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RichM

Hpc Myths

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Obviously a lot of work has gone into improving the site of late. One problem causing concern at the moment is the repitition of threads.

I wonder if it would be helpful to have a "HPC myths" section added to the FAQ page of the site, so as to reduce the degree of repitition? That way nonsense posters could be referred to the appropriate "myth".

I'll start:

Myth number 1: Interest rates need to be sky high for a HPC to occur.

In Japan interest rates rose to 6% at the beginning of the 1990s. This precipitated a house price crash that continued for over a decade. When debts are high and credit has become the basis of the economy, small increases in interest rates can have a big effect.

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Myth Number 2.

Low interest rates increase affordability for hard pressed FTB and also allow the low paid to get onto the first rung of the property ladder and therefore the country and the property market needs lower rates now!

All the ‘artificially low interest rates over the last 5 years have achieved is to suck millions of people into borrowing sums of money which are incompatible with their earning capacity. This has left them a hostage to Global Economic forces that they don’t understand and that their elected government and lender have no influence over.

Pablo Silver or Lead?

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Guest consa

Here you go, it will need translating to the UK version though

"A rental house provides good income."

FALSE. Rental houses provide very poor income in the Bay Area and certainly cannot cover mortgage payments. A $1,000,000 house can be rented out for 25K maximum per year after expenses. The return is therefore 2.5% with zero liquidity and a huge risk of loss.

If you actually have a million dollars, you can get 4.5% with no risk, no work, and no state income tax by buying a US Treasury Bond. And your money will be liquid and secure.

"OK, owning is a loss in monthly cash flow, but appreciation will make up for it."

FALSE. Appreciation is negative. Prices are going down, which just adds insult to the monthly injury of crushing mortgage payments.

"House prices don't fall to zero like stock prices, so it's safer to invest in real estate."

FALSE. House prices do not fall to zero, but the value of your equity in a house can easily fall to zero, and then way past zero into the red. Even a fall of only 10% completely wipes out everyone who has only 10% equity in their house. This means that house price crashes are actually worse than stock crashes. Most people have most of their money in their house, and that money is highly leveraged.

"We know it will be a soft landing, since it says so in the papers."

FALSE. Prices could fall off a cliff. No one knows exactly what will happen, but the risk of an massive crash in prices is severe. As Yale professor Robert Shiller has pointed out, this housing bubble is the biggest bubble in history, ever. Predictions of a "soft landing" are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

Most newspaper articles on housing are not news at all. They are advertisements that are disguised to look like news. They quote heavily from people like Realtors®, whose income depends on separating you from your money. Their purpose is not to inform, but rather to get you to buy.

"If you buy, at least you have a house, but if you rent, you end up with nothing."

FALSE. Renters in the Bay Area end up with much more money, while living in the same quality house as an owner. At the end of 30 years, a renter would have enough principal saved to buy the $700K house mentioned above and would have spent $162,846 less on rent than he would have spent in interest payments. And he would have lived in an equivalent house all that time. Owners frequently end up with nothing because they lose the house to foreclosure.

"Prices have been driven by supply and demand."

FALSE. Supply is increasing rapidly as building continues, and demand is falling as the population of the Bay Area decreases and the salaries of those who remain decreases. Prices have been driven by low interest rates and increasingly risky loans. The dramatic drop in rents and widespread rental vacancies prove that demand for housing is actually much lower now than a few years ago.

The www.census.gov site has data for Santa Clara County for the years 2000-2003 which shows that the number of housing units went up at the same time that the population decreased:

year units people

2000 580868 / 1686474 = 0.344 housing units per person

2001 587013 / 1692299 = 0.346

2002 592494 / 1677426 = 0.353

2003 596526 / 1678421 = 0.355

So housing supply in Santa Clara County increased 3% per person during those years. There is an oversupply compared to a few years ago. In a sane market, prices should fall 3% to compensate for the extra supply of housing.

At a national level, there is a similar story in the years 2000 to 2005:

2000 115.9M / 281M = 0.412 housing units per person

2005 124.6M / 295M = 0.422

At a national level, there is 2.4% more housing per person now than in 2000. So national prices should have fallen as well.

Banks caculated that risky loans were offset by rising prices, allowing them to recover their money from bad borrowers through foreclosure. Now that prices are falling, those risky loans cannot be justified. If the borrower does not pay, the sale price of the house will not cover the loan. Banks now have a real incentive to improve lending standards, and that will lower house prices more because fewer people will qualify for loans.

