I think we might be wrong about a HPC

[Horseradish]

Firstly, I'd like to say I dearly want a HPC so that I can buy a house at a reasonable price, rather than the deeply unreasonable prices we have seen for many years. That said, I'd like to solicit opinions on the following:

I put it to you that the government cannot allow house prices to crash, because money is debt, most money-debt is backed by residential mortgages, and so any crash in the residential property market would cause a severe contraction in the money supply, and therefore precipitate a gouging recession. Additionally, because debt needs interest servicing, the contraction of the money supply would functionally make paying all this interest impossible and thus cause even more damage, bankruptcies, foreclosures, etc.

So there can't be a HPC. It's why the government are creating magic money all over the place to prop the market up.

I don't want to believe this. Change my mind.

[Kosmin]

7 minutes ago, Horseradish said:

I put it to you that the government cannot allow house prices to crash, because money is debt, most money-debt is backed by residential mortgages, and so any crash in the residential property market would cause a severe contraction in the money supply, and therefore precipitate a gouging recession. Additionally, because debt needs interest servicing, the contraction of the money supply would functionally make paying all this interest impossible and thus cause even more damage, bankruptcies, foreclosures, etc.

I think it's hard to predict. There are forces which point to increases and other forces which point to decreases.

But I don't find your reasoning particularly persuasive. We have had recessions, bankruptcies and foreclosures before and we will have them again.

[Horseradish]

2 minutes ago, Kosmin said:

But I don't find your reasoning particularly persuasive. We have had recessions, bankruptcies and foreclosures before and we will have them again.

In those periods we werent' as indebted (individually, or nationally). And additionally, while there was some marginal correction in 2008, it didn't crash as much as people thought it would; it was no 50% correction.

[Kosmin]

1 minute ago, Horseradish said:

In those periods we werent' as indebted (individually, or nationally). And additionally, while there was some marginal correction in 2008, it didn't crash as much as people thought it would; it was no 50% correction.

How are these observations related to your initial claim? 

[Horseradish]

2 hours ago, Kosmin said:

related to your initial claim

You're right, let's not get distracted. I'm positing that rather than this being a political issue where the Tory government doesn't want its much-house-owning voter base to hate it, instead it's about structural issues in how money is created.

Edited September 26, 2021 by Horseradish

[dances with sheeple]

1 hour ago, Horseradish said:

Firstly, I'd like to say I dearly want a HPC so that I can buy a house at a reasonable price, rather than the deeply unreasonable prices we have seen for many years. That said, I'd like to solicit opinions on the following:

I put it to you that the government cannot allow house prices to crash, because money is debt, most money-debt is backed by residential mortgages, and so any crash in the residential property market would cause a severe contraction in the money supply, and therefore precipitate a gouging recession. Additionally, because debt needs interest servicing, the contraction of the money supply would functionally make paying all this interest impossible and thus cause even more damage, bankruptcies, foreclosures, etc.

So there can't be a HPC. It's why the government are creating magic money all over the place to prop the market up.

I don't want to believe this. Change my mind.

BTL is under pressure, and BTL was the bankers way to get people into multiple mortgage debt, any sell off or sentiment change towards BTL leaves a LOT of housing stock in limbo with nowhere to go but down.

[dances with sheeple]

 

[dances with sheeple]

 

[Fromage Frais]

1 hour ago, Horseradish said:

Firstly, I'd like to say I dearly want a HPC so that I can buy a house at a reasonable price, rather than the deeply unreasonable prices we have seen for many years. That said, I'd like to solicit opinions on the following:

I put it to you that the government cannot allow house prices to crash, because money is debt, most money-debt is backed by residential mortgages, and so any crash in the residential property market would cause a severe contraction in the money supply, and therefore precipitate a gouging recession. Additionally, because debt needs interest servicing, the contraction of the money supply would functionally make paying all this interest impossible and thus cause even more damage, bankruptcies, foreclosures, etc.

So there can't be a HPC. It's why the government are creating magic money all over the place to prop the market up.

I don't want to believe this. Change my mind.

There is no such thing as cant and/or wont.

You are correct that that at this time our economy is a housing market with some other bits attached to it.

However as we have seen with Corona strange things can and continue to happen.

