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House Prices Rising Is Generally A Good Thing - B B C News Again.

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BBC News presenter a few minutes ago.......

"It's a tricky balancing act for the Bank of England, they want to ensure we have a growing economy and for that, house prices rising, certainly in the UK, is generally a good thing........".

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Yes, but you have to have the work,tax paying jobs to support the higher prices and spending power.....difficult when the numbers growing old, over 65 is increasing and the young are having a harder time finding good employment and are riddled with increasing indebtedness, add to that children that are expensive to bring up to an age of working productivity.....what can people cut back on?

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Isn't it true that mortgage borrowing and other loans is the primary way "new" money gets into the economy so looking at it as a purely numbers game it is a good thing. It still seems to me we are being set up for some kind of economic catastrophe within the next few years.

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Isn't it true that mortgage borrowing and other loans is the primary way "new" money gets into the economy so looking at it as a purely numbers game it is a good thing. It still seems to me we are being set up for some kind of economic catastrophe within the next few years.

It's certainly true that mortgage borrowing and other loans is the primary way that "new" debt gets into the economy. Debt is not wealth.

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To be fair house price increases are good for the economy as they add to GDP which is great news. As prices go up so does revenues from stamp duty, which assists govt spending.

http://onlinelibrary.wiley.com/doi/10.1111/j.1467-856X.2009.00380.x/abstract

..Consider, for instance, the situation in November 2006 when the average house price in the UK topped £200,000 for the first time. At that point average annual earnings were about £30,000 and house prices were increasing at an annual rate of 11 per cent. In effect, the wealth effect associated with house price inflation was the equivalent of three quarters of pre-tax annual average earnings. Unremarkably, for many this proved an irresistible incentive to release equity to fuel consumption. Our own calculations suggest that such credit-based consumption was, between 2004 and 2006, typically worth between 4 and 6 per cent of GDP—or, in other words, responsible in and of itself for keeping the UK economy in growth

HPI is great news for spending, long-term the economic consequences will be catastrophic however that will inevitable be someone else's problem. Let the good times roll.

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Isn't it true that mortgage borrowing and other loans is the primary way "new" money gets into the economy so looking at it as a purely numbers game it is a good thing. It still seems to me we are being set up for some kind of economic catastrophe within the next few years.

So, borrowed against future productivity - fingers crossed, eh ?

Edited by LiveinHope

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A £200k house, rising at 1% month on month will give the homeowner a wealthy feeling of being £27,258 richer after 12 months. (£23,134 due to HPI, £4124 due to capital repayment on a £200k repayment mtg @ 5%)

Without HPI, on a £200k repayment mortgage at 5%, the homeowner will end the year with £4124 of (real) equity.

Here are the figures for the remaining 24 years on the mortgage.

Year 2 equity

With HPI £59,891
Without HPI £8459

Year 3

With £96,336

W/O £13,015

Year 4

With £137,058

W/O £17,805

Year 5

With £182,582

W/O £22,840

Year 10

With £505,693

W/O £52,151

Year 20

With £2,094,986

W/O £138,044

Year 25

With £3,918,508

W/O £200,000

And here are the figures for 0.5% m-o-m HPI

Year 1 with HPI (figures are real equity plus HPI equity)

£15,403

Year 5

£91,268

Year 10

£214,220

Year 20

£596,791

Year 25

£888,551

Without HPI, all that lovely feeling of wealth (phantom equity, caused by debt expansion) cannot be extracted and spent into the economy.

With 0.5% to 1% m-o-m HPI, £200k houses will end up, in 25 years, costing between £880,000 and £3.9million though. I guess that's why busts occur throughout the 25 years - shame we've not been allowed to have this one (yet)

Edited by Reck B

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It will end with another devaluation, a small nominal fall and then the money-go-round will start again.

Hasn't the pound been firming up lately? (genuine question, I haven't followed the trend)

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BBC News presenter a few minutes ago.......

"It's a tricky balancing act for the Bank of England, they want to ensure we have a growing economy and for that, house prices rising, certainly in the UK, is generally a good thing........".

&You should make a formal complaint.

The price of anything increasing is generally a bad thing.

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@ BBC - High house prices are only good for sellers who want to go and live in a tent somewhere, or those moving somewhere rent free.

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The BBC is a london institution.

Higher house prices mean higher lending.

Higher lending means more theft by the city.

More theft by the city means more money stolen from the provinces to be spent in London.

Its like the Falklands saying higher sheep prices is a good thing.

For the Falklands it is a good thing. For everyone else, nope.

Change the name from British Broadcasting to London Broadcasting and suddenly it all makes sense.

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