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Smell the Fear

I No Longer Believe That House Prices Will Fall

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So, it's been a few years since property became ridiculously expensive. And here we are, still witnessing large rises on average. Sure there are a few pockets of isolated falls, but these could be explained as much by statistics, small samples etc than by actual falls.

I do not believe that house prices will fall in any significant manner in this country. By significant I mean 10%+. I suspect that a great many of you believe the same.

All that will happen, even if we have a recession, is that prices will be eroded by wage inflation over time, until some distant point in the future they become affordable again. I don't think that nominal price falls and negative equity will be commonplace.

The BoE have shown no willingness to curb inflation, to control the money supply or to take into account the ill effects on society. The government don't care about anything as long as they stay in power. And staying in power certainly doesn't involve bringing about nominal house price falls in a country where almost every man, woman and child sees the house and the protection of it's (nominal) value as a sacrosanct part of national life.

As such, I believe it is best for anyone who has the means to buy now, borrow as much as you can manage and lock into a long term fixed rate. Come what may, you will be fine. Protected by the powers that be from the ravages of negative equity, you have nothing to lose.

Go forth and occupy.

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All that will happen, even if we have a recession, is that prices will be eroded by wage inflation over time, until some distant point in the future they become affordable again. I don't think that nominal price falls and negative equity will be commonplace.

As such, I believe it is best for anyone who has the means to buy now, borrow as much as you can manage and lock into a long term fixed rate. Come what may, you will be fine. Protected by the powers that be from the ravages of negative equity, you have nothing to lose.

Go forth and occupy.

direct contradiction there. if prices will only become affordable (due to low wage inflation, which is presuabmly what you are arguing) it is not neccessarily a good time to buy now, or even in the medium term for that matter

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Guest mattsta1964

So, it's been a few years since property became ridiculously expensive. And here we are, still witnessing large rises on average. Sure there are a few pockets of isolated falls, but these could be explained as much by statistics, small samples etc than by actual falls.

I do not believe that house prices will fall in any significant manner in this country. By significant I mean 10%+. I suspect that a great many of you believe the same.

All that will happen, even if we have a recession, is that prices will be eroded by wage inflation over time, until some distant point in the future they become affordable again. I don't think that nominal price falls and negative equity will be commonplace.

The BoE have shown no willingness to curb inflation, to control the money supply or to take into account the ill effects on society. The government don't care about anything as long as they stay in power. And staying in power certainly doesn't involve bringing about nominal house price falls in a country where almost every man, woman and child sees the house and the protection of it's (nominal) value as a sacrosanct part of national life.

As such, I believe it is best for anyone who has the means to buy now, borrow as much as you can manage and lock into a long term fixed rate. Come what may, you will be fine. Protected by the powers that be from the ravages of negative equity, you have nothing to lose.

Go forth and occupy.

No government has ever interfered in the housing market, not that I can remember anyway. Better to give people the illusion of wealth funded by borrowed money than to create real wealth through creativity, hard work and enterprise.

It doesn't matter what this government does now. We are well and truly fubared. We are at he mercy of the global economy which has been driven largely by the USA

And in case you hadn't noticed, the USA is technically bankrupt and its economy is about to vapourise in a supernova of debt unlike anything witnessed in world history.

I think a lot of people are gonna get a bit more than a house price crash! A bit more than we bargained for!

There'll be plenty of bargains in the property market in 5 years time. The trouble is, most people wont have a job and their meagre savings (If they have any) will just about buy them a loaf of bread.

Your right about one thing. You might as well borrow as much money as you can right now and enjoy the party. Someone (Tuffers) on the forum suggested maxing out his borrowing and buying gold with it. The debt will disappear with hyperinflation and he'll be left with a stash of gold, the only real money in the world. Food for thought eh!?

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Guest Bart of Darkness
prices will be eroded by wage inflation over time

Wage inflation will have to pick up a bit to make this worthwhile.

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direct contradiction there. if prices will only become affordable (due to low wage inflation, which is presuabmly what you are arguing) it is not neccessarily a good time to buy now, or even in the medium term for that matter

Hmm, no. It is high wage inflation that erodes prices. Even at current levels of 4% it takes only 6-7 years to erode 30% off prices in real terms if nominal house prices are static.

