn from land sales after the Olympics (scheduled for 2012, in case you've been avoiding all coverage). The London Development Authority has now said that this might be too optimistic.
Why's that then? Well, the figure was based on wait for it land prices in Stratford in East London rising by 16% a year. For the next 15 to 20 years.
Wow. If I told you that you'd be able to get you a return of 16% a year for the next 15 to 20 years, and that this was such a dead cert, I would stake a vast sum of money on it, would you be excited? Well, no, you'd probably be suspicious, because like most intelligent people, you'd be wondering where the catch was.
But of course, this isn't real money we're talking about here this is taxpayers' money. So as a politician, you don't really have to think about what figures you're putting in the budget as long as it's enough to sneak the thing past the mugs who paid for it in the first place.
So where did the Government get this 16% figure from? Well, estate agency Savills reckons that land prices have indeed been rising by about 16-20% a year over the past ten years in East London. Trouble is, now they've "peaked". In fact, Savills says that the LDA's new estimate of 6% growth per year is still probably too optimistic, given the state of the market at the moment. And this is coming from an estate agent.
You have to wonder if the same sort of budgeting prowess spirals all the way up the Government ladder. It would explain a few things you can imagine Gordon Brown telling his Chancellor: "Oh, don't worry about that big budget deficit, Darling. House prices can only go up a few more years of double-digit growth and the stamp duty and inheritance tax take will be more than enough to plug the gap."
But what will they do now that the housing cash cow has dried up? Consumers who've been relying on their housing credit line will just have to cut back their spending. Sadly, we suspect the Government will be more inclined to try milking more money out of further stealth taxes. 2008 is likely to prove a very expensive year indeed.
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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