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Why, despite the coronavirus pandemic, house prices continue to rise


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Very unpleasant formatting. Here it is in plain text:

 

DURING THE global recession a decade ago, real house prices fell by an average of 10%, wiping trillions of dollars off the world’s largest asset class. 

Though the housing market has not been the trigger of economic woes this time, investors and homeowners still braced for the worst as it became clear that covid-19 would push the world economy into its deepest downturn since the Depression of the 1930s. 

That pessimism now looks misplaced. House prices picked up in most middle- and high-income countries in the second quarter. In the rich world they rose at an annual rate of 5% (see chart 1). Share prices of developers and property-traders fell by a quarter in the early phase of the pandemic, but have recovered much of the fall. 

 In America growth in the median price per square foot accelerated more quickly in the second quarter of 2020 than in any three-month period in the lead-up to the financial crisis of 2007-09. Three factors explain this strength: monetary policy, fiscal policy and buyers’ changing preferences. Consider monetary policy first.
 Central bankers around the world have cut policy rates by two percentage points on average this year, reducing the cost of mortgage borrowing. Americans can take out a 30-year fixed-rate mortgage at an annual interest rate of just 2.9%, down from 3.7% at the beginning of the year. Studies suggest a strong link between falling real interest rates and higher house prices. Some borrowers can afford to take out bigger mortgages; others find it easier to manage their existing loans.
Landlords are willing to pay more for property, because yields on other assets have dropped. In both America and Britain, mortgage lending is running at post-financial-crisis highs. That is not to say that it has become easier for everyone to borrow. In fact, obtaining a mortgage has become harder for many. 

Brokers, fearful of the long-term economic impact of covid-19, have pulled back on riskier lending. British banks, for instance, are offering fewer high-loan-to-income mortgages. In America few loan officers at banks said they were tightening lending standards before the pandemic; now 60% do. 

Unlike previous periods of strong house-price growth, there is little evidence of lax lending standards. Fiscal policy, the second factor, may therefore be more important in explaining buoyant prices. In a normal recession, as people lose jobs and their incomes fall, foreclosures drag house prices down—not only by adding to the supply of homes on the market, but also by leaving ex-homeowners with a blemish on their credit history, making it harder for them to borrow again.
 But this time governments in rich countries have preserved households’ incomes. Handouts through wage subsidies, furlough schemes and expanded welfare benefits amount to 5% of GDP. In the second quarter of the year households’ disposable incomes in the G7 group of large economies were about $100bn higher than they were before the pandemic, even as jobs disappeared by the millions. Other measures directly support the housing market. 

Spain, for instance, has allowed borrowers to suspend their mortgage repayments. Japan’s regulators have asked banks to defer principal repayments on mortgages, and the Netherlands temporarily banned foreclosures. In the second quarter the number of British owner-occupied mortgaged properties that were repossessed was 93% lower than in the same period in 2019, the result of policies that dissuade repossessions. 

In America foreclosures, as a share of all mortgages, are at their lowest level since 1984. The third factor behind the unlikely global housing boom relates to changing consumer preferences. In 2019 households in the median OECD country devoted 19% of spending to housing costs. With a fifth of office workers continuing to work from home, many potential buyers may want to spend more on a nicer home. Already there is evidence that people are upgrading their household appliances.
People also seem to be looking for more space—which, all else being equal, raises house prices. Though the New York and San Francisco housing markets look weak, there is little wider evidence to support the idea that people are fleeing cities for the suburbs, at least in America. Data from Zillow, a housing marketplace, suggest urban and suburban property prices are rising at roughly the same pace; price growth in the truly get-away-from-it-all areas is actually slowing (see chart 2). It seems more likely that people are looking for bigger houses near where they already live.
 In Britain prices of detached houses are rising at an annual rate of 4%, compared with 0.9% for flats, and the market for houses with gardens is livelier than for those without. Can house prices continue their upward march? Governments are slowly winding down their economic-rescue plans, and no one knows what will happen once support ends. But lower demand for housing may run up against lower supply. 

High levels of economic uncertainty deter investment: in America housebuilding has fallen by 17% since covid-19 struck. The experience of the last recession suggests that even when the economy recovers, construction lags behind. It may take more than the deepest downturn since the Depression to shake the housing market’s foundations. 
 

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2 minutes ago, Locke said:

the number of British owner-occupied mortgaged properties that were repossessed was 93% lower than in the same period in 2019, the result of policies that dissuade repossessions. 

This stood out for me. 

I don't think people can imagine a bank going bust these days. It can and will certainly happen if the law strangles their ability to make money.