"Nobody is making land."

TRUE, but builders are making houses at a record rate, which is increasing supply dramatically at a time when new houses are not needed. We have the highest rental vacancy rates since the 1950's.

"There's an under-supply of housing. That's why prices will rise."

FALSE. There is a large oversupply of housing. To repeat: builders are making houses at a record rate, which is increasing supply dramatically at a time when new houses are not needed. The Bay Area has the highest rental vacancy rates since the 1950's.

"Population increase will fuel housing price increases."

FALSE. The Bay Area is losing population the fastest of any area in the US right now - worse than Buffalo, worse than Detroit. Immigration won't change this because jobs are emigrating even faster. Rents are falling in part because so many recent immigrants are leaving, with some going back to China because opportunities are so much better there.

Nationally, there is going to be a huge glut of housing as old baby-boomers sell their houses to use the cash for retirement, putting 20% of houses onto the market for that reason alone. An additional 25% of houses are owned by speculators, who will soon sell because they are losing money. Birth rates are declining in all industrialized countries, with the US birth rate barely replacing the citizens who die.

"As a renter, you have no opportunity to build equity."

FALSE. Renters are actually in a better position to build equity because:

Owers are losing every month on a cash flow basis. The tax deduction does not come close to making owning competitive with renting.

Owers are losing principal in a leveraged way as prices decline. A 20% decline completely wipes out all the equity of "owners" who actually own only 20% of their house.

Owers must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity. Only houses are such a guaranteed drain on cash.

Owers must insure a house, but not most other investments.

Owers must pay to repair a house, but not a stock or a bond.

"If you rent you are a buyer. You are just buying it for someone else."

FALSE. It may be true that rent covers mortgage payments in other places, but not in the Bay Area. No one buys with the intention to rent out in the Bay Area because that's not viable. The owner is generously subsidizing the renter, a wonderful thing for renters during this crash.

"If you don't own, you'll live in a dump in a bad neighborhood."

FALSE. For the any given monthly payment, you can rent a far better house than you can buy. Renters live better, not worse. All the best neighborhoods have rental vacancies. There are downsides to renting, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash.

You may worry about being forced to move, but the law says the landlord has to offer you a one year lease at a minimum, and they'll probably be delighted to offer you a two year lease and give you a discount for that. Other people want the mobility that renting affords. Renters can usually get out of a lease and move anywhere they want within one month, with no real estate commission.

It is far easier and cheaper to rent a house in a good school district in the Bay Area than to buy a house in the same place.

The biggest upside is hardly ever mentioned: renters can choose a short commute by living very close to work or to the train line. An extra two hours every day of free time not wasted commuting is the best bonus you can ever get.

"Owners can change their houses to suit their tastes."

FALSE. Even single family detached housing is often restricted by CC&Rs and House Owner's Associations (HOAs). Imagine having to get the approval of some picky neighbor on the "Architectural Review Board" every time you want to change the color of your trim. Yet that's how most houses are sold these days.

In California, the HOA can and will foreclose on your house without a judicial hearing. They can fine you $100/day for leaving your garage door open, and then take your house away if you refuse to pay. There's a good HOA blog here.

"People buy a house for the long term, so things can't crash quickly."

FALSE. People are now buying houses for the very short term. This is how they justify interest-only adjustable mortgages to themselves. The thinking is, "I will own this just long enough to make a profit, maybe a year or two, so there's no need to get a long term loan at a higher interest rate." The distinction between the long-term owner and the short-term flipper has gone away.

"If and when the market goes south, you can walk away."

FALSE. If you have a single loan with just the house as collateral, it may be a "non-recourse" loan, meaning you could indeed walk and not lose anything other than your house and any equity in it (along with your credit record). But if you refinance or take a "home equity loan", the new loan is probably a recourse loan, and the bank can get very aggressive, not to mention what the IRS can do. A reader who lived through the 1989 housing crash in LA pointed out the following nasty situation that can happen:

Let's say you buy a house for $600,000, with a $500,000 mortgage.

Then the house drops in value to $400,000, you lose your job, or otherwise must move.

If you can't make your payments, the bank forecloses on you and nets $350,000 on the sale of your house.