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Smell the fear - If you had the same amount of cash in the bank as the price of an average house would you still buy now?

In such circumstances I think its worthwhile waiting another 6 months. The strength of the market has been surprising but IR's are increasing worldwide and HPI is slowing (in the US droping). I dont think HPI will be above the BOE IR rate in the near term so renting makes more sense.

I dont buy the uberbear end of world, keep gold under the bed, going to be living in mud huts soon scenerio either !!

Edited by DONT PANIC !!! DONT PANIC !!!

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No government has ever interfered in the housing market, not that I can remember anyway. Better to give people the illusion of wealth funded by borrowed money than to create real wealth through creativity, hard work and enterprise.

It doesn't matter what this government does now. We are well and truly fubared. We are at he mercy of the global economy which has been driven largely by the USA

And in case you hadn't noticed, the USA is technically bankrupt and its economy is about to vapourise in a supernova of debt unlike anything witnessed in world history.

I think a lot of people are gonna get a bit more than a house price crash! A bit more than we bargained for!

There'll be plenty of bargains in the property market in 5 years time. The trouble is, most people wont have a job and their meagre savings (If they have any) will just about buy them a loaf of bread.

Your right about one thing. You might as well borrow as much money as you can right now and enjoy the party. Someone (Tuffers) on the forum suggested maxing out his borrowing and buying gold with it. The debt will disappear with hyperinflation and he'll be left with a stash of gold, the only real money in the world. Food for thought eh!?

Sorry, I just don't buy the uber-bear stuff. Like house prices, the debt will be eroded by inflation. despite all the bear-talk about the US housing market, I don't think we will see huge nominal falls in the major markets.

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I can echo the reasoning about the central bank. I'm surprised how they have allowed money supply to go into double figures for some time. I also find it crazy how they can say 9% is neutral, where the ECB say 4.5% is neutral.

Look how economists justify that it is ok, and it won't lead to inflation. But the money will inflate something, just not products in the inflation basket.

I still think it will correct, and the more debt people have the far worse it will be. But no one wants to listen, the BoE give wishy washy answer to things and quote the CPI, politicians don't care because they're benefitting from HPI - even the opposition.

For a FTB I still don't think buying now is a good idea, i'm prepared to wait another 2 years before seeing the start. If that doesn't happen and no other important reason for me staying in the UK comes about, i'll leave this country with a one way ticket.

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I think this quote is equally applicable to the British market:

http://www.lewrockwell.com/bonner/bonner289.html

The normal will soon be back in style...even in America. And when it does, the gentle, soft landing Americans believe is their due, may go out the window. Instead, housing will come down like the Hindenburg...and the economy with it.

I do think there is a risk of an attempt to inflate our way out of the bubble, I don't think it would work because:

1) I don't think there can be that much wage inflation because there are too many immigrants willing to work for low wages. For example even a nominal gross wage less than the Polish average is attractive to the Poles because our taxes are so much lower than theirs.

2) Even if there was wage inflation in tandem with price inflation, wage inflation would lag, and this may lead to a lot of people being crushed by their debts before wage inflation meant they could afford them again.

3) One of the major policies of the government is to try to match the Euro eventually, this would have to go right out the window, and if people saw that their money was become worthless they would be annoyed and Labour would stand no chance of re-election for a long time.

4) How, what with China and everything are we going to get this wage inflation anyway? We're already running a huge trade defecit, and wage inflation would make it a lot worse.

EDIT:

5) House price inlation has been so steep that inflation would have to be really high for a long time. Political suicide.

Edited by Della

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Say average house price long term trend is 3 times average salary...has been less, has been more.

Average houseprice now £170k. Indicates average salary needs to get to approx £56.5k

Average wage currently approx £24k.

At 4% average wage inflation this will take: 22 yrs, assuming houseprices remain nominally static.

:unsure:

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I think this quote is equally applicable to the British market:

http://www.lewrockwell.com/bonner/bonner289.html

I do think there is a risk of an attempt to inflate our way out of the bubble, I don't think it would work because:

1) I don't think there can be that much wage inflation because there are too many immigrants willing to work for low wages. For example even a nominal gross wage less than the Polish average is attractive to the Poles because our taxes are so much lower than theirs.

