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Soft Landing Theory

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Low inflation, letting your loan linger longer. We have seen many posts about this issue regarding the current low interest rate, low inflation climate.

As Mervyn King highlighted, I think its going to take a while for people to realise that its going to take a lot longer for inflation to erode away their mortgage or loan, and thus allow people to move up the ladder more easily, than in the days of higher inflation.

I'm not sure this realisation is going to happen overnight, or anytime very soon. I think it will be a slow, gradual effect that will eventually result in people being more cautious about the size of loan they take out, and therefore house prices will come down.

Unless there is some sort of serious 'trigger', I think this will be the one of the reasons that house prices will come down.

People will reaslise that even though the banks may lend them huge amounts of money, and though it maybe just affordable to purchase that house, it will start to dawn that they will not be able to move up the ladder to buy a better house for a very, very long time, probably never!

I feel sorry for the people that have bought recently, because in a few years they will see that their mortgage is still a big burden.

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Low inflation, letting your loan linger longer. We have seen many posts about this issue regarding the current low interest rate, low inflation climate.

As Mervyn King highlighted, I think its going to take a while for people to realise that its going to take a lot longer for inflation to erode away their mortgage or loan, and thus allow people to move up the ladder more easily, than in the days of higher inflation.

I'm not sure this realisation is going to happen overnight, or anytime very soon. I think it will be a slow, gradual effect that will eventually result in people being more cautious about the size of loan they take out, and therefore house prices will come down.

Unless there is some sort of serious 'trigger', I think this will be the one of the reasons that house prices will come down.

People will reaslise that even though the banks may lend them huge amounts of money, and though it maybe just affordable to purchase that house, it will start to dawn that they will not be able to move up the ladder to buy a better house for a very, very long time, probably never!

I feel sorry for the people that have bought recently, because in a few years they will see that their mortgage is still a big burden.

I agree that soft landing is perfectly possible, and whilst the right inflation pressures and IR levels might control the 'how slow' it might be, I personally believe that unless we reach a situation where unemployment levels start to accelerate then the current Miracle Economy could slowly die rather than reach that critical point where it needs to melt.

Only time will tell!

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I agree that soft landing is perfectly possible, and whilst the right inflation pressures and IR levels might control the 'how slow' it might be, I personally believe that unless we reach a situation where unemployment levels start to accelerate then the current Miracle Economy could slowly die rather than reach that critical point where it needs to melt.

Only time will tell!

I dont think anyone will let the UK economy die. Remember we have a Miracle worker at the helm and lots of VI's.

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Good points raised there.

Isn't the big problem that it's wage inflation which is non-existent but other forms of inflation such as utilities, running a household, keeping two cars OTR, council tax and the like are sharply rising? This is the worst of all worlds is it not?

Anyways, I'm quite relaxed about there being no IR rises. The bigger picture is that US is in all liklihood entering a recession Q1 2007, UK unemployment is rising inexorably, the savings ratio (which leads a recession) has been rising for 2 years. In fact, the Anglo-Saxon economies are nailed on for a recession :lol:

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Low inflation, letting your loan linger longer. We have seen many posts about this issue regarding the current low interest rate, low inflation climate.

As Mervyn King highlighted, I think its going to take a while for people to realise that its going to take a lot longer for inflation to erode away their mortgage or loan, and thus allow people to move up the ladder more easily, than in the days of higher inflation.

I'm not sure this realisation is going to happen overnight, or anytime very soon. I think it will be a slow, gradual effect that will eventually result in people being more cautious about the size of loan they take out, and therefore house prices will come down.

Unless there is some sort of serious 'trigger', I think this will be the one of the reasons that house prices will come down.

People will reaslise that even though the banks may lend them huge amounts of money, and though it maybe just affordable to purchase that house, it will start to dawn that they will not be able to move up the ladder to buy a better house for a very, very long time, probably never!

I feel sorry for the people that have bought recently, because in a few years they will see that their mortgage is still a big burden.

New builds dropped 12% last year in the south west according to the people building them..

this is the fastest ever crash.. hard to spot isn't it?

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Guest mattsta1964

I agree that soft landing is perfectly possible, and whilst the right inflation pressures and IR levels might control the 'how slow' it might be, I personally believe that unless we reach a situation where unemployment levels start to accelerate then the current Miracle Economy could slowly die rather than reach that critical point where it needs to melt.

Only time will tell!

I don't believe in the soft landing theory

Either there is confidence in a market or there isn't. It's black and white. There is no middle ground.

Only our misplaced belief that we are living in a relatively benign economic climate supports the continuing rise in HPI

The consequences of the economic policies being pursued around the world are calamitous. We are living in total denial believing the 'debt' based economies of the first world can be sustained for much longer.

