Market forces and property

iandury

I love the constant debate on the subject of will there or won't there be a property price crash in the next few years.:)
I have looked in and sometimes contributed(not often) to some of the more well known sites that talk/debate about property.

Are property prices too high?, here are a few of my thoughts for what they are worth...

I believe in market forces, i really do, there are many countries that have tried alternatives, the main one the springs to mind communism, and where did that go.
I am a businessman, and the reason i am a businessman and not anything else is that i love the challenge of one man against another. You provide a service and i will provide a better one, you charge one price and i will beat your price. Market forces or capitalism has it's faults, but what else is out there that can better it.

Now market forces and property, and the great amusement that this subject has given me with the many many views out there.
Property is no differnet to anything else that people trade in, if the average price of a property today is £160k, then that is what it is worth, if next year it goes up to £200k and then the following year £300k, i have no propblem at all with that. If people want the best they can afford and they view their home as important then there are no rights and wrongs.

If BTL, investment, or the constant buying up property and doing it up and then selling it on flurish, then so what, it's an important and needed asset that can be traded, thats the free market and we all play by the same rules.

Now that said.....

If markets are in anyway tampered with this gets my blood boiling. The idea of a free market is that if you provide a crap service or product you go down, or under, however you want to put it, and the better man wins. I can live with this horrible side of the free market, and it's made me a better person for it, why should we settle for anything but perfection, you beat me and i will shake your hand. eventually:).

What is troubling me with the property market right now market is the lengths that "the powers that be" are going to in order to prevent people from failing. Many investors are being cushioned, those that borrowed way too much have been helped well beyond what is sensible, those that are in arrears or just simply can not afford to stay in their overpriced property are having every possible help that is possible to keep them there, for now anyway.

We must allow people to fail if thats what the market dictates, to not allow it(or anything else) to find it's true market place punishes those that made the right call. What if someone did not enter a market because he knew it was wrong too, or he thought it overpriced, if you allow the weak to dictate the markets then we are on a road to hell.

If i was someone who was sitting on the sidelines over the last few years and saving that deposit and waiting for those that took mortgages out at 6% interest rates to be found out in making a wrong call i would undertandably be getting very angry, and i might just stop playing by the rules.

This is all getting very exciting, the next few years should be very interesting:)


Iandury


p.s A homeowner of many years

B_Blank

I agree people should be able to fail when they are lazy/stupid.

There should be no SMI, there should of been no bank bail out, and there should absolutley be no benefits.

illgetthere

so where do you house the people that fail?

and at what cost?

julieq

What makes you think 6% mortgages are unaffordable to the people who took them out?

There is no evidence from default rates that that is the case. None at all. If people are in jobs, the vast bulk of people with mortgages were repaying them pre crisis and are repaying them now.

I'm not surprised you believe the contrary, because it's becoming an accepted truth that everyone with a mortgage is mortgaged up to the hilt and is only a quarter of a percentage point away from financial ruin. But it's not true. How do I know that? Because net debt is being repaid.

Low interest rates have nothing to do with wanting to sustain house prices (and in fact as they were dropping bears were forseeing 50-70% falls). They were to stimulate the economy so we kept our jobs by and large and didn't lose them because our firms ran out of cash. That has the side effect of allowing people to continue paying their mortgages.

And the other great fable of the bears is that mortgage interest support is maintaining prices. When it's a fleabyte on an elephant, half a billion against over a trillion in outstanding mortgages.

What is sustaining prices is high demand for housing. Full stop. This is because we create far fewer homes than households. If you want a free market, create a market where you can keep up with demand before expecting prices to fall to any great degree.

HAMISH_MCTAVISH

iandury wrote: »

if the average price of a property today is £160k, then that is what it is worth, .

True.

can not afford to stay in their overpriced property

Inconsistent. You've just said that a property is worth the price being paid.

It cannot then, by definition, be overpriced.

We must allow people to fail if thats what the market dictates, to not allow it(or anything else) to find it's true market place

We do allow people to fail. Many tens of thousands of people a year get repossessed.

And the market engages in price discovery to find it's level every day of the year.

punishes those that made the right call.

Eh???

We've just established that todays price is the right price, that the market allows people to fail, and so it's pretty blindingly obvious that the market is not punishing people for making the right call, but rather the wrong one.

If people were daft enough to assume there would be no benefits for unemployed homeowners, or that interest rates wouldn't fall in a recession, then that's a pretty damning indictment of their judgement.

What if someone did not enter a market because he knew it was wrong too, or he thought it overpriced,

Then he was wrong, and screwed up quite spectacularly.

We've already established there is no such thing as "overpriced".

And that someone who failed to anticipate all the likely consequences of a crash simply made a bad judgement call.

If i was someone who was sitting on the sidelines over the last few years and saving that deposit and waiting for those that took mortgages out at 6% interest rates to be found out in making a wrong call i would undertandably be getting very angry,.

The only person you should be getting angry at is yourself.

For having very poor judgement.

macaque_2

julieq wrote: »

What makes you think 6% mortgages are unaffordable to the people who took them out?

