> > 'Rabbie' Pfeffers was wrong. The real root cause of the current housing
> > bubble is the era of cheap and easy available credit we have been
> > living through particularly in the past 4/5 years. The credit cycle is
> > now turning, cheap and easy borrowing is coming to an end and there
> > will be nothing left to prop up this bubble for much longer.
> Of course you weaken your arguments through your penchant for
> flamboyant language. Whatever the housing market is or is not the term
> bubble is not appropriate. Markets in general are characterised by
> variations in the prices of their underlying securities. In bubble
> markets prices rise sky high from a low base over a relatively short
> time and then crash back to their original base or even lower in
> shorter time still.
> Bubbles happen always because investors/speculators initially become
> persuaded that a security has more substance than in fact it has. For
> instance the fabled South Sea Bubble was based on nothing more
> substantial than a rumour. The more recent high tech bubble was based
> upon investment in projects that were often little more than ideas on
> paper housed in rented offices.
> I put it to you that your "housing bubble" shows neither of these
> charateristics.
> There can be surely no doubt as to the substance and utility value of a
> house.
> I suggest that if you look back to the late 50's when houses commonly
> changed hands for a few hundred pounds and owner occupancy began to
> become feasible for increasing numbers of ordinary people, that since
> then the price trend has been upwards. Of course there have been times
> when prices have fallen and will be again. It is rare however if it has
> ever happened at all that any price trough has been deeper than the
> previous one or that any peak is lower than any previous peak.
> Now to your point regarding interest rates. Credit usually in the form
> of mortgages enable most house sales. That is beyond argument.
> This being the case then clearly changes in mortgage rates are going to
> be reflected in house prices generally. Therefore if you are right in
> asserting that interest rates are about to rise, then it follows that
> there will be a downward pressure on prices.
> Where we argue is over extent. You seem to discount entirely mitigating
> factors that come into play given any fall in house prices.
> Sure, recent buyers are likely to find themselves in negative equity.
> So what?
> First consider the size of the owner occupied section of the national
> housing stock at around 70%. Negative equities will only make up a tiny
> proportion of these.
> In any case, being in negative equity does not mean you lose your
> house. So long as you maintain the payments on your mortgage, a roof
> remains over your head. Indeed negative equity can be seen as a
> disincentive to selling thus reducing supply of properties to the
> market. There would, on the face of it, seem no advantage in selling
> the roof over your head and still leave yourself with a portion of the
> original debt still to pay.
> These considerations of course don't apply to the rental sector. A
> renter might well decide to cut his losses and run.
> For every rented house there are 2 owner occupied properties. This
> includes local authority and housing association properties that are
> unlikely to be affected by these considerations. Disenchanted private
> renters would lose not only any possible equity loss but also rental
> income during the time the property stood, by your scenario, on a
> market depreciating in value.
> > > So long as these tendancies continue, there will always be an upward
> > > pressure on house prices. In the meantime, to be sure, there will be
> > > peaks and troughs as economic conditons change so that more or fewer of
> > > us,as the case may be, can realise our aspirations in this respect.
> > Long term the trend for prices is up of course but after the boom comes
> > the bust and the next 5 years or so will see heavy downward pressure on
> > prices which will have a severe knock-on effect on the rest of the
> > economy particularly retail.
> There does seem a mood around that folk have been drawing on the
> enhanced value of their houses to find cash for purchases. Whether this
> is generally real or apparent is another matter. Let's assume for the
> sake of argument that the impression is true.
> Initially it makes no difference. The borrower has taken on his new and
> increased commitment and his presumably happy and comfortable with his
> new outgoings on the assumption that there will be no change in
> cirumstances. It therefore all depends upon how an economic downturn
> will effect employment.
> Unemployment tends to hit disproportionately the young (who are
> entering employment or completing training programmes) and the old (who
> are reaching the ends of careers and are more amenable to redundancy
> offers, early retirement etc.) It is less likely to hit the skilled,
> the better paid who are half way through their careers. The very people
> who tend to be mortgagees. Even if they are unfortunate, redundancy
> payments coupled with welfare benefits tide most of them over for quite
> a while. Such people tend not to remain unemployed for ever.
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