The bank's $150,000 loss on the mortgage is "forgiveness of debt" in the eyes of the IRS, and effectively becomes $150,000 of reportable income you must pay tax on.

It is true that buyers who put zero down and have nothing invested in the house are much more likely to walk away. The large number of new uninvested buyers increases the risk of a horrifying crash in prices rather than a "soft landing".

"The house down the street sold for 25% over asking, and that proves the market is still hot."

FALSE. Realtors® try to create the false impression of a hot market by deliberately "underpricing" a house. Say a seller's agent knows that house will probably go for $500,000. He places ads asking $400,000 instead. (Bait-and-switch is illegal when selling appliances, but apparently not when selling houses.) The goal is to first of all prevent buyers from knowing what a realistic price is, and secondly to get buyers to blindly bid against each other. There are four players in this game and three of them are against the buyer: the seller, the seller's agent, and the buyer's agent. Yes, the buyer's own agent works against the buyer, because there is no commission if there is no sale. There's a saying in Las Vegas: "There's a patsy in every game, and if you don't know who the patsy is, you're it."

If you want to prove your agent is not on your side, ask to see houses "for sale by owner" or houses listed by discount brokers.

"I was lucky that my Realtor® told me to increase my bid by $100,000. Otherwise I would have lost, because my Realtor® knew about a secret bid $90,000 above mine."

FALSE. Your agent gets paid nothing if you don't buy the house, and he gets more if you waste more money by bidding too high. Those are two big motives to invent false bids.

"The MLS proves things are great."

FALSE. All sorts of funny things happen in the MLS (Multiple Listing Service, a private database controlled by real estate agents). For example, if a house just doesn't sell, Realtors® can remove its record in the MLS so that you cannot see that it failed to sell. Then the house comes back on the market at a lower price, and unsuspecting buyers think it's on the market for the first time. Their Realtor® can "prove" it's a new listing by showing the MLS record to the buyer: "See, here's the listing date, just came on the market. Better hurry and buy it, this one is hot."

There is nobody checking that the MLS shows true selling prices. The MLS prices are often just wrong.

Furthermore, the MLS will not list any house for sale by owner or for sale through a discount broker, except perhaps those listed by Help u Sell. Those cheaper prices are just not in the system, because if you save money, they lose money.

"The Bay Area is a special place that will always be expensive."

TRUE, but it was just as special ten years ago, so that does not account for the current housing bubble. Even at half of current prices, it will still be expensive.

Many people are confused about the difference between high prices and increasing prices. Prices are high, but they are not increasing. They are falling. This makes housing a bad investment.

"There's always someone predicting a Bay Area real estate crash."

TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

"But housing was high when interest rates were 21%."

FALSE. Inflation was much higher then, so fixed debt was easier to pay off with increasing salaries. Now we have stagnant salaries and adjustible mortgages.

House price increases exactly mirror the increase in mortgage debt. According to the Washington Times: "Consumers have doubled their mortgage debt from $3.5 trillion to $7 trillion since 1996, borrowing and spending profusely on the assumption that house prices will keep rising." So the increase in house prices is not backed by assets. It's backed by debt. The debt in turn is backed by the houses. It's just smoke and mirrors.

"My dad made money on his house, and it will work for me too."

FALSE. Your dad bought his house when houses were cheap compared to salaries, maybe 3 or 4 times annual salaries. Go ask him. Things are different now. Here is a chart of median house price vs median income in Palo Alto:

Year Median House Price Median Income Multiple

1980 148900 24743 6.0

1990 457800 55333 8.3

2000 910000 90377 10.0

Most bankers use a multiple of 3 as a "safe" price to income ratio. We are well beyond the danger zone, into the twilight zone. Another rule of thumb is that a fair house price is between 100 and 200 times the monthly rent. If a house rents for $2000 per month, then a fair price is from $200,000 to $400,000.

"The government will make sure housing prices don't fall, because all the powerful people in the government have houses and want to keep values up."

FALSE. There have been many local crashes, and the government can't stop them. Nor would they necessarily want to; the current Republican administration would probably be happy to see blue states like California, New York, and Massachusetts crash and burn, and those states are where the worst bubbles are.

"Look, housing continued to rise after the dot-com crash, so it will always rise."

FALSE, consider the turkey in the farmer's barnyard. He thinks the farmer will always come feed him and not ask for anything. Then Thanksgiving comes. Whack. Past performance is no indication of future results.