This:

CCCS also voiced its concern that struggling debtors are using credit cards to pay their mortgages, meaning interest rate rises in 2011 could have an immediate impact on homeowners' ability to pay their mortgages.

Delroy Corinaldi, CCCS external affairs director, said: "So many households are just managing to make ends meet, that even a small increase in the cost of their mortgage may push them over the edge. As far as possible, families need to think how they could pay such increases and seek help at the earliest opportunity if they feel that they cannot cope."

http://www.yourmortgage.co.uk/news/3627426

julieq

Oh, so a debt councilling charity has no vested interest in talking this issue up Macaque? You'll have to do better than that.

The underlying "research" for these assertions appears to be the same as Shelter used. It's not great. And in any case you have to give a number to the "so many" in the quote as a proportion of the total or its meaningless. Yes some people are on the edge, but far fewer than the bears would like to believe.

A far better piece of research was the one published by the BBC recently. The relative merit of that versus the Shelter surveys was discussed at the time. The BBC research showed minimal impact from even quite large rate rises, and was based on an analysis of a fixed panel of people surveyed over several years overlayed with data on mortgage and other debt costs.

Loughton_Monkey

B_Blank wrote: »

I agree people should be able to fail when they are lazy/stupid.

There should be no SMI, there should of been no bank bail out, and there should absolutley be no benefits.

illgetthere wrote: »

so where do you house the people that fail?

and at what cost?

Cost? To whom? He said there's no benefits so it's not the taxpayer. [STRIKE]so where do you house the people that fail?[/STRIKE] So where do the people who fail live?

Ever heard of cardboard boxes? Railway arches? Shop doorways?

iandury

illgetthere wrote: »

so where do you house the people that fail?

and at what cost?

Market forces sir:)

The renters become landlords the landlord become renters, maybe those that fail go onto something better in the new world, who knows?

The free market is a living moving breathing animal, who knows what path it will take.

Just one point, should these people fail, not one house will be wiped off the map, they will all be left standing:)

iandury

julieq wrote: »

What makes you think 6% mortgages are unaffordable to the people who took them out?

There is no evidence from default rates that that is the case. None at all. If people are in jobs, the vast bulk of people with mortgages were repaying them pre crisis and are repaying them now.

I'm not surprised you believe the contrary, because it's becoming an accepted truth that everyone with a mortgage is mortgaged up to the hilt and is only a quarter of a percentage point away from financial ruin. But it's not true. How do I know that? Because net debt is being repaid.

Low interest rates have nothing to do with wanting to sustain house prices (and in fact as they were dropping bears were forseeing 50-70% falls). They were to stimulate the economy so we kept our jobs by and large and didn't lose them because our firms ran out of cash. That has the side effect of allowing people to continue paying their mortgages.

And the other great fable of the bears is that mortgage interest support is maintaining prices. When it's a fleabyte on an elephant, half a billion against over a trillion in outstanding mortgages.

What is sustaining prices is high demand for housing. Full stop. This is because we create far fewer homes than households. If you want a free market, create a market where you can keep up with demand before expecting prices to fall to any great degree.

My Error

i meant Bank base rates of 6%, and whatever mortgages follow after that:)

iandury

HAMISH_MCTAVISH wrote: »

True.



Inconsistent. You've just said that a property is worth the price being paid.

It cannot then, by definition, be overpriced.



We do allow people to fail. Many tens of thousands of people a year get repossessed.

And the market engages in price discovery to find it's level every day of the year.



Eh???

We've just established that todays price is the right price, that the market allows people to fail, and so it's pretty blindingly obvious that the market is not punishing people for making the right call, but rather the wrong one.

If people were daft enough to assume there would be no benefits for unemployed homeowners, or that interest rates wouldn't fall in a recession, then that's a pretty damning indictment of their judgement.



Then he was wrong, and screwed up quite spectacularly.

We've already established there is no such thing as "overpriced".

And that someone who failed to anticipate all the likely consequences of a crash simply made a bad judgement call.



The only person you should be getting angry at is yourself.

For having very poor judgement.

Look Hamish, i am really indifferent:)

Unlike you i am not bothered which way house prices go, i am blessed to be the near owner of a home i am happy in.
You really are trying too hard to constantly win your dogmatic and rigid set in stone one sided argument with anyone that questions you bullish fixation.

I will say again in words that might be easier for you to understand, IF the average property was to reach a market value of £1,000,000(thats a million Hamish) tommorrow, then that is fine with me. As long as it does not involve taxpayers money, criminals who borrowed fraudently and are now allowed to walk from huge debts, artifificial interest rates that ignore other concerns in the economy, a wait and see approach to those in arrears who are really just walking dead, land control thats only purpose is to prop up prices(that one is bordering on evil) etc etc.

Yep i love market forces, but some of these first time property investors have got to learn that they do not have a right to be wrapped in cotton wool forever, a capitalist free market society can be cruel, and thats what makes it work. Maybe some of you still do not understand, but you will do at some point:)

Have a great sunday Guys, i am off kite surfing on the Nortfolk coast