Are MN homeowners as deluded as HPCers?

[Cybercynic]

Last few days there has been spike in the number of posts on potential house price declines. In the UK prices have already dipped more than 3% since August. I find it amusing that many HPCers are frequenting MN to report such news and potentially express glee on those that have bought.

However, even more amusing is the response of home owners suggesting how prickly they are to the remote possibility of house price declines. (PS: I am a homeowner and bought 20 years ago. While I have made equity gains over the years, I support overall declines in prices otherwise I feel my kids will be forever renting in this country).

While I hold no brief for doomsayers and think most of those are crazies, I believe the homeowners on this forum are turning increasingly prickly at facts and they offer the following standard responses to prospect of price reductions:

Response#1: House is not an investment it is a home. OR if you buy for long term you will always be okay

Counter: Ok then stop worrying about what doomsayers say. Let the prices decline by 10-25% and be okay with it.

Response#2: UK prices will never go down because it is an island and we just 'love' immigration

Counter: Please check out what is happening in Australia and New Zealand. Both factors apply there and they already have >10% yearly declines so far and more is expected

Response#3: If prices decline I will simply refuse to sell. Nobody can force me to sell.

Counter: Yes, you don’t need to sell because you can refuse to participate in the market. However, that does not stop price decline just as prices went up even when you refused to sell your own property in a rising market. House prices are determined at margins. Valuations are based on comparable transactions (whether you sell or nor). Unless there is a sellers strike announced similar to the train strike next week, not sure how this argument stands.

Response#4: There wont be any re-possessions

Counter: Agreed there will be few repossessions. It takes a long time to repossess and therefore, Banks will work with borrowers to find ways to make sure homes are not taken away. But one does not need forced sales to price declines. Australia, Canada, New Zealand, Sweden have all seen declines in the last 1 year without repossessions. And as I said earlier, UK has had declines >3% since Aug. And we are not even in recession yet officially. House prices are a function of affordability and I for one do think that era of <1% interest rate is over and average will hover around 4-5% for some time and with those rates you cannot have rapid growth.

Response#5: If one hopes for price reductions throughout, one must be a horrible person 'cause some people will feel pain

Counter: HPI has caused more pain to generations. And therefore, please explain a situation when we can have affordable housing without price declines. Affordability either comes with consistent wage growth and that aint happening without rampant inflation and resulting interest rate increases. So please let us know what advise they have for the younger generation to become home owners and who want affordable housing. And please do not suggest council housing since you will need to first check the govt finances to make that suggestion

What’s you point OP? Your post doesn’t actually make one. It’s just a Q&A.

I think the point is pretty transparent

@Cybercynic we've been saving since the day he was born towards his house deposit. We've bought a rental which we can sell and give him towards his house. We need to build more housing (affordable and aspirational) 4 generation of our family currently live in different houses yet the number available hasn't increased at the same rate as the population.

Not linking the APR to the size of the deposit will also help, our current mortgage is nearly twice our first yet is £20 a month cheaper because we have a bigger deposit. We are still in the same jobs so the same risk of not paying as the 1st one!!

The whole property chain also needs work, our current house would make a lovely 2/3rd step on the ladder for someone and we can afford to move up to something more unique. The problem is the whole being able to pull out at the last minute or drag your heels puts me off staring again, some form of system of you put in an offer with a moving date which can't be resided once accept is needed. If people keep moving up the ladder that alone will free up affordable housing.

All price crashes will do is force more people to stay put or rent out houses (what we would do also solves the issue of sellers playing us around) so less affordable housing become available pushing up demand for it and prices.

Which economic theory says that this is how things work?

@sst1234 I don't understand your question?

Stagnant wages & high housing costs does impact productivity, do you disagree? We need to see real growth in wages.

Personally I think the last decade of ultra low interest rates & QE has been bad for the economy

QE was a mistake, it was kicking the can down the Lane.

and now we have run out of road.

Falling house prices are not good for the economy. They are a symptom of an economy in recession. Which is worse than high house, much worse.

You are linking low wages to high prices, the two are not necessarily linked. We have had high house prices because of low interest rates only partly. Remember, before 2008, interest rates were normal, yet prices had been increasing wildly since 2000. The low wage issue is unrelated to this and due to economic mismanagement like tax credits to subsidize low wages which does lead to poor productivity.

My point is that house prices coming down doesn’t achieve higher productivity and higher economic growth, it tells us that the economy has just got worse. And that is good for no one.

For house prices to stabilise without the economy being independent, we need to do one thing and one thing only - build more. Everything else is just nonsense.

To create a high wage economy, well where do we start to unwind 25 years of economic mismanagement.

100% agree that wage growth is the pathway we need.

The reason not everyone likes this is because, although average wages can grow by more than average house prices, there'll still be very large parts of the population experiencing below average wages growth, and their ability to afford houses will diminish even further than at present. Leads to an even more unequal society. It is also much slower.

