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Why House Prices Arnt Dropping Sharply Yet

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A lot of people on here seem to be getting despondent about ho HPs are apparently holding up so well.

I've been thinking about this and coming to the conclusion that its about "sticky" prices, i.e. the same economic phenomena that is well understood labour markets:

In a labour market when demand falls wages adjust very slowly downwards for a number of fairly obvious reasons such as a basic resistance of people to accept lower wages the a relative lack of liquidity in the market. So in the early stage people only take wage cuts when they are forced to change jobs or lose their job out right. So what happens is that the fall in demand for labour results in a contraction stage - the number of "transactions" (i.e. the number of people in work) falls, rather than the same number of people working for less. Eventually there is a capitulation stage where people accept lower wages as they realise they are now in competition with the out-of-work and wages can fall quickly.

I'm sure you can see the obvious parallels with the housing market. Those getting restless and depressed should take heart and realise that reduced volume is very good news indeed and is no more than the same sticky price phenomena - less buying money initially causing reduced volume instead of reduced prices.

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A lot of people on here seem to be getting despondent about ho HPs are apparently holding up so well.

I've been thinking about this and coming to the conclusion that its about "sticky" prices, i.e. the same economic phenomena that is well understood labour markets:

In a labour market when demand falls wages adjust very slowly downwards for a number of fairly obvious reasons such as a basic resistance of people to accept lower wages the a relative lack of liquidity in the market. So in the early stage people only take wage cuts when they are forced to change jobs or lose their job out right. So what happens is that the fall in demand for labour results in a contraction stage - the number of "transactions" (i.e. the number of people in work) falls, rather than the same number of people working for less. Eventually there is a capitulation stage where people accept lower wages as they realise they are now in competition with the out-of-work and wages can fall quickly.

I'm sure you can see the obvious parallels with the housing market. Those getting restless and depressed should take heart and realise that reduced volume is very good news indeed and is no more than the same sticky price phenomena - less buying money initially causing reduced volume instead of reduced prices.

I sort of agree. As you say, wages are sticky. Contracts are difficult to change. You need bankruptcy or something extreme to get them to be reduced. This is the problem that the government faces with public sector wages.

So you need something pretty extreme to get people to drop their asking prices. In the past we had high interest rates and people being evicted from houses they couldnt afford. This time we have low interest rates, and all sorts of benefits thrown at those with mortgages. We also have banks unwilling to evict where there are kids involved. Without the extreme of pay up or your out in force, downwards prices will be all the stickier.

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I sort of agree. As you say, wages are sticky. Contracts are difficult to change. You need bankruptcy or something extreme to get them to be reduced. This is the problem that the government faces with public sector wages.

So you need something pretty extreme to get people to drop their asking prices. In the past we had high interest rates and people being evicted from houses they couldnt afford. This time we have low interest rates, and all sorts of benefits thrown at those with mortgages. We also have banks unwilling to evict where there are kids involved. Without the extreme of pay up or your out in force, downwards prices will be all the stickier.

Bingo

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Also, the well publicized "recovery in prices" and "prices back to 2007 levels" mantra has set back this process regardless.

In late 2008, the sheeple were finally coming to terms with the idea that property was not a one way bet.

The actions of Labor and the BofE not only stopped the crash gathering momentum but, most significantly, they have restored the sheeple’s belief in property prices.

Sellers are far more skeptical about talk of house price falls than ever before, meaning it will be even harder to convince some that next blip is not "temporary" and they can simply “ride it out” again.

It will take a year of sustained falls to accelerate the rate of decline assuming that supply stays constant (because we know interest rates will).

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A combination of a 0.5% base rate (hence mortgage rates under 3% for high equity individuals) and "government heavy breathing" on banks to stop repo actions has conspired to prevent HPC.

The real question now is: at what point do the MPC put the base rate up? Given that inflation is over target, has been over target for years, and shows no sign of getting itself down to target.

Everything points to the Govt/BoE/MPC having decided to inflate away the debt, without actually telling anyone.

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Everything points to the Govt/BoE/MPC having decided to inflate away the debt, without actually telling anyone.

Not quite ,

The debt only gets inflated away if wages rise as well as inflation. At present we are told lies about inflation it is far higher than they admit , wages are only going up ( if at all ) in line with the lies . So wages are rising at less than inflation this makes the debt a bigger burden as time goes on as the money to service the debt's is being eaten up to cover the increasing costs that are not being covered by wage rises.

