Long live the housing market.

'Stamp duty and Brexit have killed the market,' say agents.

I've seen a number of declarations recently that the UK housing market is dead. "The Royal Institution of Chartered Surveyors said that in March demand from buyers fell for the 12th month in a row". This is a special sort of economic nonsense. One of the fundamental flaws of neoclassical economics is that demand is measured not as an amount something is needed but as an amount wanted by those *able to pay*, meaning people can be priced out of the market and do not count towards demand.

Real need for housing in this country is at crisis levels. At the sharp end of this, homelessness has been rising each year since 2010. But even for people in less desperate circumstances there are problems that go much wider through society. The majority of people in their 20s and early 30s have more or less given up on ever owning a home of their own as a realistic aspiration. Most are either still living with their parents or renting individual rooms in houses with several others. The only options to buy are as a couple putting two full time salaries towards it, being lucky enough to have either a wealthy family or a job paying substantially above average salary, or being fool enough to borrow at absurd levels from the banks that are still lending despite the high probability that if interest rates increase or you end up in a lower paying job you will not be able to make the repayments and will lose your home.

When estate agents or businesspeople are saying the housing market is dead, it is not the market for housing as homes they are talking about, but the market for housing as a speculative asset, as an investment which can no longer be safely assumed to increase in value year upon year upon year. Frankly, if that market is dying, good riddance.

But living in Tory Britain I expect the government will pull out some new policy or other to try to pump it back up again.

When estate agents or businesspeople are saying the housing market is dead, it is not the market for housing as homes they are talking about, but the market for housing as a speculative asset, as an investment which can no longer be safely assumed to increase in value year upon year upon year. Frankly, if that market is dying, good riddance.

But without the security of housing increasing in value, how does it make sense to buy a house and pay interest on that purchase? Buying a house is often called the biggest investment you will ever make, and for many it is the only investment they ever make, so if it cannot be regarded as an investment, it may be a losing proposition.

zulumoose wrote:
But without the security of housing increasing in value, how does it make sense to buy a house and pay interest on that purchase? Buying a house is often called the biggest investment you will ever make, and for many it is the only investment they ever make, so if it cannot be regarded as an investment, it may be a losing proposition.

It shouldn't be an investment. It's a home. You get to live in it. Same as if you buy a car you get to drive it. You don't expect to sell your car for double the value ten years down the line. The problem is for many decades we've had people treating housing as an investment, buying large portfolios of property and getting guaranteed substantially greater than inflation returns, using that power to control development and influence government policy, and in the process pricing an entire generation out of the market.

People buy a car largely because it makes more sense than renting. In markets where the opposite is true they do the opposite, as Scot has pointed out a few times.

Buying a house is a large financial risk, selling and buying another one of equivalent value means huge costs and losses on both sale and purchase. It must make sense to buy rather than rent in the long term, and must at the very least increase in value at a rate where the buyer can sell in a few years and have something to show for it, rather than the car market where for the first couple of years a sale could be for less than what is still owed, even though cost of sale is minimal, unlike a house.

Why would the value of a house increase with years ? In normal use conditions, everything degrades with time, so unless you invest money into home improvement (which improves its value, but also its global cost), the value should decrease.

aban57 wrote:Why would the value of a house increase with years ? In normal use conditions, everything degrades with time, so unless you invest money into home improvement (which improves its value, but also its global cost), the value should decrease.

Because few new ones are built so their scarity value increases, the UK economy is based on house prices. We borrow and spend on the basis of property, no one has any other savings

That won't change until those who can't afford a house outnumber those who can in electoral turnout which will come but its probably a decade off

Why would the value of a house increase with years ?

A large part of this is due to the three factors most associated with property values, as any estate agent will tell you
LOCATION! LOCATION! LOCATION!
Sought-after areas already have all the housing they are ever going to have, they are established communities with a reputation. A decent house in a decent neighbourhood will always have a value beyond its brick and mortar. You cannot replicate that with a new housing development, unless it has something significant going for it.

zulumoose wrote:It must make sense to buy rather than rent in the long term, and must at the very least increase in value at a rate where the buyer can sell in a few years and have something to show for it, rather than the car market where for the first couple of years a sale could be for less than what is still owed, even though cost of sale is minimal, unlike a house.

Not necessarily. Not many years after I bought my first house my mortgage payments amounted to less than the dollars I would have had to pay renting it. Resale value was not a factor in my decision to buy. I was sick of landlords selling whatever place I lived in and the new owners tossing me out because they wanted to move in there themselves. This happened three times. Also, I could not simply decide to add a power outlet where I needed one, drive a picture hook into a wall, let alone repaint a room with colours of my liking without said owner's written approval, and any improvements I paid for were left behind whenever I decided or was forced to move on.

As it was, when it came to selling I got more than three times the amount I paid for the postage stamp sized inner Sydney property twelve years earlier. Though happy about that, the windfall was not, as I said, a factor in the decision process to buy. A ten or 15 percent loss spread over 12 years would have been acceptable to me.

minininja wrote:I've seen a number of declarations recently that the UK housing market is dead. "The Royal Institution of Chartered Surveyors said that in March demand from buyers fell for the 12th month in a row". This is a special sort of economic nonsense. One of the fundamental flaws of neoclassical economics is that demand is measured not as an amount something is needed but as an amount wanted by those *able to pay*, meaning people can be priced out of the market and do not count towards demand.

