"Sammy" wrote
What interests me is how people who don't yet own houses, often hold out their view as "impartial" - without any vested interest - even when they are waiting (hoping) for prices to crash in order to buy. That seems like a big vested interest in itself!
"Richard Faulkner" wrote
Exactly - and interest rates could just as easily fall from here as increase (possibly after a single quarter-point increase, then a few falls??)
Are you assuming I don't yet own property? What else have you assumed?
Any participant in a market has a vested interest. My question was who made up the audience in the debate between Bootle and Smith? Were they city analysts, lenders, property firms, economists, academics etc? It seems like a reasonable question before we start attributing too much weight to the 2:1 vote that a soft landing was likely.
"Sammy" wrote
You don't get that choice.
The choice is the 200K mortgage at 5%, or rent! [at the moment, at least]
Nope - why would you think that? But if the cap fits ...
"Sammy" wrote
Nothing - I didn't even assume what you (appear above to) have assumed that I assumed!!
itself!
assumed that
So why did you make the comment: "What interests me is how people who don't yet own houses, often hold out their view as "impartial" - without any vested interest - even when they are waiting (hoping) for prices to crash in order to buy" if it was not in relation to what I'd previously written?
It is disingenuous of you to say you did not assume I was one of those "people who don't yet own houses". Otherwise why say it?
"Sammy" wrote
It *was* in relation to what you'd previously written (see below).
"Sammy" wrote
No need to be so defensive (anyway, why are you getting so jumpy? ;-) - It was you who brought up the subject of the bearing of people's vested interests on their views on the property market - I was merely commenting on my observations of that particular subject.
Just as a matter of interest - *do* you currently own any property?
Yes, outright, but not in the UK. Sold recently here (London) and am now renting. It was an easy decision once I'd compared trading-up with renting. It's not just FTB's being priced out / being unwilling to bid-up - it's people in the middle of the chain with good salaries too. I just don't want to take on the debt involved in reaching today's over-inflated prices, no matter how seemingly affordable the monthly payments are.
Very true.
Quite a few of my clients (mostly in the banking/financial sector) have taken the active decision to rent in the hope of falling prices. Most of them don't have any children, and are prepared to work (and usually have) outside the UK. The ones that own their main residences are not highly geared (less than 25% LTV), and have children (often 3+).
I personally am not too bothered whether I rent or buy (having done both) - when interest rates were 8.00%+, it was a bit of a no-brainer to own with a staff mortgage at 2.5%.
Thanks for the link - seems like there are some people over there who know what is going on in the property market . If anyone wants to see the programme you can download it from this link:
No it isn't. People felt they were making a sound investment in tulip bulbs for much teh same reasons that houses appear a sound investment now.
FoFP
But the down side of houses is not as serious as the downside of tulip bulbs, (which presumably have a relatively short life span?).
If you buy a house and find you cant sell it, (for a price acceptable to you), you can continue to live in it if it is your home, or you can rent it out and generate an income from it. At some time in the medium term future, its' value will rise.
Not quite. The price is set by the marginal seller. If one person in the street has a forced sale, then that's the new price for the street even if everyone else stays put.
FoFP
Not quite. Tulip bulbs were bought because the investors planned to bud new tulip bulbs from them, the profit was thus guaranteed due to rising demand. If they got very lucky, the bulbs would "crack" (now known to be caused by the mosaic virus) and would become very much more valuable depending on how the colour mottling appeared when the flower bloomed.
Note that there were also effectively tulip bulb futures as investors speculated on bulbs for the next season.
There's no guarantee of that either. Tulip bulbs for example have never again reached their peak price (though other flower bulb bubbles have surpassed those prices). For all we know our housing market could change to the continental model where most people buy once when settling down and just stay there. Without all the frantic trading, the elements required for price bubbles would no longer exist.
Something to keep in mind is that during bubbles, an abnormal psychology pertains even amongst those not involved, and what are actually extraordinary prices look commonplace. Once the blinders are removed, and people get hurt, it's pretty hard to get them put in place again.
