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BlackSwan

This Is What We Are Up Against

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The property boom of the last decade or so has seen houses become regarded as "investments". There are buyers that bought them to make money and there are owners who happened to benefit from the ride. However, both sets of owners/buyers regard them as investments in the broad sense.

In the 80's share ownership became widespread and studies were performed on the psychology of people buying shares. I believe that house buying and ownership has taken over from shares as the layman's investment and hence the same psychological characteristics can be applied to seller's attitudes as follows:

1) Prospect theory

Firstly, prospect theory, which suggests that people react differently to a given situation depending on whether it is presented to them in the context of a gain or a loss.

The typical outcome is that they become much more distressed at the prospect of a loss than they are made happy by an equivalent gain. .

In property terms, making a gain was seen as a sure thing and occured as a simple consequence of buying. However, in the current climate the pain of a paper loss is too much for some sellers to tolerate.

2) Regret theory

Regret theory is about the emotional reaction to having made an error of judgement, whether this is because a share they have purchased has gone down or because they didn’t buy a share they were looking at which has subsequently gone up.

Investors may avoid selling shares on which they are losing in order to avoid the regret of having made the wrong decision and the embarrassment of admitting the loss.

3) Anchoring

The phenomenon of anchoring is one where investors assume that, in the absence of better information, current prices must be about right.

In a bull market, for example, each new high is “anchored” to the last record and history becomes an irrelevance. The laws of probability and long-term averages simply go out of the window in a blaze of irrational exuberance.

I know many people who have bought shares, watched them drop in value but refused to sell them in the hope that they will go back up again. People will hang on to shares for many years to avoid taking a loss.

Apply this to houses and we are really up against it in price terms with an awful lot of sellers – i.e. the number of rational sellers is probably lower than it has ever been.

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Apply this to houses and we are really up against it in price terms with an awful lot of sellers – i.e. the number of rational sellers is probably lower than it has ever been.

Which is why IRs =need= to be higher. As it stands people can just sit on them for almost free.

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Which is why IRs =need= to be higher.  As it stands people can just sit on them for almost free.

The problem is interest rates (I believe) won't be raised. Someone has to pay for this mess and the decision has been made to protect the idiot homeowners at the cost of savers. As far as I can see, the Idiot-Merv has indicated he doesn't care about inflation i.e. Idiot-Merv doesn't care about savers.

Sadly it's no good saying rates need to rise because needing them to rise and reality are two different things. The reality is savers are getting shafted for the idiocy of others, and I include myself in getting a shafting. I'm getting a double shafting because I'm out of work again and I'm getting crap return on my savings. In fact I believe I am right on the top of the shafting list and probably taking somebody else's shafting as well. :(

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Which is why IRs =need= to be higher. As it stands people can just sit on them for almost free.

So interest rates "need" to be higher to force people into selling cheaply?

Just so you can pick up a bargain?

Not selfish, then?

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The property boom of the last decade or so has seen houses become regarded as "investments".

I can tell you were not looking at property in the early 70s.

The only change this time is the intensity of it due to that phrase BTL

& the minor issue of lender exposure of the total wipe-out variety :)

Edited by Laura

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So interest rates "need" to be higher to force people into selling cheaply?

Just so you can pick up a bargain?

Not selfish, then?

it wont be a bargain...it will be an affordable price.

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So interest rates "need" to be higher to force people into selling cheaply?

Just so you can pick up a bargain?

Not selfish, then?

How is this worse than them "needing" to be low to strip money from savers to bail out the feckless?

This is the problem with state imposed interest rates.

Let the market set them and we'll see who is swimming naked.

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Buy a house to get rid of your cash and get down the benefit office. If you don't, you will spend your cash on rent and then go on benefits with no house and no cash. This is how the system is designed.

Yes. That has crossed my mind. If you have nothing, you'll get everything from the doley office.

