Property Prices are still moving higher in the midlands

You really should try to avoid journalistic exaggeration :) A bubble is where prices are at least tens of times above reasonable value estimates and often much more (many internet shares fell 99% or more even if they kept trading). Also where people are buying solely because they expect to sell on at a higher price ("greater fool" theory). I don't think either of those are remotely close to applying to the housing market. Do you really think we might see house prices below £10k? I suspect Mr Holmes probably does, but I certainly don't. 25% overvaluation is not a bubble.

The basic point is that, in the south at least, there are simply not enough houses for the number of people. High prices are a consequence of that, not a cause, and unless there is a lot of new building or the population falls sharply, neither of which seem very likely (at least for a decade or two), there will continue to be people who can't find a house whatever happens to prices (although with falling prices people might be less unhappy about it).

A hundred years ago most property was in the hands of the rich, ordinary people rented. For a few decades, high inflation effectively wiped out the difference between renting and buying with a mortgage, because the capital payments were insignificant compared with the interest (high taxes, MIRAS and restrictive tenancy laws also helped). Now we are back to low inflation and low interest rates, so the gap is back, and IMO we are heading back to the same situation: a relatively small number of landlords (although probably more than we had before) with everyone else renting until they can afford to buy outright, or at least with a low LTV mortgage (still the model in e.g. Germany which never had high inflation post-war). As you say, all very capitalist; slightly ironic that Maggie Thatcher was so in love with home ownership for all, and a Labour government has restored the economic and tax conditions for landlords to make a comeback ...

In article , Duncan writes

I think a few do it, but my lender is Bank of Scotland.

In article , Stephen GoldenGun writes

On the contrary - I have made a £$%^&* fortune, (to me), during the past

4 years. However, it is not from estate agency fees, but from property itself. The estate agency puts me in a position where I see the deals, or they actually come to me directly.

From a base of say 100 in 97/98 agency fees have fluctuated as follows:

96/97 84 97/98 100 98/99 73 99/00 112 00/01 92 01/02 94 02/03 95

I added 96/97 as there seems to have been an unusual leap in 97/98, (I cant recall what it was due to, but will have to have a look).

Prices in my area have just about trebled since 1996, but clearly gross fees havent. So, if fees per property have doubled, volumes of sales have decreased. I could analyse the pants of it, but take my word for it.

The leap in 99/00 was due to existing stock, (around 140 houses), built up over several years, selling almost all at once as values rose to overtake the asking prices. Current stock is now around 60 houses, as it has been since the end of 2000.

In fact, I recall taking steps in September 2000 to preserve cashflows and reduce overheads, due to a fear that sales volumes would drop dramatically as fewer houses came onto the market.

In the event, it wasnt as bad as I expected, and the exercise was certainly necessary.

In article , Stephen Burke writes

OK - I think I may confuse things because I am talking about housing market boom and bust/recession in Manchester, rather that the 2 quarters of negative growth in GDP, (or whatever).

In Manchester, the market growth actually started around 1987, and peaked in about 1992. It then fell until about 1997/8, and has risen since - and is still rising. We seem to lag behind the South / London by about 18 to 30 months.

So just an appropriate point in the convo to ask what you think about my "lets all move north theory"!

What happens as you say Stephen, about the reason for high prices in the South, due to lack of supply of property, will in the long term this not mean that people suddenly wake up to the cheap price of property in places like liverpool, manchester, hull, and other places,, and will not businesses and people move causing a mini boom in all those cheap properties where you can buy places for a few thousand quid..............

It seems simple supply and demand?

Any thoughts?

>

I must have missed this historic leglislation that the Labour party have introduced.

What changes have they made that has changed the 'system'.

ISTM that the problem is entirely caused by an astronomical increase in house prices in a relatively short period. In turn IMHO this has itself been caused by the global economic conditions, and once the global economy recovers I expect the problem to correct itself a bit.

Tim

Its really interesting hearing so many different opinions from so many intelligent people...but I still find it difficult to try to see a clear path and clear consensus.

With people making so many different speculations about the future of the market its quite confusing.

My mistake, I didn't realise there was a standard definition.

Agreed

So if there were roughly the same number of houses 5 years ago, why are prices so much higher ? I say it's down to consumer confidence as well. Finite supply is a fundamental influence, but within that there are period of low & high consumer confidence.

Daytona

People are entitled to think what they like. The government uses the International Labour Organisation (ILO) methodology which is a lot better than other methods.

Sounds like a laughable methodology to me.

If you sign on, they pay class 3 for you, as they do for me.

