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Armitage Shanks

Genuine Question For The Bulls

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I've been reading a lot on here by the site's resident bulls lately looking to debunk the bear arguments linking house prices to interest rates, unemployment and other factors. It's all very important stuff for us to discuss and it certainly helps me not get too carried away with my hope that house prices will fall further.

That said, though, I would like to ask Rinoa, Hamish et al to go a step further than debunking by explaining, in concise terms, which factors they think do affect house prices. It's apparent now which factors they think don't affect house prices but in my opinion that falls a long way short of saying which factors they think do. So, question 1 to the HPC bulls: Which factors, economic, social or otherwise, do you think affect house prices in the UK?

Question 2 to the HPC bulls: Which factors, social, economic or otherwise, do you think have caused the boom in house prices over the last 10-15 years?

Bears - please allow the bulls to state their cases before wading in - hopefully this is an opportunity for them to state what they believe rather than just telling the bears that they are wrong.

Edited by Armitage Shanks

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People want to own houses. People need to live in houses. The state pays the rent if they can't afford it.

They aren't making any more land, but there are plenty of extra people turning up.

Pensions have proved to be a crap investment. Savings accounts have proved to be a crap investment.

As long as you are prepared to hold onto your property, it will always be worth more than the debt you used to buy it at some point in the future, even if you bought at peak.

You really can't lose, as long as you can keep a tenant paying your mortgage.

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Trouble is, you aren't asking the questions with any context to the bulls' purported opinions. If, when the next set of unemployment figures are released, they are worse and a bull says it's irrelevant, ask then and there.

I could argue that the repeated posting of the "classic bubble market cycle" graph shows that bears don't think unemployment has any effect, the market cycle is everything.

I don't think any bull would argue that unemployment is completely decoupled from house prices, just that the amount of that effect is difficult to determine as is how complex the causal link is.

Could a rise in house prices help cause a fall in unemployment?

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, question 1 to the HPC bulls: Which factors, economic, social or otherwise, do you think affect house prices in the UK?

Theres too many to discuss in detail, and almost endless permutations in terms of direct impact on pricing in any specific local area.

Unemployment, base rates, bank margins above base, types and availability of mortgage finance, government initiatives to increase homeownership or prevent reposession, all these things have an impact, particularly over the short term. The primary driver of price rises over the long term however, is supply and demand.

The empty homes website rightly points out that there are at any given time, roughly around a million empty houses. But the head of that organisation also pointed out that around half of them are empty for less than 6 months for activities such as probate, renovation, etc. And of the rest, many are long term derelict, second/holiday houses, or just in the wrong place. For example, there are currently 1600 empty houses in Caithness and Sutherland, and houses up there are cheap, but that doesn't help someone looking for a house in London.

There is a shortage of housing, of the types people want to live in, in the places where people want to live, and where the employment exists to support them. If this was not the case, there would not be the price differentials that exist around the country.

And it is this shortage of housing that has driven prices, in some areas beyond the traditional salary multiples. There is still a baseline of housing in this country that is cheap, or at least, still very affordable in terms of the average salary.

For example, in the north of england it is still entirely possible to buy a terraced house for less than 60K. In parts of Scotland you can still buy a flat for around 40K. However these are not in the areas that suffer from a shortage of supply and an excess in demand.

The areas that have risen far beyond this baseline, are the areas where demand outstrips supply, and with the United Nations predicting the population of the UK to increase by 12,000,000 people in the next 40 years, there is little prospect of balancing that supply/demand imbalance anytime soon.

Question 2 to the HPC bulls: Which factors, social, economic or otherwise, do you think have caused the boom in house prices over the last 10-15 years?

I think you are looking at this from the wrong perspective. There has been a boom, just like there were many booms before that, and there will be many booms in the future. The house price cycle is a fairly well accepted thing.

If there was not a shortage of supply however, the underlying baseline between these cycles would not increase. It has, consistently, through multiple decades and accross multiple cycles, by a steady few percent per year above both wage growth and inflation.

Short term, there are many things that will impact prices temporarily.

Long term there is only one. Basic supply and demand. And with building almost always throughout history lagging population growth, and with no prospect of that changing now, there is only one direction for house prices long term and it ain't down.

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for a booming property market you need low interest rates and easy access to credit, high employment, economic growth. As soon as these three things return the property market will take off with a vengance.

Can't see much happening between now and that point. My dream would be to buy a house that costs 500 - 800 thousand now for < 350 thousand pounds as these are the kinds of houses I would like to own for the long term.

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As soon as these three things return the property market will take off with a vengance.

