House Prices Are A Function Not Of Demand, But What Lenders Advance

[eric pebble]

I know I have said it before -- but I really think this August 2010 newspaper article from the Guardian [yes! The Guardian!] - was a LANDMARK article. I STILL think it was utterly brilliant. Utterly brilliant. & It confirms my 8 years of bleating here on HPC:

Quote from the article:

"The conclusion to be reached after 10 years of madcap lending is that house prices are not a function of demand, but are simply a function of how much money the lenders are willing to advance. Almost everything else is immaterial."

And - just add that LIAR LOANS have been the poison in the mud - providing false rocket-fuel to the "market" - and - well - that's the whole HPI Phenomenon summarised in one paragraph.

Read the whole article here - & the TAKE PARTICULAR NOTE of the comments after the article - they tell us a LOT about what normal, thinking people see as the real truth.

http://www.guardian.co.uk/money/2010/aug/10/falling-house-prices-blame-media

Edited October 15, 2011 by eric pebble

[EvilEdna]

I know I have said it before -- but I really think this August 2010 newspaper article from the Guardian [yes! The Guardian!] - was a LANDMARK article. I STILL think it was utterly brilliant. Utterly brilliant. & It confirms my 8 years of bleating here on HPC:

Quote from the article:

"The conclusion to be reached after 10 years of madcap lending is that house prices are not a function of demand, but are simply a function of how much money the lenders are willing to advance. Almost everything else is immaterial."

And - just add that LIAR LOANS have been the poison in the mud - providing false rocket-fuel to the "market" - and - well - that's the whole HPI Phenomenon summarised in one paragraph.

Read the whole article here - & the TAKE PARTICULAR NOTE of the comments after the article - they tell us a LOT about what normal, thinking people see as the real truth.

http://www.guardian.co.uk/money/2010/aug/10/falling-house-prices-blame-media

Too true, and I would add that falling house prices are conditional on forced sales - everything else is immaterial. That's why we aren't likely to experience a precipitous HPC

[Quiet Guy]

I know I have said it before -- but I really think this August 2010 newspaper article from the Guardian [yes! The Guardian!] - was a LANDMARK article. I STILL think it was utterly brilliant. Utterly brilliant. & It confirms my 8 years of bleating here on HPC:

Quote from the article:

"The conclusion to be reached after 10 years of madcap lending is that house prices are not a function of demand, but are simply a function of how much money the lenders are willing to advance. Almost everything else is immaterial."

And - just add that LIAR LOANS have been the poison in the mud - providing false rocket-fuel to the "market" - and - well - that's the whole HPI Phenomenon summarised in one paragraph.

Read the whole article here - & the TAKE PARTICULAR NOTE of the comments after the article - they tell us a LOT about what normal, thinking people see as the real truth.

http://www.guardian....ces-blame-media

[guitarman001]

Eric I glanced at this thread earlier and thought for some reason that you were re-stating your own views (which are sound). However I just saw that this was an article - and a damn decent one, too! Cheers - good stuff!

[Quiet Guy]

I know I have said it before -- but I really think this August 2010 newspaper article from the Guardian [yes! The Guardian!] - was a LANDMARK article. I STILL think it was utterly brilliant. Utterly brilliant. & It confirms my 8 years of bleating here on HPC:

Yes. If you inject cash into a market then prices will rise. When you try to withdraw the cash injection there is a squealing noise for some reason.

[gimble]

I know I have said it before -- but I really think this August 2010 newspaper article from the Guardian [yes! The Guardian!] - was a LANDMARK article. I STILL think it was utterly brilliant. Utterly brilliant. & It confirms my 8 years of bleating here on HPC:

Quote from the article:

"The conclusion to be reached after 10 years of madcap lending is that house prices are not a function of demand, but are simply a function of how much money the lenders are willing to advance. Almost everything else is immaterial."

And - just add that LIAR LOANS have been the poison in the mud - providing false rocket-fuel to the "market" - and - well - that's the whole HPI Phenomenon summarised in one paragraph.

