In Finance Times article UK housing slump fears overplayed, FT claims that the housing woe in UK is exaggerated by market and media, and the actual impact by the credit-crisis led economic stagnation won’t damage UK households’ family equity to the extent comparable to that of 1990s.
Flaws in the reasoning
The assumption is based on figures from Council of Mortgage Lenders and survey of Bank of England last year, without mentioning if the acquired data was compiled before or after the sub-prime mortgage crisis happened last summer. There was stark difference if the figures were post-subprime ones, because after the sub-prime mortgage problems were uncovered, mortgage policies changed dramatically for most of the banks in both the US and UK.
Secondly, FT’s also assumes that the prospect for household negative equity was unlikely because there were less houses purchased and sold at the height of the recent boom than in the 1990s. I don’t see any relation between the two factors; what if those houses were bought and sold at much higher prices than 1990s, a much deeper price correction now will definitely erode into the house owner’s equity, and turn the equity value into negative.
Wrong quotes and wrong sources
Last but by no means the least, FT quotes one Goldman Sachs source to support its finding, without giving his title. Everyone knows that Goldman Sachs was one of the dirty-hands who pushed the global economic to a dire situation nowadays, shouldn’t we keep a precautious ear on what they are saying? They have big problems now and they are trying to whitewash the horrible scenario by telling media that there is nothing much to worry about, isn’t this dangerous enough?
Posted by julianlei 