Coming 'oil Glut' May Push Global Economy Into Deflation

[Neverwhere]

You threw me a real curveball there, and because you thought that banks adjusted their mortgage values based on the underlying asset value (and I respect your knowledge) and RK's comments suggested likewise, I assumed I must have missed some major accounting change.

I think you'll find though that residential mortgages are held on the balance sheet as 'loans and receivables' under IFRS (there are exceptions, e.g. loans that are securitised and traded).

For example, in the Nationwide 2014 accounts I linked to there is the following note (page 189):

Loans and receivables

Loans and receivables are non-derivative financial assets

with fixed or determinable payments that are not quoted in

an active market. The Group’s residential and commercial

mortgage loans, unsecured lending, loans to banks and cash

are classified as loans and receivables.

Loans are recognised when the funds are advanced to

customers. Loans and receivables are carried at amortised

cost using the effective interest rate method less provisions

for impairment.

In other words, loans are carried at the original value when advanced, less capital repayments, less any impairment. The value of house prices is not relevant in the accounting.

I'd add that even if house prices were relevant, the value of the loan book would be assessed at what a buyer would pay for it. Even if the value of the relevant security meant that the loan is in negative equity, if the borrower is servicing the loan then it's entirely possible for the mortgage to still be valued well above the security (house) value.

Thanks for the clarification. I had gained a different impression from things like this from the BoE:

In particular, negative equity can have implications for monetary policy by affecting the pattern of aggregate demand and supply in the economy. And it can also have implications for financial stability if it leads banks to make writedowns on their mortgage books, or incur losses on securities whose value is related to the housing market, that are sufficiently large to impair the banks' capital ratios. The impairment of banks' balance sheets can also have implications for monetary policy, as evident throughout the financial crisis.

. . .

The total loss made by the lender would also depend on any costs incurred in selling repossessed property (such as estate agents' and solicitors' fees) and on how much money the lender can later recover from the borrower. It is the total value of negative equity (net of costs and recoveries) that is relevant in assessing lenders' potential losses, not the number of households in negative equity.

. . .

Mortgage losses may not be confined to the mortgage book of the lender. Investors (including banks themselves) who own securities that are backed by pools of mortgages (mortgage-backed securities (MBS)) would also be likely to suffer: increasing defaults on underlying mortgages would tend to reduce the current and future stream of mortgage repayments from that portfolio. This is likely to lead to a fall in the price of the security. The price of an MBS can also be affected by a general shift in investor sentiment, regardless of the actual performance of any given portfolio of loans.

. . .

Lenders' decisions about credit supply are in part determined by their own estimates of the LTV distributions on their mortgage books and by losses they expect to make on those loans.

. . .

By increasing expected bank losses, negative equity may have amplified the slowdown by further constraining the supply of credit to households and firms - thereby reducing aggregate demand and supply. That impact of negative equity on credit conditions may have been somewhat stronger than in the 1990s' recession because of elevated concerns over banks' capital positions at the start of the slowdown.

http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/m09.aspx

On rereading and in the light of your comments (which happily reflect what I thought the situation should have been, but didn't trust it was) it's clear that the BoE is primarily discussing the impact of NE on sentiment and the further impact this can in turn have on how banks value their own loan books, rather than any automatic or direct relationship between NE and bank b/sheets.

[PopGun]

Venger, you're a nutter period.

[Venger]

Venger, you're a nutter period.

PopGun, keep making excuses for those who chose to buy at ever higher prices, saying reposession solves nothing because only people who benefit are BTLers, and attacking renter-savers... who took the only option in the hope the reckless malinvestment of others would correct. It went to extremes.. and so savers are to blame. Pathetic, your position on that.

I notice how you don't seem too fussed how things turned out with reflation. Remind me, when did you buy the house you wanted to trade up from? 2005-07 would be my bet.

[Venger]

I think I have expertly handled the 3 HPI Trolls on this thread.

Exposed the biggest of the lot, and the 2 sidekick HPIers.

[alexw]

I finally have time this evening to address this response to my post.

You're using exactly the same generalisation of a systemic banking crisis as RK did, and although it all sounds very scary, I'd ask you to carefully read my own post again and give it more than a cut-and-paste consideration. We're all well aware of what a bank run is, and I don't think anyone on this forum has written more than I have regarding the Great Depression and the arguments that still persist to this day about the policy response from the Federal Reserve.

