House Price Crash

RHemmings

RHemmings wrote:

I don't know her personally. I'll have to think up some new insults that don't trash my reputation by implying that I know her in any way.

Talking abuot Kirsty Alsopp. I think that property !!!!!! is just as much if not more of a social evil than "regular" pornography. And I believe that Kirsty Alsopp is therefore even less moral a person than a "regular" (sexual) pornographer. And if "regular" pornographers were given their own TV programs, and quoted as "experts" in the press all the time, I'm sure many other people would get as annoyed and angry as I am about Kirsty Alsopp.

I think that's a better description of my opinion.

ABN

RHemmings wrote:

If anything it's the older generation that wants a free ride by expecting house prices to be maintained at current unreasonable levels so that they can downsize and enjoy their plasma screens.

I would not agree with that. It makes little difference whether my property devalues by 50% or not as the value of the property I would be downsizing to, should I ever wish to do that, also falls by 50%. Ok that also means that the difference between the 2 properties has also fallen by 50% but then that difference is made up by letting the children stand on their own 2 feet.

RHemmings wrote:

Look at an example. An old person owns a house. They bought it for £40,000 in 1980. Over the years, it has appreciated in real terms, not just nominal terms. So that in 1980 pounds, it's now worth £65,000. The owner down-sizes to a house worth £30,000 in 1980 pounds, leaving £35,000 for them to use. Buy plasma screens, holidays, and the like. £10,000 of this money they have to play with came from them going for a cheaper house, but where did the extra £25,000 come from? Effectively, it came from the salary of the younger person who bought the house.

And will this cycle not repeat to 30/40 yrs time with the next generation thus I see little relevance

westernpromise

dunstonh wrote:

Endowments were purchased most commonly because they were cheaper than repayment mortgages but gave that potential for a lump sum at the end and up to that point, all endowments had paid big surpluses.

Ignoring the point that some were mis-sold, a great number were not and it was consumer greed that led the way - cheaper payments and a lump sum at the end. It went wrong but consumers could in effect sue the advisers.

When it goes wrong with mortgaged buy to lets which work on the same risk and greed principle, who are they going sue then?

Actually they were usually more expensive month by month, to begin with. The assumption was that the stock market would return more than interest rates, so if you put the same into an endowment as you paid on a repayment mortgage, you'd end up with a surplus.

Logically enough, people then started putting in less than the repayment, on the basis that they would still have enough to pay off the capital, and it made paying for a house more affordable (of course, this transmitted straight into the price of houses, so the benefit soon vanished).

When interest rates fell after 1992, so too did stock market returns - but so too did the monthly interest payments. So all those people moaning about endowment shortfalls did not actually lose anything. If they had increased their payments into the endowment by what theyr were saving on interest, they wouldn't have had a problem.

I should really sue my mortgage advisor of 1988 for not putting me into an endowment. If he had, I would have had a free retrospective option to convert it it into a repayment mortgage - or keep the winnings if the endowment had worked!

RHemmings

westernpromise wrote:

Excellent post RHemmings.

Something else you might have mentioned, as a further consequence of what I shall call "Gordonomics". A lot of the extra debt is being taken out to pay for disposable consumer stuff like cars and holidays, with the cost spread out over a continually-increasing 25 year debt.

Thank you. I think the car example is a really good one. First, nobody would normally pay for a car over "up to" 25 years. They'd realise that they were paying an unreasonably huge amount of interest on the car. And of course that's what they're doing if they add it to their mortgage. Secondly as you mention, cars depreciate. So even if they keep it ten years, it's a banger by then. Thirdly, cars cost money to run, and I wouldn't be surprised if many of these mortgage-equity-withdrawl car buyers are trading in their cheap to run small cars on some massive 4x4 with a V8 engine. So their car running costs may increase, and they're going to be paying for it for years and years and years, and higher total interest charges for their mortgage each month.

I predict that in about 5 or 10 years time we will start to see a new take on the "endowment mis-selling scandal" (which was of course no such thing). This will be the "re-mortgage mis-selling scandal", wherein Trev and Sharon, aged 65, will come weeping onto the telly to moan about how their mortgage is now bigger than it was 35 years ago because of all that remortgaging they were encouraged to do.

