Monday, Jul 05, 2010
House prices continue to defy logic and rise - are they simply invincible?
Love money .com: House prices are invincible
House prices are the captain scarlett of our economy (and no not the CGI version - cant destiny angel be french like in the original?). Now could any mysterons please stand up?
Posted by techieman @ 08:14 AM (4312 views) Add Comment
62 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. happy mondays said...
But given the resilience of the house prices so far, and the soft long-term outlook for interest rates, there is a good chance that the property market will continue to sail on, the HMS Invincible of the UK economy.
More like the Marie Celeste, as no Fu##er could afford to be on it! Even the indestructable housing market has an achilles heal..
2. hpwatcher said...
We are all so lucky we live in such an amazing country and with such great governments. The last government even saved the world!
3. quiet guy said...
Techieman,
Dare I opine that this could be one of those contrarian tipping points? When one of the few remaining property bears appears to capitulate ...
4. smugdog said...
Look into my eyes, look into my eyes, the eyes, the eyes, not around the eyes, don't look around my eyes, look into my eyes, you're under.
[chortled on]
5. happy mondays said...
Like it smugdog... 3 2 1 (snap) wake up.. You have all been in a dream state, where reality was stupid house prices, bent politians & a corrupt banking system... Nooooooooooo I'm still here, i am not a number!
I'm sure people will open there eyes soon, like 1914 - 1918 sending the boys over the top into the machine gun fire, they did it because they believed in it! but try doing that now, no one is that stupid.. I can see now my grand children standing there with jaws open in disbelief at the amount of debt we got ourselves into for a hovel..
RC - lunacy endorsed
6. mrflibble said...
This is why I have virtually zero confidence in our currency. The UK has one of the largest property bubbles in the world but when the credit crunch struck it was barely touched. With a country in recession the populous have continued to raid the unearned wealth of the younger generation by driving up prices yet further - to the point of being unaffordable again, just like in 2007. Money (Sterling) spend in the UK has very little worth.
It's getting very hard to be sympathetic to a country who through greed and stupidity has hobbled itself with houses no youngster can afford to buy. If housing doesn't correct then we become a society of haves and have nots, where the haves expect the have nots to bust their hump for no reward. This isn't a society I want to grow old in that is for sure, as I suspect the have nots may at some point realise they have been hosed and start to seek revenge on the haves.
7. hpwatcher said...
Nicely put mrflibble.
8. doomwatch said...
Wow, we may end up with a debt averse nation, where people actually save up for things like deposits before committing
the biggest financial decision of their lives. FTBs younger than 30 expect everything on a plate. Get real.
9. mark wadsworth said...
Mr Flibble nails it.
As others have said, the bubble only really bursts once sane and rational people have given up hope that it will. I find myself seriously considering throwing in the towel and buying, but luckily we're signed up to another 12 months' tenancy.
@ DoomWatch - is it too much for the FTBs under 30 to expect the same as what their parents or grandparents got, i.e. a house costing three years salary max, and Schedule A taxation and Domestic Rates thereon (which between them amount to a crude sort of Land Value Tax)?
It's classic Home-Owner-Ism to blame it all on the young for refusing to save up a deposit, get married and settle down when it was the self-same Home-Owner-Ists who have put houses firmly out of financial reach - average FTB age is incredibly high (mid 30s, it would appear), fewer people are marrying and average age at which women have babies is getting older and older. If the HO cant is true (that 'young people') don't want to save up a deposit and buy, then surely house prices would be going down? I think it's pretty clear which is cause and which is effect.
10. hpwatcher said...
As others have said, the bubble only really bursts once sane and rational people have given up hope that it will.
How does that work? Surely more people buying would keep the ponzi scheme going?
11. techieman said...
.. because they then become the greatest fools and there is no-one left to buy... Then the top comes in and people realise they have made a mistake. Fred talks about the winners curse, so you can call it what you like.
Its not really a ponzi scheme as such though, although i understand what you mean. Sort of a neo ponzi. If it were a full ponzi, then it would have collapsed by now.
12. mark wadsworth said...
@ Techie, UK land market is a pyramid scheme, not a Ponzi scheme.
