Buy now while you still can

F_T_Buyer

The housing market will always follow the economy (based on peoples ability to pay for housing), and lead it during a boom. The economy will always go in cycles, i.e. boom and bust, because of the way our monetary policy is.

We have a fiat money (google "fiat money") supply, in that the notes in your pocket are based on absolutely nothing apart from people's faith. It's not backed by anything tangent, like Gold, which forces discipline on those who control the money supply (central banks).

As the money supply is backed by nothing, it is printed by the money lenders (Bank of England) at the rate they see fit. When money is printed (although it is digitally printed now) it enters the economy in the form of debt.

Fact: The Bank of England increased money supply (M4 Lending) by 13.7% over the last 12 months. I.e. there is now 13.7% more money [and debt] in the economy.

Debt is the promise to pay it back later. Usually this debt is used to invest in businesses (buying assets is not investing), this investment in turn gives a higher return which pays back the debt plus the interest. But now debt is used in housing, and consumer spending.

This is unproductive for the economy long term, as it creates immediate jobs making consumer products. But there will come a point when you have to pay the debt back, then the jobs created to make the consumer goods you bought will be lost. Leading to higher unemployment.

Higher unemployment means less spending, which means less demand for consumer goods, which means falling prices, which means higher unemployment.

Basically the cycle will keep going until those who have money (the savers) start spending again. This creates demand, creates jobs etc etc

This economic cycle is usually softened out by interest rates. When there is a debt binge, interest rates should be high to stop people going mad. When we are in recession they should be low, encouraging savers not to save, but spend.

There is lots lots more to interest rates and the economy. But cycles are everywhere, from fashionable clothing to every market that exsists.

Can someone explain why fashion goes in cycles?

If you want to stop boom and bust, introduce a better monetary policy, and be more disciplined - to do that you need to back it by something. Gold has worked for thousands of years, whereas fiat money has only lasted since the 2nd world war!

Any other questions?

carpy

F_T_Buyer wrote:

Any other questions?

yeah.......when should i buy?!?!? :wall: :eek:

F_T_Buyer

carpy wrote:

yeah.......when should i buy?!?!? :wall: :eek:

Good question.

At least when an average earner can afford an average property.

Or when green line meets the red line:

PoorDave

sanfrancisco wrote:

Every Economist that ever lived...http://en.wikipedia.org/wiki/Economic_cycle

Economies and markets have been going up and down for centuries and centuries.

From the wiki article you linked to:

"Since no two cycles are alike in their details, some economists dispute the existence of cycles and use the word "fluctuations" (or the like) instead. "

To me "cycles" conjured up images of something more regular, with more of a pattern to it

carpy

F_T_Buyer wrote:

Good question.

At least when an average earner can afford an average property.

Or when green line meets the red line:

well i'm a below average earner who can't even afford a below average property!!!

not for some time then by the looks of things!!!!

saying that........that graph looks like it due for a big dip!!! :T

i do hope so...........the property world will be my oyster!! :beer:

PoorDave

F_T_Buyer wrote:

Good question.

At least when an average earner can afford an average property.

Or when green line meets the red line:

I have to admit that this image does look quite cyclical. There is a pattern to the peaks - seemingly slightly further apart each time, and bigger.

If it comes this might be quite a big crash! I know that's not news!

However, there is surely a lack of certainty that the external factors acting are constant across the time shown, perhaps

carpy

i'm liking the name dave

PoorDave

carpy wrote:

well i'm a below average earner who can't even afford a below average property!!!

not for some time then by the looks of things!!!!

saying that........that graph looks like it due for a big dip!!! :T

i do hope so...........the property world will be my oyster!! :beer:

My feeling is that it's the many people around who say things like you last sentence that will correct the market back upwards as soon as it starts to fall.

As soon as a small fall occurs, surely more more can suddenly afford a house, thus increasing demand, and pushing prices back up. Surely people aren't saying "yeah, but i'd wait for the bottom of the trough before buying"?

Investors maybe. People buying to live surely not

PoorDave

carpy wrote:

i'm liking the name dave

You talking to me?

If only there were no truth in the name

meanmachine_2

PoorDave wrote:

My feeling is that it's the many people around who say things like you last sentence that will correct the market back upwards as soon as it starts to fall.

As soon as a small fall occurs, surely more more can suddenly afford a house, thus increasing demand, and pushing prices back up. Surely people aren't saying "yeah, but i'd wait for the bottom of the trough before buying"?

Investors maybe. People buying to live surely not

Houses are only worth what a bank is willing to lend you on them.

If prices start falling it's because people aren't physically able to borrow at the current prices. And when the feelgood factor goes into reverse, the economy goes into reverse.

The question though is what might trigger a reversion. And experts are famously bad at getting this right. Life tends to be a little unpredictable. We can use past form to help guide us, but as you say, it is also no real guide to the future.

When the vast majority of the population are unable to afford the very houses they live in, that tells me something isn't right.