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fru-gal

Does/will Deflation Have Any Effect On House Prices?

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Can deflation affect housing in the UK? I've definitely seen some things go down in price (real essentials :lol: like cucumbers are 50% cheaper ) but will it have any effect on housing and if so, how would that likely work?

Edited by fru-gal

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Falling prices mean more money to go into housing. Expect rising prices.

Unless it might be different this time :wacko:

Falling prices = more q.e. = less money in your pocket. Expect rising prices :lol::lol::lol::lol:

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So if in relation to housing inflation = higher prices and deflation = higher prices, what situation would = lower prices?

Check the weather forecast in Hell for cold days.

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So if in relation to housing inflation = higher prices and deflation = higher prices, what situation would = lower prices?

Spain and Ireland both had a house building boom, with the 2007/8 financial crisis everyone realised there was a housing surplus, consequently property crashed and what's more it stayed down despite low interest rates.

If I could choose a scenario it would be a building boom of our own, building 3m council houses over the next ten years, especially in areas of high employment. I don't really care if it's council or private, but council brings the advantage of an easier passage through planning committees.

Chances of that happening? Not great.

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So if in relation to housing inflation = higher prices and deflation = higher prices, what situation would = lower prices?

From where we are now, a withdrawal of taxpayer funds and a move towards a market economy.

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Can deflation affect housing in the UK? I've definitely seen some things go down in price (real essentials :lol: like cucumbers are 50% cheaper ) but will it have any effect on housing and if so, how would that likely work?

I work in the food industry and deflation is ingrained in it at the moment. The price wars between the supermarkets for fresh produce is putting real pressure on suppliers, some big players are struggling and many are leaving the industry altogether. I feel that a year or so down the line that food inflation will be rampant in the UK. There s been a lot in the news lately about milk producers having a hard time of it, which they are, but potato growers this year have had it even worse. The supermarket price war with the 49p cucumber has seen 2 large- scale producers call it a day after last years season. Been screwed by the supermarkets was the reason given. The country can ill afford to loose businesses like that.I think and hope that food price inflation may ultimately help to cause house price deflation. People in this country have not paid a high price for food for many years now, which has helped them borrow so much. It won t go down very well when potatoes/ milk etc. start going back up again.

Of course we can afford to lose such businesses, under capitalism. :lol:

Maybe the farmers will have to sell up, or sell off some of their sideline BTLs at lower prices. What they going to do now for their incomes; sulk their way to getting an income? The tractors and gear they buy from other businesses? Employees / accountants. Farm values at or near record highs, after a few years of 'savvy' speculation. If they can't make it work, sell the farm at lower price, or some of the sideline BTLs, and give someone else a go. Followed this up the other week and pics of protesting 'supermarket-unfairness' suited silver-haired boomer farmers in suits. General deflation to help cause house price deflation.

Maybe some of the Aberdeen landlords/buyers will have to bring property to market with jobs going, or others from lower oil prices and high cost of extracting it up there - one investment analyst daring to suggest it may all close down for North Sea oil for a while if prices go lower and stay lower.

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Spain and Ireland both had a house building boom, with the 2007/8 financial crisis everyone realised there was a housing surplus, consequently property crashed and what's more it stayed down despite low interest rates.

If I could choose a scenario it would be a building boom of our own, building 3m council houses over the next ten years, especially in areas of high employment. I don't really care if it's council or private, but council brings the advantage of an easier passage through planning committees.

Chances of that happening? Not great.

Chances of it happening? Nil.

UK private sector debt (ex-finance) is once again some ~190% of GDP; UK public sector debt is now ~90% of GDP (up from 40% six years ago).

A massive housebuilding program like the one you describe could never be financed.

graph-3.jpg

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Chances of it happening? Nil.

UK private sector debt (ex-finance) is once again some ~190% of GDP; UK public sector debt is now ~90% of GDP (up from 40% six years ago).

A massive housebuilding program like the one you describe could never be financed.

graph-3.jpg

Apparently quite a few councils are starting up their own private companies to circumvent lending caps so they can build more houses;

http://www.insidehousing.co.uk/breaking-free-to-build-homes/7003211.article

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Spain and Ireland both had a house building boom, with the 2007/8 financial crisis everyone realised there was a housing surplus, consequently property crashed and what's more it stayed down despite low interest rates.

If I could choose a scenario it would be a building boom of our own, building 3m council houses over the next ten years, especially in areas of high employment. I don't really care if it's council or private, but council brings the advantage of an easier passage through planning committees.

Chances of that happening? Not great.

Demand is artificial (at these prices in prime). It's the credit/velocity situation, not too few homes. Why have a building boom against the speculators chasing HPI, with prices already insanely overvalued?

