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Its Confidence That Drives The Market

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I've been reading threads on this forum for a while now and I've got to say I'ts one of the most interesting places on the internet.

Anyway what caused the dot com bubble to burst and other stock market falls was lack of confidence in the ability for the investment to make money. From what I'm seeing from the news (if I can belive it to be true) is confidence in the housing market caused by lots of factors.

The governments acceptance of high prices and schemes to help FTB (as thought prices will never go down)

TV programs talking contantly about propert and property developing

Peoples genuine desire to own a property

People still think that the property market is a good investment (rightly or wrongly) and all the others are just desperate to own a home. As long as these perceptions are in place the market will not crash (in my opinion) market fundamentals are all very well but its the often irrational minds of people who are driving this market not graphs and statistics.

I agree that when the economics of the situation reach break point confidence cannot physically pay the bills. I think that this break point is still a some way off.

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I've been reading threads on this forum for a while now and I've got to say I'ts one of the most interesting places on the internet.

Anyway what caused the dot com bubble to burst and other stock market falls was lack of confidence in the ability for the investment to make money. From what I'm seeing from the news (if I can belive it to be true) is confidence in the housing market caused by lots of factors.

The governments acceptance of high prices and schemes to help FTB (as thought prices will never go down)

TV programs talking contantly about propert and property developing

Peoples genuine desire to own a property

People still think that the property market is a good investment (rightly or wrongly) and all the others are just desperate to own a home. As long as these perceptions are in place the market will not crash (in my opinion) market fundamentals are all very well but its the often irrational minds of people who are driving this market not graphs and statistics.

I agree that when the economics of the situation reach break point confidence cannot physically pay the bills. I think that this break point is still a some way off.

Confidence it is. Mervyn King, BoE said that house prices are a matter of opinion whereas debt is real. All the time people believe they can afford to spend like there is no tomorrow the good times will roll. However, we are seeing dramatic increases in repossession rates (78% in Merseyside, 60% in N Ireland etc.), record levels of personal bankruptcy, massive slowdown in high street sales, closure of many home improvement stores (B & Q), rising unemployment and so forth. Some might say the breaking point has already passed and we are seeing the fruits of believing that the financial pyramid can last forever.

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Confidence it is. Mervyn King, BoE said that house prices are a matter of opinion whereas debt is real. All the time people believe they can afford to spend like there is no tomorrow the good times will roll. However, we are seeing dramatic increases in repossession rates (78% in Merseyside, 60% in N Ireland etc.), record levels of personal bankruptcy, massive slowdown in high street sales, closure of many home improvement stores (B & Q), rising unemployment and so forth. Some might say the breaking point has already passed and we are seeing the fruits of believing that the financial pyramid can last forever.

could you clarify those repossesion numbers please.

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could you clarify those repossesion numbers please.

http://db.riskwaters.com/public/showPage.html?page=303532

"Recent statistics from the Department for Constitutional Affairs found possession orders increased by 66% over the last year (mortgagesolutions-online.com, 27/10/05)."

There is no cleaer warning sign than dramtic increases in the repo rates. And its just beginning......

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Agree about the confidence comment, but couldn't help notice this one:

Anyway what caused the dot com bubble to burst and other stock market falls was lack of confidence in the ability for the investment to make money

I may be wrong, but wasn't the dot con burst because even the most successfult dot com company (Amazon) couldn't turn a profit for several years. There was a belief in the start-ups that "it's different this time - we don't need to make a profit to run a business" - they were wrong, and the market dumped them. It wasn't really about confidence per se, it was about hard facts and figures.

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Yes, but those 'hard facts and figures' were clear to anyone who wanted to see them long before the dotcom bubble stopped inflating....

I remember thinking the insanity was very similar to that which swept the country when Diana died. Dim sloane dies in car accident though failing to wear seatbelt = national outburst of emotion. Dotcom companies with business plans which consist entirely of 'burning' their way through the startup cash = mad rush to invest every penny people could lay their hands on.

Crowd-think dominates over all other forms of logic when dealing with a large population. At present there is a mental virus (Dawkins' 'meme') infecting much of the population that tells them to invest in property. Eventually bad experience from losses will exterminate the virus. Until then it will continue to spread.

