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About LinkBacksOnce property prices drop to a realistic level, about 50%, the market will pick up.
Trying to keep the bubble going is madness.
Once property prices drop to a realistic level, about 50%, the market will pick up.
Trying to keep the bubble going is madness.
Humans, the only animal stupid enough to pay to live on the planet Earth.
I hope the market continues to slide, gradually across 3 or 4 years taking prices down to the reasonable levels they were at before the 'boom'. The government should have acted on the housing situation in this country long ago but didn't.
If new houses had been built at a reasonable rate (and been protected from being bought by fat cat landlords), immigration controlled properly (I'm not saying we should stop immigration, far from it, just limit the rates to what the country can support) and mortgage lending regulated properly, including buy-to-let mortgaging, then we wouldn't be in the mess we're in now.
But no, the government liked the housing prices rising, no matter how many young first time purchasers were priced out. Rising house prices kept the economy growing (not saying that's a bad thing but I think it's more important that people are able to pay a fair price to put a roof over their heads) and made home/land owners property worth a lot more. A lot more than it really IS worth. The government doesn't give a damn about anything but getting votes and keeping power (no government ever does though so this isn't really a knock at labour) so they do things that make the social groups that actually vote happy. And, as we all know young people simply do not vote in significant numbers and therefore the plight of first time buyers isn't that important.
So a continued housing slump will be beneficial to this country and a 1-4% reduction in price by removing stamp duty shouldn't entice anyone to buy a house, it's just a stupid time to do it. As for those facing negative equity, I really feel the government should help them out. People forced to buy in a falsely inflated market should be compensated. Unless they were people buying multiple properties simply to make huge profits. They contributed to the housing problem and should be left to deal with their own mess.
Last edited by Emirzan; 08-08-2008 at 01:59 AM.
I find myself feeling a bit sorry for the government, and that is a REALLY weird feeling.
As I understand it, this is a media-hyped story, and nothing more, fuelled by journalists asking questions they KNOW Ministers won't (or can't) answer, and then twisting that refusal to answer.
It goes like this :-
- Builders groups want Stamp Duty abolished, or a holiday announced, to kick-start the market, or at least, reduce the size or duration of the slump, so they propose the government should do this. Of course builder's representatives want this - their members profit margins are suffering.
- The Chancellor, in response to a question, says they're consider "a range of options", but no decisions have been made
- He's then asked to rule in, or rule out, action on stamp duty. What part, exactly, of "no decisions" do stupid journalists not understand?
It's a cynical and manipulated media ploy to create a story, and it's done by asking unanswerable questions. Of course the government are considering stamp duty. They'd be mind-numbingly irresponsible not to be thinking about it at the moment. But that doesn't mean they'll do it, or won't, and it doesn't say when, either. The builder's industry reps proposed it, and Chancellors don't generally make tax announcements on the fly. So they're damned if they say they're considering it because everybody will hold off, and they're damned if they say they aren't (because then they've ruled it out without considering it), and they're damned if they refuse to answer because then they're refused to rule it out which is distorted into implying they're considering it, which triggers people that might have bought or sold putting plans on hold, thereby further depressing an already depressed market.
And for what? Stupid, irresponsible journalism.
I like it. Infact I like it a lot, it's sig worthy! Maybe at iranu's 3k revamp.Originally Posted by TheAnimus
One of the things that has been raised is; at what date will this potential reduction/waiver in stamp duty start? The budget is in September so why is this being leaked/announced/waters tested, now? I'd be really, really annoyed if I bought a house in late August only to find that if I had deferred a month I'd have saved "X" amount through a stamp duty waiver.
This whole scenario just goes to show that Labour, in this current disguise, have absolutely no idea of people, their behaviour, inspiration, aspiration, thinking, value for money... oh I could go on. This is not some policy that can be pushed out into the media in order to test the waters to see if a policy is popular. This directly affects people NOW. It's roughly the same as the VED tax fiasco. It's been announced, but now it's under review (and rightly so) however, we expect competent government so we know where we stand.
This episode is just more evidence that, whilst the government might be thinking along the right lines, they have no control over their delivery or they are inept at understanding what effect their statements will have on the market, which currently will be; defer until after the budget. This will temporarily depress the market further in the short term when the government's aim is the latter.
These people are muppets and that is being unkind to Jim Henderson.
