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

ericthekidstoner

Jeremy Warner always writes a decent column

inmypocketnottheirs

ReportInvestor wrote:

The Independent

Halting house price inflation would induce a recession - learn to live with it

The rules of the game have changed, making old measures of valuation less reliable.

"....Of course, there must be a level of interest rates that would cause house prices to fall. Yet it is likely to be a good deal higher than the couple of extra quarter-point rises the markets have factored in for the current phase of monetary tightening. If, on the other hand, rates were to rise back to above 6 per cent, that would begin seriously to hurt, and at 8 per cent, many households would experience a similar degree of distress in servicing mortgage payments as occurred in the early 1990s.

In those circumstances, house prices would indeed fall, but so would the rest of the economy too. No one would thank the Bank for inducing a recession when the level of general price inflation doesn't require one....."

So we will have to put up with inequalities and the government will have to address the issue of social housing.

Meanwhile affordability is not an issue judged by historic standards.

'Spose that bears out my theory that if house prices crash then we're in all trouble.

vishpatel

inmypocketnottheirs wrote:

'Spose that bears out my theory that if house prices crash then we're in all trouble.

Everybody equally?

No, some more than others I'd wager

Oh - and if some bloke in the media says that's whats going to happen. It's bound to be true eh!!!

anewman

What is or isn't said in the news is of no consequence.

What is of consequence is if you own a house and you're trying to sell it at a certain price - and no-one is buying (for whatever reason that may be, less disposable income, increased debt, higher interest rates and so on) the seller *has* to reduce the price in order to sell.

If you're about to sell a house, and you see similar houses sell easily, you're probably going to put up your asking price (hence the recent property boom).

When people can no longer afford houses and no-one buys them prices *have* to drop.

A house is only ever worth what someone is able and willing to pay. People have been borrowing more and more money to buy houses (more compared with their income) as everyone wants to keep up with the Jones's and buy, even if it means financial difficulty later. Until people realise they cannot afford a house, and banks stop willy nilly lending, the house market will be stable or prices will slowly increase.

I personally think the way the housing market will end up is people will borrow ever increasing amounts at slightly increasing interest rates - then at some point in the future, there'll be record numbers of people being reposessed - that will undermine confidence in buying a house, then the house market will slow down.

inmypocketnottheirs

vishpatel wrote:

Everybody equally?

No, some more than others I'd wager

Oh - and if some bloke in the media says that's whats going to happen. It's bound to be true eh!!!

If we suffer an economic crash to that extent, it won't really matter, cos we will all be stuffed.

You just keep paying your rent in the meantime then!

ReportInvestor

Re the Independent snippet & later comments by other posters.

Said in "the news" - "some bloke in the media"

Of course I agree that it is what happens on the ground that matters.

But

Jeremy Warner is a trained economist. It's his job to decipher the trends and forces at work in the housing market and the wider economy.

Now economists aren't always right - otherwise he'd be sunning himself in Barbados - but I have come to respect his opinions over time on a variety of issues.

Those who read the full article will notice the distinction he draws between the US and the UK. And also, a factor I see all around me, which is unique to the 21st Century & perhaps stymies attempts to use past housing valuations in today's conditions,:

The Independent

Progressively, housing wealth is being recycled from one generation to another, with parents remortgaging on the back of their housing gains to provide their children with a sufficiently large deposit to make the purchase of a house seem affordable.

ericthekidstoner

anewman wrote:

A house is only ever worth what someone is able and willing to pay.

tis very true. however, the overall dynamics of house prices (as a trend) is more complicated than just simple supply and demand.

factors in the macro economy of which house prices is an integral part of will have large influences, and vice versa. e.g. *if* (big if!) there is another dot com like boom, it is possible that buy2let investors will want to cash out and reinvest in equities; or, UK manufacturing heads into the duldrums again and/or sterling exchange rates fluctuate against USD and Euro, the rest of the economy would suffer.

re: the affordability issue. what if the banks all start to lend up to 5 times annual salary instead of 3.5, and allow 40 year terms? that would increase "affordability" but nobody is any better off bc it's the same for everyone

vishpatel

ericthekidstoner wrote:

re: the affordability issue. what if the banks all start to lend up to 5 times annual salary instead of 3.5, and allow 40 year terms? that would increase "affordability" but nobody is any better off bc it's the same for everyone

Banks offer 5 times already don't they? It's not the same for everyone though is it? Previous generations had much stricter limits on how much they could borrow.

vishpatel

ReportInvestor wrote:

Jeremy Warner is a trained economist. It's his job to decipher the trends and forces at work in the housing market and the wider economy.

Now economists aren't always right - otherwise he'd be sunning himself in Barbados - but I have come to respect his opinions over time on a variety of issues.

Those who read the full article will notice the distinction he draws between the US and the UK. And also, a factor I see all around me, which is unique to the 21st Century & perhaps stymies attempts to use past housing valuations in today's conditions,:

The Independent

"Progressively, housing wealth is being recycled from one generation to another, with parents remortgaging on the back of their housing gains to provide their children with a sufficiently large deposit to make the purchase of a house seem affordable."

Well we won't have to wait too much longer to see if the UK can handle rate rises better than the US.

re: parents remortgaging - There's only so much of this that can be done before all left is a huge mountain of debt and only the thinnest layer of equity holding it up. If you have confidence in such a pyramid, good for you!

ericthekidstoner

vishpatel wrote:

Banks offer 5 times already don't they? It's not the same for everyone though is it? Previous generations had much stricter limits on how much they could borrow.

yeah... and there's always self certs!

my point was that banks could potentially decide to lend more than the current limits, which like you said, tends to occur with time as we now borrow more than the previous generations