13. nickb said...
Bloody hell,
I think I agree with all the comments on this thread so far. Except 10 which is not a comment, but a query.
I'm now 40 and never bought - priced out after working abroad. Most people my age & social circle bought in the early 2000s it seems, so there has always been a kind of social pressure to buy.
The fundamental points as I understand them are constantly rehearsed by many contributers to these pages - prices are too high for FTBs to borrow under current credit conditions. And FTBs are the 'keys to the ignition' of the housing market because of the chains involved. So the high prices are only the result of a thin trading volume. So if and when potential sellers are forced to come to market by events which affect many of them simultaneously, the 'shocks' economists talk about, prices will fall.
Well, we've just had one - the Con-Dem budget, with its £6bn cuts, whatever else you think of it (and here there is far less agreement; I for one think it is pernicious and the cuts unnecessary), it's clear a lot of people are going to be thrown out of work in the short term with knock on effects to the housing market.
The sad thing for me is that this is all so divisive - the population is split between those praying against reason that house prices will somehow continue to climb, and the others hoping for an almighty correction. A zero sum game.
Nick
14. techieman said...
MW - yes! you are right..... The whole (world)economy is a ponzi scheme! ;-). Actually that could be a good essay question.
"The world economy is a giant Ponzi scheme" - Discuss! Get an A star for that!
15. techieman said...
Well said Nick - obviously notwithstanding the fact i think the cuts are necessary, (well maybe not necessary in the context you mean) because its just all part of the cycles of economic theory. [That may sound callous but its really not meant to be].
16. mrflibble said...
I think the UK will only become debt adverse if debt starts to sting via interest rates ratcheting up - unlikely in our new utopia (fools paradise).
I was taught to save for things by my parents as I grew up. When I was about to purchase my first home I was advised by someone who had made more from flipping houses than working that I should buy something I cannot really afford - instead I bought a starter home and cleared the mortgage off in 6 years via hard work and sacrifice (200 mile daily commute for 18 months at one point). When I went to buy my first sofa I was told by the assistant that my purchase should be based on "what I can afford a month" - instead I negotiated a discount for cash.
Things have changed a lot in the UK. The "how much for cash?" now gets laughed at because there is no respect for real money any more. Shops would rather have people signed up to a credit agreement than take in a wedge of money. I must confess I'm struggling with the whole idea of being shackled up to debt but that seems to be the way to maximise life these days. Instead I'm one of the fools who subsidises everyone else's debt fuelled lifestyle.
17. montesquieu said...
@mark wadsworth
'As others have said, the bubble only really bursts once sane and rational people have given up hope that it will.'
How does this work then? Oft repeated at the moment, but I fail to see the mechanism. Like many here I'm under rreal pressure from La Duchesse Montesquieu and have even had my arm twisted to begin viewing again. 'Thankfully' we are still a bit borderline on what's needed for a sensible deposit these days but even I'm getting worried what we'll be able to buy next year which is when we plan to take the plunge (economic conditions permitting). No sign of falls yet where we are looking (Oxfordshire/Berkshire border) though some of the areas we had looked at previously - Somerset mainly - are definitely down on when we left there two years ago (and some of the same stuff is still for sale).
What I don't get is why bears like me capitulating is good news for the eventuall crash?
18. letthemfall said...
The only point of debt is if one can buy something which earns more than the cost of the debt (or alternatively has value in its ownership that exceeds the cost of debt). In the past that has been the case with owning a house. Now the argument only holds if one assumes house prices will increase indefinitely. How many here believe there is a better than 50:50 chance of that happening? Is that why people are talking about throwing in the towel?
19. Crunchy said...
When the plug is ready to be pulled and not before.
Recaptcha - liquidity stupid
20. nickb said...
@letthemfall
"If something can't continue indefinitely it will probably come to an end."
How could they increase indefinitely - where would the FTBs come from? That would imply an ever expanding credit supply, with people borrowing ever higher multiples of salary. It's surely no accident that housing markets are cyclical. Are we not therefore justified in setting this probability at zero, not 50:50?
Nick
21. mrflibble said...
