Why Why Why Support House Prices?

[FIGGY]

Wage inflation (required to service the debt) is currently around 2.2% pa. Total employment is down 0.5% since 2009.

I don't think we're down 25% from peak in any sort of affordability sense.

Bing without a rise in wages any inflation lined "real" drop in prices is just a number and in no way reflects a more viable housing market.

[Diver Dan]

Wage inflation (required to service the debt) is currently around 2.2% pa. Total employment is down 0.5% since 2009.

I don't think we're down 25% from peak in any sort of affordability sense.

A lot companies are staffed by older people are employed in jobs where they are too incompetent to promote but too expensive to fire and won't leave because there are usually generous perks and benefits attached to their job. It's far easier for a company to cut down on its headcount in times of economic stress by natural wastage and a halt on hiring people for entry level staff positions. Entry level jobs are then done by low-paid temps and unpaid interns (young people) who can be fired pretty much at will. The days of starting off in the mail-room at 16 and ending up as MD 40 years later are long gone if they even existed in the first place.

The result of all this is that young people have difficulty getting paid work and then more difficulty holding down their job. This sort of thing doesn't look good when filling out a mortgage form.

The average purchasing power of a UK citizen looks to be in long-term decline but it's alright so long as the house is worth the price of a few dozen round the world cruises.

[Fairies Wear Boots]

I think those who think they should just allow an orderly crash with hardly any problems are in la la land. I very much which the over indebted got their just deserts, however I think it'd be a major shock to our economy.

I'm not saying the medicine they have been doling out isn't going to kill us. Just that not queasing and not introducing ZIRP would have meant our crash would have been sudden, and our banks stuffed, and our economy even more down the toilet.

If it is not possible for house prices to drop in an orderly fashion why have prices in Northern Ireland fallen 50% and the world has not ended?

AS long as people pay the crazy prices then the house prices will never drop. In NI people just stopped paying crazy prices and gravity won.

Aren't the banks in Northern Ireland so stuffed they make our banks look solvent well run affairs? Irish bailout, Celtic tiger dead etc? Just asking.

[happy_renting]

Increasing prices (inflation) is, put simply, a tax on cash savings.

Successive Governments have encouraged a property boom (inflation) and then maintained high house prices (avoiding deflation). Householders stupidly think they are better off, whereas in fact it just means that money is worth less.

Houses hold their value; they are always worth the price of a house.

Encouraging price rises, or avoiding price falls, is part of the same strategy that is giving negligible interest on cash savings.

[Mr. Miyagi]

Total value of British residential property: £3.92 Trillion

Total Money on Deposit in UK: £2 Trillion

Total Value of FTSE: £1.8 Trillion

The UK has more 'wealth' tied up in property than it has in bank accounts and the stock market combined.

Banks are also leveraged up to the eyeballs on that very basis.

For some reason the favourite British past time is pumping 50% of our resources in an essentially unproductive asset.

But it makes us feel wealthy, so....

You can value U.K total property at anything you like. The point is that as an asset it is highly illiquid. Even if it could be realised it would need a huge amount of finance to realise it, not to mention the downward pressure on any notional value realising it would have on simple supply and demand.

As a liquid asset which could be used to raise capital quickly and on a large scale, housing is worthless.

Edited July 29, 2011 by Mr. Miyagi

[Sibley's Love Child]

All the other points about voters and property VI's IMHO is nonsense.

Not necessarily, i'm sure it's no coincidence that those most invested in property are those most likely to vote...

Plus, as Mark Wadsworth on the blog is wont to say, HPCs are a sure-fire winner to losing power.

[Mr. Miyagi]

Not necessarily, i'm sure it's no coincidence that those most invested in property are those most likely to vote...

Plus, as Mark Wadsworth on the blog is wont to say, HPCs are a sure-fire winner to losing power.

Point taken.

House prices that are out of reach to the generations affected by HPI are a vote loser too (eventually).

