Actual benefit of rising prices - a bulls view

Windofchange

I'd like to understand from some of the property bulls on this board what they believe the benefits to ever rising prices are? Let's put aside for the sake of this discussion where prices are heading, and just assume that they are going to go up further in the coming years. The press reports rises as excellent news, and any hint of a fall as terrible. The public at large seems to view things in very much the same light regardless of whether they own or not. Surely there comes a point where rapidly rising prices do nobody any favours other than those at the top?

I get that there will be some in the economy who benefit massively from prices going up. Older people getting out at the top to retire to Spain, property investment companies, builders. However, surely there are enough people in this country who aren't in any of these groups? What are the benefits to them?

I guess is there a point where morally we need to say enough is enough regardless of what the individual benefits are? It seems perverse to me that young buyers through their tax income are subsidising government schemes like help to buy that push home ownership further our of their reach.

The article that got me thinking about all this was the one below on how Obama shafted thousands on his way out of office. It seems to me property around the world is run for a select few as opposed to the greater good.

http://www.nakedcapitalism.com/2017/01/the-obama-administration-bails-out-private-equity-landlords-at-the-expense-of-the-middle-class-government-guarantees-for-rental-securitization.html

Jack_Johnson_the_acorn

Windofchange wrote: »

I'd like to understand from some of the property bulls on this board what they believe the benefits to ever rising prices are? Let's put aside for the sake of this discussion where prices are heading, and just assume that they are going to go up further in the coming years. The press reports rises as excellent news, and any hint of a fall as terrible. The public at large seems to view things in very much the same light regardless of whether they own or not. Surely there comes a point where rapidly rising prices do nobody any favours other than those at the top?

Ever rising prices... pretty much every purchasable item is ever increasing.
Where I live in the NW a good 3 bed semi will cost around £180k.
A small 3 bed semi around £135k.

That seems completely reasonable to me.

A mortgage with 10% deposit @ say 3% is less than £500pcm. Easily affordable for a working couple.

Too many people focus on London pricing. There's a reason that the most desirable and culturally exciting place is the most expensive place to live.

Windofchange

I guess I should have stated London prices. However, there are plenty of reports about from up north regarding prices spiralling out of control.

HAMISH_MCTAVISH

The OP appears to be confused as to the meaning of the word 'bull'.

A 'bull' is someone who looks at the market conditions and believes prices are likely to rise. A 'bear' is someone who looks at conditions and believes prices are likely to fall.

In the real world, and away from a handful of fringe internet fora, bull and bear are not codewords for people who want prices to rise or fall.

The OP then goes on and confuses the issue further by asking 'bulls' to explain the benefits of rising prices as if that were pertinent to their view of likely market outcomes... And even more strangely, attempts to recategorise rising asset prices as a morality issue rather than simply the mechanism through which all markets ration goods in scarce supply.

Seems a bit of a bizarre premise to me, but what the heck, let's give it a go anyway...

HAMISH_MCTAVISH

Rising house prices are good for......

-The millions of people who are in or approaching retirement, and who either plan to, or may unexpectedly need to, downsize.

-The millions more people who are in their final property now, but will find themselves in the position above at some point.

-The seven million or so people who bought within the last 7 years, who may be in or close to negative equity if prices fall even modestly.

-The owners of the 3 million investment properties.

-The millions of people who may need to re-mortgage as and when rates climb, and want the best possible LTV ratio to get the best rates.

-House builders, construction industry, suppliers, investors, pension funds holding mortgage securities, banks, and all housing related industries, all of their shareholders and employees, whether they own a house or not.

-The family members of anyone who will leave an inheritance, or release equity to help their kids onto the ladder when downsizing, etc.


Rising prices are bad for......

-A few hundred thousand potential FTB's at any given time...... But only until they get on the ladder, and become one of the groups above.


And as for upsizers......

It used to be commonly believed that falling prices were better for them.

However the last crash proved that to be wrong, in most cases, because the price of their FTB property had fallen by far more than the price of the 2TB properties.

