I live in Hove, East Sussex. I rent a tiny (but OK) one bedroom flat for £625 per month. I have just looked around 3 similar flats, in similar streets. The cheapest is on the market for £145,000. The best mortgage I could get would be £18,000 down payment and then fixed for three years at 6.99% being £850 per month. Can someone please tell me why I would rather pay £225 more per month to live in a similar flat to my rental, and have to 'invest' £18,000 which in the bank would still make me a bit of interest? There is no way the housing market is fully deflated at this level of difference between rental and mortgage affordability.
"Once we get back to a stable 10-20% pa price inflation, the ecomony will do just fine. "
You are being sarcastic I take it? The only metric which matters is wages. Without real wage growth any inflation in prices will kill the average Joe. A decade ago people used to talk about wages. The last 10 years it has all been about access to credit (debt). There is not a monkey's chance in a blender that anything good can happen in the economy if wages are static at best, or actually falling. Wages, and the resultant affordability, is the whole ball game.
No, it is affordabililty that matters. The Bank of England has told us that rates will be held at 0% for years. Mortgages will soon get cheaper and cheaper as things recover and the fear lifts.
Average joe will be able to afford the interest of a £400k mortgage at 2%. And he will go out and borrow that amount if thats what he needs to buy a place to live.
Yes, without income rises there is a ceiling but in this new era of 0% rates there is still a lot of headroom.
I think the recession really starts about 12 months after the government starts paying back what they owe. House price (and stocks) analysis is meaningless when the economy is being flooded with up to 200bn of QE money and debt levels are being maintained.
Ah, but we get a new government next year. And once that inflation gets going, up will have to go the interest rates to choke it. And that mortgage on the £400 grand our man borrowed will see his house repossessed.
The market is artificial. The volumes are low, those who are getting mortgages are probably not average citizens who fear for their jobs or are not getting overtime. So I wouldn't allow a couple of months of wishful thinking by vested interests ( banks and estates agents ) get you all hot under the collar about missing the next wave of houseprice bubble.
The prices are not back to long term trend yet. Not to median earnings. See the entries of August 6/7 on this blog.
Bob, hang on, your rent will deflate soon enough.Rents are falling in the US, the reason they're not falling here just yet is Housing Benefit, it's putting a floor under the price.
Government debt is going parabolic, the civil service is drawing up plans to cut public spending by 30%, this will include Housing Benefit.
SlumLord: The Bank of England have no control over interest rates, it is incredible how many people do not understand this fact.
Sell? God no! The UK is a slum lord's paradise under this government. Not only are they keeping rents at artificial levels but house prices too.
And who pays for all this intervention? Taxpayers! And what a bill! I would estimate that 30% of income tax revenue goes straight into pockets of people like me,
All governments will back property because a lot of silly voters (those that only own the home they live in) love thinking they are getting rich by doing nothing.
90% of estate agent window shoppers are not potential buyers or sellers, but people who live near by and want to see that their house is worth £££.
With govt borrowing going up and GDP going down, I think the last part of that graph is pointing in the wrong direction. I'd like to be opimistic, and I hope will all end well.
With falling productivity, falling tax returns and more people out of work and on benefits there is only one way that graph is going for the next few years!
Between 1964 and 2007, the UK fiscal deficit averaged 2.7 percent of GDP. Some years it was higher, others it was lower. 
Indeed, and please bear in mind that reassuring downturn in 2011-12 is just an aspiration. It may never happen.
ReplyDeleteAnd there are more people now to share the GDP between.
ReplyDeleteQuick note about housing prices:
ReplyDeleteI live in Hove, East Sussex. I rent a tiny (but OK) one bedroom flat for £625 per month. I have just looked around 3 similar flats, in similar streets. The cheapest is on the market for £145,000. The best mortgage I could get would be £18,000 down payment and then fixed for three years at 6.99% being £850 per month. Can someone please tell me why I would rather pay £225 more per month to live in a similar flat to my rental, and have to 'invest' £18,000 which in the bank would still make me a bit of interest? There is no way the housing market is fully deflated at this level of difference between rental and mortgage affordability.
