Jump to content
House Price Crash Forum
classixuk

Omg! Stagnation Is Out Of The Question!

Recommended Posts

Why is stagnation out of the question?

Because house prices have risen so much that nobody has any money left to spend on the high street.

Ok...

For house prices to "stagnate" wages need to rise so that people can afford the new prices.

The problem is that the High St is VERY quiet because none of the recent home owners have any money to spend since house prices stopped increasing dramatically.

Johnny Average works for B&Q on £5.05 per hour and is a FTB. He complains to his boss that he can't afford a house on his crummy wages and his boss says, "You need a rise?"

"Yes" says Johnny.

"Well it aint gonna happen," say B&Q "infact things have been so quiet lately Johnny that we're closing stores and reducing our overheads on staff. That means you're sacked as of next month".

If wages can't go up, neither can house prices!

In can't believe I didn't realise this before!

Is my thinking flawed?

Share this post


Link to post
Share on other sites

If wages can't go up, neither can house prices!

The connection between prices and salaries for the average Joe - broke a number of years ago. It's more about the mortgage lenders and their irresponsible lending practices.

Share this post


Link to post
Share on other sites

Stagnation is out of the question.

I check on ceefax 201 occasionally, and I read that Nationwide reports house prices are still reporting (laughably) "increasing".

I laugh when I look at the other articles "bancruptcies reach record levels", "Repossession orders up 66%", "Retail gloomy outlook"

It doesnt add up from where I am standing- so your thinking isnt flawed.

Share this post


Link to post
Share on other sites

The connection between prices and salaries for the average Joe - broke a number of years ago. It's more about the mortgage lenders and their irresponsible lending practices.

and perhasp connected to the highest number of bankrupt people ever... since records began... with interest rates at 4.5%..

not 15%.. like 1989/90...

no we are doing so well, and debt levels are so much higher.. that more people are failing now at 1.5% lower then average IR's then at 8% higher..

It is different this time...?

Hell yes it is.

Much different..

Share this post


Link to post
Share on other sites

Apollo - your optimism is astonishing. People are going bankrupt because they have huge debts they can not pay off. I personally know two people who have gone bankrupt. One had 15K in debts and no job, another had 30K to pay off even after selling her house to clear the rest of her debt. There was no choice other than going bankrupt, new rules or not. And a decline on the high street is going to mean job losses, which will affect everyone in time. Can't you see it?

Share this post


Link to post
Share on other sites

WL part of what you say is ture (not the "irresponsible" comment because its just supply and demand, lenders are not your parents!)

If supply of housing vs demand stays low then prices are sustainable.

The original poster's next question might be.. "where is the demand coming from if average joe can't afford a home?"

Well the answer is,

1. get out of the Southern counties mentality and realise that outside of the South there are plenty of affordable homes available, many below 100K

2. A lot of demand has come from investors in the past, and they replaced FTB dropping demand .. the question of sustainability remains with them if FTBs don't return and as long as FTBs stay out of the market and demand rental properties then the investors will oblige and buy FTB properties to rent out to FTBs.

3. It's a local market scenario, some regions of England will see price drops and maybe collapse. My view is East Midlands, North East England, South West England are not going to be good places to buy if people are wqorried about price drops. Other areas with high population density (like South East, London and North West) will be just fine, and the worse case scenario is stagnation for a couple of year, but with many unitary authorities seeing annual rises of 2-3% for a year or two and then it will pick up again

Still posting the same nonsense as ever, I see, Apollo.

1. There aren't any decent homes outside of the H.C. where there are also jobs. Oh, and a location where you aren't likely to get stabbed to death whilst waiting for a bus. Open your eyes, man. Please post links on HPC to all these great properties for under 100k - we'd love to see them.

2. The BTL's are now hurting badly. Anyone who's bought a BTL in the last 12-24 months is struggling to make it pay. Rents are dropping big time, as the glut of property continues. FTB's are needed by the market, and their numbers in a balanced market absolutely dwarf those of the BTL crowd.

3. This paragraph (3) is the most rubbish you've posted in a long while - and that's saying something! London not going to be hit? It already has been - remember, I live here and follow the market closely. Wales, the North West and literally anywhere else you can mention do not have the wages to support the local prices. They will suffer even more than the other places you mention. Noticed the debt figures, repossesion fugures, bankrupt figures, number of properties building up on Rightmove,etc., etc., etc. - they are all rising.

