It's a bubble silly!

nelly_2

kingkano wrote: »

Can you really use interest rates in a 'house prices as a quantity of salary' equation? I'd agree it affects the repayments, but I dont think you can say houses were then 2.5x income + double interest oh we'll say thats 5x income?? Because the HOUSE PRICE hasnt changed.....

Sorry Nelly for my slight grammatical error (it was done slightly tongue in cheek to be fair). I notice you didnt capitalise the beginning of your sentence since we're going to be insanely pedantic.....

Accepted your appolgy is :rotfl:

mystic_trev

rawhide88 wrote: »

I'm not an economist but I think an argument might go along the lines of;
'There is a finite amount of money available in a system' ( I think it's named after a motorway, the M1 or somethng like it!)

.

Here's an idiots guide, as explained by the Beano.

http://www.thisismoney.co.uk/news/article.html?in_article_id=412250&in_page_id=2

rizla01

Is it posible that property prices will continue to spiral till no-one but the wealthiest will be land owners and then every ordinary worker will be renting - controlled by 'them up there'?

The lowest paid (FTBs) are just the first to feel the crunch.

Smells of Communism, doesn't it? Big Bro & all that.

do_it_today!

great thread....
this is a bubble but what I want to know is..... how much longer will it take before it bursts?
It just seems to be growing and growing

Melissa177

kingkano wrote: »

Can you really use interest rates in a 'house prices as a quantity of salary' equation? I'd agree it affects the repayments, but I dont think you can say houses were then 2.5x income + double interest oh we'll say thats 5x income?? Because the HOUSE PRICE hasnt changed.....

Sorry Nelly for my slight grammatical error (it was done slightly tongue in cheek to be fair). I notice you didnt capitalise the beginning of your sentence since we're going to be insanely pedantic.....

Yeah, it was a sort of "back of an envelope" type of calculation on why salary multiples are so much higher at the moment.

Talking to a colleague, her and her husband bought their house in 1986 - interest rates were massively high (16% ish), and they borrowed on a 3x income multiple, which was about the edge of their borrowing limit - hence my rough calculation.

You are correct about the house price distorting the figure - which is why you do not see salary multiples at 9x, interest rates being about a third of the level they were in 1986.

Melissa177

rawhide88 wrote: »

I'm not an economist but I think an argument might go along the lines of;
'There is a finite amount of money available in a system' ( I think it's named after a motorway, the M1 or somethng like it!)

If we're borrowing what are we borrowing? Where is all the money coming from? The banks? You mean to say they've been sat on it for years and have just decided to lend it to us?

It has to be lent against a net value somewhere and the mechanism that will increase that value is inflation. Therefore rising house prices are necessary so that the banks can keep on lending us money so that we can afford to buy them. Obscure rational I know, but try the veiw through the other side of the looking glass.

Have you noticed we all suddenly got rich? And bought loads of stuff. Its woven into our social fabric. Excuss me I couldn't help but notice, but I appear to have considerably more stuff than you! This stuff eventually needs replacing.

I'm not an economist, but I do know that economics is not a zero sum game.

Your answer to "where is all this money coming from" is capitalism.

For example, the company I work for buys palm kernel oil from producers in Indonesia and Malaysia. They make a profit, which is step in the wealth creation chain. We sell it to another company, who turns it into fatty alcohol and fatty acid: we buy those chemicals back (another profit for the company we buy it from). My company then ships this all over the place (my job) and we either a) sell it to other companies who want our chemicals or b) sell it to another division of the company I work for who turns it into shampoos, cosmetics, detergent etc. We sell it to Tesco, Sainsburys etc (we made a profit from them), and Tesco sell it to you (they make a profit from the consumer).

So, the value of the original ton of palm kernel oil which we bought at $540/mT has gone up massively. Everyone has made money along the chain (apart from the end consumer), and I get a wage out of it which means I can buy more things.

The money is coming from globalisation, the money is coming from emerging economies like India and China (there is a HUGE middle class emerging in China and India, as they all get rich from us westerners buying the products they export).

This money is being created by us. Think about what you do for a living, and where you create the money for whichever company you work for (unless you work for the government!)

Which is why I am currently worried by the number of people working for the government in one form or other in this country - none of these people are in welath creating roles, which we need to sustain the economy and grow it.

kingkano

Melissa177 wrote: »

Yeah, it was a sort of "back of an envelope" type of calculation on why salary multiples are so much higher at the moment.

Talking to a colleague, her and her husband bought their house in 1986 - interest rates were massively high (16% ish), and they borrowed on a 3x income multiple, which was about the edge of their borrowing limit - hence my rough calculation.

You are correct about the house price distorting the figure - which is why you do not see salary multiples at 9x, interest rates being about a third of the level they were in 1986.

yet

Id be seriously concerned for people taking on higher multiples on a single income. And for anyone who hasnt made a decent plan taking on 5x joint and more.

Before the bubble bursts (going back to original pt lol) its going to take some kind of trigger.... Much higher int rates, limiting of the amount available to people (although then people will just move further from their ideal locations - like I am), a recession.... Something is gonna have to happen to equalise it all.

mystic_trev

Melissa177 wrote: »

Which is why I am currently worried by the number of people working for the government in one form or other in this country - none of these people are in welath creating roles, which we need to sustain the economy and grow it.

........and who's going to pay for their 'Final salary' Pensions?

BTman

rizla01 wrote: »

The lowest paid (FTBs) are just the first to feel the crunch.

I'm not so sure that the average FTB (mid 30's) is lower paid than a lot of existing homeowners who bought over 10 years ago..
You didn't need a high income couple to buy 20 years ago....

Garnet_Gem

The price of the house now is bad enough but most people have to have everything done right away - new kitchens, bathrooms, furniture, garden landscaped , cars etc etc. Whether they can afford it with a big mortgage doesn't seem to be relevant . Maybe this is the main reason that folk go under when interest rates go up a bit.