@9. mark wadsworth said...
As others have said, the bubble only really bursts once sane and rational people have given up hope that it will. I find myself seriously considering throwing in the towel and buying, but luckily we're signed up to another 12 months' tenancy.
The housing market is sentiment driven and the average man on the street isn't exactly going to sit down and do technical analysis to see whether his investment is good or not, especially since houses only every go up!
The fact so many bears are now wondering is this sucker will every go down is probably a good sign that it now will.
22. uncle tom said...
"'As others have said, the bubble only really bursts once sane and rational people have given up hope that it will.'
How does this work then? "
The truth, I think, is that investment bubbles take much longer to burst than one's intuition would expect. It follows that when they do finally burst, the apparent delay has led many people to conclude that it wasn't a bubble after all, but a shift to a new order of value.
The bottom line, as far as property is concerned, is that far too many people simply cannot afford today's prices; and as having somewhere to live is not optional, and the govt's scope to help the least well off is limited and under heavy pressure to contract; there is no other way but down for the UK's house prices.
23. techieman said...
aha nick well that assumes that the FTBs wont have their salaries increased by inflation. That has always been the Bull argument. Costs are low and FTBs should commit because inflation will come to their rescue to make the debt lower even if (eventually) IRs are increased...... erm wont it?!?!?
24. Crunchy said...
Tech, was the Euro ever under the cosh. Monthly charts don't tell lies.
Good luck with the dollar and the lastest news. Can't say I didn't tell you.
"Some things are more obvious to some than they are to others."
Le Crunch.
25. growler said...
At Mrflibble: "I must confess I'm struggling with the whole idea of being shackled up to debt but that seems to be the way to maximise life these days. Instead I'm one of the fools who subsidises everyone else's debt fuelled lifestyle"
Couldn't agree more.
I think we have all got to the point that everyone is going to give up pretending some miracle somehwere else is going to save those countries in debt. China is overheating and everyone else maxed out hoping they'd get succour due to Chinas continued growth and a hopeful US recovery.
Now it's not there, we really have only a few options left. Recession "purge" or printing press. I see riots if inflation gets anywhere over 5%.
So it really be very interesting to watch.
26. mark wadsworth said...
@ HPW 10 and Monty 17, the idea that bubbles only burst once the last (second to last) bear capitulates is just a speculators' rule of thumb, I can't really explain it either. With proper speculating (where people can sell short), it is the proper bears who actually lose money by waiting for price falls that never seem to happen.
Maybe it's not so true with housing where sitting and waiting actually makes you money (depending on interest rates and rent levels etc).
Monty, I got the same grief from Mrs W for the first couple of years, but she seems to have got the message that house prices are now drifting down, she likes where we are renting, some of her friends have come badly unstuck with property deals and she recently told me that she in turn had advised a friend that now was not a good time to take out a loan on their current home in order to pay the deposit on another one. Wonders never cease.
I have also noticed that it used to happen all the time that people would ask us "So when are you going to buy again?" but I haven't had anybody say that to me for weeks.
27. uncle tom said...
Growler,
Riots if inflation tops 5%? I doubt it..
..the UK population seems remarkably resigned to our economic fate - are the unions drawing up the battle lines to save the public sector from this evil new govt? - Not really, there's been hardly a whimper..
My take is that the population knows we've some tough medicine to swallow, and the mood seems to be 'bring it on - let's get it over with'
While the govt has the people on side, they must not dither or delay..
28. techieman said...
MW - any joy with the correlation work we discussed last week? Are you gonna post on yr blog?
29. mrflibble said...
@25. uncle tom...
My take is that the population knows we've some tough medicine to swallow, and the mood seems to be 'bring it on - let's get it over with'
I wonder though if this attitude is only valid provided house prices carry on regardless? People won't be so accepting if house prices are 50% lower in 4 years time. Pain is OK while every the golden goose keeps laying its golden eggs...
30. uncle tom said...
mrflibble,
The people who turn up for demos and riots tend to be those who don't own homes..
31. charlie brooker said...
HPI is the last bastion of a scoundrel.
32. str 2007 said...