Read the whole article here - & the TAKE PARTICULAR NOTE of the comments after the article - they tell us a LOT about what normal, thinking people see as the real truth.

http://www.guardian.co.uk/money/2010/aug/10/falling-house-prices-blame-media

Sorry, but you're wrong. Net mortgage lending in the UK has fallen from about 120 billion pounds a year in 2007 to ZERO for the last 18 months. Gross mortgage lending has fallen by aout 60% in the same period. House prices are down only about 10% and are actually higher in London now than 4 years ago. If this thesis was correct and house prices were a function of lending alone then houses would pretty much be free now! And of course LIAR LOANS have completely ended. They ended 3 years ago. Have house prices subsequently COLLAPSED? no. The market is far more complicated than that.

edit: complete rewrite!

Edited October 15, 2011 by gimble

[roadtoruin]

Sorry, but you're wrong. Net mortgage lending in the UK has fallen from about 120 billion pounds a year in 2007 to zero for the last 18 months. Gross mortgage lending has fallen by aout 60% in the same period. House prices are down only about 10% and are actually higher in London now than 4 years ago. That alone disproves your thesis.

No, you're wrong and have missed the point completely. It's nothing to do with total lending or even volume of sales, but how much is lent per purchase. So the gross lending could drop to 10% of that in 2007, but if lent to buy 10% of the number of houses, there is no direct downward pressure on house prices.

[needle]

I dont see whats so revelatory about this article and I certainly dont think the Guardian had anything whatsoever to do with any turning pont.

In fact I'd say the guardian and its readers are probably more responsible for the hyper-inflation in house prices than many other groups.

A cursory search will show you that these facts were on HPC as early as 2008.

If we had a complete search function I'd bet they were mentioned on HPC before even then.

[eric pebble]

No, you're wrong and have missed the point completely. It's nothing to do with total lending or even volume of sales, but how much is lent per purchase. So the gross lending could drop to 10% of that in 2007, but if lent to buy 10% of the number of houses, there is no direct downward pressure on house prices.

Yup! Oh I love it -- Gimble thinks he's got all the answers - touché he goes - he thinks he's trumped us all Laugh!?? I nearly bleedin' SH@T!!!

Let's break down Gimble's argument bit by bit...... :

"Sorry, but you're wrong. Net mortgage lending in the UK has fallen from about 120 billion pounds a year in 2007 to ZERO for the last 18 months. Gross mortgage lending has fallen by aout 60% in the same period. House prices are down only about 10% and are actually higher in London now than 4 years ago. .

Isn't it sweet!?! Prices down "10%" my @rse More like 25-35% mate...... Except for London - as you say.

And what's happening in London?

Well - let's see........ Every Dodgy geeza from China to India to the Far East, the Middle East, Eastern Europe, and not least Russia is running to London with his pockets full of the DODGIEST CASH there EVER was...... And slappping down the ill-gotten cash in the BILLIONS or TRILLIONS - and BUYING UP LARNDEN PWOPERTY like there's no tomorrow....... SO THAT is what's feeding London- FORGET about mortgages mate - it's literally DROWNING in dodgy ask-no-questions cash........

London is a planet on it's own as a result......

..... And of course LIAR LOANS have completely ended. They ended 3 years ago. Have house prices subsequently COLLAPSED? no. The market is far more complicated than that.

Well mate - LIAR LOANS are STILL out there - there just in lots and lots of different forms..... STUPID MULTIPLES being just one of them.......... DO NOT KID YOURSELF that LIAR LOANS have gone -- Coz they ain't gone AT ALL --- They're still out there BIG TIME.....

But anyway - the whole thing is academic --- just look at all the other posts on HPC recently -- Remember those cartoons where the animal is over the cliff, legs racing - huge precipice below...??

Well --- that animal's been spinning his little legs BIG TIME like never before --------- But that precipice is looking all the more ominous as the seconds tick by.....

Look at Ireland; look at Spain; look at the USA........

