The Bank of England reports that mortgage approvals fell to a 12-year low, of 73,000, in December.
This chart shows one implication of this - house price inflation will fall further. Mortgage approvals have been a good lead indicator of house price inflation in the following 12 months; the correlation has been 0.61 since January 1992, with an R-squared of 37.8%.
This relationship points to prices rising just over 1% during this year, with a highish probability of a fall.
The question is: so what? As Willem Buiter argued, house prices are not, in aggregate net wealth.
But there's another point that should add to our indifference. It's that the macroeconomic picture tells us nothing about individual experience.
By rights, I should be more conscious than most about the housing market, as I'm hoping to sell my flat very soon.
But the aggregate housing market doesn't interest me. What matters is the market for flats in Belsize Park (top location, bags of potential, low outgoings, extensive views over Helena Bonham Carter) and for houses in Oakham. Macro news tells me little about either.
I'll say it again. The main function of macroeconomic data is to make work for macroeconomists. And this is a very valuable function; how d'you think I got that flat?
Most of all - thank you for those links to Willem Bulter's blogs that nicely explain why even the home you own is valued according to the rules of rent and why it's not net wealth. Very useful ammo for us LVTers - whom nobody ever seems to want to believe when we explain the same thing!
Posted by: Jock | January 30, 2008 at 05:30 PM
Why limit it to the just the data:
'Economics is extremely useful as a form of employment for economists – John Kenneth Galbraith'
Posted by: Caravaggio | January 30, 2008 at 06:55 PM
"If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid." Keynes
But would it mean that they had to drive Volvos? Dearieme
Posted by: dearieme | January 30, 2008 at 08:03 PM
As far as macro-economists are concerned (and having myself trained as one), I often wonder why we need more than one of them.-)
Posted by: reason | January 31, 2008 at 08:14 AM
Who wants a mortgage anyway? Nasty things.
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