Question to old timers(those who traded back in 1987)

[grantx]

Newstart,

“housing Markets are in for a rational shake-out”.

Certainly long overdue but I reckon the under-supply will act as a stopper. Realistic prices will only return when we have chronic unemployment.

I’ll never be able to afford that gaff overlooking Green Park at the current rate.

Grant.

 

[Splitlink]

Newstart,

“housing Markets are in for a rational shake-out”.

Certainly long overdue but I reckon the under-supply will act as a stopper. Realistic prices will only return when we have chronic unemployment.

I’ll never be able to afford that gaff overlooking Green Park at the current rate.

Grant.

Realistic? What's realistic? I'm 75 years old and have seen house prices rising all my life. My father bought his house in 1945 for 1,500 and it was sold, on his death in 1985, for 53,000. You may see some variations of a few %age points, until people get their breath back, but house prices always go up.

Unemployment will not bring prices down. The problem is overpopulation and that is not going to go away, either.

The fact is that my generation has stripped the planet, practically, bare of everything worth having. I am ashamed to say it but I am sorry for what my grandchildren are inheriting.

Split

 

[LION63]

The similarities between now and then are more than meets the eye. Whilst we might be told that the property market is undersupplied that only applies at the bottom end of the market, at the top end the market is over saturated, overpriced and more developments are coming on the market. In places like Las Vegas and Manhattan $2million will buy you a two bedroom apartment hardly a decent long term investment.

The major problem is that assets no longer produce enough income to cover the cost of carry and investors are relying on capital appreciation alone to get out of jail. In the event that asset prices stagnate how do carrying costs get met? The Savings and Loans debacle of the 1980s is very similar to the Sub Prime catastrophe that is in the process of unfolding and nothing short of government bailouts will solve the problem. Shares in airlines, utilities and telcos are mundane and lack growth potential so why are they being priced as growth stocks with yields that are below deposit rates and treasury bonds? This cannot last and sooner or later prices will come back to the long term medium.

However, the major problem is too much leverage and the bad deals that follow in its wake. Many sturdy US operations were bought out in the buy out mania of the 1980s and a very large number subsequently filed for Chapter 11 protection when they could not meet payments on the bond debts that were used to finance them. Sadly, that trend has appeared again and crossed the Atlantic. It is only a matter of time before the chickens come home to roost.

Is it any wonder that the Federal Reserve cut rates after pumping colossal amounts into the markets? How many more hedge funds and other exotic funds have to go under before it is generally accepted that gravity cannot be defied forever? The shakeout will come and it will rip through the markets like an autumn hurricane.

 

[chump]

Here you go ,save you a search....none of this crap is new...it's always happening just as soon as the tipping number of new rocket scientists at the helm are sufficiently young enough not to have a memory of the last time.

http://www.bis.org/publ/work142.pdf

 

[chump]

Thats' not the link I was looking for to the property issue I mentioned earlier ,but I'll leave it anyway as it is just too good to take out.
Notice about the comments regarding the issues of banks,lending standards blah blah...and what are they starting to talk about right now..yes, same old stuff and yet here we are nearly a hundred years further on...I mean ,who is kidding who ,seriously ,it's the nature of the beast that people basically keep on doing the same old stuff time after time after time and the only separator appears to be memory...LOL

 

[newstart]

Some people have forgotten the fact that some home owners in England were sitting on Negative Equity which proves that house prices go down as well as up

 

[LION63]

...none of this crap is new...it's always happening just as soon as the tipping number of new rocket scientists at the helm are sufficiently young enough not to have a memory of the last time.

http://www.bis.org/publ/work142.pdf

How many of them were out of puberty when Paul Volcker was head of the FED? How many members of this Forumn know what it is like to have 15% base rates? No wonder they tell us that it is a whole new world out there, the Young Turks have only seen the good times.

 

[chump]

by god sir, I like the cut of your zimmerframe ...LOL ...but I take your point...all of the ingredients for some serious trouble are in place pretty much as described in the earlier link which was actually written nearly 4 years ago...the only thing not yet in place is an accompanying macroeconomic correction,but that may still be ahead ,or not...I don't have a crystal ball so I don't know.

 

[Splitlink]

“housing Markets are in for a rational shake-out”.

That may well be a "rational" requirement ,but just watch the impact on the stuff the banks watch... when they see some data they don't like and I doubt that will be far ahead now ,then money will get as cheap as it needs to be to support employment/growth etc which will also put a net under property....western economies don't subscribe to the pain now for gain later school of Austrian economics...if they did then you would have to rewrite the monetary policy of the last 15 years at least.

