fast bloke

I didn't ask about inflation - I asked about 'stagflation' - Which is basically inflation caused by recession - as the economy stagnates or recedes, people will spend less. Retailers/producers increase prices to maintain margin, but can't give pay rises for the same reason - people have less money in real terms, so spend less...retailers/producers increase prices to stay profitable or close down. Unemployment rises, people have less to spend etc etc etc. Left unchecked on a national level it would eventually mean the national currency would be worthless and the vast majority of people would be unemployed. On an international level it would eventually lead to a complete crash of the global economy, with people having to revert to grow their own food or die. You don't usually get periods of low interest rates, high inflation and recession at the same time, but this looks like it could be the one. Raising interest rates continually over the next 4-5 years would be a surefire way of ensuring that it happens

GOLDMAN 555

Look to soaking up those thousands of jobs available at any one time.....





Regarding Stagflation..... the last figures showedUK economy was growing at 2.1%there's not much stagnation in that?

john banks

I hear you Mitchy260, but Aberdeen is a special case and follows the oil industry, my oil shares are taking a hammering, I wonder what might happen to Aberdeen? These price rises in Scotland in my area are simply not that dramatic, it has barely moved and we had to slash our price and fix it for it to sell in Oct 2006.

A 3700 sq ft 5 bed house I was in the process of buying (but it fell through and I'm now very pleased it did) went up from £247k in 2003 to £415k in 2006. Why can't it go back to nearer 2003 levels? It got pumped up because of credit not because of fundamentals. In the early 1990s Scotland prices didn't move much, but they hadn't grown in the earlier years like England. This time they've not grown quite as much as England but are still way higher than trend - > ripe for correction IMHO.

john banks

Bit more to rent and "only" 4 beds, has been hanging around in the rental ads for a while. Looks nice though. Commuting distance from Edinburgh.

house to rent in Torryburn House, Dunfermline, Fife - 4 bedrooms, 3 reception rooms, 2 bathrooms | Primelocation

Luminous

iTrader: (3)

looking for somewhere to rent

As long as there is employment, then there is the income to pay rent/mortgages. Its when that income goes there is a problem.

Dream Weaver

Regardless of how many immigrants come here, there are still plenty of jobs available, besides thats a newspaper who print stories to sell said newspapers - you don't have to believe everything they say.

And we have a huge Polish community where I live, still lots of jobs about though.

lozgti

Bottom line is,we all used to be able to -borrow the money- to buy the houses -to fuel the rises-to borrow and buy again-to fuel the rises etc etc

The man earning £25k can't get silly money now on a mortgage so if none of us earn enough to borrow enough shouldn't house prices have to sort of come back in line with incomes until they catch up with the runaway train house market?

Actually.I'm starting not to care.None of it adds up which is what I suspect is what we are all about to find out

fast bloke

Erm - That was last year. I am talking about the possibility of it happening in the future. It isn't a certainty, but increasing interest rates for the next 5 years would make it a certainty

john banks

fast bloke, where do you see inflation and interest rates in the coming months/years? Do you think a recession is likely and will suppress inflation, risking asset price collapse? Do you think we are likely to have wage inflation and stagnant asset prices? Is there a way through this to preserve the currency, keep inflation low, stop asset price collapse and allow growth to continue?

john banks

Mitchy260, I just read that Aberdeen dropped 4% in the last quarter of 2007.

Chris L

Well I'm with George Soros in all of this - he's seems to have his finger on the pulse

Incidentally I was doing a lot of work with Total in Aberdeen last year. The general concenus was that Aberdeen had 15 years of the oil boom to go....

Petem95

I'm surprised more people don't grasp this concept! This will be probably the main factor behind prices falling IMO.

It's going to be interesting to see how much lower UK interest rates go though. The BoE in theory can't slash them too drastically because of increasing inflation, but they are clearly going to go down.

I've just taken advantage of some of the excellent fixed rate bonds on offer at the moment with the expectation that rates will fall, and the best deals will disappear!

Chris L

I don't think anyone doubts demand - it's whether the banks will lend the money that will dictate prices.

The banks are hurting badly at the moment and that's before the rest of US sub prime hits and the potential collapse of the US bond market, which is looking increasingly likely. If the banks have to make good on the potential short fall from the bond market (which could be in the tens of billions), then they are going to pull their collective belts in even tighter - they may have no choice considering how many US banks have sort foreign investment in recent months to prop up their balance sheets.

This all has a knock effect to the financial markets in the UK because so much of this debt has been repackaged and sold to banks around the world. And that will affect their ability to lend money to potential home buyers. We're in a bear market now and confidence is low.

George Soros' comments yesterday were quite interesting. His opinion was that the US was actually coming out of a 60 year cycle that has effectively been fueled by cheap credit and the reliance that the US had the biggest and most powerful economy in the world and could therefore pretty much dictate global economic policy. While that still may be true, it won't remain that way for much longer - the rise of China and India will see to that.

So there are a lot of changes to come - Soros reckons that the US is already in the recession and his opinion was that the UK will follow.

lozgti

UK mortgage approvals fall to 11-year low - Times Online

Mitchy260

Article here i assume?
Average Aberdeen House Price Now Over 200k (from The Herald )

However you missed out the bigger headline

''Overall, however, the average price rose by 26% to £202,479 over the year''

A 26% yearly rise in 2007 doesn't show signs of a crashing market, although i see over the last quarter they have stagnated/dropped slightly.Should pick up agin though i would imagine, as its still a lot cheaper than a lot of other places in the UK

This article dated mid november 07 showing pices in the north are still rising..

