"real" House Prices

[nohpc]

If real house prices plunge by 20 - 30% but nominal prices stay static over the next 10 years is there any benefit to holding off buying?

The more I think about it the less likely I think it is we will see significant rate rises over the next decade:

1) Slightly higher rates will destroy almost everybody in the country apart form HPCers

2) The government would prefer high inflation to everybody in the country being destroyed (stealth destruction)

[Milton]

If real house prices plunge by 20 - 30% but nominal prices stay static over the next 10 years is there any benefit to holding off buying?

The more I think about it the less likely I think it is we will see significant rate rises over the next decade:

1) Slightly higher rates will destroy almost everybody in the country apart form HPCers

2) The government would prefer high inflation to everybody in the country being destroyed (stealth destruction)

1.] Why do you think higher Interest Rates would destroy everyone in the country apart from HPCers?

Isnt that a myth? Dont well over half the population of UK homeowners own outright? So they can be classified as savers?

And arent a large percentage of homeowners, people who borrowed pre-boom, pre 2001?

And as you state your timeframe over a decade, wont there be a new generation of young people, schooleavers etc, looking to get onto the ladder every year, over those ten years?

I dont know what the figures are, but it seems to me it would be a minority of people who would suffer from higher IR.

Mainly the BTL brigade, and the people who got onto the ladder over the last 7-8 years. [And Im sure that a number of those people, would be able to continue to pay off their mortgage, even though they would obviously be p1ssed off at being in neg equity.]

[sticky fingers]

If real house prices plunge by 20 - 30% but nominal prices stay static over the next 10 years is there any benefit to holding off buying?

The more I think about it the less likely I think it is we will see significant rate rises over the next decade:

1) Slightly higher rates will destroy almost everybody in the country apart form HPCers

2) The government would prefer high inflation to everybody in the country being destroyed (stealth destruction)

i dont think its a matter of avoiding higher interest rates in order to not hurt anybody- the goverment will not have a choice. If interest rates do not rise, inflation will run away, and the uk gov will be forced to pay higher rates for the obscene amount of money it is borrowing. You cant just 'inflate away' your debts, those that are lending you money are not stupid and will demand higher interest rates to compensate for the decreasing value of sterling.

[red]

If real house prices plunge by 20 - 30% but nominal prices stay static over the next 10 years is there any benefit to holding off buying?

The more I think about it the less likely I think it is we will see significant rate rises over the next decade:

1) Slightly higher rates will destroy almost everybody in the country apart form HPCers

2) The government would prefer high inflation to everybody in the country being destroyed (stealth destruction)

Yes, the govt would rather erode the debt through inflation and naive homeowners would feel happier thinking their properties hadn't lost 'value' if nominal prices remained static.

Ain't gonna happen though - deflation all the way.

[Mr Yogi]

1.] Why do you think higher Interest Rates would destroy everyone in the country apart from HPCers?

Isnt that a myth? Dont well over half the population of UK homeowners own outright? So they can be classified as savers?

And arent a large percentage of homeowners, people who borrowed pre-boom, pre 2001?

And as you state your timeframe over a decade, wont there be a new generation of young people, schooleavers etc, looking to get onto the ladder every year, over those ten years?

I dont know what the figures are, but it seems to me it would be a minority of people who would suffer from higher IR.

Mainly the BTL brigade, and the people who got onto the ladder over the last 7-8 years. [And Im sure that a number of those people, would be able to continue to pay off their mortgage, even though they would obviously be p1ssed off at being in neg equity.]

The demographic who would be wiped out by a HPC and higher interest rates is relatively small - BTLers and anyone who has bought at high LTV in the last five years (or MEWed). Maybe 3 million out of an adult population of 35 million.

Collateral damage...

[winkie]

If real house prices plunge by 20 - 30% but nominal prices stay static over the next 10 years is there any benefit to holding off buying?