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I don't believe in the soft landing theory

Either there is confidence in a market or there isn't. It's black and white. There is no middle ground.

Only our misplaced belief that we are living in a relatively benign economic climate supports the continuing rise in HPI

The consequences of the economic policies being pursued around the world are calamitous. We are living in total denial believing the 'debt' based economies of the first world can be sustained for much longer.

Ahhh, yes, but as you yourself say ' only our misplaced belief '. The fact is HPI and Debt levels continue to power onwards even though we have all this world and economic information and events.

This is why I think its possible. Its just seems like people will 'go down fighting' and this will slow it, as no doubt those with VI's and the EA's will be continually finding little stats to suggest a recovery is underway etc etc.

I for one hope its not slow, as like has been mentioned, high inflation will hurt many of us with savings, but with the 'misplaced beliefs' why should the population suddenly get all wise and smart?

AFP

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Guest mattsta1964

Ahhh, yes, but as you yourself say ' only our misplaced belief '. The fact is HPI and Debt levels continue to power onwards even though we have all this world and economic information and events.

This is why I think its possible. Its just seems like people will 'go down fighting' and this will slow it, as no doubt those with VI's and the EA's will be continually finding little stats to suggest a recovery is underway etc etc.

I for one hope its not slow, as like has been mentioned, high inflation will hurt many of us with savings, but with the 'misplaced beliefs' why should the population suddenly get all wise and smart?

AFP

It is peoples' naivety and ignorance that is keeping ftb's in the market

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I don't believe in the soft landing theory

Either there is confidence in a market or there isn't. It's black and white. There is no middle ground.

Only our misplaced belief that we are living in a relatively benign economic climate supports the continuing rise in HPI

The consequences of the economic policies being pursued around the world are calamitous. We are living in total denial believing the 'debt' based economies of the first world can be sustained for much longer.

Maybe a soft landing appears like a soft landing if it occurs over a few years - mind you in hindsight it will look like crash. I cant see one trigger alone accelerating the process in the next year or so. I think we're gonna have to wait for at least a few years IMO. Hopefully less of course.

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Either there is confidence in a market or there isn't. It's black and white. There is no middle ground.

I think that should be the motto of this site.

Most of you seem to have been brainwashed into believing dogma like this. "There is no middle ground". Jesus.

Actually, there is middle ground. There are extremes, there is middle ground, and there are bits in between all of these staging posts.

If the economy really does start the long-awaited, long-predicted, ever-imminent, downturn, then yes, some people may panic-sell their houses. So some will panic, some will rub their hands and cash in, but the great, great majority of us will do what the great majority always do -- nothing. If my house suddenly drops in theoretical value from whatever it is at the moment (£300K?) to 20% less (£240K), then so what? Despite what you might think from the media, at any one time, the great majority of people are neither buying nor selling property. We'll shrug our shoulders and carry on. A year or two, perhaps even 5 later, it will recover.

So what?

There was a correction in the stock markets a couple of months ago. I managed to sell some stocks and funds beforehand ( at a good profit), but some I was left holding. No worries; I'll hang on to them now and wait for them to recover. No problem. There's no point in selling them at a loss. And that's what most property owners will do. Unless they really HAD to sell, why would someone sell a property at 20K or 50K less than they bought it for? They will do whatever it takes to hang onto it rather than sell at a loss.

Regarding my own house? Like most people these days, I have a long-term fixed-rate mortgage. I know what my monthly payments will be in 5 years time. Let IRs explode. In general, we don't have to care that much.

FWIW, I do care about FTBs, and I do think that the idea of taxing BTLs is a good one. But don't give me this "it's black and white" bo11ocks.

You'd love it to be, but it ain't.

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I think that should be the motto of this site.

Most of you seem to have been brainwashed into believing dogma like this. "There is no middle ground". Jesus.

Actually, there is middle ground. There are extremes, there is middle ground, and there are bits in between all of these staging posts.

If the economy really does start the long-awaited, long-predicted, ever-imminent, downturn, then yes, some people may panic-sell their houses. So some will panic, some will rub their hands and cash in, but the great, great majority of us will do what the great majority always do -- nothing. If my house suddenly drops in theoretical value from whatever it is at the moment (£300K?) to 20% less (£240K), then so what? Despite what you might think from the media, at any one time, the great majority of people are neither buying nor selling property. We'll shrug our shoulders and carry on. A year or two, perhaps even 5 later, it will recover.

So what?

There was a correction in the stock markets a couple of months ago. I managed to sell some stocks and funds beforehand ( at a good profit), but some I was left holding. No worries; I'll hang on to them now and wait for them to recover. No problem. There's no point in selling them at a loss. And that's what most property owners will do. Unless they really HAD to sell, why would someone sell a property at 20K or 50K less than they bought it for? They will do whatever it takes to hang onto it rather than sell at a loss.