Lending has recovered somewhat, and that has been enough to stabilise prices. It is unlikely we will see further large drops as long as lending can remain at close to current levels, and IR's stay below 6% or so.

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Thanks for the replies, Bulls - I'll PM Rinoa and london2manchester now, asking them if they'd mind posting their responses. If there are any bulls besides them missing, please can people PM me to let me know who they are so that I can ask them to reply? Thanks

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As in the animal kingdom, the female human needs a den or a nest to incubate and raise her young. The litter will grow, and seek dens of their own. This is the principle which underpins my bullishness, and explains why houses have appreciated in value over time since first man fired a clay brick.

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Theres too many to discuss in detail, and almost endless permutations in terms of direct impact on pricing in any specific local area.

Unemployment, base rates, bank margins above base, types and availability of mortgage finance, government initiatives to increase homeownership or prevent reposession, all these things have an impact, particularly over the short term. The primary driver of price rises over the long term however, is supply and demand.

The empty homes website rightly points out that there are at any given time, roughly around a million empty houses. But the head of that organisation also pointed out that around half of them are empty for less than 6 months for activities such as probate, renovation, etc. And of the rest, many are long term derelict, second/holiday houses, or just in the wrong place. For example, there are currently 1600 empty houses in Caithness and Sutherland, and houses up there are cheap, but that doesn't help someone looking for a house in London.

There is a shortage of housing, of the types people want to live in, in the places where people want to live, and where the employment exists to support them. If this was not the case, there would not be the price differentials that exist around the country.

And it is this shortage of housing that has driven prices, in some areas beyond the traditional salary multiples. There is still a baseline of housing in this country that is cheap, or at least, still very affordable in terms of the average salary.

For example, in the north of england it is still entirely possible to buy a terraced house for less than 60K. In parts of Scotland you can still buy a flat for around 40K. However these are not in the areas that suffer from a shortage of supply and an excess in demand.

The areas that have risen far beyond this baseline, are the areas where demand outstrips supply, and with the United Nations predicting the population of the UK to increase by 12,000,000 people in the next 40 years, there is little prospect of balancing that supply/demand imbalance anytime soon.

I think you are looking at this from the wrong perspective. There has been a boom, just like there were many booms before that, and there will be many booms in the future. The house price cycle is a fairly well accepted thing.

If there was not a shortage of supply however, the underlying baseline between these cycles would not increase. It has, consistently, through multiple decades and accross multiple cycles, by a steady few percent per year above both wage growth and inflation.

Short term, there are many things that will impact prices temporarily.

Long term there is only one. Basic supply and demand. And with building almost always throughout history lagging population growth, and with no prospect of that changing now, there is only one direction for house prices long term and it ain't down.

You f*uckwit , :lol::lol::lol: go and take your medication........NOW.

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Lending has recovered somewhat, and that has been enough to stabilise prices. It is unlikely we will see further large drops as long as lending can remain at close to current levels, and IR's stay below 6% or so.

:lol::lol::lol: Hamish, I said ....NOW!

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Well, Bulls, you got about 11 hours before any bears chipped in, which I think gave you a fair amount of respectful listening.

If you could refrain from your childish playground taunting in the future then it would be much appreciated.

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Thanks for the replies, Bulls - I'll PM Rinoa and london2manchester now, asking them if they'd mind posting their responses. If there are any bulls besides them missing, please can people PM me to let me know who they are so that I can ask them to reply? Thanks

Thanks for the PM AS. Not sure I have anything to add in addition to what Hamish has already posted ~ and he writes far more eloquently than I. If I had to pick one factor above all others I'd go for supply and demand.

No matter what the bears say, there simply isn't sufficient housing of the type people want in the areas they want to live.

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Thanks for the PM AS. Not sure I have anything to add in addition to what Hamish has already posted ~ and he writes far more eloquently than I. If I had to pick one factor above all others I'd go for supply and demand.

No matter what the bears say, there simply isn't sufficient housing of the type people want in the areas they want to live.

supply and demand i agree in nice areas explains why prices rose, but this was not the reason for prices trebling in the last 10 years. the population of this country has not grown that much, and the new arrivals are not high earners. The reason prices when up so high was down to cheap and easily available credit and sentinment driven in part by the media. Nice areas will always be expensive, but those new build flats in up and coming areas will become modern day tower block type sink estates..

Edited by boo

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supply and demand i agree in nice areas explains why prices rose, but this was not the reason for prices trebling in the last 10 years. the population of this country has not grown that much, and the new arrivals are not high earners. The reason prices when up so high was down to cheap and easily available credit and sentinment driven in part by the media. Nice areas will always be expensive, but those new build flats in up and coming areas will become modern day tower block type sink estates..