Still, just like the last 9 months here in the South, the next year or so will open your eyes for the rest of the UK. Maybe try to pop along to Expats, there you'll see plenty of folks all over the UK who are struggling to sell, even after having dropped their prices substantionally.

Nomadd

Share this post


Link to post
Share on other sites

1. Retail sales are gloomy because people would rather pay off theoir mortage or spend money on moving hoime than on non essential retail goods.

2. Bankruptcies are at record levels because in the last year the law and bankruptcy rules have been eased on ths matter so many people choose to get out of their debts that way. Again it doesn't necessarily mean that the people goin bankrupt are private homeowners (though I am sure like always some of them will be). Majority of the increase has come from people below the age of 30 who had got used to their patent's affluence and thought that they too can spend with no assets to speak of, but then find that money does nto materialise out of thin air, but then they also find that there is no serious come back if they go bankrupt so they just do it. These people do not own homes either and you will not be able to benefit by waiting around for forced sellers. The rest of bankruptcies come from bad businesses and dodgy businessmen, which will always be around and not related to the housing market!

Both may seem irrelevent at this early stage, but there will be knock on effect to home owners. When credit lenders dont get their money back and it is written off - thats a unrecoverable loss. Furture lending is tightened - just when home owners may need it e.g. for that roof repair. I dont believe the financial instituitions will continue to be so lax - the whole system will reign itself in (who needs tighter leglisation).

If retail doesnt pick up and is in a contraction - that has a knock on effect for other sectors - supplying companies, advertising, manufacturing, company expansion etc etc. Who are the first to be made redundant? Management is cut - who are they? Homeowners....

Strong house prices need a supporting strong ecomony.

Share this post


Link to post
Share on other sites

Classix is right. As house prices inflate, the money is sucked back to the banks and falls out of circulation. People do not have as much to spend, or to invest in new economic activities. As times get harder, even more more money is wrung out of the system - just at the wrong time for the average joe who finds himself out of a job.

Rising living costs combined with suppressed wages can only end in a breakdown of the system as living standards and quality of life are decismated. We see it now - people on good incomes who overpaid two-fold for houses in virtual poverty, people on good incomes who can only really cover the basics of rent/mortgage, growing bills, growing transport costs, rising food prices. All the way through this credit-fuelled explosion in the money supply - the true inflation - the official figures talk of 2.something percent inflation.

The word inflation has been abused so it now is nothing more than a measure of 3 for 2 CD offers and disposable microwaves.

Share this post


Link to post
Share on other sites

2. A lot of demand has come from investors in the past, and they replaced FTB dropping demand .. the question of sustainability remains with them if FTBs don't return and as long as FTBs stay out of the market and demand rental properties then the investors will oblige and buy FTB properties to rent out to FTBs.

The thing you're missing here in your logic apollo is this....

You seem to agree that FTB's cant afford to buy anymore. If a BTL buys a property, he does so to rent it to someone at an OVERALL profit....right. Now, if said FTB cant afford to buy he can only afford to rent at a LOWER OVERALL COST.

So, in this scenario the BTL'er is making a loss subsidising the renter's costs!

Beautifully simple.

Also, people tend to be prepared to spend less on renting than buying....they stay longer with parents, lodge in one room, go in with mates etc. This tends to compress the occupants into less houses. This leaves a lot of unsold unrented properties empty (rental voids), exacerbating the losses for BTL's.

The easy, cheap credit allows these negative cash flow BTL's to hold on for quite a while (waiting in vain for prices to pick up). Sooner or later the debt burden just becomes unmanagable and you will have a whole lot of distressed sellers trying to offload.

The damn is being built up higher and higher to try to hold back the water. Sooner or later it will burst. The longer it holds on the bigger the burst.

James.

Share this post


Link to post
Share on other sites

The debt taken out now will require maybe 1.5-2x the amount of money to pay it back in the future. During inflation as we have known it in the past when wages rise roughly in line (or even outstrip) the general inflation in goods and services then this is not so much of a problem as eventually a level is reached when the debt repayments become less onerous. With under-reported inflation and salaries linked to under-reported inflation this is not the case. Many people's costs are rapidly outstripping their ability to earn and the debt that they have is properotionally not reducing in the way that it would normally do. Take out interest only loans or rolling credit or indeeed serial MEWing and the situation is worse.