We are entering a new phase with China and the US faces a decision do they risk their reserve currency status and that will either be 1)  No then rates will stay low and debts get larger and larger and other parties will seek alternatives to avoid their destruction by debt or 2) Yes and rates will rise and then our shortly after.

It could take ages or next week the getting ahead of price rises is the rational behind the Minsky moment type approach that by making something "stable" and "cannot happen" we sow the seeds of its instability.

Essentially when people say the government wont let it happen the real meaning is that the government will threaten its own exisitance trying to keep a housing bubble going.

Just consider that wars and death have been spent protecting our nation......and the government would possibly consider a collapse of it all..... to keep houses from being affordable in a free market.

 

[FallingAwake]

1 hour ago, Horseradish said:

any crash in the residential property market would cause a severe contraction in the money supply, and therefore precipitate a gouging recession.

We saw this start to happen in 2008. Result? The government printed mon... sorry, "quantitatively eased". So they have a mechanism for dealing with contractions in the money supply. They magic up more of it.

1 hour ago, Horseradish said:

Additionally, because debt needs interest servicing, the contraction of the money supply would functionally make paying all this interest impossible and thus cause even more damage, bankruptcies, foreclosures, etc.

It depends who you owe the debt to. If you're HM Government and you owe much of it to another branch of HM Government, interest isn't that much of a problem.

But anyway, your argument is premised on the money supply, which we know governments will keep going, even if it means pumping it out in various nebulous schemes.

[dances with sheeple]

 

[dances with sheeple]

 

[highcontrast]

When the last bear turns to bull.

[IMHAL]

10 hours ago, Horseradish said:

Firstly, I'd like to say I dearly want a HPC so that I can buy a house at a reasonable price, rather than the deeply unreasonable prices we have seen for many years. That said, I'd like to solicit opinions on the following:

I put it to you that the government cannot allow house prices to crash, because money is debt, most money-debt is backed by residential mortgages, and so any crash in the residential property market would cause a severe contraction in the money supply, and therefore precipitate a gouging recession. Additionally, because debt needs interest servicing, the contraction of the money supply would functionally make paying all this interest impossible and thus cause even more damage, bankruptcies, foreclosures, etc.

So there can't be a HPC. It's why the government are creating magic money all over the place to prop the market up.

I don't want to believe this. Change my mind.

I think the government will do everything in it's power to avert a HPC. It will prioritise this over pretty much anything else. However, we do live in an interconnected world, so the government will be constrained and led by global event. If the ROW raises rates, then we will be forced to do so. I still expect the gov to put in extra props for the housing market in that event....at least until it becomes apparent that it is not saveable.

[Si1]

7 hours ago, highcontrast said:

When the last bear turns to bull.

It's paradoxical. Precisely because the govt and population is hugely indebted we say we can't have HPC. The snake has digested its own tail. I'm with Nassim Taleb on this. In the current era of national economic super-management, crises will be farther apart but much bigger. When it comes it will be a doozy.

Edited September 27, 2021 by Si1

[Si1]

2 minutes ago, IMHAL said:

 least until it becomes apparent that it is not saveable.

Indeed. Basically when it becomes an impossible mess the electorate will finally have the appetite for a govt with balls. Whether that be a Thatcher or an Attlee.

[IMHAL]

Just now, Si1 said:

It's paradoxical. Precisely because the govt and population is hugely indebted we say we can't have HPC. The snake has suggested it's own tail. I'm with Nasim Taleb on this. In the current era of super economy management, crises will be farther apart but much bigger. When it comes it will be a doozy.

I agree with that. Small corrections are 'not allowed'...ie it is politically expedient to avert corrections in the market for the sake of governments holding onto power. They are not seen as a natural mechanism for rebalancing...rather an ill that needs to be contained. The problem is that structural inbalances are allowed to grow unchecked...which eventually leads to a very big corrections, perhaps catastrophic one.

[Insane]

10 hours ago, Horseradish said:

And additionally, while there was some marginal correction in 2008, it didn't crash as much as people thought it would; it was no 50% correction.

In 1988 - 1995 it crashed much more than people thought it would depending on where you looked in the country 40 - 50% drops were out there. 

