Not a good time to buy

Procrastinator333

The nxt government, probably tory, will have to make cuts. This has been accepted by just about everyone. The only question that leaves is how big will the cuts be. The conservatives like their cuts and they like a smaller government.

http://www.statistics.gov.uk/statbase/TSDdownload2.asp

In 1997 at the end of the last tory government there were 5.2m public sector employees. That now stands at 6.1m. Labour have been sticking to their plan of spend spend spend and the public sector has grown every quarter for about the last 2 years. There is a large jump in there, I believe a portion of that is the inclusion of the banking staff.

Maybe I'm wrong, but how can this growth carry on? With cuts on the way, a reversal is the only realistic option. If it is the tories, it will be a steeper reversal than labour. I don't see either party sacking thousands of public sector employees, but even if turnover only runs at a couple of %, it would be easy to reduce the size just by not replacing leavers. Post May, cuts of 100k or more per annum look likely. Is the private sector going to pick up this slack? Doesn't look like it at present. GDP therefore stagnates or falls as unemployment continues to rise or at best stagnate.

If public sector workforce is not reduced, how can either party bring the deficit under control? Taxes, guess so, but that would take a lot of extra taxes and that means a lot less money for people to spend on things, like say mortgages. Less spending, GDP stagnates or GDP falls.

If they don't cut jobs or raise enough extra tax, then what happens, the deficit stays high and gilt markets punish us, pushing up interest rates. The mountain of debt the UK has both pricate and public costs more and more, less to spend, GDP stagnates or falls.

There are so many different ways the housing market can take a hit in the above that I am left as a very happy renter. With all this hanging over the UK, why not wait for 6-12 months and see how this plays out?

Can the UK avoid these scenarios? What alternative scenario do you see? Genuinely curious, does any one see a path out of this mess that doesn't end badly for the UK economy?

chucky

can you explain how job cuts in the public sector will just affect house owners?

will renters, people living with parents or with family be excluded from these job cuts?

Rochdale_Pioneers

Procrastinator333 wrote: »

There are so many different ways the housing market can take a hit in the above that I am left as a very happy renter. With all this hanging over the UK, why not wait for 6-12 months and see how this plays out?

Can the UK avoid these scenarios? What alternative scenario do you see? Genuinely curious, does any one see a path out of this mess that doesn't end badly for the UK economy?

I'm not sure what this has to do with the housing market, but the obvious way out of the hole is a combination of tax increases, spending cuts and growth. Ultimately as the economy recovers the tax revenue lost during the recession will come back - not every penny as the financial sector will be smaller, but a fair wedge of it.

Spartacus_Mills

Procrastinator333 wrote: »

The nxt government, probably tory, will have to make cuts. This has been accepted by just about everyone. The only question that leaves is how big will the cuts be. The conservatives like their cuts and they like a smaller government.

http://www.statistics.gov.uk/statbase/TSDdownload2.asp

In 1997 at the end of the last tory government there were 5.2m public sector employees. That now stands at 6.1m. Labour have been sticking to their plan of spend spend spend and the public sector has grown every quarter for about the last 2 years. There is a large jump in there, I believe a portion of that is the inclusion of the banking staff.

Maybe I'm wrong, but how can this growth carry on? With cuts on the way, a reversal is the only realistic option. If it is the tories, it will be a steeper reversal than labour. I don't see either party sacking thousands of public sector employees, but even if turnover only runs at a couple of %, it would be easy to reduce the size just by not replacing leavers. Post May, cuts of 100k or more per annum look likely. Is the private sector going to pick up this slack? Doesn't look like it at present. GDP therefore stagnates or falls as unemployment continues to rise or at best stagnate.

If public sector workforce is not reduced, how can either party bring the deficit under control? Taxes, guess so, but that would take a lot of extra taxes and that means a lot less money for people to spend on things, like say mortgages. Less spending, GDP stagnates or GDP falls.

If they don't cut jobs or raise enough extra tax, then what happens, the deficit stays high and gilt markets punish us, pushing up interest rates. The mountain of debt the UK has both pricate and public costs more and more, less to spend, GDP stagnates or falls.

There are so many different ways the housing market can take a hit in the above that I am left as a very happy renter. With all this hanging over the UK, why not wait for 6-12 months and see how this plays out?

Can the UK avoid these scenarios? What alternative scenario do you see? Genuinely curious, does any one see a path out of this mess that doesn't end badly for the UK economy?

I share your concerns. I am certainly bearish as to the outlook for the economy and its potential to affect the housing market however in the early eighties the austerity measures did not have an adverse affect on housing and, indeed, during the years after we came out of recession in the early nineties and started to grow house prices recovered from the crash of the late eighties.

So although I share your concerns, being naturally of the half-empty tendency, there is no recent historical precedent for it. I personally see more of a flatlining for property. As for the economy it is like the early eighties all over again from what I can see. Massive cuts and huge tax rises being the order of the day and a couple of years of real pain. The delays in calling the election do not help but Brown is, by nature, cautious. Perhaps he should have gone is 2007 as Callaghan should have gone in 78.

Conrad

UK plc had to go to the IMF in the 70's.

We were the sick man of Europe by 1979.

The doomists told us Japan, HK and others would take all our business and were in an inevitable decline.

By 1981 we had a property boom.

Despite some hiccups, the country has transformed since 1979.

The doomers always over egg it.

Procrastinator333

I apologise for the use of the @ sign that follows, feels a bit rude, but just using it as a way of showing the point I'm discussing....

