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Why There Will Never Be A Hpc - Ever


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I think its time to hear a counter argument to all of this HPC talk. This web site has been established for years now and still you are no closer to realising your goal - a HPC. Just perhaps, this housing market may be a little more complex than you all think and maybe, just maybe, your assumptions about a crash are miss-guided.

So why won't the housing market crash?

In simple terms, the market will not crash because there is an insufficient supply of housing to meet housing need. The demand for housing will fluctuate up and down and will impact on price. If the demand for housing is reduced, by say interest rate rises, then house prices may fall (as i'm sure they do in the future). Housing supply and housing need are very very complex areas which use computer modeling to try to estimate.

If anyone tells you their is no housing supply problem because 1) they looked on Rightmove and theres load of houses 2) there are loads of flats which are vacant in my area - therefore loads of housing 3) looked outside a saw loads of housing; then frankly they know nothing. If on the other hand some tells you they are a professor of demographic studies with the backing of a University behind them and undertake modeling work on a regular basis to inform housing supply debates at Examinations in Public, then they will know plenty about the complexity of housing need and supply. I am not one of these people, but i do employ them to try a convince the Government to increase the supply of housing.

The failure of the planning system - for the last 30 years

The amount of housing which is built is determined by the planning system, which is Plan led. Although a complex process in itself i can simplify it by saying that the level of housing need is debated and the Panel of inspectors will give their final report which is then adopted. The key points you need to know are:

a) determining housing need is a complex area with a number of factors from immigration, birth rates, average household size etc etc

B) Local authorities are against providing housing because it is not popular with local voters - who can keep them in power

c) the models used have always tended to under-estimated demand

d) the projections are made over 15 to 20 year timescales which cannot foresee future changes in government policy - eg UK opening up the boarders to other EU states; so no housing is provided for them

e) this failure of the system has been going on for about 30 years

When the government makes statements about an under-supply of housing it is this very complex area they are referring too; NOT the amount of properties for sale on 'rightmove'.

So why won't a House Price Crash happen?

Expecting a 20% fall of prices next year so you can buy a house? Sorry, its unlikely to happen. Because their has been such an under supply of housing their are countless people wanting to do the same thing. In fact so many people want a house price crash to happen so they can buy a house that they they go to housepricecrash.co.uk to try a convince themselve that it will. Another example of the under supply are the thousands of families waiting to be housed in Council housing in each local authority area; families in bedsits, the homeless, FTB's in rented accomodation, children still living at home - the list goes on and on and on - and its the reason that there will not be a house price crash. Its simple supply and demand!

What about the evidence for this under supply?

Government policy is changing with Gorden B proposing to develop more housing. This change in policy was in part brought on by a Treasury backed report by Kate Barker which examined the problem. you can find it at

http://www.hm-treasury.gov.uk/consultation...arker_index.cfm

In simple terms it identifies the problem of housing under supply and the only way to resolve it by building more houses

Before this there was a white paper from 1996 called something like "where shall we live - the problem of housing need in 2016. This predicted that we shall need a further 3 millions homes by 2016.

But what about all this extra housing which GB has told you about?

Too little, too late really. The figure which he is providing will are only a fraction what we need to produce as an absolute minium. There are also serious concerns about delivery particully as as a new planning system has been put in place to speed up the entire planning system which happening the opposite effect.

what about the other factors of HPI such as the ease of credit

Yeah, your right, its not only the under supply of housing which has fueled HPI but also other factors such as the ease of credit, low interest rates etc etc. you've all debated them for years and they have all contributed BUT its all been underpinned by the lack of supply.

But prices seem to be easing off, interest rates are going higher the US housing market is in a right state and house price are not affordable

Its likely that these factors may lower house prices but its unlikely it will cause a crash. As soon as prices become affordable all the people who have struggled to get on the market will do so, increasing demand and therefore prices. On this affordabily issue remember their is plenty of money in the economy and securing a mortgage is still easy. I know someone who has brought a £150k house and she's only on £17k. is it affordable for her - yes because she's brought it with someone else. Loads of people are purchasing together and thereby sustaining demand - its happening all over the place.

