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About deckchair_on_the_moon

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  1. The lyrics in this classic tune seem very relevant to today's housing market situation: "It's like sitting on a timebomb, waiting for the hurt to come". The song is about a love affair and could very well be just as appropriate to the House Price Bubble! "I get the feeling that the fuse is getting shorter!". Indeed!
  2. Thanks for posting the interesting link. One headline that particularly jumped out at me was the one in Monday 08 APR 1991, by The Times: "The cult of the "property owning democracy" seems to be following its high-priestess into oblivion, especially since the Chancellor smashed the Golden Calf by abolishing higher rate tax relief on mortgages in last month's Budget." I think this event has interesting parallels with recent attempts by Osborne to abolish higher rate tax relief on mortgages for BTLers. Looking back at those historical headlines, it looks like that event was one of the triggers for a further fall in prices. Anecdotal, but interesting.
  3. Carney may well be saying that interest rates will not rise until 2019. But actually, he really has little idea of where interest rates will be in 2019. This is the fallacy of the modern Central Banker. They believe they are in total control of the base rate thanks to eye-watering amounts of QE. Via QE, the Central Banks have effectively replaced the market as the primary buyers of government debt. But Brexit is just one example of many internal or external market shocks that could have a significant impact on the strength of sterling in the currency markets in the coming years, and therefore the base rate. With Carney you often have to read between the lines. What he's not saying is where interest rates will go AFTER 2019. This is key. If there is a significant market shock or series of shocks, it could seriously undermine the BoE's attempts at keeping rates low. The ERM disaster in 1992 was one example. At 10:30 AM on 16 September 1992, the British government announced a rise in the base interest rate from an already high 10% to 12% to tempt speculators to buy pounds. That's a 2% increase in the base rate literally overnight! Imagine an over-leveraged home owner today, sitting on a 4% variable rate. Then one morning they wake up and hear on the news about an unforeseen external market shock that caused the BoE to intervene in the currency markets to defend the pound. They've raised the base rate by 2% overnight. All of a sudden, that homeowner is sitting on a 6% rate, choking on their cornflakes. And that's just the start of the pain! What if the BoE is required to continue to intervene to shore up the pound, raising rates by 0.25% every month for the next year. All of a sudden, that home owner who just one year previously was sat smug with their 4% mortgage rate, is now staring down at the abyss with a mortgage rate of 9%. In just one year! And actually, depending on the severity and timescale of the problem, mortgage rates could get much worse than that! Now, you may think that something like the ERM can't happen again; it was a very special event never to be repeated, right? Some people may well believe that the Central Banks are at the height of their powers, with the micro management of the economy absolutely dialled. But with complacency comes increased risk. It's almost like the arrogance of the Central Banker has been rubbing off on home owners in recent years. We've got a whole generation of new home owners who have never known double-digit mortgage rates in their lifetimes, and genuinely believe that rates are going to stay low forever! Let's see how that one works out for them in the next decade. Even somebody who only recently took out a 10 year fixed rate will have one hell of a surprise when they come to remortgage at the end of that term!
  4. Interesting figures and situation. Only requiring a 20 year mortgage was indeed a nice position to be in. But I think for anyone requiring a 25 or 30 year mortgage, higher rates must be accounted for in the final 10 years of repayments. And this can make a huge difference to the final figures. I've run my own figures for my particular situation, and it's looking like renting vs buying right now will definitely work out cheaper over the next 25 to 30 years. This assumes no investments other than saving significant amounts every month for an eventual large deposit or outright cash purchase, at the same time as renting.
