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RJG18

2006 And Onwards...

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Well, another year over, so I thought I’d better pop over and make an appearance. I had thought about rambling on about where we’ve got to in 2006, and all the significant changes and events in 2005, but we’ve all been here, we’ve all seen what happened over the last year.

Instead, I’d like to ask an open question. During the last couple of months of 2005 a few people had been saying to me that they’d heard on the news/papers/etc that “They say [HPI] is all picking up again…. That the market is booming again…. And prices are set to continue to rise… etc”. Rather than pick holes in why this is not, and can not, be the case (I’ve been doing this for two years or so), instead I’d genuinely like to hear from anyone who thinks HPI is still happening, or is going to happen, or is a good thing. Why do they think this will happen, and what do they think will happen if it does? Who benefits?

What IS the current ‘Bull’ expectation? If you look at the various options and their effects, then it’s difficult to see the arguments:

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1. “Prices continue to rise (in real terms) above inflation, whether this be levelling out for a while then continuing to rise, gradually rising slowly, or booming again at some point, but nevertheless having a general upward trend in real terms.”

With affordability already spectacularly breached for the majority of people in the country, this course of events would simply have two outcomes:

- For the ever dwindling number of people who could afford to buy or rent a home, and an increasing proportion of their income would need to be spent on mortgage repayments. Where would this stop? Obviously consumer spending would continue its death-spiral as people had smaller and smaller disposable incomes. But how far does that go? Do we get to a point where 100% of these peoples incomes, every penny they earn, is spent on mortgage interest, and they have to beg for food and water , while safe in the knowledge of how wealthy they are for “owning” their own home? Ok, extreme I know, but if it doesn’t go that far then how far DOES it go, and what happens once that point is reached?

- On top of this, as the price rise, fewer people will be able to afford to own a home. This will also mean they cannot afford to rent, as a rental property has to be owned by someone else, and that someone would need to charge a rental equal to Mortgage Repayments + Other Costs + Profit Margin in order to be sustainable. If someone cannot afford to service their own mortgage, then they cannot afford to service a BTL landlord’s either. So an increasing number of people would be homeless on the streets. How many? The majority of the population? Even at current prices this would be the case within a generation. Of course at the same time, an ever increasing number of houses would become empty (previous owners dying off, etc), and the next generation unable to afford them. But, if you are someone who believes prices continue to rise (or even remain at the same level) then this is where you believe we will get to. Again, how far does this go? Do we get to a point where we’re all living on the streets, unable to afford all the empty houses? Extreme I know, but if it doesn’t go that far then how far DOES it go? And what happens at that point?

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2. The other “Bull” alternative is that prices simply level out (“Soft landing”) but do not fall.

However, this has exactly the same problems as above, they just occur slightly more slowly. There is of course a rolling population, with elderly people dying off and new younger generations looking for homes. Most cannot afford to buy at current levels, and also could not pay enough rent to create a rental market that is actually sustainable. This means that an ever increasing number of people would continue to fall below this “Property poverty line”. Leading to the same consequences as pointed out above, just at a slightly slower rate.

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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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