Friday Debate: Will House Prices ever be allowed to fall?

Really2

Graham_Devon wrote: »

Were going completely off tangent again, discussing a point no one even bought up, but merely "corrected" a quote with and talking of crashes which isn't what the thread is about as far as I'm aware.

Given that so much of the UK's economy is rooted in property, probably more than at any other time in history and given that so many voters are now home owners, will any government ever allow prices to fall in a significant way?

I would class significant as what has happened in the past, large nominal falls.

If we have stagnation over the next 5 to 10 years while wages catch up with house prices, is there any value in waiting to buy once a reasonable deposit has been saved up?

This talks about 5-10 years of real term falls.

The other option is 5-10 years of nominal falls, that would be very serious for the economy.

It is not off on a tangent, I am stating that not only are nominal falls a vote loser because voters assets are being erroded.
It also has serious implications to our financial system, perhaps a massive concern for any government as that affects everyone in the country.

ess0two

Generali wrote: »

How could a Government prevent house prices falling? After all something is only worth what a buyer will pay and it can only sell for what a seller wants to sell it for.


If the Government sets a price for houses rather than allowing the market to find a price then there will be a lot of disappointed buyers and sellers. That doesn't sound like a good idea if you want to be voted in again.

0.5% IR's....... this a major beef with the bears,although the BOE and government are two separate entities,right?

bendix

What a bizarre place this forum is sometimes. The concept of the government 'allowing' or 'not allowing' house prices to fall is utter nonsensical.

How does the OP think the government will prevent any major fall if it happens? By reducing interest rates, perhaps? Oh . . wait . . .

des_cartes

The signs for homebuyers are looking good. The current government are already allowing house prices to fall and will soon be encouraging further falls with cuts to housing benefit (reducing income for landlords) and halving the mortgage support given to unemployed houseowners with a mortgage from October. The falls being seen now will be insignificant in the context of house price falls from November through this winter as the cuts begin to bite.

drc

There are a few changes which the new government has made which look decidedly bearish for house prices. These include;

• A reduction and cap on LHA
• Reduction of Support for Mortgage Interest (SMI)
• Lib Dems have suggested a land value tax (although this is unlikely to happen).

AndrewBannam

If house prices go up or down, the only people that it really affects is those who are yet to step onto the property market or those with two houses or more. The price is just comparable on what you can swap your house for.

julieq

The government didn't reduce interest rates to support the housing market. It was part of a stimulus package to breath life into an economy that had utterly stalled, and the low rates weren't available to many purchasers anyway because of mortgage rationing and restrictions on LTV. And the fact that many people weren't buying because of underlying uncertainty not about house prices but about actual economic collapse.

And default rates and rates of unemployment amongst home owners were and are low so the government schemes to keep defaulters in their houses had only a very marginal effect,

I'm with Generali. The government did very little to support house prices. And they did drop which does prove the point rather.

House prices stayed resilient because there was more demand than supply - people decided not to sell so supply was restricted. Now prices are recovering we're seeing more people selling which is increasing supply. If prices drop further sellers will do what they did previously which is refuse to sell, and prices will bounce back. Unless there is a truly massive step increase in long term unemployment, which I doubt, there's nothing to shift this marginal supply/demand balancing.

There are, whether Graham likes it or not, enough people in a position to buy to maintain prices, usually on the basis of savings, on equity injection from parents or from inheritances, and on joint salaries. If there is wage inflation, that will feed into prices, and the most likely outcome in my opinion is real terms stagnation.

But obviously this doesn't apply "round my way" where prices have been dropping continuously since, err, 2006, and are going to obligingly reduce by a further 10% in the next two years because that's what the Daily Telegraph has ordained.

Thrugelmir

julieq wrote: »

I'm with Generali. The government did very little to support house prices. And they did drop which does prove the point rather.

The Labour Government provided a support structure sufficent to enable people to remain in their homes despite having debt problems. This has maintained repossessions at relatively low levels.
If this hadn't of been the case then prices could have dipped sharply and suddenly, as forced sellers attempted to sell. FTBs and STRs would have sat on the sidelines watching the freefall.

Not everywhere I should add. But in areas where employment levels and employment incomes are under ever increasing pressure.

Generali

ess0two wrote: »

0.5% IR's....... this a major beef with the bears,although the BOE and government are two separate entities,right?

The Bank of England is 100% owned by the British Government. The British Government appoints the 'Court of Directors' and the members of the MPC; 5 of whom sit in the Court, 4 of whom do not.

The MPC has a remit which has been set to give it a primary aim of trying to keep the CPI measure of inflation to within a range of 1-3%. It is also charged with helping the Government acheive its economic policy goals.

Thrugelmir

RenovationMan wrote: »

Given that so much of the UK's economy is rooted in property,

Property building, property renovation and property improvement all have economic benefits in some form. However property trading where the "profit" made is merely spent on having a good time, purchasing imported product and travelling the world has none.

As it creates little in the way of employment and merely adds a greater debt burden to be serviced in the future.

Much of the profit earnt by the banks for lending mortgage monies also flows abroad. Up until 2002 the UK mortgage market was funded by retail deposits. Between 2003 and 2007 around £600 billion was raised on the wholesale money markets to fund the property boom, the majority of this money came from abroad. Thats where the profit is flowing back to.