Bob
The most important thing is that the banks have the cash to fuel the engine of the economy - the housing market.
ReplyDeleteOnce we get back to a stable 10-20% pa price inflation, the ecomony will do just fine. (well my local Porsche dealership will do anyway!)
"Once we get back to a stable 10-20% pa price inflation, the ecomony will do just fine. "
ReplyDeleteYou are being sarcastic I take it? The only metric which matters is wages. Without real wage growth any inflation in prices will kill the average Joe. A decade ago people used to talk about wages. The last 10 years it has all been about access to credit (debt). There is not a monkey's chance in a blender that anything good can happen in the economy if wages are static at best, or actually falling. Wages, and the resultant affordability, is the whole ball game.
Annon at 17:41
ReplyDeleteNo, it is affordabililty that matters. The Bank of England has told us that rates will be held at 0% for years. Mortgages will soon get cheaper and cheaper as things recover and the fear lifts.
Average joe will be able to afford the interest of a £400k mortgage at 2%. And he will go out and borrow that amount if thats what he needs to buy a place to live.
Yes, without income rises there is a ceiling but in this new era of 0% rates there is still a lot of headroom.
I think the recession really starts about 12 months after the government starts paying back what they owe. House price (and stocks) analysis is meaningless when the economy is being flooded with up to 200bn of QE money and debt levels are being maintained.
ReplyDeleteAh, but we get a new government next year. And once that inflation gets going, up will have to go the interest rates to choke it. And that mortgage on the £400 grand our man borrowed will see his house repossessed.
ReplyDeleteThe market is artificial. The volumes are low, those who are getting mortgages are probably not average citizens who fear for their jobs or are not getting overtime. So I wouldn't allow a couple of months of wishful thinking by vested interests ( banks and estates agents ) get you all hot under the collar about missing the next wave of houseprice bubble.
The prices are not back to long term trend yet. Not to median earnings. See the entries of August 6/7 on this blog.
Bob, hang on, your rent will deflate soon enough.Rents are falling in the US, the reason they're not falling here just yet is Housing Benefit, it's putting a floor under the price.
ReplyDeleteGovernment debt is going parabolic, the civil service is drawing up plans to cut public spending by 30%, this will include Housing Benefit.
SlumLord:
The Bank of England have no control over interest rates, it is incredible how many people do not understand this fact.
BinMan
ReplyDeleteHousing Benefit putting a floor under rents...I can vouch for that!
Crappy 2 bed dumps in Gateshead (a bigger dump) which were changing hands for £15k 10 years ago, quailfy for £97pw HB. Gold mines!
The Slum Lord 2010: "The Bank of England has told us that rates will be held at 0% for years."
ReplyDeleteTried getting a 0% loan from the Bank of England lately? Good luck.
The banks on the other hand, well, you might get a loan for upward of 6%.
Of course ymmv.
Slum Lord 2010: "quailfy for £97pw HB. Gold mines!"
ReplyDeleteSo, you are not proposing to sell these properties then?
APL
ReplyDeleteSell? God no! The UK is a slum lord's paradise under this government. Not only are they keeping rents at artificial levels but house prices too.
And who pays for all this intervention? Taxpayers! And what a bill! I would estimate that 30% of income tax revenue goes straight into pockets of people like me,
All governments will back property because a lot of silly voters (those that only own the home they live in) love thinking they are getting rich by doing nothing.
90% of estate agent window shoppers are not potential buyers or sellers, but people who live near by and want to see that their house is worth £££.
great article. Its always good to get a perspective from across the pond
ReplyDeleteWith govt borrowing going up and GDP going down, I think the last part of that graph is pointing in the wrong direction.
ReplyDeleteI'd like to be opimistic, and I hope will all end well.
boiling frog: "I'd like to be opimistic, and I hope will all end well."
ReplyDeleteBut be realistic and prepare for the very likely fact that it will not.
Anon @ 00:10 "likely fact that"
ReplyDeletelikely probability perhaps?
They will partly pay it back in blood money. Darling is off to a great start.
ReplyDeleteWith falling productivity, falling tax returns and more people out of work and on benefits there is only one way that graph is going for the next few years!
ReplyDelete