Discussion in 'Current Affairs, News and Analysis' started by PartTimePongo, May 31, 2006.
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You can temporarily engineer rising real estate prices by artificially holding mortgage rates low through expansionary central bank operations.
As a rising market comes to be generally perceived as normal, lenders become more aggressive in writing mortgage loans, bidding real estate prices still higher in a sort of self-amplifying feedback loop.
As real estate prices rise, prospective buyers need still bigger, longer, more exotic mortgage loans to acquire property.
Property owners see prices steadily rising, imagine that they are getting rich, and adjust their own financial habits accordingly.
It's like taking narcotics: the longer the euphoric boom continues, the more destructive the inevitable crash.
The same cycle dominates the US economy and we are approaching the downswing.
USA home equity as a % of market value, '65-'05.
USA home mortage borrowing, '80-'05.
USA household debt as % of household assets, '65-'03. (The denominator is artificially inflated by asset prices that can be and, I think, will be knocked down violently in a downswing.)
USA "M3" money supply (a broad growth measure), '80 to December '04. The Federal Reserve System suspended reporting this figure as an "economy measure" on March 23, '06.
Big rises = big crashes... everythings a cycle.
Current average house price is about 8 times average salary, that can't go on for ever can it?
Good job we decided to eliminate our manufacturing industries and gear the whole economy to property prices in the South East that are guaranteed to always go up.
Aren't they? AAaaaaargghhhh!
Almost as good an idea as going completely dependent on North Sea gas to screw the miners, the greenie renewable energy types and avoid pissing off the middle class NIMBY vote - after all, it's going to last forever, right?
It's not? Aaaaaargghhh!
I bought my house some years ago. I do not believe that I could afford to buy that house today - its cost is simply out of line with what I am now earning. I also agree that the situation cannot continue.
Time, perhaps, for the deep bunker and tin hat?
Another interesting aspect of the housing phenomenon is just what is going to happen when all the 50-65 year olds currently sittting on their pile of cash decide to release the equity and sell up to lay their hands on that little nest egg. We know that age group is growing in size (the baby boomers) and that there are just not enough youngsters backfilling - and certainly not enough to afford these properties. So who are they going to be sold to? Or as is probably more likely, will the values of these piles will decrease in order to make them affordable?
Market forces and economics - dontcherjustluvem!
I don't think that group is growing in size any more - rather it is shrinking, but somewhat slower than the actuaries originally estimated! The BBs are those who were born in the 20 years after the War (the Second for those who are challenged...). So, those between 40 and 60!
The number of pensioners is increasing because there are more arriving at 65 than are falling off their perch at t'other end.
You make a very good point though. Pass me that tin hat please....
The UK population is actually growing, although much of this from migration.
Other contributing factors behind the rise in house prices are (in no particular order):
- Increasing disposable income
- Increasing number of people living alone
- More 'buy-to-let' properties
- More people with a second home / weekend cottage.
Chances are that there will still be someone wanting to buy your house when you come to move out.
Litotes - we Baby Boomers (and I have slipped into that august grouping) should have noticed our shrinking numbers and I stand corrected!
As more and more slip over into 65+ and less are backfilling the gap that remains my point still remains, PassingBells. I should have qualified my scribbling by saying that affordability is clearly an issue for the younger generations. If they can't get on the ladder (and that is a fact) then there are less people climbing up the ladder to be able to afford the massive residences that some of the older generation now sit upon. The factors you attribute to house price rises are indeed true, but certainly not sustainable in my view.
There is an air gap between the two which may not be filled in time for the silver haired guys and gals to realise their life's work!
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