Jump to content
House Price Crash Forum
Sign in to follow this  
Once in a lifetime

Reasons To Fear Housing Market

Recommended Posts

Reasons to Fear Housing Market: Mark Gilbert

``Bubbles usually end, not necessarily because of higher interest rates, but because you eventually reach a price point where the bids dry up,'' wrote Rosenberg at Merrill. ``When you treat your rising home price as a bonus to be spent every year, and that source of so-called income dries up, so does your economic activity.''
http://quote.bloomberg.com/apps/news?pid=1...id=aMwsXqQeEr5I

Share this post


Link to post
Share on other sites

I fairly agree with most of this.

It is quite clear that when prices climb fast, this encourages people to buy, enhancing the rises (Even committing mortgage fraud if need be)

However when prices start to fall, buyes get scared.

And lying about your income doesn't seem such a clever idea.

Add into this rising unemployment and the economic slowdown that follows a boom, and you've got a recipe for disaster.

Interest rates barely matter in the context of this mess.

Share this post


Link to post
Share on other sites
However when prices start to fall, buyes get scared.

And lying about your income doesn't seem such a clever idea.

Add into this rising unemployment and the economic slowdown that follows a boom, and you've got a recipe for disaster.

Interest rates barely matter in the context of this mess.

Indeed, it's all about sentiment, the boom started when rates were over 6% and before there was a big public sector recruitment boom (which accounts for the majority of job growth) with requisite improvement in pay and conditions.

Obviously the almost neutral 3.5% rates and various inflationary handouts added fuel to the fire, which is why 2003-2004 really stands out in terms of growth of HPI.

I can remember just after the dotcom bubble burst there were some who took to blaming Greenspan for raising Fed rates by 25 basis (50 basis?)... as if such a petty change would 'destory so much value'.

Obviously the central banks have a serious case to answer when it comes to excess liquidity, however blaming a housing slowdown or crash on the BoE raising rates by 1% is really clutching a straws, at worse (best?) they could of only hurried the inevitable along.

Share this post


Link to post
Share on other sites

Its going to be a slow process.

Many home are owned by gamblers reliant on the property growing in value to make back their money. They are holding out. a small drop they hope will recover.

Others are struggling with massive debt against even modest IR rises.. They are holding on in hope.

financial tragedy takes a while to ruin people.

Mark my words.. many out there are heading that way.

and although I pray for the change we need I would not wish ruin on anyone.

Share this post


Link to post
Share on other sites

and dues to the fantastic levels of debt people now hold Interest rates rising to over 6% would be for many the equivilent of the 12% rises seen after the last crash begun

and 6% is the long term norm.

it was lowered to conteract the dot com bust and then the gulf war..

This is artificaial and in no way breads a strong economy or indicates long term strategy.

a good sticking plaster in the short term, but as has been seen it is catastrophic in the long term.

Share this post


Link to post
Share on other sites
Guest Charlie The Tramp
Interest rates barely matter in the context of this mess.

With interest rates just hitting 4.75% it shows how serious the mess is.

In the 70s interest rates at 4.75% would have been manna from heaven.

Share this post


Link to post
Share on other sites

Is 6% the long term norm? If you look at the historical rates on the BoE website, rates haven't been as low as 6% many times/for long since their chart began in the early 1970s. Are you talking about a longer period (straightforward question -- I'd really like to know more)?

BE

Share this post


Link to post
Share on other sites
Guest Charlie The Tramp
historical rates on the BoE website, rates haven't been as low as 6%

I managed to print off the historical rates back to 1694 before that file was removed when they updated their web site. It`s very interesting as you can compare the rates to our economic history. The average rate the past 40 years is around 9.75%

You guessed it in 1694 the rate was 6%.

Share this post


Link to post
Share on other sites

House prices go in cycles. I've now seen a couple of them in my lifetime. Despite the ups and downs the trend is gently upwards. Is this because of population growth? As population declines (a serious issue never discussed by politicans) and the spectre of peak oil hovers, will the trend for house prices be down?

Share this post


Link to post
Share on other sites
Is this because of population growth?

The UK population hasn't grown that much since the 1960s, yet house prices have grown massively in that time.

I think it's mainly to do with wage inflation and the willingness of banks to lend for property purchase (which has been the main cause of the recent boom).

