Deflation - Inflation - Hyper Inflation & Interest Rates Questions?

zagfles

Linton said:

zagfles said:

Linton said:

I see 2 main drivers for rising house prices...
1) FTBs ability to buy is controlled by the size of the mortgage they can get.  In general they go for the maximum amount that someone somewhere is prepared to lend them. When buying a house they then look for the best available within their budget which will automatically be at their budget - anything significantly cheaper is seen as undesirable/grotty.   For most people there is no strong wish to go to the limit of affordability for anything else they buy.

So what happens - builders provide houses configured to justify as a high a price as possible within the land available. Fully fitted kitchens, ensuites, landscaped garden etc etc.  Things that would have been seen as luxuries for the rich 40 years ago which  would never have been provided in low-end housing.  People want to spend to the maximum they can afford so the builders help them do it.

Low interest rates in the past few years have prov ided FTBs with easier access to more money. When I bought my first house 40 years ago mortages were set to about 3X husband's annual income + half of wife's based on the then normal practice that the wife would stop working as soon as there were any kids, or possibly even if there weren't.  Also morgages were rationed by the BoE until the 1980s so even if you met the bank's criteria for the amounrt of money you wanted to borrow you may not have been able to get a mortgage.  As the amount people can borrow increases the price of FTB houses increases to match it - increased mortgage availability does not help anyone.

2) The next important driver for increased house prices are social changes leading to lower occupancy rates.  40 years ago and more 3 generation households were common.  Granny would be living with her son/daughter and their children in what was granny's house.  Nowadays the children are probably living many miles away from their childhood home and so granny stays in her own house and the children have theirs.

The people who complain most about house prices are the singles.  40 years ago it was fairly unusual for someone unmarried to buy a house.  Many people lived at home until they married. Both then and now house prices were determined by what a couple could pay.  With people marrying or entering into permanent relationships later we have more singles buying on their own doubling the number of houses that would previously been required.

I do not believe that investment potential is anythng like as important a driver.  Were BTLs and investment financed rental accommodation to be abolished the net effect would be even more pressure on housing - rental property is generally at a higher density since renters are prepared to put up with less space than if they were buying.

You make my point! Why do you think it is that buyers go for the max they can afford but renters don't? If people are prepared to pay the most they can for the best accomodation, why just buyers and not renters?

Is it not obvious? Buyers are thinking of the investment potential - ie they buy more than they need or even want because they think it'll make them money. Take that away, and there's no reason why buyers wouldn't behave as renters - ie they would both see their accomodation as a drain on their resources as with any other cost of living. And therefore not buy excessive property they don't need or even want.

It's a different equation for landlords - and like I said there's clearly a need for landlords to be able to make a profit, they have rental income to do that, and by keeping prices down and stable the yield required will be lower.

I disagree that most FTBs base their decision on the investment potential. Obviously the major basic requirements of size and location must be met but beyond that I think it's more a matter of psychology.  Your house demonstrates to you and the rest of the world what sort of person you are.  You want to live somewhere to be proud of rather than somewhere mediocre but cheap that just about does the job.

Buying for investment potential only makes sense if you intend to move into somewhere cheaper later.  For most FTBs I think that is the last thing on their mind.

You really think so? I don't believe most people are that snobbish - and if they are they'd display it other ways eg by buying the best car they could afford. Some people may buy flash cars to show off but not many will buy the most expensive car they can afford. In fact the people I know who have flash cars have them on lease, ie are renting them!

Investment potential, or rather the expectation of price rises, isn't just about downsizing, it's also about mitigating the cost of upsizing. For instance if they expect to have a family in the future and move to a bigger house, and they assume prices will rise, the marginal cost of upsizing will increase.

Linton

zagfles said:

Linton said:

zagfles said:

Linton said:

I see 2 main drivers for rising house prices...
1) FTBs ability to buy is controlled by the size of the mortgage they can get.  In general they go for the maximum amount that someone somewhere is prepared to lend them. When buying a house they then look for the best available within their budget which will automatically be at their budget - anything significantly cheaper is seen as undesirable/grotty.   For most people there is no strong wish to go to the limit of affordability for anything else they buy.