That is why they prefer the cataclysmic option where all house prices must fall, and all current owners must fall into arrears (if not on the mortgage, then the heating bills, if not that, then repairs and maintenance, if not that, then losing their jobs). Only when everyone has entered penury, does the playing field level enough to make the decisions they've taken - or not taken - these last ten, twenty years make sense. And, if it comes to pass, it would be much quicker.

@sst1234
I agree that rapidly falling house prices would tend to be associated with a recession. But a recession is where we are now combined with other negative factors that haven't existed in the past.

The reasons we have had a huge rise in house prices since around the late 1990s are mainly linked to credit and changes to the type of finance packages available.
Interest rates have been much lower since the 1990s compared to the decades before. These low interest rates have persisted and then crashed to zero and remained there after the GFC. They are currently negative in relation to the rate of inflation.
www.economicshelp.org/blog/1485/interest-rates/historical-real-interest-rate/
Secondly, lending by the banks was loosened enabling people to borrow more (110% mortgages were a thing around 2000).
Thirdly, BTL interest only and other interest only mortgages were introduced with very limited affordability checks.
Government policies such as Help to Buy have also bumped up prices at the lower end of the market.
Other factors such as a rising population and smaller households have had some effect but it is jolly minor compared to the cheap and plentiful credit effect.

You say that falling house prices are not good for the economy. For sure, a rapid fall will cause many problems.
I'm not sure if you are suggesting that rapidly rising prices have been a good thing. I would argue that they have been a disaster, particularly when combined with the, frankly, criminal lack of provision of social housing, secure housing and genuinely affordable housing. The UK economy has been shockingly mis-managed for 50 years or so.
The bottom line is that the UK wants to live above its means. In order to do this, successive governments and the financial industry have sold off British infrastructure, encouraging foreigners to buy our infrastructure and housing. They have encouraged never ending, cheap credit, creating a huge pile of both government and household debt. The massive asset price inflation this has caused has encouraged spending in the economy via the 'wealth effect'. We weren't actually wealthier; it just felt like it for some people.
Unfortunately, this was a stupid plan, driven by 'short term-ism' and greed. We have now sold off most of the 'family silver' and the bankers are stuck as they are having to raise rates because of high inflation and have also been forced to start QT.
This is really not something that can be solved just by building more house (the NIMBYs have already defeated these targets anyway). The difficulties run a lot deeper and even this is not simple.
For those that advocate high wage growth, it sounds great, sure but I don't think it is likely to happen. It is clear that the government intends to resist the strikers's wage demands, some argue that they need to in order to bring inflation under better control. The private sector has seen much better wage increases in general but still sub inflation on average and that's before tax rises are taken into account. The private sector will also be more at risk of job losses in a recession and the likelihood is that businesses will cut staff and some will fail rather than continue to increase wages.

For every phenomenon observed there are usually at least two plausible, sometimes contradictory hypotheses to explain it. You’ve outlined one perspective - and I agree that it is a coherent, logical potential explanation. However, there is another option.

Maybe people didn’t use the availability of credit to overpay for a slave box. Maybe they bought better places than they otherwise would have done. Maybe a different group of people had the chance to become homeowners at the bottom end of the market. Maybe the hairdressers and nail technicians and dog groomers that are ridiculed on the other forums would never have been home owners had these policies not given them that chance - just like selling council houses did for a generation of bus drivers and factory workers before. Maybe this was a good thing? Maybe the outrage of the HPC crowd is actually that the wrong sort of people benefited from these policies? And maybe that was always the intention of those that enacted them? Maybe it’s not a bug, but a feature?

Falling house prices are not good for the economy

I never said they were?

To create a high wage economy

I didn't mention a high wage economy either, wages have seen barely any growth in years.

And I do think low wages & high housing prices impact productivity, plenty of articles on the FT but I don't know how to share.

@rainingsnoring agree with you re the state of the economy now.

The reason people don't like it is because it creates inflation and destroys the currency

This is really simple stuff Mark, if you have to pay your workers more than another Country you're not competitive unless your currency gets lowered to make it cheaper to export.

So increase in wages keeps house prices as they are but makes the Country poorer as a whole.

I expect like many you're just bothered about your house price rather than the Country, and it's people like you that have got us in this mess. I have mine paid off and would rather we had less expensive housing costs.

@Mark19735 -I don't know about the HPC members because I do not use or look at that forum. I don't have any snobbery/ dislike of people who do those jobs but I do think that people who work in discretionary industries like these may find their jobs/ incomes at greater risk.

Yes, Thatcher's policy of selling off council housing did enrich a proportion of a very small generation and they are forever grateful. Unfortunately, it also made a huge group of future generations poorer and insecure in their housing.
Equally, cheap credit may have made it possible for nail technicians (using your example) to buy their own place 15 years ago but what about all the nail technicians now in their 20s or 30s?
Essentially, what I am saying is what I alluded to above; short term gain for a minority during a short period in time to the long term disadvantage of the great majority. I think these policies were motivated by self interest, for political reasons and greed rather than any care for the 'nail technicians' of yesterday. I think we have got very much downhill in terms of security of housing and that is a very bad thing.

