RJG18

Absolutely no idea. Taking a blind guess, was it someone like John Maynard Keynes? Failing that, it was probably some extemist like Marx? So who was it then?

You've missed the point. The banks won't act to bring assets back down to match the paper value of the currency. You're reading the cause and effect backwards here. The assets (houses in this case) have become over-vlaued because the increased money supply made available to people through low interest rates. This is a by-product of the increased money supply. With more money available to chase the same relatively limited supply of property, prices of course rose. (This is by definition a form of inflation, even if it is outside the official inflation measures). However, the government/banks will increase interest rates, to reduce money supply into the economy to prevent general price rises accross the board (inflation), otherwise teh currency will become devalued. The fact that this reduced money supply will take away the life-blood that is needed to sustain the current prices of over-priced property is merely a by-product of this process. The bank is in no way actively "reducing the value of property to bring it back in line with the nominal value of currency", it is acting to maintain the value of the currency. It has two options: 1) Increase Interest Rates - reducing money supply, retaining the value of the currency; Indirect Consequence: Property Values Fall. 2) Reduce Interest Rates - increasing money supply, devaluing the currency; Indirect Consequence: Property Values Rise. Only option 1 is ucrrently acceptable, and is inline with the core remot of the BoE MPC.

Are you asking why in some areas of the world base rates of interest can be lower than inlfation? There is no reason why a government or central bank(s) cannot temporarily reduce real interest rates to 0% or even into negative levels. (Where the real intest rate, Base Rate less Inlfation, equals zero or less). This can be used to divert a downturn, or stimulate growth. America has had zero or negative real interest rates for a while now, otherwise their economy could have been in severe and present difficult following both the stock market downturns around 2000 and terrorist attacks in 2001. However this is only temporary. Low interest rates will and have lead to both rising inflation and over-inflated asset prices. Interest rates will then have to rise to prevent this inflation devaluing their currency. Sure it goes out of kilter temporarily, where for a while interest rates are low and inflation is low, but inflation will alway catch up with you (as I've pointed out in my original article). Otherwise we could simply ALL be "real" millionaires. This is why we are now seeing rapid interest rates rises in USA. And Euroland will follow soon.

Reducing interest rates (or keeping them permanently low) has the effect of increasing borrowing, which has the effect of putting more money into circulaton to be spent on both consumer purchasing and assets. This will always prove inflationary in the end, and hence can only ever be temporary. If it increasing money supply WASN'T inflationary, then you could simply double all of our wealth and make everyone rich by printing twice the amount of cash and handing it out. All this really does of course in this scenario is half the value of the currency. If you and everyone else, say has a £10 note. The bank then prints twice as many notes and gives each person an extra £10 note you now each have £20, but now £20 will only buy you exactly what £10 would (i.e. Prices have doubled). This is because nominal currency is simpy a representation of wealth, of real things or real resources, be they food, cars, houses, companies, machinery, metal, gold, oil, or whatever. The available real wealth (resources/assets/products/etc) doesn't actually flex much. If we all become nominally twice as well of (in terms of how much money we have) then we cannot buy twice as much with the money. Lets say, for example a Porsche costs twice as much to build as a Mondeo in terms of the amount of staff time it takes to design, build and test, and the amount and quality of materials required to make it. Lets say that most of the population can only afford a Mondeo, not a Porsche. Now lets say that low interest rates, easy borrowing and increased money supply means we al have access to twice as much money. We can now all afford to buy Porsches? No. This is a temporary inbalance. The porsche still takes the same amount of resources (staff time and materials) to produce. It still takes the same numbers of man-hours to build, and the same weight of materials. There are suddenly not now double (or any higher multiple) of staff time or materials available to produce all the extra Porsches so we can all have one. Instead the cost of the materials doubles (in nominal terms) and the Porsche employees (and everyone else in the economy) requires twice the nominal salaries in order to do their job while affording the relative costs of living. So the effect would simply be to half the value of you currency. Which is international monetary terms is rarely a good thing. Hence interest rates will come back up, if they have been low, in order to preserve the value of the currency, ragardless of the effect it has on the percieved values of peoples houses or their garden decking. The other effect of low interest rates is that it incentivises everyone to borrow money (as this is now cheap and plentiful), and not to save (or to spend their existing savings) as they do not make much profit in interest on their savings, so it hardly seems worth saving. This inbalance of Borrowing to Savings is also a temporary effect of lower interest rates, and is unsustainable. For every Borrower there must be a Lender. When you take out a mortgage at 7% APR, the bank is simply giving you the money from someones Bonds, Savings or Whatever, for which they are paying the original Lender, say, 5% interest, and keeping the 2% difference as the banks own revenue. However, with less people saving/investing the supply of money available to sell to the borrowers gets ever sqeezed. We can't all be borrowers and none of us lenders. Hence, Interest rates come back up again, above average levels, so that now borrowing is not so attractive as it is expensive to borrow (and to pay off existing debt) but more people save and invest as the returns on their savings are now much better. And after all, they feel they should be saving for a rainy day as the economy will be in "uncertain times" what with interest rates now being higher, job security threatened, and assets that previously held and artificially high value thanks to the increased money supply now falling rapidly in value.

