Jump to content
House Price Crash Forum
Sign in to follow this  
benjamin

With Headlines Like This

Recommended Posts

Rate rise, when, if, why, what if etc, etc.

Surely, rates will go up, down, over time. Rates are set due to external economic conditions, do the administration really have any control. If the macro economic enviroment determines that rates must rise, then they will. The money men at the top, not Brown finger, will keep a close eye, and i would imagine play quite an important role in the markets and the economy as a whole.

I cannot believe that the MPC and Brown could lower rates to such an extent where the economy of this country becomes disconnected to the rest of the worlds economies. They are elected, they come and go, the markets react to their decisions, but must play some part in the decision making, otherwise questions would be asked, the media would hopefully report.

For months, posts have been made regarding the link between UK and USA base rates, we are now on par, and sterling has not tanked, as of yet. Can we really have a base rate of say 4% while across the pond they have 5%.

Is Brown that desperate to become PM, where he is willing to completely dismantle the fundementals of the economy. Or is there something we do not know. House prices and Interest rates are linked, and rates will be the undoing of this historic bubble, nothing else, affordability is the key.

Share this post


Link to post
Share on other sites

Is Brown that desperate to become PM, where he is willing to completely dismantle the fundementals of the economy. Or is there something we do not know. House prices and Interest rates are linked, and rates will be the undoing of this historic bubble, nothing else, affordability is the key.

These are my thoughts. I do not know where other posters are living, but the markets I am familiar with are healthy and rising. The general public are still keen to take on massive debt in the belief of high employment, low interest rates and will continue to do so until headlines scream otherwise.

Prices will continue to rise, albeit marginally, until rates rise.

Share this post


Link to post
Share on other sites

"high employment, low interest rates"

Can these things be sustained for the length of an average mortgage?

I think not...

Share this post


Link to post
Share on other sites

Prices will continue to rise, albeit marginally, until rates rise.

Can you explain why a fixed but low interest rate leads to a mechanism in which prices continue to rise without limit. Note, your answer can't refer to wage growth or unemployment rates, because your statement mentions only rates as the deciding factor. So you have to assume constant employment rate and constant wages in your solution.

I await your response....

Share this post


Link to post
Share on other sites

belief of high employment, low interest rates

i do not believe one bit of this spin "high employment". More like high, retraining for no or low paid jobs, and high, "i cannot work because i have a disability ********.

Low paid jobs, low wage inflation, affordability is now stretched at abnormaly low base rates, and they are very low.

Share this post


Link to post
Share on other sites

Can you explain why a fixed but low interest rate leads to a mechanism in which prices continue to rise without limit. Note, your answer can't refer to wage growth or unemployment rates, because your statement mentions only rates as the deciding factor. So you have to assume constant employment rate and constant wages in your solution.

I await your response....

My post is purely regarding sentiment. People will continue to take on debts that I regard as frankly idiotic because they base their payments on the monthly cost only!

They do not consider historical interest rates

They do not consider a 3.5 salary ratio

They dont look at the AMOUNT they are paying back over 25 years

They know nothing of Carry trade/inflation/cost of oil and do not really care

Whilst monthly costs remain relatively low this will carry on, albeit at a reduced rate as the numbers are dwindling who are able to borrow the inflated sums needed.

Edited by Bemused

Share this post


Link to post
Share on other sites

Whilst monthly costs remain relatively low this will carry on, albeit at a reduced rate as the numbers are dwindling who are able to borrow the inflated sums needed.

Affordability and the link to interest rates, this tie will never be broken, while people have to take out a mortgage to buy a shed to live in.

When rates return to normality, prices will return to normality, while rates are below normaility, prices will rise above normaility, it is that simple me thinks.

Share this post


Link to post
Share on other sites

My post is purely regarding sentiment. People will continue to take on debts that I regard as frankly idiotic because they base their payments on the monthly cost only!

