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Latest from Mrs BF - the EA she works for is very busy - with valuations - buyers have gone a bit quiet apparently. Looks like the next leg down is inevitable to me and I speak as a home owner. The only doubt I have, and its the doubt the caused me to buy a year ago, is that the banks and government know full well how disasterous any further falls in house prices would be for the wider economy and will do anything to prevent it, including allowing inflation to eat away at the national debt rather than see the market correct. You can already see the articles attempting to justify keeping IRs at almost zero inspite of high and persistent inflation ( Kaletsky has written two only this week ).

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Hopefully this will repeated across the country - more sellers, less buyers.

Problem is, the sellers will hold for their asking prices for months, if not years, and will only gradually reduce them. At the same time, as BF points out, there is the issue of inflation.

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Latest from Mrs BF - the EA she works for is very busy - with valuations - buyers have gone a bit quiet apparently. Looks like the next leg down is inevitable to me and I speak as a home owner. The only doubt I have, and its the doubt the caused me to buy a year ago, is that the banks and government know full well how disasterous any further falls in house prices would be for the wider economy and will do anything to prevent it, including allowing inflation to eat away at the national debt rather than see the market correct. You can already see the articles attempting to justify keeping IRs at almost zero inspite of high and persistent inflation ( Kaletsky has written two only this week ).

I just do not see where the wage inflation will come from to prop up house prices, regardless of inflation generally.

The pay in my sector has got even worse in the last few months, I saw a skilled job which involved experience, technical and administrative skills for a fairly large company today, offering under 20K! For this you are managing their clients, overseeing the production line, managing the office, taking new enquiries, doing credit control, on and on and on, unbelievable. A key post in the day to day running of the company.

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People dont lend at a lower interest rate than inflation. Yeah you can sucker some people in initially but then when you need to roll over *cough* soverigndebt, then you have to pay a higher interest rate, which means all those lovely mortgagees get to eat a higher SVR or renewal rate too. Wages going to match in real time?.. dont make me laugh.

It aint gonna happen. High inflation = house price carnage.

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is that the banks and government know full well how disasterous any further falls in house prices would be for the wider economy

can you clarify this? As I think the opposite is true. Imagine affordable homes commutable from London, M4 and M11 corridors, Bristol etc

that would be very healthy for the economy

this is a myth that has entered the public conciousness, it is nonsense I reckon

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Latest from Mrs BF - the EA she works for is very busy - with valuations - buyers have gone a bit quiet apparently. Looks like the next leg down is inevitable to me and I speak as a home owner. The only doubt I have, and its the doubt the caused me to buy a year ago, is that the banks and government know full well how disasterous any further falls in house prices would be for the wider economy and will do anything to prevent it, including allowing inflation to eat away at the national debt rather than see the market correct. You can already see the articles attempting to justify keeping IRs at almost zero inspite of high and persistent inflation ( Kaletsky has written two only this week ).

great work BF and thanks for the info

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including allowing inflation to eat away at the national debt rather than see the market correct. You can already see the articles attempting to justify keeping IRs at almost zero inspite of high and persistent inflation ( Kaletsky has written two only this week ).

Except that higher inflation inevitably means higher interest rates, the only question is how late you wait until you act to bring inflation back under control.

Obviously the longer you wait the higher rates will have to go in the end, leave it too long and you'll end up destroying the BOE's credibility (what's left) meaning even higher rates.

Wasn't this the main bull arguement - low inflation/low interest rates?

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Wasn't this the main bull arguement - low inflation/low interest rates?

I think the main bull argument was this:

If they have high interest rates then high inflation will push up house prices, low interest rates will support house prices and if you rent it out then subsidising the rent is a bit like paying into a pension and people could never really afford houses anyway, not in the 13th century anyway, so it will go back to feudalism and I'll be a landlord and anyway young professionals love letting my BTL flats off me and they're not making any more land and it's bricks and mortar innit.

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My thoughts are, the gov and the banks have known for a while that this bubble is going to deflate, that is why the banks have had access to cheap money (which generally they have not been lending), basically to build a war fund for when this hp deflation happens. It would seem most mortgages have been wrapped up in packages and sold on, with cds insurances, and I suspect banks, hedge funds etc are highly exposed to the downside, so have been give a chance to line their pockets so that they either will not be wiped out, or will not have to be bailed out.