People have this strange feeling of security when bad things appear to happen in the past or far away. They feel detatched from it. The previous property crashes we "stuff that happened in history". In 1999 we watched on the evening news as 7 country-sizes meteorites collided one after another into the surface of Jupiter, leaving continent sized patches of devestation and sending shockwaves across the whole planet. We watched the pretty speckly patterns flash across the surface on the NASA footage. We then turned over and watched East Enders, muttering to the people next to us: "Don't strange things happen in outer space".......

Sorry to sound like Bruno for a moment, but I think the whole debt bubble thing could be a massive problem. The only time anything like this has happened before in recent history was in 1929, and lead to the great depression. This lead to some appauling povery in the 1930's. I really don't see how it's much different this time. Consumer debt has exploded in a massive wave of cheap borrowing. Normal people now often cannot afford the basic costs of living, let alone pay off their debts, and are only keeping their heads above water in many cases by continually incurring more debt. The debt bubble has of course lead to a massive secondary asset bubble (in property), which is itself fualling further rampant borrowing. The whole thing may come crashing down on us. There's a chance that we might end up in one of the worst recessions in history. And I really do mean that. Debt cannot continue to rise to sustain the rising costs of living (housing, taxes, fuel/energy bills, basic utilities, etc). We're starting to look like farmers who have eaten their seed corn to see them through the winter, and are now sitting around, fat and satisfied, claiming new paradigms of free and plentiful corn, with no regard for what we're going to plant in the spring. I'll take my Bruno hat off now.

How about this one? She can wear it when she goes down with her sinking ship....

A victim of people like you? OOOOooooophhhh!!!! that was a bit below the belt RJG! Sorry (-ish), but in many ways it's true. Presumably we'll all be on social security at some point in the future (everyone except the BTL'ers that is), as no-one will be able to afford the cost of living unsubsidised. Although to some extent this is already happening. I earn a top 5% salary (around 240% national average earnings), and yet I qualify for local authority assisted housing here in the south east. We've already had several offers of properties from a local housing association for joint ownerships schemes aimed at the poorest sectors of the community who have no other means of affording their own house. We're obviously not going to accept them, but how funny and/or fugged-up is that? However, joking aside I do find this extremely worrying. As subsidised housing joint-ownership schemes from housing associations now only seem to be offered to people like me, not the sector of society who actually need them, Just one example, for the last place we were offered (a 40% stake in a 3 bed semi in west sussex) the hosuing association had a minimum income requirement of £36,000 a year for the tenent to be elligable to qualify for being able to afford their stake in the property before they would even be considered. This state of affairs is truely sickening.

A victim of people like you?

Doesn't anyone else think that asking a group of people who bothered to take the effort type go to a "Property Investor Show" might actually mean that your surveyed audience consists mainly of people who are there because they have an interest in investing in property in the near future? And surprise, surprise, they do! It's a bit like asking all the people visiting a new car show room whether they are considering purchasing a new car in the next 12 month (rather than asking just the a selection of the general population). If 75% of those surveyed at thecar show-room told you that they are considering buying a new car, then you can't extrapolate the figure to read that 75% of all car drivers plan to buy a new car in the next 12 months. If you can then I'm off to buy shares in GM and Ford......

I beg to differ.....

BBB, You have to realise that in these "Good Value" council estates in Bradford there will be many people who are housed in those properties on social security who have no option but to live in those areas. For many people living in such areas life will be an absolute living hell of social problems, drug problems, crime, vandelism, burnt out cars, burglary, racism, and living in constant fear. Many of them would give anything, anything, to get out out of such an area, but have no means of doing so. How must they look at someone paying a relative fortune to move INTO such an area, when they would give anything to get out. It must look like madness to them, that someone would pay over £70,000 (plus £140,000 of interest) to put themselves into their postition.