"Rent can go up, but a 30-year fixed mortgage payment cannot."

TRUE, but irrelevant. House owners lose even with a fixed mortgage, because the price of a house falls as interest rates go up. Most people want to sell within 7 years of moving in, and many have to sell because of job loss, illness, or divorce. No one can afford what the owner paid for it, so the owner has to take a large loss. Renting it out will not come close to covering the mortgage. Bay Area rents have fallen 23% in the last 4 years.

"You have to live somewhere."

TRUE, but that doesn't mean you should waste your life savings on a bad investment. You can live in the same kind of house by renting during the crash. A renter could save hundreds of thousands of dollars, not only by paying less every month, but by avoiding the devastating loss of his downpayment. In fact, it's currently cheaper to live in a nice hotel in most parts of the US than it is to make mortgage payments in the Bay Area.

"Newspaper articles prove prices are going up."

FALSE. The numbers in the papers are not complete and have murky origins. Those prices are "estimated" from the county transfer tax and making that tax public record is optional. A buyer who does not want you to see how little he paid has only to ask to put the transfer tax on the back of the deed and it will not show up on computer searches of the deed, which show only the front. Others voluntarily pay more tax than they have to, in order to inflate the apparent price to fool the next buyer. At a tax rate of about $1 per thousand of sale price, as in San Mateo county, you have to pay only $100 extra tax to make your purchase price look $100,000 higher. Another common occurrence is for the buyer to get a large cash payment back from the seller. So the house price looks high in the paper, but in reality the buyer got a huge rebate.

Even though you can in theory go to your county building and get sale price information, in reality the county will give it to you in a painfully slow and inconvenient way. For example, in Redwood City's county building there are PC's where you can look at data for any particular house, but you cannot print, you cannot save to a floppy disk, you cannot email data out. All you can do is write things down manually, one at a time. And that's how real estate interests like it. Your elected representatives are serving them, not you. Please vote against County Clerk Warren Slocum in San Mateo County unless he fixes the Redwood City computers to allow you to save data.

"My appraisal proves what my house is worth."

FALSE. "An appraisal in its typical residential real estate form is little more than a comparative analysis conducted by someone with no skin in the game offering confirmation that other lemmings are paying too much for their houses as well." -from an article on morningstar.com

Anyway, as transaction volumes decline, the first few low sales will have a large and sudden impact on appraisals.

"If one house sells for a million dollars, a million houses are worth a trillion dollars!"

FALSE. If all of those million houses were all on the market they would sell for far less. Less than 5% of all existing houses were sold last year. The other 95% are merely assuming they can get the same prices.

"It's not a house, it's a home."

FALSE. It's a house. Wherever one lives is home, be it apartment, condo, or house. Calling a house a "home" is a manipulation of your emotions for profit.

Also, Realtor® is a commercial term, not a real word. Note the "®" symbol.

"If you don't buy now, you'll never get another chance."

FALSE. This argument was also popular more than a century ago in 1889 in Los Angeles, just before a huge crash. There are always sellers and there are always buyers. Prices are always corrected when they get beyond what buyers can pay. In fact, they're being corrected right now.

"Property in the Bay Area is a luxury good, and so will be less affected by economic downturns."

FALSE. 82% of last year's Bay Area mortgages were ARMs, and ARM loans are not taken out by the rich. People on the border of bankruptcy take out ARMs because they can't afford fixed rate loans. The rich don't have loans at all.

"Housing will be permanently higher since downpayments are now obsolete."

FALSE. The first big wave of default will cause downpayments to suddenly seem like a good idea again. Lending standards are already improving.

"House ownership is at a record high, proving things are affordable."

FALSE. The percentage of their house that most Americans actually own is at a record low, not a high. We do have a record number of people who have title to a house because they have dangerous levels of mortgage debt, but that is no cause to celebrate.

"Long term rates are still at historic lows!"

TRUE, but irrelevant. Most new mortgages and refinancings are now short term, and those will definitely be affected by rising short term rates.

"The limited land in the Bay Area means prices will always go up."

FALSE. Japan has a very severe land shortage, but that hasn't stopped prices from falling for 14 years straight. Prices there are now at the same level they were 23 years ago. If we really had a housing shortage, rents would be going up, but they're going down instead.

