Here`s the thing......

shupufski_2

HAMISH_MCTAVISH wrote: »

HPI was caused by a supply shortage of housing, and credit enabled demand to continue at higher prices.

Exactly - The demand for housing went up because after the 90's recession there were rising levels of employment and a rising population.

However, you have ignored the other major factors that contributed to the value of housing becoming decoupled from the level of actual demand.

Firstly, the post 9/11 interest rate environment meant that cheap money flooded into assets seeking a return.

Secondly, securitisation resulted in larger sums of money being made available for housing as the banks thought they had eliminated risk.

Thirdly, securitisation also meant that money was lent to people who lacked the ability to repay it - as clearly evidenced through the subprime crisis.


Thus the increased level of demand for housing was amplified by the lending and monetary environment. These factors created a distortion compared to earning capacity.

The reason that prices have not fallen significantly is because the banks and monetary environment have "locked up" the system, minimising the level of housing transactions that take place. This has lowered transactions to such a level that is just about equal to the reduced level of demand. However, only those with significant equity or cash can take part in this market.

HAMISH_MCTAVISH

shupufski wrote: »

The demand for housing went up because after the 90's recession there were rising levels of employment and a rising population.

True.

Also because house prices, relative to income, were at close to an all time low.

However, you have ignored the other major factors that contributed to the value of housing becoming decoupled from the level of actual demand.

There is no such thing.

The value of a house is whatever a willing buyer and a willing seller determine it to be. In otherwords, the actual sold price.

Firstly, the post 9/11 interest rate environment meant that cheap money flooded into assets seeking a return.

Money was not particularly cheap, by long term historical standards. Only by comparison to the 3 decades prior, which were the most expensive in history.

The 300+ year average interest rate is 4.9%.

There have been times in the last 100 years where rates were far lower, for a long time. Seven years at 2%, for example, after the last time a global financial crisis happened. (a useful reminder as to what could happen today)

Secondly, securitisation resulted in larger sums of money being made available for housing

True. And I note it is returning.

as the banks thought they had eliminated risk.

They thought they had minimised it. And in the UK, they had.

In the USA, not so much.

securitisation also meant that money was lent to people who lacked the ability to repay it - as clearly evidenced through the subprime crisis.

In America.

Not of much relevance to UK house prices or lending standards though.

Thus the increased level of demand for housing was amplified by the lending and monetary environment.

No, the increased level of demand was enabled by the monetary and lending policy.

Without lending, the demand would be delayed as rental prices soared, like is happening now.

But mortgage restrictions do not prevent demand, and thus HPI, they merely delay it.

These factors created a distortion compared to earning capacity.

False.

The percentage of after tax income required to pay the mortgage in 2007 was 45%. Today it's more like 35%. In 1990 it was 68%.

The total cost of a house is comprised of 1) the price, and 2) the mortgage costs.

The total cost of buying a house, relative to earning capacity, is cheaper now than it was 2 decades ago.

The reason that prices have not fallen significantly is because the banks and monetary environment have "locked up" the system, minimising the level of housing transactions that take place. This has lowered transactions to such a level that is just about equal to the reduced level of demand. However, only those with significant equity or cash can take part in this market.

Or in other words, when demand falls, and price falls, then supply falls until equilibrium is restored.

Exactly as you'd expect in a market where price is set by supply and demand.

It is always all about supply and demand, and there is nothing else.

If you doubled the number of houses in the UK overnight, prices would fall off a cliff, no matter how much mortgage funding was available.

If you halved the number of people in the UK overnight, prices would fall off a cliff, no matter how much funding was available.

If you cut the amount of mortgage funding in the UK by 70% almost overnight... Oh wait, we did.

And prices dipped briefly, bounced back rapidly, and are now just 10% below peak on average, and back above peak in some areas.

I think this debate is over.

shupufski_2

HAMISH_MCTAVISH wrote: »

The value of a house is whatever a willing buyer and a willing seller determine it to be. In otherwords, the actual sold price.

Only on the condition that the buyer has the ability to pay. If you increase the amount of money available on the buyer side then prices rise - its called inflation.

HAMISH_MCTAVISH wrote: »

Money was not particularly cheap, by long term historical standards. Only by comparison to the 3 decades prior, which were the most expensive in history.

The 300+ year average interest rate is 4.9%.

There have been times in the last 100 years where rates were far lower, for a long time. Seven years at 2%, for example, after the last time a global financial crisis happened. (a useful reminder as to what could happen today)

Interest rates through the 13 boom years were much lower than the 13 years before the boom. Also, since the investment market is a global market the actions of the Fed in slashing rates meant that there was excess money looking for a decent return.

HAMISH_MCTAVISH wrote: »

No, the increased level of demand was enabled by the monetary and lending policy.

Without lending, the demand would be delayed as rental prices soared, like is happening now.