In a nut shell

1) massive under supply of housing over the last 30 years

2) This has underpinned recent HPI

3) Unable to build the houses needed to balance out the demand for housing

4) a 'crash' is unlikely to occur because any lowering of prices will make house purchasing more affordable which will increase demand and prices.

Just a few notes

A 'crash' in the market is not house prices weakening in a few parts of the country but more about huge loses of say 20 to 30% in a short period of time of say 6 months to a year

You may be impressed by some members and how they partry their argument across but if they've been a member for any amount of time, it means they have also predicting a crash for ages, which hasn't happened.

Im not saying the market won't go down slight - im sure it will. What im saying is that there won't be a crash

Know body can predict the future

You do infact raise some very valid points and you are correct that there is a shortage of housing especially of the right type and in the right areas, but this is well known and well publishized. The fact is the population has grown quicker than homes can be built even although we are in a record building programme with political talk of even higher number of new home development. This is, in my view, the bull argument in essence.

The problem with this argument is 1) other factors need be taken into account and 2) things change

Other factors include;

I believe the situation at the moment is as you say with prices being influenced by maximum affordability. The problem with this for HPI is that affordability can fall due to lower disposable incomes and rising costs of finance both of which is happening at the moment and is very likely to continue to happen.

Access to finance is also a neccessity for HPI to continue and this global liquidity that has been used for this purpose is slowly drying up

Things change such as;

The economy which has now recorded its 61 quarter of growth, which I understand is the longest period ever, may (very very likely very soon) go into decline. Economic migrants will no longer be able to prosper in the UK and leave back to their homeland or to more lucrative areas of the world. This would reverse demand dramatically and massive downward pressure on property would be a result. The last time this happened was between 1990 and 1992.

As the economy takes a dive resources are stretched with many losing employment and higher levels of default on the debt already occured. People would simply not have the resources to purchase.

I think your assessment is a very good one for what has happened from 2001 just about up to date, but you have failed to take into consideration current trends and likely events even over the shorter term. But good post though.

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Prices were rising well before the advent of cheap money. It was only an exacerbating factor 2002 onwards. Different geographical locations were at different stages of the house boom. In significant parts of London prices barely moved from 2002 to late 2005. The housing market is very fractured and many sub markets are currently acting completely differently to other sub markets.

Indeed, prices were rising before cheap money. They rose when money was expensive before they crashed the last time.

The 'natural' state of the housing market is one of constant rises followed by speculative bubbles followed by a correction. Had lending practices remained rational prices would most probably still have risen but at a more sustainable rate.

I don't disagree with you that the details of 'sub-markets' are more seemingly diverse than straight across the board rises. Nevertheless, loose money poured from London northwards and out into the rest of the world.

I don't have much interest in how 'sub-markets' are behaving (outside of Glasgow's West End) but they are about to all get on the same bus and it's going downhill.

Whatever happened within areas of London or Nottingham or Belfast, market behaviour has been driven by easy money. When that money disappears the house of cards will fall. Timing it is difficult; but it is inevitable.

Or I could be completely wrong and the property market will go up forever. But I'd say the odds of that happening tend towards zero whilst the odds of a very serious correction, that would constitute a crash in the minds of most people, are increasing as (mortgage debt-related) hedge funds, and therefore the source or driver of loose money, fall. For prices to continue to rise toward infinity the loose money would have to keep expanding and there is much evidence to suggest that the opposite is now happening.

A joker in the pack could be Gordon Brown, who may extend the madness by subsidizing banks in the creation of government-backed toxic waste. (Of course, it would never become toxic for we would all have to pay for the shortfall.) But even 'helpful' measures as this cannot hold back the approaching tsunami.

The only reason the general public are not aware of the current state of things is that our media has not figured how to make it into a digestible story yet. The media, for some reason unknown to me, regards housing price increases as 'good' and falls as 'bad'. (I lied, the reason is that media people own houses.)

When Bernanke suggested that the housing market will 'reman sluggish', his reluctance to admit reality was noted by markets. The reason that pundits claim that the problems in the US and Spain will not 'travel' is that financial contagion is not an obvious, measurable effect. But there is no way that billions, or perhaps even trillions, of dollars can be wiped from existence without affecting the whole world. And the most visible way that the effect will be seen is in the property market because prices in that market are not simply high, or inflated; they are madness. The same kind of madness that has awlays ended, in every market, with a correction.