"It would take another 911 terrorist attack or a major earthquake that wipes out this area in order for the price to fall by 50%."

FALSE. Even with a 50% decline in prices to $350,000 or so, the median price in the Bay Area will still be roughly double the median price in most of America, and the median Bay Area household income of about $70,000 will still not be sufficient to buy a house. So a 50% decline is well justified by the fundamentals.

"Housing is an excellent hedge against inflation, so you should buy now anyway."

FALSE. Interest rates go up with inflation, and higher interest will be the last straw for ARM mortgages in the Bay Area. Their defaults and foreclosures will drive down the cost of housing for everyone else around here. Remember that 82% of recent Bay Area mortgages were adjustable. There is little chance that salaries of ARM owners can keep up with inflation because of two billion people in India and China who would be happy to do their jobs for much less money.

"Houses always increase in value in the long run."

FALSE. House values are actually constant. Adjusted for inflation, prices in Holland, for example, rose less than one quarter of one percent annually in the 350 years since their tulip bubble. Warren Buffett and Charles Schwab have both pointed out that houses don't produce anything. They do not increase in intrinsic value. Unless there's a bubble, house prices simply reflect current salaries and interest rates. Consider a 100 year old house. Its value in sheltering you is exactly the same as it was 100 years ago. It did not increase in value at all. It did not spontaneously get bigger, or renovate itself. Quite the opposite - it drained cash from its owners for 100 years of maintenance and taxes. Its price went up about as much as salaries went up.

My grandmother always used to complain about the cost of milk. "Why, when I was a girl, a gallon of milk cost a dime! Just look at how much people are overcharging for milk now." I asked her how much people got paid back then. "Oh, about $15 a week", came the reply. Hmmm, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that average salaries rose a similar amount.

"Maybe we should just accept that we missed out on a great opportunity to get into the real estate in the past N years."

FALSE. Did we all miss out on a great opportunity to get into the stock of pets.com or other Internet companies with no business model? The question is what is likely to happen in the next few years according to fundamental economics. The last guy to buy into the bubble will get hurt the most.

"I just want to own my own house."

TRUE, most people do and that's fine. Buyers will get their chance when housing costs half as much and they have saved a fortune by renting. House ownership is great - unless you ruin your life paying for it.

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It would be more "intellectually honest" to include arguments both pro and con, and to not label them myths. If people are confident that the HPC is the true one then HPC should benefit from showing both sides. If only one side of the argument is given, then readers might read them, talk to their local EA and get counter arguments from them. If counter-arguments are anticipated, described, and deconstructed, then that is far more effective than just giving one side of the argument.

An example is whether BTL is a good investment. I think that it would be more effective here to talk about yields, say what sort of fields are are considered necessary for a good net return, then describe how people can work out yields in their, or any, area to see to what degree the worth of a BTL investment in their area depends on capital appreciation. Just talking about a 2.5% yield in some case is IMHO likely to be ineffective if they can go to their local EA and be told that the gross yield on a property is 5.2%, better than what you'd get on a long term deposit. Pointing out to people the various costs involved in renting properties, the potential pitfalls such as the councils advising tenants who cannot pay the rent to sit tight until they are evicted, a lengthy process, giving references such as to Alvin Hall's book where he recommends calculating yields on 10 months rent a year, etc.

And I think an important point is to point out the BBC site and others that gives house price rises and falls for local areas in the UK. I think part of the public's perception that house prices can only go up is due to averaging of prices over the whole country. So parts of the country still booming can mask falls elsewhere. An example being falls in Brighton, and falls in the price of detached houses in Sevenoaks. Listing the references to sites where this information can be found would IMHO be very effective as many people in many areas would be shocked out of their "property prices went up 3.7% nationwide, so my property is worth more than it used to be." delusions.

An important point that should, IMHO, be researched further and included in any such "myths" document is the evidence someone found the other week that while the (if I recall correctly) actual sale prices have flattened, some of the other methods of calculating house prices have kept on going up. And of course the problems with other indicies such as "asking price" indicies. Otherwise many people probably just hear "average price of a house in the UK is 200K" on the radio or TV and just believe it.

Finally the most effective arguments I've ever seen are often those that are relatively subtle about pushing their point, but which give the reader the tools to go away and confirm the information by themselves. So full references should be there, instructions on how to calculate yield. How to watch for properties sticking on the market.

