Housing recession or inflation - take your pick!

Which would you rather face: a recession and house price crash or years of soaring seventies-style inflation? In normal circumstances, the Bank would have already cut the official interest rate far and fast, hoping lenders would follow suit. Two options; one nasty dilemma for the Bank of England. Edmund Conway examines the issues in today’s Telegraph.

I was listening to a talk from a city economist a couple of nights ago - it was superb, the first time I felt I really understood the underlying dynamics of the sub-prime crisis and the consequences of securitisation! One of the aspects that came out of the wider discussion was that several of the powerful forces that have driven house prices higher in recent years are now in reverse gear - namely:

A rise in real mortgage rates brought about by the credit crunch A tightening of mortgage supply - partly reversing the process of financial innovation in mortgage products Signs of a reversal of the high level of inward migration and Evidence that the lack of supply is now having less of a bearing on house prices as a better balance between demand and supply is achieved.