@ Rochdale

tax increases -

1) people have less money to spend. I don't know of any statistic on it, but I would expect there are a fair number of people scrapping together the cash for their monthly mortgage payments. Yes some are on the wonderful BOE +0.5% trackers, but not the majority, by a long way.

2) with less money to spend, they have to get a smaller mortgage and so they buy cheaper places. If only a few people, it is solely them that takes the hit and they just end up with a smaller and cheaper place.

If it is the majority, it is the prices that have to adjust. Imagine 100 houses and 100 people. Each person slighlty better paid than the last, each person in a slighlty more expensive house. If one person drops their income a few points, there is no real change in the average price because pretty much everyone else stays put. If they all lose 10% of their income, they must all pay less. The only way the 10 houses at the top can sell is if they reduce their price down to the highest paid person. If the top 10 reduce their prices, the houses underneath must then follow suit. or they won't sell as their is then a better property at the same price.

This is obvioulsy a rather large over simplification, but it shows why prices must fall if everyone has less money.

@ Rochdale - Spending cuts - Pretty much all government spending goes on either employing staff or paying someone who employs staff. So if you cut spending you cut jobs. More unemployment

@ Rochdale - growth, where from, what is going to grow?

@ Chucky, of course the cuts impact renters too, but renters have flexibility. Far easier to downsize or return home if required. If a home owner has to do it in a hurry it then becomes a forced sale and that only does one thing to prices.

@ Spartacus, interesting, I'm not old enough to have any knowledge of the 80's austerity period, sounds like something I should have a read about.

I'm not commenting or falls, how much etc, I just don't see any real rises in these circumstances. If things do fall, great you saved some money, if not you have lost nothing

Spartacus_Mills

Conrad wrote: »

UK plc had to go to the IMF in the 70's.

We were the sick man of Europe by 1979.

The doomists told us Japan, HK and others would take all our business and were in an inevitable decline.

By 1981 we had a property boom.

Despite some hiccups, the country has transformed since 1979.

The doomers always over egg it.

The IMF, as always, was looking back and most of the damage in the seventies was either on the mend or being mended. For 17 months prior to the IMF coming in Healey had been cutting expenditure and Callaghan/Healey did not touch the IMF's money. Inflation was also on the way down. The situation was coming back into control.

Rochdale_Pioneers

@Procrastinator333 (lol at the apology btw - we know what you mean!)

I'm not saying that tax rises and spending cuts won't have an effect - course they will. It all depends on what you do and by how much. Slash a million public sector jobs as some Tory commentators want, or increase taxes hugely in an attempt to remove the deficit in a single year and yes, the effects would be nasty. Do it gently and the effects are less nasty. That deficit does have to go though.

As for growth, we'll get it for two reasons - we still make stuff, and we're in a good position vs the competition:

1. Britain is NOT on its knees/bankrupt/ruined or all the other nonsense frothers say about us. As Conrad pointed out recovery from a much worse position came in the 80s (mid 80s though surely - 1981 saw the depths of the recession created by the slash and burn howe budgets). We have a large manufacturing sector that leads the world in several areas like automotive (the world's most efficient car factory at Nissan Sunderland which like the others exports 80% of its output) and pharmaceuticals. The notion that we no longer make anything is laughable, as is the claim that industrial output fell in the noughties (well it did including the recession, but grew the rest of the time).
2. We are competitive. Our workforce is flexible and showed how different things are vs the 70s (voluntary pay cuts to keep factories going vs perpetual strikes until it shut). We have low interest rates and inflation, and a competitive currency to go with it. We have lower unemployment than the EU, we have relatively low debt vs the EU, we don't have an economy about to implode like Greece/Spain/Ireland

Things will pick up. And we'll come out of it in a relatively stronger position vs the competitors than we went in. Providing that is we don't have an Osborne slash and burn budget in late May.

Procrastinator333

Agree, there is surely some middle ground between cuts, tax rises and spending that leads to a gradual recovery. But who is going to steer that course. Surely labour will spend too much and the tories will cut too much. I just don't see either of them finding the right balance (not that I claim to have a scooby do about whay the righ balance is).

I have been googling 1980 crash, 80's crash etc etc and there is !!!!!! all on it - not saying you are making it up lol, just can't find much!

Growth, maybe, but under the current circumstances, will anyone really take the risk of investment over the next 12 months? I'm not saying never buy, just why not wait to see how this plays out. If in 12 months, unemployment is holding steady, the deficit is reducing (slowly), GDP is growing slowly and interest and inflation numbers are still sensible, then hey, things will be very much looking up.

That is possible, how likely, I have no real idea, I just don't think you lose anything by waiting - if you are a potential ftb like me that is, not saying sell your house, get out now or anything.

StevieJ

Spartacus_Mills wrote: »

The IMF, as always, was looking back and most of the damage in the seventies was either on the mend or being mended. For 17 months prior to the IMF coming in Healey had been cutting expenditure and Callaghan/Healey did not touch the IMF's money. Inflation was also on the way down. The situation was coming back into control.

Until Maggie increased Vat

chucky

Procrastinator333 wrote: »

That is possible, how likely, I have no real idea, I just don't think you lose anything by waiting - if you are a potential ftb like me that is, not saying sell your house, get out now or anything.

apart from the cost of borrowing will be increasing and it will be more expensive

if rates did go - up by taking a 5 year fix today you would save 5% per £100,000 borrowed for each 1% increase in interest rates.

so if rates did go up by 2% you would technically be saving 10% of your property value by getting a cheaper mortgage now.

i'm not saying it's a good time to buy - i'm saying that you've over simplified it and made too much a generalised statement instead of looking at the cost of borrowing too