Billy Shears

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Myth No 3. Property is different from other assets.

This is a major myth, which I believe has clouded the judgement of many property bulls. Prices can't crash because IR rates won't rise. Prices can't crash because repayments are affordable. What they don't seem to understand is that the price of an asset is dictated by a small percentage of its holders. If 1-2% of the holders of a share decide they want out, the share price will, in the first instance, fall by 5-20%. This fall will in turn trigger more sells. And once those waiting one the side-lines realise the share price is falling they will be less inclinced to buy. On the stock market this can happen in five minutes, in the property market it might take a year to two to play out.

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Myth No 3. Property is different from other assets.

This is a major myth, which I believe has clouded the judgement of many property bulls. Prices can't crash because IR rates won't rise. Prices can't crash because repayments are affordable. What they don't seem to understand is that the price of an asset is dictated by a small percentage of its holders. If 1-2% of the holders of a share decide they want out, the share price will, in the first instance, fall by 5-20%. This fall will in turn trigger more sells. And once those waiting one the side-lines realise the share price is falling they will be less inclinced to buy. On the stock market this can happen in five minutes, in the property market it might take a year to two to play out.

With all due respect to Scipio_Africanus, this is the kind of answer that I think needs to be strengthed to be convincing. And it needs to be convincing to prevent the question reappearing in the main forum with regularity. An example of making this stronger would be to give examples of where this happened in recent years. E.g. take a few villages or cities where only a small proportion of the homeowners sold during the last crash, but the value of the property went down. Since nethouseprices doesn't go back that far, it could be done by concentrating on an area where prices have dropped recently. There were claims of 10% drops in brighton. If so then the number of houses sold and the drops in value would make a good example that readers could verify by researching themselves.

Billy Shears

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With all due respect to Scipio_Africanus, this is the kind of answer that I think needs to be strengthed to be convincing. And it needs to be convincing to prevent the question reappearing in the main forum with regularity. An example of making this stronger would be to give examples of where this happened in recent years. E.g. take a few villages or cities where only a small proportion of the homeowners sold during the last crash, but the value of the property went down. Since nethouseprices doesn't go back that far, it could be done by concentrating on an area where prices have dropped recently. There were claims of 10% drops in brighton. If so then the number of houses sold and the drops in value would make a good example that readers could verify by researching themselves.

Billy Shears

I think the answer is mathematical, though I'm not a mathematician. If an asset is sold, and they're aren't ready buyers at the selling price, its price will fall. You do not need 10% of the holders of an asset to sell to cause a crash. You can do this buy looking at the behaviour of shares on any one day. Presumably most people didn't sell their houses in the late 1980s? But what I'm really saying is that a factor such as low interest rates cannot in itself sustain the housing market. Greed and fear could also play their role. Greed - 1% of holders thinking they can get better returns with a different assert. Fear - those who are over-committed deciding to reduce their holding, because their fear a recession or a crash.

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I think the answer is mathematical, though I'm not a mathematician. If an asset is sold, and they're aren't ready buyers at the selling price, its price will fall. You do not need 10% of the holders of an asset to sell to cause a crash. You can do this buy looking at the behaviour of shares on any one day. Presumably most people didn't sell their houses in the late 1980s? But what I'm really saying is that a factor such as low interest rates cannot in itself sustain the housing market. Greed and fear could also play their role. Greed - 1% of holders thinking they can get better returns with a different assert. Fear - those who are over-committed deciding to reduce their holding, because their fear a recession or a crash.

True, but without real-world examples, readers may think that this is just "academic", and won't affect them. I agree strongly with the point you make, but think that it needs to be "fleshed out" to convince the floating bear/bull observer.

Billy Shears

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Myth number 1: Interest rates need to be sky high for a HPC to occur.

Myth No 4. Vast swathes of owner occupiers are mortgaged up to the hilt from MEWing and are desperately struggling with their mortgages. It's absolute twaddle.

Myth No 5. BTL landlords are selling their portfolios en-masse because they are losing money on rents and are kacking themselves about a mythical house price crash. Twaddle again.

Myth No 6. All debt is bad. It's best to live like a monk, debt free, live off pot-noodles by the light of a silvery 8w low energy light bulb, save every penny, deny yourself any life, gloat over your bank-book. Etc...