I wasn't talking about the sort of circumstances that occurred in 1929-32 or 2007-09, when there were underlying reasons for the systemic financial crisis that went way beyond concerns regarding possible falls in houses prices (if you recall, UK house prices were not falling at the time of the Northern Rock affair and had yet to peak on several of the indices).

My words were (my bold): "Not sure why it's being implied that a collapse in the value of the underlying security automatically leads to the destruction of the banks' loan assets".

I'm talking about a hypothetical situation where (say) over the next three to five years UK house prices drop nominally by 30%. You claim "we know exactly what happens" and cite the bank runs of the Great Depression.

I'd say that is a completely absurd scenario. The bank run you talk of is purely a liquidity issue, and the BoE is far better prepared for this now than it was in 2008. Back then the Special Liquidity Scheme (SLS) and long-term repos gave the banking system the requisite liquidity to avoid balance sheet funding issues. At its peak in Q1 2009, SLS supplied £185bn of funding to the banking system through a collateral swap for Treasury Bills, before QE had even started (and I'd remind everyone that QE created new bank deposits).

So if you are going to claim that we will have a meltdown that will result in the loss of savers' deposits, you need to describe the process that will lead to the collapse of the banks through insolvency, not lack of liquidity. I specifically gave a link to the BoE QB article on negative equity (which you appear to have ignored) because past experience has shown that people will continue to service their mortgage even when they are deeply in negative equity. That was the experience in the 1990s crash, and it was also the experience more recently, leading the FSA to conclude in the MMR that LTV caps were not particularly useful because the correlation between high LTVs and mortgage default was weak. However you claim that "a heck of a lot of people will default" without giving any estimate whatsoever. Just the arm-waving, scary language that RK uses, with no data whatsoever to back it up.

If you want a specific example to use, how about Nationwide, which is predominantly a domestic mortgage lender so its balance sheet isn't cluttered with derivatives, commercial loans, or investment banking related activities.

The 2014 accounts are here. On page 93 you will find a detailed breakdown of their mortgage book by LTV (including on a regional basis as well).

Please describe the scenario that leads to Nationwide deposit holders losing ANY of their funds under a 30% nominal fall in house prices.

[i'll add as a final point that if you can make a convincing case for a loss for depositors, then we need to let the BoE know ASAP, because they're about to stress test banks against a 35% fall in house prices, and the expectation is that banks' Tier 1 capital will be able to take the hit.]

Edit: typo

Ok you are making a couple of very big assumptions.

A proper full-on house price crash will certainly lead to more than a 35% fall in house prices. Given that in any sort of crash in asset prices markets tend to overshoot, and that this is one whopper of a bubble, we can easily expect to see more than a 50% fall. This is especially true if you consider the financial state of this generation of young folk compared to those of say of 30 years ago when they first bought. The other demands on young folks income is so much greater.

Don't get me wrong I want prices to crash, but given the magnitude of the falls we can expect, when it finally goes the system will not be able to absorb the sorts of losses we will see with just the capital they have.

Another big question is whether the capital buffers are as good as the "tests" and the banks themselves make out. We know they still have all sorts of losses they are drip feeding out. If the buffers were as good as stated then why not just write those losses down and fully clear up your balance sheet?

As for whether people will default. There seems to have been a big culture change towards this if we look at other nations. They have gone from seeing a debt as something that they should continue to pay to basically an attitude of "f**k it". I will be highly surprised if this change has not occurred here too. Given how fundamentally wrong the boe and other regulators were in the past I very much doubt they are as accurate as they are assuming with their don't worry keep calm attitude.

Lastly the scenario I outlined was the worst case scenario which I don't think will happen, but would happen if the boe did not intervene to force savers to absorb the losses over the banks capital buffers. This is why savers will lose out. If the boe don't intervene in this way then we get a systemic crises were savers (and everyone else) will lose out much much more than if the boe does financial repression on savers.

I see it working out in one of two ways. They will either go the bank holiday and confiscate route, or they will monitize and devalue current savings more than they already have. I think the boe will prefer the latter while the EU will be pushing for the former. At least based on precident.

More than anything else I want the happy clappy "a crash will be a bed of roses" people here, to fully understand the consequences of what they want. I want it too but I unlike them understand the economic consequences which are going to be pretty horrific, and which I am certainly not looking forward to.

