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Fancypants

Why House Prices Never Fall

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speaking to many of my homeowning friends recently, it has become apparent just how widespread the view that "house prices never go down is". Now initially I thought, OK, this is because they've all bought in the last 5 years or so and therefore have never experienced anything but insane price inflation.

Then it occured to me that this view would have been strengthened by the encouragement of their parents... who although they lived through crashes, these took the form of wage inflation and no actual nominal decrease in the value of their properties. Plus, these crashes were comparitively brief, and the reporting not as ubiquitous.

This is particularly prevalent anywhere outside the SE, where even in 89, the nominal falls weren't that enormous and the preceding boom never reached as far out geographically as this one.

Therefore, assuming the BOE play fair and do act to keep inflation under control, this next bust will be far worse than anything experienced by anyone alive today (assuming that the real oldies are too old to waste time recalling the 1920s!), not merely because the boom was bigger, but because we will see widespread substantial nominal falls... the absence of which previously concealed what was actually happening

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All booms previous to the 1989 one corrected themselves in this manner.......

The one at the beginning of the 70s( prices here up 100 % in 2 years).....

was followed a 4 year period of oil price-induced stagflation in which salaries rose 100% ......with Hps remaining constant......thus returning to their 1970 real level without any falls in nominal prices......in other previous booms the correction has taken longer ....eg throughout the whole of the 1960s prices in my area were constant against a backdrop of 45% wage inflation..........

My knowledge of the pre 1960 period is very sketchy but even way back in the 30s and 40s prices did rise in sudden bursts like now followed by long periods of stagnation as wages played catch up.......

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All booms previous to the 1989 one corrected themselves in this manner.......

The one at the beginning of the 70s( prices here up 100 % in 2 years).....

was followed a 4 year period of oil price-induced stagflation in which salaries rose 100% ......with Hps remaining constant......thus returning to their 1970 real level without any falls in nominal prices......in other previous booms the correction has taken longer ....eg throughout the whole of the 1960s prices in my area were constant against a backdrop of 45% wage inflation..........

My knowledge of the pre 1960 period is very sketchy but even way back in the 30s and 40s prices did rise in sudden bursts like now followed by long periods of stagnation as wages played catch up.......

True - and I really can't see where the rampant wage inflation is going to come from... (although I am aware that homeowners can't see where price falls are going to come from).

Something has to give, on that we are mostly agreed on this board - but I don't think wages will rise much more quickly than they are doing - as has been so eloquently pointed out here, we are competing with Indians and Chinese on 50p an hour doing the jobs equally as well as many of us could.

Of course, a big oil spike could stop or even reverse globalisation and thereby make it more difficult to transport cheap goods and service from elsewhere in the world. You can't outsource manufacturing to China if there's no cost effective way of getting the goods back over here!

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Yup, some of my rellies are vey keen for me to take on a load more debt to get a 'proper' family sized house: I needn't worry if prices are a bit high at the moment... what does a bit of possible negative equity matter down the track matter... prices always rise in the long term.

And I had to explain to a very intelligent and numerate gentleman at my work the other day why it wasn't likely that we were going to get anyone willing to move from our Scottish branch to our London one. He looked at me astonished. "But you needn't worry about what you pay for your house, the cost soon inflates away".

A couple more opinions, again from very intelligent and numerate people with a finanacial services background (talking to me as a friend, not selling me anything, so I assume these are their real opinions):

"You'd actually be paying LESS for your house than I paid for mine in 1997 because monthly repayments have gone down"

and my favourite:

"I get sick of people complaining about endowment shortfalls. If interest rates go down you benefit from that and the downside is you have to put more money into your endowment"

R

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i'm currently working in Financial Services - most of the people I work with (at least the youngers ones) understand all the technicalities and legalities of markets etc. however, they are virtually useless when it comes to knowing about trading, of which buying and selling houses is a form

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i'm currently working in Financial Services - most of the people I work with (at least the youngers ones) understand all the technicalities and legalities of markets etc. however, they are virtually useless when it comes to knowing about trading, of which buying and selling houses is a form

ditto - and it was the same when I worked for a firm of stockbrokers (x-only) between 98 and 2000... everybody was so caught up in the easy -money euphoria that no-one bothered to challenge the underlying assumption that this was the natural way of things. This applied to all, young & old, apart from the very top guy who cunningly sold the firm at the top.

I guess this is where EAs are (were) coming from too.

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I think we should dig us some of the old fella's.

The idea that the youth are dynamic and wordly wise is just a myth.

The foundations of economic principles are well documented and go back centuries.

No more boom to bust, and Its DotCom Ya get with the programme was a dream inspired by................well dreamers.

