Is there a distinction in your mind and if so what is it?

danothy

Between rising house prices and a house price bubble inflating?

I only ask because I perceive a significant number of people seemingly referring to house price increases and the formation of a bubble interchangeably.

shortchanged_2

Slow, steady house price rises over time are fine.

House price bubbles are unsustainable bursts of growth which often end in tears for many while some make a fast buck.

System

A bubble is a rapid rise in prices, at an accelerating pace, stoked by nothing more than over-optimism and throwing in more and more money. The wise get out before it bursts, the deluded and the slow and the latecomers get their fingers burned when it pops.

Rising prices over a longer term implies a steady rise in underlying value, reflecting increasing costs of the capital and labour inputs, matched by increasing returns in the form of income or amenity derived from the asset.

But UK housing is always in a state of near-bubble, because there is a finite amount of land, deliberate controls to limit new building, but intense private and government desire to push more home ownership.
These measures are contradictory, but politicians like to pretend not to notice that.

Graham_Devon

Clifford_Pope wrote: »

A bubble is a rapid rise in prices, at an accelerating pace, stoked by nothing more than over-optimism and throwing in more and more money. The wise get out before it bursts, the deluded and the slow and the latecomers get their fingers burned when it pops.

Rising prices over a longer term implies a steady rise in underlying value, reflecting increasing costs of the capital and labour inputs, matched by increasing returns in the form of income or amenity derived from the asset.

But UK housing is always in a state of near-bubble, because there is a finite amount of land, deliberate controls to limit new building, but intense private and government desire to push more home ownership.
These measures are contradictory, but politicians like to pretend not to notice that.

Sums up everything brilliantly really.

Loughton_Monkey

• A bubble is reached when prices exceed their intrinsic value.
• A bubble is almost never identified for sure except in retrospect.
• A 'house price bubble inflating' cannot happen until there is a bubble in the first place.
• If 2007 is considered a bubble, they 'crashed' to roughly 2004 values. Instinctively, therefore, we are unlikely to reach another bubble until 2004 values plus wage inflation have been reached. That's probably in the order of another 10% yet.
• Intrinsic house values have almost certainly increased significantly due to large population increase coupled with several years of hardly any new building.
• The media has latched on to the word 'bubble' for sensationalist reasons of their own. It is a 'buzz word'. It sells newspapers.
• Never trust a word for which there is no readily identifiable antonym.

danothy

shortchanged wrote: »

House price bubbles are unsustainable bursts of growth

Clifford_Pope wrote: »

A bubble is a 'rapid' rise in prices, at an accelerating pace

Loughton_Monkey wrote: »

• A bubble is reached when prices exceed their intrinsic value.

This answers the question I was avoiding asking to my personal satisfaction.

MFW_ASAP

Peaks and troughs are an inevitable part of any free market. An asset will be viewed as being undervalued, investors will pile in and eventually the asset becomes overvalued and it corrects. So the cycle continues, always has always will.

What surprises me is that people think that a free market can work in any other way.

Loughton_Monkey

Clifford_Pope wrote: »

A bubble is a rapid rise in prices, at an accelerating pace, stoked by nothing more than over-optimism and throwing in more and more money. The wise get out before it bursts, the deluded and the slow and the latecomers get their fingers burned when it pops.

Not sure that 'rapid' comes into it. Compare a theoretical House Price Bubble with a more routine "whisper", say, that bad weather is about to hit US wheat. Commodity price would 'rapidly' hit the roof, before coming down to 'normal' once the weather calms down on its own.... House price bubbles could take years to form.

In the context of housing, it is generally not possible to "get out before it bursts". For the very small proportion of speculators, BTL merchants etc. this may be possible. But for the larger majority of house buyers, it is impractical to move out and rent - even if one could detect the bubble before-hand. But bubbles don't generally affect owner occupiers. We get a temporary 'exceptional paper profit' for a few years, followed by a readjustment of 'paper loss'. Overall, property investment has produced [for me anyway] an average 5.9% profit over 40 years.

Clifford_Pope wrote: »

But UK housing is always in a state of near-bubble, because there is a finite amount of land, deliberate controls to limit new building, but intense private and government desire to push more home ownership.
These measures are contradictory, but politicians like to pretend not to notice that.

However contradictory, this would not technically be a 'bubble' as I see it. Rather perversely, for the reasons you mention [if true!] it explains eloquently why the 'intrinsic value' of a house is high and will remain so until dramatic change happens.

Think of, say, cars. There is no bubble in the price of cars. But imagine Ford coming up with the most magic breakthrough of a cheap tiny fuel-cell engine costing £25 a pop to make, and the ability to produce a body shell by 'robotic 3D printing'. Then they could deliver you a brand new Fiesta for £750 on the road. This highly devalues the existing stock of cars, but you wouldn't call it a bubble.

Unlocking green belt, letting builders rip, would simply lower the intrinsc value, with which general house prices would keep pace.

shortchanged_2

The problem with the UK housing market is that it has become very much a speculative market and unfortunately houses are now seen by many as investments not essentially for what they are as being a place to live or a home.

This mind set then causes this boom and bust situation we always seem to get in the housing market.

What the housing market really needs is mild long term growth which in reality would then benefit almost everyone apart from those looking to make large profits from housing.

MFW_ASAP

shortchanged wrote: »

The problem with the UK housing market is that it has become very much a speculative market and unfortunately houses are now seen by many as investments not essentially for what they are as being a place to live or a home.

This mind set then causes this boom and bust situation we always seem to get in the housing market.

What the housing market really needs is mild long term growth which in reality would then benefit almost everyone apart from those looking to make large profits from housing.

What caused the boom and bust situations before the UK housing market became very much a speculative market?

shortchanged_2

MFW_ASAP wrote: »

What caused the boom and bust situations before the UK housing market became very much a speculative market?

Economic situations such as massive wage rises causing house price growth and high interest rates resulting in busts etc.