"Reality is what it is, not what you want it to be." Frank Zappa. ----------- "The invisible and the non-existent look very much alike." Huang Po.----------- "A drowsy line of wasted time bathes my open mind", - Ride.
Why? If they hadn't allowed house prices to spiral up to such stupid levels they wouldn't be in this predicament. It's entirely their own fault and they deserve no sympathy whatsoever.I find myself feeling a bit sorry for the government, and that is a REALLY weird feeling.
Their fault is in letting us conduct business as we wanted. If they prevented that then everyone would just be moaning about having such a restrictive government and the resulting crap economy.
It's more local councils have that caused house prices to spiral - and the majority of them are Tory controlled.
But really, this problem is entirely of our own making. If people weren't so keen to keep their own house prices high (NIMBY) or had some level of financial prudence then this situation wouldn't have occurred - local councils just reflect the will of their voters in that respect.
Errrr, how do you come to the conclusion that government at a local level has influence over house prices? Central government imposes targets for new affordable housing.
And as for most of them being conservative controlled, well that's only been true since the most recent council elections. And the problem in the housing market has been caused by various factors going back nearly a decade.
Bit of a broad statement, don't you think? Clearly true of some, but equally there are many who are debt-free and have savings. In fact, regular saving used to be a part of everybody's financial planning; unfortunately, a decade of cheap - some may say, excessively cheap - credit has given rise to the 'have it now' generation, where saving was seen as 'old fashioned' and 'affordable' meant 'I can meet the monthly repayments'. Some clearly thought this would go on forever, hence the house price boom - 'housing can only ever go up in value'. Others had sufficient wisdom to realise that housing was overpriced, and kept out of the market.Nobody has any savings and everyone is up to their neck in debt.
Now, the party's over. Cheap credit has gone forever, and if you want something you have to save for it - and a jolly good thing too, IMHO. A lot of people have been badly burned and will have to live with negative equity for a long time, but it was their decision to buy when they did and we shouldn't shed tears for them - they've learned, the hard way, the same expensive lesson that the previous generation learned in the last housing price crash of the 1990's. House prices look likely to keep falling for some time to come and if the IMF are right, will probably drop 30% from their 2007 values; the lack of available mortgage funding will help this slide to continue. As far as building more houses is concerned, there are already 700,000 empty properties in the UK, so it's not lack of supply that is the problem.
I genuinely feel sorry for Brown he only did what nearly every other Western government chancellor did...
I'm talking about this particular story, which is an artificially and irresponsibly created story. That, I have some sympathy with them for, and what's more, I'm angry with the journo's responsible for it, because this kind of stupidity risks making an already bad situation worse.
As for the general situation with house prices, well on that I utterly agree with you. Gordon Brown's much self-publicised "prudent" handling of the economy is utter hogwash, and I've been saying that for years.
Personally it's not a problem for me. I bought a house 2.5 years ago, and you know what? I don't care if the price falls so it's 'worth' less than I paid for it. It's not an asset, it's my home, where my family live. Even if you're considering value, over time the price of the house will rise again.
One final thing to consider it that it is naive to think that exactly the same house will be x% cheaper in x amount of time. The average might drop, but I bought the house I wanted at a price I could afford.
I think what he means, and he has a valid point, is that it's largely local councils that are responsible for building, or not building, social housing, and for control of planning approvals, and that has an impact on the supply side of the demand/supply equation.
Arguably, the main reason house prices have been high is the lack of supply.
It is, of course, much more complex than that. That's a factor, but in my view, a bigger one is that expectations have changed over the last few decades, and this is clearly evidenced by the statistics showing the degree of private home ownership. Far more of us now own our own homes, albeit often with a mortgage though even that is slowly declining. But the mood has changed, and it's now probably the single biggest aspiration and indeed expectation of most people to own their own home.
In my view, though, the single biggest factor responsible for the housing boom has undoubtedly been the freedom of banks to offer ever-larger mortgages. Interest rates at pretty low levels have helped hugely, as has banks being willing to offer not only no-deposit mortgages, but even up to 125% of the equity, and at up to 5x or even 6x or salary. And that was a self-feeding spiral, because it encouraged people to take out mortgages that were only feasible because the house price inflation trend was expected to continue to rise, while at the same time, it was these lending practices that allowed it to do so.
But he didn't.