I'm seeing retirement apartments for over 60s almost back at 2002-03 prices (with low annual service charge), struggling to sell... to many older HPI heads holding out for more imo. Just need something to tilt. Buyers falling away (in face of ever lower teaser rates), new entrant BTLers to get spooked (despite 'victim' advertising/media to pull the idiots in.. get them pulled in until it pops)... or pressure on the owner side (fall in incomes - cucumber farmers)... with more need to sell and more willingness to cut prices. Unless we get into a situation where large real estate firms back by stockmarket money just buy everything up at crazy high prices, to replace investment-demand, and FTB/private demand, to lock in the HPI.

06 Aug 2014 - 10:32 AM, said: Some good comments....

Gillian23 David Hollins MBA • an hour ago

The daft housing shortage argument went away for a while after the last crash but it is in full flood again now. These people refuse to acknowledge that demand a person cannot afford to fund is not demand at all, not in a market.

Looking at historical data housing problem in the UK is more the result of higher investment demand than lower supply. Privately rented stock started rising 200k per year since around 2002. This demand stimulated building, all dwellings annual change increased from 150k to over 200k per year in 2008, then collapsed back to 150k after the financial crisis. Privately rented stock was still rising at 200k pace after 2008 causing owner occupied stock to decrease 50-100k per year. I would blame BTLs and other private investors, they compete with people wanting to buy a home to live. 200k per year investment demand is a big chunk of the whole market, my guess is there is around 400-500k sales transaction in England (for the whole of the UK that's around 600k).

iwqi2p.jpg

Source https://www.gov.uk/government/statistical-data-sets/live-tables-on-dwelling-stock-including-vacants

http://www.thetimes.co.uk/tto/life/property/article4311161.ece?shareToken=15b2410d946d0a35bf4bb875d204d1d6

Of 2.9m new homes built since 2000, 2.5m (i.e.86%) bought by landlords, 400k by owner-occupiers as home ownership plunges to lowest since 1988.
Low interest rates have encouraged owner-occupiers and investors to bring their purchases forward, but that eventually creates a void that must be filled.

If it can’t be filled — and it is unlikely that anything can replace investor speculation — then loan approvals will tank and house prices, which are demand-driven, will inevitably follow suit.

Certainly, investor demand is unlikely to be replaced by loan approvals to first home buyers.

The truth is that prices can rise or fall without any change in supply or demand. The bubble was a mania of cheap and easy credit. The mania is coming to an end. The way to win the game is to have cash on hand when others cannot get a loan. You do not want to be bidding your hard-earned savings against people who are bankrupting themselves with debt. It will be time to buy when lenders once again demand a 20% downpayment from everyone and get serious about checking ability to repay.

WTF is up with all the math? Have we not all learned by now that math has been proven scientifically false? Math, gravity, physics, etc. have gone the way of alchemy and we have replaced them with new sciences like unicorn fartology, rainbowology, this time is differentology, etc… Come on, you are sounding like my grandpa. “Math”, “percentage”, “economy”, what quaint concepts… Horse, buggy, buggy whip kinda makes me chuckle…

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If deflation does cause an HPC it will be via the unpleasant mechanism of massive job loses. Generally anything that would cause house prices to go down would also prevent you from buying one - jobs loss, credit crunch etc. The exception would be the very cash rich.

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During the deflation of the 1930's, my father who was a civil servant had to take a pay cut.

Disastrous if you have just signed up for a huge mortgage.

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If deflation does cause an HPC it will be via the unpleasant mechanism of massive job loses. Generally anything that would cause house prices to go down would also prevent you from buying one - jobs loss, credit crunch etc. The exception would be the very cash rich.

Let's keep things as they are then eh?

I'm not scared of earning less, when the poison of VI is being shaken out at ponzi high prices, and when houses/rents cost less.. as does fuel, food (notice Kellogg had disappointing results), and opportunity for value emerges.

Kellogg posts $379m loss as consumers cut back on cereal

February 13, 2015

Corn Flakes for breakfast seems no longer flavour du jour as consumers are increasingly shunning cereal and its snack bar derivatives, causing steep losses at Kellogg Co. The cereal giant, whose products include Special K, Nutrigrain and Sultana Bran, went into the red in the latest quarter with a $US293 million ($379 million) loss for the three months to January 3, down from a profit of $US819 million the previous year.

[..]The Michigan-based company, which also sells Pop-Tarts and other packaged foods, is struggling to cope with the shifting habits of consumers, especially in its home market. [..]Sales of cold cereal in the US fell 4 per cent last year, with baked goods such as frozen-egg sandwiches and yogurt providing fiercer competition, according to Bloomberg Intelligence. Kellogg generates about two-thirds of its revenue in North America. [..]To adjust, the company has been cutting jobs and boosting efficiency - part of a program called "Project K." In November 2013, Kellogg announced plans to eliminate 7 per cent of its global workforce, or about 2,000 positions.

http://www.smh.com.au/business/kellogg-posts-379m-loss-as-consumers-cut-back-on-cereal-20150213-13dkdz.html

Also I do have savings now; I'm HPC. It will be a time of living joy, from my position. It shakes things up; allows new entrants at lower prices.