Also, once the baby boomers have retired, they'll mostly be staying put. There are, as we're all contantly told, fewer folks coming along afterwards to replace them. It's therefore possible, perhaps even likely, one we all start popping our clogs, that there'll be a surplus of houses.
Much of the hope expressed that this rise in prices will continue indefinitely is premised on things staying pretty much the same. It's IMHO highly unlikely that either of the current psychology in housing, or unusual global credit availability, will last much into the future.
FoFP
Sure: if it were otherwise, psychology would already have reversed and the crash would have happened. People are most optimistic at bubble peaks.
FoFP
Like internet shares when they'd fallen 20%, many folks will hold out in the faith or hope that things will again start rising. Few people expected internet stocks to fall 80% from the peak. At some point people holding out for a return to gains will quit throwing good money after bad, then the capitulaion and crash comes as they race each other to get out with what's left.
FoFP
That's my beef with David Smith's argument. He says that a recession is needed for a crash. Last time however it was falling house prices which brought about the recession, not the other way around.
FoFP
I know this and you know this.
But the naysayers will claim that this is one-off distress sale that doesn't count within the average. I had someone explain (!) this to me the last time I discussed it at work
tim
You might like to look at a paper at
Now that the information will be on a website, I can't see the next buyer in a buyers' market saying "Oh, it was a distress sale. I quite understand. Why don't I write you a cheque for an extra twenty grand..."
The simple facts of the matter are that we currently have, at worst, a pause in the rise in house prices. We know that with bubbles, these often precede a bust. We also know that we're about at the down point in the housing cycle. There's been no capitulation as yet, and at best we have signals of divergence in that rents have not tracked prices. It's fairly safe to say this is a top. It would be normal to expect small drops (say 20% to 30%) at the bottom of a normal housing cycle.
I still contend, as I have since 1998, that the bottoming of the K-cycle will bring busts in shares, housing and credit. Obviously we're at one down and two to go. I also still maintain that if the global credit bubble bursts at the same time as the housing cycle bottoms, we'll see a bust more like the Japanese one (falls of 90%) rather than the last housing cycle here in 1990. Clearly for example if a credit bust were to remove mass access to mortgages (and there are good reasons to suppose it might when one looks at what's happening at Fannie Mae) then houses will trade for cash at a substantial discount to current prices.
In previous missives I've said that there's no sign as yet of the credit bubble coming unglued. I'd now like to amend that. I think what's happening at Fannie Mae; flaps like SK threatening to diversify reserves away from the Dollar; and the credit and banking problems in China, all indicate that strains are now appearing in the global credit bubble. The fact that Sir Printsalot is clearly becoming nervous as bond markets don't react as expected to his very belated attempt at tightening are not at all reassuring. In short, I think these are the first rumblings indicating the end of the credit bubble. It looks highly likely that this will occur in a down cycle of UK property and, since much of the credit we're awash in is a result of mortgage-backs, it will precipitate a bust in US housing.
It's likely that part of the unravelling will involve international concern at the size of US trade and budget deficits. If, as I anticipate, problems with redemption or insurance of mortgage-backs occur, worry will transfer to US Treasuries (the US federal government is widely thought to be ready to bail out Fannie Mae - and let's face it, if they didn't it'd be LTCM times one hundred) due to the extra liabilities heapd on an indebted US government. Bond traders will have their revenge by showing that governments don't control interest rates, markets do, and rates in the US and the rest of the west will leap, exacerbating the credit crunch and the difficulties of overstretched debtors.
Of course I don't know what will precipitate this and when, but it's obvious that the dominoes are lined up and ready to fall. The fact that there are problems at Ground Zero of the global credit bubble (Fannie Mae's accounts) indicate to me that the largest bubble in human history, and one that's been in the making for two generations, has been pricked. There are exciting times ahead...
FoFP
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