Road to recovery starts with rising house prices

Emy1501

HAMISH_MCTAVISH;



How many times Graham, houses are a store of wealth, and 100% of that wealth is ultimately redistributed to younger generations.

Houses can, and should, provide an endless release of that wealth upon the death of the owners, and much of that wealth will then be spent in the wider economy.

My kids will have to pay about 150k each more for their first house even if there are no more price rises. That's about 150k in extra interest payments over 25 year mortgage.

This will far out way any inheritance HPI will bring then. Only people benefiting are the banks and people like yourself with no kids and more than one house.

the_flying_pig

Emy1501 wrote: »

My kids will have to pay about 150k each more for their first house even if there are no more price rises. That's about 150k in extra interest payments over 25 year mortgage.

This will far out way any inheritance HPI will bring then. Only people benefiting are the banks and people like yourself with no kids and more than one house.

what did Hamish say:

houses are a store of wealth, and 100% of that wealth is ultimately redistributed to younger generations.

Houses can, and should, provide an endless release of that wealth upon the death of the owners, and much of that wealth will then be spent in the wider economy.

yeah, i mean, when a person's house is passed down to his offspring there are two possibilities:

1 - the offspring live in it, in which case the house is, well, the house, regardless of whether its paper value is £100, £100k, or £100m. changes to its value don't

2 - the offspring sell it, in which case every £1 of HPI 'enjoyed' the house means an £1 of debt taken up by whoever buys it.

i suppose there's also a variant of 1, whereby the offspring live in it but MEW as well... in such circumstances, obviously, every £1 of released equity must by definition be accompanied by £1 of extra debt.

there can't ever be a mechanism by which HPI increases actual spendable 'wealth' without increasing debt by an equal amount.

so all the article is saying is that more debt would enable more consumption. which is true, of course, but UK household debt is already the highest in the world, and our houses already the most expensive [these two facts are not, of course, unrelated]... would more debt be a good thing?

Loughton_Monkey

the_flying_pig wrote: »

.....there can't ever be a mechanism by which HPI increases actual spendable 'wealth' without increasing debt by an equal amount.....

For society as a whole, technically correct.

But for individuals, the reverse is true. I inherit a £500K house and sell it to you, then my 'spendable' wealth has certainly improved significantly. Your spendable wealth goes down by however much you put down.

Since the economy is very largely driven by individual financial transactions, then I would argue that individuals do very much welcome HPI since it will ultimately increase their own spendable wealth (or that of their heirs).

the_flying_pig

Loughton_Monkey wrote: »

For society as a whole, technically correct.

But for individuals, the reverse is true. I inherit a £500K house and sell it to you, then my 'spendable' wealth has certainly improved significantly. Your spendable wealth goes down by however much you put down.

Since the economy is very largely driven by individual financial transactions, then I would argue that individuals do very much welcome HPI since it will ultimately increase their own spendable wealth (or that of their heirs).

not sure what you're getting at.

let's say that Loughton inherits a [mortgage-free] house & immediately sells it to Hamish [who has £200k cash lying around in his back pocket] for £500k, then:

Hamish's wealth* goes down by £200k & up by one house;
Hamish's debt goes up by £300k;
Loughton's wealth goes up by £500k & down by one house.

if HPI means that the house fetches £1m instead, then under the same transaction:

Hamish's wealth goes down by £200k & up by one house;
Hamish's debt goes up by £800k;
Loughton's wealth goes up by £1m & down by one house.

etc.

the extra 'wealth' and extra debt in the second example are one and the same.



* - 'gross' wealth, before taking debt into account.

Gracchus_Babeuf

Rising employment is meaningless if the jobs created are menial and low paid. I suspect that these rising figures are due more to a greater number of part-time workers than any genuine rise in full time employment. Salaries are static - and this is the more important indicator.

Loughton_Monkey

the_flying_pig wrote: »

not sure what you're getting at.

..perfectly simple.

I was not arguing with the facts of what you said, but I'm making a very obvious point about "spendable" [your term] wealth.

Whether the total debt of 'society' increases or decreases matters not one jot to me individually. Inheriting a house increases my wealth. And the larger HPI has been, the larger my wealth will have increased. If I sell it to Hamish, then I increase my "spendable" wealth. The higher the price, the better it is for me. I don't care two figs how Hamish funds it.

Individuals tend to do what is best for individuals. What happens nationally is the sum total of what the individuals do. So extra HPI will increase spendable wealth because it will drive human behaviour.

Whether or not you were asserting that HPI had a neutral effect on 'spendable' wealth or not I don't know. But in case you were, I wrote what I wrote.

House Price Inflation increases wealth.

Graham_Devon

Loughton_Monkey wrote: »

House Price Inflation increases wealth.

Well, we should be around 200% more wealthy than we were in 1998 then.

Right?

Good luck explaining that one!

the_flying_pig

Loughton_Monkey wrote: »

..perfectly simple.

I was not arguing with the facts of what you said, but I'm making a very obvious point about "spendable" [your term] wealth.

Whether the total debt of 'society' increases or decreases matters not one jot to me individually. Inheriting a house increases my wealth. And the larger HPI has been, the larger my wealth will have increased. If I sell it to Hamish, then I increase my "spendable" wealth. The higher the price, the better it is for me. I don't care two figs how Hamish funds it.

Individuals tend to do what is best for individuals. What happens nationally is the sum total of what the individuals do. So extra HPI will increase spendable wealth because it will drive human behaviour.

Whether or not you were asserting that HPI had a neutral effect on 'spendable' wealth or not I don't know. But in case you were, I wrote what I wrote.

House Price Inflation increases wealth.

well, what my example illustrates fairly clearly is the full story, namely that: House Price Inflation increases some people's wealth & increases some people's debt. the two increases are always equal in size.

in your example, HPI is very good for you and very bad for Hamish.

Thrugelmir

Emy1501 wrote: »

People are paying off debt now because the banks are forcing them to through repayment rather than IO mortgages and getting tough on mewing.

Forcing is a little harsh.

This is sensible lending policy given the banks behaviour in the 2 decades up to 2007.

Loughton_Monkey

Graham_Devon wrote: »

Well, we should be around 200% more wealthy than we were in 1998 then.

Right?

Good luck explaining that one!

What the hell......

Is this the Devonian School of Economics again?

I say "All dogs have 4 legs". G_D says "All 4 legged creatures are dogs".

I say "All HPI increases wealth". G_D says "All wealth is HPI".

Please try to understand what a 7-year-old would probably understand. A house belonging to a relative is worth £200K. If/when he dies, the wealth transfers to me. Without HPI I inherit £200K when I sell it to you. If HPI intervenes and it is worth £250K when I sell it to you, I am 'wealthier' as a result. You are neither wealthy or poorer under either scenario since all you have done is convert cash wealth into equity wealth. Flying Pig made an observation that my increase in wealth probably shows up in your extra debt. A point I have never argued with but agreed with. But any loans are irrelevant to the fact that HPI increases wealth.