A lack of understanding about the economy? The economy is in such great shape right now isn't it, people like you know so little about it all you've done is stick your fingers in your ears

I don’t see any indicators to support high house prices going forward. It happened, but that was then and this is now. Expensive houses are good for the banks, and no one else. They don’t generate tax for the government, and the government needs tax revenues more than ever.
The current government has increased the tax burden massively, and the next government is not going to reduce it, even if they wanted to.
In fact, if Labour get in, and I think they will, they will have to increase NI to throw money at the NHS and social care. Not that there is much difference between the two main parties now.

housing is a basic need, like education, healthcare, emergency services, the rule of law. We cant have a modern functioning democracy if the basics of life are out of reach for normal people!

Exactly. Unfortunately, we aren't a modern, functioning democracy at present!

I do not think anybody would disagree with you. The issue has been in that so many people were forced to put the eggs in the basket of homeownership previously. However, I do believe the tide has turned. We have been recruiting graduates recently, and actually we pay significantly better. The most of our competitors the graduates don’t care. For them, it’s about benefits such as flexibility working from home working from anywhere. Some of which we can accommodate some of which we can’t. I’ve interviewed three people in the last month. The basically want the job with ourselves to be one of three jobs that they do and they’re quite open about the fact that once their side gig becomes profitable, they will give up working for us. It’s a really interesting changing dynamic and I am wondering whether the last housing boom was kind of a last hurrah. The downsizes in the boomers got a boost. Those that we’re going to inherit got a boost. And maybe from this point onwards first time buyers aren’t required. It’ll be corporate rentals.

However, I do believe the tide has turned
I hope you are right🙏

The thing is, it’s about affordability. It doesn’t really matter if house prices drop if interest rates are high. It’s the percentage of your salary that you spend on housing that is the important factor.

Oh dear, @HotChoxs ... "it's people like me that got us in the mess", and yet you're the one who was able to buy and pay off a house during this time.

If it's "really simple stuff", then how is it that every single British government of the last 30 years has behaved in a way that diverges from the path that you seem able to see so clearly? And how about the millions of people who accepted things the way they were and have done their best to get by? Are they really all idiots? All of them? Really? That's an awful lot of doctors, teachers, police officers, lawyers, architects, journalists, accountants, care workers, truck drivers, soldiers, mums ... are all of them just ... wrong? Or is it that their lives and livelihoods are acceptable collateral damage for your ideological crusade?

If you've read any of my other posts, you'll know already that I couldn't give a toss what some house price index claims my house is worth, or whether its value has risen or fallen. Never have - never will. I do care about the lives and livelihoods of the people I interact with - and the overwhelming issue really is wages, not prices. If wages had risen in line with inflation, then there'd be much less concern over affordability of housing. The challenge is to find ways of enabling the new generation of workers to be productive, creative, innovative, entrepreneurial and to produce goods and services that are in demand, here and abroad. There's no prizes for winning a race to the bottom of the league of low wages. Margaret Thatcher knew this. John Major knew this. Tony Blair knew this. Gordon Brown knew this. David Cameron knew this. Theresa May knew this. Boris Johnson knew this. Liz Truss ... ok, let's pass on that one ... Rishi Sunak knows this. What the last four don't seem to know is how to make growth happen outside the single market, but that's another thread entirely.

Posters apparently rejoicing at the prospects of a deep recession in the hope that it will raze the housing market back to some earlier era when prices seemed cheaper compared to today is completely bonkers. That won't create the conditions for national economic success, any more than attempts to regulate the price of rice or bread or fuel did in communist regimes. House ownership will sort itself out when the average wage rises to a level where the cost of housing can be comfortably met from the take-home pay of the average worker. It's really simple stuff ... .

The HPC lot have been sat there chortling to themselves that the price crash is just around the corner for the last 15 years of so. I guess they will get their wish eventually.

Long post really.

The reason these Governments have diverged away is because it's what wins votes.

And now the Country is a mess.

But hey, you stick up for politicians and high house prices if it makes you happy while everyone else suffers.

@Mark19735
The challenge is to find ways of enabling the new generation of workers to be productive, creative, innovative, entrepreneurial and to produce goods and services that are in demand

I gather you're not part of this challenge? Have you ever started an innovative business in this Country? How did that go for you?

Why the bullying tone? It really is none of your business if this poster has started his own business in the past and the comment suggesting he is "happy while everyone else suffers" is ridiculous coming from someome that has paid off their own mortgage. It's just a difference of opinion over whether house prices will crash drastically or not over the coming year, not a divide based on who wants people to suffer. I doubt any of us want that apart from @DeadHouseBounce who seems to actively relish the propect of a crash that means recent homebuyers fall into negative equity/can't afford to service their loans.

It's an interesting debate but better to keep it polite. With the exception of DHB because they invite retaliation with their constant LOLs about recent homebuyers falling into negative equity or being unable to pay their mortgage. The rest of us should be trying to maintain a respectful debate.