£1.2tn given to old from young

Harry_Powell

dopester wrote: »

Some of you baby-boomers are going to be knocked out as much as the people who thought their lush grand New York homes were worth $1m before the onset of the Great Depression...... that credit crunch and correction from speculative craziness, where some such homes went on to sell for as low as $100K.

All your core-belief in long-wave inflation, and 18 year cycles only with a few gentle corrections, ignoring larger correcting cycles.

The longer the market correction is resisted using clumsy policy making to deny it, more likely the worse the correction will be - perhaps to a level of entire system breakdown. If it hasn't reached that point already due to debt-levels... and if the market creditors won't accept a UK liquidated option to trade their positions into (to buy cheap positions in the future).

Who/what is this in response to?

StevieJ

dopester wrote: »

Some of you baby-boomers are going to be knocked out as much as the people who thought their lush grand New York homes were worth $1m before the onset of the Great Depression...... that credit crunch and correction from speculative craziness, where some such homes went on to sell for as low as $100K.
.

But surely some Baby Boomers will see property as a way of avoiding rent in retirement and the saving will supplement their final salary pension schemes.

[Deleted User]

dopester wrote: »

Personally I really wouldn't bet against a £20K new car bought today being worth more in 10 years time than a house with a current market-value of between £40K to £100K. In some hard hit areas.

The transfer is to do with market value isn't it? And values are changeable. They change depending on what prices those who are currently selling/buying/transacting at.

Only the baby-boomers who cash in, via selling, to downsize or rent for example - get a slice of the £1.2 trillion they've seen their homes increase in value during Labour's HPI run. (Overall house prices have risen more than £1.2 during Labours run though).

Others owners who don't sell, have seen increases in market value of their homes, which I suppose they can MEW on to release - but otherwise just a sort of comforting thought about it's market value to cherish. It exists in the thought of implied market value of an asset, but not a realised money until it is sold.

The house I'm living in was last sold in the mid 1980s. The owners bought it at £37K. The baby-boomer owner has seen it rise in value to to £350K-£390K peak due to, year on year, people in the area buying at ever higher prices.

Even though the owner did very little to the property over that time, apart from new carpets (replacing a few times over the years), fresh wallpaper, some double glazing, new kitchen... it's main increase in x10 value gain came only because others have been repeatedly transacting at ever higher prices over the years.

The same can happen in reverse. All houses can lose value whenever those who are selling/buying/transacting at lower prices than have been seen in an area in previous months/years for comparable property, to bring the down the value of owners homes who are not even on the market for sale. It doesn't require many transactions to begin going through at lower prices to drag down the value of an areas homes; 2 bed, 3 bed - mansions - fancy apartments. It is how markets work.

So all of you taking the value of your HPI mega boosted valued homes as being almost unchangeable on the down valuing... better hope Gov and market manipulators keep on delaying the market correction. Keep hoping for easy mortgages, and real borrowing demand for those mortgages... in a severely weakening, deflationary-vortex economy.

It's always the case the investments can loose value as well as gain. Historically, investing in homes has proven to be a very safe bet. But there are no guaranatees that it will continue. When I bought my last house 10 years ago for £100k everyone was saying that rapid price increases couldn't continue. I didn't care. I wanted a house - if it made money it was a bonus and if it lost money then in the big scheme of things it didn't matter. I was paying less in mortgage payments than I'd have paid in rent for a similar property. As it turned out it doubled in value in just 10 years.

The tough decision for those not yet on the property ladder is whether to take the plunge and buy now. Some will, some won't. Time will tell who the winners and losers will be.

For those that already have property that's increased in value already then prices can fall a long way before they loose out. If property prices drop they still get to release some equity when they downsize. Those relying ENTIRELY on property to fund retirement might come unstuck but I suspect most have a combination of pension funds, savings and property.

But sure - you're always taking some risk when you invest in property. If house prices drop you loose out. But you still have a roof over your head if you can afford the morgage repayments. And if house prices increase then you're quids in. Your risk paid off and you're better off than your more cautious friends.

Many of you keep saying that you don't have the cash tied up in property until you sell it. Well no, of course not. But seriously, what would you choose:

1. A house worth half a million with the option to sell up and switch to rental accomodation with half a million in the bank

OR

2. Living in rental accomodation with next to nothing in the bank.

Yes - I promise you that it IS a very comforting thought to know that your property has a very high market value that you can release at any point should it suit you. In fact, it's comforting to know that even if it drops by 1, 2, 3 or more hundred percent your property STILL has a very high market value that your can release if and when it suits you!

dopester

Harry_Powell wrote: »

Surely though, the baby boomers are 'cashing in' simply because their kids have left the nest and they're downsizing. Every generation will do this, and every generation will benefit from HPI.

Or are you trying to tell me that over the course of a typical mortgage period (35 years), we won't see any HPI?

