Monday, March 19, 2012

You always thought they had a bad attitude – now you know!

House prices to rise for years, says BoE's David Miles

He said: “We should anticipate a rising trajectory for real house prices over the longer term". "However, a housing boom would be out of reach for first time buyers", he added, "because credit will remain in short supply. Before the financial crisis, buyers did not need a deposit to secure a mortgage. Since the recession, though, large deposits have become essential".

Posted by alan @ 05:23 PM (2306 views)
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15 thoughts on “You always thought they had a bad attitude – now you know!

  • “David Miles, one of the Bank’s nine rate-setters, said in an official paper

    Which one, Mr. Aldrick?

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  • mark wadsworth says:

    Completely mental. Can people not see that this is complete madness?

    Ah yes, of course, Poor Widows In Mansions, that’s why we have to have a system where land ownership becomes ever more concentrated, right.

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  • There is another problem for the new generation of priced out renters. They will need to double their pension contribution to be able to continue renting after they retire.

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  • It’s worth reading the full paper. There are many graphs and a lot of thought has gone into it.

    One interesting piece of research across multiple countries shows that as the population density in any country rises, the supply of building land actually falls. This is mainly due to planning restrictions. Obviously this amplifies the price rises.

    To help FTBs, the author proposes more widespread availability of equity-loans, whereby the bank lends you e.g. £25,000 and instead of paying interest you commit to paying 20% of the increase in the property’s value after five years. No mention of LVT as a possible solution.

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  • Supply and demand again. It’s supply and effective demand, which depends on real wages (poor, especially for new arrivals causing that increase in pop. density) and credit (poor).

    “One way in which financial institutions could provide such loans (in which lenders gain/lose from house price rises/falls) without taking on significant house price risk is to issue savings products with returns linked to house price changes, a saving product which potential home owners are likely to find particularly useful.”

    But would savers as a whole find it ‘useful’? Would they be happy to be the ones taking the risk? Would that risk include negative nominal interest rates if house prices fall – in which case is it a savings product? Caveat emptor? Yes, but how many alternatives do savers have?

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  • little professor says:

    Holy ****, these guys are beyong belief

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  • mark wadsworth says:

    D; “One interesting piece of research across multiple countries shows that as the population density in any country rises, the supply of building land actually falls.”

    Probably true on Planet Nimby, but in actual fact, the reverse is true, in the absence of Nimbyism, there are more places where people would like to live in more densely populated countries/areas (by definition). We’re always told that we are “a crowded island” and that Germany has twice as much space per person (actually it’s only a tenth more than the UK as a whole, or 50% more than England).

    But where do people want to live in Germany? In the towns and cities. The only difference is that the gaps between the towns and cities are bigger in Germany, once you’re in the town, it looks much the same.

    More to the point, if you had a choice of a few acres to build some houses and sell them to make the best profit, would you want those acres near Munich or near a Godforsaken little village on the border to Poland? The former is good building land, the latter isn’t. It might be impossible to build and sell homes at a profit if those few acres are in the middle of nowhere.

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  • would you want those acres near Munich

    I would actually – I love Munich.

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  • stillthinking says:

    So the general population cannot afford to purchase from their own resources, however the banks, backed by these self-same resources, can bear 20% of the load.

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  • “…Under his plan, providers would take equity in the property in return for a larger share of the upside rather than any monthly or annual payments. He used the example of a 20pc equity loan, which would take 36pc of the increase in the value of the property…In exchange for taking a higher share of a capital gain on a property a provider of an equity loan might agree to receive no payments until the property is sold,” he said…One way in which financial institutions could provide such loans without taking on significant house price risk is to issue savings products with returns linked to house price changes, a saving product which potential home owners are likely to find particularly useful.”

    So because FTB cant save the required depost equity loans will be provided and these will be funded by offering a new savings product linked to house price changes which will be particularly attractive to … FTB!?!

    This is about as circular as the ECB bailout plan!

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  • @10 – Quite. The BoE is supposed to look at the economy as a whole and not to think like a housebuilder/VI saying “now how can we persuade the govt/finance sector to cough up the funding that will get the result we want.”

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  • mark wadsworth says:

    Stillthinking #10, yes that is what the powers that be would like to achieve, and in fact they have achieved it.

    The next step is to privatise the air supply, giving a windfall gain to everybody who gets the initial shares, which will have a guaranteed stream of future income from future generations who don’t want to suffocate, so the capital value of the shares will be enormous, allowing wealth to cascade down the generations.

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  • landofconfusion says:

    “We should anticipate a rising trajectory for real house prices over the longer term”. “However, a housing boom would be out of reach for first time buyers”

    Housing boom FTB’ers = BTL paradise.

    “One way in which financial institutions could provide such loans (in which lenders gain/lose from house price rises/falls) without taking on significant house price risk is to issue savings products with returns linked to house price changes”

    Wouldn’t this be some kind of mortgage-backed security?

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  • IG Index enables you to bet on house prices. Surely that’s the simplest and most cost-effective way to gamble in that market.

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