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A lot of people on here seem to be getting despondent about ho HPs are apparently holding up so well.

I've been thinking about this and coming to the conclusion that its about "sticky" prices, i.e. the same economic phenomena that is well understood labour markets:

In a labour market when demand falls wages adjust very slowly downwards for a number of fairly obvious reasons such as a basic resistance of people to accept lower wages the a relative lack of liquidity in the market. So in the early stage people only take wage cuts when they are forced to change jobs or lose their job out right. So what happens is that the fall in demand for labour results in a contraction stage - the number of "transactions" (i.e. the number of people in work) falls, rather than the same number of people working for less. Eventually there is a capitulation stage where people accept lower wages as they realise they are now in competition with the out-of-work and wages can fall quickly.

I'm sure you can see the obvious parallels with the housing market. Those getting restless and depressed should take heart and realise that reduced volume is very good news indeed and is no more than the same sticky price phenomena - less buying money initially causing reduced volume instead of reduced prices.

How is this theory compatable with 20% falls in 2008?

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If the FSA sticks to its guns over the new mortgage rules, and as a result there is a further large reduction in the number of mortgages granted, then house prices should fall a lot even with IRs at the current low rates. But repos will be minimised because of the low IRs.

And then more lending can be directed towards business. Slowly the economy will recover and over time IRs can return to more normal levels without doing too much damage. In the meatime house prices will have returned to historic income multiples.

Maybe this is the governement's thinking behind the new mortgage rules.

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A combination of a 0.5% base rate (hence mortgage rates under 3% for high equity individuals) and "government heavy breathing" on banks to stop repo actions has conspired to prevent HPC.

The real question now is: at what point do the MPC put the base rate up? Given that inflation is over target, has been over target for years, and shows no sign of getting itself down to target.

Everything points to the Govt/BoE/MPC having decided to inflate away the debt, without actually telling anyone.

AND --- to keep the LIAR LOANS going; otherwise - it all goes "pop".... :rolleyes:

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The government, above all, want to avoid a sudden crash, which would put the banks back into the sh1t, **** up the lives of lots of people, etc etc.

They don't so much want to keep house prices at current silly levels, but to allow a certain amount of inflation and allow prices and incomes to drift towards a more sensible ratio. To inflate away people's debts and unwind the effects of the boom.

If I was in power, I would not try to precipitate a sudden crash by putting up interest rates to "curb inflation", which would mess things up for most people, causing more business failures, repos, bank failures (needing bailouts), probably riots, etc.

Whoever is in power, unless they want to bring about chaos, will want stability as far as possible.

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We have guaranteed minimums. A lot of people won't work for minimum wage as they get more in benefits (We can invite A8 nationals and deny them benefits for a period of one year, but after the year is up---). Houses have a minimum value as there is a rate of housing benefit which determines a rental yield, combined with interest rates and a 10-25 year mortgage, one arrives at the minimum possible value (one where the buyer can make a profit by purchasing) and using it as state funded BTL HMO council housing.

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Sticky Wages! LOL. Another sad attempt by the economics magi to make their belief system fit reality. Might have worked during the relatively closed economies of the 60s and 70s which were both heavily unionized and mainly based on manufacturing but is utterly useless under any other set of circumstances.

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The government, above all, want to avoid a sudden crash, which would put the banks back into the sh1t, **** up the lives of lots of people, etc etc.

They don't so much want to keep house prices at current silly levels, but to allow a certain amount of inflation and allow prices and incomes to drift towards a more sensible ratio. To inflate away people's debts and unwind the effects of the boom.

If I was in power, I would not try to precipitate a sudden crash by putting up interest rates to "curb inflation", which would mess things up for most people, causing more business failures, repos, bank failures (needing bailouts), probably riots, etc.

Whoever is in power, unless they want to bring about chaos, will want stability as far as possible.

+1

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House prices are now officially dropping sharply. What a difference a day makes B)

Hopefully it will be a sharp correction that will be over within 3 years.

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I think they have dropped a bit already.

Only the really really desirable stuff is selling. Good big houses in great areas that might not be everyone's cup of tea don't find a buyer.

This one has been on the market in the desirable town of Hexham, Northumberland for a while now and the asking price which was just slight off being believeable when it went on the market has fallen about 25%.

http://www.rightmove.co.uk/property-for-sale/property-26007206.html

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  • 145 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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