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frugalista

The Ripple Effect

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By the ripple effect, I mean the fact that the boom did not take place with a uniform geographical distribution, but spread, from the south to the north, and from economically active areas such as "premium" locations to more economically peripheral areas and regions. So HPI of 20% a few years back was confined to the south, made its way through the midlands and some premium cities but now is only found in rural Scotland, Northern Ireland etc.

The bulls say the HP boom was based on sound fundamentals. i.e. low interest rates, strong economy, and low unemployment. Interest rates basically apply nationally. If the boom was purely based on interest rates, surely it would have been geographically uniform. What about the economy/unemployment. Did the jobs boom start in the south and make its way to the north? Have loads of jobs recently appeared in those parts of rural Scotland now experiencing for the first time ever high house price inflation? Seems doubtful. Any light shed on this would be interesting.

The bears on the other hand say that the HP boom was speculative. i.e. rises in prices and property hyping led to people believing prices would rise, which led to speculative demand, in turn leading to further rises in prices, in a vicious (for FTBs) circle. It seems to me that the ripple effect is entirely consistent with a speculative explanation for the boom. Belief in rising prices starts in the economically more active areas, and spreads to the periphery, causing the ripple effect.

So, to conclude this opening salvo, I put it to you that the ripple effect proves the boom was speculative. Discuss ad nauseam.

frugalista

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The last boom in the mid to late 80s unlike all previous ones began in London gradually spreading out to the more economically strong parts of the north and Midlands before finally reaching the poorer areas where eventual price rises were as much as in London and elsewhere............the fastest rises were seen in the last places to see the boom............and this pattern was repeated in the 95- 04 boom.................

The ripple effect was identified or at least first mentioned in print by Caroline Mcghie in 1988 a property writer for the ''Sunday Times''.....who now works on an another sunday paper................''the independent ''maybe .........

Prior to the 80s boom prices had never risen in this ripple like manner........

The market like all asset markets does have a speculative element in it when rising but the ripple effect is IMO independent of it.......

Edited by Michael

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Prior to the 80s boom prices had never risen in this ripple like manner........

That's interesting, does anyone have a handle on what was new in the 80s to make prices start rippling?

The market like all asset markets does have a speculative element in it when rising but the ripple effect is IMO independent of it.......

So, if it isn't the spread of the speculative belief, what does cause the ripple effect?

frugalista

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I believe the ripple effect is caused by wannabe investors or homeowners being priced out of their local markets.

If London becomes too expensive, a couple may look at Middlesex. This however pushes up the price of homes in Middlesex, and so the families in Middlesex look to buy in the next county and so on.

The ripple effect can be international also. Many UK citizens bought property in France when a similar home would be 4 times as much in the UK. Now that market has also risen, Bulgaria seems to be the next property hotspot with 4 bed properties for around £10K allegedly.

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I believe the ripple effect is caused by wannabe investors or homeowners being priced out of their local markets.

I think that's an important mechanism by which the ripple spreads. But (this may sound stupid) what caused them to be priced out of their local markets, but *not* priced out of their second-choice area? In other words, what caused the first area to rise more rapidly than the second in the first place?

frugalista

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I think that's an important mechanism by which the ripple spreads. But (this may sound stupid) what caused them to be priced out of their local markets, but *not* priced out of their second-choice area? In other words, what caused the first area to rise more rapidly than the second in the first place?

frugalista

The second choice area is cheaper - or less economically active, if you prefer. The second area might be rising, but not fast enough to price out those people then looking to buy there.

If they were priced out of everywhere, then price rises *would* be uniform.

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if you want to get technical about it,the boom starts in london for very obvious reasons.

London is the capital of UK service economy...which in turn is 70% of UK GDP on average.

...as the service economy grows then HP's rise as these guys get fatter pay-cheques.

...now add to that a deliberate outsource of manufacturing(based in the north)...and you get jobless northerners migrating south to find work.....increasing housing demand in the south.

this makes the disparity larger.....and starts the ripple.

...now add the speculators who see this as a way to make money.....

etc etc.

at the early stages the north really don't know what hit them,although the wealthy ones want a bit of action and start "investing" in props outside london as it becomes too expensive.

...in the mean time,the fat southern pay-cheques get spent in dixons.

I could go on but it's very long-winded.

we are now getting into " double-dip" territory in economic terms.....hence the inverted yield curve again...but this time services will be hit as money supply tightens.

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if you want to get technical about it,the boom starts in london for very obvious reasons.

London is the capital of UK service economy...which in turn is 70% of UK GDP on average.

think of the UK as a human body - then London is its heart. The heart beats... it takes some time for the warm oxygenated blood to reach the extremities. Yes, London is the source of the speculation, I agree that the ripple effect suggests that the boom is speculative in nature.

As to why it is "rippling" more now than before? I suppose that this may have something to do with the increased reach and mobility of the average person in the UK. I would take issue with the idea that the last boom was the first to ripple - it may well have been, but it was nothing like to the extent that this one has. The last one did not reach as far or as profoundly as this one has. Each "beat" of the speculative heart has been more powerful than the last.

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think of the UK as a human body - then London is its heart. The heart beats... it takes some time for the warm oxygenated blood to reach the extremities. Yes, London is the source of the speculation, I agree that the ripple effect suggests that the boom is speculative in nature.

As to why it is "rippling" more now than before? I suppose that this may have something to do with the increased reach and mobility of the average person in the UK. I would take issue with the idea that the last boom was the first to ripple - it may well have been, but it was nothing like to the extent that this one has. The last one did not reach as far or as profoundly as this one has. Each "beat" of the speculative heart has been more powerful than the last.

don't know about the increased mobility bit FP!!....the M6 is bloody gridlock these days!!

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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