frog_in_a_tree
14 Jul 2018
The land of reality, frog I don’t disagree with your general thrust Sara, but house prices have risen mainly on account of shortage…old fashioned supply and demand. And yes, it is true that the money was provided to fund those mortgages. Help to Buy has also played a part in the increase in house prices and companies like BDEV have been grateful recipients of the cash. I note that you haven’t said that it has actually helped anyone. Help to Buy was brought in by Osborne when he realised that austerity was throttling the economy. He intended it to stimulate the economy which to a certain extent it did in the absence of anything else. Keynesian theory requires government spending to stimulate the economy during economic downturns but austerity did the exact opposite by sucking demand out of the economy through cuts to government spending, wages and benefits. During a period when interests rates were very low we actually needed New Deal interventions to build infrastructure (perhaps social housing) and provide stimulous and proper jobs. Because the Tory government’s objectives were to reduce government spending and taxation we had austerity and not stimulous. QE was intended to boost the economy and to some extent succeeded, as it is now doing in the EZ, but over time its main effect was to boost asset values. For those who are unclear on how QE is supposed to work: [link]
Sara_Racano_HardcoreUproar
14 Jul 2018
The land of reality, frog Government policy needs to be reshaped? This is nothing to do with government policy, this is all to do with central bank QE, without BoE QE, UK house prices would have deflated significantly. Reckless bank lending on par with that of U.S. prime What you also ignore is UK household debt which mostly is mortgage backed, let´s put it at 90% to GDP, which is on par with 1988, should house prices fall significantly, you have a serious problem (debt defaults). You need to look at central bank QE of assset bubbles & look then at the possible consequences. The housing market is not price sensitive. Basically loan to book, if the bank has lent out €1m but the written assets are only worth €600k then according loan/book, the financial is insolvent.
frog_in_a_tree
14 Jul 2018
The land of reality, frog Hello Sara, I am well aware that Help to Buy was in fact help the builders and bankers. All it did for house prices is to lift the asking prices higher. I don’t think it helped buyers at all. What I have expressed is that I have a preference for house price “deflationâ€â€¦ Preferably quite gengle like a slow puncture. Indeed it could/would cause some pain, not least in terms of negative equity for those who have taken out loans to fund very overpriced property. There would also be a spike in defaults with the hit being taken by banks and some property owners. Yes, banks would be damaged but a slow deflation should not bring down the banking system. The risks of letting housing debt rip are obvious when we look back on the American sub-prime and so some house price deflation might well mitigate that risk. What I meant by excessive house prices causing damage is this. The costs of house purchase and rents is taking an ever-growing proportion of the income of those who don’t yet own their own homes. By doing this it acts like a tax which takes potential spending power out of the economy and gives it to builders and investors and the banks and then ultimately locks away (notional) wealth in the form of property in hands of predominently older people. This all makes it very difficult for younger people to get on the housing ladder, particularly if they don’t have wealthy families. As I said, it acts very like a tax but it is not a tax that is in any way redistributive in that it teaches no children and fixes no bones or builds any roads. Sometimes this argument is called intergenerational fairness. In my view government policy needs to be reshaped to reduce the housing shortage by building much more social housing for rent. Additionally, I think that inheritance tax allowances need to be reduced and not increased in order to fund the health and care of the elderly. Sometimes markets need a correction. I hope that explains. Frog in a tree
Sara_Racano_HardcoreUproar
14 Jul 2018
The land of reality, frog "At home, and of relevance to this board, is the economic damage being done to the UK’s economy by its housing shortage and the artificially high prices that have been created as a result. At some point we need some house price deflation" This is a mixed up paragraph. “Economic damage being done� errrrrrr, What do you actually mean? Do you understand book/value accounting? By the above sentence obviously not. Frog, why do you think the UK/Irish governments did the help to buy? Do you remember the UK financial situation before the help to buy? Basically because of loan/book accounting, banks/financials were effectively insolvent. Help to buy was a back door banking bailout to lift house prices thus improving their loan to book. Basically you´re arguing for house price deflation which will effectively kill bank balance sheets but on the other hand you´re waving the flag for banks shares. You have one generation that are dependent on high house prices & on the other you have a generation suffering. Only from the mid 80´s has house ownership become more important. How can you tout banks without understanding book/value loans? It´s obvious from your posts that you don´t really understand the subject.
frog_in_a_tree
13 Jul 2018
Reality, frog in tree? Ah, Hardcore, it is always the future that is important and it is always the past that we learn from. You have been going on about Deutche Bank for some time and somehow it has not collapsed despite your best efforts. If it does get into trouble there is no doubt that it would have to be bailed out. It is certainly true that there is trouble being stored up out there. Turkey is a case in point with its currency having depreciated by around 20% and inflation out of control. Erdoghan’s response: to appoint his inexperienced son in law as finance minister. Only one good thing is that if Turkey’s economy goes down, it would take Erdoghan with it. At home, and of relevance to this board, is the economic damage being done to the UK’s economy by its housing shortage and the artificially high prices that have been created as a result. At some point we need some house price deflation. There are certainly bigger problems out there and to my mind the debt in the Chinese economy is first among them. As for what the future holds, one thing is for sure which is that we are heading towards the next recession. Given that this is always the case, it is nothing to lose sleep over. It is part of the natural cycle and it is impossible to abolish the cycle of boom and bust. Cheers, Frog in a tree
pollolegs
09 Jan 2015
Housing shares were the worst performers after Jefferies said it no longer recommends investors buy U.K. residential-linked shares under its coverage. Home builder Taylor Wimpey TW., -5.65% fell 4.3%, Barratt Developments PLC BDEV, -4.33% lost 4% and Persimmon PLC PSN, -4.09% moved 3.3% lower. “Negative†newsflow on mortgage approvals, housing transactions, weak house-price data and lower U.K. economic growth will put pressure on the sector during the first quarter, said Jefferies analysts Anthony Codling and Sam Cullen in a note Friday. Share-price weakness will persist in the second quarter, stemming from uncertainty around the U.K. general election set for May, they said.
