Housing Market "far stronger" than a year ago

ad9898_3

IveSeenTheLight wrote: »

Fair enough, I've already said it could be -1 to -2%

I have no idea if you will be close with this one, but apart from the media ramping since Nationwide's 0.9% in March, what basis do you form the opinion on that stagnation will now be the name of the game.

I'm not saying you're going to be wrong (well ok, I am:D), but all the economic news going forward is terrible, unemployment, tax rises, ineviteable IR rises, no securitisation for many years to come etc...., it goes on and on.

Yet all's we keep hearing is mortgage approvals are up, lending is up etc........ yet from where, a point where they could not go any lower ?, it's hardly surprising is it. Yet these figures when taken in comparison to anytime in the past (apart from last year) are absolutely terrible.

IveSeenTheLight

ad9898 wrote: »

I have no idea if you will be close with this one, but apart from the media ramping since Nationwide's 0.9% in March, what basis do you form the opinion on that stagnation will now be the name of the game.

I'm not saying you're going to be wrong (well ok, I am:D), but all the economic news going forward is terrible, unemployment, tax rises, ineviteable IR rises, no securitisation for many years to come etc...., it goes on and on.

Yet all's we keep hearing is mortgage approvals are up, lending is up etc........ yet from where, a point where they could not go any lower ?, it's hardly surprising is it. Yet these figures when taken in comparison to anytime in the past (apart from last year) are absolutely terrible.

ad, you make some good points if not a little repetitively
you keep going on about "unemployment, tax rises, ineviteable IR rises etc"

Taking these individually

Unemployement - Yes, not a good sign, but the increase in unemployment from now till peak is a fraction of those that will still be working, maybe 3% more It may have an impact, but will it be so great on house prices. You would say that sales numbers are already low, so what if they dropped 3%

Tax Rises - Well this is an open one, inevitably there is usually tax rises after an election in one form or another. It's yet to be seen how this will affect house prices

IR rises - I agree, there is only oone way for them, but mortgage lending has drifted apart from the BoE rate and as IR rates rise, I believe the gap will close again, meaning very little likely change in the mortgage rates for a few years anyway.

I could counter with things like What about all those that STR'd, what about the ageing population that may downsize and take up the lower rungs of the ladder, FTBers now see property more affordable than in 2007 (just need mortgage lending to ease), people looking to fix before IR's go up and the perception that mortgage rates will follow, what about all those that have been saving up large deposits waiting to buy etc etc etc

I don't want to get into a long debate, there are counters for many arguments.

I think UK average properties will still likely go down a bit. I'm just not convinced like so many on here that they are set to drop another large amount.

I said a long time ago that property was 22% overvalued and I also said from historically, they have overshot the long term trend.
http://forums.moneysavingexpert.com/showpost.html?p=11258337&postcount=35

Is it possible that with greater media availability and QE may help with being able to lend funds, that the overshoot may be minimalised to a lesser extent?

Only time will tell

Thrugelmir

inspector_monkfish wrote: »

How can it be 'far stronger' if fewer people can get decent mortgages now????

Around 80% of FTB's are getting financial support from their parents.

How long this will continue and impact the bottom rungs of the market must be questioned.

Thrugelmir

ad9898 wrote: »

I have no idea if you will be close with this one, but apart from the media ramping since Nationwide's 0.9% in March, what basis do you form the opinion on that stagnation will now be the name of the game.

Activity will remain sluggish. As people will make do with the property they live in. Investors with cash will pick off the cheaper end of the market. Those with money will move as they always have done.

The working middleclasses will be paying debt in one form or another for many years to come. So won't have the appetite for large mortgages.

More likely to be saving and investing in anything but property.

Thrugelmir

IveSeenTheLight wrote: »

Tax Rises - Well this is an open one, inevitably there is usually tax rises after an election in one form or another. It's yet to be seen how this will affect house prices

IR rises - I agree, there is only oone way for them, but mortgage lending has drifted apart from the BoE rate and as IR rates rise, I believe the gap will close again, meaning very little likely change in the mortgage rates for a few years anyway.

Tax rises will reduce disposable income. Coupled with people already taking home lower pay will result in a double whammy. If there wasn't an election on the horizon tax would be rising now.

Even though BOE base has remained unchanged the cost of money is rising. Why do you think Newcastle BS is offering 5% on its savings account? The smaller lenders are already struggling to raise funds. As its only the major clearing banks that are benefiting from QE and increased liquidity. Mortgage rates at some point will rise dramatically particularly so if mortgage defaults rise.

dopester

IveSeenTheLight wrote: »

Is it possible that with greater media availability and QE may help with being able to lend funds, that the overshoot may be minimalised to a lesser extent?

Only time will tell

Greater media availability will persuade bankers to lend more funds? No chance. No QE nor BoE adjusting debt on it's balance sheet can stop this crash.

Too many minds riddled with hpi disease but values are out-of-sync with the real-world.. "Property can only go up now boom and bust is over" - except it was never over, and you've had the wild boom party. The cure is coming whether you want it or not. A huge crash in values.

