Great News! House Prices Are Down

[BufferBear Bitcoin Bull]

http://www.timesonline.co.uk/tol/comment/c...icle3260831.ece

From The Times

January 28, 2008

Chris Hamnett

It is clear now that the housing market has peaked and has begun to fall over the past few months. Figures for December from the Council for Mortgage Lenders show gross lending down a quarter on November and down one fifth on December 2006.

But, rather than fearing price falls as the beginning of the housing market's equivalent of foot and mouth disease, they should be welcomed.

The idea that rising house prices are a good thing has been etched in the British national psyche since 1970. Existing owners build up equity in their home, giving them a feeling of growing prosperity. Stable or steadily rising house prices also generate certainty in the market. As a result, we have come to regard housing as a sound investment and better than pensions or the stock market.

There are two problems with this rose-tinted view. First, house prices do not rise in a straight line. We have had four price booms, followed by slumps, since 1970. The first three were relatively benign but in the 1989-95 slump prices fell by more than a third in London and the South.

The second problem occurs when prices rise so fast that the house price/earnings ratio goes ballistic. This is what has happened in the past decade and the result is a massive affordability problem. From 1995 to 2007 average house prices have risen 230 per cent (from £60,000 to £184,000), and the house price/earnings ratio has risen from 3.1 to 5.8.

What this means is that large numbers of potential first-time buyers are priced out of the market. The proportion of mortgages going to them has fallen from 55 per cent in 1994 to 35 per cent today; the number of such buyers is at its lowest for more than 20 years.

The Marie Antoinette reaction would be to say “let them rent”. But the long-term stability of the market depends on a rough equilibrium between the number of last-time sellers exiting and new dwellings built, and the number of new first-time buyers or buy-to-let landlords.

The market for homes requires a constant supply of new buyers to keep it running smoothly. To get the market back into equilibrium, price falls are needed.

If house prices were simply to mark time while earnings rose, this would make housing more affordable, but it would be a slow process. A much sharper correction is needed. This will hit owners who have bought in the past couple of years - who could face negative equity - but it may be a necessary cost.

The long-term stability of the housing market and the confidence and prosperity that rests on it depend on the British house price bubble being deflated.

Edited January 27, 2008 by Buffer Bear

[Guest AuntJess]

Blimey! Great article...but WTF kept it? We have known this for a good few years. why were these pearls of wisdom so long in coming?

[29929BlackTuesday]

Well blow me down. We've been rather too previous (as they say round here)! What fools we were to have said all this in 2003.

Thank heavens for the Times.

Turncoats.

They know what's coming and now they've burnt their swastikas and are hanging hastily-sewn "Welcome les Tommies" flags out of their windows.

THe resistance know they were collaborators and will shave their hair off in the streets.

I'm never going to buy a Times again - they're snivelling cowards and they won't have MY 50p.

[jammo]

The Grand old Duck of York, he had ten thousand men...

[Mancghirl]

Well blow me down. We've been rather too previous (as they say round here)! What fools we were to have said all this in 2003.

Thank heavens for the Times.

Turncoats.

They know what's coming and now they've burnt their swastikas and are hanging hastily-sewn "Welcome les Tommies" flags out of their windows.

THe resistance know they were collaborators and will shave their hair off in the streets.

I'm never going to buy a Times again - they're snivelling cowards and they won't have MY 50p.

Superb.