Jump to content
House Price Crash Forum
Sign in to follow this  
Kyoto

Bull Arguments That Have Some Merit

Recommended Posts

On the other thread I just mentioned a bull idea that really bugs me - 'we'll just wait for the market to recover'

But, can we be adults for a second and suggest any arguments that the bulls have that actually has some credibiity?

For me, it's one that I mentioned yesterday - the fact that there's been the big change in women going out to work and equalising their salaries, leading to lots of dual income households.

With banks lending against combined salaries, I see this as a long term fundamental change that feeds into the price of housing. I can't see this ever reversing.... From my own experience, I just can't the bloody cow in the kitchen (joking, darling B))

Yes, there's lots of holes in this idea - some of the women will have displaced positions that would have previously had a man working there, it might also have driven down salaries, and yes, salaries are still at risk. However, it can't be denied that the average salary in this country is much more than 25k when you combine a couples for the purchase of buying a house & that there is more than enough of this going on to move the market and keep it distorted.

Not in any way saying this is soley responsible for the bubble, just a real factor that has more substance than 'prices only ever go up, innit'.

Thoughts on this and other bull ideas you respect?

Edited by Kyoto

Share this post


Link to post
Share on other sites

Relying on a dual income to pay the bills puts the household at huge risk, should one lose their job, split up, have kids, etc.

I wouldn't sell a dual income mortgage unless at a very low multiple.

Share this post


Link to post
Share on other sites

Relying on a dual income to pay the bills puts the household at huge risk, should one lose their job, split up, have kids, etc.

I wouldn't sell a dual income mortgage unless at a very low multiple.

Rightly or wrongly, the banks do it though, and this hasn't even entered the debate re risky lending.

There's a hundred changes they'll make to mortgages before they roll this one back IMO.

Share this post


Link to post
Share on other sites

Rightly or wrongly, the banks do it though, and this hasn't even entered the debate re risky lending.

There's a hundred changes they'll make to mortgages before they roll this one back IMO.

yes, but that is a bear argument, as they are making that household more vulnerable to anby changes, thus making it more likely that it will go up for repossession and fire sale.

Share this post


Link to post
Share on other sites

Some friends are in this situation - married couple, just 30, each earning 25K. Where we live, 2.5 times that will give them somewhere reasonable. 3.5 and you're doing very well - which is what they have done. I have to be careful not to lose the friendship when we discuss hps. They are keen to snap up more properties, see them as a good investment and in their position, especially without kids, I can see why they think that (that plus a dose of msm spin).

They own two properties and are housesitting their parents place at the mo. One of them they had to kick the tenants out for not paying for three months. They had also absolutely trashed the place. The other place they are trying to find tenants for, but without luck (looking to get too high rent imo). They're also not benefitting from low irs because they fixed rates for an extended period when it looked like they were going up. Absolutely none of this has deterred them whatsoever. Housing bubble? As far as they're concerned their never was one and there certainly isn't one now.

At the same time, their situation is boosted by the fact that they still got their uni education relatively cheap. In the future, a young couple both with average salary jobs are likely to have a heck of a lot of student debt which will undermine their finances. That argument is rarely aired, even on this site and could be a big drag on FTB's getting a foothold even if prices come down substantially.

Edited by rantnrave

Share this post


Link to post
Share on other sites

Relying on a dual income to pay the bills puts the household at huge risk, should one lose their job, split up, have kids, etc.

I wouldn't sell a dual income mortgage unless at a very low multiple.

er, scratches head, surely theres much more risk if one person is the main earner rather than two people earning?????

if there is one main earner in a couple, and they loose their income source surely thats a far worse scenario than two earners with one loosing their income????

At least one person would still be earning.

Share this post


Link to post
Share on other sites

This one has always seemed a bit of a nonsense to me.

What are our benchmarks? I think the questions are: (1) why is our house price to earnings ratio so much higher than it was as recently as the early noughties; and (2) why is our house price to earnings ratio so much higher than in [most] other comparable countries?

So I'm looking for things about our current market that: (1) have changed since the early noughties; or (2) are different to other countries.

Female labour force participation is clearly not such a thing. It hasn't changed one iota since the early noughties, and there's no special culture of working women in this country that doesn't exist in other comparable ones.