Once those mortgages are sold off to the liquidators, there will be no kid gloves when it comes to asset recovery.

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This stood out for me. 

I don't think people can imagine a bank going bust these days. It can and will certainly happen if the law strangles their ability to make money.

Once those mortgages are sold off to the liquidators, there will be no kid gloves when it comes to asset recovery.

cheers for the re formatting

Was that 93% compared to the same period in 2018 ?

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5 minutes ago, Saving For a Space Ship said:

cheers for the re formatting

Was that 93% compared to the same period in 2018 ?

I suppose it means Q2 (Apr-May-Jun) 2020 was 93% lower in repos than Q2 2019.

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Very unpleasant formatting. Here it is in plain text:

 

DURING THE global recession a decade ago, real house prices fell by an average of 10%, wiping trillions of dollars off the world’s largest asset class. 

Though the housing market has not been the trigger of economic woes this time, investors and homeowners still braced for the worst as it became clear that covid-19 would push the world economy into its deepest downturn since the Depression of the 1930s. 

That pessimism now looks misplaced. House prices picked up in most middle- and high-income countries in the second quarter. In the rich world they rose at an annual rate of 5% (see chart 1). Share prices of developers and property-traders fell by a quarter in the early phase of the pandemic, but have recovered much of the fall. 

 In America growth in the median price per square foot accelerated more quickly in the second quarter of 2020 than in any three-month period in the lead-up to the financial crisis of 2007-09. Three factors explain this strength: monetary policy, fiscal policy and buyers’ changing preferences. Consider monetary policy first.
 Central bankers around the world have cut policy rates by two percentage points on average this year, reducing the cost of mortgage borrowing. Americans can take out a 30-year fixed-rate mortgage at an annual interest rate of just 2.9%, down from 3.7% at the beginning of the year. Studies suggest a strong link between falling real interest rates and higher house prices. Some borrowers can afford to take out bigger mortgages; others find it easier to manage their existing loans.
Landlords are willing to pay more for property, because yields on other assets have dropped. In both America and Britain, mortgage lending is running at post-financial-crisis highs. That is not to say that it has become easier for everyone to borrow. In fact, obtaining a mortgage has become harder for many. 

Brokers, fearful of the long-term economic impact of covid-19, have pulled back on riskier lending. British banks, for instance, are offering fewer high-loan-to-income mortgages. In America few loan officers at banks said they were tightening lending standards before the pandemic; now 60% do. 

Unlike previous periods of strong house-price growth, there is little evidence of lax lending standards. Fiscal policy, the second factor, may therefore be more important in explaining buoyant prices. In a normal recession, as people lose jobs and their incomes fall, foreclosures drag house prices down—not only by adding to the supply of homes on the market, but also by leaving ex-homeowners with a blemish on their credit history, making it harder for them to borrow again.
 But this time governments in rich countries have preserved households’ incomes. Handouts through wage subsidies, furlough schemes and expanded welfare benefits amount to 5% of GDP. In the second quarter of the year households’ disposable incomes in the G7 group of large economies were about $100bn higher than they were before the pandemic, even as jobs disappeared by the millions. Other measures directly support the housing market. 

Spain, for instance, has allowed borrowers to suspend their mortgage repayments. Japan’s regulators have asked banks to defer principal repayments on mortgages, and the Netherlands temporarily banned foreclosures. In the second quarter the number of British owner-occupied mortgaged properties that were repossessed was 93% lower than in the same period in 2019, the result of policies that dissuade repossessions. 

In America foreclosures, as a share of all mortgages, are at their lowest level since 1984. The third factor behind the unlikely global housing boom relates to changing consumer preferences. In 2019 households in the median OECD country devoted 19% of spending to housing costs. With a fifth of office workers continuing to work from home, many potential buyers may want to spend more on a nicer home. Already there is evidence that people are upgrading their household appliances.
People also seem to be looking for more space—which, all else being equal, raises house prices. Though the New York and San Francisco housing markets look weak, there is little wider evidence to support the idea that people are fleeing cities for the suburbs, at least in America. Data from Zillow, a housing marketplace, suggest urban and suburban property prices are rising at roughly the same pace; price growth in the truly get-away-from-it-all areas is actually slowing (see chart 2). It seems more likely that people are looking for bigger houses near where they already live.
 In Britain prices of detached houses are rising at an annual rate of 4%, compared with 0.9% for flats, and the market for houses with gardens is livelier than for those without. Can house prices continue their upward march? Governments are slowly winding down their economic-rescue plans, and no one knows what will happen once support ends. But lower demand for housing may run up against lower supply. 

