Friday, May 22, 2015

Bbubbles are social-psychological phenomena, so are naturally difficult to control.

Guardian: Speculative bubbles dont just pop

A speculative bubble is a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increase." This attracts "a larger and larger class of investors, who, despite doubts about the real value of the investment, are drawn to it partly through envy of others' successes and partly through a gambler's excitement."

Posted by debtserf @ 10:09 AM (4911 views)
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7 Comments

1. quiet guy said...

Tragically, the advantages to property speculators may not be in bubble territory. That it is so difficult for a new worker on an average wage/contract to get on the ladder is a disgrace. Scams and schemes to feed off the property investment market may catch out some BTL wannabes:

http://www.telegraph.co.uk/finance/personalfinance/investing/11622843/How-126-investors-bought-this-212900-property-in-35-minutes.html

See second comment by 'soysauce1' and recall the property investment seminars that have been discussed here in the past.

Friday, May 22, 2015 11:36PM Report Comment
 

2. reticent said...

I've read a definition of a bubble in a fair few textbooks and the consensus seemed to be that bubbles are rational and that they take place when people pay over and above what they feel to be the fundamental value of the asset (i.e. the present discounted value of its expected income stream), simply because they see the price is rising way beyond the fundamentals and they expect to realise a capital gain long before there is a return to sanity.

No disrespect to Robert Shiller, but I think that sums it up. Housing is surely different to most assets anyway, since the fundamental value is continually rising, at least in the long run. So, when a housing bubble "pops", it's really just a blip in an upward trajectory and not as significant as other bubbles popping.

I think he's trying to marry these issues and coming to all sorts of strange conclusions, but the truth is, housing is just different. Since air is free, you only really need to acquire food, water, clothing and shelter to survive. Only one of these goods is scarce or monopolised in any meaningful way.

Sunday, May 24, 2015 04:06PM Report Comment
 

3. hpwatcher said...

Tragically, the advantages to property speculators may not be in bubble territory.

I actually think these are the most vulnerable to price movements; a loss for someone who wishes to live somewhere is far easier to bear than a speculator who sees the value of their ''investment'' falling. The person who lives in their investment, at least has a roof over their head, unlike the speculator, who will immediately wish to exit the market to avoid losses.

Sunday, May 24, 2015 06:26PM Report Comment
 

4. taffee said...

Btl will exaggerate any falls as all leverage does....big problem is who will rent all the 1.6
Mill btl properties if property falls and ftbs buy or refuse to rent

I know people with multiple btl who would become Insolvent if prices fell 10% yet they
Think it will never happen and hmg will bail them out....very dangerous imo

Monday, May 25, 2015 07:44AM Report Comment
 

5. reticent said...

@4 I think you've fallen for the classic btl fallacy that keeps everyone from recognising why btl is such a problem: the outbidded ftbs are forced to carry on renting. People invoke this fallacy to make all sorts of bizarre claims ("landlords are just responding to an increase in demand for rented property [which they themselves created by buying 1.6m flats that would otherwise have been bought by their tenants]" is the classic one). You seem to think the FTBs will be able to buy 1.6m properties BEFORE landlords are forced to sell them.

Monday, May 25, 2015 10:06AM Report Comment
 

6. taffee said...

No I am suggesting fibs will buy the liquidated portfolios of btl landlords...but not at these prices
When the bubble bursts....just like Spain Ireland etc....when people realise it's just a speculative bubble and
Speculative demand falls off a cliff and tens of thousands of homes lay empty that no one wants to buy or
Rent

Just like bonds where people buy because they think a greater fool with pay more later

Monday, May 25, 2015 10:34AM Report Comment
 

7. debtserf said...

#4:

Quite. And lenders have nowehere else to go except BTL. Nobody is moving, fewer are FTBing, so BTL is the last confidence game left. Round here, most of the activity seems to be in landlords flipping to each other. That so many are happy to sell out is interesting. After all, if property is going to the moon, why cash the chip in now. Any amateurs/accidental landlords buying now could well be the greater fools.

Monday, May 25, 2015 10:47AM Report Comment
 

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