How Far Will House Prices Fall? [Volume 6]

[number2]

NickCQ said:

number2 said:

Why is it that some families get stuck in this vicious circle? If we had the answer of course...

Come on then, don't be coy, what do you think the answer is?

I don't, I can see how you interpreted my post that way but it was the opposite. There is no one answer, or solution.

House prices aren't it mind you. Neither a cause or solution.

This thread is focused on house prices and we discuss them, but there are wider issues at play when it comes to quality of life, welfare and wellbeing.

[s1962a]

For those who would want a straightforward crash, what do you think happens with market forces if that happened?

Imagine you have a £500k house (thinking of greater London), now reduced to £300k due to a big crash, you have the following who might be interested in purchasing it

- First time buyers
- Those waiting to buy once prices drop
- Small BTL investors
- Corporate BTL investors (those with a LTD company setup)
- Cash buyers
- Foreign investors (less likely to buy a property such as this)

If all or some of those chase these 'reduced' properties, the prices will naturally increase again due to supply and demand, so any 'crash' would be short lived. This would continue till the 'demand' reduces. A crash such as this might also reduce lending available (as per 2008/9) so it's possible richer cash buyers would win here.

The only way I can see prices naturally coming down to a more affordable state is to make properties less desirable as investments, and discourage 2nd homes - the BTL tax changes recently and increased tenant rights help with this, but LTD company structures seem to be able to get around the tax penalties.

[dmahon]

Francois de La Rochefoucauld said:

Emotive nonsense.

Could you expand? It seems to be the case that rich people are getting richer by owning lots/bigger/well located property, whilst people up to their late 30s are still living at home or renting. And the gap continued to widen.

From personal experience, I had a pretty st time renting and hated paying out half my salary for it for most of my 20s. Last year I made more than the average salary from rent and capital appreciation whilst sitting on my arse in the sun for most of it. Is that not a first hand example of wealth disparaty?

[NickCQ]

s1962a said:

If all or some of those chase these 'reduced' properties, the prices will naturally increase again due to supply and demand, so any 'crash' would be short lived. This would continue till the 'demand' reduces. A crash such as this might also reduce lending available (as per 2008/9) so it's possible richer cash buyers would win here.

The only way I can see prices naturally coming down to a more affordable state is to make properties less desirable as investments, and discourage 2nd homes - the BTL tax changes recently and increased tenant rights help with this, but LTD company structures seem to be able to get around the tax penalties.

I'm not sure the top bit holds (it's a slightly circular argument) but I think you are right on the second piece - reducing FTB affordability is not really a great idea but taking investment demand out in a way that doesn't push private rents too high is a winner.

[s1962a]

NickCQ said:

s1962a said:

If all or some of those chase these 'reduced' properties, the prices will naturally increase again due to supply and demand, so any 'crash' would be short lived. This would continue till the 'demand' reduces. A crash such as this might also reduce lending available (as per 2008/9) so it's possible richer cash buyers would win here.

The only way I can see prices naturally coming down to a more affordable state is to make properties less desirable as investments, and discourage 2nd homes - the BTL tax changes recently and increased tenant rights help with this, but LTD company structures seem to be able to get around the tax penalties.

I'm not sure the top bit holds (it's a slightly circular argument) but I think you are right on the second piece - reducing FTB affordability is not really a great idea but taking investment demand out in a way that doesn't push private rents too high is a winner.

The stamp duty holiday is a good example of supply/demand pushing up prices. It seems like a lot more people wanted to cash in on the stamp duty holiday and this had the effect of pushing up prices.

[NickCQ]

s1962a said:

The stamp duty holiday is a good example of supply/demand pushing up prices. It seems like a lot more people wanted to cash in on the stamp duty holiday and this had the effect of pushing up prices.

I was making a slightly different point. If the market price falls (not due to a policy distortion like stamp duty) then that's equivalent to saying supply and demand are balanced at that lower level. Obviously you need fundamental shifts in supply and demand to change the equilibrium / market price.

[MX-6]

dmahon said:

It seems to be the case that rich people are getting richer by owning lots/bigger/well located property, whilst people up to their late 30s are still living at home or renting. And the gap continued to widen.

I agree that there is some widening of inequality that is driven main by disparities in pay, which is then reflected into house prices. But as I mentioned previously, about two thirds of houses are owned by the occupiers in this country, which is historically a high proportion. The wealthy may be more so these days, but the houses they buy have risen in price accrodingly, there are some new build properties out there but generally the housing stock is mostly the same as it ever was in recent decades and owned by generally the same sort of people, it just costs more. It's only the super rich that have significantly more.

It seems to me that there are a lot of younger people out there with too high expectation, your 30 somethings, everyone seems to think they are middle class now because they when to uni and mum and dad have done well out of house price inflation and act a bit posh. The reason why house prices have inflated is there a lot of people all wanting to buy the nice houses in the nice areas, many younger people could afford shared ownership, HTB, or even ex-local authority flats and terraces but don't seem to want to. If they really can't afford any of these then they just don't have good enough careers, I don't think there was ever a golden age where everyone could afford to buy what they wanted.