Banks don't want to lend to lost-causes - QE or not. Just like I wouldn't lend you a penny with your barbaric BTL/HPI mentality and flawed approach to amassing retirement funds/wealth. Those well positioned don't want to borrow at all, but to pay down existing debt, and await opportunities later. The biggest bubble of all time is deflating. The banks just want to apply the squeeze now on those who believed debt was wealth. If you've got it.. sell it, before it loses more value. Deflation is here.

What Triggers the Change to Deflation?

A trend of credit expansion has two components: the general willingness to lend and borrow and the general ability of borrowers to pay interest and principal. These components depend respectively upon (1) the trend of people’s confidence, i.e., whether both creditors and debtors think that debtors will be able to pay, and (2) the trend of production, which makes it either easier or harder in actuality for debtors to pay. So as long as confidence and production increase, the supply of credit tends to expand.

The expansion of credit ends when the desire or ability to sustain the trend can no longer be maintained. As confidence and production decrease, the supply of credit contracts.

The psychological aspect of deflation and depression cannot be overstated. When the social mood trend changes from optimism to pessimism, creditors, debtors, producers and consumers change their primary orientation from expansion to conservation. As creditors become more conservative, they slow their lending.

As debtors and potential debtors become more conservative, they borrow less or not at all. As producers become more conservative, they reduce expansion plans. As consumers become more conservative, they save more and spend less. These behaviors reduce the "velocity" of money, i.e., the speed with which it circulates to make purchases, thus putting downside pressure on prices. These forces reverse the former trend.

The structural aspect of deflation and depression is also crucial. The ability of the financial system to sustain increasing levels of credit rests upon a vibrant economy. At some point, a rising debt level requires so much energy to sustain - in terms of meeting interest payments, monitoring credit ratings, chasing delinquent borrowers and writing off bad loans - that it slows overall economic performance. A high-debt situation becomes unsustainable when the rate of economic growth falls beneath the prevailing rate of interest on money owed and creditors refuse to underwrite the interest payments with more credit.

When the burden becomes too great for the economy to support and the trend reverses, reductions in lending, spending and production cause debtors to earn less money with which to pay off their debts, so defaults rise. Default and fear of default exacerbate the new trend in psychology, which in turn causes creditors to reduce lending further.

A downward " spiral" begins, feeding on pessimism just as the previous boom fed on optimism. The resulting cascade of debt liquidation is a deflationary crash. Debts are retired by paying them off, " restructuring" or default. In the first case, no value is lost; in the second, some value; in the third, all value. In desperately trying to raise cash to pay off loans, borrowers bring all kinds of assets to market, including stocks, bonds, commodities and real estate, causing their prices to plummet. The process ends only after the supply of credit falls to a level at which it is collateralized acceptably to the surviving creditors.

Graham_Devon

IveSeenTheLight wrote: »

ad, you make some good points if not a little repetitively
you keep going on about "unemployment, tax rises, ineviteable IR rises etc"

Taking these individually

Unemployement - Yes, not a good sign, but the increase in unemployment from now till peak is a fraction of those that will still be working, maybe 3% more It may have an impact, but will it be so great on house prices. You would say that sales numbers are already low, so what if they dropped 3%

Tax Rises - Well this is an open one, inevitably there is usually tax rises after an election in one form or another. It's yet to be seen how this will affect house prices

IR rises - I agree, there is only oone way for them, but mortgage lending has drifted apart from the BoE rate and as IR rates rise, I believe the gap will close again, meaning very little likely change in the mortgage rates for a few years anyway.

Absolutely anything which reduces money supply, reduces the ability to afford goods. All of the above factors will have an effect, but combined the effect will be greater, and the point is, they WILL all come at the same time, combined.

What's not mentioned there is the huge amounts of debt the UK hold. This reduces money supply even further as people have to make these payments before they can do anything else. Now, I know some people come back and say "well some dont have debt" which is true. BUT, masses do, and this reduces the money supply in the UK.

Even if 50% have debt, 50% don't.....that still reduces available funds across 50% of households.

You say that prices will be kept up by demand. But demand is useless if people do not have the funds to support their demands. The demand argument only works when people can actually afford to buy the properties.

Until then, demand is just pointless. If you had 100 people wanting a single property, you could call that demand, and I believe, would do, based on the supply and demand arguments banded around. However, if 97 of those 100 people who want that single property cannot afford it anyway, that's not demand for that property, thats people who cannot afford it anyway, so do not effect demand. That's where I think we are at the moment.

StevieJ

Thrugelmir wrote: »

Tax rises will reduce disposable income. Coupled with people already taking home lower pay will result in a double whammy. If there wasn't an election on the horizon tax would be rising now.

There is I thinking that the government had been increasing taxes (stealth) all the way through their reign and house price boom

StevieJ

Thrugelmir wrote: »

Activity will remain sluggish. As people will make do with the property they live in. Investors with cash will pick off the cheaper end of the market. Those with money will move as they always have done.
y.

This is true and unlikely to change while interest rates remain low, many people will be boxed in by the desire not to change their mortgage rate criteria.

StevieJ

Banks will start easing their lending criteria once they see the housing market reach a bottom, bit of a chicken and egg.