So the gap between rungs on the ladder widened, not narrowed, with falling prices, and is now narrowing in much of the country with rising prices.


In summary, rising prices are better by far for the vast majority of society, and falling prices only benefit a few, and then only temporarily.

HAMISH_MCTAVISH

And as for the rest of it....

Windofchange wrote: »

The press reports rises as excellent news, and any hint of a fall as terrible. The public at large seems to view things in very much the same light regardless of whether they own or not. Surely there comes a point where rapidly rising prices do nobody any favours other than those at the top?

House prices are nothing other than the intersection between supply and demand.

You can argue all day long about help to buy schemes, and interest rates, and whatever else, but these are all components of effective demand.

Rising rices are not a morality issue - price is simply the mechanism through which markets ration goods in short supply - and if it wasn't through price you'd have to ration through other means, like a lottery or waiting lists...

In order to achieve falling prices without radically increasing supply, you have to decrease the demand (numbers of people willing and able to buy a house), but the very, incredibly, mind-numbingly obvious outcome of that is that fewer people get to buy a house.

So by definition then, in our current market of limited supply, more people get to buy houses when prices are rising than when they are falling.

And a quick look back at mortgage approval and new-build numbers over the last 10 years confirms that quite clearly.

I get that there will be some in the economy who benefit massively from prices going up. Older people getting out at the top to retire to Spain, property investment companies, builders. However, surely there are enough people in this country who aren't in any of these groups? What are the benefits to them?

See last post.

I guess is there a point where morally we need to say enough is enough regardless of what the individual benefits are? It seems perverse to me that young buyers through their tax income are subsidising government schemes like help to buy that push home ownership further our of their reach.

By definition buyers, whether young or otherwise, are people who actually bought a house.

A buyer can therefore not be pushing ownership out of their reach.

They bought already.



And look, putting all of the above aside for a moment, I get it....

Millions of young people are getting shafted by the critical shortage of housing in this country.

But the solution to a housing shortage is very sinply to build more houses.

High Prices are the symptom of a housing shortage - not the cause of a housing shortage - and frankly the only way to reduce prices meaningfully and for the long term is to build millions more houses.

So rather than moaning on an internet forum - perhaps your time would be better spent lobbying your elected representatives to stop letting the NIMBY's block any attempt to build anything anywhere ever.....

We pack 65m people into residential housing that covers just 1.1% of the UK's landmass, let a bunch of zealots get away with wrongly portraying any attempt at using just another half a percent as 'concreting over the countryside', and then wonder why there's a housing crisis.

Honestly... It's barking mad.

But prices aren't your problem. NIMBY's are....

zagfles

Windofchange wrote: »

I get that there will be some in the economy who benefit massively from prices going up. Older people getting out at the top to retire to Spain, property investment companies, builders. However, surely there are enough people in this country who aren't in any of these groups? What are the benefits to them?

None, usually. Or maybe trivial indirect benefits like they can get a cheaper loan if they need it.

Problem is the British seem to have a collective mental illness when it comes to property prices. Property is just like anything else you might own, or need. Normal logic applies.

If something you own rises in price, that's good.

If something you need rises in price, that's bad.

If something you both own and need rises in price, that's pretty much neutral.

Yet you get people stupid enough to think that it's so wonderful that house prices can rise while fullfilling a need at the same time. Err, the cost of that need rises at the same time!

Same applies to needing more or less of that thing. You need more than you own (eg want to move upmarket), then rises are bad. You need less (downsizing) then rises are good.

But even with downsizing, many people do this when the kids have left home so they think it's great news as they'll be able to help their kids onto the "property ladder". But again it's warped logic, because their property requirement, combined, (ie their's plus their kids') will likely increase - they'll need less property but their kids will need property - so overall their combined need for property will increase. Therefore rises are bad overall for their family.

Of course the fact that most people buy with mortgage complicates the picture, when people start talking about LTV and equity, which can make it sound like rises are brilliant as gearing turns a small price rise into a large rise in equity. And increased equity can help with deposits and perhaps getting a better mortgage rate.