They do not consider historical interest rates

They do not consider a 3.5 salary ratio

They dont look at the AMOUNT they are paying back over 25 years

They know nothing of Carry trade/inflation/cost of oil and do not really care

Whilst monthly costs remain relatively low this will carry on, albeit at a reduced rate as the numbers are dwindling who are able to borrow the inflated sums needed.

I broadly agree with what you say there. So what you are basically saying is that with things as they are, you see people continuing to borrow the currently inflated sums. But my point, which I was making in rather a sledgehammer way, was that while it is possible to argue that low but steady rates produce no particular change in affordability, they don't in my opinion produce any upward force on prices.

I am amazed how often I hear the notion expressed that "low rates = rising prices". How? Once the price has adjusted to match the current rate, then after that any further change in price must surely be produced by something else, other than the low rate. It could be produced by rising wages, or rising rates of employment, or just sentiment making people happy to pay a larger fraction of their salary for houses. But it can't in my opinion (and I'd love to have somebody correct me if I'm wrong) be produced by a steady low interest rate. Think about it. Imagine wages, employment, sentiment are all steady, but interest rates are low and steady. Where is the driver for people to spend more money per month on mortgages? Interest rates aren't producing one, because we are assuming they are steady, and have been for some time.

Share this post


Link to post
Share on other sites

I broadly agree with what you say there. So what you are basically saying is that with things as they are, you see people continuing to borrow the currently inflated sums. But my point, which I was making in rather a sledgehammer way, was that while it is possible to argue that low but steady rates produce no particular change in affordability, they don't in my opinion produce any upward force on prices.

I am amazed how often I hear the notion expressed that "low rates = rising prices". How? Once the price has adjusted to match the current rate, then after that any further change in price must surely be produced by something else, other than the low rate. It could be produced by rising wages, or rising rates of employment, or just sentiment making people happy to pay a larger fraction of their salary for houses. But it can't in my opinion (and I'd love to have somebody correct me if I'm wrong) be produced by a steady low interest rate. Think about it. Imagine wages, employment, sentiment are all steady, but interest rates are low and steady. Where is the driver for people to spend more money per month on mortgages? Interest rates aren't producing one, because we are assuming they are steady, and have been for some time.

I completely agree.

And that is why we are seeing flat/small rises/small falls.

Something will have to give at some point.

IMHO it will happen in one of three ways:

1) Interest rates rise thus reducing the affordability

2) Unemployment edges up causing a change in sentiment causing people to really look at affordability

3) Repossessions/Bankruptcies continue their climb and dent sentiment in the same way.

It all boils down to whether people will be beaten down by increasing IRs, or whether the sentiment will change before then due to other factors.

Share this post


Link to post
Share on other sites

I broadly agree with what you say there. So what you are basically saying is that with things as they are, you see people continuing to borrow the currently inflated sums. But my point, which I was making in rather a sledgehammer way, was that while it is possible to argue that low but steady rates produce no particular change in affordability, they don't in my opinion produce any upward force on prices.

There are too many regional and national variations to take into account any blanket statements on the housing market.

If an area has access to high paying jobs, good schools and excellent infrastructure and a limited housing supply, prices will continue to rise as long as lenders are willing to dish out the cash and mugs, borrowers are wiling or able to borrow!

I can see a 2 tier housing market in the regions I am familiar with already where good areas continue to increase in price and others are already dipping.

The only remendy is turning off the cash supply or raising the cost of borrowing.

Share this post


Link to post
Share on other sites

There are too many regional and national variations to take into account any blanket statements on the housing market.

I agree with that too. I think the reality is that it is very difficult to make blanket statements on the housing market. Like, for example, the statement that because interest rates are low, prices will go on rising.

Taken on it's own, that makes no sense to me. So lets get clear about what we are talking about. Are we talking about the effect of a single factor, and in particular picking out the single factor which trumps all others. Because saying "while interest rates stay low, prices will continue rising" looks very much to me like a statement not only of the effect of a single factor (interest rates), but in the context of being an implicit statement that this is the trumping factor, and so if you like, the only one that ultimately decides anything.