Well,there was cheap and easily available credit for more then just houses. Cars and plasma tv's were equally available on easy credt, but prices for these didn't treble in 10 years.

You have to ask why the discrepancy.

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Well,there was cheap and easily available credit for more then just houses. Cars and plasma tv's were equally available on easy credt, but prices for these didn't treble in 10 years.

You have to ask why the discrepancy.

because as you well know these types of goods are predominantly made overseas and the component parts are getting cheaper. you cant compare the price of a telly with a house

Edited by boo

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People want to own houses. People need to live in houses. The state pays the rent if they can't afford it.

They aren't making any more land, but there are plenty of extra people turning up.

Pensions have proved to be a crap investment. Savings accounts have proved to be a crap investment.

As long as you are prepared to hold onto your property, it will always be worth more than the debt you used to buy it at some point in the future, even if you bought at peak.

You really can't lose, as long as you can keep a tenant paying your mortgage.

Taking your point on immigration:

East Anglia is the area of the country with the highest level of immigration. It had the lowest level of house price increases in the country.

Scotland has a declining population - more people are dying and moving out than are moving in or being born. It had the second highest rate of house price increases in the country.

Northern Ireland had the highest level of house price increases, and a stable population. Increases up to Scotland / North England / Wales levels can be explained by the "peace dividend", but it moved from the cheapest place in the country to the second most expensive after London.

This suggests that either immigration has a downward effect on house prices, or than house prices have a downward effect on immigration - more likely the latter. It does not suggest that immigration has an upward effect on house prices.

Edited by jonb

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It seems that the bulls are expecting one thing to happen that backs up everything they say. Large population growth.

If that happens they expect the simple supply and demand argument will prevail. I would agree up to a point. However there are many countries with huge population growth that do not have house prices increasing at similar rates. It is not a simple supply and demand argument when it comes to houses. Houses are usually bought with credit. It is the supply and demand of credit that is the main driver. Of course population increases are an important factor. However not as important as the bulls think - IMO. This has all been discussed on here for a long time.

This of course takes us to one point the bulls never seem to discuss. What happens if the projected population increases of 15 million, or whatever, in the UK fail to materialise….?

Nobody knows, for certain, what will happen with population growth/declines. However to simply ignore one possibility seems a little naïve to me.

Must be a difficult potential scenario for the bulls to consider. Long term house price falls/stagnation over perhaps decades. Just how would they cope with that. :rolleyes:

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...Scotland has a declining population - more people are dying and moving out than are moving in or being born. It had the second highest rate of house price increases in the country...

A valid point, and one that I've not seen made before, would be interesting to see what Hamish says to that... although it's not hard to predict - in the bulls' eyes, like employment, population is no doubt one yet another one of those variables that has an asymmetric impact whereby an increase sends house prices soaring but a fall has no effect whatsoever... they'll quickly change the topic to low interest rates or whatever other issue they think works in their favour.

On a more theoretical level, house buying is kind of like an auction, a very limited supply of goods that are always a little bit different, with bidders deciding how much they are prepared to pay and sellers deciding which bid to accept... and, if you have an auction for, i don't know, a cow or something, and there's a room full of bidders each with £5 in their pocket to spend then one thing you know, absolutely for certain regardless of what bidders do, is that the final price paid for the cow will not exceed £5 [if bidders aren't allowed to borrow, club together, or similar]... and this is true even if you let another couple of hundred, or another cuople of thousand would-be bidders into the auction room, the price of the cap cannot go over £5 unless some of these newcomers have more than £5 in their pocket... affordability always, always places a cap on prices... The same would, of course, be true of an auction for a house, if each bidder in the room had no more than a £20,000 deposit and an agreement from their bank to borrow another £180,000, then the price of the house for sale would never ever exceed £200,000, no matter what happened - even if the number of bidders in the auction house balooned to a thousand, or a million, affordability would impose a cap on the price, which would only go over £200,000 if the newcomers had bigger deposits or could borrow more. This is why, as pointed out by Merryn in the first episode of property snakes & ladders, it's the supply of credit that determines prices rather than the supply of houses. Brits are fools for houses and will usually borrow every penny that's made available to them, but without a return to peak lending then the true demand for housing will not reach 2007 levels for a very long time. This is a bit simplistic, e.g. if supply were drastically limited and population increased uniformly across all income levels then you'd start to get relatively rich people who would have previously lived in a 5-bed house but now missing out joining the queue for 3- and 4-bed houses, meaning that the 3- and 4-bed house auctions would have richer people in them than before... but adding more poor Poles/Somalians/Iraqis etc at the bottom of the income distribution will not affect prices one jot. The basic logic about affordability capping prices is inescapable.