High levels of economic uncertainty deter investment: in America housebuilding has fallen by 17% since covid-19 struck. The experience of the last recession suggests that even when the economy recovers, construction lags behind. It may take more than the deepest downturn since the Depression to shake the housing market’s foundations. 
 

on house prices, and brexit, the economist is a fully paid up member of the liberal elite. It is based in London and its home based journalists have mortgages in London.

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I am not seeing Landlords buying up now in my target area. The sales (and we will see how many get to Land registry) are the larger homes. 

Smaller houses (which I am after) are not selling as quickly and there have already been drops in prices and houses appearing again on the market after sales falling through previously.

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I am seeing more and more buyers getting desperate to buy and complete before March 2021 to take advantage of stamp duty holiday. It really is fascinating how this mirage of stamp duty holiday is making buyers pay over the odds whilst only saving a few percent in tax.

This is similar to that scrappage scheme that the government introduced. That sparked a frenzy of car buying to save 2k.

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asking prices down 6% in London since Jan and massive surge in listings, I dont think they're continuing to rise anywhere that matters

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Because the data is backwards looking.

I complete on a sale next week, price agreed in February. People buying are on 4x joint income mortgage (no kids) and at 85% LTV. Price is all time high price per square metre for my area. That print will show publicly just before xmas. Mortgage rates are increasing above 60% LTV for the very reason that banks expect prices to fall.  

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Because beyond London and the south east property is very affordable and we’ve benefited from ridiculously low interest rates for a decade now.

I remember paying £490 per month  ‘interest only’ in 2007 on a flat bought with just 4K deposit. I sold it at a loss a couple of years later having saved another smallish deposit (15k) for the place we live in now. We’ve renovated the place throughout and find ourselves in 2020 with about 125k of equity and a baseline monthly mortgage figure that is less than the first place (albeit that voluntary overpayments take it to £700). 

I’m not even trying to boast because in all honesty we haven’t bought wisely but despite both earning less than the national average for much of our careers we find ourselves in a good position. 


I just get the impression a lot of 30 to 50 something couples are moving right now because of changes to the way we live, work and raise families. A 5-10% fall in values isn’t catastrophic when you’ve benefited from year upon year of rises. Especially with rates so low that I bet many couples can knock £500 - 1500 of equity off their mortgage each month. 

 

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4 minutes ago, Arpeggio said:

Or prices wont go down because money is worthless, large corporations buy up the UK housing stock with debt and own it.

You actually think much of the housing stock is even investment grade?

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You actually think much of the housing stock is even investment grade?

Glad you see fault in that theory. It sucks.

If money is worthless and printed at whim they could buy up non-investment grade, knock it all down and build cramped chitty flats. If money is worthless and printed at whim you can do anything.

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Glad you see fault in that theory. It sucks.

If money is worthless and printed at whim they could buy up non-investment grade, knock it all down and build cramped chitty flats. If money is worthless and printed at whim you can do anything.

Anything short of eating or living.

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Anything half decent does seem to be going like hot cakes. One in cornwall I looked at came on rightmove late Tuesday, sold today, nothing that special just a decent house at fairly reasonable price for this current boom. Same in my local area, for some you can't even get a viewing unless you ring same day they come on. It does seem completely bonkers given the economic outlook but I also think that if they are debasing the currency it makes sense to some degree as at least it's a tangible asset, of course if house prices crash you could end up paying well over the odds. I really don't know what to think anymore. No doubt whatever I do will be wrong lol ... 

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Do you think democracy will be suspended?

118 Local and Mayoral elections have been suspended for a year.

Money being worthless and printed at whim and its effect on the subject of this thread either isn't of interest to you or is only of interest within a narrow way, despite me saying I was glad you saw fault in my theory. Waste of time, bye.

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Or prices wont go down because money is worthless, large corporations buy up the UK housing stock with debt and own it.

That's a kind of high inflation scenario: doesn't matter how much you pay for a real asset, very high inflation will mean you don't have to pay it back effectively. 

But the other scenario is the collapse of all the inflated prices ( including houses). 

Wouldn't want to choose the wrong one....

I doubt the population is betting on high inflation  ( rather than this website's overwhelming bias towards massive asset price falls). 

But to me it looks like people are just maxing out whenever they can and have no other thought at all. 

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https://www.telegraph.co.uk/politics/2020/10/02/exclusive-boris-johnson-vows-put-generation-buy-housing-ladder/

 

Boris Johnson has promised to create "Generation Buy" with low-deposit mortgages to help get young people onto the housing ladder.

