Jump to content
House Price Crash Forum
highcontrast

Housing market 'could have rug pulled from under it' when Help to Buy ends

Recommended Posts

2 minutes ago, highcontrast said:

I don't think keeping house prices up are high on the tory radar at the moment.......next GE these EU results might this time reflect in GE voting....

and when they "lend" to the HTB buyer mug...they are printing that out of thin air.....same source as the mortgage itself...via the BoE....

 

All fiat money is debt and when you sign the paperwork they magic it into existence.....if uncle harry snuffs it and leave you a million...and you pay it off you just extinguished that amount in the money supply.....

Share this post


Link to post
Share on other sites

'Pulling the rug from under the housing market' by ending HTB is exactly the reason for doing it.

Share this post


Link to post
Share on other sites
13 hours ago, Spindler said:

I don't think keeping house prices up are high on the tory radar at the moment.......next GE these EU results might this time reflect in GE voting....

and when they "lend" to the HTB buyer mug...they are printing that out of thin air.....same source as the mortgage itself...via the BoE....

 

All fiat money is debt and when you sign the paperwork they magic it into existence.....if uncle harry snuffs it and leave you a million...and you pay it off you just extinguished that amount in the money supply.....

 

The problem is that the economy at large is entirely dependent on the credit created by house buying and resultant mortgage loans.   It's a massive money pump.

 

 If that credit creation were to dry up, we'd see the government outright ramp up money printing to try to maintain the amount of 'money' in the economy which would really put the wind up the international markets and hammer the pound.

 

They would much prefer to just keep the bloated corpse of the housing market animated  - and that would go for any political party.

 

Share this post


Link to post
Share on other sites
22 minutes ago, Sour Mash said:

 

The problem is that the economy at large is entirely dependent on the credit created by house buying and resultant mortgage loans.   It's a massive money pump.

 

 If that credit creation were to dry up, we'd see the government outright ramp up money printing to try to maintain the amount of 'money' in the economy which would really put the wind up the international markets and hammer the pound.

 

They would much prefer to just keep the bloated corpse of the housing market animated  - and that would go for any political party.

 

Why is the economy dependent on the credit created? I can see a large loan being created (removing disposable income from the person who took the loan out) but I'm at a loss as to where the rest of the money goes (except into excessive profits and from there into pension funds)..

Share this post


Link to post
Share on other sites
44 minutes ago, Houdini said:

Why is the economy dependent on the credit created? I can see a large loan being created (removing disposable income from the person who took the loan out) but I'm at a loss as to where the rest of the money goes (except into excessive profits and from there into pension funds)..

Because without it, you get deflation. When debt is paid back to a bank it reduces the money supply. New credit has to be created at the same rate that debt is paid back just to keep the supply constant.

Share this post


Link to post
Share on other sites
Just now, Captain Kirk said:

Because without it, you get deflation. When debt is paid back to a bank it reduces the money supply. New credit has to be created at the same rate that debt is paid back just to keep the supply constant.

Money supply is only part of the story regarding inflation (and not even a significant part of it) but it doesn't actual answer the question which is simply than that.

If I sell a newly built house that cost £90,000 to build for £100,000, £90,000 of the money goes back into the economy as wages, bricks purchased. If (thanks to HTB) I sell the same newly built house for £150,000 where does that additional money (excess profit ) go and what benefit does it give to the economy as a whole...

Share this post


Link to post
Share on other sites
19 minutes ago, Houdini said:

Money supply is only part of the story regarding inflation (and not even a significant part of it) but it doesn't actual answer the question which is simply than that.

If I sell a newly built house that cost £90,000 to build for £100,000, £90,000 of the money goes back into the economy as wages, bricks purchased. If (thanks to HTB) I sell the same newly built house for £150,000 where does that additional money (excess profit ) go and what benefit does it give to the economy as a whole...

Inflation is an increase in the money supply, deflation a decrease. You are probably thinking about price increases, which we refer to as inflation.

A house builder probably has a £60K debt to pay back to the bank on every £100K of sales, so that would only leave £40K as profit and to circulate as money. This would go through the economy but eventually find its way back to the bank to pay off other peoples' debts. Some of it would end up in pension funds and ISAs as you said.

We have less volume of sales now, at higher prices and lower interest rates, so you have to factor all those in.

But I agree that HTB has inflated prices and given bumper bonuses to house builders.

Edited by Captain Kirk

Share this post


Link to post
Share on other sites
1 hour ago, Sour Mash said:

 

The problem is that the economy at large is entirely dependent on the credit created by house buying and resultant mortgage loans.   It's a massive money pump.

 

 If that credit creation were to dry up, we'd see the government outright ramp up money printing to try to maintain the amount of 'money' in the economy which would really put the wind up the international markets and hammer the pound.

 

They would much prefer to just keep the bloated corpse of the housing market animated  - and that would go for any political party.

 

Having fiscal stimulus directed away from non productive assets (housing) into productive assets - business lending, equities, even consumer spending to an extent - would still be a big improvement. 