I agree with you to some extent there Harry, but the HPI of recent years has been too out of line with what the economy can support - fuelled by crazy lending/borrowing to those who were actively buying over since 1997 at ever higher prices.

We'll see how many baby-boomers do manage to cash out and escape with Labour paradigm sale money for their upper-end homes. Many of those who manage it, to significantly downsize to buy a cheaper home, will have done spectacularly well via home ownership. Absolutely no doubt, with a load of money in their savings accounts towards retirement and whatever else.

ukcarper

Deleted_User wrote: »

I think the argument is that over time it will become harder and harder for the young to buy and so as the oldies die off that 70% of home owners will begin to reduce. Which I would agree is not a good thing.

However, the counter argument is that schemes will be introduced to allow people to buy - eg. though part buy/part rent etc.

But if you had no house and your parents left you one when they died would you not live in it.

Harry_Powell

StevieJ wrote: »

But surely some Baby Boomers will see property as a way of avoiding rent in retirement and the saving will supplement their final salary pension schemes.

That's what I was thinking. I might be wrong, but surely the idea of using property as a pension (i.e. downsizing, BTL, etc) has been a more recent thing, since the demise of final salary pensions, and hence not many baby boomers will have needed to get involved in this.

While it might seem logical and financially sensible for retiree's to downsize, I'd imagine it doesn't always happen due to a combination of people not wishing to move away from friends and neighbours and wanting the extra bedrooms to house grandchildren. In this scenario, it won't matter too much to the baby boomers if dopester's deflationary armageddon scenario plays out because they will still have a free roof over their heads. Indeed if we have deflation to that extent, then their pensions will have a much higher purchasing power and they will be quids in.

ukcarper

dopester wrote: »

Some of you baby-boomers are going to be knocked out as much as the people who thought their lush grand New York homes were worth $1m before the onset of the Great Depression...... that credit crunch and correction from speculative craziness, where some such homes went on to sell for as low as $100K.

All your core-belief in long-wave inflation, and 18 year cycles only with a few gentle corrections, ignoring larger correcting cycles.

The longer the market correction is resisted using clumsy policy making to deny it, more likely the worse the correction will be - perhaps to a level of entire system breakdown. If it hasn't reached that point already due to debt-levels... and if the market creditors won't accept a UK liquidated option to trade their positions into (to buy cheap positions in the future).

But if my house drops 90% in value I will still be better off than someone who hasn’t bought because I have no rent to pay and have paid less in mortgage payments than I would have in rent.

dopester

Deleted_User wrote: »

Yes - I promise you that it IS a very comforting thought to know that your property has a very high market value that you can release at any point should it suit you. In fact, it's comforting to know that even if it drops by 1, 2, 3 or more hundred percent your property STILL has a very high market value that your can release if and when it suits you!

Interesting post... but I question this bit. 'Value you can release at any point'. A real paradigm-changer can change all that. Just as it did for long term baby-boomers who owned RBS shares or Lloyds TSB shares. Rapid. Property is illiquid. You can't sell it as quickly as you can shares.

In the stockmarket things move very fast. You know why RBS shares fell so fast? Because some of those holding the shares, decided to sell them at ever lower prices.

If I own shares at 800p and another owner decides to accept 700p to cash out, that impacts on the value of my holding. If there is a rush of people selling, but still only a minority of shareholders, accepting ever lower prices, to 400p, 200p, 50p and lower still..... my shares don't maintain 800p value, just because I'm believe they should be worth 800p. You either sell and cash in, or the active participants in the market decides values for you.

House values have been artificially supported against a crushing paradigm changing backdrop... but my bet is it can not be resisted for the long term.

ukcarper

dopester wrote: »

I agree with you to some extent there Harry, but the HPI of recent years has been too out of line with what the economy can support - fuelled by crazy lending/borrowing to those who were actively buying over since 1997 at ever higher prices.

We'll see how many baby-boomers do manage to cash out and escape with Labour paradigm sale money for their upper-end homes. Many of those who manage it, to significantly downsize to buy a cheaper home, will have done spectacularly well via home ownership. Absolutely no doubt, with a load of money in their savings accounts towards retirement and whatever else.

But all the vast majority of babyboomers have done since 1997 has been to sit in their houses and pay down their mortgage.

[Deleted User]

ukcarper wrote: »

But if you had no house and your parents left you one when they died would you not live in it.

Yes, of course. But (and I'm not saying that I necessarily believe this to be the case but it's a distinct possibility), with a growing aging population you'll find that quite a percentage of older people will use up their money - for example by downsizing or releasing equity from their home whilst continuing it live in it. There won't be anything left to leave to the kids. And you must remember there's inheritance tax to pay. I expect that will go up as with most of the population retired and not paying tax the money has to be clawed back somehow.

So sure, some kids will buy homes thus taking the place of some of the oldies that have died. But if home owners are dying off at a faster rate than new ones are created the percentage of home owners will decrease.