Finally .............. Interest rates only have to go up either ONE or TWO tiny little clicks............. AND KABOOM!!!!! - It all falls down.....

Of course - the powers that be are sitting on those interest rates like they're an atomic bomb if they don't keep parking their little @rses on top......... It's finger-in-the-dyke stuff ....

Edited October 15, 2011 by eric pebble

[Nuggets Mahoney]

If there was no demand whatsoever for housing the price would be nothing so the supply/demand of housing clearly is a factor in its pricing

What a lot of people seem to forget, however, is that the price of commodity is the product of the supply/demand of that commodity *and* the supply/demand of whatever it is you are using to buy it

It's been a while since I studied economics in a classroom environment but, as I recall, the supply of money is usually treated as being fixed when discussing the influence of supply and demand on commodity pricing

It clearly isn't

Edited October 16, 2011 by Charlton Peston

[South Lorne]

Quote from the article:

"The conclusion to be reached after 10 years of madcap lending is that house prices are not a function of demand, but are simply a function of how much money the lenders are willing to advance. Almost everything else is immaterial."

...the problem is it's taken them so long to realise ....these overeducated lefties are slow thinkers....

[Debbie568]

I know I have said it before -- but I really think this August 2010 newspaper article from the Guardian [yes! The Guardian!] - was a LANDMARK article. I STILL think it was utterly brilliant. Utterly brilliant. & It confirms my 8 years of bleating here on HPC:

Quote from the article:

"The conclusion to be reached after 10 years of madcap lending is that house prices are not a function of demand, but are simply a function of how much money the lenders are willing to advance. Almost everything else is immaterial."

And - just add that LIAR LOANS have been the poison in the mud - providing false rocket-fuel to the "market" - and - well - that's the whole HPI Phenomenon summarised in one paragraph.

Read the whole article here - & the TAKE PARTICULAR NOTE of the comments after the article - they tell us a LOT about what normal, thinking people see as the real truth.

http://www.guardian.co.uk/money/2010/aug/10/falling-house-prices-blame-media

I'm not sure that the banks are as relevant as this article makes out when it comes to falling, rather than rising, property prices. HSBC, for instance, claim they accept 8 out of 10 mortgage applications. (source: thebigpropertylist, article with a headline "Two thirds of mortgage applications turned down" 15th June 2011) - One wonders which claim is actually true, HSBC's or the writer's!). All that matters for house sales is there being a willing buyer at the price the owner wants. The banks only get involved, if at all, after the prospective buyer has made a decision to make an offer on the house. You could have ten buyers, each with a combined family income of around £50k (not untypical, is it?) and a deposit of £40k go and look at a £190k house, and not one of them make an offer because they all think it is overpriced. So far, the banks haven't had a chance to influence anyone's buying potential out of that group. If none of them make an offer on the house, they will have all influenced the value of the house downwards without so much as a "sign the application on the dotted line" from any of the banks.

It's different in rising markets, because then everyone wants to get on the bandwagon because they don't want to "miss the boat" and hope to make huge capital gains. Then they all approach the banks who cherrypick who they want.

[gimble]

Yup! Oh I love it -- Gimble thinks he's got all the answers - touché he goes - he thinks he's trumped us all Laugh!?? I nearly bleedin' SH@T!!!

Let's break down Gimble's argument bit by bit...... :

Isn't it sweet!?! Prices down "10%" my @rse More like 25-35% mate...... Except for London - as you say.

And what's happening in London?

Well - let's see........ Every Dodgy geeza from China to India to the Far East, the Middle East, Eastern Europe, and not least Russia is running to London with his pockets full of the DODGIEST CASH there EVER was...... And slappping down the ill-gotten cash in the BILLIONS or TRILLIONS - and BUYING UP LARNDEN PWOPERTY like there's no tomorrow....... SO THAT is what's feeding London- FORGET about mortgages mate - it's literally DROWNING in dodgy ask-no-questions cash........

London is a planet on it's own as a result......