[winkie]

But owning property is like having an extra income that is tax free 10% on the average house generates an 'income' of £16K tax free (ave house worth £160k) or equivalent to a salary of £30k - above the UK average wage. Remember the person recently who needed to sell for £350k on a house they bought 20 years ago, they had mewed something like £250k.

So the house is not an unproductive asset when viewed in this light. It is the heart of the UK economy and generates more 'wealth' than savings interest and the stock market combined.

They were the halcyon days when your house grew in value faster and greater than your pay packet ever did...but mew money is not free money it is still debt and debt that has a cost tied to it....any mewed money reduces your net worth and net worth is what matters.

Stagnant house prices are falling house prices.....stagnant turnover of houses tells you the cost of moving is too high.....some will move, some will buy...but is will cost them not enrich them.

You buy a home for what it can do for you, no longer on how much it can make you.

Edited July 29, 2011 by winkie

[winkie]

I agree but the belief is still there; that prices will recover. Sellers are still taking 2007 prices and adding 10% (see the delusion index) to get the asking price and are appalled by chancer offers and lack of viewings. The mantra of rent it out until the market recovers is still there. Even the phrase 'market recovers' implies that low prices are a sickness. The rungs between the property ladder are now too wide. MEW money was seen as free money as the lost equity would be recovered in the following year.

But until there is a trigger that forces people to wake up they will hang on, spared by zero interest rates, bolstered by Excess headlines and the indexes that say prices are rising. The government will do all it can to keep HPI alive and well.

I agree with that.....what we have got now on the balance is 'stalemate'....the owners are not gaining the renters are not gaining....both have different costs...but the renter with some cash behind them has flexibility and freedom they can move quickly when a good opportunity comes along, something most sellers can't do they are stuck until they can sell or rent.....renting brings along with it a new set of problems because whilst it is rented it can't sell, and they still have to live somewhere.

[jammo]

It's the culmination of the illogic that has been running crazy in this country for many years. It's the polished turd that is now doted over by the powers that be as the sum product of teh British economy. House prices is the economy.

But I don't share the pessimism of other posters. They can only be supported so long. The propping will have been a short term measure only to allow the flustered middle and upper classes time to bail out of their BTL empires, to rethink their financial models and get out. After this time period is over (whenever that may be, but certainly not indefinietely!) those in power will look at the vote winning potential of the pent up FTBer and shift to focusing on them. There will be a point where the number of potential new FTBer voters will exceed the million or so overstretched debtors and BTLers who in all fairness will probably simply get downgraded a class to make room for the next generation who were smart enough to wait for the trough. When there are more of us than them, then any propping will not be in their interest anymore. Simple numbers game. There are countless unpopular vote losers the government have to worry about aside from house prices which they can only foster, not actually control anyway.

As for the banks, again, they've been given this generous time to sort out their balance sheets. If they've squandered that time then so let them fail. How many people have savings above the government's guaranteed £50k in any of the dubious banks anyway? No-one. If they fail, so what? A thousand productive businesses are left to fail but a few banks aren't allowed to? ********, if they were that hard up they'd not be handing out bonuses and would have sold off some of their plush offices and skyscrapers. No, I don't share the pessimism here. I look forward to a rightful correction like that has occured in many other countries already. We are just behind the curve.

[(Blizzard)]

It's all the perfect trap, keep the house prices high with your policies, then the debt slaves will be forced to vote for you or sink, keep as many as you can in this spiral and you will have power indefinately.

You can bet that if the majority of voters rented or rejected home ownership then the reverse would be true, the government is not run to govern, it exists to give a veneer of government, but in reality is a lobbying group for vested interest and big business in order to keep hold of the wealth of the productive and distribute it to the elite, so to look further into it, at least as far as a sane housing policy, is worthless.

But Im mad so who cares what I think.

I agree.

We are seeing the left-over remnants of the feudal system. The OP is asking why feudal Lords won't give up on Feudalism.

Of course, they can no-longer use violence to control people, so they rely on political lobbying, propaganda and hegemony.

This isn't some kind of wacky conspiracy theory. Although their is lobbying and corruption, mostly it isn't planned. Enough people earn enough rent from land, so that their interests backed by their power over a long enough period of time end up defining our national culture.

