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If House Prices Were Allowed To Crash In 2008/2009 Where Would We Be In 2016?

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We never really had a HPC in 2008/2009 as the base rate was slashed from 4.5% down to 0.5% by March 2009. However, imagine if the base rate had remained at normal levels - where would we be now?

My thoughts...some positives:-

  • house prices would be at least half the price they are today
  • rents would be commensurately lower.
  • zombie mortgages would default, but life goes on and those who defaulted would be renting to save for a new, more affordable property. Creative destruction.
  • BTL be much more of a niche market
  • wider economy would benefit enormously from much more disposable income in people's pockets

negatives:-

  • banks would require much bigger bailouts, more QE necessary (more mortgages defaulting)

Feel free to add to the positives / negatives.

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We never really had a HPC in 2008/2009 as the base rate was slashed from 4.5% down to 0.5% by March 2009. However, imagine if the base rate had remained at normal levels - where would we be now?

My thoughts...some positives:-

  • house prices would be at least half the price they are today
  • rents would be commensurately lower.
  • zombie mortgages would default, but life goes on and those who defaulted would be renting to save for a new, more affordable property. Creative destruction.
  • BTL be much more of a niche market
  • wider economy would benefit enormously from much more disposable income in people's pockets

negatives:-

  • banks would require much bigger bailouts, more QE necessary (more mortgages defaulting)

Feel free to add to the positives / negatives.

the government would not have been able to keep borrowing billions each month cheaply, and so the rotten system of tax credits etc would have HAD to have been tackled.

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It's a hard hypothetical to imagine but if rates hadn't moved and the banks still survived it would have made a massive difference to repossessions. As it was, there were so few repossessions for a recession of that size, half the amount of the early 90s.

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It's a hard hypothetical to imagine but if rates hadn't moved and the banks still survived it would have made a massive difference to repossessions. As it was, there were so few repossessions for a recession of that size, half the amount of the early 90s.

Repossessions are considered to be a bad thing.

Personally, I think that repossessions are a good thing as they discourage people from taking on debt that they can not service.

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I'm all for risk being allowed to run its course, whichever way it goes. But i'd rather the country had more housing choices than rent from a scumlord or a shit load of debt.

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Personally, I think that repossessions are a good thing as they discourage people from taking on debt that they can not service.

Creative destruction. House repossessed, life moves on, you rent/buy in the future. Over-protecting home owners via HPI - the "cure" has become the disease.

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I'm all for risk being allowed to run its course, whichever way it goes. But i'd rather the country had more housing choices than rent from a scumlord or a shit load of debt.

THIS is the crux of the UK housing clusterfcuk.

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For comparison Irish HP fell about 50%, so perhaps £90k. I know they say oversupply there, but credit cost seems main issue. There was oversupply in Ireland at peak prices there too.

irish-house-prices.png

Not sure how many schemes prop prices up in Ireland, so maybe lower still.

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Then again, looking at this, going back further, they are still x3 times the price in Ireland as the early/mid 90s, which would suggest a house price of £150k in UK.

I'm guessing houses were literally dirt cheap in Ireland before the celtic tiger stuff from late 90s on...

ScreenHunter_04-Apr.-07-17.57.gif

To be fair, slummy places in the fens (agricultural region, lots of low wage jobs) were dirt cheap too. I guess perhaps they bear relationship to each other, Ireland being far more agricultural than England before the late 90s. But you used to be able to get a small bungalow in places like Wisbech or March for £20,25k in the mid 90s.

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Politics always seems to be about short-term gainz for targeted voter demographics. That prevented a TRUE crash in 2008. Now because of that short-term thinking, we're stuck in a never-ending zombie economy - 7 years of ZIRP, doubling the national debt for diddly-squat in return.

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This site would no longer exist.

Houses should always get cheaper - until they're free imo.

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I think Osborne and Cameron had a big impact with help to buy etc - the market was going nowhere slowly until 2011.

2012

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I can't help but think my question could have been equivilant to asking what shape would an overweight, 40-cigarettes a day alcoholic be in if they packed in all their bad habits in 2008 and lived a clean life until now. Their early months would be horribly painful, but the long term gains would be worth it. As it is now, the unhealthy habits have been allowed to continue, and the patient is worse off now, but artificially announced as "healthy" because of various machines keeping the patient alive. Even worse, the doctor never mentions those machines (ZIRP, HTB, tax credits, housing benefit, doubling of national debt) yet when asked if the patient is ready to leave the hospital, they say "no way!", and offer no explanation because he's not allowed to mention the apparatus keeping the patient alive.

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Then again, looking at this, going back further, they are still x3 times the price in Ireland as the early/mid 90s, which would suggest a house price of £150k in UK.

I'm guessing houses were literally dirt cheap in Ireland before the celtic tiger stuff from late 90s on...

My mum bought a four bed house in a slightly dodgy estate in Dublin in ~1989 for £23.5k, tried to sell it for ~£50k in ~1994 but realised she wouldn't be able to afford anything better anyway then eventually sold in ~1999 for £104.5k. Punt to GBP was always ~0.8 as far as I remember (although there was a brief blip in the mid 90's where the Punt was worth more than sterling).

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A more interesting question: Given the extraordinary commitment that the Keynesians at the Treasury, ECB, World Bank, IMF etc. have made to re-inflation in the last 8 years, why should ever we expect this intellectual monoculture to allow a general price deflation in the future?

Ultimately there are limits. of course. Venezuela, for instance, no longer has enough money to pay for its money to be printed. But the UK appears to be several years away from that eventuality.

Edited by zugzwang

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