Wednesday, Jan 13, 2010
The only thing that can drive up house prices
MoneyWeek: The only thing that can drive up house prices
If you want the price of your house to rise, you should hope for a real recovery in the banking sector. But with our big banks not much more secure than they were a few years ago, that's looking unlikely.
Posted by damien @ 06:22 PM (1940 views) Add Comment
18 Comments
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1. tpbeta said...
hmmm yummy bear food
2. paul said...
Damien = Merryn?
This does counter the Times recent article that mortgage lenders are competing to bring lending rates down.
3. rumble said...
Surely that would not cause excess-credit-inflated-prices to return in a recovered-but-not-excessively-credited environment?
4. estrader said...
"Property markets are driven by the supply of credit and the price of credit."
Oh!? You mean it has nothing at all to do with the supply and demand of *property*.
5. rumble said...
ie, prices were based on a corrupted housing market, and fixing banks only eliminates the corruption, and stalls the fall of prices, it does not necessarily re-introduce the corruption, and therefore prices will not "recover" to corrupted prices, to expect them to is to bet on the return of the corruption. If prices are not re-corrupted, they can only rises at inflation rates.
6. magnifico said...
Ah!
But one thing to be considered is the insane hunger of the British public for everything to do with property.
I'm afraid that prices will never go up at inflationary rates ( although I would like them to).
After frequenting this site daily during the past 4 years or so, I'm afraid this is the conclusion I've reached and, against my principles, I have become determined that when the bandwagon wheels start to move again I won't miss the chance this time round.
HPs don't gently rise, they shoot up or crash.
By the way I don't think this small judder forward is enough to think the machine is on the move again.
7. rumble said...
But they will only be able to pay what they can afford. Again assuming the corrupting credit is not re-introduced.
8. markj69 str05 said...
@rumble ... 'But they will only be able to pay what they can afford.' With IR's this low they can afford the current debt/borrowing. If IR go up, then debt may need to be reduced (Poss' debt right-offs??? - Covered by BOE/Tax payer???).
Remember this- 'No more boom or bust'!. Well Flash Gordon didn't say at what point on the graph he would try to level it out (Gradual sustainable growth). At the top must seem like the ideal place for many with VI. However, the markets are out of GB's control, have been for a while. We've been riding on the crest of a wave. Question is will it continue to be agitated, or allowed to peter out naturally?
9. quiet guy said...
I think Rumble is right. There was no sign of another bubble in dot com stock or tulips. Once a bubble has been exposed for what it is the game is up. More specifically, which foreign bank would be dumb enough to buy 'AAA' mezzanine-CDOs again?
10. Eric Pebble said...
Yup; house prices are dictated by mortgages/loans advanced. It just so happens that, over the last 12 years, countless millions of LIAR LOANS/Fraudulent Mortgages were advanced, [i.e. liar incomes, and also stupid, absurd & unaffordable multiples...]. So - house "prices" became and remain artificially high. The latest prop has been "quantitative easing" and extremely low interest rates. It remains to be seen how these and other props [e.g, govt. forced prevention of repossessions, interest free mortgages, to name just 2] keep the whole edifice propped up. It is all built on sand......
11. hpwatcher said...
I think Rumble is right. There was no sign of another bubble in dot com stock or tulips. Once a bubble has been exposed for what it is the game is up. More specifically, which foreign bank would be dumb enough to buy 'AAA' mezzanine-CDOs again?
Yes, but property hasn't really been exposed yet. That's the problem.
12. inbreda said...
also, in other bubbles, when the price starts falling investors (speculators) start selling. Then it just comes down to the exact level at which each speculator loses his nerve and realises his losses. With property it is a very different fish. When property prices fall a bit some people become unable to sell (as the mortgage is greater than the house value). The further prices fall, the less able they are to sell. So you just get a broken market with reduced transactions. A stalemate. I can see that we might have further sharp falls, but eventually this could turn into a market of slowly declining prices over a number of years, where renters realise they are better off so stay put. Mobility is reduced. Transactions remain very subdued.
So long as the glubberment dont try to inflate their way out of the problem - which IMO is their goal.
13. quiet guy said...
"So long as the glubberment dont try to inflate their way out of the problem"
Such cynicism, Inbreda! I recall recently reading comments on this blog that there cannot be inflation. This time it's going to be different ...
14. mark wadsworth said...
"If you want the price of your house to rise, you should hope for a real recovery in the banking sector."
Fingers crossed for more chaos in the banking sector, then!
Two points:
- the health of the banking sector depends on there being lots of credit-worthy borrowers who can afford to keep up repayments (and as little corruption, subsidies etc as possible), not on the banks having lots of 'money' which they just deposit with BoE until the storm passes. For example, the horse-drawn cart manufacturers went out of business because people started buying cars instead; and not because there was a suddent shortgage of wood, metal, leather and rubber.
- re what QG says, I have come to the conclusion, by observing history, that you can only have high inflation if you also have currency controls (whether that is propping up your currency, deliberately devaluing your currency, pegging it to USD or EUR or restricting capital in and outflows). I am no cheerleader for the govt. or BoE or anything, but I don't think that they can stoke inflation, even if they wanted. Bearing in mind that most govt liabilities are index linked (if you include unfunded public sector final salary pensions), I see no reason why the government would want high inflation anyway. This time is not going to be different, it's going to be the same.
15. george monsoon said...
Oh my god, you people are still here, ranting about a houseprice crash. Talk about closing the gate after the horse has bolted.
The world is in meltdown. Houseprices are the least of everyones worry right now, or should be anyway. If you are still discussing it on here, you must all be bored, retired or rich, or all of three. Anyone who is working is poor. We have bigger fish to fry, like putting a meal on the table. come on guys get a frikin life.!!
bye
16. rumble said...
Lol @ george! Welcome back!
17. Rberto Birquet said...
4. estrader said..."Property markets are driven by the supply of credit and the price of credit."
Oh!? You mean it has nothing at all to do with the supply and demand of *property*.
Estrader; the definintion of Demand = the amount of a product or asset that people are willing and ABLE TO PAY FOR at a given price. Therefore, unless hundreds of thousands of people each year have hundreds of thousands of pounds of their own money; then demand for housing is derived from credit. Simples! It is in the second class of any economics 101 course.
People in the UK have consistently shown a willingness to to pay for houses. However, demand required they had money. They needed credit to pay the recent huge prices. That credit has gone, temporarily replaced by printing of money. But as banks repair balance sheets, where is it come from in the next 4-5 years?
One of the problems with near-universal belief in market forces is that people do not even know what it means. The hoi poloi believe the snakeoil salesmen tell them - it's cos of supply and demand, without any explanation or evidence -, and seem to believe demand means what people want.
So as I am willing to pay a hundred dmillion pounds for my own caribbean island; does that mean demand for it has just risen by one? NO? Why? Because I do not have the money!!!! Ah!!!!
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