Housing market collapse.

There was a case on TV recently.

Person had bought a house at a 125% mortgage with Northern Rock. Northern Rock 2 year deal is now coming to an end and they are refusing to remortgage at 125%, as is everyone else.

I see your point, but I consider the slavery of a mortgage worthwhile if it means never dealing with another obnoxious, grasping, stupid, venal, interfering, nosey, duplicitous, lazy, incompetent landlord or agent ever again.

There is an argument that if he hadn't increased the taxes on pension funds so much, people wouldn't have had to put money into property as a pension.

Another argument is that if the government hadn't massaged the inflation figures so much, but used a more representative inflation measure based on living costs and necessities (rather than ipods), we'd have bigger interest rates and a smaller housing bubble.

Jeremy

You've been listening to the pension salesman.

There's a limit to which any Government can save people from themselves and a very good argument that says, once past the point of education and youth, they shouldn't even try.

The problem with the UK housing market is that it's immature. The UK has had too many years, in the past, of raging inflation where a 125% mortgage to buy a house you couldn't even begin to afford made perfect sense, two years down the line, at an inflation rate of 18%.

The housing market insists on behaving as if all this were still so when, in fact, we have now had over fifteen years of being a relatively (relative to the past) low inflation economy.

The housing market needed to grow up as far back as during the Major years but the lesson wasn't learnt then but it will be this time because, whilst some homeowners will never learn, this time the banks are paying the price.

There's no way back now to the days of easy mortgages. We're back to the 1940s when a healthy bank balance, a clean credit record, a decent reference (signed in triplicate by a vicar, a doctor and your employer) and three hours of interrogation (grovelling) to your bank manager will be a prerequisite to any mortgage and, even then, not one anywhere near a 100%.

Not a very good analogy, having a roof (albeit rented) over one's head is a one-off acquisition and doesn't need to be changed and replenished regularly. If you put off buying food you die.

Elastic vs inelastic demand I think is the term.

Very true. In my mothers day only the wages of one person (usually the man) could be taken into account when applying for a mortgage. Not saying things should go back that way but it's interesting.

Except that most people buy a house by means of getting a mortgage, and in that case keeping a roof over your head *is* a case of making regular repayments. Therefore you cannot really regard a house as a one-off purchase.

There is one simple fundamental fact that the housing market (and it's not just the housing market think stock market on occasions), has historically never learned and that is 'there is no such thing as a free lunch'.

As soon as the perceived wisdom reaches the point that you just can't go wrong, then for sure you will.

With any successful investment there has to be first doubt and risk then there's a good (but not guaranteed) chance to make money.

If there's no doubt and no risk then get out while you can because it's a sure sign that all the idiots are jumping on the gold rush bandwagon of a missed opportunity.

I'll go along with that. Fortunately I'm now 10% of my own landlord (as in I'm on the Estate Management Board) so there's at least a tenth of an obnoxious, grasping, stupid, venal, interfering, nosey, duplicitous, lazy, incompetent landlord that I have no choice but deal with.

We are told that there is 100billion pds of debt against 300billion pds of property. So even if property values were cut in half it would theoretically be a survivable disaster. It is like global warming: many people focus only on the worst case scenarios. Making credit available to the masses is nothing new, even if it has become more liberalised. Most of the problems are at the fringes (125% mortgages). Now there is no money to lend (or not enough reserves) so the process of correction has to work its way out.

The root cause of the ridiculous property prices in this country is the supply of building land is strangled by planning regulation.

For any other commodity huge demand causing huge price inflation would stimulate supply. I read that given the rate of house building over the last decade each building will have to last for about 900 years just to maintain existing levels.

Aren't you slave to your landlord instead? I stopped renting because it was impossible to get a reasonable contract (IMHO).

M.

I'm retiring in 4 months time. I've been doing a lot of sums. The minimum I could live on requires a total pension fund of nearly half a million - and even then you have to send you wife out to work.

That all depends on when you're planning to snuff it, doesn't it?

Mad Brother's been living off a million, or so, for the last 20-odd years, and he plans to continue doing so for at least another 40.

As long as she's got time to cook and clean as well.

As Mark Twain said, "buy land, they're not making it any more".

That makes sense, assume that the last decade can be extrapolated

-- Richard

In vanishing wheneever there's any controversy yes. The unusual feature here is that he may have discovered that as Prime Minister, he can't vanish into a cupboard under the stairs whenever the press is out for blood and might actually have to take some responsibility.

Absolutely. The way to stop this was for Harold Wilson to publicly hung draw and quarter the first person in the 1960's to suggest that property was a good way to beat inflation. That may not be the root of the credit bubble (that would have come anyway) but it's why domestic housing became the Magic Money Token in it.

Stupidity is one of the strongest forces in the universe.

It also misses a very key question which even in the US is only being vaguely hinted at. Even if any relatively free market will result in credit bubbles every three generations, should we do anything to try to dampen, elay, or alleviate this?

As most here will know, I'm a free-marketeer. More will probably know I have more than a healthy interest in credit bubbles. I'm convinced they'll happen anyway. The problem is that I have the inkling that Schumpeter was right about "creative destruction" and we need the busts to get the technological booms which make us all a lot better off. There's also the Austrian idea that the busts are there to clear out the deadwood of malinvestment and prepare for a new boom. In that light, governments are dumb to try to interfere at all and are merely wasting our hard-earned cash.

That said though, I do believe that fiat money massively exacerbates malinvestment and indeed that fractional reserve banking does. In a world where we had asset-backed currency and the fraud laws covered fractional reserve banking, I doubt the bubbles would be quite so bad.

The last credit bubble crash was 1929. How soon do you think we had mass borrowing for speculation after that? It looks to me like this is it...

Sorry. The right thing would be to leave it to free markets rather than have some soviet-style committee secondguess the correct rate. If you think that was a good plan, why not have a Housing Price Committee to set those too?

We had a bubble with the first mass mortgages in 1911. That led to a 90% fall in house and land prices. True mass-availability of mortgages only appeared in this credit cycle though. I'm not sure the experiment will be regarded as a success...

And at any previous point in British history.

A fair point. My worry is that he's already shooting his bolts as we start the credit crunch. If he's going to alleviate anything, he's going to need it at the bottom. Right now he's just throwing our money down the hole.

FoFP

Yep. I think that by the time we're through what's coming, if there are actually any mortgages at all for the peons, and if they really want them by the time they've seen what they can do, this is what it will amount to.

So if we could just figure out what the Magic Money Token will be next time, and get in on the ground floor...

FoFP