"Oversupply the cause of house price crashes"

chucky

shortchanged wrote: »

So does that mean if oil prices continue to rise we still won't see a double dip then chucky?

well done on answering you're own question

shortchanged wrote: »

I'm not really sure any more Graham.

but have another go on correlation and causation

julieq

Supply and demand for housing is about the difference between household creation rates and home creation.

There are two ways the demand is satisfied, owner occupation and rental.

The demand for owner occupation is enabled by mortgage availability. But that only defines who can afford to buy a house with a mortgage. It doesn't set overall demand for housing which is simply a game of musical chairs where there are far fewer chairs than houses. If you can't afford to buy, you rent. As there is more competition for rental properties, rents go up. As rents go up the amount of capital an investor can tie up in property increases in proportion. As people are squeezed out at the lower end, the amount people are prepared to pay in rent for particular classes of dwelling increases, and so on.

You don't actually need owner occupation to feed increases in the value of a house and you don't need first time buyers. All you need is more households being created than houses. Capitalism does the rest - as I pointed out here to widespread derision in early 2008, for anyone with cash, BTL was a stonking investment because the downside capital risk was low over the long term and the yield was greater than anything available in savings products by a long way.

Restricting mortgages just means fewer people end up owner occupiers. It doesn't reduce the demand for houses.

The guff about Ferraris is a pure smokescreen for utter ignorance. If there are 50 million Ferraris then either most of them stay unsold or the price goes down. The only way of maintaining demand at the high price is to restrict supply at lower prices by not selling, the calculation for the owner is then whether to hold stock in the hope of dribbling it onto the market at the high price or attempt to offload it by discounting - in most cases where supply massively exceeds demand the result is discounting. It's the most basic and simplest economics principle that exists, and only on the darkest reaches of the internet would you find anyone with the front and ignorance to not only dispute it but to ridicule. It's precisely the same sort of confident nonsense you'd get from a religious fundamentalist.

geneer

julieq wrote: »

Supply and demand for housing is about the difference between household creation rates and home creation.

Not really.

Its between the supply of property (being the amount on the market at any one time) vs the demand of potential buyers (with both the desire and the ability to buy).

nearlynew

julieq wrote: »

Supply and demand for housing is about the difference between household creation rates and home creation.

There are two ways the demand is satisfied, owner occupation and rental.

The demand for owner occupation is enabled by mortgage availability. But that only defines who can afford to buy a house with a mortgage. It doesn't set overall demand for housing which is simply a game of musical chairs where there are far fewer chairs than houses. If you can't afford to buy, you rent. As there is more competition for rental properties, rents go up. As rents go up the amount of capital an investor can tie up in property increases in proportion. As people are squeezed out at the lower end, the amount people are prepared to pay in rent for particular classes of dwelling increases, and so on.

You don't actually need owner occupation to feed increases in the value of a house and you don't need first time buyers. All you need is more households being created than houses. Capitalism does the rest - as I pointed out here to widespread derision in early 2008, for anyone with cash, BTL was a stonking investment because the downside capital risk was low over the long term and the yield was greater than anything available in savings products by a long way.

Restricting mortgages just means fewer people end up owner occupiers. It doesn't reduce the demand for houses.

The guff about Ferraris is a pure smokescreen for utter ignorance. If there are 50 million Ferraris then either most of them stay unsold or the price goes down. The only way of maintaining demand at the high price is to restrict supply at lower prices by not selling, the calculation for the owner is then whether to hold stock in the hope of dribbling it onto the market at the high price or attempt to offload it by discounting - in most cases where supply massively exceeds demand the result is discounting. It's the most basic and simplest economics principle that exists, and only on the darkest reaches of the internet would you find anyone with the front and ignorance to not only dispute it but to ridicule. It's precisely the same sort of confident nonsense you'd get from a religious fundamentalist.

I didn't get past the first sentence of this post.

You obviously don't know what you're talking about so I won't bother reading the rest.

geneer

julieq wrote: »

Supply and demand for housing is about the difference between household creation rates and home creation.

There are two ways the demand is satisfied, owner occupation and rental.

The demand for owner occupation is enabled by mortgage availability. But that only defines who can afford to buy a house with a mortgage. It doesn't set overall demand for housing which is simply a game of musical chairs where there are far fewer chairs than houses. If you can't afford to buy, you rent. As there is more competition for rental properties, rents go up. As rents go up the amount of capital an investor can tie up in property increases in proportion. As people are squeezed out at the lower end, the amount people are prepared to pay in rent for particular classes of dwelling increases, and so on.

You don't actually need owner occupation to feed increases in the value of a house and you don't need first time buyers. All you need is more households being created than houses. Capitalism does the rest - as I pointed out here to widespread derision in early 2008, for anyone with cash, BTL was a stonking investment because the downside capital risk was low over the long term and the yield was greater than anything available in savings products by a long way.

Restricting mortgages just means fewer people end up owner occupiers. It doesn't reduce the demand for houses.