Japan demonstrates how long these effects can last.

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My first Post here goes...

During the mid to late 80's I bought a 3 bed Terrace for £14k and sold for £26.5k due to relationship break up, I then started to rent. Then in '89 at the peak, a friend of mine bought a 3 bed Terraced for 43.5k and advised me that I didn't get on the ladder then I would never ever get on and would rent always. My response was that if you remove a price of something from the masses sooner or later a correction has to come about to allow you to sell your goods to that mass market. He didn't agree.

8.5 years later, I bought a house on the same block, same layout, same victorian builder for 38.5k, and was earning far more than I was in '89.

Now the spotty Herbert of an estate agent that came to "survey" it this year valued it at "hmmm! wait for it, 160k.

Point is, I sat that one out and I,m going to sit this one out also. It always seemed simple to me (no expert by the way) not complex if you price out your market place you will fail to sell your goods. peaks and troughs from panic buying and selling are inevitable due to the potentcy of fear.

Sit tight people, no buy = no sale, correction inevitable...

Sorry for stating the obvious

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You do infact raise some very valid points and you are correct that there is a shortage of housing especially of the right type and in the right areas, but this is well known and well publishized. The fact is the population has grown quicker than homes can be built even although we are in a record building programme with political talk of even higher number of new home development. This is, in my view, the bull argument in essence.

The problem with this argument is 1) other factors need be taken into account and 2) things change

Other factors include;

I believe the situation at the moment is as you say with prices being influenced by maximum affordability. The problem with this for HPI is that affordability can fall due to lower disposable incomes and rising costs of finance both of which is happening at the moment and is very likely to continue to happen.

Access to finance is also a neccessity for HPI to continue and this global liquidity that has been used for this purpose is slowly drying up

Things change such as;

The economy which has now recorded its 61 quarter of growth, which I understand is the longest period ever, may (very very likely very soon) go into decline. Economic migrants will no longer be able to prosper in the UK and leave back to their homeland or to more lucrative areas of the world. This would reverse demand dramatically and massive downward pressure on property would be a result. The last time this happened was between 1990 and 1992.

As the economy takes a dive resources are stretched with many losing employment and higher levels of default on the debt already occured. People would simply not have the resources to purchase.

I think your assessment is a very good one for what has happened from 2001 just about up to date, but you have failed to take into consideration current trends and likely events even over the shorter term. But good post though.

No, it was not a good post - because it is based on a false completely premise - that supply and demand govern house prices.

House prices are governed by demand and affordability.

Demand is driven by sentiment. I feel good about my job, the future, interest rates - I'll take the risk of a bigger mortgage and move up the ladder because, at the moment, property prices are rising.

Change the sentiment - I'm worried I'll lose my job, more and more jobs are going overseas, interest rates keep going up, the papers are full of stories about house price crashes - the most overvalued to wages in 18 years etc - and you change the demand.

Doesn't matter if there is one house on the market near you or a thousand, if people's sentiment has changed, the prices will fall. It's happened before, it will happen again.

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No, it was not a good post - because it is based on a false completely premise - that supply and demand govern house prices.

House prices are governed by demand and affordability.

Demand is driven by sentiment. I feel good about my job, the future, interest rates - I'll take the risk of a bigger mortgage and move up the ladder because, at the moment, property prices are rising.

Change the sentiment - I'm worried I'll lose my job, more and more jobs are going overseas, interest rates keep going up, the papers are full of stories about house price crashes - the most overvalued to wages in 18 years etc - and you change the demand.

Doesn't matter if there is one house on the market near you or a thousand, if people's sentiment has changed, the prices will fall. It's happened before, it will happen again.

:lol:

The OP was a good post and unfortunately yours was not

Supply and Demand influences all goods and services.

You seem to half understand this by stating how certain factors may influence demand such as sentiment. You also noted that demand can also be influenced by affordability. If you can not afford something at the market value then you are not in a position to effect the price no matter how much you desire something.

If we were talking about a commodity that was not a neccessity such as tulip bulbs for example, sentiment would pay a more important roll in the demand side of the equation as demand could in theory go to zero.

Housing is a basic human need and is not tranferable into another type of product/service, so it can be said the price of houses is in-elastic.

