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One Possible Theory On House Prices, Please Give Me Your Ideas.


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#1 carseller

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Posted 22 July 2006 - 08:11 PM

Let me cover the main reason for high house prices: Globalisation.

China can push their cheap goods, and with manipulations in the CPI (exclusion of house prices and other things), is makes it possible for us to expand credit at a rate that keeps us going. . It also makes it possible to hold the CPI inflation at a stable rate.

What we are seeing now, much more important than the UK market, is that the US economy are slowing. This will limit demand for Chinese goods, weaken the USD (since the chinese goverment will buy less USD as they sell less goods), and cause a destructive lack of demand driven deflation in china (not supply driven / competitive as it have been so far), and reduce the price of Chinese goods even further (just as seen with Japan in the seventies, only on a larger scale). The US economy will do as they always have, keep the economy propped up with credit. There is no payback time for the US. They will never pay back the Chinese what they own. They will create inflation by dropping cash on the economy if they have to. This does reduce the value of cash in the bank. The true rate of inflation is almost identical to the amount of money the printing presses produce. Look at the value of gold, it have more than doubled. A conflict free oil price is probably around 45 USD after the latest run of inflation.

The reason housing are overvalued is because income is to low for a group of buyers, CPI inflation is really not a useful tool to compare with. However this group of buyers does not need to buy. Landlords can rent out to them and make a profit.

So according to true inflation, house prices are probably undervalued. But as long as the increase in salary does not follow true inflation (the debt bubble), the housing market is creating a condition where earlier homeowners back to 1970 who did not have to deal with this faulty inflation figures could buy their homes at the right price.

This situation with cheap Chinese goods can go on very long, and a weakening US demand could further amplify it. Thus the conditions for low interest rates could remain strong for a long time. A US recession could even push the rates down.

Because homes will be priced based on the affordability and not on value, prices could come down to a level where first time buyers can afford them at the current interest rates. However this is not sure. The central bank could let inflation slip out of their zone, and let is rise, to avoid bursting the housing bubble by keeping rates low enough. Since breaking the housing bubble could cause a recession it is not a crazy idea. With todayís China situation, and stagflation they will probably avoid pushing up rates, or else they will kill all growth just to have the CPI bogus inflation figures in check. The FED will set the trend for this. If they let inflation go, all the other countries will do the same as teh US is the leader. China and Japan, the biggest debtors would be screwed. That could mean flat prices in nominal terms, while the inflation have a run like in the seventies, making a loan an attractive option with negative real interest rates, more attractive than sitting with cash in the bank that quickly loose value to a red hot printing press. Hyper stagflation is a real option, because it could save the US from a depression and at the same time ease their debt due to inflation. Due to deflationary pressures in china in the case of weakening US demand, interest rates here will be lower than they should. Itís the first time buyer generation who pays the price for cheap Chinese goods, and an economy who sadly cannot grow without excessive debt. Some say the debt have to go out of the system through a deflation. But I think more debt, and inflation is more likely. I am not sure if a deflation like Japan had, is possible in the US, due to their willingness to screw their debtors, by dropping cash on the economy for free, if nobody wants to borrow it (unlike japan).

Whatever happens will be what suits the US best. It could be hyper stagflation and negative real interest rates.

Edited by carseller, 22 July 2006 - 08:32 PM.

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#2 Guest_donall_*

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Posted 30 July 2006 - 04:54 PM

I think that you've touched upon some of the main economic issues that are affected us today.
The China issue is very interesting.
Current house price bubbles, fuel and commodity rises, low RPI and immigration issues make our world very interesting for the impartial obsever. Personally I don't think that you should consider living in the UK full stop. Let alone owning property here.

#3 Yakov Sherimyetkov

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Posted 16 February 2008 - 04:43 PM

I think that you've touched upon some of the main economic issues that are affected us today.
The China issue is very interesting.
Current house price bubbles, fuel and commodity rises, low RPI and immigration issues make our world very interesting for the impartial obsever. Personally I don't think that you should consider living in the UK full stop. Let alone owning property here.



Living in the UK has ups and downs, as does any country. But I am interested why you think that owning property in the UK and living here is such a bad thing.

All over the world, property is in flux. In Moscow this year property is expected to rise 20% and has an average year on year of 12% for the past 10 years or so. And there is no such thing as a mortgage in modern Russia, so what is driving that??

USA ! Down 30% in some areas!!!