Only the poorest in society are being affected greatly by this - and they can simply go on benefits instead of competing.

2) Even if there was wage inflation in tandem with real inflation, wage inflation would lag, and this may lead to a lot of people being crushed by their debts before wage inflation meant they could afford them again.

Any evidence for your lag theory?

3) One of the major policies of the government is to try to match the Euro eventually, this would have to go right out the window, and if people saw that their money was become worthless they would be annoyed and Labour would stand no chance of re-election for a long time.

4) How, what with China and everything are we going to get this wage inflation anyway? We're already running a huge trade defecit, and wage inflation would make it a lot worse.

EDIT:

5) House price inlation has been so steep that inflation would have to be really high for a long time. Political suicide.

even current levels of wage inflation will lower prices in 6-7 years. Some have been calling a crash for this long.

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What doesn't seem to have been mentioned is that although wages might seem high to Poles when they come here, they still have a higher cost of living. Even if they do share rooms. The only way prices will drop is if there is a dramatic change of heart on the part of the policy makers (i.e. the central lending institutions) and they decide enough is enough. But all the time the banks stand to win, they will allow the market to inflate and inflate, even if it does drive prices up elsewhere in the economy.

My analysis is that mega house price inflation can only be sustained if there is cheap money available. There is an abundance of (relatively) cheap money still available on the continent. Given that the French and Germans face a similar, probably worse, pensions crisis to our own, I think it is highly likely that many of the overseas investors are actually continental europeans, mopping up while the rates are good. They are killing two birds with one stone since they are also creating a ratio between rented/owned property which is similar to that in Germany/France and thus making it potentially easier for this government to say "the economic tests are met" and to bounce us into the euro-zone without further question.

It can only continue if the banks carry on loosening their lending multiples (which they have). The euro rate has been left on hold so there is still relatively cheap money to be borrowed. In the Netherlands, 6x salary mortgages are commonplace. The BOE cannot increase interest rates indefinitely without causing massive harm to the economy - but then they don't care because they are all rich gits with nice paid for houses in the country. They will allow it to inflate until it bursts. It might be a while yet before that happens.

Lastly, the BOE raising rates only has a partial effect on domestic HPI since much of the money that goes into funding BTL comes from overseas where interest rates are still comparatively low - i.e. euro zone and asia. The euro rate would need to increase significantly and so would the chinese rate and other asian currencies before we see HPI stabilise IMHO.

:unsure:

Edited by BarrelShifter

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Sorry, I just don't buy the uber-bear stuff. Like house prices, the debt will be eroded by inflation. despite all the bear-talk about the US housing market, I don't think we will see huge nominal falls in the major markets.

You don't have to look very far to find evidence that the economy, under much more of Labour rule will eventually collapse and the country is gonna be in a pretty poor state.

Do you think that by some miracle the housing market will not be affected while everything else is going drastically wrong?

Don't forget that Labour is bankrupt and the only way than can save themselves is to go crawling to the unions, and you know what happened to the country last time those lefty nutters had any influence . . . .

Winter of discontent!

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Only the poorest in society are being affected greatly by this - and they can simply go on benefits instead of competing.

The poorer (potential Labour voters) would still lose their house and have to go bankrupt.

For the middle they tend to have taken on a mortgage that is of the same kind of proportion to their income as the poorer person.

Any evidence for your lag theory?

Well supposedly at different times price inflation leads wage inflation, and visa versa but in this case the prime mover would be price inflation. In the first step prices would go up due to increased money supply or increased commodity prices. In step 2 the worker would become uncomfortable with their wage and demand an increase. In step 3 the worker would recive their higher pay and this would feed back into the circle and we would start again. I think in this instance of inflation the prices would lead the wages rather than visa-versa.

even current levels of wage inflation will lower prices in 6-7 years. Some have been calling a crash for this long.

I think prices have to fall about 50%, I think the maximum period the economy can remain severely out of balance is about 5 years. That means for house prices to come back into line without a nominal fall in prices we would need inflation of 15% for 5 years, which has been about the rate of HPI

Edited by Della

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So, it's been a few years since property became ridiculously expensive. And here we are, still witnessing large rises on average. Sure there are a few pockets of isolated falls, but these could be explained as much by statistics, small samples etc than by actual falls.

