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| The UK housing market: a bubble about to burst? |
For Hoogstraten?
by The RealFakeElvis
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#1001467
of 3278
 11 Dec 2002
07:25 AM |
"so inflation only “bails out” the holders of debt in a trivial manner, because this erosion of debt will be offset by higher affordability in interest costs!"
I don't understand. Now high inflation then higher interest rates mean greater affordability? |
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The Resurrection of Lord Haw Haw – Broadcasting from Down Under
by Hoogstraten
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#1001466
of 3278
11 Dec 2002
03:06 AM |
I have realised that I need to continue contributing to this forum, if for no other reason that it is always therapeutic to read the miserable doom mongers, because one better appreciates how lucky you are! The madness of the doom mongers reminds me of a quote by Fredrich Nietzsche:
“Madness is rare in individuals-but in groups, parties, nations and ages it rules.”
That the doom mongers are also gamblers, there is no question – it is like Late Night Poker. Occasionally on this show, extremely poor players turn up. They sit there for the entire show; unable or unwilling to make a bet. In the end, they are wiped out by the rising antes! This is what the doom mongers are doing – what a gamble!
KIP says:
“so some people of this forum disagree that houses are overvalued & will fall. So if you don't believe this, what do you believe…Hey you've read my predictions and I've provided my arguments. 40-50% falls by end of 2003.”
Nietzsche says:
“Belief means not wanting to know what is true.” (The Anti-Christ, 1889) or
"A casual stroll through the lunatic asylum shows that faith does not prove anything."
KIP says:
“…some economic theory would be nice to back it up too. I'd like to see where all this money is gonna come from. Money illusion, try the worlds biggest magic trick ever!”
Again, the rain dancers are in trouble, so again in the spirit of altruism I will guide the weak as to what they are arguing in economic terms.
In the past, the doom mongers have argued that property prices are going to collapse because of deflation (like Japan in the 1990’s or the Great Depression). Now, the argument has shifted, to say that what we need to save property prices is massive inflation!
Martin Wolf, in an article in this FT rag provided a particularly embarrassing example of money illusion (being unable to distinguish between real and nominal prices). He thought that this alleged property collapse would be much worse than the last, because property owners would not be “bailed out” this time by inflation.
The Phillips Curve (a Post-Keynesian idea) showed a trade-off between unemployment and inflation. However, the problem that emerged with it in the 1970s was its total inability to explain unemployment and inflation going up together – stagflation. According to the Phillips Curve they weren't supposed to do that, but throughout the 1970s they did!
Milton Friedman then put his mind to whether the Phillips Curve could be adapted to show why stagflation was occurring, and the explanation he came up with was to include the role of expectations in the Phillips Curve - hence the name 'expectations-augmented' Phillips Curve.
Friedman argued that there were a series of different Phillips Curves for each level of expected inflation. If people expected inflation to occur then they would anticipate and expect a correspondingly higher wage rise. Friedman was therefore assuming no 'money illusion' - people would anticipate inflation and account for it.
Friedman’s analysis effectively shows that higher inflation will cause higher nominal interest rates, so inflation only “bails out” the holders of debt in a trivial manner, because this erosion of debt will be offset by higher affordability in interest costs! Martin Wolf’s belief that inflation is a free lunch, reducing everyone’s real debt levels at no cost, makes me think his economic credentials were found at the bottom of a Weetabix packet!
FT Monitor – I would much appreciate it if you could forward this to Martin Wolf, so we can get rid of this Post-Keynesian drivel that the FT is inflicting on its readership. I expect Martin Wolf to publish a full and frank apology in the FT shortly regarding his outdated Keynesian ailments – shock therapy of remedial catch-up Monetarist theory is clearly required to cure him of his socialist leanings.
A message to the self-styled Stalinist Zorro:
“A single death is a tragedy, a million deaths is a statistic.”
Joseph Stalin (Man of Steel)
And a message for CoCo or JoJo about “ego posting”
“Whenever I climb I am followed by a dog called 'Ego'."
Friedrich Nietzsche (1844-1900)
Last words must be by Nietzsche, which describes the obscure timid doom mongers quite well:
"Whoever knows he is deep, strives for clarity; whoever would like to appear deep to the crowd, strives for obscurity. For the crowd considers anything deep only if it cannot see to the bottom; it is too timid to go into the water." |
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Brighton
by MutzNutz
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#1001465
of 3278
11 Dec 2002
01:51 AM |
Quote from a local free lifestyle mag '3SIXTY' Dec 2002
It's not all doom and gloom for would be buyers. According to several media reports of late, the market in Brighton has started to cool since the summer. Those buyers that remain are becoming picky, viewing several houses before making an offer and pitching their offers well below the asking price. Sellers are on average, getting just 92% of the asking price, far below the national average.
Brighton was one of those post codes where a lender broke ranks some months ago and applied a LTV restriction. I wonder why. |
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by Monitor_CS
FT Administrator  |
#1001464
of 3278
10 Dec 2002
07:33 PM |
Knowledge is Power - you are welcome to post your thoughts at New Forum Suggestions; please note that monitors do not generally create topics (with the exceptions of the 'pub' and feedback areas.)