Firstly, he allowed the banks to get away with that, and the government does, after all, provide the regulatory framework within which banks operate, and it is very definitely the Chancellor's job to control that. If the Chancellor wants to reign in the banks, he can change to ratios of reserves to debt the banks have. Increase that, and they have to curtail lending. There are several mechanisms the Chancellor could use, but he used none of them.
Why?
Because it suited Brown to have things the way they were. It suited him to have massive house price inflation for quite a long time. Oh, it got out of hand, and absolutely price levels became a hot potato, but by the time he worked that out, it was too late. And it suited Brown for several reasons. One was the levels of stamp duty revenue he received. Look both at the levels of revenue from SDLT before he came to power and since, but also look at the proportion of houses coming into the tax bands at all, and at which bands houses come into. The thresholds, and bands, have not come anywhere close to keeping up with house price inflation. For instance, my first house could have been double the price it was and still not been subject to stamp duty. Now, however, not only is it in the stamp duty bands, but it isn't even in the lowest band.
It also hugely benefited the Chancellor because the fact that people's houses were going up hugely every year, and appeared to have every likelihood of continuing to do so for the foreseeable future, meant everyone felt far wealthier than they actually were, and that encouraged people to take ever-increasing amounts of personal, non-mortgage debt on, and to spend it. Whether that spending was on cars, holidays, DIY improvements, high-tech gizmos, fashion or whatever, every time that money gets spent, the government get their chunk of it from VAT and from Corporation Tax.
It's that tax revenue that's been funding Brown's much-vaunted economic prosperity, and it's based on a foundation of ever-increasing personal debt. He's also borrowed heavily and used reserves, and he's then indulged in a hugely cynical public-private finance scam that puts the tax-payer into hock for several decades to pay for his spending program, while also giving him the option to claim that he's keeping borrowing under control by sticking vast sums through these mechanisms that don't fall into conventional government definitions of spending.
So no, he hasn't done what nearly every other Western Chancellor or finance minister has done. He's actively encouraged millions of people to spend (and borrow) their way into huge personal debt, while borrowing the government (and hence the taxpayer) into huge levels of debt, and at the same time, making huge off-balance sheet commitments too. And while he's been doing it, he's been arrogantly blowing his own trumpet about how "prudent" his economic management is. Utter hogwash.
M0nkeyb0Y, just about anyone could have lived high on the hog over the last 10 or 15 years. We could all have spent ourselves stupid, but it would have been based on borrowing. We could have re-mortgaged our homes and spent the equity. We could have max out our credit cards, and solved that by getting new ones. What's more, quite a few people did. And they did because of the illusion of prosperity created by house prices, and because Brown personally oversaw the system that let them, and did nothing about it, despite it being his job to do so.
Any household can spend far more than it earns by borrowing. For a while. But sooner or later, that bubble bursts, and when it does, it's going to be painful for that household. Or country.
Quite right. The "value" of the house is only really an issue if you're downsizing, moving to a much cheaper area or emigrating (to a cheaper country/area). Otherwise, unless you and your family plan on living in a cardboard box under a canal bridge, anything you "make" when you sell gets spent when you buy the replacement.
Part of the housing boom has been because the finance system allowed people to buy houses they couldn't really afford, to set their sights a bit to high, and to pay for it by debt that's only sustainable by the expectation of future prices being fulfilled. And now they aren't being.
It's also true that whatever mortgage any of us have, if you can't pay it off right now, you're potentially in the poop if your situation changes and your income drops to the point where you can't afford the mortgage repayments. If someone takes out a 125% mortgage that they can just about afford to repay, then house prices slump 25% (or whatever) and then they lose their job and can't service the mortgage, then the fact that they over-stretched with that 125% mortgage by buying too ambitiously can be a huge problem, because they stand a decent chance of ending up with no house but still with a large chunk of the debt they took on to buy it. And that is what Brown has encouraged.
I'm like you, b0redom. I bought a home, not an investment. Someone quoted earlier ....
Not everyone. Many, yes. Most? Maybe. But not everyone. The only debt I have is the mortgage, and I can pay it off if I have to. No credit card debt at all, no other loans, nada. And I do have savings, though paying off the mortgage would put a very large hole in them.Nobody has any savings and everyone is up to their neck in debt.