If there is a high demand, very high "need" for people to be housed, but both sentiment and affordability changed then there would be some downward pressure on prices, but ultimately, because housing is a neccessity, prices would revert to the "maximum affordable". This maximum affordability could very well be lower than today because people could have less money, finance could be more expensive and less available but the real cost for people could be even higher. Real cost would be how much it effects them.

You dont even mention supply. If half the houses in England were taken away do you seriously believe it would make no difference to demand? :huh:

You may not like or agree with the OPs views and concludsions but it seems you are simply not bothering to look at any facts.

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I've been away from a computer since my original post but i have manged to read through the responses.

my comments are as follows:

1) yes i did write the article. I'm a planner by trade so understand the key arguments well.

2) some of you noticed my spelling and i can confirm that i am slightly dyslexic

3) Some people still kept on making reference to the amount of properties available on the market as an indicator of housing supply. If people consider the supply of housing to be such a blank and white issue, then so be it

4) Reference was made to the previous crashes and while didn't the lack of supply count then. My response to this is that there was still 'slack' in the market and that its been the 30 years under supply which is the issue

5) Market sentiment was pointed at as being vital - to which i totally agree. There are a number of factors which determine demand which i did not list because the post would have been even longer.

6) The majority of people (but not all) dismissed that supply really has to do with market price movements. i can't really say much about about that except read a basic economics book

7) I am not an estate agent or IFA

8) I can understand why the dynamics of supply are not vary obvious to people because they are not exposed to it on a regular basis, unlike say interest rate movements which affect everyone (including me)

9) some of you even looked at the Barker Report. If a key government document stating that we need between 70k and 120k extra homes pa does not demonstrate that we need more housing, then so be it

10) a geniune thank you to everyone who gave good arguments and informed the debate

11) last ....but not least.......no one countered my argument with hard evidence (something along the lines of "we do in fact build enough homes and here is the evidence") so maybe, just maybe this housing market is one complicated mother....................................

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I've been away from a computer since my original post but i have manged to read through the responses.

my comments are as follows:

1) yes i did write the article. I'm a planner by trade so understand the key arguments well.

2) some of you noticed my spelling and i can confirm that i am slightly dyslexic

3) Some people still kept on making reference to the amount of properties available on the market as an indicator of housing supply. If people consider the supply of housing to be such a blank and white issue, then so be it

4) Reference was made to the previous crashes and while didn't the lack of supply count then. My response to this is that there was still 'slack' in the market and that its been the 30 years under supply which is the issue

5) Market sentiment was pointed at as being vital - to which i totally agree. There are a number of factors which determine demand which i did not list because the post would have been even longer.

6) The majority of people (but not all) dismissed that supply really has to do with market price movements. i can't really say much about about that except read a basic economics book

7) I am not an estate agent or IFA

8) I can understand why the dynamics of supply are not vary obvious to people because they are not exposed to it on a regular basis, unlike say interest rate movements which affect everyone (including me)

9) some of you even looked at the Barker Report. If a key government document stating that we need between 70k and 120k extra homes pa does not demonstrate that we need more housing, then so be it

10) a geniune thank you to everyone who gave good arguments and informed the debate

11) last ....but not least.......no one countered my argument with hard evidence (something along the lines of "we do in fact build enough homes and here is the evidence") so maybe, just maybe this housing market is one complicated mother....................................

If there's anything insightful in that lot, could someone point it out?

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I've been away from a computer since my original post but i have manged to read through the responses.

my comments are as follows:

1) yes i did write the article. I'm a planner by trade so understand the key arguments well.

2) some of you noticed my spelling and i can confirm that i am slightly dyslexic

3) Some people still kept on making reference to the amount of properties available on the market as an indicator of housing supply. If people consider the supply of housing to be such a blank and white issue, then so be it

4) Reference was made to the previous crashes and while didn't the lack of supply count then. My response to this is that there was still 'slack' in the market and that its been the 30 years under supply which is the issue

5) Market sentiment was pointed at as being vital - to which i totally agree. There are a number of factors which determine demand which i did not list because the post would have been even longer.