Thanks. |
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Kipper, more like a Red Herring!
by Knowledge is Power
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#1001463
of 3278
10 Dec 2002
06:56 PM |
Wow Kipper, that was almost an apology. Careful now!
Hey you've read my predictions and I've provided my arguments. 40-50% fall by end of 2003. If I'm wrong, oh well, if I'm right, then I feel for those about to get hurt.
Personally, my complaints are with the Government, not with this forum. This is a source of information and knowledge, and I have enjoyed reading posts from around the world. Different viewpoints they maybe, but valid none the less.
So what’s your view then Kipper, what do you think will happen? Growth, stagnation, prey do tell.
As for your predictions, perhaps my memory is failing me, as I can’t remember you making any. Or perhaps it was under a different name...
FT Monitor.
In the interests of making this a more liberal debate, perhaps you would do me the honour of creating a new forum, with a slight change to the voting structure. At present, the votes have a BoE bias, and this I fear may impact upon peoples choice & votes. I would suggest the following categories for voting instead:
1. House prices have further growth & will continue to boom over the next few years.
2. House prices will slowly stagnate.
3. House prices have boomed, and are about to bust. |
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Kippers for tea?
by Rik
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#1001462
of 3278
10 Dec 2002
06:32 PM |
Unfortunately Kipper, I do not have access to figures of how many properties have become disused over that period due to being unfit for habitation. i can tell you that approx 82,000 properties were constructed in the same period but without knowing how many have become uninhabitable that figure doesn't really prove anything apart from the fact that the area would need to have lost more than that from the market to make your arguement stand up. If you can provide those figures I would be genuinely interested (not trying to get one over) to see them.
Secondly, on the job front, does this mean that lots of northerners will be packing their bags and shipping off to Bombay as that seems to be a big growth area for British business right now! |
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Its cold up north
by KIPPER
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#1001461
of 3278
10 Dec 2002
06:01 PM |
"Figures from the National Statist office show that from the period 1991-2001 the population of the North East went down by 3.3% HOWEVER, they also show that between 2000-2001 property prices in that region went up by 7.9%. Less people, more houses to go round but more expensive"
Thats true, and the fact is that it's due to the level of disused housing. I know someone who's bought houses in Newcastle for 5k each. The only pre requisite of the sale is make the properties inhabitable again.
Im not sure what you believe you have proved, well my point for a start. Si has already discussed the ripple effect, I won't tread old ground. |
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Rik Head
by KIPPER
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#1001460
of 3278
10 Dec 2002
05:56 PM |
"As the average home in the south is a lot more than this I fail to see why the average person in the north is going to migrate south."
Jobs, dear boy, jobs! Look at the figures Liverpool, for example, is falling 10% every 10 years.
"Unless of course London's streets really are paved with gold, last time i was there they were paved wit chewing gum and flyers for golf sales."
One mans trash is another mans treasure. We ship that stuff up north, they use it to feed racing pigeons I believe. You got any? |
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KIP's FLIP
by KIPPER
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#1001459
of 3278
10 Dec 2002
05:47 PM |
You've made your statement, that is true. You were wrong last month and the month before. How many months do you hae to be wrong before you admit defeat? I presume you will rain dance until the you get some luck.
Well good luck, you may well be living with your parents for a long while.
I've also made my prediction and so far, as the last 2 months have proved, I'm right on the money. |
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Nice one Rik!
by Knowledge is Power
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#1001458
of 3278
10 Dec 2002
02:17 PM |
That is exactly what I've been trying to say, thank you for your input.
Rik, same with Australia, even though Syndey is a special case, how much land do you need to build houses!
Ok,
so some people of this forum disaggree that houses are overvalued & will fall. So if you don't belive this, what do you belive? What is the outlook over the next 12/24/36 months?
I've made my prediction, why don't you too. We'll see who's right in the end!
ps: some economic theory would be nice to back it up too. I'd like to see where all this money is gonna come from. Money illusion, try the worlds biggest magic trick ever! |
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Figures that prove...
by Rik
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#1001457
of 3278
10 Dec 2002
02:10 PM |
Just to enforce the point you are making KIP, here is an extract from an article from todays Telegraph...
Money is cheap because inflation, on the approved measure, is close to the 2.5 per cent target set by the Chancellor. Rather than include house prices, this measure covers housing costs as a whole, which average about 10 per cent of the cost of living.
For anyone trying to buy in southern England, the idea of finding anywhere suitable that takes only a 10th of their income is a poor joke. The experts at the Bank of England have noticed, and are starting to ask whether we are really measuring inflation the right way. A measure that included house prices would be well beyond 2.5 per cent, and the Bank would be raising interest rates to reduce the heat.
Lets hope this settles the arguement.
And on the subject of arguement settling...
Figures from the National Statist office show that from the period 1991-2001 the population of the North East went down by 3.3% HOWEVER, they also show that between 2000-2001 property prices in that region went up by 7.9%. Less people, more houses to go round but more expensive.
