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Bloomberg: If It’S Stability You Want, Then Rent, Don’T Buy

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Bloomberg: If It’s Stability You Want, Then Rent, Don’t Buy

 

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Anyone who got caught in the real estate bust last decade in the U.S. or U.K. probably knows this already, but now the economic data is in: home ownership can be bad for you.

More accurately, it can be harmful to the financial stability of whole economies. That’s the evidence from a new study published this week by European Central Bank research economist Gerhard Ruenstler.

The higher the level of ownership in a given country, the longer and bigger the credit cycles are. And this can make a big difference — look at the chart for Britain, wherehouse prices are the subject of every Londoner’s Sunday brunch chatter. With a rate of 72 percent, higher even than the U.S., the last four decades have seen three matching mega-cycles in credit volumes and house prices. 

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Maybe it was 72% homeownership in the early 2000s but we're now in the low 60%s and still falling fast. The UK has the 4th lowest homeownership rate in the EU-28.

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I would not classify any point in the last 10 years as a housing bust, Maybe it was for some of these new build disasters but for most it was quite mild.

I totally agree that in London and the South East the shift in 2008 doesn't even really look like much of a bump in the road anymore, much less a crash, which given the sharpness of the recession and the fact it was caused by a credit crunch is incredible.

It does in part reflect the astonishing level of forbearance extended by banks to distressed borrowers. However, I think there is still a hidden and sometimes forgotten narrative concerning the millions of mortgage prisoners created in the pre-2008 phase. They are now stuck with massive interest-only mortgages that they'll never pay off. Outside London and the South East they needed bonkers HPI to continue for the 'plan' to work. They're already f*cked. They need 10% HPI every year, and for years. If we do get nominal prices falling before these mortgage prisoners need start up the Equity Release inheritance destruction machine, it just gets worse for them.

Edited by Bland Unsight

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Landlords: "We recommend renting"

European Central Bankers: "We recommend renting"

I wonder when we'll see marketing, targeted at millennials that encourages them to rent rather than buy, something like this:

Help make the world a better place
Start sharing

Here's why you should share instead

  1. sharing helps protect the environment; manufacturing and construction uses fossil fuels and releases CO2 and other harmful gases
  2. sharing helps create community, get physically close to other people when you share
  3. people who own are selfish and greedy because they keep things to themselves
  4. sharing makes you a better person, more ethical and successful
  5. develop strong connections with your sharemates, build up camaraderie and fix problems together, as an awesome team

At Friendly Accommodation we make sharing simple and easy, so you can have your own space

Our shared apartments are secured by a digital access system

All our shared products are billed monthly so you can spread your accommodation cost throughout the year. We can also offer share funding with you, so even if you do not have the funds today, you can pay tomorrow.

Terms and conditions apply: As a shared space, unshared items are not permitted in keeping in the spirit of shared spaces

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Sponsored by Friendly Accommodation

Edited by phantominvestor

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Maybe it was 72% homeownership in the early 2000s but we're now in the low 60%s and still falling fast. The UK has the 4th lowest homeownership rate in the EU-28.

the 4th lowest home ownership rate and the tiniest homes in europe.

Outside of europe there are also plenty of countries with much higher home ownership rates - but it is indeed remarkable how Britain manages to come so low in the leagues when considering an entire continent or economic bloc.

https://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate

64.8% in 2014 so nowhere near the "almost three quarters of households" quoted by bloomberg - and similar to the US figure of 64.5%.

Going back to the point made by bloomberg it's also remarkable that despite having relatively low levels of home ownership the credit cycle for Britain still seems to have been very long and very big - which suggests something fundamentally wrong with the economy. Something other than the level of home ownership - could it be the crazy credit levels along with the crazy level of house prices.

Edited by billybong

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From the bloomberg chart it's also remarkable how for Britain the GDP chart appears to align with and to be correlated with the credit volumes chart and the house price index chart.

Despite the research paper's apparent attempt to generally deny the correlation or at least use excessive jargon and verbiage to try to muddy the situation.

Edited by billybong

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^

From bloomberg


Anyone who got caught in the real estate bust last decade in the U.S. or U.K. probably knows this already, but now the economic data is in: home ownership debt can be bad for you.

Corrected.

It seems that they'll go well out of their way to try to distract people from one of Britain's core problems. The article/research paper also seems to imply that somehow British GDP represents something to do with the health of the general economy rather than pretty much just a reflection of how much debt there is.

In terms of the health of the economy, quality of life and standard of living it has been proved over time to be pretty meaningless - except as a reflection of the amount of debt. Some would say GDP growth as currently formulated represents a strong negative for the economy.

British GDP (aka debt) growth is good for bankers and their chums but these days not necessarily much else.

Edited by billybong

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+1 Terrible clickbait from Bloomberg. The original article was pretty good, hinting at instability from credit and housing bubbles. Weird to see it from the ECB.

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