OBR notes "genuine demand" is not a bubble....

CLAPTON

Percy1983 wrote: »

You mean sensible lending caused a reduction in the amount of people able to buy.

If developers built good homes at a reasonable price (perfectly possible) then they will sell, the problem is many failed to see the bigger picture, if the profit per house drops why not build more which brings cost per house down and more profit as they sell more.

Problem is the develoeprs want the easy way, restrict supply and demand high prices.

So yes maybe they have built less, but the old pyramid scheme was no longer sustainable but if thats the only system they wish to operate in.

Think of them as a small child playing football, they have ust learnt the offside rule and don't like it, so said small child takes his ball home, do you then abolish said rule or stand firm knowing they will eventually play ball again?

there are thousands of small builders.

if there are big profits to be made then they would build the houses required.


if you check the a/cs of the big boys over the period 2007-2012 you would see they all reduced the number of houses built, many nearly went bankrupt, made losses, stopped dividend payments etc which is not entirely consistent with 'taking their balls home'
Some would say the shortage of mortgages and hence buyers with funds had something to do with the lack of sales.

Physics

HAMISH_MCTAVISH wrote: »

We're at over 6% today.

It's not unsustainable, nor bubble territory, just the market behaving rationally as it should.

Quite true - but I pity the British people if this is sustained. A 6% increase in a house is more than a 6% increase in monthly repayments, as the LTV ratio on a mortgage will be higher. Interest rates cannot really fall further. Unless wages start increasing much more than 6%, sustained increases of 6% in house prices will reduce the standard of living for the next generations considerably.

Loughton_Monkey

Physics wrote: »

Quite true - but I pity the British people if this is sustained. A 6% increase in a house is more than a 6% increase in monthly repayments, as the LTV ratio on a mortgage will be higher. Interest rates cannot really fall further. Unless wages start increasing much more than 6%, sustained increases of 6% in house prices will reduce the standard of living for the next generations considerably.

There are two significant unknowns. These are (a) population trends over the next 3 or 4 years, and (b) the number of deaths that will occur in a similar period that will 'free up' another property into the market.

We can predict how quickly builders will present new properties to the market, we should be able to predict 'natural' population growth/family trends that will happen over 3 to 4 years, but not net migration.

But it just seems to me brainlessly obvious that the next 3,4, or 5 years will show positive HPI based upon 'good' assumptions like:

1. Average Wages have been held low for years. This is a bubble [???? reverse of????] that will soom burst. Signs are there. Higher incomes means higher demand.

2. My instinct is that population as measured by individuals or family groups requiring accommodation of their own is still edging upwards rather than downwards. Even taking into account deaths. Hence more demand.

3. Land values are certainly not decreasing, and nimbyism remains high. We have seen brick prices go through the roof, brickie wages going through the roof. Like energy prices, we find increasing amounts of "government taxation" forced upon house builders. All of this ramps up the prices of newer (and thus existing) houses.

4. Do I believe house builders can knock them out anything like as fast as required? Cat's chance in hell!

It would be nice to see those brand new Nobel Prize economics guru's set to work (if they're so clever) on doing an accurate and well informed model of all these factors.

Physics

Loughton_Monkey wrote: »

But it just seems to me brainlessly obvious that the next 3,4, or 5 years will show positive HPI based upon 'good' assumptions like...

I don't disagree. But none of that is good news: you are telling me that there is a growing shortage of housing and the wealthiest are taking up a growing share of the supply (more individual or two person households). Your diagnosis to me reads: we don't have enough houses, we're not building them fast enough, and the richest are going to own more and more of the housing stock. A recipe for spiraling inequality and lowered standards of living for the next generations.

Graham_Devon

HAMISH_MCTAVISH wrote: »

In the UK, we also started out with a shortage of housing. And prices rose. But we never delivered a surplus, in fact the shortage worsened, so prices were not a bubble as the main cause of price rises remained a genuine deficit of housing compared to the needs of the population.

You appear to have completely ignored the fact that we had credit expansion on a massive scale. This led to bubble prices as as soon as that credit was removed prices fell. (Bubble popped).

Ireland merely had a bigger bubble. It's not that Ireland had a bubble and we didn't.

In terms of why prices climbed again up until 2009....well, a lot happened in that year. Interest rates plummeted to near zero for a start.

It's simply far too simplistic to state that the housing market has never seen a bubble as it was all based on demand. While what you state is true, in effect, no commodity could ever have seen a bubble.

If you are suggesting that other commodities see speculative bubbles and the housing market doesn,t I'd have to strongly disagree. We saw massive speculation in the housing market. We've recently seen it again with landlord groups and forums urging landlords to buy in before the second phase of help to buy takes place to lock in the profits before the inevitable price rises.

chucky

Graham_Devon wrote: »

In terms of why prices climbed again up until 2009....well, a lot happened in that year. Interest rates plummeted to near zero for a start.

Is that mortgage rates that plummeted to near zero or was it the Bank of England Bank Lending rate that plummeted to near zero?

chucky

Joeskeppi wrote: »

I've got this amusing mental image in my head of the "bears" winning this argument, fist pumping the air and shouting "YES, THERE'S A BUBBLE, WOOHOO".

Ironic isn't it. They have no more straws to clutch at so they are arguing that THERE is a massive boom in house prices now...

Loughton_Monkey

Physics wrote: »

I don't disagree. But none of that is good news: you are telling me that there is a growing shortage of housing and the wealthiest are taking up a growing share of the supply (more individual or two person households). Your diagnosis to me reads: we don't have enough houses, we're not building them fast enough, and the richest are going to own more and more of the housing stock. A recipe for spiraling inequality and lowered standards of living for the next generations.

Well I prefer to profer my views, whether they represent good news or bad news.

It is a function of basic economics and human behaviour that when a valuable resource becomes more scarce and thus more valuable (costly) then this will put the wealthier people in a better position to buy. Always was, and always will be.

Successive governments have tried and tried and tried to transfer wealth from 'rich' to 'poor' - hence the ever spiraling total rate of taxation which is as high now as it's ever been. 50 pence in every pound is spent by government rather than individuals or business. This, in my view, is proof enough that the 'Robin Hood' model of wealth equality simply doesn't work.

We have, instead, every reason to applaud an "equality of opportunity" in this country. You can take horses to water. You cannot make them drink.

Thrugelmir

Generali wrote: »

so if prices do take off the only tool the BoE will have is to increase interest rates to choke off affordability.

BOE has powers to control whether banks can lend or not by regulating capital requirements. Given lenders (Barclays, Nationwide, RBS) are still contracting their balance sheets to meet current thresholds. Little danger of a boom in mortgage lending.

Graham_Devon

Howard Archer notes today (as someone who was keen on HTB) that HTB could pushg up prices "significantly"

Sir Jon Cunliffe (deputy of BOE) has also come out to suggest that we are not currently in a bubble but there is a possibility that HTB could cause problems for families.