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

ReportInvestor

Maybe my colleague EdInvestor is right [on another thread] and the UK is so drugged up on this property fix that they won't be weaned off it.

House prices expected to rise 40% in the next five years as SE faces property shortages & rising population

Notwithstanding the slight issue that the average SE house is already x9 earnings.

All aboard for this extended boom? whambamboo?

inmypocketnottheirs

ReportInvestor wrote:

All aboard for this extended boom? whambamboo?

Or should it be 'All abroad for this extended boom'?!?!?
:rotfl:

inmypocketnottheirs

vishpatel wrote:

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

And that is the situation isn't it? We don't have high inflation, we do have mild inflation?

No doubt there will be some re-alignment in certain areas of prices, but the UK housing market is very complex, and regional differences have to be factored in. Surely supply and demand is the biggest single factor?

vishpatel

inmypocketnottheirs wrote:

And that is the situation isn't it? We don't have high inflation, we do have mild inflation?

No doubt there will be some re-alignment in certain areas of prices, but the UK housing market is very complex, and regional differences have to be factored in. Surely supply and demand is the biggest single factor?

I personally think inflation is a lot higher than reported. But make your own observations on that.

Demand has been a big factor, yes, but only because credit has been so readily available. There might well be equally high demand in the future, but I don't see lending being so cheap, and I certainly don't see the British publics appetite for debt increasing either - quite the opposite in fact (see DFW board for instance).

Supply IMO is plentiful.

Ask yourself why are people paying more & more for property? Who is actually benifiting? Is there real value in these houses that wasn't priced in before? Why? Is it because future generations will have even more cash in their pocket & will pay even more for these houses in the future? How will they afford this? Will Britain's economic boom continue at breakneck speed indefinitely? How is that possible?

Or is it just that there has been monetary expansion, and cheap lending which has meant people can borrow more & more?

ReportInvestor

whambamboo wrote:

Tell me why, again, because you haven't explained, I should buy a property, when I currently pay £1100/mth for a property worth £350k+, and the interest payments (no repayments!) on that would be 50% higher than my rent! .

Because you know you've been lucky and got this one cheap & the landlord might kick you out in 6 months / 12 months?

whambamboo wrote:

Checking rightmove, I think I'd have to pay at least £1,500/month to get something comparable.

I've been similarly lucky as a tenant [4 bed house in prime location @ £975pm - now £1K pm] , but you can never be sure. There wasn't anything else like it when I was looking.

LizEstelle

vishpatel wrote:

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%."

Yes, really... and everybody by way of an informed commentator knows it.

If you claim to be among these - and yet you are STILL unaware of these circumstances which surrounded the last interest rate hike then you must have been disconnected from any form of mass medium for a period of several months at least.

vishpatel

LizEstelle wrote:

Yes, really... and everybody by way of an informed commentator knows it.

If you claim to be among these - and yet you are STILL unaware of these circumstances which surrounded the last interest rate hike then you must have been disconnected from any form of mass medium for a period of several months at least.

So what are you saying? For all of what the MPC actually say in their minutes, their main concern is house prices?

Haha!

Commentators (ie. the media) naturally tend to focus on the effect of interest rate movements on mortgages, house prices, and personal debt because thats what affects the man on the street.

At the end of the day, inflation and therefore interest rate decisions are a much bigger beast than UK house prices.

LizEstelle

I am saying that virtually every commentator in the know will tell you that the BoE has long recognised the housing market for what it is - a powerful driver of the domestic economy.

I am saying that virtually every commentator in the know understands that the BoE used the crude instrument of raising base rate SPECIFICALLY to effect a cooling in house price inflation last time round - and will probably do so again soon, by the looks of things.

Sorry, you may not want to accept this but it's true.

Whether they are WISE to do this is an entirely different matter and we could debate it - but you should not blind yourself to the fact the UK's property scene can have a wildly differing economic dynamic from that of business/industry. The two can be highly 'out of step' and therein lies a great deal of the Bank's agonising.

Chrysalis

I wont dispute that the housing market is a driving factor in the economy why is this? people releasing their equity so they have spending money to hide a recession?

But what you need to realise is that interest rates are their to control the value of the currency and this will always take priority over house prices. If they find inflation going out of control then interest rates will go up, this is whats already happening as we are seeing with fuel costs and even official inflation figures are on an upward trend and predicted to break 3%,

vishpatel

LizEstelle wrote:

I am saying that virtually every commentator in the know will tell you that the BoE has long recognised the housing market for what it is - a powerful driver of the domestic economy.

I am saying that virtually every commentator in the know understands that the BoE used the crude instrument of raising base rate SPECIFICALLY to effect a cooling in house price inflation last time round - and will probably do so again soon, by the looks of things.

Sorry, you may not want to accept this but it's true.

Comedy.

I guess you have to be 'in the know'.

However, I'll take the aims of the MPC at face value thanks. I think they care a helluva lot more about the value of the pound, than they do about the price of your home.

Core Purpose 1 - Monetary Stability
"Monetary stability means stable prices and confidence in the currency. Stable prices are defined by the Government's inflation target, which the Bank seeks to meet through the decisions on interest rates taken by the Monetary Policy Committee, explaining those decisions transparently and implementing them effectively in the money markets."

http://www.bankofengland.co.uk/about/corepurposes/index.htm