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How To Deflate Osborne’S Housing Bubble?

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Full piece - http://blogs.spectator.co.uk/coffeehouse/2013/09/how-to-deflate-osbornes-housing-bubble/

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How did the US get it house(s) in order? Perhaps because the US let the bubble burst, and tolerated foreclosures aplenty – and is now enjoying a real, sustained and deserved recovery. The Bank of England broke the fall, and fed the debt addiction with the rock-bottom interest rates (and then more QE than America). It’s not clear that our bust did actually correct the malinvestments of the bubble years. House price values haven’t returned to pre-crash norms and there are an estimated 100,000 zombie firms still around.

How much of this is down to Osborne? He did not start the cheap debt policy, but gave it a new name (“monetary activism”) and in office he has introduced various debt-spreading devices. There was his new bonds, which lend to companies who can’t get cash from banks. Then his Funding-For-Lending scheme, designed to encourage banks to lend more to homebuyers. The side effect was dealing a hammer blow to savers by flooring Cash ISA rates: if banks could borrow from the government at knock-down rates, they didn’t need to pay more than 2pc to borrow from the public. Ironically, the BoE meets next week to decide whether to make it harder for banks to lend: precisely the opposite policy.

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Not sure if it would deflate the bubble, but we should employ the man with the largest feet in the UK to kick Gidiot Osborne in the balls repeatedly 24/7, with a live feed broadcast across the net.

I feel this would be symbolically fitting of what he's essentially done to anyone who voted Conservative hoping the housing market would be allowed to correct "freely" and deflate Brown's bubble.

Edited by byron78

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The US isn't enjoying a real, sustained recovery, it's flat on its face. Bernanke and his fellow stoolies at the Fed have been working overtime to reinflate the US housing bubble, with narrow success: they've enabled QE speculators to buy up all the available inventory... and now prices appear to have peaked again.

What's killing the US recovery?

In a nutshell, what's hurting the housing recovery is that there aren't enough houses to buy, and those that are available are too expensive.First, the supply of affordable homes has diminished. In the aftermath of the housing crash, one-third of all home sales were distressed homes, and those houses tend to be sold for affordably low prices by banks.

But, as home prices have risen, there is evidence that banks and lenders are not selling those foreclosed houses and instead holding on to some of them to sell for a higher price later. They're also not selling them now because flooding the market would result in low sale prices – and those lenders want to get high prices.

That strategy by lenders seems to be working. House prices have rocketed in the past year, rising too fast for buyers to keep up, even with a 30-year mortgage. In July 2012, home prices were still falling from the housing bust. In the past year, they have rocketed up 12%.

At the same time, rental prices have also zoomed up, which is perhaps why mortgage applications seemed to rise earlier this year: a high rent will make people think about buying a home instead.

But neither renting nor buying looks great any more at these prices, because people still don't have much money.

Personal incomes have collapsed since the recession, meaning households – many still struggling with heavy debt – can't afford the sudden rise in house prices and are not applying for mortgages any more.

Anyone who manages to buy a house for the first time right now is not feeling rich: the National Association of Realtors found recently that 42% of first-time buyers have to make sacrifices to afford a new home.

This issue of home prices is a huge factor in why there's no actual housing recovery.

Affordability and home ownership are far more closely correlated than interest rates and home ownership. Interest rates may make mortgages more expensive, but they don't affect the underlying price. That price is what drives people away.

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Nice chart. We laugh at the yanks for having to throw a sizeable portion of their monthly income at overpriced healthcare, whilst we do the same with housing. I guess if you look at it that way we've no reason to gloat.

But at the end of it we have an over priced asset they have an over priced bottle of pills. If you had a choice which would you rather waste your money on?

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anyone who voted Conservative hoping the housing market would be allowed to correct "freely" and deflate Brown's bubble.

...

.... deserves a kick in the balls themselves for being so stupid.

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But at the end of it we have an over priced asset they have an over priced bottle of pills. If you had a choice which would you rather waste your money on?

Neither. Its just funny how our 'opposing' parties plot to keep housing unaffordable, and how the yanks 'opposing' parties plot to keep healthcare unaffordable.

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Perhaps the plan for the UK is to keep house prices high so that when it comes to paying for going into care there is something to sell to pay for it. So you spend all your life working hard and paying off your mortgage and then your housing asset which you now own outright is sold off to pay for the care home fees. If you want to have anything to leave to your heirs you'd better keep healthy in your old age.

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Perhaps the plan for the UK is to keep house prices high so that when it comes to paying for going into care there is something to sell to pay for it. So you spend all your life working hard and paying off your mortgage and then your housing asset which you now own outright is sold off to pay for the care home fees. If you want to have anything to leave to your heirs you'd better keep healthy in your old age.

While objectively, the logic should be flawed on that, productivity is wealth, and the policies needed to ensure house prices are high are directing credit away from productive uses, the reality is British people are such bad savers now, if its not locked up in their homes, they tend to spend it as soon as they get it.

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Perhaps the plan for the UK is to keep house prices high so that when it comes to paying for going into care there is something to sell to pay for it. So you spend all your life working hard and paying off your mortgage and then your housing asset which you now own outright is sold off to pay for the care home fees. If you want to have anything to leave to your heirs you'd better keep healthy in your old age.

Or stack and rent.

I was explaining that to my mother at the weekend, who was giving my the olde get on the ladder quickly prices in ROI are down 50%. I quickly pointed out that anything within a reasonable commuting time (45 mins) was still unaffordable and that renting is only costing us €2k per year, which is a very small premium if we need to move in the next couple of years.

What is the point of buying when you know that you will either be means tested or you will have to withdraw equity from your home to pay for your pension/care.

I see that MEW/Borrowing for child care is the latest fad.

we now have:

Borrow for housing

Borrow for education

Borrow for child care

Next it is:

Borrow for pension

Borrow for care

And finally:

borrow for food

household-debt.jpg

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