There will not be a crash

Turnbull2000

The current Bull argument explained, courtesy of geneer from GHPC

Its seems that the bulls have finally worn out the old retrospectoscope. So whats the next weapon on the field of retreat?

Ladies and gentlement I give you the Magic Bull Magnifying Glass ™ 2008.
The big picture too painful to consider. Simply ignore it with the Magic Bull Magnifying Glass ™ 2008.
Excludes all other pertinent information 100% Guaranteed.

With the Magic Magnifying Glass you can lock on to any trivial and minor aspects of the debate.
You can let your pedantry and semantic deconstruction run wild.

-Does an Armageddon need to be 220ft tall?
-Want to consider a couple of posh streets in london?
-A single bank dropped interest rates 0.0001% whilst everyone else is pulling their mortgages.

Yes, forget reality - you can be a winner with the Magic Bull Magnifying Glass ™ 2008.

brit1234

The_Dangerman wrote: »

I only did Econmics to A-Level standard, so I'm afriad I can't compete on that score. But I also respectfully venture that "experts" who I'm sure have all the same qualifications as your goodself have been predicting trouble in the housing market for years, and so far they have all been wrong.

Sorry but predicting a crash exactly is near impossible due to the huge numbers of competing variables. I have a degree in risk management and trained to identify vulnerabilities and mitigate/plan against them.

The same principles apply to having a disastrous flood as to a house price crash (i'll keep it basic). In the case of a flood if you a population that lives on marginal land, malnourished, poor, no warning system, no saving, no insurance your going to have a problem when the flood comes in terms of death, disease and destruction of properties goods and animals. No one really knows when the flood is going to hit but you know when it hits the population will be highly susceptible to the effects.

This is true also of the housing market. When you have people buying properties at 9-10 times their salary at low interest rates, only being to afford interest only mortgages, a culture of lying about your income to get a loan or building a portfolio with little money put down but equity from other properties then you are going to have a problem when interest rates rise. The whole housing market was unsustainable over recent years and has created a highly susceptible bubble.

It has never been about if there was going to be a crash but when. Now that our housing market is linked to international factors on top it makes it near impossible to predict when till its to late.

What responsible people do is to plan well in advance for this likely hood rather than close their eyes and say it never was going to happen.

The fact is it is happening now and the longer it was delayed the stronger the effects.

talksalot81

nelly wrote: »

You havent made a point though its just a guess and if I offered you £1000 to list your list of absolute proofs there will be no crash I will owe you nothing because you simply have no clue

You cannot say 100% deffinate it is simply your opinion!

Perhaps it is the way you have worded your response but the absence of a clue is on your part not mine. I have made a point and it was that the availability of well paid jobs in one of the highest prices regions within in the UK is poor. This was to suggest that the assumption, by some posters, that incomes were sufficient to support the present market were not universally correct and thus that there supposition that a crash could not happen was not without flaw. So contrary to your post, I have not once suggested that I support the opinion voiced in the thread title.

Generali wrote: »

I thought I tackled that point quite well. Prices rise when demand exceeds supply. They fall when supply exceeds demand.

If you're trying to look at why the price of something has changed dramatically then you need to look at the drivers of supply and demand and ask yourself, 'What's changed?'

IMO, demand has been driven by funds available to borrow to buy housing being freely available. By dint of the current problems in the banking system, that is no longer the case. Demand is falling (as can be seen in the last CML figures showing a drop by 7% for mortgage lending). Unless supply also falls, that will mean prices will fall.

As the banking system is highly unlikely to sort itself out in the next couple of years, where is the demand going to come from to maintain prices? What is likely to happen to supply as demand falls? Will more or fewer houses come on the market in the next year or two? Will sellers drop their prices to meet what buyers can afford or will they hold out?

If supply drops by more than demand then prices will continue to rise. My belief is that supply will rise for a while due to developers having projects that are nearing completion that are too far gone to stop and also due to reposessions as the economy falters leading to falls in prices.

If you think otherwise then that's fine, we all have opinions. Just look at supply and demand and then tell us all what you think is the most likely outcome from where we are now.

My belief as stated is that the fall in demand is too great for prices to be maintained.

You have made the same error as Nelly. You have not read everything I have said. You have quoted out of context and thus totally misrepresented my views. My view is that the market is unsutainable and my initial posting was to refute the posting giving the 'blanket' response that the market would be OK because well paid jobs were so readily available.

Whilst I may agree with you both, I suggest you are more cautious in your use of quotation.

TTMCMschine

Generali wrote: »

Perfectly true although interest rates were above 10% for a period of time.

