Government repressing house prices.

HAMISH_MCTAVISH

Graham_Devon wrote: »

Therefore, stimulus directly pushing up prices. As stated.

No, a slightly less dysfunctional mortgage market is allowing a few thousand more people to buy each month.

Which combined with a shortage of housing is pushing up prices.

That's not stimulus Graham. It's the job of government and the BOE as regulator and lender of last resort to ensure financial markets function properly. And they're barely even doing that.

What they should be doing is ensuring normal mortgage lending of around 100,000 to 120,000 mortgages per month. Not the current 55,000. And even that wouldn't be stimulus. Simply ensuring the normal functioning of markets.

If you wanted "stimulus", you'd really need to get mortgage lending well above long term norms so that the million plus backlog of denied FTB-s form the last few years could buy, AS WELL as the 120,000 a month we'd need to restore a normal market.

That might be considered stimulus.

This is just making a horribly dysfunctional market, a bit less dysfunctional.

Thrugelmir

Jegersmart wrote: »

My own view is that the economy as a whole is not healthy. Whilst interest rates are so low on a central bank basis but the spread in terms of mortgage rates that are (generally) available are so wide it would seem to me that the reasons for that could include reduced liquidity at bank level (capital requirements? banks sitting on potential losses? etc etc) or that future inflationary concerns are being hedged. IF (or when) interest rates go up considerably this could have massive potential impact in terms of repossessions and defaults.

If you read the heavyweight research of banking crisis's since 1800. Then you'll find that default of some kind has been the "norm". Irrespective of whether these have occured in either established or emerging economies.

In addition house prices peak at the same point that a banking crisis occurs. Taxation revenues fall, inflation rises, currency devaluation occurs. All the symptoms we are currently experiencing.

No doubt this is the thinking behind the extreme measures now being adopted. Merely to keep the banking system functioning. Until such time as banks are operating normally again. We are unlikely to know precisely where we stand.

Jegersmart

Thrugelmir wrote: »

If you read the heavyweight research of banking crisis's since 1800. Then you'll find that default of some kind has been the "norm". Irrespective of whether these have occured in either established or emerging economies.

In addition house prices peak at the same point that a banking crisis occurs. Taxation revenues fall, inflation rises, currency devaluation occurs. All the symptoms we are currently experiencing.

No doubt this is the thinking behind the extreme measures now being adopted. Merely to keep the banking system functioning. Until such time as banks are operating normally again. We are unlikely to know precisely where we stand.

With regards to defaults, I would (and have on other threads on here) gone as far as to state that defaults are an absolute certainty in a debt-based monetary system.

House prices peaking at the same time as a banking crisis occurs? Agreed, but the reasons for this are interesting and I don't believe we are seeing this now. If we look at bubbles in markets in general, these are caused by increased demand and available credit and leverage. If we look at housing in particular, in the past things usually start after the last bubble burst with low demand and low interest rates. It takes some time for these to filter through to residential mortgages of course, so house prices can drift down for a while depending on other factors in the economy. At some point, mortgages will be more available at lower rates and at greater multiples of earnings at which point house prices increase. This continues on for a period of time with more and more people jumping on the bandwagon - either through cheaper financing or "not wanting to miss out". Existing homeowners at some point have so much positive equity that they also feel the need to add to demand and the price continues upwards. As house prices increase and the activity and leverage increase, it is quite normal that inflation also starts to perk up due to this. At some point, the BOE is forced to start raising interest rates to take the steam off but again there is a delay before these filter through to mortgage rates - and longer still before suddenly people realise that they are overleveraged and cannot pay their debts anymore. At this point house prices are at their peak but the banks now have a problem because due to their own activity (cheaper loans, looser lending policies) earlier in the cycle they now have much more risk in terms of lower reserves as people start to default. This causes banks to restrict lending which then further removes demand that has already been reduced by high(er) interest rates. House prices fall, some people will look to sell because they may be or see trouble in terms of their own exposure to the now expensive mortgage and prices fall further. A proportion of owners that purchased more recently are now in negative equity....and so on and so on.....banks repossess houses and try to sell them at whatever they can to recoup some losses and protect their exposures - prices fall further......

This is a simplified view of what has happened in the past. These days, we are not in "normal" times anymore and we have to adjust our thinking to a massive moneyprinting environment where most things do not make sense in the way they seemed to before.

To my mind the title of this thread is very misleading. I don't think that the Government are suppressing house prices, or if they are then it is not intended. If they did nothing then there is a very realistic chance that house prices would be going lower at a far faster rate in my opinion. If you think of a bubble expanding, then this is more like staving off an implosion imho. Having said all this, I am a believer in letting things happen. If I take on too much debt I should take the consequences. If I spend too much money I have to face the music, and in that way I believe that housing should do the same - whatever that means in reality. Likewise the banks should take the full consequences of their actions, but as they are part of the system and designed to do what they do - this is unlikely - at best it would be a PR exercise which is what the QE is for tbh....Governments fear further unrest more than most things!

As to your last point, I think banks are working "normally" at all times - these boom and bust periods are a symptom of human greed in a monetary system facilitated by the institutions that are designed to do so - i.e. banks.

imho
J

Harry_Boyle

shortchanged wrote: »

So if the economy starts to do very well in the next few years we'll still have interest rates at 0.5% will we?

LOL, are we back to this 'prop' again. Whatever happened to the others, such as the OptionARM explosion?

What makes the interest rate one interesting (pardon the pun) is that on the one hand the crashers tell us that these 'super low rates' that Housing Bulls brag about are only available for people with decent LTV values and are not available for most people such as FTBers, low LTVers or Subprimers. These people are on 'normal' rates of 5% and above.

However they forget this line of argument when they are talking about crashes. Suddenly everyone is on a super low rate and everyone will lose their homes.

The reality is that most of the people on super low rates will have decent LTVs and won't be losing their homes if rates go up. They will just be dissappointed that low rates finally ended and will wish they had put just one more Grand on the mortgage before it did.

The people who could lose their house and therefore cause a crash are the ones already on high mortgage rates, whose mortgage companies are making hay while the sun shines. These rates will pretty much stay the same when BoE rates rise, with the lenders dissappointed that low rates finally ended because they were coining it in.

HAMISH_MCTAVISH

Funding for lending a "white elephant".
https://forums.moneysavingexpert.com/discussion/4433563

Thrugelmir

Jegersmart wrote: »

At some point, mortgages will be more available at lower rates and at greater multiples of earnings at which point house prices increase.

I would suggest some point. Maybe a decade away........

Graham_Devon

More evidence today, from Bellway Homes that the Government NewBuy scheme is helping them sell homes, at raised prices, with NewBuy now counting for 1 in every 10 of the homes they sell.