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frederico

House prices and the economy

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This article beggars belief, the lack of depth of understanding is incredible.

http://edu.bankofengland.co.uk/knowledgebank/how-does-the-housing-market-affect-the-economy/

Quote

The housing market is closely linked to consumer spending. When house prices go up, homeowners become better off and feel more confident. Some people will borrow more against the value of their home, either to spend on goods and services, renovate their house, supplement their pension, or pay off other debt.

When house prices go down, homeowners risk that their house will be worth less than their outstanding mortgage.  People are therefore more likely to cut down on spending and hold off from making personal investments.

No wonder we are in this mess

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It's kind of correct superficially, but fails acknowledge

A.that even when prices go high and people borrow to spend, in the following years their spending capacity drops due to the repayments. 

B. As people invest in chasing the bubble less money is available for economically productive activity and leads to an economy in the doldrums.

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2 hours ago, frederico said:

This article beggars belief, the lack of depth of understanding is incredible.

http://edu.bankofengland.co.uk/knowledgebank/how-does-the-housing-market-affect-the-economy/

No wonder we are in this mess

It's utter ********. 

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Quote

The authors posit that the correlation between housing wealth and consumption may arise from three possibilities: a straightforward wealth effect, the relaxation of credit constraints, or the response of both housing wealth and consumption to common third factors, such as expected future income. The authors find that the estimated “wealth” effect is the same for both homeowners and renters... 

The issue is, as ever, that correlation is not causation.  It's no surprise at all that house prices and consumption are correlated, because they're both caused by increasing debt, (or increasing wages, but not in our case, obviously). 

The finding that tenant spending increases with house prices quite clearly shows that the correlation isn't a wealth effect, it's nothing more than debt-driven inflation.

Strip out the effect of debt and there's nothing left. 

Edited by BuyToLeech

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7 minutes ago, thewig said:

DEBTpusher says DEBT is great 

Indeed. What they mean is when HP go up people are more likely to spend money they don't have on shit they don't need. HP go down and people re more likely to limit their spend to money they actually have. How is the latter any good in a debt based system? Fooked. 

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14 hours ago, frederico said:

This article beggars belief, the lack of depth of understanding is incredible.

http://edu.bankofengland.co.uk/knowledgebank/how-does-the-housing-market-affect-the-economy/

No wonder we are in this mess

.....the mess is building up behind us, because there is little investment in the future.....the rich on paper homeowners are not spending more, they don't need or want it, health is what they want and health and care is what they are planning to spend it on.

Social mobility will mean if can acquire a mortgage to buy a home, do have a job they will not be feeling rich enough to spend or consume however much their home increases because general job security is poor, their debt is high indulging study debt and the next step home is a million miles away....hpi sees there is no ladder, little growth, low productivity and very little gets done, stagnation.;)

Edited by winkie

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And it makes no mention of the inflationary effect of Buy to Let. There is a veiled warning at the end though.....

There have also been times when house prices have increased a lot just because people think prices will continue to rise. This is called a housing market bubble.  Bubbles are always followed by housing market crashes when house prices fall sharply.

This happened in the 1980s. Between 1984 and 1989 house prices doubled, which was much higher than the growth in people’s earnings. The unsustainable rise was followed by over five years of falling house prices. It then took until 1999 before house prices had recovered to the level they were in 1989.

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1 minute ago, frederico said:

Fancy house price increases being higher than earnings increases, what a daft way to run things. That would be unsustainable surely.

No, house prices only go up, have only ever gone up, they're not making any more land.

Someone on twitter actually fed me those lines last week :lol: 

Despite being 60 seemed not to remember end of the 80, 2007 and the fact every floor on a block of flats is effectively more land.

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59 minutes ago, frederico said:

Fancy house price increases being higher than earnings increases, what a daft way to run things. That would be unsustainable surely.

House prices go up as fast as debt does, and as fast as debt interest falls......more low productivity jobs, fewer skills training investment where there is little or no demand for those jobs because of lack of investment and easy replaceable cheaper labour..... investment has been thrown into increasing the value of low productivity homes and speculative stocks where the price does not correlate to true real value and profits .....that won't create future jobs that pay......unless can collect a %fee per transaction.....more deals more easy money.

People with less money to spend or feel they need to conserve for future security spend less.....can always import the money from elsewhere...well should all feel richer today, train fares increasing, even less choice of where can now work.....no one going anywhere.;)

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1 hour ago, Bruce Banner said:

And it makes no mention of the inflationary effect of Buy to Let. There is a veiled warning at the end though.....

 

 

That's a load of over simplistic ******** as well (the quote in the original post, not what BB said)

Was there a housing bubble in the 80s?  Can bubbles even exist? 

Edited by BuyToLeech

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  • 406 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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