Daytona

Are you signing on right now daytona?

I don't think analytical ability comes into it ! There seems to be far to much corralling of more or less stupid, unreasonable and downright dishonest people towards a new pen.

I doubt it, but the pleasure I'd get, in giving some of these people a lesson in honesty, before the business came crashing down around me, could well be worth a million or two

Nope!

Daytona

Sorry, but I asked the question, I appologise if its a bit personal, but I was kind of shocked,,as just from the little I konw about you, you have a heck of an analytical mind and whatever it was I remember you doing/working was quite a "high level" type of career or job.. I was just surprised thats all.

I hope you get something real soon!

I myself since moving my small biz overseas, during my dormant period....I'm trying to create myself a stable financial base also....

You forget that according to Mr Holmes there is no housing bubble, but a credit bubble. When it goes, we will not only see £10k houses, but beer at 15p a pint.

"snip"

Well then, there is indeed a silver lining to every cloud!

>

: A hundred years ago most property was in the hands of the rich, ordinary : people rented. For a few decades, high inflation effectively wiped out the : difference between renting and buying with a mortgage, because the capital : payments were insignificant compared with the interest (high taxes, MIRAS and : restrictive tenancy laws also helped). Now we are back to low inflation and : low interest rates, so the gap is back, and IMO we are heading back to the : same situation: a relatively small number of landlords (although probably more : than we had before) with everyone else renting until they can afford to buy : outright, or at least with a low LTV mortgage (still the model in e.g. Germany : which never had high inflation post-war)

I was talking to a German about deflation and house prices recently. he said his parents' retail business had run into trouble and they'd taken out a mortgage loan against their residence to help it. The residence had then fallen in value by 50% and the business had gone bankrupt. They're about to be without a business and without a home. He says that such price falls aren't unsual in large German cities and that he sees no chance that Germany will avoid either outright deflation or further house price falls bar some extreme event like Germany leaving the Euro.

FoFP

: It's probably a function of wage, interest rate, unemployment and house : price, rather than just house price and wages. And it probably boils : down to monthly repayments in reality.

: The killer last time was when interest rates rocketed to 15% or so, and : unemployment was quite high, (I think). The fact that mortgage interest : payments were triple what they are now, (for the same level of loan), : made them unaffordable, so the whole thing collapsed.

: That's probably what is happening down south and, as prices continue to : rise OOP North, it will happen here as well.

: Prices will probably then stabilise, with a bit of settling back, but I : think the big falls will only happen if there is a quantum change in one : of the other factors i.e. interest rates rise dramatically, wages fall : dramatically, unemployment rises dramatically, taxes rise dramatically : etc.

That point will be the test of whether this is a house price bubble or a credit bubble. In theory at least, a house price bubble could attain stability at a high plateau absent extraeneous factors. A credit bubble cannot, since the recycling of credit depends on the assets underlying the credit continuing to rise in price. Credit bubbles burst when those rises fail to occur. Credit refusal and revulsion then gut the underlying asset prices to produce a debt-deflation.

Given the current levels of private debt in the US and UK, I'd better be wrong on this one, but I just don't see it.

FoFP

: Mr. George, is "deflation" simple when money goes negative? And money starts : loosing value?

: This means that prices of average items, eg. the classic shopping basket : that inflation is based upon then suddenly costs less money? Eg. it might be : costing 5% less than the previous year?

: Is this simply what deflation is?

Dunno who Mr.George is, but deflation is an overall fall in prices where goods become cheaper year to year. In the early stages of a transition from inflation to deflation though, this effect will be very uneven and asset prices will tend to fall much faster than other prices.

Usually this isn't a big problem at all. Half of the past 400 years of English history have been spent in deflation and this hasn't usually prevented steady economic growth. What can be a problem is deflations where large amounts of debt have been built up since those debts then need to be serviced and paid in more expensive money. If this is due to a credit bubble (debt-deflations almost always follow credit bubbles) then the assets underlying the bubble (the ones which the oversupply of credit drive up in price and against which yet more credit is drawn) generally collapse back towards prices prevalent at the start of the prior inflation (Japanese property prices are now back at 1982 levels and falling). This means that people hold assets which don't match the debt out on them and steadily have more problems servicing that debt. In the end all debt must be paid either by the borrower or the lender and as debts are liquidated either through being paid back or repudiated, the money supply falls further and drives prices yet lower. A falling velocity of money as people hoard cash to await lower prices compounds this effect. Basically the whole system ratchets down in a reverse of the prior inflation and back towards stability.

FoFP