Personally, I don't much care what my house is worth, because it'll be worth roughly the same in relation to other properties, and even that isn't an issue until I come to move. I mean, if there's a huge slump and it's "worth" £100k, it isn't a problem, because what it's worth doesn't interest me until I sell it. And when I sell it, if it's slumped to that, so will everything else of comparative value, including whatever I buy. If it increases hugely, the same logic applies in reverse.
In fact, ironically, even as a house-holder, in my circumstances it's probably in my best interests if prices do slump hugely.
Which local councils aren't meeting.
I agree with saracen that lending is also part of the problem, but it's a catch 22 like he says - the lending is backed by expectation that house prices will rise, and lack of housing supply means people are forced to buy and/or borrow more than they would otherwise.
How to break the circle? Two possibilities - stop the lending of ridiculous amounts, or change the supply-demand imbalance. The credit crunch is doing the former, but it's not really helped anyone, as with the lack of supply of houses all that happens is rents go up instead and no-one wants to sell. Short term blip but any liquidity in the credit market will probably reverse it.
Changing the supply-demand imbalance is a better solution IMHO. Building more houses (for ownership, public rental and private rental) helps the supply side, and has been badly hampered recently. Reducing demand is a way more vague area - encouraging local jobs, family units, house sharing are some of the things to look at, as is building denser housing for fewer people to live in - hence rise of all the one and two bedroom flats - the idea being if you can encourage singles to live in these rather than big houses you might free up more housing for families.
Last edited by kalniel; 08-08-2008 at 12:13 PM.
Even increasing supply is of limited use. We need to increase supply a lot, and preferably, over a fairly short period. Otherwise, at least for quite a while, all you do is fuel the inflationary pressures by letting increasing numbers get onto the market. If you have a situation where as soon as someone buys one of those newly built houses it goes up hugely in price, and they use it as a stepping stone to a larger home, you run the risk that you actively feed the cycle that more houses is intended to stop.
A critical part of the equation is the demand side, and that's been increasing dramatically over the last couple of decades. I think there's a couple of factors. It;s largely what I referred to earlier .... aspiration and expectation. There's been a change in social structure. Go back 50 years and private occupier-ownership of homes was relatively rare. It's certainly largely a post-WWII phenomenon, and given the economic situation for some years after the war, it's largely a 60s onwards thing, with it not really gaining momentum until Thatcher's government actively promoted the idea with things like the Right to Buy scheme. Demand was certainly growing, but that really lit the blue touch paper to expectations.
Family structures have been changing too, with the average number of occupants dropping, at the same time as population has been growing (if not hugely).
And despite the fact that for many people there are very good reasons why buying isn't always a smart move, I've come across a lot of people that assume that if you don't (with the bank) own your own home, and as soon as possible, there's either something wrong with you or you're sufficiently broke that you can't afford it.
And that has been hugely reinforced by house price inflation. A lot of people that might well have waited have decided that with prices going the way they are, if they don't get on the ladder right now (whenever "now" was), they'll never be able to afford to. Or will have to move to a much cheaper area. And that drives up the demand.
So, if you increase supply, without increasing it by enough, you run the risk that all you do is fuel that process.
I think we all have to make a couple of fairly large psychological adjustments. One - prices can go down as well as up. Despite the pain of the last crash, many people have forgotten (or never learnt) that fundamental.
Second, owning your own home is not a right, and not everyone can afford it. Certainly, not everyone can afford it right after they get out of short trousers.
Third - the value of the home is largely illusory, and is NOT a good basis for justifying huge personal loans or credit card debt. We need to break the consumerist enjoy now-pay later attitude that banks and credit card companies have been so enthusiastically promoting ... and profiting from. We need to go back much more towards a "if you can't afford it, don't damn well buy it" attitude.
If we address house building, and we address debt reduction, and we amend banking regulation to a far more socially responsible proactive system, then we can build a system that isn't fuelled by house price inflation and debt-based consumer spending that relies on artificial or naive over-confidence.
But it's going to be painful getting there. And people MUST lower their expectations, and perhaps defer their aspirations a bit, too.
Like others have said this is not really true. In my eyes that mostly applies to the "i must have it now crowd" who i am sure we don't have much sympathy for anyway?Nobody has any savings and everyone is up to their neck in debt.
There are still allot of prudent people that still believe in living within their means (and saving for the bad times during the good) Seems "saving for a rainy day" is a thing of the past for some
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