Quantative easing is supposed to push up inflation and devalue the currency, in many ways that's the entire point - avert a deflationary spiral, and encourage consumers to spend rather than sit on their devaluing currency, and businesses to start exporting.  Basically they want to try and increase the 'velocity' of money - getting it circulating more.  However despite the billions pumped out by the central banks, inflation is still barely moved, why? 

All this cash being sucked up by unproductive asset bubbles such as housing is a large contributer.  Worse it not only prevents the stimulus from working, but does so while dramatically increasing living costs, meaning many end up saving more not less and consumer spending dropping - the exact opposite of what is intended. 

However HTB is small fries in all of this the far bigger factors in directing credit to housing (which is the main driver of demand and hence prices) is the term lending scheme, lack of capital gains tax on housing, and new basel capital rules which make it far more advantageous to lend against unproductive assets like houses than the productive assets like housebuilding company equity (even though the prices of both are entirely linked!) 

Share this post


Link to post
Share on other sites

 

1 minute ago, Captain Kirk said:

We have less volume of sales now, at higher prices and lower interest rates, so you have to factor all those in. There may not be much excess profit.

I will ignore the previous bit (mainly because you are ignoring what is a simple question and adding complexities) but taking your argument above:-

Looking at what you've stated there HTB has created a housing crisis by making prices too high for most people.

Share this post


Link to post
Share on other sites
4 minutes ago, Captain Kirk said:

Inflation is an increase in the money supply, deflation a decrease. You are probably thinking about price increases, which is related to inflation.

No - inflation and deflation are about value not supply.  Inflation is a reduction in the purchasing power of your currency. 

A perfect currency would have a constant value as you would then make investment decisions purely on the merits of the investment - with either inflation or deflation investors also have to factor in currency value changes (inflation encourages short term investments/risky investments, deflation encourages people to sit on their money). 

In order to achieve a constant monetary value you have to have a constantly fluctuating money supply.  Simply put if your population doubled you'd need to double your money supply to maintain value if your gdp per capita remained constant. 

Share this post


Link to post
Share on other sites
1 minute ago, Houdini said:

 

I will ignore the previous bit (mainly because you are ignoring what is a simple question and adding complexities) but taking your argument above:-

Looking at what you've stated there HTB has created a housing crisis by making prices too high for most people.

Sorry, I didn't think it was that complicated. You asked why the economy is dependent on credit creation, so maybe I should have just said that without credit there is no money.

Share this post


Link to post
Share on other sites
1 minute ago, Upabove said:

No - inflation and deflation are about value not supply.  Inflation is a reduction in the purchasing power of your currency. 

A perfect currency would have a constant value as you would then make investment decisions purely on the merits of the investment - with either inflation or deflation investors also have to factor in currency value changes (inflation encourages short term investments/risky investments, deflation encourages people to sit on their money). 

In order to achieve a constant monetary value you have to have a constantly fluctuating money supply.  Simply put if your population doubled you'd need to double your money supply to maintain value if your gdp per capita remained constant. 

Inflation causes a reduction in purchasing power, but as I said we use the term to refer to both. You can't have price inflation without an increase in the money supply. That is exactly the mechanism that causes HPI. When a bank creates credit to lend to a house buyer that pays £150K for a £100K house, that's £50K of inflation and £50K added to the money supply.

I agree, a perfect currency should have a constant value. I also think the BoE 2% target is nonsense and should be 0%. There is no reason it can't be despite arguments you hear to the contrary.

Share this post


Link to post
Share on other sites
3 minutes ago, Captain Kirk said:

Inflation causes a reduction in purchasing power, but as I said we use the term to refer to both. You can't have price inflation without an increase in the money supply. That is exactly the mechanism that causes HPI. When a bank creates credit to lend to a house buyer that pays £150K for a £100K house, that's £50K of inflation and £50K added to the money supply.

I agree, a perfect currency should have a constant value. I also think the BoE 2% target is nonsense and should be 0%. There is no reason it can't be despite arguments you hear to the contrary.

Yes you can! If the total value of production valued in your currency changes then you can have inflation or deflation with a fixed money supply.  For example see the 'resource curse' where countries that suddenly discover minerals or oil suffer deflation, or look at the black death which caused large amounts of inflation as production went down but the money supply (silver and gold) remained constant. 

Deflation is worse than inflation because it is self reinforcing, inflation is not, so maintaining a slight above average target makes sense.  But having a range rather than a target would make more sense. 

 

Share this post


Link to post
Share on other sites
2 minutes ago, Upabove said:

Yes you can! If the total value of production valued in your currency changes then you can have inflation or deflation with a fixed money supply.  For example see the 'resource curse' where countries that suddenly discover minerals or oil suffer deflation, or look at the black death which caused large amounts of inflation as production went down but the money supply (silver and gold) remained constant. 

Deflation is worse than inflation because it is self reinforcing, inflation is not, so maintaining a slight above average target makes sense.  But having a range rather than a target would make more sense. 

 

Yes, true, but I meant relative to nothing else changing. But obviously an economy is a complex system that can change in many ways as you said.