But as I showed above, it is very difficult (impossible in my view) to come up with an argument as to how when discussing the single factor of interest rates, that a steady low rate produces a continuous, unending upward force on prices (which is what "prices will continue to rise" means).

So not only do I disagree with the notion that low but steady interest rates when considered in isolation produce a continuous upward force on prices, but I also agree with what you seem to be saying above that it is impossible to pick out one single trumping factor that outweighs all others and so is the determinant.

I think the true picture is that there are lots of forces at work, but at the moment interest rates are not one of them, because they are steady, and have been broadly steady for a while. So we are left to consider what the net effect of all the other forces is. As you say, that varies depending on where you are, but I reckon that the net force is roughly zero, which is why we have prices with roughly zero change. And I would add that the current flurry of expectation of a rise coming out of nowhere, with headlines like "up 2% in a month" (implying smugly an annual rise of 24%) are to be taken with a large pinch of salt, because there are NO obvious upward forces on prices in my opinion (and if there are I'd love to have them pointed out to me, and I would stand corrected). So, I argue once again, in the absence of real news of real upward forces on prices, papers and VIs continue to turn out the argument "low interest rates" as an upward driver. But we've just been through that.......

Edited by Levy process

Share this post


Link to post
Share on other sites

Can you explain why a fixed but low interest rate leads to a mechanism in which prices continue to rise without limit. Note, your answer can't refer to wage growth or unemployment rates, because your statement mentions only rates as the deciding factor. So you have to assume constant employment rate and constant wages in your solution.

I await your response....

Well it is actually quite simple. Not everyone has yet taken on more debt.

If you buy a house for 100k with a 50k mortgage. Sit tight and 5 years later house is now priced at £200k. There is a bubble going on that you have had nothing to do with yet.

Now you decide to join in and borrow some more to move up. So you borrow another 50k and now have a 100k morgage which, for the sake of this example, we will say hurts a bit.

So, you now stay out of the market for a long time.

Your next door neighbour has been in his house 10 years and his mortgage now seems quite small to him. IRs have dropped over those 10 years and suddenly, sticking another whatever on the mortgage is not so frightening - so he sells and buys at the current market prices etc etc.

Not everyone is 'borrowed out' yet and as long as some people are still prepared to increase their borrowing and, as long as there are enough BTL nutters and FTBs getting 50k deposits from Ma and Pa - this market will stagger on.

Only credit tightening is going to stop this.

I wouldn't say prices will rise without limit - one day they will have to stop - I think that day is at hand - but not everywhere in the country.

The proof that this does and can happen i.e. has happened - must surely be the West Country. House prices there are probably more out of line with fundamentals than anywhere in the country - yet the market staggers on.

Share this post


Link to post
Share on other sites

I agree with that too. I think the reality is that it is very difficult to make blanket statements on the housing market. Like, for example, the statement that because interest rates are low, prices will go on rising.

Taken on it's own, that makes no sense to me. So lets get clear about what we are talking about. Are we talking about the effect of a single factor, and in particular picking out the single factor which trumps all others. Because saying "while interest rates stay low, prices will continue rising" looks very much to me like a statement not only of the effect of a single factor (interest rates), but in the context of being an implicit statement that this is the trumping factor, and so if you like, the only one that ultimately decides anything.

For me there is no single factor that can be held up as the DEFFINITIVE reason for HPI. However I believe that two of the biggest drivers are:

1. The Lax lending criteria

2.Low cost of borrowing

Until these areas are tackled I believe HPI will continue in areas that show the scarcity I was highlighting in my previous post.

There is already evidence of credit tightening, bad debts and increasing reposessions.

There is also evidence of a upward trend in interest rates on a global level

So lets just wait and see.

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...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 336 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.