[Baxter Basics MP]

Coming 'oil Glut' May Push Global Economy Into Deflation

But I bet petrol prices will remain above £1.26 per litre?

[Venger]

Ok you are making a couple of very big assumptions.

A proper full-on house price crash will certainly lead to more than a 35% fall in house prices. Given that in any sort of crash in asset prices markets tend to overshoot, and that this is one whopper of a bubble, we can easily expect to see more than a 50% fall. This is especially true if you consider the financial state of this generation of young folk compared to those of say of 30 years ago when they first bought. The other demands on young folks income is so much greater.

Don't get me wrong I want prices to crash, but given the magnitude of the falls we can expect, when it finally goes the system will not be able to absorb the sorts of losses we will see with just the capital they have.

Another big question is whether the capital buffers are as good as the "tests" and the banks themselves make out. We know they still have all sorts of losses they are drip feeding out. If the buffers were as good as stated then why not just write those losses down and fully clear up your balance sheet?

As for whether people will default. There seems to have been a big culture change towards this if we look at other nations. They have gone from seeing a debt as something that they should continue to pay to basically an attitude of "f**k it". I will be highly surprised if this change has not occurred here too. Given how fundamentally wrong the boe and other regulators were in the past I very much doubt they are as accurate as they are assuming with their don't worry keep calm attitude.

Lastly the scenario I outlined was the worst case scenario which I don't think will happen, but would happen if the boe did not intervene to force savers to absorb the losses over the banks capital buffers. This is why savers will lose out. If the boe don't intervene in this way then we get a systemic crises were savers (and everyone else) will lose out much much more than if the boe does financial repression on savers.

I see it working out in one of two ways. They will either go the bank holiday and confiscate route, or they will monitize and devalue current savings more than they already have. I think the boe will prefer the latter while the EU will be pushing for the former. At least based on precident.

More than anything else I want the happy clappy "a crash will be a bed of roses" people here, to fully understand the consequences of what they want. I want it too but I unlike them understand the economic consequences which are going to be pretty horrific, and which I am certainly not looking forward to.

The vast majority of homeowners are older owners, where the hpc will hit hardest. Your more recent younger buyers likely to own at the lower range.. even under HTB... perhaps in some areas which have already had a softening.

HPC is coming Alex. I enjoy your posts, often, as you put up an honest challenging view.

What is horrific is HPI running at 10%-20% a year, on young professionals with families who choose not to overborrow, now in senior careers working long demanding houses each week, putting savings aside towards buying each month... but keep seeing massive HPI. £10ks/£20ks/£100Ks more than houses sold just a couple of years previously. What about all the younger renters Alex? Does your concern only run to a trace percentage who have chosen to buy at very high prices?

Non owning savers have already had to endure torturous conditions, and interest rates floored, during 5/6 years of smoothing. And watch crazy house price reflate to new madness. They are not taking any more punishment from here. It's those who are complacent about values of their homes in the £300,000 - £1m range who are lined up for it from here. A massive hpc.

Only in 2012 we were shocked at this selling for £340,000. It's not been updated on the latest listing, but it's just gone Sold STC at the £400,000 new asking price after a short time back on market. http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=21629565&sale=47370971&country=england

The buyers are likely the ones who believe your cash is trash, savings will be seized, forever HPI. So many houses here get bought and put on as rentals. Then more complacency at the mid end with HPI. Houses laughably still massively overvalued (but it's my free HPI older owners)... some now escaping with even more money as they sell (but they won't all escape with it.. as HPC soon comes in). And there are so many positives with HPC; shaking out rotten positions and allowing good money in at lower prices, in the economy proper.

Seen this?

EDIT ****WHY THE FUCCCK CANT I POST A FUUCCCKKING JPG IMAGE ON THIS SITE??????****

Listed as a 4 bedder but its a 3 bedder.............for 715k.

Its here http://www.rightmove.co.uk/property-for-sale/property-33126107.html on Hartlery road Altrincham.

Basically its a bog standard 3-bed Cheshire semi with some hideously planned extensions.

Floorplans show how badly its designed. Look at the pillars in the conservatory - they are holding the house up!

Now thats a 400k house.

