It is Obvious

Chris Rick has got altogether too much to say

House prices

Posted by chrisrick13 on September 24, 2009

It is obvious: the recent media reports of the large numbers of students leaving full-time education and not getting a job is not true.

A lot of them will get work over the coming months.  My coffee is served to me by a PhD, my groceries rung up by a graduate engineer.  Few of them, coming from school or university, will be allowed to appear on the jobless counts.  If you are employing, and not many seem to be doing that at the moment, then you might well prefer a 20 year veteran at bargain rates to a new graduate or someone just off a training scheme.

I do wonder that an accurate count could be obtained whatever your particular vested interest.  I am sure that a lot of students do not have jobs, and of those that do, many are not doing what they have trained for.  Many more are extending their education in the hope of a better qualification in a few years when the recession is over (sic).  Which of those is truly employed or not unemployed?

What are these extended and newly ex-students doing?  They are living on what the state or a low paid job will give them relying on their parents to support them.  If someone is paying the fixed costs of running a home then the incremental cost of another person staying alive there is very small.  These students can survive and possibly even have a pleasant existence.  I won’t try, at least in this post, to consider what social consequences there will be in a few years.

In normal or, perhaps, previous circumstances what would these ex-students be called in 5 or 6 year’s time?  Young married couples?  Professional couples? Families, even?  All of those perhaps but also: First Time Buyers.  Now, what will they be called?  Already I hear the term: The Lost Generation.

If they are not first time buyers then what becomes of the housing market?  There won’t one or at least not one that we are familiar with, without first time buyers.  Clearly in any market the prices fall to those that buyers are prepared to pay or scarcity drives the price up to where sellers are prepared sell.  I can’t sell my house for £1m but I can sell it for £5.  There has to be a maximum price in that range and though it might be difficult finding it I ought to be able to get close and then decide to sell.  This is not a lesson in the operation of markets that I am, in any event, ill-equipped to give.

With a huge reduction in first time buyers the price of small houses and flats will fall by a large amount.  This will be closely followed by the price of larger houses.  For every family moving in, a family is moving out and they need to find somewhere to live at a price not too removed from the one they got for their house.  This is the simple chain for nearly every sale starting with a first time buyer.

Ignore the lack of new housing.  There are plenty of empty houses out there and plenty of buy-to-let landlords who will have to sell at the first hint of a raised interest rate, and we will have that soon enough.  There will be a an excess of sellers over buyers at just about any price level.

It is obvious: without a ‘W’ shaped recession housing prices will fall over the next few years.  With one they will fall sooner, longer and quicker.

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