I do not believe that house prices will fall in any significant manner in this country. By significant I mean 10%+. I suspect that a great many of you believe the same.

All that will happen, even if we have a recession, is that prices will be eroded by wage inflation over time, until some distant point in the future they become affordable again. I don't think that nominal price falls and negative equity will be commonplace.

The BoE have shown no willingness to curb inflation, to control the money supply or to take into account the ill effects on society. The government don't care about anything as long as they stay in power. And staying in power certainly doesn't involve bringing about nominal house price falls in a country where almost every man, woman and child sees the house and the protection of it's (nominal) value as a sacrosanct part of national life.

As such, I believe it is best for anyone who has the means to buy now, borrow as much as you can manage and lock into a long term fixed rate. Come what may, you will be fine. Protected by the powers that be from the ravages of negative equity, you have nothing to lose.

Go forth and occupy.

I can understand your thinking but still think a recession will clear the decks. Wage inflation is going to have to speed up a bit to catch up with houses and all that before a recession! Once we get the recession the lenders will forced to curb money flow or risk bad debts.

If we had got to this position without such a balloon of debt I would agree with you 100% but instead we have the mother of all debts looming large. I still go with a major 20-30% correction now that rates are forced up.

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Say average house price long term trend is 3 times average salary...has been less, has been more.

Average houseprice now £170k. Indicates average salary needs to get to approx £56.5k

Average wage currently approx £24k.

At 4% average wage inflation this will take: 22 yrs, assuming houseprices remain nominally static.

:unsure:

Most people buy houses together a couple so could be 2 incomes not one.

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Most people buy houses together a couple so could be 2 incomes not one.

Why should there be a sudden, permanent change of ratio of incomes to house prices? Is 2006 so different from 1996 or 1986? If "things are different this time" can you put your finger on why things are different and exactly why this situation is going to persist into the indefinte future?

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Why should there be a sudden, permanent change of ratio of incomes to house prices? Is 2006 so different from 1996 or 1986? If "things are different this time" can you put your finger on why things are different and exactly why this situation is going to persist into the indefinte future?

I didnt say things were different simply stating people buy houses together so a joint income not just a single income. ;)

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Some anecdotal info as to what is keeping prices up.....

Talking with a taxi driver about the number of new houses being built locally, I quipped that the 'affordable' housing would be snapped up by the bloody buy-to-let brigade. After a moments silence, he said "I'm one of them. Got one BTL. It's my pension. Best thing I ever did. Looking for another as I've made £70k in 4 years. You can't make money by working."

"What would make you sell" I asked,

Q "Interest rate increase?" A "I'd increase the rent"

Q "No tenant?" A "There will always be tenants as no-one can afford the houses"

Q "Drop in prices?" A "They'll come back up again. You can't go wrong with bricks and mortar"

Q "So what would make you sell?" A "When I'm ready to retire. I'll live in it for 12 months and avoid capital gains tax when I sell it"

I'm running out of reasons as to why these people will make a dash for the exit and crash the market.

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Some anecdotal info as to what is keeping prices up.....

Talking with a taxi driver about the number of new houses being built locally, I quipped that the 'affordable' housing would be snapped up by the bloody buy-to-let brigade. After a moments silence, he said "I'm one of them. Got one BTL. It's my pension. Best thing I ever did. Looking for another as I've made £70k in 4 years. You can't make money by working."

"What would make you sell" I asked,

Q "Interest rate increase?" A "I'd increase the rent"

Q "No tenant?" A "There will always be tenants as no-one can afford the houses"

Q "Drop in prices?" A "They'll come back up again. You can't go wrong with bricks and mortar"

Q "So what would make you sell?" A "When I'm ready to retire. I'll live in it for 12 months and avoid capital gains tax when I sell it"

I'm running out of reasons as to why these people will make a dash for the exit and crash the market.

Hi Shropshire Lad,

I had responded to your points one by one - including answers as the level of rent is determined by the market and with more and more BTL johnny come lately landlords the supply of rental properties is large. But to put it simply, a couple more rate rises will eat into his profits - and let's just see if he keeps his nerve when it bites. I wonder if he'll have as many fares as well. Decrease in income and an increase in outgoings... Hmmmmm!!!!

