Saturday, July 7, 2007

There are still a lot of optimists out there

UK house prices? Future of housing market?

A Dr Patrick Dixon's video about house prices. He seems to be quite optimistic about emigrants and the way they supports house prices, does he really think Poles will stay here for ever? In my opinion: no way.

Posted by wojtek @ 12:49 PM (522 views)
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13 thoughts on “There are still a lot of optimists out there

  • Polish construction workers came here because of the property-boom-led construction boom. The suggestion that they are a major cause of the boom is absurd!

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  • confused76 says:

    i found the video entertaining…

    But the arguments do not stack up. Superficial, newspaper-depth analysis

    for instance, like royston says, there is a correlation between housing boom and immigration… but what is the causality link between the two? one can argue that housing boom has brought prosperity that has attracted immigration that has fueled the housing boom. you understand that this trend is very dangerous, since the moment disposable income is squeezed: people can afford only cheaper homes and economic immigrants leave depressing the house prices even further/

    another question. according to the immigration theory, house prices should go up in UK, but go down for the opposite reason (emigration) in Poland, Romania, Lithuania, Latvia, Estonia, Czech etc… Why is it that prices are going up both in countries with inflow and outflow of migrants?

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  • entertaining…but nonsense. Dixon suggests that house buyers today could handle a home loan of 8.5x income. At a rate of 6% this would mean repayments around 90% of my take home pay. What a great life I would have!

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  • Entertaining video – but classic mistakes in his logic – he does the whole ‘this time it’s different’ rant!

    His own argument says that borrowing at 3.5x salary at 12% means at 6% affordability means he could borrow 7x salary – as in ye olde days – when I struglled.

    (an aside – in 1977 ave. house was £12K (or £50K in new money) – now £200K)

    Well maybe in the transition of time affordability can be gerrymandered like this – but perhaps (as they always say) things go up as well as down – so borrowing at 7x salary is a problem if you are borrowing at the bottom of a cycle – as it looks like we’ve been in – in recent years.

    And – as we know – a 0.25% rise in IR on a 7x salary mortgage is going to sting more than a 0.25% rise in IR on a 3.5% salary mortgage.

    You are effectively creating your own sub-prime problem – as you will when you change to or start at a fixed rate – or change or start an interest only mortgage.

    Most of the other issues are valid – single occupancy, planning permission, supply (to some degree – but this is buggered about with by BTL) – but his immigration argument is cack.

    Oh – and the whole things are cheaper than ever inflation not a problem – well the China effect is on the waine too.

    Considering he made this vid very recently – he only speaks from a myopic view of history and knowledge – but something tells me he will prob survive a crash – lucky baby boomer!!!

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  • Oh – forgot to ask – do house prices continue to rise when there are no-one or enough people left to buy them?

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  • I think we should take the video with a pinch of salt. What do you expect a person who makes a living from property say?
    Things like this are desparate attempt for some more business, There wern’t any such video’s when prices were actually rising.
    And poles were not allowed to come in at that time.

    I must also add that although the EU’ citizens are coming to the UK, UK has made very strict immigration constraints for the Rest of the world.
    Last year around 16,000 indian trainee doctors had to go back. Around 40,000 highly skilled Indian migrants have been asked to go back.
    Same is also true for the rest of the world apart from EU.

    He does not have a balanced argument and we know that. Just see how bad a position this man would be in.

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  • Ihopeitgoeswithabang says:

    I’m not sure that advising people to accept x7 salary mortgage is good advice!
    The reason a limit is set more or less at x4 is because it is called ‘responsible lending’.
    If the banks thought for one minute that it was a good idea and they could make money – they would lend x7!

    A house price crash will happen when there is no confidence left in the system. What this guy is trying desperately to do is inspire some confidence.
    Much the same as all the estate agents in my area!

    Something I have not seen happen for a while has started to happen. Houses are not selling. I know at least 4 people who cannot sell their houses.
    It is true to say that BTL is being propped up by Immigration. But nearly all those immigrants have one thing in common. They have no money!
    Not exactly what you need to prop up the most expensive housing market in history!

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  • Perhaps deepak that not letting in immigrant doctors is something that will continue, at least in the forseeable future, due to recent events.

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  • george monsoon says:

    nearly 30

    This is exactly the kind of point I will try to make when I go on TV.
    enough VI

    Banks and the government have done nothing to stop iresponsible lending .. and borrowing.

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  • Two points struck me about the video.

    Firstly the “we’re a small island with not of lot of land to spare so house price are bound to rise forever” slant. I think this is a red herring, as mentioned many times here on the blog. In a word, Japan.

    Sure, there are associated factors; the availability and release of land, the influx of foreign workers, changing demographics and so on. But as has been discussed on the blog many times before, the current situation is not simply about there being insufficient housing stock but more importantly insufficient affordable, vacant housing.

    However I think all this detracts from the fact that demand has been based on the underlying credit/debit cycle. When it’s cheap to borrow, it can make sense to do so, leverage oneself, own assets, move up the ladder and so on. Conversely when cost of borrowing rises, saving makes sense and debts can bite. I just don’t buy the fact that our population is drastically different now to say 10 years ago. It’s not like the UK birthrate is sky-rocketing. I think house prices have been driven up mainly by a combination of a cheap credit era encouraging borrowing plus the demise of pensions encouraging alternative investment, and not just because there are more people in the UK than ever before.

    Secondly, I was amused by the explanation about the rising immigrant population:…immigrants come here come to work and settle, and meanwhile we’re told their families are growing and growing and growing…pushing the UK population up and up. What about the counter-argument that because a lot of ordinary couples can’t get on the ladder, or move up it, so starting a family is deliberately postponed? Won’t this decrease the birthrate also? Dr Dixon’s view is that first people breed like crazy and then this suddenly, automatically creates a need to house them…not the other way around where people arrive, settle, and when (if) they might eventually think they can afford it, then look to marry, start families and so on.

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  • Matt_the_hat says:

    All I can say to the demand argument is whats hapening in the rental market after all I’m sure immigrants will rent before they buy. What a load of bo**ocks!!

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  • japanese uncle says:

    Property price is a function of monetary liquidity, i.e. cheap money artificially created by central banks, period.

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  • “Property price is a function of monetary liquidity, i.e. cheap money artificially created by central banks, period.”

    Yep. Most of the other stuff is rationalization, pure and simple, by people who assume that fundamentals MUST be in play and go looking for what common sense says they must surely be.

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