So what happens - builders provide houses configured to justify as a high a price as possible within the land available. Fully fitted kitchens, ensuites, landscaped garden etc etc.  Things that would have been seen as luxuries for the rich 40 years ago which  would never have been provided in low-end housing.  People want to spend to the maximum they can afford so the builders help them do it.

Low interest rates in the past few years have prov ided FTBs with easier access to more money. When I bought my first house 40 years ago mortages were set to about 3X husband's annual income + half of wife's based on the then normal practice that the wife would stop working as soon as there were any kids, or possibly even if there weren't.  Also morgages were rationed by the BoE until the 1980s so even if you met the bank's criteria for the amounrt of money you wanted to borrow you may not have been able to get a mortgage.  As the amount people can borrow increases the price of FTB houses increases to match it - increased mortgage availability does not help anyone.

2) The next important driver for increased house prices are social changes leading to lower occupancy rates.  40 years ago and more 3 generation households were common.  Granny would be living with her son/daughter and their children in what was granny's house.  Nowadays the children are probably living many miles away from their childhood home and so granny stays in her own house and the children have theirs.

The people who complain most about house prices are the singles.  40 years ago it was fairly unusual for someone unmarried to buy a house.  Many people lived at home until they married. Both then and now house prices were determined by what a couple could pay.  With people marrying or entering into permanent relationships later we have more singles buying on their own doubling the number of houses that would previously been required.

I do not believe that investment potential is anythng like as important a driver.  Were BTLs and investment financed rental accommodation to be abolished the net effect would be even more pressure on housing - rental property is generally at a higher density since renters are prepared to put up with less space than if they were buying.

You make my point! Why do you think it is that buyers go for the max they can afford but renters don't? If people are prepared to pay the most they can for the best accomodation, why just buyers and not renters?

Is it not obvious? Buyers are thinking of the investment potential - ie they buy more than they need or even want because they think it'll make them money. Take that away, and there's no reason why buyers wouldn't behave as renters - ie they would both see their accomodation as a drain on their resources as with any other cost of living. And therefore not buy excessive property they don't need or even want.

It's a different equation for landlords - and like I said there's clearly a need for landlords to be able to make a profit, they have rental income to do that, and by keeping prices down and stable the yield required will be lower.

I disagree that most FTBs base their decision on the investment potential. Obviously the major basic requirements of size and location must be met but beyond that I think it's more a matter of psychology.  Your house demonstrates to you and the rest of the world what sort of person you are.  You want to live somewhere to be proud of rather than somewhere mediocre but cheap that just about does the job.

Buying for investment potential only makes sense if you intend to move into somewhere cheaper later.  For most FTBs I think that is the last thing on their mind.

You really think so? I don't believe most people are that snobbish - and if they are they'd display it other ways eg by buying the best car they could afford. Some people may buy flash cars to show off but not many will buy the most expensive car they can afford. In fact the people I know who have flash cars have them on lease, ie are renting them!

Investment potential, or rather the expectation of price rises, isn't just about downsizing, it's also about mitigating the cost of upsizing. For instance if they expect to have a family in the future and move to a bigger house, and they assume prices will rise, the marginal cost of upsizing will increase.

Do you own a house?  If not we will haveto wait and see.  If you do, did you look for the cheapest backstreet terrace that would accommodate you and family, if any, or did you go for the best you could afford in the "best" location?

The cost of upsizing is what it is because of the amount of money that FTBers are prepared to pay.  If FTBer houses were cheaper people looking for their next house would have less money to spend and so the price of those houses would be less.  Also 2nd time buyers are subject to the same desire to get the best  they can afford.

zagfles

Linton said:

zagfles said:

Linton said:

zagfles said:

Linton said:

I see 2 main drivers for rising house prices...
1) FTBs ability to buy is controlled by the size of the mortgage they can get.  In general they go for the maximum amount that someone somewhere is prepared to lend them. When buying a house they then look for the best available within their budget which will automatically be at their budget - anything significantly cheaper is seen as undesirable/grotty.   For most people there is no strong wish to go to the limit of affordability for anything else they buy.