Went down to Offers in region of £690,000

Now, in reflation (house prices are recovering, Carney mouth)

Sold STC £749,950

http://www.rightmove.co.uk/property-for-sale/property-31040220.html

Edited September 13, 2014 by Venger

[Venger]

You're on the list too hotairmail; backing these positions. ('The List' - Dad's Army style)

"Savings don't exist in isolation from debts. Credits = debits. Creditors = debtors. They are accounting entries that MUST balance."

Good post RK. Currency. These tokens might well be 'wealth' but they are almost better considered as the oil of transactions between forms of wealth. [..] That can continue for an awfully long time as we see in this country.

Savings just pathetic tokens now... we'll see, as your 'tokens' / money becomes tighter, against crashing asset values. Yes it can continue.. until banks can handle a crash, and like the look of volume lending to surviving creditors at lower asset prices. That time is approaching.

'Tokens'... complacency, just like Timak's Parents-in-Law, with their own house, not liking the fact their 'dead money savings' of a few £100ks just sitting in their bank account earning little interest... so they go buy a peaky price investment property to rent to younger people. House owned outright, loads of cash... can't get enough return. Chronic entitlement, that will be punished by the market ahead.

Savings get converted by savers, via purchases, for lower value assets, from the debtors and complacent locked in HPIers, smart enough to sell at lower prices before prices bottom. There is your future balance, combined with fresh debt issued against lower value assets, and rebalancing time is approaching. After all, my savings are in RK's older friends houses, at £500K-£800K+.... with his imagined horrors of a hpc on my family's and my friends' positions (renting/savers).... rather than older VI having to drop their complacent VI ridiculous asking prices. Some will sell for much lower prices, in time approaching, and set much lower values for the other complacent VI in similar houses... thinking their HPI is locked in, and the Gov will always prop up such values.

Debts are retired by paying them off, " restructuring" or default. In the first case, no value is lost; in the second, some value; in the third, all value. In desperately trying to raise cash to pay off loans, borrowers bring all kinds of assets to market, including stocks, bonds, commodities and real estate, causing their prices to plummet.

The process ends after the supply of credit falls to a level at which it is collateralised acceptably to the surviving creditors. Financial assets, and all other asset-classes of value, will be selectively repudiated by default, not obliterated by inflation.

I know several friends/acquaintances who have put houses up for sale over the last few months in the £500-800k region, who are expecting to have to wait 12 months + to sell. In one case they had an offer £50k under asking (which was I think £50k less than the agents recommended price anyway) and they rejected it. Another who put it on at what seemed a peak price to me, only to drop it by about £80k a few weeks later after little response and who has now decided not to sell (doesn't need to).

I've been around old money and in the back of Bentleys since I was sucking on the teat - It's tedious and dull.

And yet you don't lose interest. You always return to post. And always with the same inverted snobbery in your posts. Whenever anyone mentions Sale/Alty/Timperley we have to put up with your replies of "well, it may be OK for them" type posts. Sad, really.

Wait a minute... You just said you couldn't care less about Bentley's, and yet here you are one sentence later claiming you've been riding around in them since you were a Small Troll. And there's the "old money" that you always seem to associate yourself with every post. As many of us pointed out to you last year: when are you actually going to do something for yourself, rather than just spend your life as a Great Pretender on the back of other people's coat tails? And as for "sucking", the only thing you've ever made clear is that you "suck" on the "old money" types you constantly attempt to associate yourself with.

Pretty much sums you up. But then we knew all this last year, when you got blown out on the other thread...

And there's the inverted snob, again.

But, yes, I'm sure they will be very happy living where they choose. I mean, the thread title did say "Altrincham/hale/halebarns"

Nomadd

Edited September 14, 2014 by Venger

[Venger]

You've lost it Venger. Grow up.

Some other reasons you recently made it onto the list... your ripple-effect (that RK was all over in joy). If there is any of that it will be isolated and only for a limited time, before reverting.

Not all Londoners can cash out and pay new peaks elsewhere... and there is so much of that elsewhere too... so many houses. Not ever regional seller is going to find a flush Londoner who has sold up in London.. willing to pay silly high price in the regions.

Just a few... leaving all the other sellers stranded, as Londoners sell for lower prices, and soon after leading to a HPC in London... leaving more panic in your ripple effect areas, for subsequent harder HPC in the regions (mostly SE - not your Sheffield rippled HPI lol).

