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BillyShears

People Dying Again

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Many bull arguments here have depended on people not selling houses if the price goes down as they will hang on until the price recovers again, are "in it for the long term", etc.

There is the strong counter-argument that if people will want to sell if prices go down to take advantage of the closening of the rungs of the ladder.

But one argument that IMHO isn't mentioned as often as it should be is; the "you can't take it with you" argument.

Put simply, people die, and when they die, their houses come available. Most of these houses will go somewhere. Either they'll be sold, relatives who inherit them may move in, or rent out the house.

As a fraction of the entire population, the number who die is relatively small. But compared to the number of houses that sell each year, it's much larger. E.g. assuming that the average lifespan is 75 years, then given that there are 52million people in England and Wales, we'd expect 742857 of them to die each year. In the last land reg report, 218770 houses were sold in England and Wales in the last quarter. Multiplied by four to make a yearly amount, that's 875080 per year.

Clearly the number of people dying (and freeing up property) is going to be more than a small fraction of the total number of houses for sale. I would say that home-owners are typically older than average, particularly those who own higher rung properties. So the true ratio is probably even higher than the simple calculations would predict. This is important as while sentiment may make people decide to hold onto their houses "until the housing market improves", or HIPs may make people less inclined to sell, they aren't going to stop people dying.

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Billy Shears

Edited by BillyShears

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Also, as the elderly house-hoggers die off, the properties that become available will be used more efficiently.

I.e. a four bed house currently occupied by a lone pensioner will be used by a family of 5, or 10 polish builders. Net result = lower demand for property.

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Put simply, people die, and when they die, their houses come available. Most of these houses will go somewhere. Either they'll be sold, relatives who inherit them may move in, or rent out the house.

Isn't that one flaw in the argument right there though. Relatives may choose to live in or rent out the properties, so they won't necessarily be sold if people think they can get more by waiting.

There are all kinds of frictional reasons why houses get sold, death being one of them. I don't think anyone claims that no houses at all will get sold if people can't get the price last paid. But the thing that would drive prices down rapidly (rather than slowly and stickily) would be a major influx of property, where people either have to take what they can get out of desperation, or from mass repos, or from a mass panic where everyone believes they should sell now or lose even more.

I don't see that the "people die" argument adds anything really. It's just one of various constant reasons why, whatever the market conditions, there will be some houses selling. Even in a stagnant market there will be a few people who accept losses (maybe they need to emigrate, or have plenty of equity from a previous move or whatever) and there will be others who refuse to budge if they have to take a loss - and there will be others with desirable houses whose salesprices might buck a downward trend. All contribute to the average.

This thing about the marginal seller is true up to a point - forced sellers are of course likely to have an impact on average price in a downturn. But it's not like the whole town is sitting there refusing to sell until old Mrs Biddy pops her clogs, and then suddenly house prices dip 10% because her house is sold at a loss...

Or to put that in a less florid way, the marginal sales (forced sellers or whatever) contribute to the average, but unless they are a large proportion of the overall sales, they might not push the average down by that much. The key thing is probably not the constant things that cause forced sales like death, moving, personal tragedy, divorce etc. It's how much these forced sales are boosted by additional factors such as repossession, BTL failure etc.

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Isn't that one flaw in the argument right there though. Relatives may choose to live in or rent out the properties, so they won't necessarily be sold if people think they can get more by waiting.

There are all kinds of frictional reasons why houses get sold, death being one of them. I don't think anyone claims that no houses at all will get sold if people can't get the price last paid. But the thing that would drive prices down rapidly (rather than slowly and stickily) would be a major influx of property, where people either have to take what they can get out of desperation, or from mass repos, or from a mass panic where everyone believes they should sell now or lose even more.

I don't see that the "people die" argument adds anything really. It's just one of various constant reasons why, whatever the market conditions, there will be some houses selling. Even in a stagnant market there will be a few people who accept losses (maybe they need to emigrate, or have plenty of equity from a previous move or whatever) and there will be others who refuse to budge if they have to take a loss - and there will be others with desirable houses whose salesprices might buck a downward trend. All contribute to the average.

This thing about the marginal seller is true up to a point - forced sellers are of course likely to have an impact on average price in a downturn. But it's not like the whole town is sitting there refusing to sell until old Mrs Biddy pops her clogs, and then suddenly house prices dip 10% because her house is sold at a loss...

Or to put that in a less florid way, the marginal sales (forced sellers or whatever) contribute to the average, but unless they are a large proportion of the overall sales, they might not push the average down by that much. The key thing is probably not the constant things that cause forced sales like death, moving, personal tragedy, divorce etc. It's how much these forced sales are boosted by additional factors such as repossession, BTL failure etc.

The big problem with relatives living in a property or even renting it out is the Capital Gains tax, on large properties this will run into hundreds of thousands of pounds, the question is do relatives take out a morgage to cover this tax or do they sell up?

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The big problem with relatives living in a property or even renting it out is the Capital Gains tax, on large properties this will run into hundreds of thousands of pounds, the question is do relatives take out a morgage to cover this tax or do they sell up?

Good point. I'm sure plenty of people will sell up to cover it.

But in the end I still think that this kind of frictional sale goes on all the time in all market conditions and isn't particularly statistically significant. There's a difference between the marginal seller and the average price, and this is only one of many contributors to the average. The relatives selling this kind of property will at least be motivated to try and get the best price they can, as opposed to repos which just go out to auction. People always die, but it doesn't always drag stagnant markets downwards.

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Isn't that one flaw in the argument right there though. Relatives may choose to live in or rent out the properties, so they won't necessarily be sold if people think they can get more by waiting.