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Myth No 4. Vast swathes of owner occupiers are mortgaged up to the hilt from MEWing and are desperately struggling with their mortgages. It's absolute twaddle.

Myth No 5. BTL landlords are selling their portfolios en-masse because they are losing money on rents and are kacking themselves about a mythical house price crash. Twaddle again.

Myth No 6. All debt is bad. It's best to live like a monk, debt free, live off pot-noodles by the light of a silvery 8w low energy light bulb, save every penny, deny yourself any life, gloat over your bank-book. Etc...

this isn't very constructive is it, tw#t

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It would be more "intellectually honest" to include arguments both pro and con, and to not label them myths. If people are confident that the HPC is the true one then HPC should benefit from showing both sides. If only one side of the argument is given, then readers might read them, talk to their local EA and get counter arguments from them. If counter-arguments are anticipated, described, and deconstructed, then that is far more effective than just giving one side of the argument.

Yes, well spotted! – this look like a charter to spin one side of the argument while cleverly stifling debate by labelling it a myth. There is probably at least a whole thread or two worth of “debate” required to get a balanced view on it, but as this is really an invitation to be controversial it might be worth to setting aside a new part of the forum, a sort of myth incubator :D , to develop each “myth” more fully.

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Guest Riser

Obviously a lot of work has gone into improving the site of late. One problem causing concern at the moment is the repitition of threads.

I wonder if it would be helpful to have a "HPC myths" section added to the FAQ page of the site, so as to reduce the degree of repitition? That way nonsense posters could be referred to the appropriate "myth".

I'll start:

Myth number 1: Interest rates need to be sky high for a HPC to occur.

In Japan interest rates rose to 6% at the beginning of the 1990s. This precipitated a house price crash that continued for over a decade. When debts are high and credit has become the basis of the economy, small increases in interest rates can have a big effect.

I think the influence of interest rates varies depending where we are in the cycle, once he crash has built momentum no amount of further cuts will be able to turn it around.

Edited by Riser

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Myth No 4. Vast swathes of owner occupiers are mortgaged up to the hilt from MEWing and are desperately struggling with their mortgages. It's absolute twaddle.

Myth No 5. BTL landlords are selling their portfolios en-masse because they are losing money on rents and are kacking themselves about a mythical house price crash. Twaddle again.

Myth No 6. All debt is bad. It's best to live like a monk, debt free, live off pot-noodles by the light of a silvery 8w low energy light bulb, save every penny, deny yourself any life, gloat over your bank-book. Etc...

Come on Consa let`s not lose our sense of humour, I thought this was funny meself :P I have to chuckle sometimes when folk come on here preaching that they are debt free, as though in some respects that = freedom. When if they could afford it I`d bet they happily take a 300K mortgage on a 2mil gaff tomorrow and have 30K worth of un-secured debt :lol:

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Myth No 4. Vast swathes of owner occupiers are mortgaged up to the hilt from MEWing and are desperately struggling with their mortgages. It's absolute twaddle.

Myth No 5. BTL landlords are selling their portfolios en-masse because they are losing money on rents and are kacking themselves about a mythical house price crash. Twaddle again.

Myth No 6. All debt is bad. It's best to live like a monk, debt free, live off pot-noodles by the light of a silvery 8w low energy light bulb, save every penny, deny yourself any life, gloat over your bank-book. Etc...

Personally I think that this is a very useful post. If HPC is to build a list of "myths" then it might be worthwhile considering the viewpoint of HPC cynics and to carefully consider whether a cynical (not just undecided) observer might view the HPC list of myths as looking as, erm, "unlikely", as the list given by Fanny Magnet.

Billy Shears

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Myth 1 Sentiment will crash the market........ Fact Only hikes in rates can crash the market, or a huge take on disposable income via taxation.

For so long as existing owners can retain the property and make the payment, then its onwards and upwards. 50/50 share deals will perpetuate the boom causing prices to rise this year again for the 10th successive year.

Myth 2 Property Crashed last year.......or....Property Crashed last week............ Fact Property is rising in price, property is selling like hot potatoes.

Myth 3 The Labour Party will never let the market crash.................They dam well will, as they have no control over world economics.

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I thought it might be useful to look for some pages on other topics that list common myths and summarise and criticise common arguments. I thought that the creationism/evolution debate might be a good source of examples to learn from. I was surprised to see that when I try to search on these topics that it seems to be the creationist side that has the largest number of such pages!

