SCUMBAG

The old adage that it starts off hard for a first time buyer and gets easier is long gone in a low inflation economy. This is a legacy from the days of high wage inflation when a mortgage started off hard and got easier five or six years down the line. In a low inflation economy it starts off hard and doesn't get easier until the end of the mortgage. The break point comes that much later. It means it's harder for the FTBs of today to trade up meaning the market becomes slower and slower until eventually it drops. You need FTBs to come in at the bottom of the market to keep the rest of it moving. BTLs plugged the gap but now their yields are falling and the investment is not so attractive (particularly now they are finding it hard to cover payments with the rents now interest rates are going up). So we are in the same position as in previous crashes but with higher prices and much higher levels of debt. This might look ok on the surface, but look a little deeper and you can see there is trouble ahead.

People have taken out fixed rate deals. Those that took fixed rate deals in August 2005 will have a shock this August when they come off it and are subject to tracker mortgages.

Now THAT'S sarcasm.

The BBC rang me and asked me to take part in this discussion. I bottled it at the last minute.

Had to respond to this purely for the fact that I have the St Pirran as my avatar

I have a friend who works in council tax banding in Cardiff. He says the amount of flats being built are insane and that there are literally not enough people in Cardiff to live in them. They are bought by BTL and Buy to Sit investors and then stay empty. Because there is this demand there though they keep getting built. When there is a downturn then these things will be worth nothing.

You need a small amount of inflation in the economy to create economic growth. If inflation was negative you would end up with deflation. So the target for inflation is positive. The government and the BOE don't really have a lot of weight in what happens when it comes to money supply. It really lies with the global economy and the availabilty of money supply. The vast swathes of cheap money in the global economy has largely been due to the Asian carry trade. Now that is coming to an end then this money will dry up. If the money supply isn't there then people can't get mortgages and if they can't get mortgages then they can't pay the silly asking prices for houses and so the prices have to come down correspondingly. There is truth in the argument about a shrinking population. This is why the government are encouraging immigration. They know that there simply aren't enough people to pay the taxes to support an ageing population. http://www.statistics.gov.uk/CCI/nugget.asp?ID=6 The argument that you can use your home as a pension has been disproved many times by many economic institutes. It simply doesn't stack up. All these people will be trying to sell these properties around the same time to an overstretched minority. And what will happen to the properties on the next rung up the ladder to the BTL properties at the bottom? They won't be bought by investors. When people on rung 2 try and trade up they find that they can't sell their property as BTLs on rung 1 won't trade up and it is too expensive for FTBs. At the same time rung 3 is too expensive so they stay put. This is what is happening to many of my friends at the moment. So nothing shifts and eventually the only way to shift something is to drop the price. There is nothing new here. All that has happened is that BTL has distorted the market. Besides it's a symptom rather than a cause. There are plenty of housing markets around the globe that are feeling the strain that don't have the BTL element. All it's doing is prolonging the inevitable. You can post as many facts and figures as you like but without people coming in to the market, there is no market (see attached pdf). 03_2006_ftbs_1_.pdf 03_2006_ftbs_1_.pdf

Oh wait! I thought of something I wanted to say after all...............nope it's gone.

I have nothing to add to the discussion. I simply have a Cornish flag as my avatar and so felt the need to write something. Carry on. Nothing to see here.

They're all currently unserviceable. Lack of funds to keep them maintained. You'll have to make do with a Ford Transit like the rest of the Army.

I don’t know exactly the reasoning behind the cuts but I should imagine it is because the government has just committed substantial resources to the Navy. The replacement for the nuclear deterrent, two American sized nuclear aircraft carriers (which are so large they can not fit in any of the existing dockyards) and the Type 45 destroyers should be coming into service soon. It is all capability that costs money. I have a more interesting theory and it is somewhat sinister. The Navy does not need three dockyards. It only needs one, two at the most. These frigates are Devonport based which is owned and operated by DML. The parent company has, much to the disgust of the UK government, floated on the US stock exchange. It means that any capital required to support gaps in workload or bankroll major projects has to come from shareholders investment. This decision will highlight that problem. If DML goes under, the government can close it and blame the decision on private business. DML are the major employer in Plymouth accounting for around 3000 jobs directly and countless jobs indirectly. They are already making 1000 people redundant this year. If Devonport Dockyard goes under then so does the Plymouth economy. Before somebody asks, Devonport is a labour constituency.

