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From The Bbc January 7Th 2000 "housing Bust To Come"

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Came across this by following a few links on the BBC website.

http://news.bbc.co.uk/1/hi/business/593477.stm

Average house price is circa 97K, and London is £155K, and they are talking about a house price crash due to property price hyper inflation.

" we are not seeing excesses quite on the scale of 1989. But those were excessive excesses, and we are getting uncomfortably close even to those levels again."

If only we knew the insanity that was to follow!

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The country was a lot more prosperous in 2000 than now too. Now we're mired in a zombie economy that is being heralded a success by a single metric that is being supported solely by a fast-increasing population. Also, never has so much "wealth" produced so little productivity.

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Even joint buyers - say a nurse and a teacher with a combined income of £45,000 - now find it difficult to buy more than a small flat unless they find a mortgage company willing to stretch the standard lending criteria of 2.5 times joint salary.

standard lending criteria of 2.5 times joint salary

2.5 times joint salary

heh

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The thing about bubbles is they can go on a lot longer than you think. And the longer they do, the dumber you feel for not jumping in sooner. But since no one wants to feel like a sucker, eventually everyone, or close enough to it, joins the frenzy until it really does look like "this time is different." It never is, though.

Wise words about bubbles.

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/03/31/chinas-stock-market-sure-looks-like-a-bubble/

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but can you find a similar article from 1989?

No

which is why you should never expect accurate predictions from the mainstream media who are writing to a deadline and don't have time for any kind of proper analysis.

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Then Brown allowed Bank to allow banks to lend whatever they wanted - for purely political purposes!

Politicians. MEH!

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standard lending criteria of 2.5 times joint salary

2.5 times joint salary

heh

Mortgage rates were 5-6% for 5 year money now they are 2-3% for 5 year money hence the doubling of the salary multiple.

If mortgage rates go to 1-1.5% for 5 year money it is clear what will happen to salary multiples.

Edited by bankstersparadise

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Then Brown allowed Bank to allow banks to lend whatever they wanted - for purely political purposes!

Politicians. MEH!

In the US, Spain, Ireland, Canada, Norway, China, Australia also? Wow, I never knew that KB.

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In the US, Spain, Ireland, Canada, Norway, China, Australia also? Wow, I never knew that KB.

Different countries, same ideology: Privatisation, deregulation, globalisation.

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Different countries, same ideology: Privatisation, deregulation, globalisation.

So not socialism then? Rightyo. good weve cleared that up.

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Even joint buyers - say a nurse and a teacher with a combined income of £45,000 - now find it difficult to buy more than a small flat unless they find a mortgage company willing to stretch the standard lending criteria of 2.5 times joint salary.

Now of course no one would even imagine that a teacher and a nurse could by a house at the average price, or even that they should be able to. I remember being warned off housing in 2000 in London, because people thought it was getting a bit frothy - the early nineties were still fresh in the mind then.

But it also shows how credit is the biggest driver of this market - you can forget about red herrings like immigration. If the banks double what you can borrow, then someone will borrow it and prices will double - it's really that simple.

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But it also shows how credit is the biggest driver of this market - you can forget about red herrings like immigration. If the banks double what you can borrow, then someone will borrow it and prices will double - it's really that simple.

Yep! Even people on here have trouble understanding this.

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It was on that tv show last night about expats in spain. I quote

"not only could we not sell this house I doubt we could even give it away. There is no way we can ever return home" cuts to voice over talking about 3 million empty homes and footage of abandoned towns.

No talk of immigration or shortages or whatever, they just stopped lending and it all went tits.

Could never happen here though eh ? :)

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Mortgage rates were 5-6% for 5 year money now they are 2-3% for 5 year money hence the doubling of the salary multiple.

If mortgage rates go to 1-1.5% for 5 year money it is clear what will happen to salary multiples

Are you sure that you have that the right way round?

Why is "5 year money" available at these low rates? Because of so-called extraordinary monetary policy enacted by BoE, Fed, BoJ, ECB and so on. Why did the activist central banks pull interest rates down to the zero-rate bound? In order to accommodate the inability of borrowers to make the interest payments on the debts that they had taken on. And the money lent was lent so casually because it was secured, but secured on what? Real estate.

You appear to be arguing that asset prices are high because rates are low.

But that thesis does not tally with the facts of the matter. Greater London hasn't been past peak for long and it reached the previous peak using money borrowed into existence at the pre-crisis 6%+ rates. Asset prices rose because of the loosening of credit standards and though shifts in LTI played a part it was IMO changes in LTV and the mass adoption of what you might call naked interest-only, i.e. without any repayment plan, that did the heavy lifting in the UK.

Further escalation past the pre-crisis peak is not the same mass hysteria phenomenon as the pre-crisis boom. Transaction volumes have never recovered and pretty much unimaginable goosing of the housing market by the Coalition looks to have really had only a muted and temporary effect once you edge beyond the edges of the PCL post-crisis bubble, and that bubble is certainly not solely, or even largely, an artefact of low UK mortgage rates interest rates.

Edited by bland unsight

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Actually, official LTI pre-boom probably hugely misleading given the amount of fraudulent self-certificated borrowing going on, or as hpc nostalgia fans prefer it LIAR LOANS, (h/t Eric, natch).

Hence I'm going to row back on the lack of importance of changes to LTI by arguing that actual changes in LTI probably did matter and probably bore little relation to the LTI that lenders were recording.