The Prime Minister said he would "fix" the problem of unaffordable deposits that has caused millions of people to put their dreams of home ownership on hold.

Mr Johnson told The Telegraph ahead of the virtual Conservative Party conference that he was determined to press ahead with a "massive domestic agenda" and deliver on manifesto promises, despite the coronavirus crisis.

He also insisted he remained a low-tax, libertarian Conservative who would pay for the cost of the pandemic through a "free market-led recovery" and dismissed talk of rivalry between him and Rishi Sunak, the Chancellor, as "untrue".

In a wide-ranging interview, Mr Johnson also addressed criticism of his Covid restrictions by saying there was a "moral imperative" to save lives, as well as discussing the chances of a Brexit deal and revealing how he gets his baby son Wilfred to sleep.

 

Speaking in his Downing Street office, the Prime Minister outlined his plans for a successor to Margaret Thatcher's Right to Buy policy as he explained how he would solve the problem of "Generation Rent".

He said: "I think a huge, huge number of people feel totally excluded from capitalism, from the idea of home ownership, which is so vital for our society. And we're going to fix that – 'Generation Buy' is what we're going for."

Boris Johnson wants to turn 'Generation Rent' into 'Generation Buy'
Boris Johnson wants to turn 'Generation Rent' into 'Generation Buy' CREDIT: Paul Grover for the Telegraph

More than two million people who are comfortably able to afford mortgage repayments are locked out of the housing market because they cannot save up for deposits, which typically run to 15 or 20 per cent of a property's value.

Mr Johnson has asked ministers to work up plans for encouraging long-term fixed-rate mortgages with five per cent deposits. They are likely to involve reversing regulatory changes made in the wake of the financial crash that have required banks to stress-test applicants. By removing stress tests, banks would be able to offer 95 per cent loans, as was the norm 15 years ago.

It is understood that the Government could also accept some of the risk through a form of state guarantee to give lenders additional confidence.

Mr Johnson said: "We need mortgages that will help people really get on the housing ladder even if they have only a very small amount to pay by way of deposit, the 95 per cent mortgages. I think it could be absolutely revolutionary, particularly for young people."

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https://www.telegraph.co.uk/politics/2020/10/02/exclusive-boris-johnson-vows-put-generation-buy-housing-ladder/

 

Boris Johnson has promised to create "Generation Buy" with low-deposit mortgages to help get young people onto the housing ladder.

The Prime Minister said he would "fix" the problem of unaffordable deposits that has caused millions of people to put their dreams of home ownership on hold.

Mr Johnson told The Telegraph ahead of the virtual Conservative Party conference that he was determined to press ahead with a "massive domestic agenda" and deliver on manifesto promises, despite the coronavirus crisis.

He also insisted he remained a low-tax, libertarian Conservative who would pay for the cost of the pandemic through a "free market-led recovery" and dismissed talk of rivalry between him and Rishi Sunak, the Chancellor, as "untrue".

In a wide-ranging interview, Mr Johnson also addressed criticism of his Covid restrictions by saying there was a "moral imperative" to save lives, as well as discussing the chances of a Brexit deal and revealing how he gets his baby son Wilfred to sleep.

 

Speaking in his Downing Street office, the Prime Minister outlined his plans for a successor to Margaret Thatcher's Right to Buy policy as he explained how he would solve the problem of "Generation Rent".

He said: "I think a huge, huge number of people feel totally excluded from capitalism, from the idea of home ownership, which is so vital for our society. And we're going to fix that – 'Generation Buy' is what we're going for."

Boris Johnson wants to turn 'Generation Rent' into 'Generation Buy'

Boris Johnson wants to turn 'Generation Rent' into 'Generation Buy' CREDIT: Paul Grover for the Telegraph

More than two million people who are comfortably able to afford mortgage repayments are locked out of the housing market because they cannot save up for deposits, which typically run to 15 or 20 per cent of a property's value.

Mr Johnson has asked ministers to work up plans for encouraging long-term fixed-rate mortgages with five per cent deposits. They are likely to involve reversing regulatory changes made in the wake of the financial crash that have required banks to stress-test applicants. By removing stress tests, banks would be able to offer 95 per cent loans, as was the norm 15 years ago.

It is understood that the Government could also accept some of the risk through a form of state guarantee to give lenders additional confidence.

Mr Johnson said: "We need mortgages that will help people really get on the housing ladder even if they have only a very small amount to pay by way of deposit, the 95 per cent mortgages. I think it could be absolutely revolutionary, particularly for young people."

Because they were expecting a prop.. And they got one.

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  • 433 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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