We are talking about a group - landowners - that have held power for a thousand years, and include the Queen as one of their founder members. Land-owning distinguishes the upper classes from the rest of us, and is the foundation of the class-system. These are the most influential people in British history, and they have built a culture that accepts spurious made-up claims to 'own' bits of the land as if they were a law of physics.

The key observation that needs explaining is the real belief, held by most people including politicians and economists, that house price rises are good for the economy, although this is the exact opposite of the truth. I don't think this weird 'Stockholm Syndrome' can be explained away by the effect of a house price crash on bank's balance sheets (although I don't dispute that this is also a problem).

It is a similar phenomena to the royalists who actually believe their life is improved by their subservience to a single parasitic family of scroungers.

Edited July 29, 2011 by (Blizzard)

[winkie]

It's the culmination of the illogic that has been running crazy in this country for many years. It's the polished turd that is now doted over by the powers that be as the sum product of teh British economy. House prices is the economy.

But I don't share the pessimism of other posters. They can only be supported so long. The propping will have been a short term measure only to allow the flustered middle and upper classes time to bail out of their BTL empires, to rethink their financial models and get out. After this time period is over (whenever that may be, but certainly not indefinietely!) those in power will look at the vote winning potential of the pent up FTBer and shift to focusing on them. There will be a point where the number of potential new FTBer voters will exceed the million or so overstretched debtors and BTLers who in all fairness will probably simply get downgraded a class to make room for the next generation who were smart enough to wait for the trough. When there are more of us than them, then any propping will not be in their interest anymore. Simple numbers game. There are countless unpopular vote losers the government have to worry about aside from house prices which they can only foster, not actually control anyway.

As for the banks, again, they've been given this generous time to sort out their balance sheets. If they've squandered that time then so let them fail. How many people have savings above the government's guaranteed £50k in any of the dubious banks anyway? No-one. If they fail, so what? A thousand productive businesses are left to fail but a few banks aren't allowed to? ********, if they were that hard up they'd not be handing out bonuses and would have sold off some of their plush offices and skyscrapers. No, I don't share the pessimism here. I look forward to a rightful correction like that has occured in many other countries already. We are just behind the curve.

I think you will find many of them already have....sold to rent back, is that not telling you something.

[libspero]

So the house is not an unproductive asset when viewed in this light. It is the heart of the UK economy and generates more 'wealth' than savings interest and the stock market combined.

Good point. When you say it like that it's the best tax-free government endorsed pyramid scheme available.

The question then is.. what happens when the greater fool can no longer afford to get on the first step to guaranteed unearned wealth?

To keep up with expectations we would have to print and redistribute indefinitely..

[(Blizzard)]

I think those who think they should just allow an orderly crash with hardly any problems are in la la land. I very much which the over indebted got their just deserts, however I think it'd be a major shock to our economy.

I'm not saying the medicine they have been doling out isn't going to kill us. Just that not queasing and not introducing ZIRP would have meant our crash would have been sudden, and our banks stuffed, and our economy even more down the toilet.

Aren't the banks in Northern Ireland so stuffed they make our banks look solvent well run affairs? Irish bailout, Celtic tiger dead etc? Just asking.

Houses prices crashed in the US, they can crash here.

I believe that most people have quite a lot of equity in their houses, wouldn't be in negative equity if prices fell, and would have no reason not to pay the mortgage.

I'm not sure how banks regulatory capital is affected by the value of the collateral on a mortgage (does anyone know?), but they won't actually lose money until people default.

[Sibley's Love Child]

Point taken.

House prices that are out of reach to the generations affected by HPI are a vote loser too (eventually).

Exactly, it is a matter of time though I don't doubt that once the electoral balance shifts (read: boomers kark-it) we'll witness the promotion of more progressive taxation and the disincentivation of land speculation.

Of course, that won't change the fact that a generation will have been left in the wilderness in the meantime. My only hope is that when my son is an adult this silly sh*te will be a thing of the past.