The guff about Ferraris is a pure smokescreen for utter ignorance. If there are 50 million Ferraris then either most of them stay unsold or the price goes down. The only way of maintaining demand at the high price is to restrict supply at lower prices by not selling, the calculation for the owner is then whether to hold stock in the hope of dribbling it onto the market at the high price or attempt to offload it by discounting - in most cases where supply massively exceeds demand the result is discounting. It's the most basic and simplest economics principle that exists, and only on the darkest reaches of the internet would you find anyone with the front and ignorance to not only dispute it but to ridicule. It's precisely the same sort of confident nonsense you'd get from a religious fundamentalist.

Thats a remarkable display of ignorance and arrogance.

The ferrari analogy is apt, if somewhat obvious.
Demand is not about desire, it is about desire and the ability to pay.

Prices of houses now are not set based on a potential future supply. They are based on whats avaliable in the market now.

You also make a rather simplistic argument. As demand falls house prices fall so rents rise so demand for houses rise so prices rise.
Ultimately you rationalise that ultimately reduced demand leads to rising prices. This is clearly rubbish.

I believe the concept your reaching for is "equilibrium".
I can be expected that as demand for rental property increases, rents can also increase. This is no surprise.
However, rents are also defined buy the desire and ability to pay. In other words, as the BTL muppets discovered near the top of the bubble, they simply could not charge what they wanted to just because they wanted to. Again, these will reach an equilibrium.

They are not handing out BTL mortgages to anyone who wants one now. Again, the demand for such mortgages must also be backed up by the ability of the mortgagee to pay. This does mean that the demand for rental properties will be satisfied by professional landlords and institutions who can put down the money.
And those that can put down the money do not require the same returns to get by. This should be no surprise of course, as this is the same as it ever was. And nothing for the bearish to be overly concerned about.


Putting forward a simplistic and flawed argument is fine.
This can be discussed and you can be corrected.
Doing so in such a patronising way does nothing more than compound your original and significant errors of judgement.

julieq

geneer wrote: »

Prices of houses now are not set based on a potential future supply. They are based on whats avaliable in the market now.

Agreed, but when household creation exceeds home building, as time goes on, month on month, there is more competition for housing.

geneer wrote: »

You also make a rather simplistic argument. As demand falls house prices fall so rents rise so demand for houses rise so prices rise.
Ultimately you rationalise that ultimately reduced demand leads to rising prices. This is clearly rubbish.

Where do you get this idea? What I said was that demand for housing - somewhere to live - is increasing. Unless you increase the housing supply relative to household creation, more people are competing for fewer places to live. If they can't buy, rent goes up, and yield increase for landlords. And this isn't an imaginary phenomenon, it's happening and it's been recorded.

geneer wrote: »

I believe the concept your reaching for is "equilibrium".
I can be expected that as demand for rental property increases, rents can also increase. This is no surprise.
However, rents are also defined buy the desire and ability to pay. In other words, as the BTL muppets discovered near the top of the bubble, they simply could not charge what they wanted to just because they wanted to. Again, these will reach an equilibrium.

markets are always in some sort of equilibrium, but they're not static. And yes, there are limits to what people will pay in rent, but we haven't reached them. Proof? Rentals are increasing. As rents for nice places increases, lower paid people are excluded and competition takes place at higher average salary level. And those excluded have to settle for lower grade housing than they want. It was ever thus. That's why rent is higher in Knightsbridge than Toxteth.

geneer wrote: »

They are not handing out BTL mortgages to anyone who wants one now. Again, the demand for such mortgages must also be backed up by the ability of the mortgagee to pay. This does mean that the demand for rental properties will be satisfied by professional landlords and institutions who can put down the money.
And those that can put down the money do not require the same returns to get by. This should be no surprise of course, as this is the same as it ever was. And nothing for the bearish to be overly concerned about.

If you're seriously suggesting that a professional landlord won't go for maximum yield and will reduce rents below market levels at a time when there is increased demand for rented property, then you're a bigger fool than you appear.

And that is quite an achievement.

shortchanged_2

chucky wrote: »

well done on answering you're own question

but have another go on correlation and causation

You could say it's a coincidence that recessions have followed high oil prices........................or then again maybe not.

julieq

nearlynew wrote: »

I didn't get past the first sentence of this post.

You obviously don't know what you're talking about so I won't bother reading the rest.

WOW. What a riposte!

Even Geneer - class thickie - managed some sort of argument. You just planted your thumbs three inches into your ears. Nice one.

HAMISH_MCTAVISH

shortchanged wrote: »

You could say it's a coincidence that recessions have followed high oil prices........................or then again maybe not.

Expand your mind shorty.....

Do you think there may be another explanation? Like the cumulative demand growth from the booms that precede recessions drives oil to high levels?

For example, it wasn't the price of oil that caused the global meltdown in 2007, it was the credit crunch, which was caused by the fraudulent mis-allocation of risk ratings on American RMBS.

Sub-prime slime sold as bullet-proof AAA securities. Not high oil prices.

Gorgeous_George

[SIZE=-1]If you go out in the woods today[/SIZE] [SIZE=-1]
You're sure of a big surprise.
If you go out in the woods today
You'd better go in disguise.

For every bear that ever there was
Will gather there for certain, because
Today's the day the teddy bears put their tents up.

Not sure why I needed to post this.[/SIZE]

GG