Disaster for Britain as housing becomes more affordable

beingjdc

Really2 wrote: »

So where does that money go then?

China, probably. It eventually ends up in the bank account of a saver, whose intermediary lends it back out to me as I get further and further in debt.

Until the music stops, Stephen163 is right - everyone will feel richer and richer, and then payback time will come. It's just like getting drunk at a party, but eventually you've drunk so much you can't drink any more, you throw up on yourself, pass out, and wake up head first in a sleeping bag feeling like hell and trying to work out where you are.

You are only £10 worse off not £110.

I'm £110 worse off than if I hadn't spent the money, and £10 worse off than I've I'd waited to spend it until after I'd earned it.

For the economy you bet look at every economy with falling house prices and look at how they are doing.

Every economy with falling house prices has been on an unsustainable debt binge - you're seeing two symptoms and trying to ascribe one of them as the cause. That's no more true than saying that headaches cause sore throats.

mr.broderick

Wookster wrote: »

Congratulations. Another addition to the ignore list. MSE becomes a happier place by the day.

Quite ironic how !!!!!! had me on and off the ignore list.

Graham_Devon

mr.broderick wrote: »

It's not about being busy it is about nailing the next graham that walks in with gap,ppp,superguard,10%flat. One walks in every day.

I agree, honesty being the best policy and all that.

You should take an art class, the picture your painting aint that sweet, or get yourself a new role model to copy.

StevieJ

Wookster wrote: »

Congratulations. Another addition to the ignore list. MSE becomes a happier place by the day.

Forward to the inevitable conclusion, Wookie will never be happier than when he has only himself to converse with. Oh you are a smart fellow and you are as well

mr.broderick

Graham_Devon wrote: »

I agree, honesty being the best policy and all that.

You should take an art class, the picture your painting aint that sweet, or get yourself a new role model to copy.

One thing i am graham is honest.

Really2

beingjdc wrote: »

Every economy with falling house prices has been on an unsustainable debt binge - you're seeing two symptoms and trying to ascribe one of them as the cause. That's no more true than saying that headaches cause sore throats.

Is that true of the 70's and 80's? It looks like property fell and the economys followed.


Also to add I can drink all night and not get drunk, never get hangovers and never get a sore throat from a headache.:)

Wookster

stephen163 wrote: »

Releasing equity from home ownership increases economic wealth overall, even if the new debt incurred by the homeowner is equal to the monetary value transferred to the rest of the economy.

No it does not. It has to be repaid. If an MEW was invested and earned more than the effective interest rate it was being paid back at then yes it is generating wealth but the vast majority of MEW's are used for consumption.

Would the person making the MEW still be wealthy when he can't keep up with the repayments and his house is repossesed?

Thrugelmir

stephen163 wrote: »

I think a lot of people, especially those who have not studied economics in any great detail, fall for the fixed pie fallacy. Wealth can be created, it is not a fixed pie. You can make the pie bigger. Call me a stupid optimist, but we have witnessed in the last 100 years in the developed world one of the most prolonged and sustained increase in wealth in world history. Nobody can deny this - if you do, prove to me that the average Briton today is less well of than one in 1900. This has happened because of trade, transactions, investment. Releasing equity from home ownership increases economic wealth overall, even if the new debt incurred by the homeowner is equal to the monetary value transferred to the rest of the economy. It is not a zero sum game, and money is very different to wealth. These are the crucial points you need to have due cognisance of.

No one can argue that with advances in technology over the past century the majority of us live far better lives than our ancestors.

The current crisis is in part that manufacturing jobs (a real wealth creator) have been exported to the Far East since the early 90's. This was aided by China delibrately pegged its foreign exchange rate to the US $.

The average Chinese person is reckoned to save 50% of their employment income. (Sensible people and puts us to shame).

So money from the Far East looking for a good investment return ended up being lent to the UK and USA housing markets. The availabilty of cheap credit
meant that mortgage lenders in the UK offered extremely cheap rates of interest and some on very loose terms.

People were able to borrow then remortgage. Thereby pushing up house prices to higher and higher levels. Sucking in more and more credit. FTB's were pushed out of the market as BTL became the craze. Rentals too were affected as immigration from Europe pushed up demand.

All of a sudden. No new cheap credit. The party is over. Trouble is we all live in this house and can't walk away and leave somebody else to clear up the mess.

Really2

Thrugelmir wrote: »

The average Chinese person is reckoned to save 50% of their employment income. (Sensible people and puts us to shame).

The average chinese person does not get paid enough to live never mind save.
It is easy to save 50% or 100% of nothing.

http://research.stlouisfed.org/publications/es/08/ES0819.pdf

"Chinese worker needs to save his or her entire annual income (a 100 percent saving rate) for about 50 years to buy an apartment!"

beingjdc

Really2 wrote: »

Is that true of the 70's and 80's? It looks like property fell and the economys followed.

If by the 80s you mean the late 80s then yeah, we borrowed too much in a boom, and when we had to pay it back - and at higher interest rates - the economy and house prices suffered together.

In the 70s the 'problem' was that the price of oil and everything else went up hugely. House prices didn't really fall, but they stayed static while everything else went up.

The economy contracted because of a reduction in the supply of 'stuff', meaning each item of stuff cost a greater proportion of the available money. Housing, as something where supply was broadly fixed, was an easier thing for people to spend less on than, say, heating and petrol.