Even as London softens, a torrent of devalued money will ripple out to the rest of the country over the next couple of years as Londoners take their ill gotten gains and buy desirable homes all over the rest of the country - something they would never have been able to afford to do by doing an honest day's work.

Let me tell you, as the Walayat states, this is (still) about as good a time to be buying in this particular cycle in the regions as you are likely to witness. Although it may not be the exact sweet spot, I think if you are able to buy somewhere nice and are desperate to settle down for a period, you should take the plunge as many hpcers have already done. If you cannot do so, I'm sorry to tell you but things are about to get a whole lot worse for you.

It is my opinion, and only my opinion, that a wall of money will shortly be noticably exiting the London housing market to other areas of the UK and has probably already started.

Thanks. He's getting out of stocks and into housing. He is in Sheffield so the timing will probably be right as a torrent of devalued money created in London arrives there.

http://www.marketoracle.co.uk/Article46535.html

Sheffield is going to get London sellers ripple down money - a wall of money to set huge HPI in Sheffield?

Edited September 14, 2014 by Venger

[wherebee]

I'm running out of popcorn. Good fight, this.

[Venger]

I really think you are going over the edge and you either need to spend a little less time here for a while and/or have a discrete word with your doctor about your paranoia.

It's not paranoia. Holding my position, against some really sneaky posters, who don't want HPC.

Even as London softens, a torrent of devalued money will ripple out to the rest of the country over the next couple of years as Londoners take their ill gotten gains and buy desirable homes all over the rest of the country - something they would never have been able to afford to do by doing an honest day's work.

Let me tell you, as the Walayat states, this is (still) about as good a time to be buying in this particular cycle in the regions as you are likely to witness. Although it may not be the exact sweet spot, I think if you are able to buy somewhere nice and are desperate to settle down for a period, you should take the plunge as many hpcers have already done. If you cannot do so, I'm sorry to tell you but things are about to get a whole lot worse for you.

Keep backing that Sheffield guru who spent over half a million pounds on his fairly ordinary house in Sheffield sometime around 2011... of course he has a VI in rising house prices, rather than crashing ones.

As I have my own position in expecting hpc. The motives of some posters here, perhaps not yourself (...you are just wrong) are so embedded in entitlement, and protecting the positions of their own house prices/those of their families/older friends... and I will challenge it.

I do however for instance now worry that those £500k one bed flat owners are going to use their newly issued devalued money to buy things with better value.

Those London sellers... they're going to find ever fewer buyers around, and the smart sellers will accept lower offers from buyers... not buy up housing stock around the UK at super high prices. The HPI is not all locked in. Only few of us putting the hpc case on the thread, including smart FT clear position. What do we get in return... "HPC would wipe out savers".. "renters nightmare".

[Killer Bunny]

Those who support rising HPs also have to support banl bailouts and depositer bailouts. All of which keeps us in a generational depression. #turningjapanese

Exactly why should a bloke with 3 kids and a mortgage in Yorkshire earning £28k pa bailout millionaires in Bucks?

Edited September 14, 2014 by Killer Bunny

[R K]

Those who support rising HPs also have to support banl bailouts and depositer bailouts. All of which keeps us in a generational depression. #turningjapanese

Exactly why should a bloke with 3 kids and a mortgage in Yorkshire earning £28k pa bailout millionaires in Bucks?

He shouldn't.

That's why we have a progressive tax system.

[Venger]

[..]You are leaving bad taste in the mouth of many excellent posters who state what they see, not what they want.

Lastly, let's say you achieve your objective of hounding anyone who you think is against you off these boards, will it have made any difference to the material circumstances of your life and your ability to afford a nice home in a nice area?

I really think you are going over the edge and you either need to spend a little less time here for a while and/or have a discrete word with your doctor about your paranoia.

Name some of them.... all the ones who don't want hpc and believe in more HPI, probably.

So sensitive if you think that my objective - but I really like they way you then seek to hound me of the forum in return, for holding my HPC position.

Get ready for low-to-high prime HPC hotairmail and all you other complacent VI. And it will be excellent.

[Venger]

Your position is crazy.

Keep expecting more HPI hotairmail; really expensive house prices, weak arguments, and cheap insults.

At least I'm well positioned for the HPC, unlike anyone who follows your advice to buy now.