I hope we return to the old principles where a companys worth is based on its book value and past trading performance.

Future Hope Value should have no place in the fundamentals of economics and should certainly not be taken on board by a Chancellor.

Lets get back to publishing the Balance of Trade Figures on the weekly news, along with the Government spending figures.

New Labour have built themselves a Castle of Sand, and the Tide is now coming in.

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I think we should dig us some of the old fella's.

The idea that the youth are dynamic and wordly wise is just a myth.

The foundations of economic principles are well documented and go back centuries.

No more boom to bust, and Its DotCom Ya get with the programme was a dream inspired by................well dreamers.

I hope we return to the old principles where a companys worth is based on its book value and past trading performance.

Future Hope Value should have no place in the fundamentals of economics and should certainly not be taken on board by a Chancellor.

Lets get back to publishing the Balance of Trade Figures on the weekly news, along with the Government spending figures.

New Labour have built themselves a Castle of Sand, and the Tide is now coming in.

I know you don't like Nu Labour old bean, but I'm not convinced that this is a party political issue. Governments of every hue have shown themselves to be unable to resist the temptation of riding a boom

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Inciting an electorate to vote for them "No more Boom to Bust" should be made a criminal offence.

The mismanagement of our economy is staggering, that is bad enough. But not only have they mismanaged it they have lied time and time to the electorate.

Many people in the UK do not have hours to spare scanning for news and information and the news that is coming out of No10 and 11 is this.

Everthing is Rosy, keep spending, we are so should you.

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I know you don't like Nu Labour old bean, but I'm not convinced that this is a party political issue. Governments of every hue have shown themselves to be unable to resist the temptation of riding a boom

Indeed. But New Labour and the Blairites had a fabulous opportunity to lead a new enthusiastic, educated, energetic generation into the new millenium.

An opportunity many feel was cynically squandered.

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Therefore, assuming the BOE play fair and do act to keep inflation under control, this next bust will be far worse than anything experienced by anyone alive today  .....

because we will see widespread substantial nominal falls

I think we have to recognise that nominal prices only ever fell in the last crash and that according to Nationwide it was a 20% drop (from 60K down to about 50K I think).

If nominal prices fall by more than that this time, it will be the biggest nominal fall on record and be unprecedented. I think that this is an unknown quantity to be honest.

I also don't see where massive wage inflation is coming from either, but my eye is currently on what happens with oil because the signs seem to point to some big developments there. :unsure:

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I think we have to recognise that nominal prices only ever fell in the last crash and that according to Nationwide it was a 20% drop (from 60K down to about 50K I think).

If nominal prices fall by more than that this time, it will be the biggest nominal fall on record and be unprecedented.  I think that this is an unknown quantity to be honest.

I also don't see where massive wage inflation is coming from either, but my eye is currently on what happens with oil because the signs seem to point to some big developments there.  :unsure:

i did a bit of research and apparently the level of personal debt around the last crash was 300 bill (adjusted for inflation in 2002 terms), so given that we now have over 3 times as much personal debt i think any correction could be pant browningly severe!

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i think any correction could be pant browningly severe!

Whilst people pay off their debts, this will surely have to be not just a recession, but a rather prolonged one, under which house prices cannot boom and must fall, at whatever rate.

Because without inflation to help people with their debts, and relatively little wage inflation, where is the money meant to come from ?

I think many will choose bankruptcy which, annoyingly, is now made far easier by the system.

We've already seen bankruptcies going to record levels even at this early stage, and we're probably at the tip of the iceberg.

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Whilst people pay off their debts, this will surely have to be not just a recession, but a rather prolonged one, under which house prices cannot boom and must fall, at whatever rate.

Because without inflation to help people with their debts, and relatively little wage inflation, where is the money meant to come from ?

I think many will choose bankruptcy which, annoyingly, is now made far easier by the system. 

We've already seen bankruptcies going to record levels even at this early stage, and we're probably at the tip of the iceberg.

that is a worry yeah... but with widespread bankruptcy the money still has to unwind from the system somewhere, even if the reckless debtors are getting off (relatively) unscathed.

so apart from the obvious economic consequences... would this not have a deflationary effect too? This isn't something I'm too knowledgable on - since it's been many many moons since we had a deflationary episode in the UK (20s?) - I would expect it to be something that's not at the top of the list of concerns for the govt & BOE

can anyone shed any light on this?

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laurejon

Enoch is with you on this one. Housing has become a political issue. I worked

on the recent election campaign. People were telling me if the tories got in

IRs go through the roof. New Labour believes it can control people using debt

and thats what it is doing

Fancypants

You sound like a new labour voter/supporter next you will being posting

telling us houses have never been so affordable.

