House market final props could soon collapse

shortchanged_2

RenovationMan wrote: »

Do you have a link to this?

As Mervyn King, Governor of the Bank of England has pointed out, higher interest rates would result in higher corporate insolvencies, house repossessions and unemployment. Mr Osborne said youth unemployment had been rising for seven years and was “unacceptably high” but aimed to provide private sector work experience for all those out of work for three months – coupled with the prospect of benefits being withdrawn from those who refuse to work.

Highlighted the relevant bits for you.


http://blogs.telegraph.co.uk/finance/ianmcowie/100013514/how-does-the-autumn-statement-2011-affect-me/

paulmapp8306

Julieq is correct in one aspect at least. Prices are kept high because ther4 is a shortfall in housing - particularly lower cost. Supply and demand mean prices are kept higher.

The problem is, the shortfall is there primarily because people arnt selling houses - and partly because they dont want to sell for what there currently values at. If prices rise, more houses come on the market - which then leads to price falls. the only way that changes is if more people can afford to buy the homes when they come onto the market - THAT is getting amsller and smaller as relative income (at least the disposable type) falls, and inflation rises.

No-body can say for sure which way things will go - both bulls and bears.

Interest rates WILL rise, and that is when things will tell. IF most people manage, AND wages rise in line with interest rates (they SHOULD rise with inflation - but thats not happening - if it faills to keep up with interest rates too were in deep doo doo) then things may be fine. prices may rise, and at worst stay static.

If however that is not the case, prices may fall further.

I would however like someone to explain this - why on earth would anyone actually want house prices to increase (regardless of whether you THINK they will rise or fall) unless:

1. There looking at downsizing.
2. There on interest only mortgages (so need capital gains)
3. There investors.

With those exceptions, cheaper house prices are good for everyone arnt they?

shortchanged_2

julieq wrote: »

Bear doctrine is that everyone buying a house was doing so at the limits of affordability, and that is simply not a sustainable argument on the basis of actual surveys and estimates on the impact of rate rises. Honestly, if you're rubbing your hands in the expectation of a price collapse when rates rise, you'll be sorely disappointed, and you'll be waiting a long time anyway.

This is you jumping the gun here julieq.

I don't think many people think that EVERYONE went to the limits of their affordability but there was certainly a substantial number who during the good times took on massive loans either in the first instance or by equity release.

Don't you think this is reflected in the low number of house sales because many people can't now sell because they can't afford to because they have very little equity in their property, hence the reason why ASKING prices are so stupidly high in many cases.

shortchanged_2

paulmapp8306 wrote: »

I would however like someone to explain this - why on earth would anyone actually want house prices to increase (regardless of whether you THINK they will rise or fall) unless:

1. There looking at downsizing.
2. There on interest only mortgages (so need capital gains)
3. There investors.

With those exceptions, cheaper house prices are good for everyone arnt they?

This is spot on. The only people that want house prices to rise are those who see housing as some form of investment rather than what they should be, i.e places for people to live.

ukcarper

paulmapp8306 wrote: »

Julieq is correct in one aspect at least. Prices are kept high because ther4 is a shortfall in housing - particularly lower cost. Supply and demand mean prices are kept higher.

The problem is, the shortfall is there primarily because people arnt selling houses - and partly because they dont want to sell for what there currently values at. If prices rise, more houses come on the market - which then leads to price falls. the only way that changes is if more people can afford to buy the homes when they come onto the market - THAT is getting amsller and smaller as relative income (at least the disposable type) falls, and inflation rises.

No-body can say for sure which way things will go - both bulls and bears.

Interest rates WILL rise, and that is when things will tell. IF most people manage, AND wages rise in line with interest rates (they SHOULD rise with inflation - but thats not happening - if it faills to keep up with interest rates too were in deep doo doo) then things may be fine. prices may rise, and at worst stay static.

If however that is not the case, prices may fall further.

I would however like someone to explain this - why on earth would anyone actually want house prices to increase (regardless of whether you THINK they will rise or fall) unless:

1. There looking at downsizing.
2. There on interest only mortgages (so need capital gains)
3. There investors.

With those exceptions, cheaper house prices are good for everyone arnt they?

I would add people in negative equity or close to it.

paulmapp8306

Not sure thats a big issue actually. Its more akin to scare mongering. If you really think about it;

If your in negative equity but intend to live in the house - then it doesnt really matter. Your paying the same for you rmortgage as before and you will still own the house outruight at the end of the mortgage term.

If your looking to upsize, then it has an effect but thats outweighed by the fact the houses they want to upgrade to are also cheaper - and by more.

ukcarper

paulmapp8306 wrote: »

Not sure thats a big issue actually. Its more akin to scare mongering. If you really think about it;

If your in negative equity but intend to live in the house - then it doesnt really matter. Your paying the same for you rmortgage as before and you will still own the house outruight at the end of the mortgage term.

If your looking to upsize, then it has an effect but thats outweighed by the fact the houses they want to upgrade to are also cheaper - and by more.

You would end up paying higher rates and it would be very difficult to upsize.

RenovationMan

Hold on, you said :

shortchanged wrote: »

I believe Mervyn King stated himself that "one of the reasons for keeping low interest rates was to help the heavily indebted mortgagees who were struggling during these tough times."

What he actually said was:

shortchanged wrote: »

As Mervyn King, Governor of the Bank of England has pointed out, "higher interest rates would result in higher corporate insolvencies, house repossessions and unemployment."

It's nothing like!

Flight2quality

paulmapp8306 wrote: »

Not sure thats a big issue actually. Its more akin to scare mongering. If you really think about it;

If your in negative equity but intend to live in the house - then it doesnt really matter. Your paying the same for you rmortgage as before and you will still own the house outruight at the end of the mortgage term.

If your looking to upsize, then it has an effect but thats outweighed by the fact the houses they want to upgrade to are also cheaper - and by more.

You are wrong to say you will be paying the same for your mortgage. Unless you fixed at a good rate, you could sleep well for the term of your fix, but one way or another mortgage costs per month will be a great deal higher in the future.

paulmapp8306

t I meant was you took out a mortgage at a rate you were happy with and presumably factored in possible (or likely if its a newer mortgage) interest rate increases. If you didnt then you deserve all you get (as do those with interest only mortgages, with no vehicle to fund the capital once the mortgage ends).

If you actually intend to live in the house, then you will pay what you agreed, including and changes due to interest rate increases (that you factored in) regardless of how much the property is actually worth, be that more or less than you paid for it.

for upsizing, i do see a potential issue. you obviously cant sell you house, and use equity to fund the deposit for a bigger home. Instead you have to save to pay the negative equity AND the deposit on the next house. However, that deposit would be much less if house prices fell. it will ease the problem but not get rid of it I guess.

Maybe that is why so few properties are coming onto the market. too many in neg equity who now cant afford to. Maybe thats why so many bulls on this forum predict housing price rises (cos they want it - just as bears predict falls because they want it).