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The problem is interest rates (I believe) won't be raised. Someone has to pay for this mess and the decision has been made to protect the idiot homeowners at the cost of savers. As far as I can see, the Idiot-Merv has indicated he doesn't care about inflation i.e. Idiot-Merv doesn't care about savers.

Sadly it's no good saying rates need to rise because needing them to rise and reality are two different things. The reality is savers are getting shafted for the idiocy of others, and I include myself in getting a shafting. I'm getting a double shafting because I'm out of work again and I'm getting crap return on my savings. In fact I believe I am right on the top of the shafting list and probably taking somebody else's shafting as well. :(

Your situation is exactly that which is most unfair about the current policy towards savers. Not only would a saver be paid the normal rate of a % OR 2 ABOVE INFLATION , in normal times, but the whole deleveraging exercise would be rapid and unavoidable if rates were back to 6%. And we need to be there to stop the tide of inflation on non leveraged assets. If we made the banks pay what they should, then you would be back to work quicker IMHO. More pain it may be, but its just better than deferrring it and causing distortions and over much quicker.

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Even if you own a house outright? Surely this cannot be true!

Yap. That is how it works. The rule is that you cannot have saving > 16k, as in cash in bank. You can even own tons of gold and that would be ok.

Edited by easybetman

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I think we are up against a tremendous problem with "investment property". People have seen what a goldmine property has been, although we now have a crash, people seem to be looking at it as a buying opportunity.

Also, we now have BTL mortgages that didn't really exist 15 years ago. And people now have seen how you can use leverage and get other people to pay off your mortgage for you. If you can get a decent yield on property in a few years time, those with a deposit for a buy to let will think it's a great time to buy.

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Even if you own a house outright? Surely this cannot be true!

Basically if you were foolish enough (like me) to save anything then you get nothing. You are expected to find a job and earn so that you can be taxed and pay those sensible people that have no money whatsoever. It is YOUR responsibility to do this. It is YOU responsibility to contribute but YOU are not entitled to anything because YOU were stupid enough to save.

So I am going to go and see my local MP for the very first time and put this question to her:What incentive, after now experiencing this non-beneficial-system-to-me, have I got to be honest and pay my taxes and stamp. I know that next time I won't get anything so why should I now make any contribution to it.. or in fact your so-called Big Society idea? I've had it confirmed that I'll just get shafted in more difficult times.

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Guest Elephant_In_The_Room

The property boom of the last decade or so has seen houses become regarded as "investments". There are buyers that bought them to make money and there are owners who happened to benefit from the ride. However, both sets of owners/buyers regard them as investments in the broad sense.

In the 80's share ownership became widespread and studies were performed on the psychology of people buying shares. I believe that house buying and ownership has taken over from shares as the layman's investment and hence the same psychological characteristics can be applied to seller's attitudes as follows:

1) Prospect theory

Firstly, prospect theory, which suggests that people react differently to a given situation depending on whether it is presented to them in the context of a gain or a loss.

The typical outcome is that they become much more distressed at the prospect of a loss than they are made happy by an equivalent gain. .

In property terms, making a gain was seen as a sure thing and occured as a simple consequence of buying. However, in the current climate the pain of a paper loss is too much for some sellers to tolerate.

2) Regret theory

Regret theory is about the emotional reaction to having made an error of judgement, whether this is because a share they have purchased has gone down or because they didn't buy a share they were looking at which has subsequently gone up.

Investors may avoid selling shares on which they are losing in order to avoid the regret of having made the wrong decision and the embarrassment of admitting the loss.

3) Anchoring

The phenomenon of anchoring is one where investors assume that, in the absence of better information, current prices must be about right.

In a bull market, for example, each new high is "anchored" to the last record and history becomes an irrelevance. The laws of probability and long-term averages simply go out of the window in a blaze of irrational exuberance.

I know many people who have bought shares, watched them drop in value but refused to sell them in the hope that they will go back up again. People will hang on to shares for many years to avoid taking a loss.