But mortgage restrictions do not prevent demand, and thus HPI, they merely delay it.

False. If lending standards were tied to incomes then prices would have risen more slowly. Cheap money enabled the demand to be satisfied at higher values.

HAMISH_MCTAVISH wrote: »

The percentage of after tax income required to pay the mortgage in 2007 was 45%. Today it's more like 35%. In 1990 it was 68%.

The total cost of a house is comprised of 1) the price, and 2) the mortgage costs.

The total cost of buying a house, relative to earning capacity, is cheaper now than it was 2 decades ago.

This depends on how you choose to measure incomes and also how much weighting you give to recent interest rates being "normal".

HAMISH_MCTAVISH wrote: »

If you doubled the number of houses in the UK overnight, prices would fall off a cliff, no matter how much mortgage funding was available.

Nonsense. You can't double the size of Hampstead, Harrogate or Hale can you?

Percy1983

Now before I even post my opinion I will state my personal circumstances (many around here will know but just to be clear)

I currently live with parents so have no landlord.
I have a very good income for my local area so I’m not priced out.
Currently well on my way to getting a deposit.

So anyway, my opinion.

I do think celebrating rising house prices and more people being priced out is bad taste.

I do believe the assumption that many of us who don’t own housing is down to laziness and I am not going to say that everybody who has a house has got it easy.

It is harder for the younger generations, as I have used an example before, my parents where a security man and a part time checkout operator, yet me and my other half can just afford what they bought being an accountant and teaching assistant both working full time.

Now I am not going to say that all the boomers had it so easy yes they worked hard for what they had, yet I have to work harder to get less.

Now the misconception that all us who point this out are just sitting her moaning about that fact and not doing anything about it… I have worked very hard and am doing something about it and will get there.

As for the few times people have said things along the lines of ‘grow some balls’ or ‘be a man and stand on your own 2 feet’ due to me living with parents, yet if I rent I would be mocked for paying my landlords mortgage and will never get my deposit together.

The mortgage deposits aren’t a problem to me, I would rather be delayed and save 10-15k than have to bid against everybody who fancies it when it comes to buying.

I do believe BTL is out of control and should be taxed heavily, yes there is always going to be a market for it and I am not saying it shouldn’t be there, but it got to a point locally where all the ‘FTB homes’ where being bought up by BTL’ers which caused prices to rise which caused more people to rent, which caused more ‘investors’ etc (bit of a chicken and egg problem).

Now I did see something on TV the other night where landlords where complaining at unpaid rent and the house being left in a state, now part of me tried to be sympathetic but then a phrase came to mind ‘risk on investment’ to which it all made sense. If you expect a property to be a money tap think again, it can go wrong.

HAMISH_MCTAVISH

HAMISH_MCTAVISH wrote: »

If you doubled the number of houses in the UK overnight, prices would fall off a cliff, no matter how much mortgage funding was available.

If you halved the number of people in the UK overnight, prices would fall off a cliff, no matter how much funding was available.

If you cut the amount of mortgage funding in the UK by 70% almost overnight... Oh wait, we did.

And prices dipped briefly, bounced back rapidly, and are now just 10% below peak on average, and back above peak in some areas.

I think this debate is over.

Perhaps somebody else can answer.....:D

Cleaver

shupufski wrote: »

Nonsense. You can't double the size of Hampstead, Harrogate or Hale can you?

I think that's the point he's making.

the.ciscokid

HAMISH_MCTAVISH wrote: »

Perhaps somebody else can answer.....:D

So, are you saying that if and when interest rates return to normal, SMI is withdrawn, public sector job losses kick in, banks stop getting bailed out and savers stop getting robbed, that Mortgage funding will go back up by 70%?

Perhaps Northern Rock will start dishing out 120% mortgages again?

HAMISH_MCTAVISH

Cleaver wrote: »

I think that's the point he's making.

They're not the brightest of bears these days.

HAMISH_MCTAVISH

the.ciscokid wrote: »

So, are you saying that if and when interest rates return to normal, SMI is withdrawn, public sector job losses kick in, banks stop getting bailed out and savers stop getting robbed, that Mortgage funding will go back up by 70%?

Perhaps Northern Rock will start dishing out 120% mortgages again?

Why am I not surprised you missed the entire point of the discussion.

the.ciscokid

HAMISH_MCTAVISH wrote: »

Why am I not surprised you missed the entire point of the discussion.

Erm, you replied to your own post, asking someone else to answer. In your original post that you quoted you said:

If you cut the amount of mortgage funding in the UK by 70% almost overnight... Oh wait, we did.

I replied to this, as you asked, by listing a few things that you need to remember that I believe have helped sustain house prices, rightly or wrongly depending on your point of view.

Are you going to DISCUSS these, or just get on your high horse about missing points of the discussion (which I don't think I have)?