  5. Agree with you about the counter-trend reversals. I too have been monitoring the core financial markets and seen the "reaction rally" that has been unfolding so far this year. Took more than a few people by surprise! Gold especially. As you say, in the final quarter of 2015 it had been hanging around the 1045 to 1120 region, staring down at the abyss. Then all of a sudden...New Year....BAM! Huge 2000+ pip rally over the first quarter of 2016. Then come out all the Goldbugs again, preaching the return of the big Gold Rally and Long term bull market. In my opinion caution is advised. I don't think Gold is quite ready yet for a Prime Time Bull Rally, but only time will tell. Gold has been in a downside correction since the major high in September 2011. However, in order for the market to confirm that the correction low is now in place, and therefore that gold is ready to resume its long term bullish direction to exceed the September 2011 high, we need some serious momentum to cause the market to start swinging in the opposite direction. This is how all financial markets work - a fight between the bears and the bulls. In the case of gold, we need the vast majority of the bulls to completely give up and throw in the towel, in order for the market to generate the energy required for a long term upside reversal. Is the final low in place? Was it 1047 on 3 December 2015? Maybe. But personally I wouldn't completely discount the possibility of a final test of the $1000 level, and perhaps even the nominal 1980 high of $875. Interesting times indeed.
  6. Hi Venger, you make some good points. I agree with much of what you say, all that matters to me too is the buying price. That's why I'm prepared to wait for the right price. But I know that not everyone is in the same position. So many variables come into it: age, location, earnings, dependents, outgoings etc etc. Not everyone can wait 15 years before prices become sensible again, I do understand and acknowledge that. But, when prices do finally correct to the downside, not everybody will buy at the very bottom, right? It's very unlikely to be a straight line all the way down to the bottom in terms of price, so perhaps just 3 years of declines from the eventual peak will be enough to make the housing at least affordable for the majority of those who need it. If judging purely in monetary terms, I agree with your statement that the housing market is not the entire economy. However, I think it's also worth considering the number of participants in real estate as an asset class. In those terms alone, real estate is the largest asset class in the world economy, bar none. It's not like with the stock market where you might only have 10% of the population invested at any time. And because there are so many participants, housing "crashes" truly affect the ultimate length of significant economic depressions. Real estate has been causing debt crises since Roman times.
  7. Hi Frizzers, yes I agree that Japan has its own unique situation which means that any correction in London won't be simply a carbon copy. Perhaps I didn't explain myself very well, but the point I was really trying to make was that by looking at the bursting of speculative property bubbles in other regions, we can get a very rough idea of volume and duration for any future decline in the UK property market also. I agree that it will be different when London inevitably declines. But perhaps it's the reasons for the decline that will be the most different, rather than the volume/duration. For example, I think it's interesting that quite a bit of the value in the Tokyo market dropped within 6 years, but the declines continued! In other words, these "crashes" don't happen overnight and it can take a while to unwind speculative bubbles. 10 years+ seems to be a fairly good estimate, although of course, prices won't go down in a linear way. Actually, I think it's probably wider external macro monetary and fiscal policy that will be the triggers for the London decline (e.g. drying up of mortgage finance, rising interest rates, increasing tax burden on buy to letters, significant increase in housing stock etc), rather than the more micro elements that you describe.
  8. Well let's hope it doesn't take until 2021 for prices to start declining (or at least stop rising!). I'm just trying to set expectations because I know how much the government just loves to intervene to keep the market inflated. Remember as well that the next General Election is 2020, so it's going to be in the government's interest to at least attempt to keep the homeowners happy until then; they are the core voting block after all. Perhaps it's more likely that the rate of price increases will gradually slow between now. I think you're right - I can't see the price increases going at the same rate continuously for the next 5 years. I think some of what we're seeing is panic buying as buy to letters try to get purchases in before the tax hikes, and FTBs let fear drive them because they want to buy before "prices run away from them". But prices might sit tight for a while before the inevitable decline. A bit like sitting on the Oblivion ride at Alton Towers right at the top, waiting for the inevitable descent! Except that the housing market can sit there for a bit longer than a few seconds!
  9. I've not driven in London for a long time now, but I've heard that the increasing number of cycle lanes (Boris' "Cycle Superhighway") is making the situation worse for cars because they're being squeezed into fewer and narrower driving lanes.
