The bear case

tartanterra

HAMISH_MCTAVISH wrote: »

They ignore the fundamentals of supply and demand, and assume that because they can't afford a house, nobody else can either.

And this, fundamentally, is the crux of the matter.

Many of the posters on here argue that house prices will drop significantly; not because of any logical reasoning, but simply because they personally cannot afford to buy.

Whilst I have never thought of myself as a bull or a bear, I do think prices may fall back slightly in the short term due to less money being in circulation in the current austere conditions the country finds itself in.
However, I cannot see anything but rising prices in the long term, due to our rising population, lack/price of land and strict building and planning regulations which push up the cost of new build.

Most of all though, I think house prices will rise because of the nature of people in this country. Home ownership is something most people aspire to, and when almost everyone wants to own their own home and supply is limited, prices are almost bound to rise.
Whilst I could never be a "bullish extremist" like Hamish, I have to agree with him that supply and demand will always drive the cost of home ownership.

brit1234

tartanterra wrote: »

Many of the posters on here argue that house prices will drop significantly; not because of any logical reasoning, but simply because they personally cannot afford to buy.

So these aren't logical reasons for the property bubble:

1. Mass fraud
2. Securitisation of mortgage debt
3. Interest rates too low for to long
4. Far to lax lending conditions
5. Too much lent, little or no deposits
6. Media campaign of riches from property

The country is broke, unemployment is rissing. Interest rates were dropped to 0.5% to stop the housing market crashing.

Banks haven't the money to support prices this high neither does the public thats why they will fall to normal levels.

tartanterra

brit1234 wrote: »

So these aren't logical reasons for the property bubble:

1. Mass fraud
2. Securitisation of mortgage debt
3. Interest rates too low for to long
4. Far to lax lending conditions
5. Too much lent, little or no deposits
6. Media campaign of riches from property

The country is broke, unemployment is rissing. Interest rates were dropped to 0.5% to stop the housing market crashing.

Banks haven't the money to support prices this high neither does the public thats why they will fall to normal levels.

I can see from your signature that you are a "bearish extremist" and I more than expected this sort of response.

It's a nice little list you have put together, and I'm not totally in disagreement with it.
However, I could just as easily put together a similar list claiming house prices are bound to rise. .....I'm not going to obviously as that seems to be Hamish's job on here.......

As I stated before, I don't consider myself as a bull or a bear, I just agreed with a small part of Hamish's post about supply and demand.

HAMISH_MCTAVISH

brit1234 wrote: »

So these aren't logical reasons for the property bubble:

1. Mass fraud
2. Securitisation of mortgage debt
3. Interest rates too low for to long
4. Far to lax lending conditions
5. Too much lent, little or no deposits
6. Media campaign of riches from property

No. They aren't.

You are making the erroneous assumption that any large rise in property prices must be a bubble. Whereas reality is that if the underlying fundamentals support prices, then it is not a bubble at all.

Parts of China have prices at 88 times average earnings. That is likely to be a bubble.

In Japan, prior to the last crash, property in some areas was selling for one million US$ per square metre. That was a bubble.

Australia has prices far higher than the UK's, relative to income. And they've now been above 3.5 times income for 25 years, even in their crashes. But the financial crisis had little impact, and prices then rose back through peak and to new heights. The fundamentals of supply and demand show that is probably not a bubble.

And the UK's prices, with massive housing shortages, fast growing population, record low levels of housebuilding, and price rises of over 10% in the last 14 months, despite some of the toughest lending standards in history, media doom and gloom, mortgage rationing to the extreme, and in the middle of a recession whilst unemployment rose and the economy fell, also clearly show this is not a bubble.

The country is broke, unemployment is rissing. Interest rates were dropped to 0.5% to stop the housing market crashing.

False.

IR's were dropped to 0.5% to stimulate the wider economy. And they will remain low for many years yet, until the economy no longer needs the support.

Banks haven't the money to support prices this high neither does the public thats why they will fall to normal levels.

False.

Banks can afford to lend at these prices indefinitely, so long as they maintain volume restriction through mortgage rationing. What they cannot afford is for prices to crash, as it destroys their balance sheets.

The public can afford to buy at these levels in the quantity that they are buying, which is enough to support todays prices. That much is self evident.

What you obviously mean to say is that YOU cannot afford to buy a house, therefore prices must fall.

But it doesn't work like that......

HAMISH_MCTAVISH

tartanterra wrote: »

Whilst I could never be a "bullish extremist" like Hamish, .

Good thing too, as there's only room for one of us around here.:D

Seriously though, I'm not remotely hung up on the idea of being bullish on property. When I see the fundamentals change, I'll have absolutely no objection at all to turning bear.

All I've done is point out the likely course of property prices, the market fundamentals, the impact of the different forces both for and against HPI, and all in quite some detail.

And I've been pretty spectacularly right, so far.

When the facts change, I'll change my mind. Until then, I'll stay the course.

Which is that minor fluctuations both up and down are very likely in the short term, but the medium to long term trajectory of property prices in the UK is firmly upwards.

chucky

HAMISH_MCTAVISH wrote: »

You are making the erroneous assumption that any large rise in property prices must be a bubble. Whereas reality is that if the underlying fundamentals support prices, then it is not a bubble at all.

each one of these posters that call themselves 'bears' don't actually understand...

when the 'bubble' actually bursts which wasn't in 2008, the effect will be much bigger on house prices.

but for the moment these 'bears' have miserably wrong for a long time...

brit1234

HAMISH_MCTAVISH wrote: »

You are making the erroneous assumption that any large rise in property prices must be a bubble. Whereas reality is that if the underlying fundamentals support prices, then it is not a bubble at all.

Thats why these fundamentals are allowing price falls now.

Hamish why did prices fall so much in 2007-2008 if the fundamentals supported prices? Why are they falling now?

chucky

brit1234 wrote: »

Why are they falling now?

the computers says they're not falling. :eek:


they may be stagnating but they're definitely not falling - well not in the real world anyway...

HAMISH_MCTAVISH

brit1234 wrote: »

Thats why these fundamentals are allowing price falls now.

Do learn to read Brit....

HAMISH_MCTAVISH wrote: »

minor fluctuations both up and down are very likely in the short term, but the medium to long term trajectory of property prices in the UK is firmly upwards.

Jojo1daffy

I still don't get what bears and bulls are....