What Next? Phase Two of the Great Deleveraging
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What Next? What Next? Phase Two of the Great Deleveraging Phase Two of the Great Deleveraging Ian Shepherdson High Frequency Economics
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What Next? Phase Two of the Great Deleveraging. Ian Shepherdson High Frequency Economics. We’re doomed. We’re still doomed. The Threat Of Systemic Meltdown Has Faded. …Though The US Mortgage Crisis Is Still Worsening. The Pace Of Contraction Has Slowed…. But The Debt Legacy Remains. - PowerPoint PPT Presentation
Transcript of What Next? Phase Two of the Great Deleveraging
What Next?What Next?Phase Two of the Great DeleveragingPhase Two of the Great Deleveraging
Ian ShepherdsonHigh Frequency Economics
We’re doomedWe’re doomed
We’re still doomedWe’re still doomed
The Threat Of Systemic Meltdown Has FadedThe Threat Of Systemic Meltdown Has FadedOne Big Problem Fixed, Mostly…
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Jan 06 Jan 07 Jan 08 Jan 09
Spread, 3-month interbank rate less baserates, basis points
……Though The US Mortgage Crisis Is Still WorseningThough The US Mortgage Crisis Is Still WorseningThe Boom Is Over But The Legacy Remains
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26U.S. Prime mortgage delinquencies, % (Left)Sub-prime delinquencies, % (Right)
The Pace Of Contraction Has Slowed…The Pace Of Contraction Has Slowed…
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GDP, q/q% (Left)GDP, y/y% (Right)
But The Debt Legacy RemainsBut The Debt Legacy RemainsThe Debt Burden Remains Massive
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87 89 91 93 95 97 99 01 03 05 07 09
U.K. Personal liabilities as % disposable incomeU.S.
The Only Way To Repay Is To Save More…The Only Way To Repay Is To Save More…Still Digging, But Not As Quickly
-5-4-3-2-101234567
88 90 92 94 96 98 00 02 04 06 08
Personal sector net saving, % GDP,four-quarter moving average
……That’s Hard When Unemployment Is RisingThat’s Hard When Unemployment Is Rising
As Unemployment Rockets, Arrears Will Soar
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79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
Unemployment rate (Labour Force Survey) %
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……And Wage Increases Are SlowingAnd Wage Increases Are Slowing
As Unemployment Rockets, Arrears Will Soar
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97 98 99 00 01 02 03 04 05 06 07 08 09
Average earnings ex-bonuses, y/y%
Mortgage Arrears Will Rise Much FurtherMortgage Arrears Will Rise Much Further
Mortgage Arrears Starting To Rise
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Mortgages in arrears as % loan balances
……Repossessions TooRepossessions Too
Repossessions Climbing Too
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83 85 87 89 91 93 95 97 99 01 03 05 07 09
Number of repossessions,four-quarter average(Left)
House Prices Are Still Too HighHouse Prices Are Still Too High
It Happened Here As Much As Anywhere
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84 86 88 90 92 94 96 98 00 02 04 06 08
House price:earnings ratio, Halifax data
Lower Rates Have Had Only A Modest ImpactLower Rates Have Had Only A Modest Impact
Mortgage Lending Is In Freefall
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94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Number of approvals for new mortgages forhouse purchase, thousands
Housing Equity Is Disappearing As Prices FallHousing Equity Is Disappearing As Prices Fall
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87 89 91 93 95 97 99 01 03 05 07 09 11
Households’ net housing wealth, % GDP 2008 and 2009 are estimated
……Equity Withdrawal Funded Much Of The BoomEquity Withdrawal Funded Much Of The Boom
…Equity Withdrawal Funded Much Of The Consumer Boom
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87 89 91 93 95 97 99 01 03 05 07 09
Consumption as % GDP
Homebuyers Aren’t Alone In Feeling The SqueezeHomebuyers Aren’t Alone In Feeling The Squeeze
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Bank lending to constructioncompanies, 12-month total, £m
……Broke Banks Can’t LendBroke Banks Can’t Lend
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95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Bank write-offs and loanrevaluations, £m, 4-quarter total
So Private Housing Construction Has Collapsed…So Private Housing Construction Has Collapsed…
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81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
Private sector housing starts, England, y/y%
Social Housing Construction Will FollowSocial Housing Construction Will Follow
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82 84 86 88 90 92 94 96 98 00 02 04 06 08
New construction orders, public housing£m 2005 prices
SummarySummary• Unemployment has much further to rise, despite stabilizing GDP
• Payment problems for homeowners and tenants will rise and stay elevated for years
• Leverage will prevent return to boom for a decade
• Demand for social rented property will rise; can supply rise to meet it?
• Boom and bust will never be abolished