6) The majority of people (but not all) dismissed that supply really has to do with market price movements. i can't really say much about about that except read a basic economics book

7) I am not an estate agent or IFA

8) I can understand why the dynamics of supply are not vary obvious to people because they are not exposed to it on a regular basis, unlike say interest rate movements which affect everyone (including me)

9) some of you even looked at the Barker Report. If a key government document stating that we need between 70k and 120k extra homes pa does not demonstrate that we need more housing, then so be it

10) a geniune thank you to everyone who gave good arguments and informed the debate

11) last ....but not least.......no one countered my argument with hard evidence (something along the lines of "we do in fact build enough homes and here is the evidence") so maybe, just maybe this housing market is one complicated mother....................................

The fundamental question of affordibility seems unanswered. It is only through freely available (some may say sub prime lending) that prices can be sustained. If this credit dries up how can the market be sustained?

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If there is such a chronic "shortage of housing", why have rents stagnated over the last 5 years?

I suggest you read the latest reports from ABN Amro, Morgan Stanley, BoA, etc on the UK housing market. Feel free to search this forum to dig them out. -_-

Edited by studdymx
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I've been away from a computer since my original post but i have manged to read through the responses.

my comments are as follows:

1) yes i did write the article. I'm a planner by trade so understand the key arguments well.

2) some of you noticed my spelling and i can confirm that i am slightly dyslexic

3) Some people still kept on making reference to the amount of properties available on the market as an indicator of housing supply. If people consider the supply of housing to be such a blank and white issue, then so be it

4) Reference was made to the previous crashes and while didn't the lack of supply count then. My response to this is that there was still 'slack' in the market and that its been the 30 years under supply which is the issue

5) Market sentiment was pointed at as being vital - to which i totally agree. There are a number of factors which determine demand which i did not list because the post would have been even longer.

6) The majority of people (but not all) dismissed that supply really has to do with market price movements. i can't really say much about about that except read a basic economics book

7) I am not an estate agent or IFA

8) I can understand why the dynamics of supply are not vary obvious to people because they are not exposed to it on a regular basis, unlike say interest rate movements which affect everyone (including me)

9) some of you even looked at the Barker Report. If a key government document stating that we need between 70k and 120k extra homes pa does not demonstrate that we need more housing, then so be it

10) a geniune thank you to everyone who gave good arguments and informed the debate

11) last ....but not least.......no one countered my argument with hard evidence (something along the lines of "we do in fact build enough homes and here is the evidence") so maybe, just maybe this housing market is one complicated mother....................................

Where's the money going to come from to keep hpi alive?

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Where's the money going to come from to keep hpi alive?

The banks can securitise their mortgage portfolios. Pension funds and hedge funds will invest their money in these funds. This will free the banks up to make more irresponsible lending. Sounds familiar? :P

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I've been away from a computer since my original post but i have manged to read through the responses.

my comments are as follows:

1) yes i did write the article. I'm a planner by trade so understand the key arguments well.

2) some of you noticed my spelling and i can confirm that i am slightly dyslexic

3) Some people still kept on making reference to the amount of properties available on the market as an indicator of housing supply. If people consider the supply of housing to be such a blank and white issue, then so be it

4) Reference was made to the previous crashes and while didn't the lack of supply count then. My response to this is that there was still 'slack' in the market and that its been the 30 years under supply which is the issue

5) Market sentiment was pointed at as being vital - to which i totally agree. There are a number of factors which determine demand which i did not list because the post would have been even longer.

6) The majority of people (but not all) dismissed that supply really has to do with market price movements. i can't really say much about about that except read a basic economics book

7) I am not an estate agent or IFA

8) I can understand why the dynamics of supply are not vary obvious to people because they are not exposed to it on a regular basis, unlike say interest rate movements which affect everyone (including me)

9) some of you even looked at the Barker Report. If a key government document stating that we need between 70k and 120k extra homes pa does not demonstrate that we need more housing, then so be it

10) a geniune thank you to everyone who gave good arguments and informed the debate

11) last ....but not least.......no one countered my argument with hard evidence (something along the lines of "we do in fact build enough homes and here is the evidence") so maybe, just maybe this housing market is one complicated mother....................................