Well mate - LIAR LOANS are STILL out there - there just in lots and lots of different forms..... STUPID MULTIPLES being just one of them.......... DO NOT KID YOURSELF that LIAR LOANS have gone -- Coz they ain't gone AT ALL --- They're still out there BIG TIME.....

But anyway - the whole thing is academic --- just look at all the other posts on HPC recently -- Remember those cartoons where the animal is over the cliff, legs racing - huge precipice below...??

Well --- that animal's been spinning his little legs BIG TIME like never before --------- But that precipice is looking all the more ominous as the seconds tick by.....

Look at Ireland; look at Spain; look at the USA........

Finally .............. Interest rates only have to go up either ONE or TWO tiny little clicks............. AND KABOOM!!!!! - It all falls down.....

Of course - the powers that be are sitting on those interest rates like they're an atomic bomb if they don't keep parking their little @rses on top......... It's finger-in-the-dyke stuff ....

haha ok chum so you seem to be accepting my argument then, at least about London!? It's not lending, it's City funny money and rich foreign people hiding their often ill gotten lucre that's propping up London prices. Maybe you're right about the rest of the country but frankly I'm disappointed that the immense collapse in mortgage lending hasn't resulted in a comparable collapse in house prices. All that's collapsed is transaction numbers. Cash rich people (most of that cash made from the pre 2007 property boom) are the main remaining participants and lending has nothing much to do with it anymore, so I still refute the conclusion of the article.

oh by the way you mention Ireland, Spain and the USA. Here's a clue for you. In the boom Spain (population 40 million) was building 500,000 homes a year. Ireland (pop 4 million) was building 60,000 homes a year. The USA (pop 300 million) was building 1,500,000 homes a year. The UK (pop 60 million) was building 170,000 homes a year. you do the maths!

nighty night.

Edited October 16, 2011 by gimble

[roadtoruin]

...the problem is it's taken them so long to realise ....these overeducated lefties are slow thinkers....

And the similar articles in the Wail, Express, torygraph etc have yet to materialise... Obviously even slower thinkers than those poor Guardian lot

[Authoritarian]

There's still a lot of confusion here then as many are keen to jump on the bash-a-banker bandwagon.

Credit bubbles are a byproduct of the dysfunctional economics of housing, governments do all they can to drive any surplus funds into the pockets of landowners and a section of the population respond by using borrowed money to get their hands on those freebies. The spoils go to anyone with enough balls to take out gargantuan loans and then pass the buck just before the whole ponzi scheme collapses, that's the sort of activity we endorse as a society.

[roadtoruin]

There's still a lot of confusion here then as many are keen to jump on the bash-a-banker bandwagon.

Credit bubbles are a byproduct of the dysfunctional economics of housing, governments do all they can to drive any surplus funds into the pockets of landowners and a section of the population respond by using borrowed money to get their hands on those freebies. The spoils go to anyone with enough balls to take out gargantuan loans and then pass the buck just before the whole ponzi scheme collapses, that's the sort of activity we endorse as a society.

To clarify, presumably by those with balls to get gagantuan loans you mean e.g. BTL brigade who get out with the loot before the buble bursts? But I'm not clear how surplus funds to landowners find their way to these property speculators. The speculators money is surely derived from mortgages which are loans raised against assets, not necessarily real money. And if the funds were genuinely 'surplus' then how would the banks have got in so much trouble with liquidity? Your argument needs a bit more substance to convince me.

[Injin]

There's still a lot of confusion here then as many are keen to jump on the bash-a-banker bandwagon.

Credit bubbles are a byproduct of the dysfunctional economics of housing, governments do all they can to drive any surplus funds into the pockets of landowners and a section of the population respond by using borrowed money to get their hands on those freebies. The spoils go to anyone with enough balls to take out gargantuan loans and then pass the buck just before the whole ponzi scheme collapses, that's the sort of activity we endorse as a society.

Can't happen without insane banking practices so fixing that would sort the problem out to some degree, but the point about the land market being a stitch up is spot on.

