House Price Rises - A Good Thing?

van_persie

The merits of owning a property versus renting have been well documented; we all like to have a piece of earth we can lay claim to and call home. To decorate it as we please, to take pride in its appearance and hopefully spend some happy times in it without a landlord looking over us.
But the British obsession with property ownership has taken us beyond this. We now view our homes as a vital part of our (perceived) wealth and for some, a second home is an essential part of their pension plan or investment portfolio. It's an additional badge of status for many, too.
And for this reason, we seem to view increasing house prices as a good thing.

But is this healthy?

Consider this.
A young couple bought a 2 bed house in zone 4 London for 100K in 1998.
A large 3 bed house in the same area cost around 130K at this time. 4 bedders around 150K.
Fast forward to 2006 and the family of four now want a 4 bed home.
They get an offer for 250K for their 2 bed home. They are delighted to have 'made' 150K.
But the 4 bed houses are now around 450K. They can't afford it, so go for a 3 bedder at 400K. That's 150K more, not to mention stamp duty.
1998 prices would have meant 'merely' spending an additional 50K for that 4 bed home.

HOW HAS THIS FAMILY BENEFITED?

They are hoping that HPI will continue to make sense of their investment.
But where does that leave their children? Can we really expect to help the next generation onto the fabled 'ladder' assuming such rampant HPI?
It's not just FTBs that suffer from HPI. Anyone wishing to up-size is getting clobbered, too and it's only the banks and government who reap the rewards.


So why do we celebrate HPI as a good thing?

meanmachine_2

It's why, back in 1997, a fresh faced if somewhat dour Scot promised his people there would be no more "boom" in house prices.

Er, oops.

Booms are bad, because they result in busts and then the moaning and the finger pointing begins.

movieman

Pretty much the only people who benefit from house price inflation are downsizers, people who inherit houses from their parents, property developers and the government. Everyone else loses: if you're not looking to buy a house you're probably looking to buy a bigger house, and if house prices double the amount you'll have to spend to 'move up the ladder' doubles too.

We'd all be better off if we could buy a mansion for 50p, and so would the British economy.

irnbru_2

van_persie wrote:

So why do we celebrate HPI as a good thing?

Politics. The assumption that (wealthy) howeowners could be thought to be on the right of the political spectrum.

Like all markets where there is insufficient supply, prices rise.

Jorgan_2

House price inflation is not a bad thing, as long as it in line with overall inflation, wage increases etc. Very few people actually benefit from masive increase in property prices, most things being relative.

irnbru_2

movieman wrote:

property developers

Poor property developers benefit from HPI (and thus need dumb buyers ?).

Good ones add value.

Thriftylady

Its amazing though how many people just don't understand that paying more is not a good thing. I used to work in a mortgage lenders and it never failed to amaze me how many people were in an excellent position to negotiate a lower buying price but insisted that they wanted to pay more. Naturally this was often in the most sought after areas, and I can only assume that it was so that they would have something to boast about when they were down at the golf club or wherever....

movieman

House price inflation is not a bad thing, as long as it in line with overall inflation, wage increases etc.

Why are rising house prices good, when, say, rising petrol prices or rising food prices are considered bad?

A house is probably the biggest single purchase most people will ever make: why would they want to see price increases unless they're planning to sell up and move somewhere cheaper?

van_persie

you're all spot on...I'm just waiting for the rest of the population to catch up with the painfully obvious logic.

Jorgan_2

movieman wrote:

Why are rising house prices good, when, say, rising petrol prices or rising food prices are considered bad?

A house is probably the biggest single purchase most people will ever make: why would they want to see price increases unless they're planning to sell up and move somewhere cheaper?

As I said, all things being relative, house price inflation at say 2% is not bad. The alternative is stagnation or deflation, look at Japan over the last couple of years. Who would buy if they knew the property would be worth less in a years time?

chugalug

HPI is a 'good' thing cos it makes people feel better about paying double the asking price on their 'investment'. Do the sums!

Mind you if you only have a mortgage for 25 years then you'll eventually pay that off so your living costs would be cheaper in the end. But, how many of us do that now?? We borrow on the 'equity', this mysterious increase in value you'd get if you could sell and not want anywhere to live. So, you're just increasing the debt and the amount of interest you pay - crazy.

IMO there isnt a shortage of supply - its just that some people have a lot of properties, or a home and a holiday home, or the properties are in the wrong place or of the wrong type. Not enough planning because its assumed that the 'market' will take care of everything.

To answer your question, only those who already had property before the latest boom will benefit. Their children won't suffer cos they'll borrow on the equity to lend a deposit to their kids or guarantee their mortgages thereby prolonging the agony for everyone.

Don't worry though - what goes up must come down despite everything - the only question is when??