To my mind it's a myth that a bubble needs something to happen to make it burst. Nothing particularly happened in 1987 to burst the stock market bubble, nor in 2000-1 to burst the dot com bubble, nor 1929 to cause the Wall Street Crash, nor in 1720 to end the Mississippi Scheme or the South Sea Bubble (the Bubble Act from the time is where the term 'bubble' comes from I think).

Something did happen in all of those examples to cause the collapses - in all cases the asset price of the assets involved had become detached from reality & were hugely overpriced thanks to rampant speculation.

That is exactly the same as now with house prices & the stock market.

People make the mistake of looking for the cause of the collapse from the viewpoint that everything was normal & something caused it to go wrong, when in fact the cause happened prior to the collapse, at the point that asset price inflation expanded beyond sustainable levels. The collapse occurs because the market is not normal, & rather than something happening to damage a healthy market, it is really an unhealthy market correcting itself.

We as Human beings look for patterns in things, & in these cases wrongly ascribe interest rates etc as the cause because some change occured at around the time of the correction, when in fact you need to look much further back & realise that the asset price inflation itself is the cause of the future collapse.

Generali

The_Dangerman wrote: »

Well, people HAVE to live somewhere, that is not optional, there are no substitutes to it. If the price of milk goes through the roof you can switch to toast, or soya. But there is no option but to live in a house. So if we continue along increased immigration, increased divorce, and increased life expentancy, the demand for residential accomodation can't ease.

Therefore if people can't get a mortgage they will rent. More renters will sustain rents and will sustain interest for BTL investors.

The situation will not ease, more people are chasing homes year on year. Unless or until the number of households drops below the number of houses then demand will still be there. Of course as affordability deminishes then people will club together, stay at parents etc, so that will reduce demand. But I still believe, and last time I read the BTL magazine (obviously not without a vested interest) more households were being created.

I only did Econmics to A-Level standard, so I'm afriad I can't compete on that score. But I also respectfully venture that "experts" who I'm sure have all the same qualifications as your goodself have been predicting trouble in the housing market for years, and so far they have all been wrong.

It's true that people have to live somewhere but they also have to pay for it and that's the bit that impacts on demand. If they have less money then that reduces demand, as you say people won't leave the parental home as young or people will share housing or cram their family in somewhere smaller. That is where the main substitution effect exists in housing - people substitute larger for smaller or rented for owner occupied. If needs be I could live with the wife and 2 kids in a 10x10 ft room. I wouldn't want to but if it's all I could afford then I'd have little choice.

If you think logically about the thing about households then it's clear that something has to give as it's impossible for more households than properties to be created forever unless people start to create households under Waterloo Bridge out of cardboard and Special Brew. If there's a serious risk of running out of houses in the UK then the political pressure to build more would be immense.

I've met people that think they know nothing about economics that have a great grasp of supply and demand and met economics lecturers that have almost no idea. It's a really simple concept that's impossible to understand until the penny finally drops one day.

Gorgeous_George

Imagine, if you will, a ladder where each rung costs £50,000. Now imagine a house, 3 beds if you like with one en-suite. In 1985, it might have been on rung 2 (valued at £100,000- £149,999), in 1991 on rung 1; in 2003 it was on rung 4 and now rung 6.

Demand stes the market rate? Only in part. Availability of finance also plays a role. If a lender allows a £200,000 loan to someone to buy the house, it may stay at rung 6. If the lender limits the loan to £100K, it will fall to rung 3.

Probably not the easiest way of saying that demand only sets the relative price.

GG

nelly_2

Ive changed my stance over the last few months I reckon they will dip only a bit but stay there for ages and ages ten years or so probs more.
An average house HAS to be affordable on average wage cheap house low wage etc

House price rampers are still the scum of the universe though and should be ashamed that their greed is forcing more people to give money to banks rather than enjoying what is a relatively short life.

Rover

5% minimum reduction in average national selling prices in 2008. This trend will continue for a few years.

poppy10_2

HelpWhereIcan wrote: »

3. It was not unusual to see lending of 50% of net income in the US, whereas in the UK the highest was generally 45% of gross income.

Which is a lot worse 45% of gross income will be more than 50% of net income.

poppy10_2

Rover wrote: »

5% minimum reduction in average national selling prices in 2008. This trend will continue for a few years.

Good news is that Nationwide now agree with you:

NATIONWIDE, Britain’s biggest building society, has warned that house prices could drop 5% this year because of the credit crunch.
It is the first of the big lenders to publicly say values could fall. Its official forecast, and that of rival Halifax, is that prices will be flat this year.

The prediction comes amid widespread fears of a mortgage “famine” as lenders rein in their lending.
http://business.timesonline.co.uk/tol/business/money/property_and_mortgages/article3601935.ece