Basically the economies that have through the last few years grown above the global average and built up reserves from that trade in $ , gbp etc are going to find the bill is write down in purchasing power on those reserves...if that were not the case and cheaper money was not 'allowed' then you would find demand dropping off a cliff in the near future which means all those fast growing overheavily invested new economies with equally high commodity laden exports etc would take the write down in terms of trade and balance of payments.
There is no way out of this without someone let's go of the tigers tail. No one will get out without a bill and I think it's funny to watch the current new buying on commodities anticipating rate cuts coming as though that asset group is somehow going to be a get out of jail card.

Cheap money can work ,but not until someone decides they are brave enough again to use it.

Split,
"but house prices always go up"...can't argue with you there ,but the question is at what rate mate...do a google, I think it was Oslo ...prices there did not regain highs from late 19th until nearly a hundred years later...personally I think I'll live longer than that ,but you take the point ...gains when all you are worried about is whether the nurse will mop up your dribble misses the object of the excercise.

Does not the fact that The Brits have more credit card and personal loan debt than any other nation worry you guys? Well over a trillion pounds worth of debt. We have seen what has happened over the past few weeks in the States and the Fed reduced interest rates to resolve the problem. But that is only going to increase inflation and debt without bring property prices down to any realistic extent.

Humans are becoming more plentiful. Of course there will be unemployment---for some. That won't bring more houses on the market, though, in enough quantities to fill demand. The only way for those without enough money to buy their own property will be to buy shares in LAND, or similar.

This would have made a good weekend topic for The Foyer

 

[Splitlink]

Split,
"worried", not at all...first place to sink will be Spain if we (Brits) can't afford to keep what we have bought there and can't afford to buy anymore. ...with construction at a massive 18% of GDP in Spain ...the cliff edge wouldn't be much of step to the brink away.... a wobble here (UK) would probably be enough of a push.

You're off the mark factually with your "Fed" comments...wasn't a general rate cut at all although they might well get around to that.

Well, you may think that you are taking the **** out of me, but I know! Don't think that I am gloating over Spain! Everything is going to go down the chute.

You are right about construction. That and tourism is the only thing that keeps the country going. Nevertheless, construction companies are buying up British ones i.e. one bought BAA. recently and there is one consolation.

We don't owe a trillion quid, to the banks, yet, although they are trying hard.

Split

 

[newstart]

You are quite right in what you say that is why I believe that Snatchbacks and downward house prices are a necessity

 

[Splitlink]

lol....It was part psis take ,but only part....the UK is overdue for a dose of consumer reality,but there are countries who are exposed every bit as much ,or more ,but the exposure is not as superficially evident.....it's become 'trendy' to kick the US ,UK and similar for their debt problem. This totally ignores the fact that it is their prior consumption underlying the debt which has enabled none consumer based growth elsewhere....when the consumption is gone and I think it will go then we will see just how so called disconnected the the rest of the globe is...personally I suspect the US and the UK will actually be sitting on top of a lot of other countries who will find themselves even deeper in the shti....and on the none psis taking side of my post, one of them will be Spain.
As to owing , when you owe a trillion the problem isn't yours it's the guy who you owe it to who's got the problem....read my earlier comment about trade surpluses and reserves for a clearer idea on that issue.

OK, I knock the UK because, after all these years, I still listen to BBC4 online. I, probably, know more about what's going on there than I do about what's going on here.

I think UK was wise to hang on to its currency. We would have higher interest rates, here, some time ago (although, with a socialist government, who can tell) but we are tied to the CEB. A big problem, I think. Although, if things get too bad, it will come back in subsidies. Depending on subsidies is not the same, though.

I disagree with your opinion on who's better off, the one who owes or the one is owed. It's no fun being up to your neck, as those who are up to their necks will know.

 

[Atilla]

OK, I knock the UK because, after all these years, I still listen to BBC4 online. I, probably, know more about what's going on there than I do about what's going on here.

I think UK was wise to hang on to its currency. We would have higher interest rates, here, some time ago (although, with a socialist government, who can tell) but we are tied to the CEB. A big problem, I think. Although, if things get too bad, it will come back in subsidies. Depending on subsidies is not the same, though.

I disagree with your opinion on who's better off, the one who owes or the one is owed. It's no fun being up to your neck, as those who are up to their necks will know.