The relationship between mortgage lending multiples and joint earnings, on the other hand, has clearly changed a lot. But I prefer to bundle this factor in with 'loose lending' generally. Being able to borrow a lot more is one thing but one has to ask oneself, firstly, whether loose lending of this sort is here to stay, and, secondly, even if it was going to be, whether this is the same as being able to sustainably afford more.

Share this post


Link to post
Share on other sites

This one has always seemed a bit of a nonsense to me.

What are our benchmarks? I think the questions are: (1) why is our house price to earnings ratio so much higher than it was as recently as the early noughties; and (2) why is our house price to earnings ratio so much higher than in [most] other comparable countries?

So I'm looking for things about our current market that: (1) have changed since the early noughties; or (2) are different to other countries.

Female labour force participation is clearly not such a thing. It hasn't changed one iota since the early noughties, and there's no special culture of working women in this country that doesn't exist in other comparable ones.

The relationship between mortgage lending multiples and joint earnings, on the other hand, has clearly changed a lot. But I prefer to bundle this factor in with 'loose lending' generally. Being able to borrow a lot more is one thing but one has to ask oneself, firstly, whether loose lending of this sort is here to stay, and, secondly, even if it was going to be, whether this is the same as being able to sustainably afford more.

Your error is not considering that changes take time, yes the level of female earners wont have changed much since the early noughties, but the effect this had on lending would have taken time.

Nearly all the western countries that have a high level of female earners experienced house price growth in the last ten years, so i don't get your point.

Share this post


Link to post
Share on other sites

On the other thread I just mentioned a bull idea that really bugs me - 'we'll just wait for the market to recover'

But, can we be adults for a second and suggest any arguments that the bulls have that actually has some credibiity?

For me, it's one that I mentioned yesterday - the fact that there's been the big change in women going out to work and equalising their salaries, leading to lots of dual income households.

With banks lending against combined salaries, I see this as a long term fundamental change that feeds into the price of housing. I can't see this ever reversing.... From my own experience, I just can't the bloody cow in the kitchen (joking, darling B))

Yes, there's lots of holes in this idea - some of the women will have displaced positions that would have previously had a man working there, it might also have driven down salaries, and yes, salaries are still at risk. However, it can't be denied that the average salary in this country is much more than 25k when you combine a couples for the purchase of buying a house & that there is more than enough of this going on to move the market and keep it distorted.

Not in any way saying this is soley responsible for the bubble, just a real factor that has more substance than 'prices only ever go up, innit'.

Thoughts on this and other bull ideas you respect?

That will be factored into the price.

A disproportionate amount of women work in the public sector so they are going to get hit harder.

Share this post


Link to post
Share on other sites

Your error is not considering that changes take time, yes the level of female earners wont have changed much since the early noughties, but the effect this had on lending would have taken time.

Nearly all the western countries that have a high level of female earners experienced house price growth in the last ten years, so i don't get your point.

first thing mate, please change your status to 'bull', you're clearly on here to ramp prices. BTLer? estate agent?

secondly, oh, where to start, my post clearly went over your head on quite a few levels but:

(1) what do you mean "effect on lending"??? there has always been a policy of lending more to a guy whose wife worked than to a guy whose wife did not.... as is only common sense... more, or less, women working should not change that. it's just how much more you lend that's the question... do you assume that both earners can continue to work flat-out in the same way as a single breadwinner? or something else. that's what's changed.

(2) yes i know that all western countries have similar levels of female labour force participation, that's why this factor is no good as an explanation of why prices in the UK are particularly high.

Edited by the flying pig

Share this post


Link to post
Share on other sites

Your error is not considering that changes take time, yes the level of female earners wont have changed much since the early noughties, but the effect this had on lending would have taken time.

Nearly all the western countries that have a high level of female earners experienced house price growth in the last ten years, so i don't get your point.

I suspect the need to securitise more and more to meet investors yeild demands, and the subsequent collapse of the banking system, has more to do with the ever relaxing !affordability criteria.

Share this post


Link to post
Share on other sites

I'd agree that having two working partners in a family would be an obvious reason why property prices should be higher.

Obviously, it would affect the multiple of property prices to INDIVIDUAL INCOME and not HOUSEHOLD INCOME

The other obvious demographic effect that puts upwards pressure on prices is increasing population. However, Hong Kong and Japan both have higher population densities than Britain and have seen prolonged housing crashes.