However, plenty of other factors also have an effect (e.g. unemployment levels, interest rates, comparative viability of alternative investments).

Edited by doogie

Share this post


Link to post
Share on other sites
The UK population hasn't grown that much since the 1960s, yet house prices have grown massively in that time.

Doogie, could it be that there are more divorces and people living alone than back then so more proeprty is needed? Also the two income family means that there is mroe money in households so more money tos epnd on houses (hence nobody is actually any better off).

Share this post


Link to post
Share on other sites
The Denial of the possibility of fading prices has faded,

but the Fear-of-falling has not set in for most yet.  Many still believe that

the fall will be modest, too small to make it worth the hassle to sell out and rent.

Meantime, oil prices continue to rise, hinting at future inflation, and a possible

need to raise rates- but surely that won't happen...

Agreed on all of the above. We are still a minority in recognising what is happening. Virtually none of my friends in banking/stockbroking/management consultants-who perhaps should know better-agree and a couple who were bearish for the last four years or so have got bored of predicting a crash that most people think will never happen and now say price stagnation but no falls at best. Very dull.

S.

Share this post


Link to post
Share on other sites
Very good post Dr Bubb.............

Anyone out there fancy being Chancellor of the Exchequer?

Gordon Brown is in a very tight spot now.

"There are two kinds of Chancellor.... the ones who fail and

the ones who get out in time."

Attributed to Mr Gordon Brown, Chancellor of the Exchequer

(for the time being)

Share this post


Link to post
Share on other sites
... got bored of predicting a crash that most people think will never happen and now say price stagnation but no falls at best. Very dull.

It's understandable - the correction point was passed a long time ago, and now the crash point is a good year behind us... you can't blame people for thinking 'er, maybe we're stuck with this'. Sometimes I have my doubts, and i'm moderately pessimistic.

Still, I rent at bargain rates compared to the (current) value of my flat - about 50% cheaper than owning, so I don't care.

Share this post


Link to post
Share on other sites
Doogie, could it be that there are more divorces and people living alone than back then so more proeprty is needed?  Also the two income family means that there is mroe money in households so more money tos epnd on houses (hence nobody is actually any better off).

More people probably do live alone than they used to, but my opinion is that the response of housebuilders to build masses of pokey 1 and 2 bedroom flats has been disproportionate to actual demand, and it is now larger houses that are more in short supply, particularly as many of them have already been split up into small converted flats.

I agree that the two income family means there is more money available to spend on housing. However I also think the womens' liberation movement has backfired to the extent that instead of being enslaved to the kitchen and the family, women have now become wage slaves in order to pay for increased housing costs (as well as the costs of childcare and other household costs that weren't there before).

However, the main reason there is now more money to spend on housing is that banks are now able to lend a lot more than they used to. Indeed, it was only in the 1980s that mortgage lending was deregulated. Until then, you often had to get on a lengthy waiting list just to get an ordinary mortgage! If you look at historical figures for mortgage lending, you'll see a close correlation with house prices.

Share this post


Link to post
Share on other sites
It's understandable - the correction point was passed a long time ago, and now the crash point is a good year behind us...  you can't blame people for thinking 'er, maybe we're stuck with this'. Sometimes I have my doubts, and i'm moderately pessimistic.

Still, I rent at bargain rates compared to the (current) value of my flat - about 50% cheaper than owning, so I don't care.

My problem is with inflation. If inflation does rise - as many are predicting - then surely this would have the affect of absorbing the recent price rises and reducing any nominal falls. As wages rise to match the price inflation then debts that people have racked up will be magicked away.

I suppose one could say that wages won't rise fast enough - but lets see.

Another issue for me is the public sector. Have you looked at the jobs pages and seen the hefty salaries on offer. Hackney Council are offering 100k + for jobs such as 'head of strategy'. Are these jobs sustainable in a downturn?

Share this post


Link to post
Share on other sites
Doogie, could it be that there are more divorces and people living alone than back then so more proeprty is needed? Also the two income family means that there is mroe money in households so more money tos epnd on houses (hence nobody is actually any better off).

