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

Property As A Recursive Ponzi Scheme

Recommended Posts

In a normal Ponzi scheme those at the top benefit to the exclusion of those at the bottom and the scheme eventually collapses.

However, in the Property Ponzi scheme, those at the top are not immortal and tend to reinvest in the Ponzi scheme through MEWing to get their FTB offspring on the ladder or simply by dying and passing on the property and its equity.

Add in BTLers and the Ponzi scheme will run for ever.

There will always be demand at the bottom, regardless of price /earnings ratio. BTL's will fill the gap of those FTBs who havent been lucky enough to receive their asset transfer yet.

So affordability is a nonsense as long as the recursive nature of the scheme is continued.

House prices may rise for years to come until those at the top of the scheme decide to end the recursion.

I welcome your views..... ;)

Share this post


Link to post
Share on other sites

So many of the factors that allowed this state of affairs to exist are coming to an end and most people will admit that.Affordability is now stretched to the very limit if not beyond.The lowest interest rates in living memory are now looking to be under threat from either inflation that the mpc is ignoring or inflation that has not fed through yet.We are all getting a lot poorer outside of property year on year because the true cost of living is not being seen in wage rises

All around the world countries are tightening up their fiscal policies by raising interest rates including japan and the u.s.The clock is ticking on cheap money which has been the driving force behind this asset fiasco and with the tighter restrictions that will follow money will be shed from the overpriced bubbles that have happened not just here but abroad too.

If you have embraced the conviction that high house prices are here to stay you must also acknowledge that those same high asset prices will strangle any future growth in our consumer spending based economies.In an economy where the cost of living is not reflected realistically in average wages anymore where else is the pressure going to be let off other than in an already widely acknowledged overpriced housing market.

Share this post


Link to post
Share on other sites

Interesting idea. However the ponzi scam cannot run forever as even with people diligently paying off more and more mortgages, the banks continue to take greater ownership of the housing stock as they throw more freshly-created money at it. In the 60s only 15% or so of the housing stock was mortgaged, by the 90s it was 40% and rising.

If, say, my parents MEWed £40k and gave it to us, we'd still be miles worse off than if house prices had simply moved with official inflation from 1999 onwards. We'd still need a bigger mortgage and therefore the bank would take a large share of ownership of our house than otherwise.

The same would be true if someone's parents died and split the proceeds of a houise sale between more than one sibling - there sheer weight of new money dumped on the housing market would STILL require them to take a large mortgage to aquire their own place.

Additionally, why would BTLs keep buying? If FTBs can be priced out of home ownership, then so can BTLs be priced out of a decent yield. So that's a non-starter and cannot keep the ponzi scheme going.

What DOES slow down, but not make perpetual, the ponzi scheme is the relative ease the over-indebted can remortgage (and remortgage again) to give themselves more breathing space. This elongates the process until eventually lots of middle-aged folks realise they'll be elderly before they've paid off their debts.

Share this post


Link to post
Share on other sites

I eventually lots of middle-aged folks realise they'll be elderly before they've paid off their debts.

Going slightly off topic, I think there is a good case to argue that there is no point in working hard to pay the mortgage off, because Gordy will only steal a huge chunk of the capital anyway. So live the high life now and don't leave anything for the thief from no 11.

Probably.

Share this post


Link to post
Share on other sites

PyramidSchemeMS.jpg

Run forever?

Naive fools often reinvest their ill-gotten gains back into the pyramid scheme, this isn't unique to property, if they've been lucky enough to get something for nothing they kid themselves with another throw of the dice.

Share this post


Link to post
Share on other sites

In a normal Ponzi scheme those at the top benefit to the exclusion of those at the bottom and the scheme eventually collapses.

However, in the Property Ponzi scheme, those at the top are not immortal and tend to reinvest in the Ponzi scheme through MEWing to get their FTB offspring on the ladder or simply by dying and passing on the property and its equity.

Add in BTLers and the Ponzi scheme will run for ever.

There will always be demand at the bottom, regardless of price /earnings ratio. BTL's will fill the gap of those FTBs who havent been lucky enough to receive their asset transfer yet.

So affordability is a nonsense as long as the recursive nature of the scheme is continued.

House prices may rise for years to come until those at the top of the scheme decide to end the recursion.

I welcome your views..... ;)

I dont think so - BTL will run out of money (the ones late to join the scheme are already struggling) there are some very naive late BTL that think that the gains of the last five years will continue - they don't even think about how this is feasable - they are currently happy that they are losing money each year on their rented property because of the huge amount of capital gains they are making - they will eventually run out of money - disposable income - remortgage re previous gains - to be able to continue with their repayments and then the game will be up.

Share this post


Link to post
Share on other sites

houseing is a classic speculative bubble rather than a full on ponzi scheme.

