The property boom is well underway now.

nearlynew

ukcarper wrote: »

I might be silly but why do people keep going on about mortgages of 3 to 3.5x earnings if interest rates can obviously make a big difference to what you can afford to pay for.

Taken from page 1 of the debt-junkies handbook.

Thrugelmir

ukcarper wrote: »

In the seventies most of the things you say applied but house prices still grew faster than inflation from a lower base I admit.

After the event. Once all the facts become known, the triggers for booms are clearly apparent. To correct the current situation is going to require a period of readjustment. As mortgage debt is long term, money borrowed against future earnings. There's no instant solution.

Maybe you've witnessed the complete market cycle from the 70's through. Basic rules never change.

stueyhants

ukcarper wrote: »

can you please explain the graph in your link

It shows the what the UK IR was over the period quoted (I think the confusion comes about because it has been called different things in the past)

The reason I posted the graph was to show the general trend of IR in the UK was downwards and this has supported HPI.

The question I'm posing is, without further cuts in the cost of servicing debt (which is unlikely as IR are currently at an all time low) how are we going to get the next leg up in prices over and above general inflation.

I've put forward two options but I don't really see them as big enough to raise the whole market.

silvercar

The question I'm posing is, without further cuts in the cost of servicing debt (which is unlikely as IR are currently at an all time low) how are we going to get the next leg up in prices over and above general inflation.

Supressed demand and low interest rates meaning that property is an area showing a decent RoR.

Thrugelmir

stueyhants wrote: »

It shows the what the UK IR was over the period quoted (I think the confusion comes about because it has been called different things in the past)

The reason I posted the graph was to show the general trend of IR in the UK was downwards and this has supported HPI.

The question I'm posing is, without further cuts in the cost of servicing debt (which is unlikely as IR are currently at an all time low) how are we going to get the next leg up in prices over and above general inflation.

I've put forward two options but I don't really see them as big enough to raise the whole market.

You should read up on the developement and expansion of the wholesale money markets as thats where the "banks" raised the money to lend from. Also how NR used securitisation of mortgage debt to fund its business model and rapid growth.

You are assuming that its the borrower that controls the lending market, as decisions are based on ir's. Its the lenders that do, as they'll focus their lending towards where the best returns are.

nollag2006

Just thought I'd drop in with a bit of factual evidence to back up the OP's assertions...

stueyhants

Thrugelmir wrote: »

You should read up on the developement and expansion of the wholesale money markets as thats where the "banks" raised the money to lend from. Also how NR used securitisation of mortgage debt to fund its business model and rapid growth.

You are assuming that its the borrower that controls the lending market, as decisions are based on ir's. Its the lenders that do, as they'll focus their lending towards where the best returns are.

I understand about how the supply of easy credit helped create the boom. My point now is given that we are now reliant on that easy credit through low IR and mulitple incomes supporting loans where do we go from here.

The bulls on here seem to argue we will back to prices doubling every 7-10 years (or thereabouts). I'm arguing that this isn't possible because we have used up the major affordabilty factors (high IR to Low IR and Single incomes to multiple incomes).

Thrugelmir

stueyhants wrote: »

I understand about how the supply of easy credit helped create the boom. My point now is given that we are now reliant on that easy credit through low IR and mulitple incomes supporting loans where do we go from here.

The bulls on here seem to argue we will back to prices doubling every 7-10 years (or thereabouts). I'm arguing that this isn't possible because we have used up the major affordabilty factors (high IR to Low IR and Single incomes to multiple incomes).

You're missing my point. The money to lend has to come from somewhere. The lax lending policies in themselves were merely a byproduct of lenders that were driven by salesman and targets rather than old fashioned bankers. Creative people found ways of "manufacturing" money to lend. Hence the hole that now exists in the wholesale money markets. For the hole to be filled it actually requires repayment of capital debt which will take a number of years. Until equilbrium is restored in the money markets and savings rates increase as well. There won't be sufficent lending available to support higher property prices across the board.

For house prices to double in 10 years. Thats over 7% per annum compound. The lastest stats from the ONS suggest average private sector pay is unchanged over the past 12 months in the year to January. So with tax rises in the pipeline and the increased cost of living, disposable income is going to diminish. Hardly supportive of the residential property market either in price terms or rental.

The obvious answer is that many people will stay put and make do. Moving house will be less frequent and more dependent on receiving an inheritance for example than borrowing ever increasing sums.

There's a generation of property owners that have banked on downsizing for their pension. I'm wondering who they are going to sell to. As the market can only absorb a certain quantity of property.

stueyhants

Thrugelmir, I agree 100% on the problems facing the supply of future credit. Credit is going to be hard to get over the next decade due to the issues you have identified.

I was trying to be simplisitic and say even if there were no problems with the supply of credit, the demand side has reached saturation point (i.e. people can't take on much more debt) and that it was almost impossible to see how the market could therefore go to the next level of prices.

Bullls will always use the demand and supply for houses as reasons for prices continually going up. What use is demand for housing if those that demand it are unable to service the debt it requires to buy the property. Lower IR and two income households allowed those that demanded housing to buy, these two factors have been used up now.

Rinoa

Not sure that I've seen any bull forecast huge price increases indefinitely.

Most 'bulls' on here just don't think there will be another crash ~ with perhaps modest rises in line with wages.