Why are posters so Obsessed with House Prices?

chucky

Graham_Devon wrote: »

No ones saying only houses would fall.

The rest of the economy would suffer also.

What people are saying is you cannot keep just pumping money in and stimulating the economy. So if falls happen for a second time round....how are we going to stop everything in the economy? More debt?

that doesn't answer the question but for a change you miss the point - rising inflation would mean that prices rise....

why would prices be rising and assets like houses exclusively fall in value.

chucky

Procrastinator333 wrote: »

I think the only way rates go up is

Procrastinator333 wrote: »

I don't think interest rates are going to rise, so this is all a bit of a moot point for me.

aren't you contradicting yourself?

Procrastinator333 wrote: »

I think the only way rates go up is:

a) Growth picks up and the economy starts to grow at a sustainable level again. I think we can discount this one for a while.

b) QE or whatever reason drives serious inflation. Even up to 4, maybe 5%, I think they will make excuses, but at some point they would have to raise rates. But I don't see this happening, what is going to drive inflation?

but RPI is about 5% and CPI is at 3% - we're not far off that now.

Procrastinator333 wrote: »

So then if I have understood your Q correct you are asking why I think houses will fall in price while everything else will be rising in such a scenario?

Becuase I think if interest rates were much higher, they will start to drive forced sales. I don't think it is unreasonable to assume that the high levels of unemployment and partial employment mean there will be a statistically significant number who can't afford the extra couple of %.

I don't think interest rates are going to rise, so this is all a bit of a moot point for me. DC and the BoE are planning a little inflation party imo. And I don't blame them - I would do the same.

So really it brings me back to the notion that yes, interest rate is an important part of house purchase, but if anything this is even more reason for the FTB not to buy today. Wait until they have 20-25% deposit.

i agree with all of that but all your scenario is about house prices falling, which works. that scenario isn't guaranteed.

house prices stagnating or rising hurts the FTB in your scenario due to inflationary issues. that doesn't mean buy now but it doesn't help them.

Graham_Devon

chucky wrote: »

that doesn't answer the question but for a change you miss the point - rising inflation would mean that prices rise....

why would prices be rising and assets like houses exclusively fall in value.

You don't need everything to be rising in price to cause inflation.

One item rising rapidly in the basket of goods can cause inflation to go up, while other items fall.

We saw that with the price of petrol.

So rising inflation does not mean all prices rising. It can mean a certain sector is rising.

Procrastinator333

chucky wrote: »

aren't you contradicting yourself?

No, perhaps I just didn't phrase that too well - The only way I can see rates going up is if:

a) Growth picks up

b) Inflation is so high it forces the BoE to act.

But I don't see those things happening. Hence I don't see rates rising.

Procrastinator333

chucky wrote: »

but RPI is about 5% and CPI is at 3% - we're not far off that now.

Yep, and the BoE are just ignoring it, it will probably fall away a bit and then jump back up with the Vat increase. BoE will ignore it too.

I don't really know when the BoE would act, but they are certainly not making those sort of noises at the moment.

LydiaJ

chucky wrote: »

that doesn't answer the question but for a change you miss the point - rising inflation would mean that prices rise....

why would prices be rising and assets like houses exclusively fall in value.

Cost of living inflation can be affected by many things - to take just one example, consider fuel costs (directly, and indirectly by inflating the costs of transporting goods). But rising fuel costs don't inherently cause wage inflation.

If your salary is still the same but your weekly supermarket shop costs more, there's no reason why you'd be willing to spend more on a house.

Wage inflation is the only kind of inflation that stimulates HP inflation.

Procrastinator333

chucky wrote: »

house prices stagnating or rising hurts the FTB in your scenario due to inflationary issues. that doesn't mean buy now but it doesn't help them.

Am I right in thinking you are saying that say inflation is 5%, the FTB is worse off if their salary stays the same, house prices stay the same because they then have less to spend on the mortage?

Very True.

But that is not a reason to buy now. If house prices are the same in 1 year and their salary is the same. They stil pay the same total price (all other things being equal) whethter they buy today or next year. And today's buyer gets squeezed just like the person who buys next year. E.g.

Say house price is £150k. Mortgage is £10k P.A. Salary is £25k after tax.

If they buy today. They have £15k disposable income after mortgage. If they do this same thing in a years time with the only difference being 5% inflation on other things, their £15k disposable income has the purchasing power eroded by about £750.

But whether they buy today or next year, their purchasing power is still eroded in that way.

MiserlyMartin

Blacklight wrote: »

The really amusing part of it is that the people who want house prices to come down are praying that interest rates rise in order to do so.


I share your baffledness.

Some of us have cash. They want some decent returns on their cash, not Gordons house price prop 0.5% lunatic rate. Mortgage interest rates could be 20% for all I care. What is important to me and many others is the purchase price and not paying silly money for an asset which will devalue over the the next 5-10 years by around 30%.

chucky

Graham_Devon wrote: »

You don't need everything to be rising in price to cause inflation.

One item rising rapidly in the basket of goods can cause inflation to go up, while other items fall.

We saw that with the price of petrol.

So rising inflation does not mean all prices rising. It can mean a certain sector is rising.

all your arguments are based on if this happens or if that happens never on any fundamentals. it's probably the reason that all of your predictions are horribly wrong...

chucky

Procrastinator333 wrote: »

No, perhaps I just didn't phrase that too well - The only way I can see rates going up is if:

a) Growth picks up

b) Inflation is so high it forces the BoE to act.

But I don't see those things happening. Hence I don't see rates rising.

i don't see rates rising either - you've answered my question.

i see the possibility of inflation however, i see wage inflation and i can even see HPI.

i'm thinking something along the lines of this example - general inflation 6%, wage inflation 4% and HPI 2%, i don't see negative HPI in this scenario. that's just an example not a prediction.

so... for a FTB saving for a deposit it's not great, better than rampant HPI but not a great scenario compared to them hoping for prices to crash.