This will happen because Trev and Sharon have not yet paid for cars that were scrapped or crushed 20 years previously.

I'm not sure who'll be punished for this; it won't be Trev and Sharon and will probably be others who hold similar products, as happened with endowments. The key thing is to be f e c k less; it works out best that way.

Maybe. I still believe that house prices will correct. And that those who are prudent will get some sort of reward for being (what I believe to be) sensible.

westernpromise

RHemmings wrote:

I partially agree with you. If current house real house prices were to become a permanently high plateau, then your model for women gaining nothing by liberation would fit. But 1996 was a long time after liberation and women had achieved a fairly high level of independence by then. And houses were cheap. The same argument you give would have applied during the last peak in 1989/90. And it didn't last then. If there is a house price crash, then the additional earning power of women will once again mean a higher standard of living.

There were a number of factors at play between say 1970 and now which have conspired to alter long-term house values, but in the hypothetical example, I gave it is clear what must happen. I don't say that the whole thing is down to women in the workforce, that would be absurd; but it is clear that if women work then what households can afford to pay for things must rise and therefore the price of things will tend to rise to absorb the extra money chasing them.

The upshot is the worst of both worlds: the option to work becomes an economic compulsion to, without much benfit in living standard.

RHemmings

ABN wrote:

I would not agree with that. It makes little difference whether my property devalues by 50% or not as the value of the property I would be downsizing to, should I ever wish to do that, also falls by 50%. Ok that also means that the difference between the 2 properties has also fallen by 50% but then that difference is made up by letting the children stand on their own 2 feet.

It sounds like you are saying that even if you downsize, you're better off if house prices crash. Or at least that there would be little difference. If you're not just doing the sums on yourself, but are including the children, I have to agree with that. I think the number of people who would, overall, be disadvantaged by a crash is much overrated.

And will this cycle not repeat to 30/40 yrs time with the next generation thus I see little relevance

The typical human being lives a bit over three score years and ten. Or are we up to four score years and ten. A cycle with a 30/40 year time span makes a huge difference to people. Especially since there's only really a small time period in that 70-80 years where it's a good idea to raise a family. I think a cycle repeating in 30/40 years would only be of little relevance if we lived for say 500-600 years. Otherwise some people will be advantaged considerably by having the cycle in sync with their lives, while other people would be disadvantaged.

movieman

it is clear that if women work then what households can afford to pay for things must rise and therefore the price of things will tend to rise to absorb the extra money chasing them.

Only if supply doesn't increase to suit.

The appalling restrictions on house-building in this country are at least as much to blame for high prices as two-income households are. Who'd pay 250,000 pounds for a three-bed house in Chav-town if they could get one built new for half the price on land just out of town?

There are a number of factors that have conspired in turning Britain from a 'nation of shopkeepers' into a 'nation of landlords', and any one of them could change tomorrow.

I think the number of people who would, overall, be disadvantaged by a crash is much overrated.

Indeed: almost everyone benefits from lower house prices. Even those who own houses could trade up to somewhere larger for less money if prices dropped, only property developers or people who've taken out absurdly high loans would really be in trouble.

RHemmings

movieman wrote:

Only if supply doesn't increase to suit.

The appalling restrictions on house-building in this country are at least as much to blame for high prices as two-income households are. Who'd pay 250,000 pounds for a three-bed house in Chav-town if they could get one built new for half the price on land just out of town?

Thank you. I knew I was missing some vital point in the discussion of the consequences of the buying power of families/couples with two salaries. Most other things haven't doubled in real price. Cars, holidays, books, and so on. For the prices to be pushed up to maximum affordability, there needs to be additional demand.

But I'm not sure that it's just the number of people versus the number of houses that has pushed up prices. Even in parts of the country like Scotland where the population is falling, there has still been house price inflation.

mystic_trev

=aderbyshireladWho do you think will eventually benefit from their parents having two properties, or even three, or ten. Hmmm?

The Taxman i.e. IHT - dope.

aderbyshirelad

mystic_trev wrote:

The Taxman i.e. IHT - dope.

As obviously they wouldn't take any advice or do in any research on limiting their's or their childrens' tax liability. Oh, and even if they didn't, as I recall IHT is "only" 40%, so who gets the other 60%? A bit simplistic, but clearly it needs to be! :rolleyes: