Question For Bulls..

[apom]

Okay,

House prices are very high.. it varies massivly accross this country of ours..

Devon for example has seen amongst the higher rises.. some smaller properties going up by a multiple of four.

So can the economy allow this.??

If prices stay where they are and each new entrant buying a property is massivly more in debt then they were a decade ago..

How does the economy survive with less money being spent on food, clothes... house goods...?

We are seeing a massive downturn int he highstreet as debt and high taxes take their toll already.. and that is after a short term of high house prices..

I put it to the bulls that a recession is not avoidable if house prices remain high.

are house prices sustainable?

and cheaper loans..? granted, but we are seeing an end to that.. After all cheaper borrowing should not be considered a plus when taking out a 25 year loan in a variable rate..?

so bulls, explain how the economy can survive as it is with a massive downturn in money spent into the highstreet.. (any purchases..)

when this is 2/3rds of our economy.

The economy as I see it is either very complicated, or very simple..

Simply put it has a ballence, certain costs in one area can grow for the short term.. but reduced spending in another slows the economy until the areas come back into ballence.

can you counter this one.?

I asked the government the same question and they agread that long term multiples were 3.5 times salary.

didn't confirm that my theory was correct, but would not debunk it either.

Edited October 4, 2005 by apom

[sign_of_the_times]

Okay,

House prices are very high.. it varies massivly accross this country of ours..

Devon for example has seen amongst the higher rises.. some smaller properties going up by a multiple of four.

So can the economy allow this.??

If prices stay where they are and each new entrant buying a property is massivly more in debt then they were a decade ago..

How does the economy survive with less money being spent on food, clothes... house goods...?

We are seeing a massive downturn int he highstreet as debt and high taxes take their toll already.. and that is after a short term of high house prices..

I put it to the bulls that a recession is not avoidable if house prices remain high.

are house prices sustainable?

and cheaper loans..? granted, but we are seeing an end to that.. After all cheaper borrowing should not be considered a plus when taking out a 25 year loan in a variable rate..?

so bulls, explain how the economy can survive as it is with a massive downturn in money spent into the highstreet.. (any purchases..)

when this is 2/3rds of our economy.

The economy as I see it is either very complicated, or very simple..

Simply put it has a ballence, certain costs in one area can grow for the short term.. but reduced spending in another slows the economy until the areas come back into ballence.

can you counter this one.?

I asked the government the same question and they agread that long term multiples were 3.5 times salary.

didn't confirm that my theory was correct, but would not debunk it either.

Edited October 4, 2005 by sign_of_the_times

[zorn]

Okay,

House prices are very high.. it varies massivly accross this country of ours..

Devon for example has seen amongst the higher rises.. some smaller properties going up by a multiple of four.

So can the economy allow this.??

If prices stay where they are and each new entrant buying a property is massivly more in debt then they were a decade ago..

How does the economy survive with less money being spent on food, clothes... house goods...?

We are seeing a massive downturn int he highstreet as debt and high taxes take their toll already.. and that is after a short term of high house prices..

I put it to the bulls that a recession is not avoidable if house prices remain high.

are house prices sustainable?

and cheaper loans..? granted, but we are seeing an end to that.. After all cheaper borrowing should not be considered a plus when taking out a 25 year loan in a variable rate..?

so bulls, explain how the economy can survive as it is with a massive downturn in money spent into the highstreet.. (any purchases..)

when this is 2/3rds of our economy.

The economy as I see it is either very complicated, or very simple..

Simply put it has a ballence, certain costs in one area can grow for the short term.. but reduced spending in another slows the economy until the areas come back into ballence.

can you counter this one.?

I asked the government the same question and they agread that long term multiples were 3.5 times salary.

didn't confirm that my theory was correct, but would not debunk it either.

It's not the level of debt that matters to the economy, it's the level of repayments -- which include an element of capital repayment, but are largely based on interest rates. In the 1980s and early 90s, base rates were generally around 10% or so. If they stay around 5% or so in the next decade (and that's admittedly a big if), then by comparing the repayments on a 25 year repayment mortgage at 11% and 6% (1% over base rates), we discover that the economy can support house prices of 5.25 x salaries instead of 3.5 x salaries, while still keeping mortgage repayments at the same proportion of gross income as they were in the 80s and early 90s.

[right_freds_dead]

well the extra money spent on buying a house means that money going in one end, will come out in three places.

a. the original vendor gets it and spends it in uk economy.

b. banks make a mint.

c. tax is gained.

unless the vendor takes off to nz with the dough, it stays in the economy.

[leemo]

It's not the level of debt that matters to the economy, it's the level of repayments -- which include an element of capital repayment, but are largely based on interest rates. In the 1980s and early 90s, base rates were generally around 10% or so. If they stay around 5% or so in the next decade (and that's admittedly a big if), then by comparing the repayments on a 25 year repayment mortgage at 11% and 6% (1% over base rates), we discover that the economy can support house prices of 5.25 x salaries instead of 3.5 x salaries, while still keeping mortgage repayments at the same proportion of gross income as they were in the 80s and early 90s.

This is a fallacy. One of our poster's has in their signature:

Low inflation - letting your loan linger longer

So although you're correct about initial repayments, in a low inflation environment the repayments and amount of debt outstanding don't diminish as quickly (in real terms). This prevents people trading up later in the cycle. Eventually there's no support for the middle and upper market which forces prices back to a more normal salary multiple.

Edited October 4, 2005 by leemo

[LazyDay]

are house prices sustainable?

and cheaper loans..?

According to Greenspan as we have read, MEWing in US accounted for 7%

of disposable income in 2004. That is what the economy is going to loose

immediately in the event of HPC. About 3-4 years of real wage inflation that is.

On top of that, there going to be some domino effect for geared companies

and over-borrowed individuals where 7-10% less personal equity means

insolvency. But that is it. Normal businesses are going to survive.

Of course there going to be stories of corporate/personal bankruptcies and

misery in the news but nothing too extraordinary the economy has not seen before.

EDIT: I am not saying that HPC can not cause a recession, of course it can.

However, nothing apocalyptic in size, the usual self-cleansing of geared folks.

Edited October 4, 2005 by LazyDay

[AteMoose]

According to Greenspan as we have read, MEWing in US accounted for 7%

of disposable income in 2004. That is what the economy is going to loose

immediately in the event of HPC. About 3-4 years of real wage inflation that is.

On top of that, there going to be some domino effect for geared companies

and over-borrowed individuals where 7-10% less personal equity means

insolvency. But that is it. Normal businesses are going to survive.

Of course there going to be stories of corporate/personal bankruptcies and

misery in the news but nothing too extraordinary the economy has not seen before.

MEW in the UK accounted for 8% of total income until spring this year, when it plumitted to 2/3%....

[Tempest]

<So although you're correct about initial repayments, in a low inflation environment the repayments and amount of debt outstanding don't diminish as quickly (in real terms). This prevents people trading up later in the cycle. Eventually there's no support for the middle and upper market which forces prices back to a more normal salary multiple.>

Agreed - the above poster's fallacy is part of the reason why we are the mess we are. The cost of the repayments over the life of the loan does not reduce as much (relatively speaking) during a low inflation environment - depriving owners and the housing market of the necessary cash flow/liquidity required to move up and keep the chains moving.