[Shnozz]

s1962a said:

The stamp duty holiday is a good example of supply/demand pushing up prices. It seems like a lot more people wanted to cash in on the stamp duty holiday and this had the effect of pushing up prices.

I also think many happily overlook the (supposed) £58k increase of borrowed never never mortgage money to "save" £15k out of their pocket in cold hard cash today.

[kingston12]

MX-6 said:

generally the housing stock is mostly the same as it ever was in recent decades and owned by generally the same sort of people, it just costs more.

It's a good point and I think that this is another neat illustration that the advantage/disadvantage* that high house prices have in London/SE are not reflected in the rest of the country.

In London/SE it is definitely not the same sort of people buying the same type of housing stock as in previous generations. Just in my local area you could pay £800k for a small cottage built for manual workers or £1.3m for a standard semi built for skilled tradespeople. Neither of those groups are buying these houses now (although a few are still living in them).




*(delete as appropriate depending on your viewpoint)

[loafer123]

Joey Deacon said:

I have dipped in and out of that website for over 15 years, the thing is their arguments and use of past data is very convincing. However, what they have not foreseen is the lengths the government will go to keep house prices increasing

1)0.1% Interest rates.
2)Help to Buy.
3)Quantitative easing.
4)Stamp duty holidays.

So what you end up with is a website full of very bitter people terrified to buy a house just incase the prophecy is eventually correct. Some of them have been renting for a decade because they are so terrified of buying and prices subsequently dropping. All the while watching "crazy" friends and family buy a house, get on with life and not have to constantly worry about HPC. Then the slow realisation that they can't even afford to buy a house like the one their friends bought years previously.

What is funny is they get excited about the prospect of prices falling 10 or 15%. If this did happen it would only take prices back a few years, to the levels they were when the HPCers though they were too high and anybody who bought was crazy. Or they will try and use man maths to convince themselves renting is cheaper or that they have made more money out of Bitcoin than buying a house.

There are some posts about people who have bought houses, usually they came to the same realisation that you did. Yes it may be a rigged game, but I would rather be in the game taking advantage than getting screwed over.

I assume you keep quiet about have BTL property, they consider landlords the lowest of the low.

The big one is low interest rates, as affordability feeds through into prices.

Interest rates are actually largely outside government control and have been falling as an ageing population chases yield to pay pensions and inflation flat lines.

[ooid]

dmahon said:

From personal experience, I had a pretty st time renting and hated paying out half my salary for it for most of my 20s.

Isn’t that the 20s all about though? I spent most of my 20s on rent too, and had the best of my time really. Some great, some dick-head flat-mates , you do learn A lot...and complete freedom to make long term decisions on your career without having the mortgage stress. I rarely know people get their first property before 30, it is a rare occasion and quite early responsibility, unless it is investment or inheritance.

[gibbon]

MX-6 said:

It's sometimes easy to forget that for the vast extent of human history people led very simple lives, often agrarian, basic agriculture. I'm not sure everyone is cut out for high information, high complexity modern work and living.

We're living the uptopian free information dream whereby almost the totality of human knowledge is accessable via an incredibly well engineered, complex but cheap technological device that fits in ones pocket, aka the smart phone. In theory we could sit around reading about rocket science and brain surgery, but the fact is the majority seem to want to watch cat videos on youtube or argue about nonsensical trival on social media... Is it human nature or learned behaviour, probably something of both.

I've dabbled with the idea that we will need some kind of universal income in future to effectively support the poor, otherwise we could end up with some sort of neo-victorian wealth distribution, a society of haves and have nots...

A good post, thanks.

[anonymous-user]

MX-6 said:

I've dabbled with the idea that we will need some kind of universal income in future to effectively support the poor, otherwise we could end up with some sort of neo-victorian wealth distribution, a society of haves and have nots...

Isn't furlough almost an experiment into having a universal income? I know the central policy of Andrew Yang's presidential campaign was the idea of a universal income of $1000 a month for every adult in the USA.

What is clear is technology is rapidly replacing a lot of jobs, and these jobs tend to be done by lower skilled workers. Just look at what is happening on the high street, hundreds of thousands of jobs are being lost because of online shopping. This is only the tip of the iceberg, just think of the sorts of jobs that could be replaced in the coming decades.

As soon as driverless technology is perfected and they automate lorries this is going to lead to massive job losses. When AI improves this is going to lead to another massive group of jobs being lost.

People of lower intelligence and with no skills are eventually going to find it impossible to get a job, what are they going to do then? The only option for the government is a universal income and anti depressants.

[MX-6]

kingston12 said:

MX-6 said:

generally the housing stock is mostly the same as it ever was in recent decades and owned by generally the same sort of people, it just costs more.

It's a good point and I think that this is another neat illustration that the advantage/disadvantage* that high house prices have in London/SE are not reflected in the rest of the country.