Just interested

#4 thecrashingisles

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Posted 16 February 2008 - 05:58 PM

All over the world, property is in flux. In Moscow this year property is expected to rise 20% and has an average year on year of 12% for the past 10 years or so. And there is no such thing as a mortgage in modern Russia, so what is driving that??


No such thing as a mortgage in modern Russia? When was the last time you were there? You can't escape from adverts trying to persuade you to borrow money to buy property, and they're not offered only by recognised banks.

e.g:

http://ipoteka.alfabank.ru/
http://www.raiffeise.../mortgageloans/
http://www.deltacredit.ru/
http://www.nbik.ru/
http://www.stolica-m.ru/
http://www.nikom.ru/
http://www.akredo.ru/
http://www.avacredit.ru/
http://www.kf.ru/

#5 Yakov Sherimyetkov

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Posted 16 February 2008 - 11:08 PM

No such thing as a mortgage in modern Russia? When was the last time you were there? You can't escape from adverts trying to persuade you to borrow money to buy property, and they're not offered only by recognised banks.

e.g:

http://ipoteka.alfabank.ru/
http://www.raiffeise.../mortgageloans/
http://www.deltacredit.ru/
http://www.nbik.ru/
http://www.stolica-m.ru/
http://www.nikom.ru/
http://www.akredo.ru/
http://www.avacredit.ru/
http://www.kf.ru/


Вы правы, но это не то, что мы называем кредитом под дом, это просто кредит. Наибольшее количество населения не берут этот кредит под дом для покупки дома/квартиры а те, кто берут кредит под дом должны иметь гаранта.
Так что это не кредит для покупки дома в настоящем смысле этого слова.


6 месяцев назад я был в России

#6 thecrashingisles

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Posted 17 February 2008 - 12:51 AM

Вы правы, но это не то, что мы называем кредитом под дом, это просто кредит. Наибольшее количество населения не берут этот кредит под дом для покупки дома/квартиры а те, кто берут кредит под дом должны иметь гаранта.
Так что это не кредит для покупки дома в настоящем смысле этого слова.

6 месяцев назад я был в России


Ну, тогда этот кредит, который вы описываете, похож больше на MEW в UK?

Мне кажется что ипотека или кредит под залог недвижимости - это то же самое, что и mortgage. Именно так все мои друзья купили свои квартиры.

#7 BigMike

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Posted 19 August 2008 - 11:10 AM

My theory is that our slightly obscure desire to live in houses rather than flats in UK, which in turn requires more land, as there is less land readily available its demand is relatively higher, and hense the price of buying it is greater...This is one influence on house pricing.

Also if many people want to own homes, rather than rent them... more flats would be built, which is generally more economical that a country crammed to the brim with 3-4 bedroom housing, so the economy would strengthen and the housing would become cheaper here.

I also think that because our our banks allowed so much borrowing the housing industry had been enjoying large chunks of it. ever since labour took power, my old man, a property developer, has been making more money each year. Luckily for him he invested into rentals so he's avoiding this recent flop now and retiring.

Because of the fall in house prices we can pick up around a 15% return from letting refurbed houses out.

Edited by BigMike, 19 August 2008 - 11:12 AM.


#8 1929crash

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Posted 30 August 2008 - 04:25 AM

I have noticed as the crash has progressed that there are an awful lot of empty houses around. Yet not so long ago we were being told that we had a shortage and that we had to concrete over the whole of the country to shoehorn everyone into a house.

Where has everyone gone?

I wonder wheher the sheer volume of housing transactions, with people leaving one property and moving into another, left a large number of properties empty, even if only for a couple of weeks at a time, and so created the illusion of a housing shortage.

And so played some part in driving up prices. The major factor being finance.
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#9 anjilin

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Posted 20 September 2008 - 06:28 AM

We present a simple model of a small open economy subject to credit constraints. The model shows that the higher the degree of financial liberalization is, the stronger is the impact of interest rate shocks on house prices.
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#10 digoutabook

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Posted 26 September 2008 - 02:54 PM

I have noticed as the crash has progressed that there are an awful lot of empty houses around. Yet not so long ago we were being told that we had a shortage and that we had to concrete over the whole of the country to shoehorn everyone into a house.

Where has everyone gone?

I wonder wheher the sheer volume of housing transactions, with people leaving one property and moving into another, left a large number of properties empty, even if only for a couple of weeks at a time, and so created the illusion of a housing shortage.