I am probably way off the mark here but that is how I see it at the moment. I think a major price correction is around the corner, the technicals suggest it is imminent, the fundamentals are screeming that it is due, so it is damage limitation time. JMO

can you clarify this? As I think the opposite is true. Imagine affordable homes commutable from London, M4 and M11 corridors, Bristol etc

that would be very healthy for the economy

this is a myth that has entered the public conciousness, it is nonsense I reckon

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My thoughts are, the gov and the banks have known for a while that this bubble is going to deflate, that is why the banks have had access to cheap money (which generally they have not been lending), basically to build a war fund for when this hp deflation happens. It would seem most mortgages have been wrapped up in packages and sold on, with cds insurances, and I suspect banks, hedge funds etc are highly exposed to the downside, so have been give a chance to line their pockets so that they either will not be wiped out, or will not have to be bailed out.

I am probably way off the mark here but that is how I see it at the moment. I think a major price correction is around the corner, the technicals suggest it is imminent, the fundamentals are screeming that it is due, so it is damage limitation time. JMO

I suspect that you may be right.

I think at first inflation(already here), then deflation, finally desperation as house sellers hang on for their price and see forced sales hit lower and lower record lows. There is the likelihood that a lot of sellers will remove from the market and stay put. It all depends if there are still sufficient houses for sale to meet demand. If demand still exceeds supply, prices will only slowly fall. But most existing BTL properties will probably go owner occupier and it may turn out that despite all the late ramping, there are more houses in the UK than we need.

Sometime in the future, I guess that once again we will see city centre tower blocks of flats being dmolished. This time instead of LA flats, they will be the private ones. In Swansea within the last 10 years, three LA towers were demolished in a nice area, only to have some pillocks build a new tower on the sea front. Flats in Tower blocks do not work. They may be all right in a huge city with a never ending supply of young singles, but in smaller cities and towns, the residents stay put and try to raise families which is a disaster waiting to happen.

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There are several inbuilt factors that tend to drive up house prices.

1) People want to own houses. If they stop wanting to own them, values will plummet.

2) If you want to own a house, it's less bad to pay over the odds in a falling market than to miss the boat in a rising market.

3) Sellers set the initial asking price. If they didn't and it was up to buyers to open the negotiations with an offer, prices would start falling.

Edited by blankster

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3) Sellers set the initial asking price. If they didn't and it was up to buyers to open the negotiations with an offer, prices would start falling.

Surely all negotiations open with a buyers offer? The asking is just a guide price, it's not an offer to sell at a particular price.

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Surely all negotiations open with a buyers offer? The asking is just a guide price, it's not an offer to sell at a particular price.
Yes, but it's a guide price. If there were no guide prices, there would be no benchmark.

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My thoughts are, the gov and the banks have known for a while that this bubble is going to deflate, that is why the banks have had access to cheap money (which generally they have not been lending), basically to build a war fund for when this hp deflation happens. It would seem most mortgages have been wrapped up in packages and sold on, with cds insurances, and I suspect banks, hedge funds etc are highly exposed to the downside, so have been give a chance to line their pockets so that they either will not be wiped out, or will not have to be bailed out.

I am probably way off the mark here but that is how I see it at the moment. I think a major price correction is around the corner, the technicals suggest it is imminent, the fundamentals are screeming that it is due, so it is damage limitation time. JMO

I agree and IMO there are PLENTY of people who will take a 50 - 100k mortgage at 10% and be able to pay back. This is all the banks have, otherwise they implode?

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I actually think this is the big myth about house pricing, indeed house prices are not about house supply and demand (well ok but to a much lesser extent than people think), the housing market should be renamed the mortgage market. House prices will go up and be high as long as there is a plentiful supply of cheap money, withdraw that supply, ie increase the cost of money, and house prices will fall.

The thing with the housing market is we have had a decade of cheap plentiful money which has caused the bubble, this cheap money is being withdrawn, but there is a lag time, a long lag time with housing, before forced sales start to bring prices down, and before people get used to the idea that prices have come down. At the moment we have seen the first fall in prices, and this is while money is still relatively cheap, wait until the cost of borrowing goes up, wait until it is really difficult to get a mortgage, when those on fixed rates have to stay with the mortgage company they are with and suffer higher rates, then you will see a reversion to average. I expect another two years and we will see average house prices down around the £120 -£140k mark. jmo

£10,000 a year to spend on interest gets you £200,000 at 5%

£10,000 a year to spend on interest gets you £100,000 at 10%

There are several inbuilt factors that tend to drive up house prices.

1) People want to own houses. If they stop wanting to own them, values will plummet.