  10. I hear you. Indebtedness is certainly something that's changed morally and culturally in the last few decades. It is now far more "morally acceptable" to borrow money for anything from a TV to an education. In my parents' generation, today's levels of borrowing were simply unheard of. But I don't think we can take the debt to another level with a further generation. I think we're in the eye of the storm right now. This is it - you're living through it right now. Ground Zero of Total Debt Saturation. This time the world economy is in real trouble because this ain't no mild recession caused by a dip in the stock market. This is the Sovereign Debt Crisis. In the next 2 decades, entire nations are going to the wall. Remember: there is 10x more money "invested" in government debt than there is in the entire stock market. What's happening to some of the weaker European nations like Greece right now is just a sign of things to come. There is no way out of this. QE and ZIRP simply delay the inevitable day of reckoning. Unfortunately there is far more than just house prices at stake. Look at the crazy situation in the USA. Hillary Clinton recently helped to push through legislation which makes it ILLEGAL to claim bankruptcy from student debt. Think about the implications of that for a moment. They're saying that it's OK for companies to leverage themselves to the hilt with debt, blow up and then claim bankruptcy, but a student who's gotten over their head in debt because they've tried to further their knowledge is now being told that they've gotta spend the rest of their lives paying that debt down - no exceptions. This is absolutely crazy, you can't even make this stuff up. So debt will have a huge impact for the current generation. We are in the process of having to deal with peak debt right now. Imagine what's going to happen to all those home owners relying on mortgage rates to stay at 4% for the next 30 years while they pay off their mortgage. I've actually had conversations with people on this forum who absolutely believe that to be the case. Nobody seems to be running the numbers to see what happens to their mortgage repayments if (when) double-digit rates return. Imagine paying your mortgage for 10 years at 11%+. Imagine being trapped in a situation where you can't even downsize to reduce your repayments because house prices are finally declining back to reality and you find yourself in significant negative equity. It doesn't matter what the government or BoE say or do, there is nothing they can do to stop this now. All they can do is delay the inevitable, but they've already used up most of their delaying tactics. Once the primary buyer of government debt is no longer QE and is replaced with the market, the BoE will have to start burning through its foreign currency reserves and raising interest rates to defend the GBP currency. As you said, the BoE should've raised rates a long time ago, but now their desperation to kick the can down the road is coming back to haunt them and in the next few years their hand will be forced. The government can't actually afford to repay their debt at market-driven rates. This is why the BoE had to step in with QE and enforced ZIRP. But QE and ZIRP can't go on forever and actually, in economic terms, these policies have arguably already outstayed their welcome. So strap yourself in, we're in for a wild ride in the next two decades!
  11. Check out this graph of house prices in Japan since 1977. I think it's interesting because I believe that the UK is lagging Japan by roughly 30 years, in terms of its housing market bubble. According to this graph, the Japanese property market peaked in 1991. I believe the UK property market will peak around 2021, if not a few years before. Perhaps the events experienced by Japan can give us a rough indication of what we can expect to experience in the UK. Of course, any potential correction in the UK will not be exactly the same as Japan in either duration or volume, but it may well be similar. Interestingly, the housing market in Japan fell from roughly 240 at its peak to 140. That's nearly a halving in value in just 6 years! (and the correction may not be over yet; it could still potentially go lower.). There's also a good article about the recent history of property prices in Tokyo at the following link. Some of the causes and effects are scarily similar to that of the UK. https://housingjapan.com/2011/11/10/a-history-of-tokyo-real-estate-prices/ Some of the figures are related to commercial property, but it's still very interesting information. What this graph highlights for me is a very simple maxim: Nothing goes up in price forever, not even property. It just feels like it at the moment, that's all. History is the ultimate judge of economic realities. The UK is no exception to this, although it might not feel like it right now! Stay patient. All of you out there waiting for a significant price correction in the UK housing market will be rewarded, eventually. But it might take a while!