Talk is cheap: but will he walk the walk?

As for "you can't go wrong with bricks and mortar" - if the guy is over 35 he has a short memory....

Why are you looking for reasons why people will rush for the exits? :unsure:

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Hi Shropshire Lad,

Why are you looking for reasons why people will rush for the exits? :unsure:

Evening Badlad,

I'm intrigued by the psychology behind what makes people believe that any particular investment is/is not a sure bet, and what they base their choices to buy/not to buy and to sell/not sell on.

I'm sure that most are relying on past performance, just as we did with Endowments, rather than true economic indicators.

I believe their is a 'pack mentality' in the majority of humans, and I'm searching for what the final catalyst will be (thinking dotcom, Marconi, Pyramid schemes).

Edited by Shropshire Lad

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Evening Badlad,

I'm intrigued by the psychology behind what makes people believe that any particular investment is/is not a sure bet, and what they base their choices to buy/not to buy and to sell/not sell on.

I'm sure that most are relying on past performance, just as we did with Endowments, rather than true economic indicators.

I believe their is a 'pack mentality' in the majority of humans, and I'm searching for what the final catalyst will be (thinking dotcom, Marconi, Pyramid schemes).

Couldn't agree with you more!

I think what is happening in the US will make a few lights go on... Slowly but surely the pack will turn. When it does they will look for someone to blame. :rolleyes:

People stick together as it feels secure. The bubble is illogical and you will always find some VI (or dip$hit) explaining why it's different this time. The poor sods like your taxi driver will be the ones left holding the parcel when the music stops - only to find they just have a huge debt when the wrapping comes off.

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Couldn't agree with you more!

I think what is happening in the US will make a few lights go on... Slowly but surely the pack will turn. When it does they will look for someone to blame. :rolleyes:

People stick together as it feels secure. The bubble is illogical and you will always find some VI (or dip$hit) explaining why it's different this time. The poor sods like your taxi driver will be the ones left holding the parcel when the music stops - only to find they just have a huge debt when the wrapping comes off.

For me, the major difference in the US is the free-er availability of land to build on. They can respond appropriately to a speculative boom by building. Here, the supply of new homes is utterly suppressed. Combined with higher expectations in the population and mass immigration, it is impossible for speculative building to get ahead of demand.

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Evening Badlad,

I'm intrigued by the psychology behind what makes people believe that any particular investment is/is not a sure bet, and what they base their choices to buy/not to buy and to sell/not sell on.

I'm sure that most are relying on past performance, just as we did with Endowments, rather than true economic indicators.

I believe their is a 'pack mentality' in the majority of humans, and I'm searching for what the final catalyst will be (thinking dotcom, Marconi, Pyramid schemes).

http://www.gutenberg.org/dirs/etext96/ppdel10.txt

Memoirs of Extraordinary Popular Delusions and the Madness of Crowds

By Charles Mackay

Published in 1843 - This phenomina isn't new

Most relevant part is:

THE LOVE OF THE MARVELOUS AND THE DISBELIEF OF THE TRUE

THE MISSISSIPPI SCHEME

It also talks about in datail that I haven't seen elsewhere:

THE TULIPOMANIA (tulip bubble)

THE SOUTH SEA BUBBLE (stock bubble)

Interestingly in INFLUENCE OF POLITICS AND RELIGION ON THE HAIR AND BEARD you learn why mens hair is short, and POPULAR FOLLIES IN GREAT CITIES

explains the origin of the phrases "flame up", and "who are you" which at one time was hugely funny.

Edited by Della

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I was distracted by a prog on TV just now "The Embarrassing 80's" or something.

Just look at the trends that at the time, people (sheeple) completely believed in and thought would never change.

to mention a few....

Yuppies making money hand over fist on an ever rising stock market

The dotcom boom

Nouvelle Cuisine, it's the future!

You look at it now and wonder why nobody questioned what the hell was going on. What was actually happening was that sheeple were copying each other, all heading for an imaginary Nirvana that only existed in their minds in the first place.

More recent trends/fads......laminate wooden flooring, decking, hot-tubs (in the uk??),

The "monkey see monkey do" mindset is still very prevalent, which is why I expect their to be a HPC.

Edited by Shropshire Lad

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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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