I'd say that the population provides a floor on prices but doesn't prevent a crash when income multiples get out of kilter with what the vast majority of people earn. IE, it doesn't matter that 10 million people want to buy homes when they earn 25k per year and houses average 200k. But it does mean that the market will revive very quickly when prices drop to 3 or 4x their incomes.

There are also strong negative demographic factors too. In particular, the need to fund 25+ years of life after retirement age, and the fact that a huge proportion of young people now join the labour market at 21 or 22, with heavy student debt instead of debt free at 17-19. Even if prices drop to 3x average income and you can easily get a 90% mortgage again, a lot of young people wont be in a position to buy their first home until they are almost 30.

Share this post


Link to post
Share on other sites

The big change in financial culture has been the fact that borrowers and lenders have been isolated from the effects of their decisions in an unprecedented shift of responsibility. Irresponsible lending wasn't just allowed, or even encouraged.....it was compulsory. A system that allows you to buy " a thing" no matter how expensive, even if you can't afford it, will inevitably increase the price of the "thing". You can borrow to buy it. You don't have to re-pay the money. The bank can get the unpaid loan refunded by government. Interest repayments are met indefinitely by the taxpayer. If you could buy cars on this basis, car prices would also double, or jewellery, or bonsai trees....whatever. This remains the main ammunition of the property bulls............that forced sales will not happen and that new buyers can be funded by the taxpayer, government subsidies and nationalised banks. Personally I think the argument still has legs, and my fear is that the only thing that will bring property prices down to market value is a systemic collapse (that is when the government can no longer afford large scale intervention in the real-estate market). Unfortunately at that point, the price of property may be irrelevant as our savings and investments will be worthless.

Edited by ingermany

Share this post


Link to post
Share on other sites

er, scratches head, surely theres much more risk if one person is the main earner rather than two people earning?????

if there is one main earner in a couple, and they loose their income source surely thats a far worse scenario than two earners with one loosing their income????

At least one person would still be earning.

However, if one worker, from two, loses their job the benefits system isn't that helpful (especially if they don't have children). In a single earning family if you lose your job the state comes to your aid.

This has been an argument on here for years, I'm still not convinced that the two earning scenario is that important to house prices as two earners have more costs, especially if they have children.

Share this post


Link to post
Share on other sites

The best thing that could happen to society in general and house prices in particular would be if women fought for the right *not* to work. But you can't un-burn a bra ;)

Share this post


Link to post
Share on other sites

Relying on a dual income to pay the bills puts the household at huge risk, should one lose their job, split up, have kids, etc.

I wouldn't sell a dual income mortgage unless at a very low multiple.

I'd go with the view that assessment of affordability on a household income basis is here to stay.. that's not to say that the amount lent against specific income won't change or that classification of allowable income won't change.

I have never been convinced by the argument that kids/ divorce redundancy makes it unviable or riskier to assess vs both..... as an example if you assess on one income and they lose their job you're in big trouble as a lender, if you assess on two incomes and one loses their job it's not quite as difficult, having kids may well knock out one earner but equally it has a cost impact on the whole household whether theres one earner or two and that is taken into account through the calculations only when said kid has arrived, lenders will also have stats that cover those returning to work etc, with a divorce the games up whether theres one earner or two... these things often end with the house being sold, and you might well find that arrears etc are more likely to arise in a one earner household than a two earner household. I remain unconvinced that lending to two people is necessarilly riskier than lending to one.

I am still also not convinced that the FSA is actually going to dicate how much lenders can lend in any given situation, when it actually comes to it I suspect these proposals will be heavily watered down and the regulators will pull back from this... but we'll see I suppose in due course what they actually decide.

Share this post


Link to post
Share on other sites

The lending angle is important.

It is the supply issue which bothers me.

Population growth continues but housing starts have been low and are falling.

Localisation of planning cotrols would be a Nimby charter.

A massive programme of Council House building would answer many problems.