And so played some part in driving up prices. The major factor being finance.



well yes. Can easily be a lot of empty houses AND a housing shortage, if the prices of the empty houses are too high for the area where actual house shortage issues are prevelant, ie the very poor.

Unless you want to drop the price of a house to benefit level achievement, there is going to be large numbers who cannot afford any of the empty houses that crop up. so you have the situation that amongst a certain wage bracket, there is plenty of choice, but at a lower one there is none.


There is a genuine problem with affordable housing for people, but a HPC wont fix that. Employment and mobility, with a weaning off of social benefits is the only way out in my eyes.

HPC only affects those with money !

Edited by digoutabook, 26 September 2008 - 02:55 PM.


#11 Bosh

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Posted 26 September 2008 - 03:01 PM

I have noticed as the crash has progressed that there are an awful lot of empty houses around. Yet not so long ago we were being told that we had a shortage and that we had to concrete over the whole of the country to shoehorn everyone into a house.

Where has everyone gone?

I wonder wheher the sheer volume of housing transactions, with people leaving one property and moving into another, left a large number of properties empty, even if only for a couple of weeks at a time, and so created the illusion of a housing shortage.

And so played some part in driving up prices. The major factor being finance.


Yep, I have heard this a couple of times recently.... 1 Million empty properties in the uk :blink:
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#12 fallingbuzzard

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Posted 04 October 2008 - 11:49 PM

A simple theory. After 9/11 interest rates should not have been cut further nor held at such a low level for 3 years. The cause of everything in the financial crisis. The US recession was caused by the speed that he ramped up rates in 06 and then subsequently collapsed them. Thsi destroyed stability and business confidence. Bush is highly culpable for his own country's problems and these have spread widely. The UK government is foolhardy for following the US rather than Europe.

My own view is that the biggest problem in the UK housing market is the pensions shortfall which is hitting those in their 50s and early 60s. This will escalate. Downsizing is no longer as attractive an option. Over the new long term, I don't see property values rising above inflation.

#13 Patfig

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Posted 05 October 2008 - 12:19 AM

I have noticed as the crash has progressed that there are an awful lot of empty houses around. Yet not so long ago we were being told that we had a shortage and that we had to concrete over the whole of the country to shoehorn everyone into a house.

Where has everyone gone?

I wonder wheher the sheer volume of housing transactions, with people leaving one property and moving into another, left a large number of properties empty, even if only for a couple of weeks at a time, and so created the illusion of a housing shortage.

And so played some part in driving up prices. The major factor being finance.

There has never been a shortage of houses justy people have been led to believe thay cant survive unless thay have a small new build with 3 toilets
Life is like a sh1t sandwich, the more bread the better!

#14 Pappie

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Posted 13 January 2009 - 11:52 PM

Living in the UK has ups and downs, as does any country. But I am interested why you think that owning property in the UK and living here is such a bad thing.

All over the world, property is in flux. In Moscow this year property is expected to rise 20% and has an average year on year of 12% for the past 10 years or so. And there is no such thing as a mortgage in modern Russia, so what is driving that??

USA ! Down 30% in some areas!!!

Just interested


I am no expert of the Russian market but I can assume that it's the black money that drives the property prices upwards. Same situation in India by the way. Once the flow of black money stops then we may see a crash in these markets. Moscow, as many regions in India, are grossly overpriced. The question is to what extent will the black money reserves of people keep pushing those property markets.

#15 sleepwello'nights

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Posted 17 January 2009 - 07:38 AM

I am no expert of the Russian market but I can assume that it's the black money that drives the property prices upwards. Same situation in India by the way. Once the flow of black money stops then we may see a crash in these markets. Moscow, as many regions in India, are grossly overpriced. The question is to what extent will the black money reserves of people keep pushing those property markets.


That's an interesting observation. It implies that there is a fundamental desire to own property as a safe, reliable and secure store of wealth. Otherwise wouldn't the black money flow into gold or other commodities.

One of the basic themes on HPC is that the present price of property deprives those who want to purchase a house. But home ownership is now more widespread in the UK than at any other time in our recent history.

So by inhibiting the ability of new entrants to own a home the market is regaining equilibrium. People are not being deprived of a roof over their heads, rather they have to accept that they will have to sacrifice more to enable them to purchase.
When all's said and done, there's more said than done.




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