Consider this:
"We need a 95 per cent mortgage and under offers over if we bid above the surveyor's valuation, we would need to find the difference, and we don't really have any savings for that." After looking for five months, at properties in Leith, Newhaven, Abbeyhill and Easter Road, they finally spotted a one-bedroom flat in Edinburgh's Meadowbank at a fixed price of £122,500. Miss Rae added: "We have bought a flat that needs a bit of work. We hope to sell in 18 months and make a bit of money on it."This couple expect to sell at a profit in less than two years. That seems an incredibly risky strategy to me, especially when the buyers are starting out with a mere 5% in equity. Caveat Emptor.
I came across this excellent article about the similar housing boom in the US:
So what is going to happen? It certainly appears that Alan Greenspan's loose monetary policy has done more than inflate a housing bubble. Prices of goods and services are rising as well now (even though the grossly manipulated CPI indicates only mild price inflation). Should the bond market get a whiff of real inflation, then an inflation premium will be priced into long-term bonds i.e., interest rates will rise sharply and bonds will fall. At this point, the bond market will show that Alan Greenspan is behind the curve and he will be forced to dramatically increase short-term interest rates in order to slay the inflation dragon. Such a scenario, of rising interest rates, will pummel the housing market and will leave millions of homeowners with negative equity in their homes. Mortgage defaults will rise, especially on adjustable rate mortgages, and this will be a financial disaster that will make the S&L crisis pale in comparison - keep in mind that we are talking about trillions of dollars in home loans and federal mortgage guarantees.I am concerned about the stability of the financial system itself as well as the risks being undertaken by homebuyers. Naturally, the taxpayer will be called upon to bail out the improvident borrowers and lenders. As Mr Englund puts it:
In spite of their implicit culpability, while America's financial system teeters on the abyss, these politicians will go on the offensive and somehow lay blame on all private companies involved with real estate - and call them "fat-cat, capitalist exploiters." In the end, politically-motivated pandering to envy may leave us with a nasty, brutish, and impoverished democracy.It's the same over here, and I don't doubt that the NuLab spin machine has already written the press release.
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Andrew Duffin (213.206.148.225)
What Neil said.
I won't worry too much about prices falling until I read about a radical review (preferably the abolition) of the planning system.
And of course, as they say, we've got two hopes of that happening...
22 July 2004, 12:43:04 GMT+01:00
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Sandy P (24.7.213.164)
Where is this housing boom?
All across the US or only in certain parts?
There was a housing bust in SoCal - Southern California in the early 90s, or it could have been wider in the state, but that doesn't mean there was a boom or bust in Mississippi.
Part of the problem is very restrictive environmental laws.
22 July 2004, 03:02:16 GMT+01:00
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Neil (195.93.34.10)
While house prices are showing all the mood swings of a speculator's market in the end this market, like all the others, depends on the balance between supply & demand.
Speculator's markets are more variable than others because they do not have the feedback mechanism of increasing (or reducing) supply. The problem with the housing market is that we arn't building them.
Currently we are building less than 1% of current stock annually ie less than replacement despite the fact that we are living in smaller family units & are vastly more wealthy than our Victorian forebears who created so many of these houses.
This is not a technical problem - we could build enormous numbers of houses using prefabricated mass production in the same way that Henry Ford increased car manufacturing. It is barely a problem of land shortage - if there is one thing Scotland is not short of it is land. It is purely a problem of government regulation - builders are being prevented from building, when they are allowed to build it has to be low level & low tech. So long as that is the case we are going to have rising prices.
The really down side of this is that millions of people are paying far more for their homes than required in the fond belief that they are "investing" in homes (rather than real investments) when in a free market these houses would immediately lose half (as an absolute minimum) of their value. As Canute pointed out you can't ultimately dam out reality.
20 July 2004, 22:57:49 GMT+01:00
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