But these are pretty trivial indirect benefits, compared to the direct comparison between what you own and what you need - what you borrowed isn't relevant to this.

chucknorris

You also need to consider, generally speaking, how well is the economy doing when house prices are rising or falling. Although I consider that house price rises or falls are a result of how the economy is doing, rather than the other way around.

zagfles

HAMISH_MCTAVISH wrote: »

Rising house prices are good for......

-The millions of people who are in or approaching retirement, and who either plan to, or may unexpectedly need to, downsize.

-The millions more people who are in their final property now, but will find themselves in the position above at some point.

-The seven million or so people who bought within the last 7 years, who may be in or close to negative equity if prices fall even modestly.

-The owners of the 3 million investment properties.

-The millions of people who may need to re-mortgage as and when rates climb, and want the best possible LTV ratio to get the best rates.

-House builders, construction industry, suppliers, investors, pension funds holding mortgage securities, banks, and all housing related industries, all of their shareholders and employees, whether they own a house or not.

-The family members of anyone who will leave an inheritance, or release equity to help their kids onto the ladder when downsizing, etc.


Rising prices are bad for......

-A few hundred thousand potential FTB's at any given time...... But only until they get on the ladder, and become one of the groups above.


And as for upsizers......

It used to be commonly believed that falling prices were better for them.

However the last crash proved that to be wrong, in most cases, because the price of their FTB property had fallen by far more than the price of the 2TB properties.

So the gap between rungs on the ladder widened, not narrowed, with falling prices, and is now narrowing in much of the country with rising prices.


In summary, rising prices are better by far for the vast majority of society, and falling prices only benefit a few, and then only temporarily.

And all that has ignores the basic fundamental point.

The higher prices are, the more buyers have to pay for a roof over their head.

kinger101

HAMISH_MCTAVISH wrote: »

Rising house prices are good for......

-The seven million or so people who bought within the last 7 years, who may be in or close to negative equity if prices fall even modestly.

And as for upsizers......

It used to be commonly believed that falling prices were better for them.

However the last crash proved that to be wrong, in most cases, because the price of their FTB property had fallen by far more than the price of the 2TB properties.

So the gap between rungs on the ladder widened, not narrowed, with falling prices, and is now narrowing in much of the country with rising prices.

I think some of your points are inaccurate. I think there are probably more than a few hundred thousand people who'd like to own their own property. Actual FTB is not the correct number. Though conversely, it's the FTB who often struggle to get mortgages with banks remove 90% products from the market.

As for price falls and negative equity, it's not uncommon for FTB to have interest rates of 2% today, and on a typical 25 year mortgage, they would have paid of 20% of the debt by 7 years. I don't see how that quite equates with a modest drop.

I'd be interested to see more hard data on the point about difference in pricing between FTB and 2TB properties in a falling market, but surely it's the difference in absolute terms that matters. Affordability of the second home is FTB + £X rather than FTB * X.

zagfles

kinger101 wrote: »

I think some of your points are inaccurate. I think there are probably more than a few hundred thousand people who'd like to own their own property. Actual FTB is not the correct number. Though conversely, it's the FTB who often struggle to get mortgages with banks remove 90% products from the market.

As for price falls and negative equity, it's not uncommon for FTB to have interest rates of 2% today, and on a typical 25 year mortgage, they would have paid of 20% of the debt by 7 years. I don't see how that quite equates with a modest drop.

I'd be interested to see more hard data on the point about difference in pricing between FTB and 2TB properties in a falling market, but surely it's the difference in absolute terms that matters. Affordability of the second home is FTB + £X rather than FTB * X.

Exactly, it's the cash difference that matters, not the %.

Of course when considered from the wider economy POV, a big house price crash would be a disaster, we saw what happened in 2007 when US prices crashed. Banks and now (with these daft HTB schemes) the taxpayer have massive amounts in loan assets secured on property.

But the OP was talking about the benefits of rising prices. Pointing out that a crash might be bad doesn't mean rises must be good. There are alternatives. Static prices, prices falling slightly for a bit, real terms prices remaining static. All would be excellent news for most of those who need more property than they currently have.