I might try that. Hollow trees could be the future. After all, the conversion of hollowed out trees might help relieve the shortage of property in this country. About time too. I could barely get to work this morning. Had to keep swerving my car around rows of well paid professional people who had spent the night sleeping in the road because there's not enough property to go round. I must have about 6 sleeping bags attached to my front axle by now....

Since when has "Following the crowd" been "thinking ouside the box". As far as I can tell tell, this idea comes from so far INSIDE the box that all you can see, whichever direction you look, is the inside walls of the "box". Thanks to the mindless drivle spilling from our television sets over the past few years, nearly everyone in the country now seems to think that renovating a property is this wonderful get-rich-quick revolution. Hardly original. And what if we all tried to do this? Surely there are not enough run down properties for this to become a standard, or even common, way of getting onto the "housing ladder". And if there were enough properties to make this viable, then so much for the "shortage"! The reason I do not build and/or convert my own property is that I'm trained in skills relating to Business/IT/Finance. Not laying bricks, plastering walls or working as a manual labourer (I have weak skinny arms and no stamina ). Therefore, I would choose to earn my money doing what I'm skilled in doing, and use the money I earn from doing it to buy products and services produced by people who have appropriate skills. E.g. Building me a car, a house, growing my food... manufacturing furniture, medicine and those chrismas tree shaped air fresheners you hang from your rear view mirror. Why should I take on doing any of these things myself? This is not how most civilised societies have worked for thousands of years. And another thing, if this person in the article has the ability and skill to manage a huge project and do some of the work himself, what the HELL is he doing living of my taxes on incapacity benefit. Send him down a coal mine, or at least to work in a call centre, the bloody parasite.

Great observations Sledge. Are we talking about Ian Rush, the 1988 Liverpool centre forward here?... 33-34 I believe, from what has previously been posted on this forum. tac·i·turn adj. Habitually untalkative. from Latin taciturnus, from tacitus, silent.

No I'm in South Wales on business this week. In a hotel at the moment, and this is the first night I've had good enough signal on my 3G/GPRS card to poast from my laptop. Glad it's working now. I was getting bored. There's a limited number of ways you can entertain yourself with a Corby Trouser Press. (P.S. There are 19 distinct fun things you can do with a corby trouser press, and only three of them involve a Osborne Bible. I suspect there are at least 4 other uses, if only I could find a way of detatching the coat hangers from the wardrobe... )

No no no I am the third landlord its me...me..meeee ..... no, I'M Spartacus!.....

'I told you so', Some freedom of speech hey? Ban anyone who's opinions you don't like. Idiot. Although I don't agree with all of TTRTR's points of view, I enjoy his posts and the debates, and he does seem like a relativly level headed person (even if he is wrong about property;) ) I Told You So, if you want to reduce the number of poster on this site I suggest you hold a vote on having yourself evicted instead.

I'll try to answer each of your points.... Last time in the South East and London the falls were on average around 38% I believe. My understanding is that the falls in may parts of the North the falls were lower, but mainly because the rises were also lower. This time the North has not been so lucky. While a very small number of areas in the North have escaped some of the largest rises (BBB would describe these as the "affordable/good vlue/hotspots/up-and-comings etc", most have not been so lucky this time round. Prices rises have been massive there this time too, with may more than doubling on average, and some trebbling. Wages are on average lower up North. No matter how many "European Capital of Culture" stickers you put on their sign posts earnings are still below those in the South. This is a fact and you can view the figures yourself on the Office of National Statistics website. This is largely because many of our blue collar industries (factories, industrial engineering, etc) are weighted more towards the North, and more of our professional white collar work is weighted towards the South (the centre of our banking/financial industries, central government sector, professional services industries, etc). Although prices up North are currently lower, they have risen proportionally just as high as prices down South, therefore it is unreasonable not to expect Northern prices to adjust by the same % as prices in the South this time round. There are "sinister" things at work this time too. Mountains of unsecured personal debt. Significant looming inflationary pressures. Rising unemployment (and "creative" use of unemployment figures). Huge trade defecits. Massive levels of government borrowing. And (almost certainly, but maybe not until after the election) Rising Taxes. There will be large scale unemployment this time too. High employment is a CONSEQUENCE of increased levels of lending (and resulting asset booms and consumer spending booms), not a CAUSE of them. But interest rates are going up again, and already have had five rises within a year. "Real" interest rates a not too different to the end of the eighties (i.e. when you factor out inflation). Yes, changes in legislation can have nasty contributory influences on bubbles. The introduction of tighter mortgage lending control and liability for lenders in the next few months is likely to be this years legislative ingredient in this years soup. Again "Consequence" of economic conditions, not "cause" (see earlier comments) But the nominal drop is irrelivent, it is only the "real" drop that means anything. Otherwise it's just money illusion with the numbers. Please don't make me count loaves of bread again. If big nominal currency amounts are all that you need to make you happy, I would have suggested you move to Italy, convert your money to Lira and spend many happy years wallowing in your bank statements (except they're on the Euro now).