Apply this to houses and we are really up against it in price terms with an awful lot of sellers i.e. the number of rational sellers is probably lower than it has ever been.

Holding onto shares isn't the same as holding onto your property(s) for numerous reasons.

People have families, move jobs and want to/have to move. Sitting tight in your property can put your entire life on hold.

This isn't true with shares, they can sit there for the next 100 years gathering dust

Edited by Elephant_In_The_Room

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Guest Elephant_In_The_Room

What, like shares don't cause you to lose money each month?

I want to know why we frequently revisit this notion that sellers will just sit it out.

Well, ask yourself why they aren't doing this in numerous countries which are experiencing a crash.

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Your situation is exactly that which is most unfair about the current policy towards savers. Not only would a saver be paid the normal rate of a % OR 2 ABOVE INFLATION , in normal times, but the whole deleveraging exercise would be rapid and unavoidable if rates were back to 6%. And we need to be there to stop the tide of inflation on non leveraged assets. If we made the banks pay what they should, then you would be back to work quicker IMHO. More pain it may be, but its just better than deferrring it and causing distortions and over much quicker.

So.

Where do we think the money to pay savers a % or 2 above inflation comes from exactly?

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I want to know why we frequently revisit this notion that sellers will just sit it out.

Well, ask yourself why they aren't doing this in numerous countries which are experiencing a crash.

There will always be forced sellers.

At the moment, banks are buying these properties up and sitting on them to avoid a forced sale in open market, which would force them to lower the valuation of the properties in their loan book... which would leave them with a loan book that was worthless.

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So.

Where do we think the money to pay savers a % or 2 above inflation comes from exactly?

stocks. Banks are doing rather well with their investment arms. arent they.

course, they have been using real money exchanged for mortgage tat.

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The property boom of the last decade or so has seen houses become regarded as "investments". There are buyers that bought them to make money and there are owners who happened to benefit from the ride. However, both sets of owners/buyers regard them as investments in the broad sense.

In the 80's share ownership became widespread and studies were performed on the psychology of people buying shares. I believe that house buying and ownership has taken over from shares as the layman's investment and hence the same psychological characteristics can be applied to seller's attitudes as follows:

1) Prospect theory

Firstly, prospect theory, which suggests that people react differently to a given situation depending on whether it is presented to them in the context of a gain or a loss.

The typical outcome is that they become much more distressed at the prospect of a loss than they are made happy by an equivalent gain. .

In property terms, making a gain was seen as a sure thing and occured as a simple consequence of buying. However, in the current climate the pain of a paper loss is too much for some sellers to tolerate.

2) Regret theory

Regret theory is about the emotional reaction to having made an error of judgement, whether this is because a share they have purchased has gone down or because they didn’t buy a share they were looking at which has subsequently gone up.

Investors may avoid selling shares on which they are losing in order to avoid the regret of having made the wrong decision and the embarrassment of admitting the loss.

3) Anchoring

The phenomenon of anchoring is one where investors assume that, in the absence of better information, current prices must be about right.

In a bull market, for example, each new high is “anchored” to the last record and history becomes an irrelevance. The laws of probability and long-term averages simply go out of the window in a blaze of irrational exuberance.

I know many people who have bought shares, watched them drop in value but refused to sell them in the hope that they will go back up again. People will hang on to shares for many years to avoid taking a loss.

Apply this to houses and we are really up against it in price terms with an awful lot of sellers – i.e. the number of rational sellers is probably lower than it has ever been.

Why on earth would anyone with a grain of sense sell when prices plummet? For anyone canny, that's the time to buy.

For most, shares should be a long-term thing. Anyone who thinks they're going to need the cash short-term should put it in something else.

And it's not all about capital growth - you have to remember that dividends on certain shares pay a good bit more than cash in the bank.

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Companies buying houses to stop repos.

(Not sure how the rent back market is - but that became regulared ) - can't see any rent backs in the ads on the local paper.

But also Onepoundhouses. co.uk

seems to be a new thing too.

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  • 201 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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