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Asset prices rose because of the loosening of credit standards and though shifts in LTI played a part it was IMO changes in LTV and the mass adoption of what you might call naked interest-only, i.e. without any repayment plan, that did the heavy lifting in the UK.

I'm not sure that you can argue that LTV played a bigger role than LTI - I'd say the latter had more effect on prices, but the former certainly increased the demand for the crazy LTI mortgages; people just could buy a house on a whim with a 100%+ LTV, and I'm sure many did. The increase in LTI is what enabled people on 30k to buy 200k houses, and the zero deposit requirements meant that they could just jump straight in and do it.

It is interesting to observe the shift in mentality over the last decade - this article from as recently as 2009 comments on the absurdity of 4 x double income multiples (max loan of £480k on £120k), yet I can plug those same numbers into an online mortgage provided today and see a max loan of £600k. I don't know - and nor does anyone else - how long these "emergency" interest rates are going to last, but my guess is that there are still a lot of people out there with astonishingly large mortgages, and a few % points is going to wipe them out.

Edited by mattyboy1973

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Socialism for the rich.

Brown sold 400 tonnes of gold to save Goldmans and JP Morgan on the advice of Gavyn Davies, then head of commodities at Goldman Sachs, later chairman of the BBC, Labour Party donor and husband of Sue Nye - latterly, Baroness Nye of Lambeth - who ran Brown's parliamentary private office for fifteen years until 2010.

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Yep! Even people on here have trouble understanding this.

Don't they just.

It's East Europeans, or interest rates, or BTLErs, or Green Belt acording to some. :blink::rolleyes:

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Are you sure that you have that the right way round?

Why is "5 year money" available at these low rates? Because of so-called extraordinary monetary policy enacted by BoE, Fed, BoJ, ECB and so on. Why did the activist central banks pull interest rates down to the zero-rate bound? In order to accommodate the inability of borrowers to make the interest payments on the debts that they had taken on. And the money lent was lent so casually because it was secured, but secured on what? Real estate.

You appear to be arguing that asset prices are high because rates are low.

But that is thesis does not tally with the facts of the matter. Greater London hasn't been past peak for long and it reached the previous peak using money borrowed into existence at the pre-crisis 6%+ rates. Asset prices rose because of the loosening of credit standards and though shifts in LTI played a part it was IMO changes in LTV and the mass adoption of what you might call naked interest-only, i.e. without any repayment plan, that did the heavy lifting in the UK.

Further escalation past the pre-crisis peak is not the same mass hysteria phenomenon as the pre-crisis boom. Transaction volumes have never recovered and pretty much unimaginable goosing of the housing market by the Coalition looks to have really had only a muted and temporary effect once you edge beyond the edges of the PCL post-crisis bubble, and that bubble is certainly not an solely, or even largely, an artefact of low UK mortgage rates interest rates.

Addressed your points one by one below. I think the key issue is that you are looking more at last cycle and I am talking about this cycle.

Are you sure that you have that the right way round? - Yes I think so.

You appear to be arguing that asset house prices are high because rates are low. - Yes, low interest rates are one of the primary drivers this cycle. If you would like me to elaborate, I was specifically arguing in this case that low interest rates allow higher salary multiples (since all the regulation is based on affordability of repayments over the first 5 years.). We all know that credit conditions drive house prices not price/income multiples etc. Lower rates, lower repayments, more debt, higher house prices.

But that is thesis does not tally with the facts of the matter. Greater London hasn't been past peak for long - 3 years ago it reached par and now it is 30-35% above.

and it reached the previous peak using money borrowed into existence at the pre-crisis 6%+ rates. - I agree, the drivers of the asset bubble last cycle were not low interest rates. Not sure what that has to do with this cycle?

Asset prices rose because of the loosening of credit standards and though shifts in LTI played a part it was IMO changes in LTV and the mass adoption of what you might call naked interest-only, i.e. without any repayment plan, that did the heavy lifting in the UK - yes lending standards are not as loose this time, salary multiples are, but LTVs are lower and IO is no where near as prevalent.

Further escalation past the pre-crisis peak is not the same mass hysteria phenomenon as the pre-crisis boom. - depends where you live. London is +30% above last cycle and North East 10% below. There was definitely hysteria last couple of years in the former.

Transaction volumes have never recovered and pretty much unimaginable goosing of the housing market by the Coalition looks to have really had only a muted and temporary effect - too early to tell how temporary the recent weakness is

once you edge beyond the edges of the PCL post-crisis bubble, and that bubble is certainly not an solely (never argued for soley, thanks for putting words in my mouth!),or even largely, an artefact of low UK mortgage rates interest rates. - I put all the below is contributors - low interest rates (mortgages in UK), global financial repression driving oversees investment (low interest rates globally), favorable tax treatment of property speculation, HTB and other props etc and supply shortages in "booming" parts of the country.

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Don't they just.

It's East Europeans, or interest rates, or BTLErs, or Green Belt acording to some. :blink::rolleyes:

You said Gordon Brown caused it. Now you say it was falling global real interest rates? Make your mind up........

land supply/market failure is clearly a major part of the problem of undersupply of houses in UK. Anyone who doesnt get that is quite frankly not worth listening to.

Cash buyers driving prices in London & city centre flats bubble crashing due to oversupply in provincial cities tell you your argument that credit was too freely available is only 1 aspect of the 2004-7 bubble (i.e. the global securitisation bubble)

Ditto you need to explain why US, Spain & Ireland bubbles burst but UK didnt, despite the same global real interest rate.

Edited by R K

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