House price crash thread number 942
15 September 2007, 12:26 PM
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Never question my understanding of A Level Economics 
Using your 5% asusmption ie this will only effect 5% of the population, it's hardly going to dent demand which is the point that I was making! As supply is tight & will remain this way for 10yrs + then house prices will be OK for some time yet.
The Ferrari anology is a red herring as a boy can't afford to buy anything bar a 10p chew. I was & am talking about people that can afford the £200k house.
If you can afford a £400k house today it's most unlikeley that you'll be effected by the Banks current problems as you'll not be part of the small minority (5% noted above).
I can't agree with your final point either. As interest rates go down the whole "market" will calm down again. The whole panic going on at the moment smacks of lemmings syndrome to me. Get a life you lot, as if NR will go down the pan (note - it might do of course if the lemmings continue to withdraw their savings)!
TX.
Using your 5% asusmption ie this will only effect 5% of the population, it's hardly going to dent demand which is the point that I was making! As supply is tight & will remain this way for 10yrs + then house prices will be OK for some time yet.
The Ferrari anology is a red herring as a boy can't afford to buy anything bar a 10p chew. I was & am talking about people that can afford the £200k house.
If you can afford a £400k house today it's most unlikeley that you'll be effected by the Banks current problems as you'll not be part of the small minority (5% noted above).
I can't agree with your final point either. As interest rates go down the whole "market" will calm down again. The whole panic going on at the moment smacks of lemmings syndrome to me. Get a life you lot, as if NR will go down the pan (note - it might do of course if the lemmings continue to withdraw their savings)!
TX.
Ok, so assuming that there are 3 million families ... that would be lent 200k from a bank in England and were also interested in property such as the 200k house. Assume that 5% (or whatever percentage) of those 3 million families ... can not get finance for the 200k house any longer, then there are only 2850000 families left who are able to buy a house like the 200k house. This dampens demand - the demand is less when credit is harder to obtain.
I read a good analogy on the web somewhere (might have been housepricecrash): There are lots of 10 year old boys who would love to own a Ferrari. However, they can not get finance for the Ferrari, so they do not add to the actual demand of said Ferraris.
Only a few people can afford to buy a 400k house, yes. What do you think would happen if even *less* people were able to afford the house due to credit constraints? Would the demand for the house increase or decrease?
Interest rates may well be lower in the coming 12 months, but that does not automatically mean that it will be easier to obtain a larger mortgage. Banks may take a different view on the default risk, for example (if they think someone is probably going to default, they're unlikely to lend to the person). If they start being more cautious (which is quite likely after the sub prime debacle in the states) they will lend less (higher mortgage = higher risk for any one individual)
I read a good analogy on the web somewhere (might have been housepricecrash): There are lots of 10 year old boys who would love to own a Ferrari. However, they can not get finance for the Ferrari, so they do not add to the actual demand of said Ferraris.
Only a few people can afford to buy a 400k house, yes. What do you think would happen if even *less* people were able to afford the house due to credit constraints? Would the demand for the house increase or decrease?
Interest rates may well be lower in the coming 12 months, but that does not automatically mean that it will be easier to obtain a larger mortgage. Banks may take a different view on the default risk, for example (if they think someone is probably going to default, they're unlikely to lend to the person). If they start being more cautious (which is quite likely after the sub prime debacle in the states) they will lend less (higher mortgage = higher risk for any one individual)
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