The more I think about it the less likely I think it is we will see significant rate rises over the next decade:

1) Slightly higher rates will destroy almost everybody in the country apart form HPCers

2) The government would prefer high inflation to everybody in the country being destroyed (stealth destruction)

Depends on how you see your income over the next 25 years....historically the difference between owners and renters has always been greater than it is today, this has changed partly because credit was so freely available and given to people that realistically would not be able to repay.

When you take on a long term loan you have to balance out the average interest rate over 25 years...average boebr rates have been say 6.5%.......I would say real prices will fall, rents will fall, fuel, water, taxes, and food will rise.....so peoples real important priorities will be more the cost of day-to-day cost of living than property capital price increases....those days are over.

Edited July 18, 2010 by winkie

[Goat]

If real house prices plunge by 20 - 30% but nominal prices stay static over the next 10 years is there any benefit to holding off buying?

The more I think about it the less likely I think it is we will see significant rate rises over the next decade:

1) Slightly higher rates will destroy almost everybody in the country apart form HPCers

2) The government would prefer high inflation to everybody in the country being destroyed (stealth destruction)

What about 20% - 30% falls over the next 12-18 months?

If inflation is the the problem then gold, RPI linked bonds and similar is the answer.

Also wasn't low inflation one of the main bull memes pre 2007. "It's different this time, low inflation means low interest rates so people can borrow more"

[Mikhail Liebenstein]

i dont think its a matter of avoiding higher interest rates in order to not hurt anybody- the goverment will not have a choice. If interest rates do not rise, inflation will run away, and the uk gov will be forced to pay higher rates for the obscene amount of money it is borrowing. You cant just 'inflate away' your debts, those that are lending you money are not stupid and will demand higher interest rates to compensate for the decreasing value of sterling.

I have decided that it is possible to kid yourself that interests rates won't stay low.  Japan has managed this trick, and has more debt than we do in the public sector at least. Ultimately if we print, the pounds will fall and we will get inflation - there difference with Japan will be the degree of printing.

[Bloo Loo]

The demographic who would be wiped out by a HPC and higher interest rates is relatively small - BTLers and anyone who has bought at high LTV in the last five years (or MEWed). Maybe 3 million out of an adult population of 35 million.

Collateral damage...

banks are worthwhile collateral damage.

[AvidFan]

If real house prices plunge by 20 - 30% but nominal prices stay static over the next 10 years is there any benefit to holding off buying?

The more I think about it the less likely I think it is we will see significant rate rises over the next decade:

1) Slightly higher rates will destroy almost everybody in the country apart form HPCers

2) The government would prefer high inflation to everybody in the country being destroyed (stealth destruction)

Also depends on how big your deposit is.

If there were literally no drops in house prices, you should be able to earn something on your cash being in some other asset. If you managed a 5% return then you're saving that amount off the percentage of the house you actually own.

But there are other plays - like taking a mortgage to buy a house for your wife and family and going on 6 month contracts to the Eurozone, the US or Asia. There are implications for currency strengths and weaknesses that influence whether you win or lose.

I can see that with a 5% deposit then there's little or no point worrying about it all if you intend living in it. Plus or minus 10%, you get the same "experience" no matter when you buy - at the top when interest rates have been slashed to near zero in the crash or at the bottom when interest rates are sky rocketing - you'll end up paying the same if you're a debtor. I suppose that depends on whether you're intelligent enough to lock in at ultra-low rates for decades if you're at the top, etc, etc. It's called market efficiency.

Finally, I suppose it's worth saying that there's the mental stress of having a huge mortgage hanging over you. Buying with a big cash pile and a mortgage at 2x earnings most people would find far less stressful that buying at 6x earnings with 5% down. In the former case, interest rates might be at 10% but over the lifetime of your mortgage, they'd come down, so "life would be getting better". Buying at the top means interest rates will only rise and you have the mountain of 6x earnings debt to climb. I don't fancy being that person.