Supply and demand

macaque_2

Demand does not give the vendor a unilateral right to name the selling price. All it means is that willing buyers will be found if the selling price matches their ability and willingness to pay. When prices are too high, turnover shifts to the left of the demand curve and that is where we stand today. Home owners are holding out for prices that leave the vast marjority of would be buyers out in the cold.

In a normal economy, prices should fall to restore a healthy turnover. This is not a normal economy however. Current levels of interest are so low that people with equity in existing properties are aquiring multiple homes as never before. This is creating an artificial shortage. We will have a genuine shortgage when the government starts erecting tents in the Royal parks.

Bulls have a fervent belief that prices will rise as they did in the 90s. Although rear view mirrors are useful, they are extremely dangerous when used as a primary means of navigation. Circumstances today do not compare to the 90s. We are at the wrong end of the demand curve, we are over indebted, interest rates only have one direction to go, and the prospect for incomes and jobs is as bad as we have seen for 40 years. If we do see high levels of wage inflation, it will be accompanied by even higher interest rates.

My prediction of 70% falls remains and remember this; I have always said the house price correction would take years to unwind.

the_ash_and_the_oak

While I agree that there is no shortage of places to live - this doesn't mean there is or isn't a shortage of places to buy - so to work out whether the current shortage of places for sale is 'artificial' or not wouldn't be measured in that way imo.

tho imo the supply and demand of credit is more interesting and relevant than the supply and demand of property

edit: also why 70 particularly? its very specific!

Generali

Demand is a cumulative function of those willing and able to buy at any given price. Supply is similarly a function of those able and willing to sell at a price.

Supply must equal demand in a free market for the same reason that the number of buyers must equal the number of sellers: a buyer needs a seller and a seller needs a buyer!

macaque_2

the_ash_and_the_oak wrote: »

While I agree that there is no shortage of places to live - this doesn't mean there is or isn't a shortage of places to buy - so to work out whether the current shortage of places for sale is 'artificial' or not wouldn't be measured in that way imo.

tho imo the supply and demand of credit is more interesting and relevant than the supply and demand of property

edit: also why 70 particularly? its very specific!

There is shortage of property to purchase but it is an artificial shortage. Home owners are exploiting exceptionally low interest rates to hold multiple properties. Higher interest rates will bring a lot more property onto the market.

70% is a big fall but this assumes a healthy measure of overshoot. When house prices have been falling for 10 or 15 years, people will become as irrationally dissolusioned with them then as they are irrationally exuberant today.

the_ash_and_the_oak

macaque wrote: »

There is shortage of property to purchase but it is an artificial shortage. Home owners are exploiting exceptionally low interest rates to hold multiple properties.

Don't get this bit - mortgage rates are kind of around 5-6% imo?

unless you mean existing owners are taking equity out to buy more? but then they must be putting down large amounts to get anything cheaper than 5-6%? and then...if they are fixing (and with trackers at BR+4% surely they must be) surely any trouble they may or may not face would be 2,3,5 years away?

silvercar

Home owners are exploiting exceptionally low interest rates to hold multiple properties.

With interest rates low, there is little value in tieing money up, so home owners are choosing to invest in property as an asset class.

silvercar

Being pedantic, that looks like a straight line, rather than a demand curve.

the_ash_and_the_oak

silvercar wrote: »

With interest rates low, there is little value in tieing money up, so home owners are choosing to invest in property as an asset class.

Don't understand this - isn't investing in property a pretty good definition of "tieing money up"? - kind of illiquid imo

ess0two

Much prefer your monkey pics to graphs.

CLAPTON

macaque wrote: »

There is shortage of property to purchase but it is an artificial shortage. Home owners are exploiting exceptionally low interest rates to hold multiple properties. Higher interest rates will bring a lot more property onto the market.

70% is a big fall but this assumes a healthy measure of overshoot. When house prices have been falling for 10 or 15 years, people will become as irrationally dissolusioned with them then as they are irrationally exuberant today.

-there is nothing artifical about people freely making use of low interest rates (although actual borrowing rates aren't all that low)

-there's nothing artifical about people freely choosing not to sell now because they think they will get a higher price next year

-there's nothing artificial about purchasers refusing to pay current prices.

artificial means that there is a monopoly or cartel acting in unison to affect the price either directly or through with-holding the product

nickj_2

i have to agree with the op - the average house buyer will have to be borrowing multiples of 5-6 x salary , this is fine whilst interest rates are low , but imo the preverbial fan will be hit when interest rates inevitably start to rise .
hp's cannot keep on rising forever , there has to be a realistic level to which they will settle .
the only reason the BoE is keeping ir low is because people who have purchased houses or btls over the last few years are up to their necks in debt , the govt could see the carnage of keeping ir at a reasonable level . people who could just about afford their mortgage , but then cannot live without more borrowed money
when the last hp crash happened in the late 80's the house that i live in was selling for around £80-90k my neighbour has his house on the market for £220k , thats nearly 1/4 of a million for nothing special ,
we need to get away from the notion of houses are a great way to make money - they should primarily be a home for people to live
i personally believe that we have still not seen the worst of it yet - all the govt and BoE have done is put a plaster over a severed limb , it ain't gonna last forever