Once you have a fiat money and baseless banking system, it's a prisoners dilemma. You either take huge loans out, buy assets and push rents up for others, or you pay higher rents, own no assets and pay for everything anyway.

[NEO72]

Wow thats the most sh1t I've seen contained in just two posts for quite some time!

Sorry, but you're wrong. Net mortgage lending in the UK has fallen from about 120 billion pounds a year in 2007 to ZERO for the last 18 months. Gross mortgage lending has fallen by aout 60% in the same period. House prices are down only about 10% and are actually higher in London now than 4 years ago. If this thesis was correct and house prices were a function of lending alone then houses would pretty much be free now! And of course LIAR LOANS have completely ended. They ended 3 years ago. Have house prices subsequently COLLAPSED? no. The market is far more complicated than that.

edit: complete rewrite!

You're looking at net lending - wtf has remortgaging got to do with house prices?

"Liar loans have completely ended" - Do you know this? Really? Got any statistics to back this up? No of course you haven't because if you did you'd know this assertion was a crock of sh1t.

haha ok chum so you seem to be accepting my argument then, at least about London!? It's not lending, it's City funny money and rich foreign people hiding their often ill gotten lucre that's propping up London prices. Maybe you're right about the rest of the country but frankly I'm disappointed that the immense collapse in mortgage lending hasn't resulted in a comparable collapse in house prices. All that's collapsed is transaction numbers. Cash rich people (most of that cash made from the pre 2007 property boom) are the main remaining participants and lending has nothing much to do with it anymore, so I still refute the conclusion of the article.

oh by the way you mention Ireland, Spain and the USA. Here's a clue for you. In the boom Spain (population 40 million) was building 500,000 homes a year. Ireland (pop 4 million) was building 60,000 homes a year. The USA (pop 300 million) was building 1,500,000 homes a year. The UK (pop 60 million) was building 170,000 homes a year. you do the maths!

nighty night.

Actually, very specific parts of london have done well, other parts haven't. So don't refer to London as some homogenous market.

What the fvck has population size got to do with it - its population increase that counts, as well as household size, when you're comparing to housebuilding. Have any figures for this? No thought not.

[South Lorne]

And the similar articles in the Wail, Express, torygraph etc have yet to materialise... Obviously even slower thinkers than those poor Guardian lot

...they are aware ....their simplicity is demanding the Banks lend more....forgetting the days of Gordo's funny money are over....

[Injin]

...they are aware ....their simplicity is demanding the Banks lend more....forgetting the days of Gordo's funny money are over....

Oh awesome, i've had you on ignore for a while now (preferring the posts of exactly the same language structure and political tone which end in the same emotican every time of winkie and game over ) but you are still blaming an 80 year old banking system of debt based money on the autistic from scotland.

Back to ignore you go!

[eric pebble]

haha ok chum so you seem to be accepting my argument then, at least about London!? It's not lending, it's City funny money and rich foreign people hiding their often ill gotten lucre that's propping up London prices. Maybe you're right about the rest of the country but frankly I'm disappointed that the immense collapse in mortgage lending hasn't resulted in a comparable collapse in house prices. All that's collapsed is transaction numbers. Cash rich people (most of that cash made from the pre 2007 property boom) are the main remaining participants and lending has nothing much to do with it anymore, so I still refute the conclusion of the article.

oh by the way you mention Ireland, Spain and the USA. Here's a clue for you. In the boom Spain (population 40 million) was building 500,000 homes a year. Ireland (pop 4 million) was building 60,000 homes a year. The USA (pop 300 million) was building 1,500,000 homes a year. The UK (pop 60 million) was building 170,000 homes a year. you do the maths!

nighty night.

I bow to you as the fount of all knowledge, and I am humbled by your modesty, your Royal Highness & Imperial Majesty......

[Authoritarian]

To clarify, presumably by those with balls to get gagantuan loans you mean e.g. BTL brigade who get out with the loot before the buble bursts? But I'm not clear how surplus funds to landowners find their way to these property speculators. The speculators money is surely derived from mortgages which are loans raised against assets, not necessarily real money. And if the funds were genuinely 'surplus' then how would the banks have got in so much trouble with liquidity? Your argument needs a bit more substance to convince me.