Edited September 14, 2014 by Venger

[Billy Ray Valentine]

However, what is not at dispute is that there has been massive hpi in London and the SE already. You are being naive if you think it won't have an effect elsewhere in the country.

EDIT: For the record I do not own any property. I rent. My VI is entirely the opposite to which you accuse me of in your paranoia.

You posted this table in the Prime London Crashing thread a couple of months back:

Yay. I found a copy I took of an earlier version on my hard drive....

Explain to me how this illustrates the alleged ripple effect from that period that you are so certain is going to happen again soon.

To me it proves nothing absolutely, but if anything it leans heavily towards rubbishing the 'ripple effect' theory.

[Venger]

What you hold in your mind and reality are two completely different things Venger.

For instance I posted this on the IAI thread on 4th Sep

However, what is not at dispute is that there has been massive hpi in London and the SE already. You are being naive if you think it won't have an effect elsewhere in the country.

HPC can come in more suddenly than you realise, in London.

What you hold in your mind and reality are two differen things?

Some people claim that renters/non-owners savings in the bank just a fantasy, and will be snatched away. My view is it's homeowners equity that is the biggest fantasy of all, and about to see some hard reality.

The monetary system has neared its limit basically and they need a re-design that doesn't rely on credit creation against collateral.

There is no need for a redesign (to lock in the HPI innit for the older VI, and the 'mobfant' victims falling overthemselves to pay £500,000 and counting their future HPI, projeting into the future)- deny renter-savers too, waiting for lower prices... that your redesign would prevent. Seems at peak of HPI in many areas, you want to get rid of markets ever finding lower value discovery.

It just needs a hpc, and fresh lending against those low-mid-high prime homes.

The banks will want to crash this market, many will welcome it too, for all the opportunity it brings. Or banks just going to do a little bit of lending at such high prices... ever less into the future. All that £Trillions of equity, is mostly dead money for the banks. Get some mortgages on low-mid-high prime at 50% off today's stupid high valuations.

Home Loans In 2013 Half Their 2007 Peak, Says Cml - 21 Jan 2014

Pent Up Housing Demand - Gradually Exhausting Itself - 13 Mar 2014

Landlord Possession Claims Surge - 09 May 2014

The UK might have a reputation as a nation of mortgage slaves – interest rates are often reported as if that's the case – but that's not the reality. The ONS figures reveal 9.2 million UK households had property debt in 2008/10 – that's 37.3% of the total. Many of those will be people who took a mortgage out in Britian the 1960s, 70s and 80s and are now reaping huge financial rewards. - 2013.

[Venger]

However, what is not at dispute is that there has been massive hpi in London and the SE already. You are being naive if you think it won't have an effect elsewhere in the country.

EDIT: For the record I do not own any property. I rent. My VI is entirely the opposite to which you accuse me of in your paranoia.

You're an ex low-level banker as I understand it. I added you to the list of suspects, but did so with the coda you are just wrong - and perhaps not HPI+ VI (although I'm not certain). I believe you rent your home.

The motives of some posters here, perhaps not yourself (...you are just wrong) are so embedded in entitlement, and protecting the positions of their own house prices/those of their families/older friends... and I will challenge it.

Thanks Billy Ray; looking good. That chart doesn't provide me with too much to back any position re ripple effects either. We're already had ripples around the UK, with some areas falling back to 2004... but some areas 25% or more above 2007 (such as my own area generally). Therefore I don't hold much with ripple theory from such peaky prices, and what I expect lenders (with the full authority of any Government) to do, once they can handle a hpc.

[Neverwhere]

Let's boil this down for you. The following table is an extract of what I posted.

Essentially what happened then was that the boom starts in London. It goes on for some time before being witnessed elsewhere (before the dates I have available to me in that table). But the rises start to happen on an even more rapid rate in regions adjacent to London (South East then East Anglia and South West, onto East and West Midlands before heading to North West and Yorkshire and the North). You will note that the 'booms' in outer areas tend to be shorter but much sharper and can even continue rising even as London is softening.

That indicates that some areas were behind the curve and perhaps had a lower degree of price oscillation across boom and bust. It doesn't give any hint as to the mechanisms behind this so it doesn't demonstrate any kind of wall of money leaving London (some small percentage of Londoners may manage this but it's impossible for most whose jobs are dependent on location or who fail to sell into a stagnating/falling market).