There are all kinds of frictional reasons why houses get sold, death being one of them. I don't think anyone claims that no houses at all will get sold if people can't get the price last paid. But the thing that would drive prices down rapidly (rather than slowly and stickily) would be a major influx of property, where people either have to take what they can get out of desperation, or from mass repos, or from a mass panic where everyone believes they should sell now or lose even more.

Some relatives may choose to live in or rent out the property. But that frees up their previous house (either owned or rented), or adds more supply to the rental market. And my argument doesn't depend on every house freed up due to death (and moving in with children, or nursing home) being sold, just a fair chunk of them. And I don't think anyone would deny that a fair chunk of these houses are sold when their owners die, downsize, or move in with relatives.

Furthermore, prices could be driven down rapidly not only by an influx of property to sell, but also a sudden drop in the number of people willing and able to buy. I would expect that the "death rate" would have most effect at the top end of the so-called "property ladder" as people in such houses tend to be older. Both because it has taken them time to move up the ladder and also they had the opportunity to buy at a time when such houses weren't overpriced. If HIPs freezes the market, as quite a few people suggest, then there will be a sudden shortage of people willing and able to buy upper rung properties as they won't want to sell their mid-rung property. But particularly at higher rungs, the market can't just stop so an oversupply of high-rung properties will start to build.

I don't see that the "people die" argument adds anything really. It's just one of various constant reasons why, whatever the market conditions, there will be some houses selling. Even in a stagnant market there will be a few people who accept losses (maybe they need to emigrate, or have plenty of equity from a previous move or whatever) and there will be others who refuse to budge if they have to take a loss - and there will be others with desirable houses whose salesprices might buck a downward trend. All contribute to the average.

We seem to get a lot of arguments saying that people will just "stay put". That a fair amount of churn in the property market is possibly due to death will be a major factor in just how much the property market can slow down.

This thing about the marginal seller is true up to a point - forced sellers are of course likely to have an impact on average price in a downturn. But it's not like the whole town is sitting there refusing to sell until old Mrs Biddy pops her clogs, and then suddenly house prices dip 10% because her house is sold at a loss...

But in a whole town, there will be quite a few people who will die each year. And if we have the fabled sellers "staying put", then if the houses are selling at 10% less, then this will become the market value. The other owners sitting tight does not keep prices up.

Or to put that in a less florid way, the marginal sales (forced sellers or whatever) contribute to the average, but unless they are a large proportion of the overall sales, they might not push the average down by that much. The key thing is probably not the constant things that cause forced sales like death, moving, personal tragedy, divorce etc. It's how much these forced sales are boosted by additional factors such as repossession, BTL failure etc.

That's assuming that recent house sales don't have an effect on the prices people are prepared to pay for other, similar, houses. I think they do. People complained to me (not at the time) about the last crash where one house selling for a cheaper price in a street depressed everyone else's values as in a falling market, buyers expected houses at the same, or cheaper, price as recent sales. The same applies in the reverse direction during HPI with sellers expecting the same or more as previous sales.

Billy Shears

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Good point. I'm sure plenty of people will sell up to cover it.

But in the end I still think that this kind of frictional sale goes on all the time in all market conditions and isn't particularly statistically significant. There's a difference between the marginal seller and the average price, and this is only one of many contributors to the average. The relatives selling this kind of property will at least be motivated to try and get the best price they can, as opposed to repos which just go out to auction. People always die, but it doesn't always drag stagnant markets downwards.

The death rate will probably remain fairly constant. The number of people who want to buy and sell houses changes. Any sizeable slowdown in the market will make death a more important factor.

Billy Shears

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Good point. I'm sure plenty of people will sell up to cover it.

But in the end I still think that this kind of frictional sale goes on all the time in all market conditions and isn't particularly statistically significant. There's a difference between the marginal seller and the average price, and this is only one of many contributors to the average. The relatives selling this kind of property will at least be motivated to try and get the best price they can, as opposed to repos which just go out to auction. People always die, but it doesn't always drag stagnant markets downwards.

for the moment i agree, there is no real rush apart from emotional upset. My grans house sat on the market at an over inflated price for over a year and was eventually sold 30k below asking price. With HIPS there is going to be some urgency added to selling a deceased relatives house.

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Billy, the flaw in your logic unfortunately for HPC but on balance good for the human race is that people are selfishly being born at approximately the same rate as they are selflessly dying.

Are you suggesting that new born babies have the same purchasing power as asset rich pensioners? :blink:

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Billy, the flaw in your logic unfortunately for HPC but on balance good for the human race is that people are selfishly being born at approximately the same rate as they are selflessly dying.

That isn't my argument. I'm not saying that there will be a drop off in the population, and hence demand, due to death. I'm saying that death is a sizeable factor in house sales, and therefore puts lower limits on how much the property market can slow down. Particularly at upper levels of the "property ladder". Frequently, not always, the new members of the population who would replace a homeowner when the homeowner dies, do not get into the house without it being sold.

Are you suggesting that new born babies have the same purchasing power as asset rich pensioners? :blink:

But more importantly, how do they get into the house vacated by a homeowner without it being sold? Possible, but unlikely.

for the moment i agree, there is no real rush apart from emotional upset. My grans house sat on the market at an over inflated price for over a year and was eventually sold 30k below asking price. With HIPS there is going to be some urgency added to selling a deceased relatives house.

And for expensive houses, there may be fewer potential buyers if HIPs dissuades mid-rung owners froom selling their houses and moving up.

Billy Shears

Edited by BillyShears

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No, but the gradual replenishment of the population does not by itself destroy wealth.

But it does encourage churn in assets such as houses that typically outlast their owners.

Billy Shears

Edited by BillyShears

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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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