The real estate sector is a wholly government generated form of welfare for anyone lucky enough to be on the right side of the exchange. It's called 'rent' and the logical implication is that people will fight each other using borrowed money to get in on some of the action, it beats working for a living. You don't have to use borrowed money of course but the poor being poor have no money of their own so they need to utilise somebody elses.

Edited October 16, 2011 by Authoritarian

[Bloo Loo]

Sorry, but you're wrong. Net mortgage lending in the UK has fallen from about 120 billion pounds a year in 2007 to ZERO for the last 18 months. Gross mortgage lending has fallen by aout 60% in the same period. House prices are down only about 10% and are actually higher in London now than 4 years ago. If this thesis was correct and house prices were a function of lending alone then houses would pretty much be free now! And of course LIAR LOANS have completely ended. They ended 3 years ago. Have house prices subsequently COLLAPSED? no. The market is far more complicated than that.

edit: complete rewrite!

lets not forget:

Government FTB schemes such as homebuy.

Government support for defaulters....SMI

Government forcing banks needing cash to be lenient.

Bankers buying their own possessions.

And now, some independent bank offering 100% mortgages backed by the purchase PLUS 25% of Mum and Dads house.

EVERY ONE OF THESE SCHEMES COST US MORE AND MORE MONEY......and yet prices are falling, volumes of completions are even lower and yet you cite the case of London, the epicentre of Government largess as proof that lending has no bearing?

[gimble]

Wow thats the most sh1t I've seen contained in just two posts for quite some time!

You're looking at net lending - wtf has remortgaging got to do with house prices?

"Liar loans have completely ended" - Do you know this? Really? Got any statistics to back this up? No of course you haven't because if you did you'd know this assertion was a crock of sh1t.

Actually, very specific parts of london have done well, other parts haven't. So don't refer to London as some homogenous market.

What the fvck has population size got to do with it - its population increase that counts, as well as household size, when you're comparing to housebuilding. Have any figures for this? No thought not.

My general point is this: lending, be it gross lending, net lending, the number of mortgages or the average size of mortgages has, on any of those metrics, fallen massively since 2007. I don't know if you noticed but there's been this thing called the 'credit crunch' that people are talking about a lot in the news and that ....However this has not (yet) precipitated a collapse in house prices. House prices are off, yes, but not in proportion to the collapse in lending. So the bold proclamation of the OP that credit is the only thing driving house prices is patently not true. That argument is laughably simplistic and has been proven to be so.

[gimble]

lets not forget:

Government FTB schemes such as homebuy.

Government support for defaulters....SMI

Government forcing banks needing cash to be lenient.

Bankers buying their own possessions.

And now, some independent bank offering 100% mortgages backed by the purchase PLUS 25% of Mum and Dads house.

EVERY ONE OF THESE SCHEMES COST US MORE AND MORE MONEY......and yet prices are falling, volumes of completions are even lower and yet you cite the case of London, the epicentre of Government largess as proof that lending has no bearing?

look, I'm not saying credit isn't part of the story. But this assertion that credit is the only thing driving house prices is not true. Credit, in aggregate and on all sorts of different measures, has COLLAPSED. House prices have not COLLAPSED. Other factors are afoot. For example, rents in London are rising and rising fast (I know this only too well as my rent's just gone up by 5% after a 5% rise last year too), doesn't that have a lot to do with it? Rent has got pretty much f-all to do with the government handouts that you listed.

Btw I'd like to state for the record that I own no property and my personal VI dream is that house prices do collapse, lest anyone thinks I'm one of these crazy property bull trolls. I used to think that the mortgage madness of pre-2007 was what was making houses so expensive and I was convinced that the credit crunch would see house prices dropping to sensible levels - it just hasn't happened, though. You've got to concede that general point, haven't you?

Edited October 16, 2011 by gimble