MW
''I have also noticed that it used to happen all the time that people would ask us "So when are you going to buy again?" but I haven't had anybody say that to me for weeks.''
I was asked only yesterday, but by someone who's been truly hosed down by owning mainly bank shares and handing onto them.
When, on occassions I'm asked now I get the impression it's because people want me/us to be on their sinking ship. Whereas a few months ago you could definately sense a gloating in their voice as house prices ticked up.
33. montesquieu said...
@mark wadworth
OK I think I get it ... the issue domestically is moving back from Scotland to Somerset in 2005, not buying (as I believed there was a bubble), this turning out to be at least in some ways sensible as had to move in 2008 for job which would have been hard to do without taking a loss at the time with market all but frozen ... but we've been out of the market now 5 years, neither of us are getting any younger and ideally I'd like to own a place outright before retirement.
OTOH, at the price bracket we are looking at a 20% drop is £100k and who wants to be paying that back if it's avoidable?
34. mystie010 said...
@ post 1 Happy Mondays I love this analogy "More like the Marie Celeste, as no Fu##er could afford to be on it!"
I can just image a load of sailors saying "Right lads this joint is far to expensive so we are off now!"
35. monty032 said...
Mr. Flibble at no.6 has it spot on. The best (only) way for the young to get their revenge is to rent a depreciating house at 3% GRY. House prices are at the same nominal level as in 2005, though you wouldn't know it from reading Anne Ashworth et al. Anyone who has made any money in property in the last five years has beaten the odds.
36. miken said...
Part of the problem is the obscene waste by Libour. Huge amounts of wasted cash washing around and a lot of corruption. The mini boom in house prices wont last forever. I know plenty of people who had been employed who are now using up their cash reserves.
Here's a recent shocking example of waste under Labour where 84% of FSA workers were paid bonuses!
http://www.ftadviser.com/FTAdviser/Regulation/Regulators/FSA/News/article/20100705/a539496c-85f0-11df-86c3-00144f2af8e8/Bonuses-paid-to-84-of-FSA-staff-last-year.jsp
The total amount of the bonus pool paid by the FSA for the year was £21,988,813. Nine staff members at the FSA received bonuses of over £50,000.
Waste, waste, and more waste. And people wonder why house prices are not falling.
No doubt the new government will sort this out, but it's going to take a year or two before these factors translate into lower house prices.
As for Mr Bliar, I hope they stop paying his £2million a year security bill. It's time that man is told to get lost.
37. rumble said...
"The best (only) way for the young to get their revenge is to rent a depreciating house at 3% GRY."
--Assuming they stick around - the grass is increasingly greener: http://www.statistics.gov.uk/cci/nugget.asp?id=260
"to justness"
38. mrflibble said...
@33. monty032
It's not so much the young renting to get their own back that worries me, it's more the young sensing their entitlement to own a house, just like their parents, simply isn't there any more. I can remember a few years back commenting to a Jag owner about how nice his car was (XK8), his reply was kind of surprising; "yeah it would be if people stopped keying it." What we don't want is society evolving into one full of resentment. The young need to be given a fair crack at the whip again and it is wrong to assume this generation will work like slaves so the older generation can maintain their ill gotten housing gains.
It is sickly ironic now that BoMaD have to gift their children a deposit after driving up prices to a level their children cannot afford. If this isn't a case of the snake eating its own tail then I'm not sure what it.
39. happy mondays said...
@36 Agreed ! The youths will only play ball all the time they can see a future, take that future away? They have nothing to lose!
If we are not careful your house will become your prison!
RC - angry young men
40. hpwatcher said...
I agree with all the above comments. In any event, from now on, I really see the fun starting. Look at the HPI graph on the front of this website....says it all.
41. growler said...
@ uncle tom.
woops; I meant riot in the metaphorical sense.
People will not stand for inflation at 5% unless interest rates for savers and/or salaries rise drastically to compensate. I agree there is a degree of solidarity with the problem, but there comes a time when people will say "hold on a minute, now you're taking the michael"
Spooky recaptcha: "allowed rashness"!!!
42. orcusmaximus said...
