Why prices must not fall, but have to fall

macaque_2

Kohoutek wrote: »

I would be careful what you wish for. A situation where the banking sector is insolvent again and the government is unable to act wouldn't be very pleasant for anyone.

No rational person would want a banking crisis and on this score, I am a strong supporter of banks extracting big deposits from buyers. This shifts the risk away from the banks.

The point of the OP is that a 10% fall in prices could trigger a rash of forced sales. Forced sales would drive down prices and trigger further forced sales. Your answer to this is that the government would step in and save home owners. My answer to you is that I doubt they can. They can only be a whisker away from defaulting on their own debts. If you believe there is a safety net to protect your paper profits, I believe your hopes are badly missplaced. If there is a second banking crisis, the UK government would have to bail them out but will need bailing out itself in the process. When Iceland found themselves in that position, interest rates shot up to double figures. In Ireland's case, they had the protection of the Euro but the side effects were pretty catastophic.

Kohoutek

macaque wrote: »

The point of the OP is that a 10% fall in prices could trigger a rash of forced sales. Forced sales would drive down prices and trigger further forced sales.

It could do. But the government and the banks would do everything they could to avoid a flood of forced sales. You're implying the banks would repossess all the mortgagors in default and sell the repossessed properties all at once. That's far too simplistic and not what would actually happen.

macaque wrote: »

Your answer to this is that the government would step in and save home owners. My answer to you is that I doubt they can.

The main reason I think they would step in the scenario you've envisaging isn't to protect homeowners, it's to protect banks' balance sheets.

Don't forget that there's no theoretical limit to the amount of financial support the government can extend to banks and home owners. The only limit is how much damage such measures would do to the value of our currency.

Ultimately, you're right there are political and practical limits to what a government can do. But the day that the government has exhausted all its options isn't going to be very good for the UK economy, it's going to hurt a lot more people than BTL landlords.

Kohoutek

joerugby wrote: »

There is a very interesting article in today's FT. Here's a brief quote:

"The key point – and the one that investors should keep firmly in mind – is that the UK base rate at 0.5 per cent is not normal. It was never this low in the 18th century, in the 19th century or indeed in the 20th century.

That's rubbish. I'm sure you could find plenty of things about the UK that are "not normal" compared with the last 250 years. One day our population will stop growing, that will an event that has never been seen before - doesn't mean it won't happen.

I'm disappointed the FT give a voice to a lightweight like Merryn Somerset Webb, albeit it's in the personal finance section, not the economic analysis on the front page.

HAMISH_MCTAVISH

joerugby wrote: »

There is a very interesting article another tedious MSW crash-ramping propaganda piece in today's FT.

Fixed that for you.

Oh, and never listen to a woman who STR-ed when prices in her area were £150,000 lower than they are today.

Then missed the bottom and bought back into another area when prices had recovered almost back to peak.

Graham_Devon

Something must change, if only for the generation behind us. The people being born now.

If things continue as they are, how on earth do we expect them to have anything near the standard of living those aged 45-65 have enjoyed?

We won't even see them enjoying the standard of living todays 25-40 year olds have enjoyed. Which has been tough enough depending on a few variables.

How do we expect them to earn enough to cover their own pensions, my generations pensions, and whats more, the babyboomers pensions?

How do we, on top of that, expect them to buy a house and start a family?

It's just not possible to continue on the trajectory we have been on, and for another generation below us to pick up the ball and run with it. At some point, a generation has to pay the debt, and I feel it's a little unfair, and whats more selfish, to believe it should be those being born now, or yet to be born. They should not be paying for our greed.

If anyone truly believes it's possible for the generation being born now to enjoy the standards of living today, let alone the past decade, I'd like to see them explain how on earth it's possible. Prices need to fall to sustainable levels. By sustainable I mean able to take a downturn without absolutely drastic measures. Lets face it. 10-15% down, and all the stops are havign to be pulled out. Banks have had to be completely bailed out. Whole swathes of people are having to turn to the taxpayer just to keep their rooves. That is in no way sustainable.

People mention building as the way out. But I'm afraid we are far to selfish to undertake such measures.

Kohoutek

Graham_Devon wrote: »

Something must change, if only for the generation behind us. The people being born now.

If things continue as they are, how on earth do we expect them to have anything near the standard of living those aged 45-65 have enjoyed?

Why do you expect younger generations to have the same or a higher standard of living than those born in that era? Why expect anything?

I would look at facts and draw a reasonable conclusion, not close your eyes and believe that things can and should always get better.

History is not always a story of continued growth and prosperity, it's often cyclical. Look at China - they went from the world's largest economic and political power to a third world country that was subjected to a failed communist experiment. Now they seem to be returning to the former. Perhaps the UK will return to what is was before about 1600 – a backwater where the little wealth it had was concentrated into the hands of the few.

If the 1600s are too far back for you to comprend, I'm sure some of the people on this forum that were adults in the 70s will have some stories to tell you...

Graham_Devon

Kohoutek wrote: »

Why do you expect younger generations to have the same or a higher standard of living than those born in that era? Why expect anything?

If we cannot aim to pass on a better standard of living for our younger generations, then were more selfish than I first thought.

While there are many things we cannot control, there are many things we can do our best to control.

Debt, is one thing we can actively attempt to control.

Defecits is one thing we can do our best to control, especially considering we know about them.

Finite resources is something we can do our best to control.

The ozone, although I do not believe most of the hype, is still something we can do our best to control for our future generations.

If we can't do the above, or even expect ourselves to do the above, for our children, because we can't even control ourselves, then I really don't know what to say.

DervProf

Wise words Graham.

Kohoutek

Graham_Devon wrote: »

If we cannot aim to pass on a better standard of living for our younger generations, then were more selfish than I first thought.

I can't think of any aspect of our economic or political system that is organised to achieve that goal. If it was, we wouldn't be living a society where our economy is dependent on the remains of fossilised plants and animals and we wouldn't have governments that make policy on absurdly short term (less than five years) agendas.

Even society rallied around that goal, the world we live in is too global for "we" (I assume you mean the current generation) to be be able to pass on a better standard of living to younger generations.

macaque_2

Kohoutek

It could do. But the government and the banks would do everything they could to avoid a flood of forced sales. You're implying the banks would repossess all the mortgagors in default and sell the repossessed properties all at once. That's far too simplistic and not what would actually happen.

Agreed but in a bear market, the banks who dispose of their poor risks quickest will be the ones who survive

The main reason I think they would step in the scenario you've envisaging isn't to protect homeowners, it's to protect banks' balance sheets.

They can only step in if they have the funds to do so.

Don't forget that there's no theoretical limit to the amount of financial support the government can extend to banks and home owners. The only limit is how much damage such measures would do to the value of our currency.

There must be a theoretical limit. Governments need to borrow and borrowing against a sinking currency means higher interest rates.

Ultimately, you're right there are political and practical limits to what a government can do. But the day that the government has exhausted all its options isn't going to be very good for the UK economy, it's going to hurt a lot more people than BTL landlords.

I agree its painful but I believe that the sooner we face the music, the sooner our house will be put in order. The economy cannot survive as a collection of BTLs, shops and life style consultants.