Sunday 24, July 2022

For most people, the biggest spend they will ever make is on a house. It’s not surprising, then, that the biggest asset class on the planet is residential housing. Housing is the market, the one that all other markets are connected to. When house prices crash, everything crashes. Houses are the source of collateral for bank borrowing. When interest rates have been driven so low by QE and fiscal austerity, even a small increase in rates can tip borrowers into defaults; when repossessions hit the market, supply overwhelms demand and buyers go on strike (because cash buyers know that an oil-tanker cannot turn on a sixpence and owner occupiers find that banks no longer have any appetite to lend, except on the most penal terms).