£30k of unsecured debt is enough to take you under if you have anything like a normal set of living expenses and a normal salary and ecounter the wrong circumstances. A slight hiccup in earnings, unexpected bills, ill health, having children even and debt spiral can kick off, it starts with just one missed payment, rates ratchet up and starts a snowball effect on your ability to pay.

The lenders have stolen the future off many, if not the whole economy. They probably have enough debt to gouge out profits for decades by just raising the temperature a bit on their existing debt year after year.

Share this post


Link to post
Share on other sites

1. get out of the Southern counties mentality and realise that outside of the South there are plenty of affordable homes available, many below 100K

In Leeds (the North East) the only houses under £100k are either ex-council flats or back-to-backs where a couple of years ago there were riots. The only people buying these places are muppet landlords and Beaker, the first time buyer. Anyone with an ounce of sense would stay well away.

http://212.50.188.105/cgi-win/vebra.cgi?de...3/STJOH/12318/3

Share this post


Link to post
Share on other sites

I am getting letters from my local Honda dealership pointing out that they will be selling the new Honda Civic next January BELOW the advertised recommended price.

I have never seen this before either with a brand new model or from Honda. Usually, car dealers expect to charge what they wish on a new model as people go for the kudos thing. That to me is just another sign of what is going on in the economy.

HPs in my part of the World, I keep repeating, have doubled, tripled and even quadrupled in price in the past 5 years - 82K in 2000 now on the market for 425K, as one example, in the poorest part of the UK for wages. Countless houses now lie empty and are up for sale and/or to let. Speculators have driven HPs up well beyond anything that anyone sensible can afford to buy and HPs literally have to fall by about 50% before I will even consider getting into the market.

There is a big housing crash coming. It has to come or the British economy will simply stagnate.

Share this post


Link to post
Share on other sites

Why is stagnation out of the question?

Because house prices have risen so much that nobody has any money left to spend on the high street.

Ok...

For house prices to "stagnate" wages need to rise so that people can afford the new prices.

The problem is that the High St is VERY quiet because none of the recent home owners have any money to spend since house prices stopped increasing dramatically.

Johnny Average works for B&Q on £5.05 per hour and is a FTB. He complains to his boss that he can't afford a house on his crummy wages and his boss says, "You need a rise?"

"Yes" says Johnny.

"Well it aint gonna happen," say B&Q "infact things have been so quiet lately Johnny that we're closing stores and reducing our overheads on staff. That means you're sacked as of next month".

If wages can't go up, neither can house prices!

In can't believe I didn't realise this before!

Is my thinking flawed?

I agree with you. The funny thing is that, when house prices rise, people feel richer when actually, a lot of the time, they're poorer. Unless, you're lucky enough to jump off the property ladder and cash in on the rise in prices, all bigger house prices mean is that you've got a bigger mortgage and hence less to spend. The trouble is that people don't seem to realise this and it takes them a while to realise that they're spending more than they should and then we get the hangover time where spending is low and bankruptcies are high.

Share this post


Link to post
Share on other sites

1. Retail sales are gloomy because people would rather pay off theoir mortage or spend money on moving hoime than on non essential retail goods.

I love the way this comment is made as if it's positive thing.

A retail sector decimated because everyone's too skint to spend any money on anything besides their mortgages.

Sounds like the foundations of a healthy economy to me (not).

Bubble mentality if ever I head it.

Share this post


Link to post
Share on other sites

3. ... My view is East Midlands, North East England, South West England are not going to be good places to buy if people are worried about price drops. Other areas with high population density (like South East, London and North West) will be just fine, and the worse case scenario is stagnation for a couple of year, but with many unitary authorities seeing annual rises of 2-3% for a year or two and then it will pick up again

:lol::lol::lol:

Share this post


Link to post
Share on other sites

The housing market will continue at least at its current level just as long as people are willing / able to raise the sums required to buy. The only thing I can see which will affect this is the state of the economy.

True, there are some bad signs, particularly on the high street, but there are also indicators which are fairly strong - see last week's CIPS survey for example - suggesting that a high street slow-down hasn't yet fed through into the supply chain as expected.