Yes and they might find the links to the Morgan Stanley report which says that although these are factors driving house prices up, their effect has been greatly exaggerated. There is no way that they can solely account for the circa 300% house price inflation in the last 10 years. The lion's share is due to a speculative bubble. Or they might find the links providing evidence that the high street banks have quietly been told to price in a 40% drop in house prices. Or the reports illustrating that the level of First Time Buyers (critical to a stable market) are the lowest since records began, even though return buyers with equity who rented for a period are considered as First Time Buyers now. They would probably be advised that they have been replaced by Buy to Let landlords, but someone else would quickly point out that they are heavily geared and making minimal profit and have no interest in moving up the property ladder in any case. Or they may even learn that contrary to popular opinion that there is a shortage of property, there is actually a glut of empty properties be it unsold or un-let (if there genuinely was a shortage of property then rents would have risen at the same rate as house price inflation). Or will they learn that with the average property being around £180k and an average national salary being £22k, that the ratio of average house price to average salary is now around 8 compared to its long term average of 3.5? Maybe they won’t learn about house prices at all. Maybe they will learn that the CPI index, the inflation measure that is used to set interest rates, does not incorporate public transport, childcare, mortgage payments, council tax and a whole host of costs that are rising on a daily basis but not incorporated in the calculation and that excluding them means that in the long term that interest rates will have to rise higher and faster than they would ordinarily. Rest assured that they would leave better informed and more educated than they would have done otherwise. Apologies for the tone. I didn’t mean to sound sarcastic (NOT!). Happy New Year!!!! I am a little drunk!

There was a bit on the Simpsons this week about asset bubble crashes. Bart had bought shares in a dot com company and then lost the lot. He proclaimed that "Nobody told me bubbles could burst". I wondered if they would be doing a US housing bubble burst special. If I could be bothered I'd stick it on YouTube somehow.

What's going on in Abbey Wood today then?

I remember the first one. It was Chantelle. A couple of bullying campaign groups picked up on it and used it to create an awareness. Bullying in the workplace is a fact of life and there is no point in trying to deny that it happens. The good thing is that these days there is a greater awareness of the issues. My organisation has procedures in place to deal with it. The hardest thing is that bullies appear to achieve results on the surface whereas they are extremely destructive to an organisation. Why is this thread in the 'Main discussion on house prices' exactly?

Indeed.

Ah no a DML manager would never say something like this.

Full of people like in the original post. Couldn't stand working for them.

Don't work for DML by any chance do you?

66 signatures! We need to do better than that.

Why is the term 'Baby Boomer' offensive? It is a descriptive term used to describe a generation. http://en.wikipedia.org/wiki/Baby_Boomer My generation is called the MTV generation. I don't find that offensive at all.

So they admit it's a bubble then. Did they give any indication in the e-mail of when it is likely to pop?

I thought it was over 50% http://www.housepricecrash.co.uk/graphs-fi...time-buyers.php And now it's about 11% and that's when they've been fudged to include return buyers to the market (who took a break to rent) and who have equity from a previous house sale. What do you do on the day they turn. Jog on the spot? That’s pretty bad advice if you buy the day before the market turns.

What security when inflation is so low? The house belongs to the bank, not you. You have a choice of either renting the property you live in or renting the money to buy the property you live in. In a low inflation economy it takes longer to erode the capital of the debt meaning you pay more for the property over the long run. The cost of buying is going through the roof but rents are stable. Proof that the housing market is a bubble. Rampant house prices in a low inflation economy hardly spells out stability to me. I would rather rent and have the option of being able to move and chase the good jobs.

I have been waiting since 2002. I also have a large deposit and if prices do start to fall then there is no way I would squander it in a falling market. If prices don’t fall then there’s no way I could afford to buy into the market at the current levels (or at 2002 levels). So personally I have no choice but to wait for as long as it takes.