Regarding my own house? Like most people these days, I have a long-term fixed-rate mortgage. I know what my monthly payments will be in 5 years time. Let IRs explode. In general, we don't have to care that much.

FWIW, I do care about FTBs, and I do think that the idea of taxing BTLs is a good one. But don't give me this "it's black and white" bo11ocks.

You'd love it to be, but it ain't.

excellant post, I agree with every point.

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"If my house suddenly drops in theoretical value from whatever it is at the moment (£300K?) to 20% less (£240K), then so what?"

That's £60k, which is an amount some people have to work for ten years or more to save - but so what?

Sentiment will play a big part and the fact repossessions will accelerate when the tide turns will mean there will be houses to buy.

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Okay, so how long is it going to take for people to realise how overpriced housing is?

Well, I bought a very nice flat 5 years ago in outer London for well below the average national house price now. Our salaries are well above average nationwide.

Since then, inflation has hardly eroded the debt and I have paid a few thousand capital off (25 yr mortgage). At current prices I would seemingly never be able to stretch to an average house in my lifetime. My salary would have to double for me to afford the jump on the ladder, and the only sort of job that would give me double the salary would be a city fund manager. Admittedly some entrepeneurs etc will break out of that trap, but the market is based on averages anyway.

I honestly believe that there will be a gradual realisation that we are paying stupid money for houses. If people joining the ladder 5 years ago cannot move up, then the penny is going to drop across the market at some stage.

With the positive spin emanating from all quarters at the moment (classic Daily Express headline - houses to double in next 10 yrs) ordinary people have lost touch with reality. The tipping point of logic was reached when people started to take out BTL mortgages and subsidise them each month on the basis of future capital gains. That is madness and that shows we are in a bubble.

It can't land softly. Once investors realise how bad their investments are, and they see prices start to come down, they will be desperate to get out. They are propping up the bottom rung now. Once they are gone then existing homeowners who want to move will not get anyone to pay the silly prices they are asking. The chain will collapse.

This will probably trigger a recession, not the other way round. And the more it gets talked up at the moment, and the more people that buy now, the worse the eventual fallout will be.

It will be so obvious in retrospect, just like all bubbles are.

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"If my house suddenly drops in theoretical value from whatever it is at the moment (£300K?) to 20% less (£240K), then so what?"

That's £60k, which is an amount some people have to work for ten years or more to save - but so what?

Sentiment will play a big part and the fact repossessions will accelerate when the tide turns will mean there will be houses to buy.

There will be more repossessions if there's a correction/crash, yes, and they will go to auction as usual. What I don't understand is why you think that frustrated FTBs will be given a free run at these properties. Professional BTL-ers will be in there too. Also, it's very hard to get a mortgage on an auctioned property (or it was when I last enquired, about 3 years ago) so unless you can stump up the cash within a month, you won't be in the market for these repossessed properties.

The thing that concerns me most re FTBs is that if prices start to drift down, I sense that with property mania being what it has become, any dip won't go on for long. There seems to be far more people now ready to rush into the market which can only push prices back up. I may be wrong. Maybe we really will have prices bumping along the bottom again for 5 years during which time you cam pick and choose your bargains, but I really doubt that this will be the case again.

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Okay, so how long is it going to take for people to realise how overpriced housing is?

Well, I bought a very nice flat 5 years ago in outer London for well below the average national house price now. Our salaries are well above average nationwide.

Since then, inflation has hardly eroded the debt and I have paid a few thousand capital off (25 yr mortgage). At current prices I would seemingly never be able to stretch to an average house in my lifetime. My salary would have to double for me to afford the jump on the ladder, and the only sort of job that would give me double the salary would be a city fund manager. Admittedly some entrepeneurs etc will break out of that trap, but the market is based on averages anyway.

I honestly believe that there will be a gradual realisation that we are paying stupid money for houses. If people joining the ladder 5 years ago cannot move up, then the penny is going to drop across the market at some stage.

With the positive spin emanating from all quarters at the moment (classic Daily Express headline - houses to double in next 10 yrs) ordinary people have lost touch with reality. The tipping point of logic was reached when people started to take out BTL mortgages and subsidise them each month on the basis of future capital gains. That is madness and that shows we are in a bubble.

It can't land softly. Once investors realise how bad their investments are, and they see prices start to come down, they will be desperate to get out. They are propping up the bottom rung now. Once they are gone then existing homeowners who want to move will not get anyone to pay the silly prices they are asking. The chain will collapse.

This will probably trigger a recession, not the other way round. And the more it gets talked up at the moment, and the more people that buy now, the worse the eventual fallout will be.

It will be so obvious in retrospect, just like all bubbles are.

best post to date. especially the last line.

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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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