Why are posters so Obsessed with House Prices?

chucky

Thrugelmir wrote: »

The BOE will use interest rates to control inflation when the time is right.

The market itself will determine interest rates. As we're leaving the days of the lowest capital ratios held by the banks on record. To a plain last seen around 30 years or so ago at the very least. The BOE can freewheel a fair amount as the lack of available credit will raise the cost of money over time. A natural rise will be slow and have a self adjusting effect on asset prices.

that's all fine but not really related - the logic doesn't make sense

rates will go up because of inflation (if it arrives) - if no inflation low rates making it cheaper to buy than with higher rates.

so if inflation gets here houses will be the only asset that won't be affected by inflation and will go down in price.

i don't think so sorry - you can't have it both ways...

chucky

Chaos_A.D. wrote: »

Yes it has happened in the past. I don't really see how property can rise, wage inflation is the only kind of inflation that can reduce peoples debt over time, all other types of inflation (which the BoE are supposed to control with base rate) is bad for people's debts as it squeezes income.

We are seeing it now, wage cuts, freezes, below inflation settlements. All this is making the indebted worse off.

Lets face it, current house prices can only be sustained with very low IR's, government paying homeowners interest and banks not repossessing as they normally would. If all these policies can be sustained indefintely then so can house prices, the question is, does anyone think they can.

IMO they can't, so it's all just a matter of time.

is a scenario of 6% or 7% inflation with just 4% pay rises possible?

over a few years that can easily happen - like it or not that is wage inflation and quite easy to achieve... you still have real house price drops this way

you're scenario is of everything increasing with inflation and just wages and house going down... that would be popular on this forum but very unlikely to happen.

Really2

Chaos_A.D. wrote: »

Yes it has happened in the past.

Only in real terms, in the 70's it rose nominally. in the 90s it stagnated (92-96) nominally.

So to do with this thread, nominal is important as it relates to mortgage (so nominal also)

I dont think we have sustained nominal falls and rising inflation, but I may be wrong, glad for someone to pull me up on that.

edit, rising inflation has triggered falls, but I think after that tipping point (above senarios) inflation has been falling)

chucky

Chaos_A.D. wrote: »

I do understand what you're saying and agree, sort of. My point is at this time house prices have reached a peak on the back of very favourable conditions which I've already spelt out, these 'conditions' cant get any better in favour of HPI, so when they change, as they inevitably will house prices will fall.

IR's are a bit of a red herring, millions of householders are only just getting by now, even if wages rise it would be snuffed out by the interest rate hikes on these mammoth mortgages that people have taken out.

The proof of this is the IR in the early 90's, double digit rates with no help from government and banks repo'ing like no tomorrow, yet peak repossessions were, what 75k ?

Imagine those criteria coming into force now, there would total carnage, proof that house prices have gone out of kilter with pretty much every part of the economy. All I'm suggesting is that they are so far out of line that they cannot be sustained over the medium to long term, in fact they can only be sustained now by record low rates, government paying interest and banks not repossessing, surely that can't be disputed.

they'll be reeled in by inflation and even though house prices may rise nominally the 'real' prices will have fallen allowing some sort of getting them back in line.

the real HPC hasn't happened with big nominal house price falls - that happens when the owner occupiers become a minority. that's when it's cheaper to rent long term - it will happen...

neverdespairgirl

chucky wrote: »

you were the only one that said 20 years - no-one else...

how about the next few years?

I was the only one who mentioned 20 years, true. But that's a touch misleading as really2 was talking about 23 years from now!

neverdespairgirl

borntobefree wrote: »

In the 80's and through to 1992 interest rates were mostly in double figures - at the highest 15% for a year (from 1989 to 1990.)

they were not 15% for a year in 1989 or 1990.

From the B of E's site:

Mon, 08 Oct 1990 13.88
Fri, 06 Oct 1989 14.88
Fri, 08 Sep 1989 13.75
Mon, 04 Sep 1989 13.88
Thu, 31 Aug 1989 13.84
Thu, 25 May 1989 13.75
Fri, 25 Nov 1988 12.88

macaque_2

borntobefree wrote: »

I have never understood why the posters on this board and HPC are so obsessed with house prices, since the "actual cost" of a home is only a percentage of the total real cost.

For Example

Cost of house 200,000
int at 5% 25yrs 150,754
Total Cost of home £350,754


Cost of home 200,000
int at 2% 25 yrs 54,313
Total cost of home £254,313


Saving £96,441 from LOW INTEREST RATES!

http://www.guardian.co.uk/money/mortgage-calculator

Interest rates have never been so low! Why are you all so obsessed with house prices?

1. High house prices deny young people decent accomodation.
2. High house prices increase the cost burden on companies employing people. This makes the economy less competetive.
3. High house prices mean that a disproportionate amount of savings get diverted into property. This means that the wealth creating side of the economy is starved of investment.

Procrastinator333

borntobefree wrote: »

I have never understood why the posters on this board and HPC are so obsessed with house prices, since the "actual cost" of a home is only a percentage of the total real cost.

For Example

Cost of house 200,000
int at 5% 25yrs 150,754
Total Cost of home £350,754


Cost of home 200,000
int at 2% 25 yrs 54,313
Total cost of home £254,313


Saving £96,441 from LOW INTEREST RATES!

http://www.guardian.co.uk/money/mortgage-calculator

Interest rates have never been so low! Why are you all so obsessed with house prices?

Interest rates are going nowhere fast imo.

I think you have shown even further evidence of why the FTB should wait until they get up to a suitable LTV.

Gorgeous_George

Why are posters so Obsessed with House Prices?

Well, it's the 'Debate house prices & the economy' board for a start.

For many owners, they need HPI to keep their heads above water. Falling values may well be catastrophic for their weak finances. Their only hope of financial freedom is rising house prices.

For others, it's the feel good factor. Being able to boast to their unfortunate children that their home is worth 10 times what they paid for it while their children themselves are stuck in rented accommodation makes them feel successful. How clever.

Then there are wannabe FTBers. Why wouldn't they be obsessed with house prices? I'm obsessed with S-Type Jaguar prices at the moment (but probably will never take the plunge). By waiting (and hoping for price drops), the wannabe FTBer could save more than a year's pay - or two years' pay - or more. I'd be obsessed with house prices if the rewards were so high.

As it is, I'm more obsessed with base rates. With two lifetime tracker mortgages, the first Thursday of each month brings a smile to my face. As time passes, the impact of rising base rates diminishes.

GG

RenovationMan

borntobefree wrote: »

I have never understood why the posters on this board and HPC are so obsessed with house prices, since the "actual cost" of a home is only a percentage of the total real cost.

For Example

Cost of house 200,000
int at 5% 25yrs 150,754
Total Cost of home £350,754


Cost of home 200,000
int at 2% 25 yrs 54,313
Total cost of home £254,313


Saving £96,441 from LOW INTEREST RATES!

http://www.guardian.co.uk/money/mortgage-calculator

Interest rates have never been so low! Why are you all so obsessed with house prices?

Well, For Example :

Cost of home 200,000 in 2007
int at 2% 25 yrs 54,313
Total cost of home £254,313

Cost of same home 176,000 in 2010 (12% reduction from peak)
int at 5% 25 yrs 47,794.00
Total cost of home £223,794

Quick figures using the mortgage calculator on your link.

So basically, FTB are obsessed with house prices and OOs are obsessed with interest rates, and both for very good reasons.