Here's a scenario for you. The housing market, fulfilling its social function of enabling people to move, keeps turning over slowly. Prices edge upwards. Inflation begins to dip as oil prices fall back. The MPC cuts rates a couple of points either side of Christmas, encouraging more people onto the high street. There's a bit of a spring bounce. What then? Crash over?

I ask this because while it seems to me logical that a combination of stupid HP inflation, stupid credit bingeing by the consumer and stupid overspending by the Govt should result in a mutually reinforcing recession / house price crash, in practice it is stubbornly refusing to happen, and I wonder whether the Bank will have just enough headroom to ward it off with a lowering of rates next year to maybe 4%.

Share this post


Link to post
Share on other sites

I ask this because while it seems to me logical that a combination of stupid HP inflation, stupid credit bingeing by the consumer and stupid overspending by the Govt should result in a mutually reinforcing recession / house price crash, in practice it is stubbornly refusing to happen, and I wonder whether the Bank will have just enough headroom to ward it off with a lowering of rates next year to maybe 4%.

Not checked grains and foodstuffs but some metals are still rising in price, oil is still way above the levels of last year and there is no gurantee of continued falls - as the bankers still print money like there is no tomorrow expect inflation in raw materials.

Also check out the £, approaching a critical level, the US are and will continue to increase their rates if you believe their public spoutings. If the BOE drop rates in the face o rising raters i teh US and elsewhere expect the next level down to be broken and a very rapid devaulation of the £ leading to significant inflation in goods and raw materials - even more significant now than in the past as we are producing less of the stuff ourselves and a lot of what we supposedly "manufacture" is simply bolted together sub-assemblies - handy for not upsetting the trade applecart.

http://quotes.ino.com/chart/?s=FOREX_GBPUSD&v=dmax

USDGBP.gif

post-273-1131358900_thumb.jpg

Edited by OnlyMe

Share this post


Link to post
Share on other sites

The housing market will continue at least at its current level just as long as people are willing / able to raise the sums required to buy. The only thing I can see which will affect this is the state of the economy.

True, there are some bad signs, particularly on the high street, but there are also indicators which are fairly strong - see last week's CIPS survey for example - suggesting that a high street slow-down hasn't yet fed through into the supply chain as expected.

Here's a scenario for you. The housing market, fulfilling its social function of enabling people to move, keeps turning over slowly. Prices edge upwards. Inflation begins to dip as oil prices fall back. The MPC cuts rates a couple of points either side of Christmas, encouraging more people onto the high street. There's a bit of a spring bounce. What then? Crash over?

I ask this because while it seems to me logical that a combination of stupid HP inflation, stupid credit bingeing by the consumer and stupid overspending by the Govt should result in a mutually reinforcing recession / house price crash, in practice it is stubbornly refusing to happen, and I wonder whether the Bank will have just enough headroom to ward it off with a lowering of rates next year to maybe 4%.

It's getting boring now.

How are today's first time buyers ever going to move up the chain?

BTL landlords will never move up the chain.

Today's FTBs are stretching like mad just to buy a pokey flat.

If they struggle to pay a 150k mortgage with two salaries - how are they ever going to have children and buy a house?

Where are they going to get the money from to move up the chain?

Simple question. Your answer please.

And, before you say they are going to earn more as they get older - the average age of a FTB these days is 34 - already at or near their peak earning power. Many people get made redundant in their 40s and find it hard to get a new job paying the same money.

Edited by Marina

Share this post


Link to post
Share on other sites

The housing market will continue at least at its current level just as long as people are willing / able to raise the sums required to buy. The only thing I can see which will affect this is the state of the economy.

True, there are some bad signs, particularly on the high street, but there are also indicators which are fairly strong - see last week's CIPS survey for example - suggesting that a high street slow-down hasn't yet fed through into the supply chain as expected.

Here's a scenario for you. The housing market, fulfilling its social function of enabling people to move, keeps turning over slowly. Prices edge upwards. Inflation begins to dip as oil prices fall back. The MPC cuts rates a couple of points either side of Christmas, encouraging more people onto the high street. There's a bit of a spring bounce. What then? Crash over?

I ask this because while it seems to me logical that a combination of stupid HP inflation, stupid credit bingeing by the consumer and stupid overspending by the Govt should result in a mutually reinforcing recession / house price crash, in practice it is stubbornly refusing to happen, and I wonder whether the Bank will have just enough headroom to ward it off with a lowering of rates next year to maybe 4%.