London and the SE skew the perception of the UK housing market a tremendous amount. Apparently if the housing market isn't 'moving' down there, then it is the end of the world or similar bullshit.

Elsewhere in the country, houses sell just fine because people can afford them.

aban57 wrote:Why would the value of a house increase with years ? In normal use conditions, everything degrades with time, so unless you invest money into home improvement (which improves its value, but also its global cost), the value should decrease.

Hahahhahahahahahahahhahahahahahahahhahahaa..... sorry.

The value of a house is largely in the land it sits on. The structure itself is secondary, you can do as much improvement and maintenance as you like but you won't increase the sale value by much when compared to the land itself.

The structure itself is secondary, you can do as much improvement and maintenance as you like but you won't increase the sale value by much when compared to the land itself.

That varies dramatically from place to place, I think the norm in middle-class neighbourhoods is that the land is worth a certain amount, but the value of an average house in that area has a sort of centre point, and your returns on investment are dependant on how close to that centre point you are, improve your property beyond the expectation for the area and you face rapidly diminishing returns. Improve up to that expectation and your returns are maximised. Only in places where land is at a massive premium is the house value secondary.

But without the security of housing increasing in value, how does it make sense to buy a house and pay interest on that purchase?

Wow - talk about swallowing the Koolaid

Let me rephrase this for you

But without the security of your car increasing in value, how does it make sense to buy a car and pay interest on that purchase?

Did you buy a diamond for your sweetie?

Suggested reading

Google The Economist house bubble

But without the security of your car increasing in value, how does it make sense to buy a car and pay interest on that purchase?

Nobody would buy a car if they could rent one cheaper.
Buying a house is more expensive at first than renting, only with long-term value gain does it make financial sense.

Rent is almost always higher than a mortgage payment, plus you have at least some equity in the property. There are advantages to renting, like not being responsible for maintenance. I'm fine with people renting, because they rent my properties and that's how I make a living.

Fuck all seems to be available round my way. This *may* be because i'm looking at the moment though.

But no, it's probably the end of everything, and we're doomed.

It NEVER makes sense.....we don't allow predation on parks, schools, roads etc and shelter should be in the same vital category.
The entire world economy is fucked by over inflated values of shelter.
Read the Economist so you understand the scale of the fuck over.....

Renting allows you mobility as a starter. Ask all those people with "good" investments in the US ....the 23 million families who were foreclosed on.

Can I sell you this tulip bulb?

Rent is almost always higher than a mortgage payment, plus you have at least some equity in the property.

1.2 million households lost to recession - Business - Eye on the ...
www.nbcnews.com/id/36231884/ns/.../stud ... recession/
Apr 8, 2010 - That number doesn't include information from 2009, when job losses and foreclosures continued to rise. So it's likely that the full impact of the 8.4 million jobs lost and nearly three million homes foreclosed on since the recession began has taken an even bigger toll on the number of American households.

Ask the people that "invested" in Florida real estate in 2007 how that worked out.
If more attention and support were given to small manufacturing and businesses instead of the every ongoing ponzi scheme of shelter predation ...we'd be ...um like Norway .

Switzerland has a reasonable system and only about 40% own ...

1. Many Swiss feel no need to buy their own home due to good rent conditions.

The whole country is under rent-control for residential dwellings, meaning that the annual rent cannot exceed a certain percentage of total investment. A tenant can go to court to challenge excessive rent increases. The home is respected and you cannot be kicked out with two week notice, and you can choose to decorate the interior as how you like. This is very different to countries such as Australia, where in many cases renters are forbidden to have pets, or refrained from add a single nail to the wall to hang a picture.

There is no social stigma associated with renting, and not much excessive profits made from real-estate speculation.

For more Swiss renter rights and responsibilities, see the official information at ch.ch.

2. More responsibilities as home owners.

The required minimum deposit is 20% of the total loan amount. Furthermore, you also have to show that the required minimum monthly repayment amount do not exceed 33% of your monthly income. No sub-prime mortgage tricks here, and no borrow-to-invest mentality.

Also, unlike the case such as United States, you cannot void your mortgage by handing over the property. The debt is yours until you pay it off, one way or another.

There are also federally-mandated laws for maintenance, such as periodic refurbishing the building exteriors and common interior space. You must also maintain a functional nuclear bunker that passes regular check-ups, or pay the extra tax so the cantonal government provide the place for you and your family in the communal bunker. These are one of many little rules that make the country work like a well-run machine.

https://www.quora.com/Why-is-home-owner ... witzerland

In response to the Opening Post: Other than the word "killed" in the quote in the article's title, which perhaps should be "stalled" rather less hyperbolically the report seems to be pretty accurate and informative.

Clearly overheating and stamp duty changes have had a profound effect on the London market. New sanctions against Russian oligarchs and perhaps a new political pressure to reduce the industrial scale money laundering that's going on by that path and in association with it are also on the horizon and likely to affect the market for the forseeable future.

As for all the should/should not, I don't suppose it really matters. House prices (and rents) do appreciate over time and there are reasons for that (essentially deriving from wealth as a whole appreciating over time). There are also reasons why rents will tend to be higher than purchasing costs in the long run that are pretty well understood as well (essentially the person who is renting is investing their capital to maximise their return and if they could get more by lending instead of buying to let, they would).