I looked at the supply issue re scotland a few months ago,

""For comparison purposes it is better to look at a time frame of longer than one year, as population change tends to fluctuate from year to year, particularly for smaller areas. Since mid-2001 and the 2001 Census, Scotland’s population has increased by 0.6 per cent (+30,600) from 5.06 million to 5.09 million (Table 5). However, over the last ten years, Scotland’s population has decreased by 8,890 (-0.2 per cent): 5.10 million to 5.09 million"

264,031 new homes built in the last decade

approx 5000 houses demolished a year in the last decade

"There are currently 87,000 empty homes across Scotland."

"THE cost of the average house in Scotland has increased by up to 178 per cent in the last decade"

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6) The majority of people (but not all) dismissed that supply really has to do with market price movements. i can't really say much about about that except read a basic economics book

Attempting to apply the "laws of supply and demand" (as found in any standard textbook treatment of microeconomics) to the housing market is likely to backfire.

The bulk of mainstream economic analysis relies on a number of assumptions - not least, the idea of a "free market". That is, when assessing the market for apples, you assume that people may consume no apples, one apple, or several apples, depending on how much they like apples and what price they sell for. Same with DVDs, restaurant meals, etc.

But the housing market is not a free market. Participation in the housing market, whether by purchasing a house to live in or renting one from a landlord, is almost entirely mandatory in today's society. This completely changes the dynamics of the market.

In fact, the housing market is almost entirely about sentiment, much like the stock markets. In a bull market, people rush to buy houses (or stocks) because they extrapolate returns from the recent past into the future. In a bear market, people rush to sell houses (or stocks) because they extrapolate losses from the recent past into the future. The prices of shares fluctuate wildly according to the perceived soundness of the underlying investment, without any restriction of supply. The same is true of the housing market.

A true shortage of housing would see a lot much higher rents, as people rushed around madly trying to outbid each other in a big game of musical chairs, lest they be left living on the streets. But that's clearly not happening. So obviously we are capable of "getting by" with the current level of housing stock. Is the current situation ideal? No, it's not, in a variety of ways. We have too many flats and too many 6-bed mansions and not enough 2- and 3-bedroom houses for small families. But this "housing crisis" is all in the mind.

The British public have whipped themselves up into a frenzy and convinced themselves that the only way to prepare for the future is to own the roof over their head at any cost, and that the only way to get rich is to buy a house. They have collectively borrowed quite ludicrous sums of money to buy into the housing dream. It is mass hysteria, and it is unsustainable. And we are about to see how unsustainable it really is, when the lenders start ever-so-politely asking for their money back.

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It's poor whatever way you look at it.

You could have summed up your effort in three words 'supply and demand' D for effort I suggest this pupil sticks to trolling other boards as he lacks the imagination and spark and his grasp of basic economics leaves much to be desired :P

Its all my own work. Spelling diminished towards the end
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Guest vicmac64

Hey everyone... stop replying to this post - its irrelevant already - prices are crashing in Northern Ireland - average house down 30k in 3 months in popular Ballymena area.

The news has been delayed - when it breaks the dam will burst.

So its not worth debating - the crash of all crashes is here - can't you hear the rumble..

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Hey everyone... stop replying to this post - its irrelevant already - prices are crashing in Northern Ireland - average house down 30k in 3 months in popular Ballymena area.

The news has been delayed - when it breaks the dam will burst.

So its not worth debating - the crash of all crashes is here - can't you hear the rumble..

very true

those of us in the front line are getting a taste of what's coming your way!

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I've been away from a computer since my original post but i have manged to read through the responses.

my comments are as follows:

1) yes i did write the article. I'm a planner by trade so understand the key arguments well.

2) some of you noticed my spelling and i can confirm that i am slightly dyslexic

3) Some people still kept on making reference to the amount of properties available on the market as an indicator of housing supply. If people consider the supply of housing to be such a blank and white issue, then so be it

4) Reference was made to the previous crashes and while didn't the lack of supply count then. My response to this is that there was still 'slack' in the market and that its been the 30 years under supply which is the issue

5) Market sentiment was pointed at as being vital - to which i totally agree. There are a number of factors which determine demand which i did not list because the post would have been even longer.

