Why the Economy won't recover as quickly as we would like.

Over the last few years, in 2017 after Brexit I explained that there would be a recession in 2022 (I was right).

I looked at a few things;

1) The fact that older generation of people who owned properties were in fact not able to sell to young people in the future as the property value increases.

2) The property values were increasing quicker than the salaries that are lent against to "buy" these properties.

It is literally that simple, in a market that wants to increase prices constantly, you need people to be able to pay for that item, but on top of that, they need to be able to afford it.

UK House prices are now 12x salaries now, but banks will lend you 4x your annual salary. This has always been the issue with supply and demand when it comes to property in the UK.

As the older generation of buyers turn to sellers, they can't sell to each other as they get older as readily. (Mortgages cost more the closer to retiring the client gets).

As younger buyers wages aren't increasing, as what happened after COVID, in fact, they've been decreasing due to inflation, (10% increases in prices each year). Prices for property already far outstrip wages, so when that happens, prices fall.

The key is, as prices have fallen, they still won't fall enough to become affordable, so will have to fall further into affordability for new buyers.

House prices are usually a barometer of how well the economy is doing in the UK, but with inflation increasing year at year due to energy and food prices and the government intervention during COVID-19, we are getting poorer, banks are tightening lending criteria (approving fewer mortgages). The macroeconomic problem with this, is the Bank of England can only raise rates to bring Inflation to their 2% target.

Therefore, this means i can't see inflation reaching less than 4% within the next two years, partly because the costs that are increasing are fixed costs like gas and electric, which isn't being protected by the government past April, therefore they will increase again (as businesses do, regardless of the economy).

These issues coupled with the house prices falling means the BOE will have to wait until inflation is low again before they can do that QE experiment they did last time (which doesn't fix anything). Any other measure, would increase inflation, as they cut rates and the rich people and Bankers increase inflation buy buying assets again and push prices up.

Thanks for reading,

Anthony