With rising demand for housing in the UK there is a reduction in the number of suitable properties - less flooded homes and future climate change impact on properties.

I see continued price rises and a move towards blocks of flats again.

I concur with all the debt and financial melt down scenarios. I reckon bad debts will be written off and financial institutions will get rid of possessed properties for less than inflated face value and a redistribution of the cake will take place.

Always winners and losers.

How long will it last - I'd guess 4 years or so.

 

[jacinto]

This totally ignores the fact that it is their prior consumption underlying the debt which has enabled none consumer based growth elsewhere....when the consumption is gone and I think it will go then we will see just how so called disconnected the the rest of the globe is...personally I suspect the US and the UK will actually be sitting on top of a lot of other countries who will find themselves even deeper in the shti....and on the none psis taking side of my post, one of them will be Spain.
As to owing , when you owe a trillion the problem isn't yours it's the guy who you owe it to who's got the problem....read my earlier comment about trade surpluses and reserves for a clearer idea on that issue.

at the end of every party one has to pay the bill.

it doesnt matter if it was chips and beer or fois gras and Jurancon

 

[Splitlink]

at the end of every party one has to pay the bill.

it doesnt matter if it was chips and beer or fois gras and Jurancon

But isn't it a fact that the bill payers will always be those who owe, not those who are owed? Poor people try to get ahead by buying property, spending more on education, etc. but they cut financial corners and are, therefore, in a vulnerable position until their debt is paid off.

This why the rich get rich and the poor poorer.

Split

 

[Splitlink]

With rising demand for housing in the UK there is a reduction in the number of suitable properties - less flooded homes and future climate change impact on properties.

I see continued price rises and a move towards blocks of flats again.

I concur with all the debt and financial melt down scenarios. I reckon bad debts will be written off and financial institutions will get rid of possessed properties for less than inflated face value and a redistribution of the cake will take place.

Always winners and losers.

How long will it last - I'd guess 4 years or so.

Just like the Channel Tunnel. The company won't go bust, just the shareholders change.

Split

 

[jacinto]

But isn't it a fact that the bill payers will always be those who owe, not those who are owed? Poor people try to get ahead by buying property, spending more on education, etc. but they cut financial corners and are, therefore, in a vulnerable position until their debt is paid off.

This why the rich get rich and the poor poorer.

Split

you are right on most cases. I actually was part of a team that engineered a bailout in which the creditors shared the pain (between 30 and 50% of the hit)

 

[Splitlink]

Split,
In a real credit crunch the person owing is no more likely to be hurt than the person doing the lending...and the higher the amount owing the more the penalty is likely to be picked up at least short term by the lender. Realisable assets on overleaverage are in probability subject to a higher write down than the original capital provided by the defaulter.For example , take your typical mortgage arrangement where the defaulter puts up nil to 5 % deposit. At a real crunch the asset is likely to be worth less than the original purchase price ,the worse the crunch the bigger that deficit may well be.
The defaulter loses from nil to 5%...the lender loses anything up to..well we've seen write downs by 20 to 30 % on auction sales of houses and worse on other asset groups.
The defaulter loses their debt repayments to date,but that to a large degree has already been 'consumed' by use of the asset.
I think the typical idea of who get's hurt in situations like this is out of touch with reality. The biggest real winners are those who waited patiently ,not overcommitted who can cherrypick value from the fallout and those are not the parties usually involved in the original transaction neither are they just necessarily the 'super rich'.

I know someone who is not as wealthy, in his retirement, as he should be because he defaulted on his leases. His landlord, a leading insurance company, screwed him to the verge of bankrupcy before giving up. I disagree with you because of this personal experience and I am sure that there are many others who would not agree with you, either.

It is true that these institutions may, finally, give up but not until they've sucked the last pound out of the debter and they know that they are losing money, themselves, by trying any more.

I, personally, no matter what you say, have endeavoured to keep myself out of debt and I think that I am better off because of that policy.

Split

 

[BARLI]

I, personally, no matter what you say, have endeavoured to keep myself out of debt and I think that I am better off because of that policy.

Split

Split, what about those who dont have enough cash to buy a house? Shouldn't they take mortgages?

 

[Splitlink]

Split, what about those who dont have enough cash to buy a house? Shouldn't they take mortgages?

Probably. Young people must find a way through, somehow, but mortgages are so much these days that lenders are making them more attractive. 40 years, for example and when rates go up today's mortgages increase by hurtful amounts of money.

I wonder if the cult of home ownership has had its day? After all, nothing lasts forever.

Split