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Agree about the confidence comment, but couldn't help notice this one:

I may be wrong, but wasn't the dot con burst because even the most successfult dot com company (Amazon) couldn't turn a profit for several years. There was a belief in the start-ups that "it's different this time - we don't need to make a profit to run a business" - they were wrong, and the market dumped them. It wasn't really about confidence per se, it was about hard facts and figures.

The constant mantra I heard while HPI was going on was "you had better get in because everything is going up.." People hate to miss out on a quick profit whether it is Dot.coms or tulip bulbs. When confidence erodes it crashes. I think Kylie Coyote is the finest illustration of this. He is the cartoon character that is always chasing road runner. Kylie goes running off a cliff after road runner and is running on top of air. As soon as Kylie looks down and sees the deep canyon beneath his feet and no solid ground, down he goes. I think the housing market is at this point and all people see is the space beneath their feet.

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homeowner,

I think that you might be missing the point a bit.

If you look at the flipside instead it may be more revealing. Instead of asking 'what could cause negative sentiment in the housing market?', why not ask ' what supports the positive sentiment in the housing market?'.

Things that give people positive sentiment:

* Rising disposable income (wage inflation / decrease in costs of goods and energy)

* Seeing assets they own rise in value (particularly housing itself)

* News/Media stories about house prices rising

* Low Interest Rates

* Low unemployment / job security

What happens if you take those things away? Sentiment gradually turns. But not everyone can change their sentiment overnight, it takes time. And different people have different thresholds before they turn. If people are directly affected by unemployment (for example) they will change their outlook quite quickly.

Looking at my non-exhaustive list above for what is happening:

* Rising disposable income (wage inflation / decrease in costs of goods and energy)

+ Disposable income falling, higher taxes (and more to come), higher energy costs

+ low wage inflation not eroding debt levels (as historically happened)

* Seeing assets they own rise in value (particularly housing itself)

+ House prices largely flat / slightly falling

* News/Media stories about house prices rising

+ Some bearish stories about now, but Bullish stories remain the norm

+ Big lenders like nationwide are starting to predict falls in the market

* Low Interest Rates

+ IRs remain low, but with pressure from ECB and Fed rate rises it is unlikely that they will remain low

+ upward pressure on IRs will continue if energy costs feed through to inflation figures

* Low unemployment / job security

+ Steady increase in unemployment, companies under pressure from energy costs/taxation/wage costs

+ Retail sector under pressure as sales fall due to people reigning in spending

+ New car sales fall

I can't see too much of a positive side to effects on peoples sentiment at the moment. The economy is screwed if you look any deeper that Gordon Clown's speeches, your job is at greater risk, you are getting taxed more and more and to top it off your house is no longer rising in value.

Confidence will be the deciding factor.... until the money runs out. Oh, it has..... crash is on then.

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Anyway what caused the dot com bubble to burst and other stock market falls was lack of confidence in the ability for the investment to make money. From what I'm seeing from the news (if I can belive it to be true) is confidence in the housing market caused by lots of factors.

There was also a very real profit/income squeeze, the dot.com bit was at the periphery of a much larger (money wise) boom in tech expenditure and investment. Millions of computers and 10,000's of computer systems were upgraded due to Y2K and the internet entered one of its fastest growing phases at the same time. Most of the expenditure was short lived at that level as it was largely purchase intentions / replacements / new development brought forward to a concentrated time period. This increased growth was not seen for what it was and sales/requirements for new euqipment collapsed almost immediately into 2000, a few months and the reality was hitting the bottom lines of companies and the market then folded, the dot.com stuff on the top under that scenario just melted away.

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Dotcom companies with business plans which consist entirely of 'burning' their way through the startup cash = mad rush to invest every penny people could lay their hands on.

There is one other factor in the housing market... For most people its not just an investment its a home.. and a lot of people would'nt expect to make any gains on their initial investment over a short period.

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homeowner,

I think that you might be missing the point a bit.

If you look at the flipside instead it may be more revealing. Instead of asking 'what could cause negative sentiment in the housing market?', why not ask ' what supports the positive sentiment in the housing market?'.