[markyh]

3 minutes ago, Insane said:

In 1988 - 1995 it crashed much more than people thought it would depending on where you looked in the country 40 - 50% drops were out there. 

Bought 1st house in December 1996 ,it was sweet, rock bottom prices and EVERYONE , even EA's were saying be careful prices are still falling. But buying was £150 pcm cheaper than renting with a 7% IR mortgage. So it was a no brainer. £5k deposit, £50k mortgage, nice little 2 bed semi with Garage and garden in the S/E. 

From 1997 prices went flat and started to rise, by 1999 they had already risen by 20%. 

[Badhairday]

Most crashes are real and not nominal. I believe the only 2 times that the UK had nominal falls was in 1990 and 2008.
I personally believe that house prices will crash in real terms, but will still go up in nominal terms due to all the QE.

[Si1]

4 minutes ago, Badhairday said:

Most crashes are real and not nominal. I believe the only 2 times that the UK had nominal falls was in 1990 and 2008.
I personally believe that house prices will crash in real terms, but will still go up in nominal terms due to all the QE.

Entirely possible

[Locke]

1. Where does value you come from?

2. Would you say that historical examples of overindebted nation states show that they cannot fail?

[erat_forte]

I think there is something in this line of argument.

I think that the economy being a "complex system" is too unstable and predictable for any modelling, and I think that no-one really has a clue about how it all works. Even the big strategic players are just winging it in their own self interest and hoping for the best... or are blinkered by what they "want" to see.

I follow Tim Morgan's energy analysis (at https://surplusenergyeconomics.wordpress.com/ ) - he bangs on about how the money supply or the financial system is a "claim" on "real" products and services, and one of his big things is how the financial system is growing and growing yet the underlying energy and resource base for producing real products and services is plateauing and looks to start shrinking in the coming decades. (this includes energy costs, resource depletion, pollution, population growth, water, climate change, etc. etc. all bundled togetehr and aggregated)

His argument is that the growing financial claims on the real underlying products and services cannot be met, because there is more money out there than things to spend it on. He suggests that there will be a default.

It seems to me that spending that money on houses is a great way to stave off that default. House prices double, everyone has less money to spend on heating, food, travel, trinkets. The real economy of manufacturing and services can shrink, without needing any consequent reduction in the financial system or money supply.

What would be the real problem with the overall economy if house prices rose 10-fold over the next decade?

Edited September 27, 2021 by erat_forte
spelling

[winkie]

Higher property prices can mean more liquidity can be pumped into the economy.......debt secured by valuable increasing in price property is better security than an individual....more liquidity means more money sloshing about looking for a home that provides a yeild which means higher inflation which means erroding the debt created from nothing.....eroding savings, eroding wages and the reason to work......easier to borrow money secured on assets and living from that, than working for it.

[Pop321]

11 hours ago, Horseradish said:

Firstly, I'd like to say I dearly want a HPC so that I can buy a house at a reasonable price, rather than the deeply unreasonable prices we have seen for many years. That said, I'd like to solicit opinions on the following:

I put it to you that the government cannot allow house prices to crash, because money is debt, most money-debt is backed by residential mortgages, and so any crash in the residential property market would cause a severe contraction in the money supply, and therefore precipitate a gouging recession. Additionally, because debt needs interest servicing, the contraction of the money supply would functionally make paying all this interest impossible and thus cause even more damage, bankruptcies, foreclosures, etc.

So there can't be a HPC. It's why the government are creating magic money all over the place to prop the market up.

I don't want to believe this. Change my mind.

You are right….the government will do everything it can to avert a house price crash. I was around in 1990 and the government also did everything it could to avert a house price crash then….but it still happened. Sometimes it’s like pushing against the tide. 

The government will do everything it can to stop an asteroid hitting the planet (if they knew one was heading towards us)…..really the question is whether they can.

A crash of sorts will come as will further booms…..it’s just about knowing when. Literally could be 2 months away or 20 years.

I guess a softening in the near future ie 3 months to 3 years…..but for those who bought really badly it will be a crash. For example in our town a 3 bed semi can be £220k or £350k depending on fireplaces, light fittings, blinds and posh blues and greys. Those who bought at £220k may soften to £200k, those who bought at £350k could lose £100/£130k value.