6) The majority of people (but not all) dismissed that supply really has to do with market price movements. i can't really say much about about that except read a basic economics book

7) I am not an estate agent or IFA

8) I can understand why the dynamics of supply are not vary obvious to people because they are not exposed to it on a regular basis, unlike say interest rate movements which affect everyone (including me)

9) some of you even looked at the Barker Report. If a key government document stating that we need between 70k and 120k extra homes pa does not demonstrate that we need more housing, then so be it

10) a geniune thank you to everyone who gave good arguments and informed the debate

11) last ....but not least.......no one countered my argument with hard evidence (something along the lines of "we do in fact build enough homes and here is the evidence") so maybe, just maybe this housing market is one complicated mother....................................

Sorry, why you always point to only one argument that the supply is not adequate to meet the current demand.

There is a general balance, how you decide a price based on Supply and demand.

Both demand and supply can shift in either negative or positive direction for many reasons, and while we know the current supply rate we can only estimate the future demand rate.

The Housing market is constructed from buyers, sellers, lenders and borrowers interactions, not just buyers and sellers so the supply and demand law has completely subjective nature, it is influenced by affordability and credit availability, these terms may be influenced by those doing the measuring -> the banks.

Current demand can shift for few reasons - many users have pointed, they are:

Demand Shift:

Housing affordability

->Interest rates -> user costs grow/decline - > End price of the House

Constrain access to mortgage credit

->instability set in

->lenders abandons risky approaches to mortgage lending.

->Lending Forecasting

->Credit Crunch

Confidence in future home prices

->Economic Forecasting When the Subject of the Forecast is influenced by the Forecast

->Unavailable clear information or signal from the market when close to tipping point

->Worthiness of a housing investment/consumption decisions unclear

->Future consumption plans?

->Negative Equity?

->Profit Squeeze?

->Wait for the clear signal/withdrawal from the market.

Returns on other investments become relatively more attractive

Profit margin decrease

Maximizing profits? - Source and the ease of extracting a profits.

Supply Shift:

Speculators or second homeowners exit the market

->More homes on the market for sale.

Job losses

->foreclose on defaulted loans

Interest rate increases

->mortgage payment shocks

->distressed sales or defaults

Supply Shift & Demand Shift interactions:

->Increasing in Defaults (Supply)

->Lending Forecasting, Constrain access to mortgage credit (Demand)

->More homes on the market for sale (Supply)

->Confidence in future home prices (Demand)

->Interest rate increases (Supply)

->Housing affordability (Demand)

........

What drives the price up is Confidence in future home prices rise driven by constant demand.

Overvaluing occurs when there is an excess of confidence; the overestimation in this case is that there will be no shift in demand.

While shift in supply - overbuilding or market saturation is not possible in the near future, shift in demand is quite possible because is influenced by all of the other factors.

So when we have a shift in demand we have a new price, when the new price is lower or much lower we describe this as decline from previous valuations, some people like RB would like to describe it as a Crash, or big Crash or whatever (adjustment).

Immigration - We have seen recent publication that the estimated demand from immigrants is in fact overestimated.

From a view point of absolute beginner this is how the market works, Excuse me if I've got the structure wrong, but I am newbie and please correct me if I am wrong.

Edited by alabala
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Attempting to apply the "laws of supply and demand" (as found in any standard textbook treatment of microeconomics) to the housing market is likely to backfire.

The main issue isn't the supply (or shortage) of houses. It is the demand for houses.

In the long term, supply is determined by demand, not the other way round (whether houses or apples).

So you have to look at the factors involved in creating this demand and the consequent, apparent shortage of supply. However, the way that supply responds to demand does determine price, but it is still a product of demand.

The factors contributing to demand are far more complicated than the supply issue. Take away the demand and the supply sorts itself out fairly quickly. A few of the factors contributing to demand are levels of employment, wages, yields on rental properties, interest rates, lending criteria/regulation, demographics (which includes plenty of other stuff like immigration, divorce rates etc), social housing policy, geographical mobility, cultural attitude to risk/speculation and so on. And, yes, sentiment is also important.

Increasing the supply of housing to a certain level very quickly would reduce prices (supply and demand at its most simple) but there are obvious barriers to doing this. But it is simply wrong to assume that house prices will not fall unless 3 million houses are knocked up overnight.

It doesn't matter how many people want a house or even need a house, desire to own a house is irrelavent without the means to purchase it. The collapse in demand for housing will be the reason for the next crash, the lack of supply/shortage of housing will be an irrelevance.