My perception is that the intensity of HPI in recent years is such that it is taking a very long time for the 'supertanker' of public opinion/belief to change direction, but it must & will happen; much local evidence to support this - eg adjoining neighbour's house on (south coast) market a year ago @ £200K, now £170K & still unsold, a further 5 props within 70 yards all for sale (all pleasant, with sea views), no interest - 2 years ago they'd have sold within days - there's no way this is all gonna get back on track, a predicted flat Xmas & the wheels will be well & truly off for next year, regardless of the occasional dead cat bounce..

Share this post


Link to post
Share on other sites

In Leeds (the North East) the only houses under £100k are either ex-council flats or back-to-backs where a couple of years ago there were riots. The only people buying these places are muppet landlords and Beaker, the first time buyer. Anyone with an ounce of sense would stay well away.

http://212.50.188.105/cgi-win/vebra.cgi?de...3/STJOH/12318/3

:o when I was working in Leeds, in a fairly "average" job, that would have been over 4x my income. Outrageous! (to anyone who doesn't know Leeds you might think that this is fairly reasonable - but if you were driving round there you wouldn't want to stop your car, never mind live there)

in answer to the original question about why stagnation is impossible - oddly enough, I was thinking about this myself last night. There are two main reasons I think:

1) the MEWing thing which has already been touched upon here. If MEW made up 8% of total spending in the UK economy, how is that replaced when MEWing stops? And the same MEWers are now inhibited by larger mortgage payment and so there is a double-spending-whammy. The spiral begins. 8% is more than a mere marginal amount... 8% of all retail jobs is a lot of people.

2) The growth premium. After 8+ years of rising prices people started to be willing to pay (for example) 10k more in the expectation that they were guaranteed a 20k profit. As soon as the market stagnates this premium unwinds fairly quickly.

Although prices are sticky on the way down, remember one thing. Markets, cycles, life, the universe and everything - it cannot stay still. There is an inate energy to these things and it will not simply be becalmed. It is not sustainable at this level and has wildly overshot.

Anyone who seeks to tell you differently is either suffering from a limited imagination (not uncommon) or is delibarately trying to sell you a pup.

Share this post


Link to post
Share on other sites

I am getting letters from my local Honda dealership pointing out that they will be selling the new Honda Civic next January BELOW the advertised recommended price.

I have never seen this before either with a brand new model or from Honda. Usually, car dealers expect to charge what they wish on a new model as people go for the kudos thing. That to me is just another sign of what is going on in the economy.

I think you'll find that the reason for car dealers cutting each other's throats is more to do with EU regulation forcing car prices down by making dealers actually compete with each other: http://news.bbc.co.uk/1/hi/business/4299602.stm

Edited by zorn

Share this post


Link to post
Share on other sites

It's getting boring now.

How are today's first time buyers ever going to move up the chain?

BTL landlords will never move up the chain.

Today's FTBs are stretching like mad just to buy a pokey flat.

If they struggle to pay a 150k mortgage with two salaries - how are they ever going to have children and buy a house?

Where are they going to get the money from to move up the chain?

Simple question. Your answer please.

And, before you say they are going to earn more as they get older - the average age of a FTB these days is 34 - already at or near their peak earning power. Many people get made redundant in their 40s and find it hard to get a new job paying the same money.

Don't get me wrong, Marina. I agree with you. There should be no FTBs at all. But there are. People shouldn't be able to afford to move up the chain. But some of them are. No one in their right mind should be buying a two-up two-down for £200k plus. But round my way people are. The market should be crashing, and so should the economy. My point is that there are at least as many signs that both are sufficiently resilient as there are signs of imminent meltdown.

Edited by bears all

Share this post


Link to post
Share on other sites

Strong house prices need a supporting strong ecomony.

actually the only time house prices are strong is when they are affordable and can be purchased at debt levels that won't de-stabalise the rest of the economy.

Debt levels that the individuals also can't sustain.

So, high house prices are by definition weak..

because they always fall from high.

and..

The drop was never going to be overnight..

But I never expected to see every factor that I could imagine set to cause the splat.

The recent confidence in the market came solely from the perception that lending was about to get cheaper..

See how many jump on the ladder as the perception of IR's going up hits the FTB's that are still going..

Hang on to your hats.. its getting bumpy..

Teetering.

Edited by apom

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...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 302 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.