Property !!!!!! A Nation Hypnotised? Blog Discussion

ManAtHome

True it would hit everyone, but to very different degrees. How many people have a few months living costs in the bank? We're already seeing cashflow strains - it's estimated that a couple of million households are having difficulty paying their council tax for example.

Interesting point about state help - they (it?) have a duty to support people without assets, most others are expected to flog stuff until the cash runs out.

Personally, I suspect the banks would get more help from the govt than I would...

vishpatel

A downturn (which has already started in my opinion) will of course affect everyone, but it won't affect everyone equally.

I have no debt, compared to others my age who have a massive mortgage.

Anyway - interesting to note that the UK current account balance shows no urges towards DFW'ism
https://www.cia.gov/cia/publications/factbook/rankorder/2187rank.html

vishpatel

inmypocketnottheirs wrote:

At the end of the day, it is a simple economic priciple of supply and demand. If demand exceeds supply, prices rise, if supply exceeds demand prices fall. At the moment, where I am sat it is the former. Perhaps where you are it is a different situation.

Dress it up how you like, see it how you want, but these are the simple facts. Confusing issues by comparing us with an incomaprable market achieves nothing.

QED

Since you're so comfortable using economic principles - why don't you take a look at the effects of increasing money supply. Something that has happened on both sides of the Atlantic.

The UK's current account deficit, along with the nations personal & mortgage debt convinces me that this country is living on borrowed time.

Chrysalis

LizEstelle you forgot interest rates, this has a much bigger impact on the market then demand does. The demand is there for the reasons you said.

LizEstelle

No, I remembered interest rates - please consult my last post - but there is a limit to which the BoE can raise base rate with the intention of cooling the housing market. The whole of the rest of the economy is impacted - business would scream blue murder if they are getting screwed just so the mortgage sector/house price inflation can be 'controlled'.

As I said, a two-speed economy needs the invention of more subtle mechanisms than wholesale base rate manipulation - it's just that the BoE can't think of any and frankly I doubt they could dream anything up which a determined financial sector couldn't get around.

vishpatel

LizEstelle wrote:

No, I remembered interest rates - please consult my last post - but there is a limit to which the BoE can raise base rate with the intention of cooling the housing market. The whole of the rest of the economy is impacted - business would scream blue murder if they are getting screwed just so the mortgage sector/house price inflation can be 'controlled'.

As I said, a two-speed economy needs the invention of more subtle mechanisms than wholesale base rate manipulation - it's just that the BoE can't think of any and frankly I doubt they could dream anything up which a determined financial sector couldn't get around.

LizEstelle,

I think you've just put you're foot in it there and made me disregard pretty much anything you've said.

It isn't the BoE's job (re: interest rates) to cool the housing market or keep corporate Britain happy. They are there to control inflation. NOTHING else.

Inflation poses a much greater risk to the economy than house prices movements or a downturn in business profits.

It's 101 stuff really.

inmypocketnottheirs

vishpatel wrote:

,


Inflation poses a much greater risk to the economy than house prices movements or a downturn in business profits.

Would you not say that inflation fuels house price movements then? Or are you saying these are two seperate matters?

Inflation fuels growth, increased growth = increased turnover = increased profits. Generally speaking business likes high inflation for this reason.

vishpatel

inmypocketnottheirs wrote:

Would you not say that inflation fuels house price movements then? Or are you saying these are two seperate matters?

Inflation fuels growth, increased growth = increased turnover = increased profits. Generally speaking business likes high inflation for this reason.

It depends what the inflation is caused by. What I said earlier is there has been an increase in lending, which is basically an increase in money supply. This is the classic definition of inflation.

Most of this 'new money' has ended up in property. House price inflation has thus fuelled growth, as people 'feel' richer when they see the value of their home rising. This tempts them to spend their equity.

Ultimately, this can't go on forever because people become spent out. The cost of goods and services start rising etc..

I don't have time to go into detail about what could happen next, but you can't just carry on having high inflation because ultimately you end up with the risk of hyperinflation & currency collapse.

Businesses don't like high inflation.... they like mild inflation.

Theres plenty of info here
http://en.wikipedia.org/wiki/Inflation

LizEstelle

vishpatel wrote:

LizEstelle,

I think you've just put you're foot in it there and made me disregard pretty much anything you've said.

It isn't the BoE's job (re: interest rates) to cool the housing market or keep corporate Britain happy. They are there to control inflation. NOTHING else.

Inflation poses a much greater risk to the economy than house prices movements or a downturn in business profits.

It's 101 stuff really.

Disregard whatever you like. The plain fact of the matter is that, whilst disconnected in theory from industry and commerce, the housing market is one of the principle drivers of the general UK economy.

It's an accepted fact that recent BoE discussions and decisions have centred PRECISELY around how to get a grip on the distorting effect of the housing market. Released minutes of the meetings have confirmed this. The last rise in base rate of .25% was PRECISELY aimed at this.

Cogita ante salis.

Twaddle you do, eh?

vishpatel

LizEstelle wrote:

It's an accepted fact that recent BoE discussions and decisions have centred PRECISELY around how to get a grip on the distorting effect of the housing market. Released minutes of the meetings have confirmed this. The last rise in base rate of .25% was PRECISELY aimed at this.

Cogita ante salis.

Twaddle you do, eh?

Really? I've taken a quick look at the minutes, and I don't see anything PRECISELY aimed at the housing market
http://www.bankofengland.co.uk/publications/minutes/mpc/pdf/2006/mpc0608.pdf

"Against the background of firm growth, limited spare capacity, rapid growth of broad money and credit, and with inflation likely to remain above the target for some while, the Committee judged that an increase in the official Bank rate was necessary to bring CPI inflation back to the target in the medium term. Most members favoured an immediate increase of 0.25 percentage points to 4.75%."