Surely if you take a 2 income household and they divorce (or even worse a 1 income household) then their purchasing power is halved. If they sell a family home and buy 2 flats (at 50% of family home £) aggregate demand stays the same, demand will only increase if they both purchase houses at a combined cost greater than the pre divorce home.

Another factor is the amount of young people who are forced to live a 'student' lifestyle of renting with friends long after leaving uni. When prices and costs are at a premium you would expect people to use all available space (sharing / lodgers / downsizing), so I'd expect there to actually be less demand on a per residence basis during a boom because people can't afford to have excess capacity in their housing.

Edited by mescalinemonkey

Share this post


Link to post
Share on other sites
My problem is with inflation. If inflation does rise - as many are predicting - then surely this would have the affect of absorbing the recent price rises and reducing any nominal falls. As wages rise to match the price inflation then debts that people have racked up will be magicked away.

I suppose one could say that wages won't rise fast enough - but lets see.

Another issue for me is the public sector. Have you looked at the jobs pages and seen the hefty salaries on offer. Hackney Council are offering 100k + for jobs such as 'head of strategy'. Are these jobs sustainable in a downturn?

Firstly will wages rise to match price inflation? I'm not sure. I think they'll lag at least a year and will probably be coupled with job losses to keep the overall wage budget the same.

Public sector jobs aren't sustainable now and certainly not if either we go into recession or a tory government gets in.

Share this post


Link to post
Share on other sites
Surely if you take a 2 income household and they divorce (or even worse a 1 income household) then their purchasing power is halved. If they sell a family home and buy 2 flats (at 50% of family home £) aggregate demand stays the same, demand will only increase if they both purchase houses at a combined cost greater than the pre divorce home.

Another factor is the amount of young people who are forced to live a 'student' lifestyle of renting with friends long after leaving uni. When prices and costs are at a premium you would expect people to use all available space (sharing / lodgers / downsizing), so I'd expect there to actually be less demand on a per residence basis during a boom because people can't afford to have excess capacity in their housing.

True - particularly the second point. Most of what is going on doesn't seem to be "true" demand, that is, housing for people to live in. It's speculation. Problem comes when the music stops for those still holding the overpriced parcels, as most of this speculation is based not on rental income but on capital gains. Will be interesting...to watch from the sidelines.

Share this post


Link to post
Share on other sites
My problem is with inflation. If inflation does rise - as many are predicting - then surely this would have the affect of absorbing the recent price rises and reducing any nominal falls. As wages rise to match the price inflation then debts that people have racked up will be magicked away.

The Bank of England is supposed to keep inflation within a relatively narrow band of 1-3%, by raising interest rates if it looks likely to overshoot the central target of 2% in 2 years' time.

Such a rise in interest rates would make alternative investments (including the building society) more attractive than property.

However, there is nothing to stop Gordon Brown from raising the Bank of England's inflation target if it suits him to do so.

Share this post


Link to post
Share on other sites

Firstly will wages rise to match price inflation? I'm not sure. I think they'll lag at least a year and will probably be coupled with job losses to keep the overall wage budget the same.

I agree about the lag, but they will rise eventually. Historically they always have done, otherwise we would be poorer now than we were.

You just need to plot the average wage in nominal terms against the inflation rate to see that wages DO always more or less keep pace with inflation in the long run.

The key question will be the short term, and the time lag.

Share this post


Link to post
Share on other sites
Surely if you take a 2 income household and they divorce (or even worse a 1 income household) then their purchasing power is halved. If they sell a family home and buy 2 flats (at 50% of family home £) aggregate demand stays the same, demand will only increase if they both purchase houses at a combined cost greater than the pre divorce home.

Another factor is the amount of young people who are forced to live a 'student' lifestyle of renting with friends long after leaving uni. When prices and costs are at a premium you would expect people to use all available space (sharing / lodgers / downsizing), so I'd expect there to actually be less demand on a per residence basis during a boom because people can't afford to have excess capacity in their housing.

A useful anecdote from our sale mid-late last year...

We've STR'ed.

Purchaser was downsizing due to divorce, about half equity and half DEBT

His ex-wife was downsizing too (More DEBT)

Purchaser of their property was seller of the property the wife bought. DEBT!

Is this a microcosm of the market over the last 12-18 months? No first time buyer involved, just more and more debt secured against inflated property values.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 336 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.