BBC NEWS | Scotland | North house prices rise fastest

''The report by Lloyds TSB showed Aberdeen leading the market, with prices rising by 34% in the past 12 months and 4% in the past quarter''

34% in the bbc article, 26% in the herald article. Still evidence enough that Scottish property is booming i think

Maybe a slowdown, but realistically a crash north of the border i doubt will happen. Well fingers crossed anyway

To all you Londoners.......Sell now, move to a much bigger house in Aberdeen and earn a fortune working in and around the oil industry

john banks

I'm more interested in the change since the credit crunch, not what happened in the early part of 2007! I didn't miss it, I selected the part I thought was important and backed up my view The biggest rises in any bubble are always just before it pops.

I refuse to value the price I am willing to pay for a house based on what everyone else is prepared to pay. I will value it based on the rental it returns and the multiple of local earnings. I will hardly cry into my cornflakes every morning saving a fortune on rent vs owning. If house prices never again reflect a fair multiple of their rent then I'll never buy one again.

The same arguments are trotted out by every participant in bubbles. In the same way that perhaps Petem95 and pslewis have been forecasting a house price crash for a bit long now - and maybe I will still be banging on about it waiting for it to happen. More likely I'll be saying it is a good time to buy property

Mitchy and Bravo, do you deny that house prices move in cycles and that they tend to undershoot on the downside after years of increases? Or is it "different this time"?

john banks

The last crash did happen in a higher inflation environment, so that eroded the debts quicker though. Looking at house prices corrected for inflation, prices were about the same in 1995 as they were in 1985 with the peak at 1989-1990.

IF 2007 is the peak this time, then in 2012, is it even possible that the prices corrected for inflation will be the same as they were in 2002?

davegtt

Fat chance. A drop is more than possible, quite happily to say it could happen any time soon but tbh, I cant see them dropping to 2002 price levels IMO, too much of a gap IMO

Mitchy260

I firmly believe it is different this time to the 90's crash.

It is not uncommon to be living at home until aged 30-35 nowadays. Back in the 90's it will have been significantly lower than this. These young professionals are just waiting on a 'crash' to flood the market and as a consequence in doing so, this will push prices back up. I can see a see saw pattern.

Inheritance gains are also playing a major role in keeping the bottom tier running. Back in the 90's it would have been very uncommon to be left £100-200k in a will. Today it seems the norm.

Stagnation perhaps, significant drops, i very much doubt it.

Perhaps estate agents need better education into valuing a property correctly 1 example, the tv show Relocation, relocation, relocation last night showed a £200k spread in valuation between 3 different agents.

Who knows what will happen, we are all only playing a guessing game.

2008 will indeed be very interesting

Luminous

iTrader: (3)

I've seen people here talking about a collapse in the US bond market and banks having to make good shortfalls. I don't understand this. I thought the government offered bonds (they want to borrow money) with certain terms and conditions. Investors either choose to use these products or not.

How does this result in a collapse, and how can it cost banks money?

john banks

Why will they buy if the prices are dropping regularly? It isn't like the stock market where buying opportunities can appear very quickly. Once sentiment changes and a bear grizzles the market these hordes of FTBs with pent up demand might not be so keen to dive in? Even if they are where will they get the income multiple and high LTV mortgages that are required to support anything like the present market prices? Will they still buy when they can rent for much less when they are seeing capital depreciation as well?

lozgti

I don't understand anything the Americans are doing at the moment or what they have just done re the above that took the jitters out of the stock market(for now)

Is it more plugging of wounds ?

Mitchy260

The question is John..

If markets dont crash and you decide to keep renting for better quality of home/lifestyle, will you still be comfortable paying rental after retirement? You of course dont need to answer that but that is what you should be asking yourself.

Rental is obviously paid until you meet your end, mortgage typical 15-25 years.

Also if you do buy when property falls, there is surely going to be a downsizing or a shock to the system when your rental £££ comes no where near the mortgage required for a similar house. Your own house prime example. Would it be the case for downsizing significantly?

I would suspect most people on here being able to afford the £875 you pay for your country mansion but probably only a very small portion of them being able to afford the mortgage that would be required for it.

If your prediction is right then upto you. I bought my house to live in, if it crashes, i wont particularly care as i plan on living in my home for far longer than a couple of years

john banks

If the difference between rent and mortgage continues then I'll save up more than enough in the meantime to have a fund that will pay for the rent. I find it very difficult to believe that another investment with a much lower PE ratio will not outperform housing in capital growth, and that is already the case in income terms from a humble savings account.

If the rent and the mortgage costs converge then that is a signal to buy.

Either way I win

Dream Weaver

Most of you are looking at this from an investors point of view, but most ordinary folk will buy a house when they are ready and can afford it, very few people will watch the market and gamble on prices dropping significantly, I know I've never done that myself.

And you lot also forget, although prices are silly in a lot of areas there is still affordable housing elsewhere - a neighbouring town to us has decent terraced housing for around the £65-75k mark, my sister bought one last year and it is very nice.