Main Driver Of House Prices

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

I keep seeing politicians saying lack of new housing is driving up house prices. Surely experience over last few decades suggests price increases are more driven by mortgage lending than supply of housing units. Has anyone done any studies worth looking, examining this issue?

[The Spaniard]

http://www.positivemoney.org/issues/house-prices/

[scrappycocco]

Giving politicians work for the bank, they're not going to say the real reason.

[Venger]

There's lack of existing housing supply on the market from those who need to sell. That's got to have some affect. They've tightened that side right up with lowering interest rates and QEing stimulus to keep home-owners in comfortable positions.

Then just enough mortgage demand from those who think it's the new normal to keep what sales do go through at highly-elevated price levels, together with yield hunting cash investors to corner the rental market for tenants who they think will be forced to pay ever higher rents..

Henry Pryor "the BBC's favourite property expert" 2012: There are roughly half the number of homes for sale than there were four years ago when prices peaked in January 2008.

[gf3]

I keep seeing politicians saying lack of new housing is driving up house prices. Surely experience over last few decades suggests price increases are more driven by mortgage lending than supply of housing units. Has anyone done any studies worth looking, examining this issue?

I would say it was a bit of both.

Rents are driven by supply and demand. and BTL landlords help push up the price of housing.

[Bloo Loo]

How much would houses be if you could take any mortgage over 4 generations, .0001% interest and no money down?

[gf3]

How much would houses be if you could take any mortgage over 4 generations, .0001% interest and no money down?

Cheap if you could rent a place for a £1 a year.

[zugzwang]

How much would houses be if you could take any mortgage over 4 generations, .0001% interest and no money down?

But who in their right mind would want to lend at that rate for 100 years?

[TrevorS]

I saw an aviation expert comment on the Concorde crash years ago. He said something to the effect that when there is a disaster, it is never due to a single cause. It is always multiple causes that come together. I am reminded of that analysis when I think of the disaster that is the UK housing market.

[19 year mortgage 8itch]

I saw an aviation expert comment on the Concorde crash years ago. He said something to the effect that when there is a disaster, it is never due to a single cause. It is always multiple causes that come together. I am reminded of that analysis when I think of the disaster that is the UK housing market.

Not sure if that's applicable. They talk about "defence in depth" and lapses in nominally adequate protective measures

With the uk housing market I'm not sure there were any actual layers of protection more like thin rings with an opening big enough to drive a bus through.

[Bloo Loo]

Cheap if you could rent a place for a £1 a year.

but but, rents are a function of value, according to the BTL pushers on this site...they quote yield, they quote mortgage costs, they quote tax advantages.

indeed, they quote whatever figure justifies their gamble.

Edited July 16, 2013 by Bloo Loo

[Wurzel Of Highbridge]

There is no one correct answer as the equation is not that simple:

Higher prices

Abundance of credit = higher prices

Shortage of properties for sale = higher prices

Low cost of ownership = higher prices

Lower prices

Shortage of credit = lower prices

Abundance of properties for sale = lower prices

High cost of ownership = lower prices

Rent prices are a reflection on the cost of property, with a maximum defined as take home wage - living costs.

The market is a place where people meet to exchange goods.

If there is a shortage of produce (houses) and much money (credit) available, prices will be high.

If there is an abundance of stock and no customers, or no customers with money then prices will be lower.

Cost of ownership is also a factor because if interest rates sky rocket then people will liquidate their asset as they have no choice.

Since the UK is not going to go through a house build boom that leaves one option:

Interest rates rise pushing up the cost of ownership, forcing people to liquidate their positions all at once.

That I am afraid is the only way you are going to get your housing crash.

[wonderpup]

The fact that the 'free market'( )Tory Party are preparing to put billions of taxpayer funds on the line in order to prop up the price of housing via their 'help to buy' scheme is a big clue that the market is a bubble- after all- if house prices were simply a reflection of supply and demand why is our government interfering in that accurately priced market?

[Wurzel Of Highbridge]

There are also the props such as NewBuy, shared ownership, SMI, HelpToBuy for New build, HelpToBuy for all houses, FLS to fund cheap mortgages ... plus the ones I have missed. All put in place to keep prices up and rig a capitalist free market so beloved of the Conservatives .... but Labour would do exactly the same.

All those schemes do is lower the cost of ownership thus throttle the stock of houses to the market. I guess help to buy is a little different that it enables the buyers to have a smaller deposit - In effect increasing credit thus driving up prices.