Share this post


Link to post
Share on other sites

The big change in financial culture has been the fact that borrowers and lenders have been isolated from the effects of their decisions in an unprecedented shift of responsibility. Irresponsible lending wasn't just allowed, or even encouraged.....it was compulsory. A system that allows you to buy " a thing" no matter how expensive, even if you can't afford it, will inevitably increase the price of the "thing". You can borrow to buy it. You don't have to re-pay the money. The bank can get the unpaid loan refunded by government. Interest repayments are met indefinitely by the taxpayer. If you could buy cars on this basis, car prices would also double, or jewellery, or bonsai trees....whatever. This remains the main ammunition of the property bulls............that forced sales will not happen and that new buyers can be funded by the taxpayer, government subsidies and nationalised banks. Personally I think the argument still has legs, and my fear is that the only thing that will bring property prices down to market value is a systemic collapse (that is when the government can no longer afford large scale intervention in the real-estate market). Unfortunately at that point, the price of property may be irrelevant as our savings and investments will be worthless.

Good post ..

I would only add that many of the policies I am hearing (not necessarily yet seeing) of the coalition suggest they are working towards a lower level of housing cost, can they / will they keep their nerve I think is the question?

Share this post


Link to post
Share on other sites

I guess the inflation proofing one. Leveraging offers more potential gain than most things.

Yields might be higher than cash, although if youre not leveraged, property always seems a pain in the **** to me, just buy shares.

Thats it.

All these supply and demand arguments ignore credits role, ignore that areas of the country depopulated by still boomed from 1995-. If supply and demand was dependant on people and not credit prices would rise uniformly and far more locally. We've had a national bubble.

Share this post


Link to post
Share on other sites

People want houses. Even the uber bears on here want houses - they are just not willing to pay the current Market rate for them.

banksters want to lend people more and more money so they can get more interest. The only thing that will stop them is regulation

Share this post


Link to post
Share on other sites

The best thing that could happen to society in general and house prices in particular would be if women fought for the right *not* to work. But you can't un-burn a bra ;)

Harry, what a fantastic post but would add that I see no issue with it being a man that "stays at home".

I am proud that my wife stays at home looking after the house, our children and me.

Financially things are extremely challenging but we live with our decision and spend accordingly.

Society, in my personal opinion, would be a much better place if more families had house wives / husbands.

Share this post


Link to post
Share on other sites

er, scratches head, surely theres much more risk if one person is the main earner rather than two people earning?????

experiment one

toss a coin. what's the chance of getting a head? 50%.

experiment two

toss two coins. what are the chances of getting two heads? 25% [since there's a 50% chance that you'll get one of each and a 25% chance you'll get two tails].

lending to couples can be less risky than lending to singles if you have a sensible rule like 'three times the first income and one times the second'... but if you lend a couple earnign £50k each pretty much double what you'd lend a singleton earning £50k that's clearly riskier.

Share this post


Link to post
Share on other sites

People want houses...

ok but that's irrelevant, people have always wanted houses... we're trying to explain why houses are expensive relative to historical norms, not why they're more expensive than a pack of turkey twizzlers.

...banksters want to lend people more and more money so they can get more interest. The only thing that will stop them is regulation

uh, that and people being unable to make mortgage repayments i'd imagine.

Share this post


Link to post
Share on other sites

experiment one

toss a coin. what's the chance of getting a head? 50%.

experiment two

toss two coins. what are the chances of getting two heads? 25% [since there's a 50% chance that you'll get one of each and a 25% chance you'll get two tails].

lending to couples can be less risky than lending to singles if you have a sensible rule like 'three times the first income and one times the second'... but if you lend a couple earnign £50k each pretty much double what you'd lend a singleton earning £50k that's clearly riskier.

If you're at the limit, then either head is a problem. therefore chances of getting one head or two heads = 75%.

In effect, using one income is setting a lower income multiple, as the opportunity for increasing the household income is greater. with both working, chances are the potential income can only go down if there's a problem.

Share this post


Link to post
Share on other sites

People want houses. Even the uber bears on here want houses - they are just not willing to pay the current Market rate for them.

Yes to the first statement. But they are willing to pay the market rate. The problem is that prices are being artificially (and temporarily) kept elevated by government intervention. A quarter of a million properties are being kept off the market because government is paying the mortgage on behalf of the borrowers. Banks have been nationalised and are lending out taxpayers' money at a loss. Even so, prices are falling, and eventually government will run out of cash (or run out of sources to borrow it from). Government has embarked on a price manipulation of biblical scale. And they can't afford to maintain it. When they finally admit defeat and give up prices will go into free-fall. That's why potential buyers are reluctant right now.

Edited by ingermany

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.

  • 146 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.