A bubble. A bubble does rely on suspension of disbelief and an expectation of large profits. But it's not the same as a ponzi scheme. Why not? A bubble involves ever-rising (and unsustainable) prices in an open market (be that shares of a stock, housing prices, the price of tulip bulbs, or whatever). As long as buyers are willing to pay ever-increasing prices, sellers can get out with a profit. And there doesn't need to be a schemer behind a bubble. (In fact, a bubble can arise without any fraud at all - for example, housing prices in a local market that rise sharply but eventually drop sharply because of overbuilding.)

some people in my place of work recently have become involved in a classic ponzi scheme.

works like this

person starts of by investing a sum of money: this money is then depositied in some internet bank account (presumably offshore somewhere)

then every day the person does something like running some internet advertising program or something. this results in them getting "Paid" 12% interest on thier capital per day. (this interest presumably comes strait out of the internet banking account) evidently the scheme has a fixed lifespan but it could be many days.

I tried explaining to them that this was a scam, but they still seemed eager to participate.

you can lead a horse to water...

Share this post


Link to post
Share on other sites

In the natural scheme of things the FTB would ususally go on to buy another larger more expensive property in due course using any equity gained as a deposit against the second property. However, it is unlikely that BTL will substantially take up the demand of this second tier of property. Hench the chain will eventually grind to a halt and prices will fall to match supply with demand. However, this may be a slow process.

Share this post


Link to post
Share on other sites

In the natural scheme of things the FTB would ususally go on to buy another larger more expensive property in due course using any equity gained as a deposit against the second property. However, it is unlikely that BTL will substantially take up the demand of this second tier of property. Hench the chain will eventually grind to a halt and prices will fall to match supply with demand. However, this may be a slow process.

Spot on...

I think the pressure of lowering prices will come from the more expensive family homes further up the ladder. The situation there is stalmate at the moment.

Share this post


Link to post
Share on other sites

The other aspect of the BTL is that the banks have already run out of the risk category of borrowers that they have historically demanded. They are now cutting the level of rental income to morgage repayments and the amount of deposit to borrowings, suggesting that they are seriously strapped for borrowers.

What happens when the next level of borrowers runs out? (which will probably be far quicker than the first since after the first 30% incomes go down rapidly and sharply. Hence less room to save/invest.

They are also clearly run out of borrowers in the domestic market, and sustainable price rises on which to make MEW morgages, hence the 125% morgage (really terrible risk strategy). They have hit the hard wall of absolute surplus income to spend on morgage. We have reached the zenith of the pyramid.

Share this post


Link to post
Share on other sites

They are also clearly run out of borrowers in the domestic market, and sustainable price rises on which to make MEW morgages, hence the 125% morgage (really terrible risk strategy). They have hit the hard wall of absolute surplus income to spend on morgage. We have reached the zenith of the pyramid.

They could either 1. lend to illegals, as they do in the US or 2. start buying up housing stock to buoy the market, as HBOS has just done, as are many other institutions through new residential property trusts (expect Gordy to introduce formal REIT's in a couple of weeks).

Share this post


Link to post
Share on other sites

Longer term don't underestimate the nature of demographics. Europe is dying, literally and between 2025 and 2040/50 the number of those able to support the scheme will be dwindling (at the same time as their obligations to support (via taxes) the previous generations with increased longevity is increasing). Its far away yes but getting closer all the time.

One day people will wake up to this.

Share this post


Link to post
Share on other sites

PyramidSchemeMS.jpg

Run forever?

Naive fools often reinvest their ill-gotten gains back into the pyramid scheme, this isn't unique to property, if they've been lucky enough to get something for nothing they kid themselves with another throw of the dice.

A pyramid scheme is somewhat related but not the same as a ponzi scheme, relying as it does on a disbelief in financial reality, including the hope of an extremely high rate of return. Why are the two not the same? Here are three reasons: In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly (in fact, failure to recruit typically means NO investment return). And a pyramid scheme is bound to collapse a lot faster, simply because of the demand for exponential increases in participants to sustain it (ponzi schemes can survive simply by getting most participants to "reinvest" their money, with a relatively small number of new participants).

Share this post


Link to post
Share on other sites

Longer term don't underestimate the nature of demographics. Europe is dying, literally and between 2025 and 2040/50 the number of those able to support the scheme will be dwindling (at the same time as their obligations to support (via taxes) the previous generations with increased longevity is increasing). Its far away yes but getting closer all the time.

One day people will wake up to this.

A politics lecturer told me recently that the demographic timebomb should not be an issue providing governments are "sensible about immigration policy", i.e. increase immigration to plug the holes in the demographics.

I have no solid views on immigration, and don't want to trigger the influx of the usual suspects to this thread.

From a logical point of view, are there enough high quality immigrants available to make this feasible in europe as a whole? By "high quality" I am referring to people from other nations who have the ability to contribute successfully to Europe's economy. To be of reasonable benefit to the economy, they will require language skills, basic education, work ethic, and crucially, the desire to settle in europe permanently.

Are they out there?

Share this post


Link to post
Share on other sites

A politics lecturer told me recently that the demographic timebomb should not be an issue providing governments are "sensible about immigration policy", i.e. increase immigration to plug the holes in the demographics.

God bless our immortal Polish migrants, they work hard and never grow old (if they do then it actually makes the problem worse).

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.

  • 301 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.