Some would argue that deflation is a good thing and shows you have a strong economy. If you are producing things more efficiently and more cost effective then you'd expect deflation.

Share this post


Link to post
Share on other sites
46 minutes ago, Captain Kirk said:

Sorry, I didn't think it was that complicated. You asked why the economy is dependent on credit creation, so maybe I should have just said that without credit there is no money.

I did merely because I don't think it's relevant. Money supply by itself is not that important - velocity (i.e. the speed at which it's re-spent) is far more important.

If you look at my example and ignore the debt story you added, you start off with a newly built house sold for £100,000 and £90,000 spent while  building the house. So the money supply (assuming things remain the same) is increased by the £100,000 mortgage and the velocity of that money is 90%.

If you then look at the house sold at £150,000. The increased money supply is £150,000 yet the same £90,000 was spent buillding it. So the velocity is a mere 60%...

So while it's true that more expensive houses through HTB may have increased M2 money supply by £50,000 more than before HTB  that additional profit may not actually be being used in the economy itself especially if it sits in a savings account.

And that's the important thing here unless the increased money supply is spent it's just creating wealth instead and the one story of the past few years has been the rich getting wealthier as velocity has dropped.

 

Share this post


Link to post
Share on other sites
42 minutes ago, Captain Kirk said:

Yes, true, but I meant relative to nothing else changing. But obviously an economy is a complex system that can change in many ways as you said.

Some would argue that deflation is a good thing and shows you have a strong economy. If you are producing things more efficiently and more cost effective then you'd expect deflation.

And that was the German economic model from 1950 to the current day...

Share this post


Link to post
Share on other sites

Articles wrong.

The housing market was undermined when HTB was introduced as it it removed most FTB from the 2nd hand property market.

HTB was always a bail out for the house builders and their creditors.

HTB no doubt created a lot of demand for mortgages.

Now, theres just oe negative after another - removal of TFS, removal of HTB, more rate rises.

HTB should never have happened.

 

 

Share this post


Link to post
Share on other sites
3 hours ago, Houdini said:

Why is the economy dependent on the credit created? I can see a large loan being created (removing disposable income from the person who took the loan out) but I'm at a loss as to where the rest of the money goes (except into excessive profits and from there into pension funds)..

If profits go up the whole chain increases wages and payments, the land seller, contractors etc. It also temporally redistributes the money as it only decreases future disposable income for the buyer and increases current disposable income for seller. The economy and job skills also have inertia and credit is required to try and keep volumes up/stable and those people in a job as it will take time for them to retrain, if they can retrain

Share this post


Link to post
Share on other sites
3 hours ago, Houdini said:

Why is the economy dependent on the credit created? I can see a large loan being created (removing disposable income from the person who took the loan out) but I'm at a loss as to where the rest of the money goes (except into excessive profits and from there into pension funds)..

If anyone knows it should be you with your name. That's about the level of it.

Share this post


Link to post
Share on other sites
1 hour ago, Killian said:

If profits go up the whole chain increases wages and payments, the land seller, contractors etc. It also temporally redistributes the money as it only decreases future disposable income for the buyer and increases current disposable income for seller. The economy and job skills also have inertia and credit is required to try and keep volumes up/stable and those people in a job as it will take time for them to retrain, if they can retrain

Does it? Are you sure? Profits going up may not increase wages and payments - it just increases the amount of money in my savings account.

Worse if prices are high then demand will be lower resulting in less supply needed so less materials needs (I'm building 3 houses not 4) and less labour required so labour costs will be lower as only the cheapest workers will be getting work (once again I'm building 3 houses not 4).

Now it may increase land prices (assuming older houses have increased in price) but that equally may not be the case. Especially if the incentive is biased towards new builds...

 

 

Share this post


Link to post
Share on other sites
5 hours ago, Houdini said:

I did merely because I don't think it's relevant. Money supply by itself is not that important - velocity (i.e. the speed at which it's re-spent) is far more important.

I see, it was rhetorical.

5 hours ago, Houdini said:

If you then look at the house sold at £150,000. The increased money supply is £150,000 yet the same £90,000 was spent buillding it. So the velocity is a mere 60%...

So while it's true that more expensive houses through HTB may have increased M2 money supply by £50,000 more than before HTB  that additional profit may not actually be being used in the economy itself especially if it sits in a savings account.

Yes, initially, it will sit around in savings, but in the long run it won't because the mortgage debt has to be paid back with interest. The BoE would hope the person with the savings would go buy a new Land Rover, or similar. I think that is where the BoE are in cloud cuckoo-land. You'd get more money velocity if the money was left with the wage earner because they would spend it in the economy, in a restaurant, taxi/uber driver, hair salon, etc.

However, either that extra £50K has to find its way back to the bank to pay off the mortgage or future money has to. That is why HPI can't continue beyond what people earn forever, unless there is a rentier class willing to earn very little return or make a loss, even, for status reasons. HPI is currently being helped by suppressed interest rates and the government forcing the taxpayer to take on considerable risk.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 312 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.