Quote Originally Posted by George View Post
Another question I now add to the ones above re inflation and interest rates (which no-one
seems game to answer) - what about DEflation???
OK, Ill give it a shot – but if you want three more answers find three economists.

We are heading towards our recent historic interest rate lows of 5.65% in the mid sixties. While there is a political and economic will to see rates drop further, there isn’t an indication that there is will to see them drop below historic levels. My pick – perhaps as low as 6.5% by mid 2009 but after that the oldies will be screaming too loud about their retirement savings. After that rates will stabilise and then start heading back up. Who knows what the catalyst will be – but we do know rates go up and they go down; that’s the nature of life.

Amongst all the data that always fluctuates there is only one trend that stay constant – that is that the worlds population continues to increase. This keeps pressure on the demand side of inflation. This being just one ingredient – I don’t see us getting into deflation. Its the mid 1930’s since we were last there – times have changed.

We already have inflation –its at around 5% - the highest rate since the early 90’s. So inflation will come down. Lets say it gets to 3% - this isn’t really inflation as we might know it. Not like when we had 15% in the 70’s and 80’s. But it is inflation all the same – and this will flow into property.

Property values are also on a cycle – currently they are in a downwards part of the cycle but since we also have had inflation, and probably always will property values will turn around and head back up. Our housing stock will change: the old villas will have passed their economic life and be pulled down with new homes being built; the oldies will quit their big homes but demand for self contained old folks amenities will increase (see why Rymnan are doing so well) and those that can’t afford to buy (and there will be more of them) will go to rental housing; cheap apartment blocks will start crumbling and the ghettos of the future will push people back into traditional stock; birth rates are increasing (meaning the wee dears are going to need an education and where are the schools?) - all putting positive pressure on property values.