From a structure point of view, the following page is not too bad. Though I must point out that I'm a firm believer in evolution. In fact, I'm rather concerned that the following page looks a fairly strong argument if you are not aware of the underlying science. E.g. animals taken by predators are randomly chosen, not the weakest? But the structure is good.

http://www.rae.org/revev8.html

One page I found that might be useful is a reference is this "List of Fallacious Arguments" which talks about types of fallacious arguments. Might be useful perusing it and seeing if any of the current "house prices will never crash" arguments are examples of the known types. In any case I'm going to look through this page carefully as while I am familiar with some of these argument forms, I'm not familiar with all of them.

http://www.don-lindsay-archive.org/skeptic/arguments.html

Billy Shears

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Guest consa

Personally I think that this is a very useful post. If HPC is to build a list of "myths" then it might be worthwhile considering the viewpoint of HPC cynics and to carefully consider whether a cynical (not just undecided) observer might view the HPC list of myths as looking as, erm, "unlikely", as the list given by Fanny Magnet.

If the intention is to try and convince trolls, then we are wasting our time, no matter how you do it they are blind to the reality ie:DENIAL

We just need a basic list which doesn't take up too much time - to give us somewhere to point the trolls to, they will get fed up and Fgo away. also it will be helpful to newbies so as obvious questions will be answered.

Maybe you would like to do it?

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So are you suggesting a comprehensive list of Myths that are in fact falsehoods?.

Who do you think you are kidding, anyone who is not contained within the confines of an iron lung can today for themselves pop out and see that there is no crash, that there is simply no other circumstance that can push the market over other than a raise in interest rates.

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property is selling like hot potatoes.

Since when were hot potatoes a simile for a lucrative commodity?

A hot potato is something nobody wants to deal with!

frugalista

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Well its probably a good one because we do have a strange situation.

Many people are today cashing in by selling their hot potatoes, and others are foolish enough to buy them.

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Guest consa

So are you suggesting a comprehensive list of Myths that are in fact falsehoods?.

Who do you think you are kidding, anyone who is not contained within the confines of an iron lung can today for themselves pop out and see that there is no crash, that there is simply no other circumstance that can push the market over other than a raise in interest rates.

No, the truth

eg:

"The house down the street sold for 25% over asking, and that proves the market is still hot."

FALSE. Estate Agents try to create the false impression of a hot market by deliberately "underpricing" a house. Say a seller's agent knows that house will probably go for £500,000. He places ads asking £400,000 instead. (Bait-and-switch is illegal when selling appliances, but apparently not when selling houses.) The goal is to first of all prevent buyers from knowing what a realistic price is, and secondly to get buyers to blindly bid against each other. There are four players in this game and three of them are against the buyer: the seller, the seller's agent, and the buyer's agent. Yes, the buyer's own agent works against the buyer, because there is no commission if there is no sale. There's a saying in Las Vegas: "There's a patsy in every game, and if you don't know who the patsy is, you're it."

If you want to prove your agent is not on your side, ask to see houses "www.ourproperty.co.uk" that have recently sold.

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Well its probably a good one because we do have a strange situation.

Many people are today cashing in by selling their hot potatoes, and others are foolish enough to buy them.

For the sellers, the house is a hot potato. Buyers probably believe them to be hot cakes. Potatoes and cakes -- so easily confused!

:lol:

frugalista

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Guest muttley
Fact Only hikes in rates can crash the market, or a huge take on disposable income via taxation.

Unemployment? Deflation?

property is selling like hot potatoes

You've put your finger on the nail there!! :blink:

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If the intention is to try and convince trolls, then we are wasting our time, no matter how you do it they are blind to the reality ie:DENIAL

We just need a basic list which doesn't take up too much time - to give us somewhere to point the trolls to, they will get fed up and Fgo away. also it will be helpful to newbies so as obvious questions will be answered.

Maybe you would like to do it?

There's a difference between cynics and trolls. Some people won't believe in a HPC but are prepared to listen to reason and reconsider their views.

If by "you" you mean me, since you were quoting me, then I think one of the veterans should do it. And it wouldn't need to be written from scratch. A suitable veteren could go through postings on this forum since post "dot" and look for the questions/arguments that come up and look for the best answers. Isn't that how a FAQ is usually written?

Billy Shears

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  • 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%



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