As to what exactly will cause it or when is anyone's guess, but it will happen and I believe soon.

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Good question is to ask ourselves is the real Estate market is a Ponzi game based on unrealistic expectations “Irrational exuberance”. Well looking as a whole into the market from any perspective even me as a newbie can see that market I extremely overvalued – simply FTB cannot buy a house, there is no affordable Housing.

Immigration, look at the statistics and how fast immigrants can became participants in the Housing Market there they need time before changing the status from tenants to FTB.

That is why many have seen an opportunity in BTL business, but everything is again an Investment and an investment need a profitable return to be sustainable. So it is a Ponzi game because the whole scheme is based on expectations and not real demands, so to stay in the game we need constant steadiness in demand, as far as the systems stays without major disturbances It will be self sustainable, the only problem is that we need constant profit to keep it alive, and as we also know we measure profit not only in numbers but in terms of time and effort you invest in something to gain or increase our profit. That simply means that we have pure individually orientated factor of how worthy is something, increase in demand is caused by the idea of making a profit and securing a future or house as a pension fund as a BTL business.

So another good question is how profitable all these new BTL are and in long term how self sustainable, if the profit fade the worthiness of the BTL schemes turn out to be a pain in the butt, so either you stay in or cash out and find more profitable business.

The real danger in the whole Housing Industry is the BTL business and how expansive the investors are. So we need constant immigration for the process to feed itself, that mean we need constant grow in Employment and good performing economy. We have to test the whole system if still going to work in bad performing economy, what if we have a slowdown in immigration or we overestimated the demand for Rented property from immigrants, what if we have a bad year and don’t forget that all these people will “compare the income benefits from migration with the economic and social costs of moving. If the benefits outweigh the costs, they may choose to migrate.” what if there is no demand for rented property, here is another question is how long the BTL businesses can stay afloat without generating profit or income. We know that the big player will have no problem but the small ones will have to take a big hit and consider is it worthy to be an investor in such a risky game. So if the business is not self sustainable will have to cease to operate and liquidate. By releasing large number of properties on the market simultaneously you give a big signal to the others that the business is not profitable and they have to reconsider or recalculate again, in the same way rating agencies downgrading generates a signal, the problem again is with the human psyche if this trend persists other players will form their actions on the base of other peoples actions which create a herding action surely there must be reasons for this happening.

The irrationality is in the human psyche, everybody wants profits, nobody likes loses. If few people are profiting form a trade or business other people trend to copy them and to follow their actions, the market can absorb newcomers until the point of saturations or too many players on the table in the same time consequently this means squeezing profits and strong competition pushing down profits and margins. Market based on expectations is not rational; it follows speculative trends.

Looking at the literature on herding available we can see how quickly the mood can shift from positive to negative, from buy to sell, nothing to do with demand and supply or planning regulations, if the expectations lower there is a strong tendency in releasing assets. I am absolutely new to this business, but one thing I know is to ask myself why I am doing this, why I am buying this property, because I need it to live in it or to invest and earn. If it is not affordable why I should buy it at all, surely nobody wants a thing that will make them anxious and worried every time there is a jump in the IR.FTB already have retreated from the market, there is a shift form Buying to live in to Buy to let. The whole madness is that the foundation that formed the market has simply crumbled , it’s no longer existent, the FTB no longer want to pay the price now matter that the supply and demand is strongly opposing their actions.

So what we have here is a Ponzy game without players, bad thing is that these already in will take a big hit. I have no experience, or confidence to predict when this is going to happen, and what exactly will trigger the shift in the market, that is why I am basically here to look for signs that other may have seen already, is neither bearish nor bullish behaviour if one want to avoid financial troubles or hardship, Despite my inexperience I am not sheepish, I may be wrong in seeing the signs but at least I am trying to see a reasonable explanation behind my actions, and on this basis I can either stay and wait or join the game, the choice is mine and even if the outcome is painful I can bear the consequences of my actions, thank God for this website.

http://213.86.34.248/NR/rdonlyres/805656A4...igration_FR.pdf

http://business.fullerton.edu/finance/jour...n01/v15p041.pdf

So why is it different this time?

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