[danlee74]

The fact that the 'free market'( )Tory Party are preparing to put billions of taxpayer funds on the line in order to prop up the price of housing via their 'help to buy' scheme is a big clue that the market is a bubble- after all- if house prices were simply a reflection of supply and demand why is our government interfering in that accurately priced market?

Which is why the current incumbents of the Conservative party have lost the vote of this previously life long Conservative voter. The day they renounce state support in a supposedly free market is the day that I will consider voting for them again. The sad fact is (as satch pointed out shortly after your post) the only other "real" alternative would be doing exactly the same!!

Democracy, eh.

[TrevorS]

Not sure if that's applicable. They talk about "defence in depth" and lapses in nominally adequate protective measures

With the uk housing market I'm not sure there were any actual layers of protection more like thin rings with an opening big enough to drive a bus through.

I think it was something along these lines http://heritageconcorde.com/facts/was-continental-responsible-for-the-concorde-crash: "One of the first things a perspective accident investigator learns is that no one single event causes an aircraft to crash, but rather many single events must align to cause the chain of events that lead to an airplane crash."

I suppose the analogy for events in the UK housing market would be policy decisions, since the so-called market is mostly a creation of these.

[Greg Bowman]

I think it was something along these lines http://heritageconcorde.com/facts/was-continental-responsible-for-the-concorde-crash: "One of the first things a perspective accident investigator learns is that no one single event causes an aircraft to crash, but rather many single events must align to cause the chain of events that lead to an airplane crash."

I suppose the analogy for events in the UK housing market would be policy decisions, since the so-called market is mostly a creation of these.

You could say the same reasoning applies to people who can't afford to buy houses...a history of making poor decisions, spouse, health, career leaving them in a position where they are in the bottom quartile. Before I am shouted down I actually think house prices are too high and my theory isn't true because of the distortion in the market.

But in life in general you see lots of people who make sequential C*** decisions and therefore crash their opportunities for happiness and a stable life. Multiple events.

[24gray24]

Initially, when people are taking out a mortgage, the only driver is how much the banks will lend as a mortgage. If banks lent a million to everyone who asked, houses would cost a million.

However, once a fixed scheme of mortgage lending is in place, house prices rise or fall depending on interest rates, IMO.

So if we look at it historically, the banks doubled the multiples they would lend and that doubled house prices. The interest rates also went down steadily over 10 years, so that doubled house prices again.

Now the multiples are going back to historic multiples, so that will slowly half house prices. And interest rates are going to go up to historic norms, so that will half house prices again.

Faced with a 75% decline in house prices over the next 20 years, the government is proposing... that the taxpayer should pay for 10% of the losses on new builds.

That's my 2 cents' worth.

[scepticus]

I keep seeing politicians saying lack of new housing is driving up house prices. Surely experience over last few decades suggests price increases are more driven by mortgage lending than supply of housing units. Has anyone done any studies worth looking, examining this issue?

HPI mainly has been (and still is) driven by deficit spending. It doesn't matter whether the debt is issued as new currency or new bonds.

[TrevorS]

You could say the same reasoning applies to people who can't afford to buy houses...a history of making poor decisions, spouse, health, career leaving them in a position where they are in the bottom quartile. Before I am shouted down I actually think house prices are too high and my theory isn't true because of the distortion in the market.

The number who can't afford to buy houses is rising way beyond the bottom quartile. Is this because the amount of poor decision-making is rising too? Perhaps we should include decisions made by Chancellors of the Exchequer and Governors of the Bank of England too

But in life in general you see lots of people who make sequential C*** decisions and therefore crash their opportunities for happiness and a stable life. Multiple events.

Some decisions are within people's control, some are not. When the game is so heavily rigged, the odds are against new entrants.

[Wurzel Of Highbridge]

Is this because the amount of poor decision-making is rising too?

Some decisions are within people's control, some are not. When the game is so heavily rigged, the odds are against new entrants.

People are bound to make poor decisions because the BOE and obfuscated the market signals.

By lowering interest rates to 0% BOW have introduced a new normal. If the over leveraged and over borrowed had been left to bankruptcy and interest rates been allowed to return to there long term normal, then people would have been warned to to borrow too much.

Lets face it Mr & Mrs FTB aged in their late 20's have only lived in times of falling and 0% interest rates. When interest rates increase normal service will resume and the bad decisions will be uncovered.

[Executive Sadman]

One of the things thats worrying me is according to the daily mail today

"3 million savers coming off fixed rate deals over the next couple of months"

So thats mostly probably savers who were getting a 4,5 even 6% return on 3 or 5 year fixes (some will have been taken out back in 2008), now having to settle for 1 or 2%.

How many of those will throw in the towel and just by a BTL at any price?