The young folk below 35 should realise new labour is their enemy.

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I think many will choose bankruptcy which, annoyingly, is now made far easier by the system. 

Worrying from a social conscience point of view but quite good if you want a crash because of the forced house sales it will bring about (something that a lot of people seem to think is necessary if we are to truely have a crash).

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laurejon

Enoch is with you on this one. Housing has become a political issue. I worked

on the recent election campaign. People were telling me if the tories got in

IRs go through the roof. New Labour believes it can control people using debt

and thats what it is doing

Fancypants

You sound like a new labour voter/supporter next you will being posting

telling us houses have never been so affordable.

The young folk below 35 should realise new labour is their enemy.

Enoch don't be silly. Your namesake would never had carried on like this. :P

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even way back in the 30s and 40s prices did rise in sudden bursts like now followed by long periods of stagnation as wages played catch up.......

A ) what evidence do you have for saying this? Nationwide HP data only goes back to 1952.

B ) Can that really tell us anything about today, considering that less than a third of the population owned their own homes in the pre-WWII period, versus 71% now?

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I think we are overly good at blaming the government on this site for the massive over inflation of house prices. Yes they could have done more to inform the consumer that what they were doing was rediculous but at the end of the day it is consumer excess and foolish lending which has brought about the current situation. In my mind the current interest rate is rellevant to British business and I hope they will thrive internationally on it. Other than a split lending policy where business can borrow at one low and internationally relevant rate and another for domestic borrowers (and buy to letters) I do not know what the government / Bank of England could or should have done (NB I am not advoating this policy I meerly mention it as an option). The consumer excess will be born out by the british consumer and retailer and our domestic market will strugle. Yes this will make life tough for some but I think it is better to do that than to destroy our international businesses that can actually do something for the balance of payments and maybe even support GB's overly generous public sector spending.

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A ) what evidence do you have for saying this? Nationwide HP data only goes back to 1952.

B ) Can that really tell us anything about today, considering that less than a third of the population owned their own homes in the pre-WWII period, versus 71% now?

OK there's clearly some pretty well-informed economic historians on here. Can anyone confirm when we last had a sustained deflationary episode in the UK?

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I do not know what the government / Bank of England could or should have done (NB I am not advoating this policy I meerly mention it as an option).  The consumer excess will be born out by the british consumer and retailer and our domestic market will strugle. 

Over on ****, consa psted a link to an article about a 50% crash in shanghai properties.

Apparently, property flipping was a big problem over there, so they introduced a law that said tax would be payable on the full price (rather than the gain) if a property was resold within two years of purchase.

Our govt could easily have done the same - a 50% drop would seem about right.

I admit some forced sellers would get hurt, and a lot of people in the flipping game would get caught out right now, but mostly the flippers and scammers would give up and go away.

I believe similar laws exist in France, where property is reaonably priced...

ABB

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I think we are overly good at blaming the government on this site for the massive over inflation of house prices.

I agree, the roots of the bubble lie firmly in the private sector realms of consumer behaviour and loose lending policies by the banks.

As an example, it is often repeated here that the recent bankruptcy reforms making it easier for debtors to have their debts written off are a "bad thing". Yet anybody who wants a correction in the housing bubble should be in favour of these reforms because one effect will be to make the banks adopt tighter lending criteria, rather than fuel the boom with higher and higher mortgage-to-income multiples.

Blaming Labour and Brown all the time actually obscures this point and many others. You can't simultaneously say you are in favour of free markets and then blame the government for market outcomes you don't like: too many of the posters on this forum hold this contradictory view.

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As an example, it is often repeated here that the recent bankruptcy reforms making it easier for debtors to have their debts written off are a "bad thing". Yet anybody who wants a correction in the housing bubble should be in favour of these reforms because one effect will be to make the banks adopt tighter lending criteria, rather than fuel the boom with higher and higher mortgage-to-income multiples.
Yes. Higher bankruptcies lead to tighter lending, reducing the funds available for property purchase, resulting in lower house prices.
Blaming Labour and Brown all the time actually obscures this point and many others. You can't simultaneously say you are in favour of free markets and then blame the government for market outcomes you don't like: too many of the posters on this forum hold this contradictory view.
The point is that the government sets the rules by which private companies (e.g. banks) can operate.

Private sector companies' sole duty is to serve the relatively short-term interests of their shareholders, subject to constraints (rules) set by government.

If the government fails to set and enforce these rules, there will be social costs, and the current housing debacle is a very good example of this.

After all, if we didn't need rules, why would we need governments?

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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