@mark wadsworth "I got the same grief from Mrs W for the first couple of years, but she seems to have got the message"
Wow. I wish a few years of logical argument could get my wife to change her mind :-)
43. orcusmaximus said...
@miken
"As for Mr Bliar, I hope they stop paying his £2million a year security bill..."
I agree with the sentiment, but can't help wondering what the cost of the military operation to rescue him be if he were snatched?
44. happy mondays said...
@41
None ! Do you think he deserves to be rescued?
45. uncle tom said...
"I agree with the sentiment, but can't help wondering what the cost of the military operation to rescue him be if he were snatched?"
I'm sure we could argue that any rescue plan would fail its risk assessment, and would infringe the human rights of the rescuers..
..sorry Tone - blame the missus...!
46. hpwatcher said...
can't help wondering what the cost of the military operation to rescue him be if he were snatched?
I should imagine that this would be one case where, over time, the ransom would actually go down.....
47. mark wadsworth said...
@ Techie 28, I have made no progress whatsoever, the weather was far too nice over the weekend so I camped out in the back garden :-)
@ STR 32, true, people used to tell us we were missing A Golden Opportunity, but there was always an undertone of "please jump on the sinking ship with us". There was also a more unpleasant undertone that "If it weren't for g*ts like you then house prices would still be booming."
48. mark wadsworth said...
@ Orcus 42, it's like anything else in politics, you have to keep saying it over and over again in different ways before it starts to sink in. Land Value Tax is still a taboo with her though.
49. jack c said...
"can't help wondering what the cost of the military operation to rescue him be if he were snatched?" - we could always send Gordon in to rescue him with a double bonus that neither returns !
50. nickb said...
@techy at 23.
An inflation that allowed enough FTBs to continue entering the market would still have to incorporate a reduction in the relative price of a house, no? Across-the-board inflation lets existing mortgage holders off the hook to the extent that it's not priced into the mortgage deals, but it doesn't help FTBs onto the 'ladder.' If the relative price of a house was increasing under inflation, FTBs are increasingly locked out.
Or am I missing something?
Nick
51. miken said...
@49, they are both to blame for the lack of materialisation of a HPC and so agree neither should return or be rescued :-)
52. techieman said...
nick - no you are not missing anything. The point i was trying to make was that (regardless of how far out of reach they are) the selling points are "they always go up" and inflation eats away at your debt and increases the value of the asset. A double whammy.
Of course that’s been the right way to go since the last “crash”. However now there are 2 problems 1. (as you say) they don’t have the money, and credit conditions are now tight. And 2. Inflation cannot be relied on IMO to apply to incomes (i.e. take home pay is not going up), as you say there is in effect tightening on incomes, via taxes and reduction (rightly or wrongly) in spending, creating a knock on effect in unemployment. This means it (inflation) actually doesnt reduce the debt.
IF there were no credit problems then I actually don’t believe folks would bat an eyelid at increasing their gearing over and above what’s prudent. They have after all done this in the past and everything has worked out well, until it topped in 2007. Perhaps they have learnt that lesson, but perhaps not?!?
The attempted engineering of a recovery and the response of the asset markets to it, is no coincidence.
“An inflation that allowed enough FTBs to continue entering the market would still have to incorporate a reduction in the relative price of a house, no?” not really I mean if they could just borrow more than why would it. It’s the LTV that’s the kicker. By relative price of the house what do you mean? relative to ???
53. nickb said...
techy -
>“An inflation that allowed enough FTBs to continue entering the market would still have to incorporate a reduction in the relative price of a house, no?” not really I mean if they could just borrow more than why would it. It’s the LTV that’s the kicker. By relative price of the house what do you mean? relative to ???
I mean houses becoming less expensive relative to other goods and services. If HPs are increasing at x% p.a. and all other prices including wages do too, then nothing is changing. So if there is a shortage of FTBs it ought to remain. I'm therefore struggling to make sense of your scenario(?) in which the housing market is made functional through inflation.
Nick
54. simon68 said...
They just want you to go into hypnosis state and dream house bubbling up where they can then offload properties stocks to you!
55. techieman said...