Things that give people positive sentiment:

* Rising disposable income (wage inflation / decrease in costs of goods and energy)

* Seeing assets they own rise in value (particularly housing itself)

* News/Media stories about house prices rising

* Low Interest Rates

* Low unemployment / job security

What happens if you take those things away? Sentiment gradually turns. But not everyone can change their sentiment overnight, it takes time. And different people have different thresholds before they turn. If people are directly affected by unemployment (for example) they will change their outlook quite quickly.

Looking at my non-exhaustive list above for what is happening:

* Rising disposable income (wage inflation / decrease in costs of goods and energy)

+ Disposable income falling, higher taxes (and more to come), higher energy costs

+ low wage inflation not eroding debt levels (as historically happened)

* Seeing assets they own rise in value (particularly housing itself)

+ House prices largely flat / slightly falling

* News/Media stories about house prices rising

+ Some bearish stories about now, but Bullish stories remain the norm

+ Big lenders like nationwide are starting to predict falls in the market

* Low Interest Rates

+ IRs remain low, but with pressure from ECB and Fed rate rises it is unlikely that they will remain low

+ upward pressure on IRs will continue if energy costs feed through to inflation figures

* Low unemployment / job security

+ Steady increase in unemployment, companies under pressure from energy costs/taxation/wage costs

+ Retail sector under pressure as sales fall due to people reigning in spending

+ New car sales fall

I can't see too much of a positive side to effects on peoples sentiment at the moment. The economy is screwed if you look any deeper that Gordon Clown's speeches, your job is at greater risk, you are getting taxed more and more and to top it off your house is no longer rising in value.

Confidence will be the deciding factor.... until the money runs out. Oh, it has..... crash is on then.

* Low Interest Rates
+ IRs remain low, but with pressure from ECB and Fed rate rises it is unlikely that they will remain low
+ upward pressure on IRs will continue if energy costs feed through to inflation figures

I agree with this but... interest rates have never been higher than they are today. If you ignore the rate and look at the amount borrowed in relation to income you see where the problem lies.

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I think Kylie Coyote is the finest illustration of this. He is the cartoon character that is always chasing road runner. Kylie goes running off a cliff after road runner and is running on top of air. As soon as Kylie looks down and sees the deep canyon beneath his feet and no solid ground, down he goes. I think the housing market is at this point and all people see is the space beneath their feet.

I think you'll find that's Wiley Coyote.

wiley7.jpg

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Regardless of how self confident a driver is his basic necessity is fuel. Take that fuel away and he's walking home to his temporary bed and breakfast, whilst I languish smugly in his repossessed home clutching the deeds at a snip of the price.

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I think you'll find that's Wiley Coyote.

wiley7.jpg

Yes--it is Wiley. Don't you think the illustration is appropriate? The look of shock and fear that crosses the Coyote's face as soon as he realizes he is treading air is priceless. Classic: oo-er :blink:

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..............I agree that when the economics of the situation reach break point confidence cannot physically pay the bills. I think that this break point is still a some way off.

Miles Shipside recognises that public confidence is essential to keep the housing bubble inflated and rightmoves reports spin their socks off to build confidence in the market. The public are a fickle lot and what we are currently seeing is a temporary boost in confidence arising from the 0.25% cut in interest rates this August. Once the expectation of further cuts fades so will confidence and the crash will be back on track.

What is more revealing is that a 0.25% cut, which many building societies are not actually passing on t customers, had such a profound impact on confidence at all. Yes it marked a change in direction for rates but just imagine what effect the 0.25% increase will have when it comes. Public confidence in the housing market is now hyper sensitive to changes in interest rates, with rates in the USA and Europe now increasing it looks like the end for the global housing bubble

The bubble that never burst!

.....Miles Shipside, Commercial Director of Rightmove comments: “The property market’s key

foundation has returned: confidence is back leaving pessimists out in the cold! The

combination of sustainable prices and a fall in interest rates has raised buyers’ and sellers’

confidence to strike a deal”.

Whilst the overall picture looks much healthier than most could have wished for at the turn

of the year, there are still some marked variations in activity.