So what happens - builders provide houses configured to justify as a high a price as possible within the land available. Fully fitted kitchens, ensuites, landscaped garden etc etc.  Things that would have been seen as luxuries for the rich 40 years ago which  would never have been provided in low-end housing.  People want to spend to the maximum they can afford so the builders help them do it.

Low interest rates in the past few years have prov ided FTBs with easier access to more money. When I bought my first house 40 years ago mortages were set to about 3X husband's annual income + half of wife's based on the then normal practice that the wife would stop working as soon as there were any kids, or possibly even if there weren't.  Also morgages were rationed by the BoE until the 1980s so even if you met the bank's criteria for the amounrt of money you wanted to borrow you may not have been able to get a mortgage.  As the amount people can borrow increases the price of FTB houses increases to match it - increased mortgage availability does not help anyone.

2) The next important driver for increased house prices are social changes leading to lower occupancy rates.  40 years ago and more 3 generation households were common.  Granny would be living with her son/daughter and their children in what was granny's house.  Nowadays the children are probably living many miles away from their childhood home and so granny stays in her own house and the children have theirs.

The people who complain most about house prices are the singles.  40 years ago it was fairly unusual for someone unmarried to buy a house.  Many people lived at home until they married. Both then and now house prices were determined by what a couple could pay.  With people marrying or entering into permanent relationships later we have more singles buying on their own doubling the number of houses that would previously been required.

I do not believe that investment potential is anythng like as important a driver.  Were BTLs and investment financed rental accommodation to be abolished the net effect would be even more pressure on housing - rental property is generally at a higher density since renters are prepared to put up with less space than if they were buying.

You make my point! Why do you think it is that buyers go for the max they can afford but renters don't? If people are prepared to pay the most they can for the best accomodation, why just buyers and not renters?

Is it not obvious? Buyers are thinking of the investment potential - ie they buy more than they need or even want because they think it'll make them money. Take that away, and there's no reason why buyers wouldn't behave as renters - ie they would both see their accomodation as a drain on their resources as with any other cost of living. And therefore not buy excessive property they don't need or even want.

It's a different equation for landlords - and like I said there's clearly a need for landlords to be able to make a profit, they have rental income to do that, and by keeping prices down and stable the yield required will be lower.

I disagree that most FTBs base their decision on the investment potential. Obviously the major basic requirements of size and location must be met but beyond that I think it's more a matter of psychology.  Your house demonstrates to you and the rest of the world what sort of person you are.  You want to live somewhere to be proud of rather than somewhere mediocre but cheap that just about does the job.

Buying for investment potential only makes sense if you intend to move into somewhere cheaper later.  For most FTBs I think that is the last thing on their mind.

You really think so? I don't believe most people are that snobbish - and if they are they'd display it other ways eg by buying the best car they could afford. Some people may buy flash cars to show off but not many will buy the most expensive car they can afford. In fact the people I know who have flash cars have them on lease, ie are renting them!

Investment potential, or rather the expectation of price rises, isn't just about downsizing, it's also about mitigating the cost of upsizing. For instance if they expect to have a family in the future and move to a bigger house, and they assume prices will rise, the marginal cost of upsizing will increase.

Do you own a house?  If not we will haveto wait and see.  If you do, did you look for the cheapest backstreet terrace that would accommodate you and family, if any, or did you go for the best you could afford in the "best" location?

The cost of upsizing is what it is because of the amount of money that FTBers are prepared to pay.  If FTBer houses were cheaper people looking for their next house would have less money to spend and so the price of those houses would be less.  Also 2nd time buyers are subject to the same desire to get the best  they can afford.

I bought a house based on the same principle as everything else I buy! What do I need, what do I want, what's good value etc. I'm not a snob who buys a house (or anything else) to impress other people. We wanted a decent size house with a good size garden in a safe low crime area. Could have got cheaper by sacrificing some aspects, could have got more expensive by buying an unnecessarily big house or one in a "trendy" area. But that sort of superfical stuff doesn't appeal to me. 

If people expect prices to rise, it's blatently obvious that the cost of upsizing will reduce if you bought a bigger house in the first place. So someone who that thinks they might eventually need a 4-bed house, but currently only needs a 2-bed, but can afford a 3-bed, might buy the 3-bed as that'll make eventually affording the 4-bed easier.