It seems to me to be at least as likely, if not more so, that London's extreme price oscillation creates a lag in its impact on sentiment in wider markets as people both expect London to be a little more expensive but are also unsurprised to see it "cooling", at least initially, when it becomes so much more expensive that the prices look mind-blowingly ridiculous. London often looks undervalued to the well off at market bottom (because of the wide difference between median and mean wages) and stretches affordability to breaking point at market top (because it's a special flower ) so it both leads the boom and crash. Sentiment then follows elsewhere because people make relative comparisons of affordability across the regional markets to inform their decisions as to what constitutes fair value. No one actually has to move for this to take place.

Few people get out at the market top simply because the reason it is a top is that most prospective buyers have already dropped away unable to meet asking prices any more, so it's kind of handy for anyone who lives a significant distance from London as they may get a HPC warning from this canary in the house price coal mine. If I owned property in the North I would definitely see softening in London house prices as a sell signal to get out of the market while transaction volumes hopefully held up (well, as much as they have post-2008 anyway) and I would happily sacrifice any additional paper gains in exchange for fully realizing the equity that I already had and not risking getting caught in such a low transaction environment that I might fail to sell at all before hitting negative equity. If I wanted to buy in the North I would happily wait for the lag in sentiment to catch up knowing that my landlord was taking on all of the risk for me.

[R K]

April 2009.

I absolutely nailed the nominal low.

That's my added value for anyone who's actually interested in owning their own home. Unfortunately for contrarians we take most abuse precisely when people ought to be paying attention. That's how markets work. That's not being a VI, it's being correct with the big macro calls.

C'est la vie.

Re oil glut causing deflation - Well, when the oil bubble burst in 2008 it fell from $147 to $35. A fall from c. $100 to $50 or even lower really isn't going to send CPI (and probably not RPI either) negative. In fact, it's resulting in smaller US deficits and will bump most company profits and allows higher wages as unemployment falls.

Falling commodity prices are a good thing. Unless you're Australian, Russian, Saudi et al.

Edited September 15, 2014 by R K

[Venger]

Well done Mr HPC. How successful of you... 2009. Why are we here again? I remember those good times, how special areas are, uncrashable and the old money.

Only nailed due to QE £Billions, Project Merlin, FLS, Asset-buyback schemes, 0.5%, Global QE $Trillions, to help prop-up anti-crash VI forces. Without such intervention, propping up complacent VI, especially at higher end of the market,

The real HPC is yet to come, and fast approaching, on low-high prime housing stock - less so in some areas which have rippled down.

Try some monetary tightening on now +MMR. Only reason lenders mortgage rates are sliding a bit now, is simply because they're running out of people willing to take mortgages on at these prices.

Why are we here again..? Oh yes, to enjoy more HPI, wage inflation, and a new HPI boom.... HPI HPI HPI.

You do accept that period, media pump, bull market, 120% LTVs, banks overleveraged, historically high transactions, selling > asking etc etc was 03-07 and not now don't you?

Now it's high deposits, high unemployment, historically low transactions, tighter credit, banks deleveraging, households deleveraging, fiscal tightening, negative real wage increases, selling < asking and so on.

This is the accumulation phase. The buyers are those with strong credit histories, large deposits and/or cash. The boom phase will be when those factors above go into significant reversal, the banks are recapped, wages are rising strongly again and so on.......

That's the macro position. It's puzzling to find anyone who thinks it is otherwise frankly.

The simplest way to find out what they think is to look at the nominal price level.

In terms of long run nominal wages and nominal house prices that tells you all you need to know. Will real wages and real house prices oscillate around that? Of course. But if you have nominal debt (mortgage), even during the 1 in 100 years depression we've had nominal price level has risen above central bank target rate. It ought not come as a surprise then that nominal house prices have also risen (and imo over the long run will continue to do so).

We know this isn't 1980. We're not coming off high inflation rates, and we know demographics aren't the same as they were post war, so another real terms bubble seems unlikely. Moreover in real terms houses, especially in London/SE are moderately overvalued still. They're clearly not 'cheap'. Against that, this government has done nothing to resolve the supply problem, in fact they've made it worse and wasted 5 years to boot. If a 1 in 100 year collapse in the banking system, and the longest depression in history isn't sufficient to prevent above target nominal price rises then I'd venture that nothing short of the Four Horsemen of the Apocalpyse is likely to do it. Even then, I'd still bet on a Carney put.