Miles Shipside summarises “There are still some properties where price expectations are too

high to benefit fully from the improving buyer sentiment. Over-valuing will still back-fire”.

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* Low Interest Rates
+ IRs remain low, but with pressure from ECB and Fed rate rises it is unlikely that they will remain low
+ upward pressure on IRs will continue if energy costs feed through to inflation figures

I agree with this but... interest rates have never been higher than they are today. If you ignore the rate and look at the amount borrowed in relation to income you see where the problem lies.

I agree with your statement, but it will be rising IRs that put the squeeze on the monthly repayments.

Funny how people on IO mortgages still refer to their mortgage costs as repayments.... surely these should be called payments not repayments.

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* Low Interest Rates
+ IRs remain low, but with pressure from ECB and Fed rate rises it is unlikely that they will remain low
+ upward pressure on IRs will continue if energy costs feed through to inflation figures

I agree with this but... interest rates have never been higher than they are today. If you ignore the rate and look at the amount borrowed in relation to income you see where the problem lies.

In 1988 interest rates were 12%

I think thta 12% is higher than 5%

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I suspect he meant REAL interest rates i.e. the Bank rate minus inflation.

I think he meant the amount people are paying in interest payments. It was put that way in an artical that was recently posted.

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I've been reading threads on this forum for a while now and I've got to say I'ts one of the most interesting places on the internet.

Anyway what caused the dot com bubble to burst and other stock market falls was lack of confidence in the ability for the investment to make money. From what I'm seeing from the news (if I can belive it to be true) is confidence in the housing market caused by lots of factors.

The governments acceptance of high prices and schemes to help FTB (as thought prices will never go down)

TV programs talking contantly about propert and property developing

Peoples genuine desire to own a property

People still think that the property market is a good investment (rightly or wrongly) and all the others are just desperate to own a home. As long as these perceptions are in place the market will not crash (in my opinion) market fundamentals are all very well but its the often irrational minds of people who are driving this market not graphs and statistics.

I agree that when the economics of the situation reach break point confidence cannot physically pay the bills. I think that this break point is still a some way off.

I would like to ask the question as to whether you are selling your property at this moment in time, because if you are not you may not be totally aware of what the market is like for those who are.

The market is made up from those who want to buy and sell and not those who are sitting on their assets.

From what I can see at the moment and from what I am being told, selling is becoming a nightmare with broken chains, offers coming in at 10-20% + below asking prices etc etc.

Also when you compare average salaries in the UK to average property prices, put yourself in the position of anyone who is trying to buy with a deposit they have managed to save themselves. Work out the mortgage that would be needed and what the repayments would be and then see matters from their point of view. It is possible then you may understand why property ownership is so far out of reach of normal people.

It's easy to become compacent when you have built up equity in a property to understand the economic realities of those who wish to buy their first home.

Interest rates may be historically low, but the important factor is what you are actually physically paying compared to your income, not what rate you are paying.

If you are as confident as you seem, please can you explain why you think that property prices will not fall.

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I would like to ask the question as to whether you are selling your property at this moment in time, because if you are not you may not be totally aware of what the market is like for those who are.

The market is made up from those who want to buy and sell and not those who are sitting on their assets.

From what I can see at the moment and from what I am being told, selling is becoming a nightmare with broken chains, offers coming in at 10-20% + below asking prices etc etc.

Also when you compare average salaries in the UK to average property prices, put yourself in the position of anyone who is trying to buy with a deposit they have managed to save themselves. Work out the mortgage that would be needed and what the repayments would be and then see matters from their point of view. It is possible then you may understand why property ownership is so far out of reach of normal people.

It's easy to become compacent when you have built up equity in a property to understand the economic realities of those who wish to buy their first home.

Interest rates may be historically low, but the important factor is what you are actually physically paying compared to your income, not what rate you are paying.

If you are as confident as you seem, please can you explain why you think that property prices will not fall.

Sorry... you seem to have misinterpreted my post somewhat. I do have a vested interest, however I'm not that confident that a HPC wont take place. I bought a house at a relatively high price lately (I took a riskbased on circumstances) but looking at he stats and the informed information on his wesite I cant see how anything other than a reduction in prices is possibe.

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  • 301 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%



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