Housing market collapse.

In what way would they be worse off? They've paid a price they think is worthwhile for a house and they still have the house.

FoFP

They will find it more difficult to move house if they need to.

-- Richard

IIRC, the trendline for four centuries here has been for property to rise about half-a-percent above inflation. That looks fairly convincing.

What's different about this credit cycle is that for the first time, the masses have had easy availability of credit (this just didn't happen prior to the new cycle in 1938). The subsequent bidding has put property way above trendline.

Odds are that by the time we're through, property will be back to trendline. Also, since the Magic Money Token is different in the next cycle, domestic property at least almost certainly won't be bid up again afterwards.

A more interesting question is whether the mass availability of credit will be regarded as a gross error which won't be repeated in the next cycle. My gut feeling says that this is unlikely, but that this won't be an issue anyway because folks will themselves eschew credit until the third generation goes nuts about a new Magic Money Token around 2050 or so.

There have been lots of previous credit bubbles and in most, at the start of the bust, governments try to preveent or delay the denouement or to bail out the initial losers. Sooner or later the size of the problem defeats them and the courts are the next stop. Eventually though, thee debt-deflation will win out and a large amount of credit will be squeezed into a small amount of cash. It goes without saying that many will not make it through this with their wealth intact, mostly because it was a fantasy anyway.

The myth was mostly spread by the people themselves. What's always shocking is that the banks and others who should know better do buy into it.

Just as governments can't do anything in the denouement but make it worse, the historical evidence is that governments who stand in the way of a bubble once it is underway will simply be swept aside.

As Mises pointed out: there ain't no mathematical solution to debt and the only way to solve a bubble is not to get into one in the first place.

Not anyone who did due diligence anyway. The nature of a credit bubble though is that they'll always be damned few.

FoFP

There are various points at which credit bubbles can burst. The worst ones (in terms of pain afterwards) burst at the point of credit exhaustion. This is one of those.

Personally I'll be astonished if they're only cut in half. That would mean that the largest credit bubble in history had one of the least troublesome aftermaths.

FoFP

Only if they owe more than the house is worth. If my house halfed in vaue[0], as long as all other prices did the same, I'm no worse off.

0] If it did it'd still worth more than I paid in 1998.

I've wondered for some time whether once this denouement arrived, the lenders wouldn't be willing to transfer debts as people moved house, eeven for those in negative equity.

My suspicion though, given what small proportion of the aftermath we've seen so far, is that the lenders will use any excuse whatsoever to try to foist debt onto another lender.

I still believe that by the end of this, government will buy housing at vastly reduced prices to use as state rented housing for those who have been made homeless. Inasmuch as this means that much of the middle class who paid a premium for housing to be away from the working and unworking classes will suddenly find themselves neighbours of same, this will become a political issue.

FoFP

Downsides will occur to people in certain particular situations. (1) To a person who needs to get a sizeable loan using the house as collateral, (2) a person who is about to retire and was planning to downsize their house and live off the difference. (3) The beneficiaries of a person who has died (4) Landlords who will have to lower rents in line with new-buy mortgages.

In addition it will lead to a housing shortage fairly quickly because more young people will buy a house or flat rather than stay in the parental home or co-rent a single place with others. Added to which house builders will see a drastic lowering in profits. Unless there is outside intervention, this will push the house prices back up again (and indeed is how the cycle works).

OTOH people will have more disposable income when not hampered by crippling mortgage repayments, which is generally good for the economy as a whole.

They are worse off because they are then stuck in that house, reducing their social and economic mobility unless they are also able to pay for another accommodation. In the case of inability to pay their mortgage through change of circumstances, repossession would still leave them with an enormous debt to pay on top of needing to pay for accommodation.

That would require a minimum downsize of half a million. If somebody's got a house "worth" 3/4 million or more, I really don't give a shit how much they get hurt by this crunch.

slightly less free money, oh dear. less inheritance tax, too! people shouldn't be depending on other people dying for their own financial security. though I /am/ keeping an eye on one of my aunts...

I've often wondered about this. You hear people saying things like "My house dropped in value so I was made homeless"... eh?! Unless you are being forced to sell up it means nothing.

Deflation in general is a bad thing because it discourages buying, i.e. why buy something now when it may be cheaper later?

Usually the difference is not used by itself, but to augment a pension that would otherwise be insufficient to allow a reasonable standard of living.

It's true. But everyone needs somewhere to live. Not everyone needs a collectable car. That's the sad thing about the housing market, most people just want somewhere to live, but they are paying the price for the investors and speculators.

I don't see why they shouldn't be *required* to do this.

-- Richard

Actually he's been consistent for many years. The problem is that any government that took the necessary action to deal with runaway property inflation would have been swept out of office at the following election and replaced by whichever part promised jam tomorrow for anyone borrowing against property. There have been a whole swathe of measures over the years intended to put the brakes on the property market and each has been met by property owners and finance companies finding new ways to force prices back up again.

I worked for one of the shadow Treasury team back in the late 80s, and even back then one of the cornerstones of Brown's economic policies was to do as much as possible to rein in the housing market, preferably without causing a crash. The problem is that there's a limit to what can be done without direct government intervention. Now I have no problem with government's doing something socialist, however I am aware that I'm in a tiny monority when it comes to that sort of thing.

Didn't take us long after the last crash.

He did the right thing on Day Zero. He took interest rates out of the hands of the government and handed responsibility to the Bank of England.

The problem of ridiculous UK property prices is long standing. It dates back at least to the 70s, even though it didn't start being extreme until the 80s. For my entire adult life the cost of housing has been at a level that would be considered completely unreasonable almost anywhere else in Europe.

He's not been great, but then how many Chancellors have? So far as I can remember there has hardly been a single one who didn't manage at least one serious c*ck up whilst in office. I suspect we are suffering from having had a long spell of a competent Chancellor and not quite yet being used to "normal service" resuming.

*In general* yes, that is true. It is not however true wrt necessities. People do not go without food because they will be able to buy it cheaper next year!

Owning a house is not an absolute necessity in the same way as buying food, but it is close enough *in our present UK society* that the general rule regarding deflation is not completely true.

You're no worse off if you want to move somewhere costing the same. If you want to trade up you're better off; if you want to trade down you're worse off (because you have less money left over).

But there are zillions of people not in your fortunate position of course, who have bought houses in the last few years.

-- Richard

Which is why I have always rented, and will continue to do so until I can buy outright. I have no intention of ever being a slave to a mortgage.