  12. History teaches us that nothing goes up in price forever, not even UK property. Admittedly, you'd have to go back a fairly long way in history to see it. But I think that's some of what is stoking the current fears of FTBs leveraging themselves to the hilt in mortgage debt now, in case the ability to buy will run away from them. Fear can be very powerful. I'm sure that the government and the BoE would love QE and NIRP to last forever. But they're just dreaming. There's no way the current situation can last forever. It just feels that way. In 10 to 15 years we will all look back on this time with a completely different perspective, because the financial landscape will have changed beyond all recognition by then. A perfect storm is approaching, and it will not be pretty for some. I want to make it clear I'm not advocating a short sharp crash. There are too many participants in property as an asset class for this bubble to deleverage too quickly. So it will be a slow-drawn out correction. But when is all said and down and the market finally grinds to its next cyclical bottom, it will make the "crash" of the early 90s look like a mild corrrectional blip in comparison. So batten down the hatches for the next 10 to 15 years. It's going to be a wild ride.
  13. I love that saying, you should trademark it! It is so true that fear plays a big part in the current "rush" to "get on the ladder". But fear is often a victim (or the consequence of) short-term thinking. I can absolutely understand why people become so desperate to buy because they fear that prices will race away from their ability to buy. But actually, history and a longer-term view teaches us that nothing goes up in price forever. The amount of financial risk that some FTBs are taking on is truly eye watering. And it's not just mortgage debt - it's all kinds of debt. Car loans, credit cards, store cards, home improvement loans, short-term "payday" loans. This toxic "perfect storm" of financial irresponsibility is NOT going to end well. The long-term consequences will be as truly devastating to society as the relentless rise in house prices has been to a generation of FTBs. But in the forthcoming cyclical downturn in house prices the situation will be flipped 180, and it will be mortgage holders who will be struggling, and FTBs will be the ones laughing. History can be very ironic like that. It won't be long now. We are nearly into the second half of the Big Wait™ for house prices to return to sensible levels relative to average incomes. For those with the patience and long term view to survive this storm, it will provide some absolutely fantastic buying opportunities in around 10 to 15 years time from now.
  14. The insanity of current house prices is indeed hard to take for anyone earning less than 100K a year (which, let's face it, outside of London, is the vast majority of employees). Right now, it's extremely difficult to foresee an end to the seemingly relentless price increases. But actually, if you dig a little deeper, you'll start to see cracks/dents/dimples appearing in the housing bubble. And actually, this ridiculous situation (for FTBs especially) is now having such a devastating impact on society as a whole, that something somewhere has got to give. One thing I can say for certain is that it won't be a big increase in wages across the country to address the astonishing house price to earnings ratio. I think the last 5 years has proven that particular theory well and truly dead in the water. I've discussed other reasons for hopes of a market correction elsewhere on this forum, so I won't repeat myself here. But let me leave you with this little nibble of food for thought: In terms of the number of market participants, real estate (property) is the largest asset class in the world economy - bar none. What does this mean? It's more a cautionary note than anything else. Basically, it means that the long-awaited correction in house prices will happen, but it will not be a short, sharp crash. Rather, it will be a slow drawn-out affair spanning more than a decade. Why? Because there are so many market participants in real estate as an asset class, it's going to take a long time for all that inflated "value" to return (deleverage) to normal levels (e.g. relative to average incomes). So, IMHO we all need to be prepared to think and plan long-term if we are to survive this ridiculous period of inflated house prices and best position ourselves to take advantage of the forthcoming cyclical downturn in the housing market. One day house prices will be sensible again. I know it's really difficult to see this right now, but history often requires a lot of patience! I think this is a powerful message because it provides hope with a healthy dose of reality at the same time. I think it's important to set expectations, because only then can we psychologically prepare ourselves for the forthcoming "Big Wait™" for prices to fall back to sensible levels again. Remember: History tells us that nothing goes up in price forever, not even UK property.
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