In London/SE it is definitely not the same sort of people buying the same type of housing stock as in previous generations. Just in my local area you could pay £800k for a small cottage built for manual workers or £1.3m for a standard semi built for skilled tradespeople. Neither of those groups are buying these houses now (although a few are still living in them).




*(delete as appropriate depending on your viewpoint)

You're right about London/SE being an exception, what I said was a bit too much of a generalisation really.

Even where I work in Hert's there are those small 2 up, 2 down Victorian terrace cottages quite close to town that are over the £450k mark now (there's one for £475k on Rightmove). It must be young professionals who work in and commute to and from London that buy them, it's an old market town with some nice coffee shops, restaurants, etc. Come 20 miles north to Bedford and there are similar properties available for less than £200k in some areas (from about £185k), ones that people on minimum wage could afford.

What has changed is the type of work people do, there are a lot more people now who are graduates or otherwise educated who work in offices and less manual workers that you mention, but housing is still essentially the same as it has been for decades. So there seems to have been a downwards adjustment in what some graduate level employees can expect to be able to buy.

[ooid]

Joey Deacon said:

People of lower intelligence and with no skills are eventually going to find it impossible to get a job, what are they going to do then? The only option for the government is a universal income and anti depressants.

Like "Brave New World" ? any little upsetting situation, the citizens can just take a "soma" pill...

https://www.youtube.com/watch?v=As2sMgm0Szo

[BurtonLazars]

Joey Deacon said:

People of lower intelligence and with no skills are eventually going to find it impossible to get a job, what are they going to do then?

I agree with your general thesis, but just wanted to represent the viewpoint that this won’t happen. For sure there may be an equivalent of Thatchers coalminers around transport & logistics and it’s ancillary services, but there will be other jobs and industries created elsewhere.

[MX-6]

Joey Deacon said:

MX-6 said:

I've dabbled with the idea that we will need some kind of universal income in future to effectively support the poor, otherwise we could end up with some sort of neo-victorian wealth distribution, a society of haves and have nots...

Isn't furlough almost an experiment into having a universal income? I know the central policy of Andrew Yang's presidential campaign was the idea of a universal income of $1000 a month for every adult in the USA.

What is clear is technology is rapidly replacing a lot of jobs, and these jobs tend to be done by lower skilled workers. Just look at what is happening on the high street, hundreds of thousands of jobs are being lost because of online shopping. This is only the tip of the iceberg, just think of the sorts of jobs that could be replaced in the coming decades.

As soon as driverless technology is perfected and they automate lorries this is going to lead to massive job losses. When AI improves this is going to lead to another massive group of jobs being lost.

People of lower intelligence and with no skills are eventually going to find it impossible to get a job, what are they going to do then? The only option for the government is a universal income and anti depressants.

Yeah I broadly agree with what you're saying. Furlough seems to have been something of an initial look at the government supporting people in a way that goes beyond the various kinds of existing welfare payments.

I'm generally pro-capitalism and the power of markets, but they don't necesarily produce outcomes that are best for the poorer people in society, I think some form of universal income payment could be good to give a bit of balance. Obviously there is some moral hazard in paying people not to work but it would have to be set at a fairly substistence level, and obviously taxation would have to be set accordingly. If it were a flat payment to all adults you could do any with all the complications for different benefits, pensions, means testing, etc.

Relating things back to house prices, more equal incomes would lead to more equal house prices, and thus better affordability, you would think.

Maybe we should just put anti-depressants in the water supply, like we do with fluoride, catch all...

[BurtonLazars]

MX-6 said:

I'm generally pro-capitalism and the power of markets, but they don't necesarily produce outcomes that are best for the poorer people in society, I think some form of universal income payment could be good to give a bit of balance.

...and/or remove the corporate capture of the systems of government (particularly US) that has meant that we don’t have capitalism.

[fido]

dmahon said:

It seems to be the case that rich people are getting richer by owning lots/bigger/well located property

Depends what do you define as 'rich'? I live in a million pound house in a bland part of London which many people here would look down on (you know who you are!). [boiler_room]It's a weird thing to hear, right? I'll tell you, it's a weird thing to say. I'm a f*g million pound house owner.[/boiler_room] It's near a station so i can get to work (or did before the corona). I don't feel rich at all. It's just years of inflation - we are a relatively poor country! I don't know what salary you're on but it's worth half as much as it was a decade or so ago. It's all a fugazi .. it's a wazi .. revolutions ..

[okgo]

fido said:

Depends what do you define as 'rich'? I live in a million pound house in a bland part of London which many people here would look down on (you know who you are!). [boiler_room]It's a weird thing to hear, right? I'll tell you, it's a weird thing to say. I'm a f*g million pound house owner.[/boiler_room] It's near a station so i can get to work (or did before the corona). I don't feel rich at all. It's just years of inflation - we are a relatively poor country! I don't know what salary you're on but it's worth half as much as it was a decade or so ago. It's all a fugazi .. it's a wazi .. revolutions ..

You want details? Fine. I drive an Audi A3.