I don't understand. How could something like this happen to someone. Kirsty told me that ever rising house prices were good for everyone (except those filthy FTB's, who are probably all paedophiles or something anyway)

BBB, The current housing bubble and "dot com" a more similar than you think. You seem to be under the impression that companies were valueless assets that were valued out of thin air. Companies do, of course, have value and owning a share in a company means owning a portion of the value of that companies assets and its earnings. People who say that "shares are worthless bits of paper, but property is real physical bricks and morter" are completely missing the point. The paper share certificate simply represents your entitlement to the ownership of the companies assets (and earnings). One could equally argue that the deed papers to your properties are completely valueless simply being pieces of paper run-off on a laser printer for 2p. You see how they're the same? You also seem to be under the impression that a property cannot become actually (or effectivly) valueless. They can, and have done, even as recently as the late 90's. Terrace houses were being sold in some towns for under £1000, and there were deals like "buy one get two free", and still they could not be sold. In this position the property is a valueless asset. Sure this scenario is relatively rare, but the scenario of a public limited company becoming completely valueless is also relatively rare. Even in 1929, when John Templeton (who I believe Sledgy was quoting) purchased shares in every company traded in New York for next to nothing, even when many were insolvent, even in this dire scenario only a tiny handful of those companies ( <3% I believe) actually ended up with the shares proving completely valueless and/or the companies folding.

yes, I don't think I could cope with being forced to post on HousePriceChat (yes, I saw you there TTRTR ), all one big long thread, ties your brain on knotes trying to thread the conversations together....

But it can't be prevented, other than through large scale inflation. Prevent prices crashing means keeping them high (and don't forget that the BoE has already stated they they consider prices to be over 30% over-valued). The BoE and government will not allow inflation to take off simply to foce your properties to remain over valued. And even if they went stark raving mad and DID decide to do this it would only be a temporary postponement of the crash, it couldn't prevent it. Kind of like trying to cure a hang-over by drinking more beer....

Strange just been having the same discussion with the Mrs. I've been suggesting making an offer under £110k for a house that's currently on for £165k. This house will shortly have been on the market for a year without selling, and has already had two price reductions. My partner is arguing that there is no way on Earth they would accept such an offer. And she's right. They will turn it down straight away, and probably be unsulted too. But since no-one else has bee able/willing to buy that house for a year now then these vendor can either sell it to someone like me for closer to what it's actually worth, or simply stay where they are. (and I know from the agent that they have been desperate to move for a year due to relocation through work). Lets face it. Sellers can choose. They can either accept "realistic" offers, or not sell their houses. It's that simple.

I believe in both philosophy and physics this is known as "Weak Athopic Principle". For example, if conditions in the market are such (prices are so high) that only joint income buyers can afford to buy houses, then you shouldn't be surprised if the only buyers you can see are people buying on joint incomes. This is something of a circular justification if you are trying to argue it as evidence of a new paradigm. I also don't accept that prices have more than doubled in just three years BECAUSE (even partly) more people are buying on joint incomes. A larger proportion of FTB property purchases are weh nboth people are on relatively high incomes, because they're the only people who can afford to buy under current conditions. No proof of a new paradigm, and certainly no proof of sustainability. And even if their was a demographic shift within our society that supported this "new paradigm", then it would not happen so quickly and suddenly that prices doubled within 3 years after they had been stable for nearly a decade before. The only way something as slow moving as the property market can boom so high in such a short space of time is through a bubble. There is no new paradigm. (Real) Prices will correct, as they always have done, leading to reductions in the region of 40-50%.