"I'm therefore struggling to make sense of your scenario(?) in which the housing market is made functional through inflation." - YES thats right, it wont be. Thats not MY scenario. My scenario is that the inflation that there is wont be applied to asset prices (or if you like have already been to the extent they were going to be via the reflation). My point is that The EAs will illustrate that inflation is good for HPs. Not this time is my response, because the inflation wont be met by increases in wages / salaries. So, unless the credit markets loosen (unlikely) then I (probably like you) cant see the driver for any participation by the FTBs. If anything the increase in prices for some goods will restrict the amount available for servicing debts and will lead to potentially restricted income multiples.
Therefore – in this case, to the extent there is inflation, it wont help the market.
See http://www.moneyweek.com/blog/why-inflation-wont-help-homeowners-00186.aspx [i share this view, and have done prior to this article]
56. techieman said...
Nick - in fact see: http://www.housepricecrash.co.uk/newsblog/2010/05/blog-inflation-not-a-debtors-friend-these-days-28963.php [which was where this article was posted]
particularly at 18 on.
e.g. "1. techieman said...
"workers squeezed in real-terms will demand ever higher wage settlements and employers more willing to cave in to worker demands than in the past also more eager to follow the rest of the business sector in passing on the costs to the consumer " [that is a quote from what someone else posted].
this implies tight employment conditions and robust underlying company profits / company profit growth. Leaving the public sector to one-side (where the issue is i think more debatable) i doubt very much if employees are in a strong position to look increased "inflation busting" wages, across the whole of the UK. Please explain why you believe, per sector - there are/ will be tight employment conditions in the coming months.
Friday, June 20, 2008 09:14AM"
57. smugdog said...
Many have no need or desire to sell. All quite nicely supported by the government
and the kind actions of the vast number of savers.
In the name of Queen and Country, I salute you all.
58. simon68 said...
These days is different, labours have not bargaining power and no way to demand higher wage. All you can demand is speed up the out source process and ask businesses to shift production activities to China or India. Don’t forget the globalisation is regulating the World.
59. jack c said...
Picking up on smugdog's point this from moneyfacts (via todays MortgageStrategy)
Headline - 'Savers are paying for low mortgage rates'
The focus on reducing mortgage rates is forcing providers to cut their savings rates to balance the books, says Moneyfacts.co.uk.
Savers are receiving 23.3% less interest from a fixed-rate bond than they would have nine months ago.
Yet 29% of savers are looking to fix their interest rate, with the average amount invested in a fixed rate bond standing at £36,872.
Savers investing the average amount nine months ago would have received £1,209 in interest, compared to just £978 today.
Michelle Slade, spokesperson for Moneyfacts.co.uk, says savers were left “bitterly disappointed” by last week’s Budget.
She adds: “Uncertainty over when bank base rate will rise means most savers are only taking a short term view, but they are being punished by the biggest reductions in rates.
“At 2.62%, the average rate on a one year bond stands at an all time low. Prudent savers who rely on the interest from their savings to supplement their income continue to be hit the hardest.
“With a change in bank base rate still predicted to be a little way off, the situation for savers is likely to get worse before it
gets better.”
www.mortgagestrategy.co.uk/savers-are-paying-for-low-mortgage-rates/1014679.article
60. nickb said...
@techy
I don't believe there will be tight employment conditions!
There's not a point of issue between us in terms of what is likely to happen to the housing market. I was just puzzled that some people seem to think that the bubble could continue indefinitely with the right credit conditions - I took some of your comments to imply that was a possible case. But that would imply even greater orgiastic excesses of mortgage lending than we have already seen. I'm still looking for an argument why the collapse of the bubble is not a 100% certainty.
Nick
61. tenyearstogetmymoneyback said...
A couple of people have commented on the "Riots if inflation tops 5%".
It all depends on the type of inflation. Remember back in the 1970s Ford ignored Government advice and gave their
employees a pay rise of about 15% to keep them happy. I can't see that happening these days though.
62. mountain goat said...
Article is a load of rubbish. All assets look invincible when prices have risen for a while, and then there are always scores of wise people about ready to explain why this makes complete sense and is based on sound fundamentals.