I work in the food industry and deflation is ingrained in it at the moment. The price wars between the supermarkets for fresh produce is putting real pressure on suppliers, some big players are struggling and many are leaving the industry altogether. I feel that a year or so down the line that food inflation will be rampant in the UK. There s been a lot in the news lately about milk producers having a hard time of it, which they are, but potato growers this year have had it even worse. The supermarket price war with the 49p cucumber has seen 2 large- scale producers call it a day after last years season. Been screwed by the supermarkets was the reason given. The country can ill afford to loose businesses like that.I think and hope that food price inflation may ultimately help to cause house price deflation. People in this country have not paid a high price for food for many years now, which has helped them borrow so much. It won t go down very well when potatoes/ milk etc. start going back up again.

Someone will replace them, or buy them out for less money, and grow a more profitable crop, or find a better way to sell it for a premium. Maybe they'll have to sell a holiday home or two.

Save some money now, to improve your situation against those holding overvalued assets.

Who get found out in both public-and-private-sector austerity / cutbacks / market-changes.

Your money will go further.

Market participants have to bring things to market to raise money, and they sell for lower prices. Fierce new competition and finds out the complacent and over-extended. Things were so tight in 1993-04, for some people... I distinctly remember stepping onto a a bus, going to pay fare to Old Trafford (not a match day - was on my way to meet my skint dad to go to a property-auction for education purposes) and the driver not wanting to accept a 20p coin I had given him. Said 'It it's not a real 20p' (Looked real to me - but I didn't have any other money to swap it for.) He was moving it from one side to the other in the tray with his finger, turned it over to look at, and the bus was half-full - before he grudgingly accepted it and gave me ticket.

Edited by Venger

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Just like there can be managed/manageable inflation and uncontrolled/uncontrollable inflation, the same applies with deflation. I would say Japan has been a case of managed/controllable deflation. So we might get that, in fact we probably will. And note that despite such deflation, japanese income-per-capita has been rising faster than in the US/UK/EZ.

However, the Japanese had the benefit they could import some inflation from abroad and consistently run a significant surplus with the rest of the world and for us it won't be that easy when everyone is playing that game - which is when you end up with negative rates etc which makes the demand/saving battle a domestic one rather than simply an international one.

In any case whatever the nominal rate of interest it ought to be possible for general prosperity to increase, real house prices to decline gradually, and things to generally hold together.

As long as we don't start running out of oil again.

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If deflation does cause an HPC it will be via the unpleasant mechanism of massive job loses. Generally anything that would cause house prices to go down would also prevent you from buying one - jobs loss, credit crunch etc. The exception would be the very cash rich.

That is why a full blown crash now would be bad for everybody, the cash rich would not buy if there was a better home for their cash anyway....house prices staying inline or slightly below the rate of inflation would be the better way......anything that deters the investors and yield chasers....once it is made unprofitable to hoard homes sanity will once more prevail.

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During the deflation of the 1930's, my father who was a civil servant had to take a pay cut.

Disastrous if you have just signed up for a huge mortgage.

the horror... Was there no such thing as the 'contract' then.. . What happened to the entitlement ... 80 years on in the private sector, no one would bat an eyelid in accepting a pay cut when faced with losing their job... The public sector are striking for more though...

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10 years ago people took out massive debt. Against their incomes the debt is largely still there. In the past a mortgage was inflated away and it could be ignored happily. (and pretended it was a burden.)

In mild deflation eg Japan the debt will be HIGHER.

Earnings will be flat or down.

Aggregate earnings will be down due to global econ shock aka 2008.2 (coined by me).

The masses were bailed out by slashed rates. Thus the masses are getting by aka sleepwalking.

NOT going to happen next time.

Even the idiot masses will finally get debt in deflation is a bad idea. So less lending 》long term falling prices.

Starting? No idea. Maybe already started. Qui sais?

Edited by Killer Bunny

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...Farm values at or near record highs, after a few years of 'savvy' speculation. ...

Is that caused by the farmers or is it just the very wealthy buying up agricultural land so they can pass it to the next generation IHT free?

Full disclosure: I'm not a farmer or wealthy so no skin in the game.

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During the deflation of the 1930's, my father who was a civil servant had to take a pay cut.

Disastrous if you have just signed up for a huge mortgage.

Not if your interest rate falls at the same pace......can always extend the loan.....that is what everybody does nowadays, the loan lives longer than the loan owner.....or dies with the owner if unsecured or the security is worth less than the loan. ;)

Edited by winkie

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