Edited by the flying pig

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It seems that the bulls are expecting one thing to happen that backs up everything they say. Large population growth.

If that happens they expect the simple supply and demand argument will prevail. I would agree up to a point. However there are many countries with huge population growth that do not have house prices increasing at similar rates. It is not a simple supply and demand argument when it comes to houses. Houses are usually bought with credit. It is the supply and demand of credit that is the main driver. Of course population increases are an important factor. However not as important as the bulls think - IMO. This has all been discussed on here for a long time.

This of course takes us to one point the bulls never seem to discuss. What happens if the projected population increases of 15 million, or whatever, in the UK fail to materialise….?

Nobody knows, for certain, what will happen with population growth/declines. However to simply ignore one possibility seems a little naïve to me.

Must be a difficult potential scenario for the bulls to consider. Long term house price falls/stagnation over perhaps decades. Just how would they cope with that. :rolleyes:

By buying more property and renting it out on ever higher yields and having other people buy your property for you (mug tennants?)

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It seems that the bulls are expecting one thing to happen that backs up everything they say. Large population growth.

If that happens they expect the simple supply and demand argument will prevail. I would agree up to a point. However there are many countries with huge population growth that do not have house prices increasing at similar rates. It is not a simple supply and demand argument when it comes to houses. Houses are usually bought with credit. It is the supply and demand of credit that is the main driver. Of course population increases are an important factor. However not as important as the bulls think - IMO. This has all been discussed on here for a long time.

This of course takes us to one point the bulls never seem to discuss. What happens if the projected population increases of 15 million, or whatever, in the UK fail to materialise….?

Nobody knows, for certain, what will happen with population growth/declines. However to simply ignore one possibility seems a little naïve to me.

Must be a difficult potential scenario for the bulls to consider. Long term house price falls/stagnation over perhaps decades. Just how would they cope with that. :rolleyes:

Absolutely!

I believe the main factor for excessive house price growth - besides supply and demand (and demand really is there - honest!!) has been the easy availablity of credit.

I know people say credit will come back - but the lenders have not jumped on the 90% bandwagon and the Halifax won't allow sellers to pay more than 5% deposit anymore. These changes are significant for the housing market. I know Hamish doesn't really want to hear it but last time there was a crash mortgages were readily available.

It will be a long time before the lenders relax - they have had their fingers burnt badly this time with their recklnessness and let's face it if you were in charge of a bank right now would you relax the criteria? No way. It will be a long time coming.......

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I am not bullish in the sense that I don't believe prices are going to go up massively or anything, but I do believe we live in a new world.

My friend, a working couple with kid are looking at buying in SW London, both are grads in "good" jobs, not super, just good! They have worked hard and saved easily during their "dinky" years and are buying their first place later than normal now in their 30s.

Not untypical of the modern age. Mum is educated and works. So they are looking at borrowing hundreds of thousands and at current interest rates they will pay back several 1000 each month. But, and here is the big difference, that can be covered by one persons wage, and there is still a whole other pay packet coming in. In our parents era this all had to be paid by dad. With a whole extra wage, you can spend 100% of that on a mortgage and still live comfortably.

This is something that can not be reversed and will leave a legacy of higher prices.

The mistake many people make on this site is to get caught up with percentages (the whole 3.5 times thing too!). Yes maybe the couple is spending 50% of their wage on a mortgage, but with a second £2500 coming in, they still have disposable income to play with. The single working parent family has to pay it all out of one wage.

So if you are a single first time buyer looking for a family home, how can you hope to compete? Even as prices are coming down, the nice family houses that are coming up are selling fast. Good houses in good locations will always go to those with the most. I'm not saying that people should get married just to buy a house, I just want to point out the reality of where we are now.

The whole price thing is misleading imo. I think it is more about access, I think some people here will be disappointed to find that even as prices drop, their access to property will remain unchanged (my ownership journey benefited massively from low IRs - but we know come next year this will be over, as IRs go up, affordability comes down). It will only improve by change of circumstance, or government intervention. It was sad to see some people "hoping" for a recession despite this meaning that, without their job, they are further away from their goal than ever. Joined up thinking at its finest!

Anyway, good luck to all :)

Edited by Orbital

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because as you well know these types of goods are predominantly made overseas and the component parts are getting cheaper. you cant compare the price of a telly with a house

Of course you can. With cars and TV's they just make as many as they can sell. There is unlimited supply.

Not so with houses. Even the houses they build aren't what the customer wants.

For example, in the past few years they've built around 250 bungalows annually ~ for the whole country.

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