Therefore, it is not supply and demand.
For those wishing to check my figures here are the links...
http://www.statistics.gov.uk/STATBASE/Expodata/Spreadsheets/D5927.xls
http://www.statistics.gov.uk/census2001/downloads/91change.xls
Thanks |
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Kipper what is your argument?
by Knowledge is Power
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#1001456
of 3278
10 Dec 2002
01:22 PM |
Kipper,
Check out Page 42 of the MPC's Inflation report:
http://www.bankofengland.co.uk/inflationreport/ir02nov.pdf
It states;
“The Harmonised Index of Consumer Prices (HICP) measure of inflation rose by 0.2 percentage points to 1.1% in the year to Q3. What accounts for the 0.9 percentage points difference between HICP and RPIX inflation in Q3? RPIX and HICP measure the average price of a basket of goods and services. The formula used to add together the prices in the RPIX measure is different from that used in the HICP index.(1) This ‘formula effect’ accounts for much of the persistence in the gap (see Chart 4.13). The factor that explains most of the current differential is the inclusion of housing costs(2) in RPIX but not in the HICP, and recently house price inflation has
been particularly strong (see Section 1).”
CHECK IT OUT IT’s WORTH A LOOK!
Let me try to explain the intricasies of this to you Kipper;
THE BOE USES THE RPIX AS THE MAIN MEASURE OF INFLATION.
"RPIX (all items RPI EXCLUDING MORTGAGE INTEREST PAYMENTS) is the main economic measure used by HM Treasury and the Bank of England."
RPIX DOES NOT INCLUDE HOUSE PRICE INFLATION & OTHER ASSOCIATED HOUSING COSTS – MORTGAGE REPAYMENTS.
The MPC look at house price inflation only interms of the overall economy, and this is something that Eddie George has stated on many occasions. However, House price inflation is distorting the inflation figures & by concentrating on the RPIX I am concerned.
My opinion, far more emphasis on the RPI & HICP is needed. The BoE’s remit (set by Labour) needs updating – as it is insufficient for the BoE’s purposes.
Illusionary money;
Ok Kipper, do you care to comment on 6% of GPD being debt funded MEW. Or on MEW in general, or how about our massive trade deficit. No, let’s talk about Government borrowing, or the fact that Mr Brown feels happy to push the UK into excessive levels of Debt. The IMF doesn’t agree, infact they predict lower growth than the Treasury. So, with industry 0.1 points away from recession, keep spending guys, the price of goods is falling nicely and there’s more people loosing their jobs each week. Go on, re-mortgage that house, it’s worth it - that new DVD player is just so cool! Go on guys keep buying, keep propping up the UK economy & keep those debts high. Illusionary money… well there’s plenty to go round! |
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and...
by Rik
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#1001455
of 3278
10 Dec 2002
01:10 PM |
Jack,
to quote once again from the article...
"The price of an average home is already £101,000, out of reach for an average wage-earner on £23,600 a year. A forecast last week suggested prices might treble by 2020. "
As the average home in the south is a lot more than this I fail to see why the average person in the north is going to migrate south. Unless of course London's streets really are paved with gold, last time i was there they were paved wit chewing gum and flyers for golf sales. |
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To Clarify....
by Rik
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#1001454
of 3278
10 Dec 2002
01:05 PM |
OK, to clear up a couple of points, firstly, Jack, of course I read the article, otherwise how could I have quoted from it, do you see?
Secondly, I am aware that it referred to the north and that there are lots of empty houses up there... does that mean that people will keep moving south forever? Will the north end up like some post apocolyptic wasteland while the south becomes a gian urban metropolis? Most of the recent job losses have been in the south haven't they so people won't be moving here for the jobs, will it be for the accents?
Thirdly, comparing a house to a computer is really nonsence. I was not aware that revolutions in the housing market meant that in 2 years a semi detached house was considered obsolete.
Finally, I was not stating that there was a shortage of high end houses, I am more than aware that the top end of the market is the one suffering the most. my point was that people's expectations are much higher. There has to be less houses than households or there would be no building industry. My point was that there are plenty of empty houses, its just that people don't want to live there. Hence my example house which sounds like somewhere nice to live.
I will include an instruction manual with my next post! |
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RPI & Inflation
by Andy B
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#1001453
of 3278
10 Dec 2002
01:02 PM |
Just to help with the debate -
RPI X excludes mortgage interets payments RPIY includes them.
The weighting on the index is based on expenditure - not capital values. So just because house prices go up say 25% - does not mean everyone has to pay an extra 25% on their mortgage! Only those moving up the ladder get impacted by price rises.
And the figures are not that 'Stupid' since the Indicies takes into account the cost of maintaining houses and will also take into account lower mortgage costs.
It seems to me that these indicies could have been designed by someone as sensible as Jeff Morgan.
Jeff has consistently argued that house price inflation only impacts on those conducting a transaction - this is the basis of the different RPI calculations.
Regards,
Andy. |
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