2) If you want to own a house, it's less bad to pay over the odds in a falling market than to miss the boat in a rising market.

3) Sellers set the initial asking price. If they didn't and it was up to buyers to open the negotiations with an offer, prices would start falling.

Edited by Lord Lister

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There are several inbuilt factors that tend to drive up house prices.

3) Sellers set the initial asking price.

No. EA's set the initial asking price.

The natural question for a seller to open with (on meeting the EA) is 'What do you think it's worth?'

I contend that most of the idiotic prices asked are down to EA's wanting to secure the selling contract, and hoping to find a mug. The vendor happily colludes in this.

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<snip>

£10,000 a year to spend on interest gets you £200,000 at 5%

£10,000 a year to spend on interest gets you £100,000 at 10%

And spare a thought for the Bank of Mum and Dad.

Very, very rich mums and dads might have £1,000,000 in the bank.

At 10%, their interest income was £100,000 a year.

At 0.5%, their interest income is £5,000 a year.

They now need £20,000,000 in the bank to earn the same interest income at 0.5% that they were earning on £1,000,000 at 10%.

The Bank of Mum and Dad are not as rich at very low interest rates as they were at much higher interest rates.

Giving money to their kids to buy houses is suddenly a much riskier game at very low interest rates as they might need their principal amount rather than interest to see them through their retirement years.

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and will do anything to prevent it, including allowing inflation to eat away at the national debt rather than see the market correct. You can already see the articles attempting to justify keeping IRs at almost zero inspite of high and persistent inflation ( Kaletsky has written two only this week ).

1. Bankers and politicians can do nothing against the deflationary forces. US is in deflation therefore...

2. More fool you for listening to absolute idiots like KAletsky. He has been consistently wrong since 2005.

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But house prices have gone up by 8.5% over the last year - better return (and tax free) than any bank.

This temporarily increases the probability that mum and dad will get their money back. I might be wrong but I don't think that they share in any temporary upside and bear the full risk of any potential permanent impairment.

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And spare a thought for the Bank of Mum and Dad.

Very, very rich mums and dads might have £1,000,000 in the bank.

At 10%, their interest income was £100,000 a year.

At 0.5%, their interest income is £5,000 a year.

They now need £20,000,000 in the bank to earn the same interest income at 0.5% that they were earning on £1,000,000 at 10%.

The Bank of Mum and Dad are not as rich at very low interest rates as they were at much higher interest rates.

Giving money to their kids to buy houses is suddenly a much riskier game at very low interest rates as they might need their principal amount rather than interest to see them through their retirement years.

I don't think there are any B of M&D worth a million, who accept 0.5% interest on it. At the likely least they will be drawing 4% net having split it into several pots years back and obtained varying rates of interest on those pots - all above 3.5% and many pots fixed (3/4/5 year bonds at 5%/6%/7%). Many will have also done very well over the last year in equities.

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I don't think there are any B of M&D worth a million, who accept 0.5% interest on it. At the likely least they will be drawing 4% net having split it into several pots years back and obtained varying rates of interest on those pots - all above 3.5% and many pots fixed (3/4/5 year bonds at 5%/6%/7%). Many will have also done very well over the last year in equities.

Laddering is a great technique.

My argument still holds though. Those 3/4/5 year bonds at 5%/6%/7% are now maturing and are being replaced by 3/4/5 year bonds at massively lower rates.

The last year has been good for equity owners. The total return on the FTSE in the last 5, 10 and 15 years is not much more than zero though. The return assumptions in classic wealth allocation models are being blown out of the water.

The BoMaD is hurting. Actual returns are way below what they and their advisors modelled. Risking capital on overpriced houses is not a brilliant idea.

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But historically house prices have either gone up or down in real terms and not remained static. IMHO take away the current support and they can only go one way. Before the big fall (not really a crash in 2008) prices were also 'soaring' in 2007 as they are today. I think we will have a better idea of what is in store on 22 June; either a sense of the reality of our problems will prevail and prices will fall or the support will continue and we start the next leg up.

Currently my view is that even now prices are falling as is underlying affordability; wages are rising at much less than inflation. As soon as there is a change in interest rates many will struggle as will those that move from the typical 1% above base to whatever their SVR is.

All the fundementals look set to cause a crash but the government can prevent it just as Brown did.

Great points Joe Satch, i agree all the fundermentals look to cause a crash, but i am thinking again the government will prevent it, being honest i did not think they would be able to , as in the USA it never stopped it, but here they to looked to have stopped it all happening,

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  • 259 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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