They can't build houses faster than VI speculators and pension BTL speculators can buy them at super high prices - having had no crash. The VI are going down, vs fresh lending on lower house prices. Back to the 80s.

That's mainly my view too Neverwhere. London money, if it does sell up, will likely only gravitate to highly selective regional areas anyway, if it seems value vs sellup price (for the few who get out in time).

[19 year mortgage 8itch]

April 2009.

I absolutely nailed the nominal low.

That's my added value for anyone who's actually interested in owning their own home. Unfortunately for contrarians we take most abuse precisely when people ought to be paying attention. That's how markets work. That's not being a VI, it's being correct with the big macro calls.

C'est la vie.

Re oil glut causing deflation - Well, when the oil bubble burst in 2008 it fell from $147 to $35. A fall from c. $100 to $50 or even lower really isn't going to send CPI (and probably not RPI either) negative. In fact, it's resulting in smaller US deficits and will bump most company profits and allows higher wages as unemployment falls.

Falling commodity prices are a good thing. Unless you're Australian, Russian, Saudi et al.

That's not much consolation for someone entering the housing and labour markets today after 5 years of real wage deflation is it? Who's looking at asset prices bouncing up with any wage rises making the affordability arguments of the 70s and 80s look like dinosaurs.

What is your call for your kids? Buy early, buy often?

[Venger]

That's not much consolation for someone entering the housing and labour markets today after 5 years of real wage deflation is it? Who's looking at asset prices bouncing up with any wage rises making the affordability arguments of the 70s and 80s look like dinosaurs.

What is your call for your kids? Buy early, buy often?

Exactly re nominal wages. There's too much forever hpi complaceny imo, 8YI, and too many older VI counting decades of HPI profits, thinking it's fully locked in.

You're not a hpcer unless you've gone a little bit insane by now.

Don't they teach forever HPI at schools now?

Markets can remain irrational longer than you can remain sane

Asking prices now official at highest ever level...but wages are down...cost of living is up...government is supporting the bottom of the pyramid with our futures...

[19 year mortgage 8itch]

You're right 8yi. But to be fair to rk, it is one thing seeing what is right and wrong, what is downright unfair and seemingly unsustainable and trying to keep an eye on exactly what is going on so you can make the best decisions possible. Unfortunately these things run on what are such long timescales it is difficult to get the perspective to actually make that decision. And as we get to zero rates and house prices rise to the stratosphere, we're seemingly getting to the position that the holding costs for a house tend towards nil (EDIT: actually at maximum affordability but with tiny rates and massive amounts borrowed) and the capacity to repay is eradicated - you simply hand the money back when you leave!

My ONLY ADVICE re buying and selling if it is at all possible, is 1. don't do it very often 2. Move when the monetary policy cycle changes direction.

So, for instance I sold up in late 2006 at the first rate hike by the BoE whilst transactions were still strong. rk may well have been right about the nationwide nominal low in 2009, but for personal reasons it wasn't the right time and secondly I didn't trust the prices then and I still don't now. There is simply more value and greater liquidity in alternative markets which I am happy to play instead.

That is not to say that I deny the rise in prices due to come out of London. (freewheeler - you are right we don't know the exact mechanism and it could just as easily be a cascade of valuations moving street by street as it is actual money). We've seen it before and I think we're already seeing it again.

Re the kids, I suggest they live at home for the time being.

No insults from me in this thread.

[19 year mortgage 8itch]

Re the kids, I suggest they live at home for the time being.

What about the next cohort of parents?

And the next?

And the next?

So given the shape of the curves below and the significant number of younger "homeowners" who are actually buying on shared ownership/IO, what proportion of people born after 1980 are going to be extremely rich like you and your parents i.e. owning a residential property outright by the age of 65? 30-40%? How are the rest going to house and feed themselves in old age? The young are accumulating tiny defined contribution pension pots through buying assets at record high prices with wages plumbing new lows each year in real terms. The state pension will probably be pretty thin gruel due to the ratio of workers to older people. People born after 1980 are on a hiding to nothing: poor during their working lives and poor in retirement, all courtesy of the wage to asset price ratio.

Edited September 15, 2014 by 8 year itch