It is Obvious

Chris Rick has got altogether too much to say

No more Mr Nice Guy

Posted by chrisrick13 on June 12, 2014

It is obvious: I’m not stupid

It is too limiting if I only talk about happy stuff.  I’ll just promise to talk about happy smiley things as often as I see them.

In the 1960s smoking did not cause cancer and still the tobacco companies are fighting a rear-guard action making lots of profits.

I know people who are certain that the Americans did not land on the moon.

There is no such thing as global warming and the scientists who talk about it are idiots at best or have some other dark intent.

So it is that there is not a housing bubble in the UK.  You need to mortgage beyond the hilt to get into this market or you will forever be unable to afford your own home.  Bricks and mortar are a safe investment.  After all, thank you Mark Twain, they have stopped building land.

How is the price of your house arrived at?  I return to the prostitute’s question but apply it in reverse.  It is worth the price at which someone says to themselves that the risk has dropped below the reward.  For my house at £5 there are probably 60 million people while at £1m there is nobody.  I’ll guess that at £400,000 I would have a couple of thousand people keen to write me a cheque.

So who is writing the cheque.  Either someone who wants to live in it, someone who sees an opportunity to own it for a short while and then sell at a profit or someone who sees the income from renting as a better proposition than having money in the bank at 0.1% interest or some such.  All of those result in someone living in it and paying the market rate to do so.

For someone to buy my house and live in it somebody else somewhere has to step in and buy a house for the first time.  They have to get a mortgage for a large multiple of their salary and promise to service that loan and pay it off over 25 years or more.  They have to get a loan with the base rate at 0.5%.  The long-term average is closer to 4.5% and was at 12% for some of the time of my mortgage.  They have to think about what it might cost to keep the house but aren’t at the moment.  They have to have a job where they can advance their salary as average wages are increasing at much less than inflation of any stripe.  If not then to keep the house they have to stop doing something that they did before – eat?

The bubble goes on longer than you think it ever can.  Tulip bulbs in Holland cost as much as a person earns in a lifetime to buy and changed hands at that rate on the day before they crashed to zero value.  When does the bubble burst?  It goes when those first time buyers realise that there are better options than a life of servitude to a mortgage on a house that they never really liked anyway.

When do these lemmings realise that?  Difficult.  A trigger event was my favourite for a long time.  They are unpredictable .  I am more in favour of the trickle theory now.  Someone in the pub says to his/her mates that they have stopped looking for a house.  They are going to rent or live with parents or stay in the council house.  Not a lot of discussion but people are thinking.  Then he/she stands up to get a round in and the ones with mortgages realise they can’t afford to do that unless they cancel the Sky subscription/get rid of the smart-phone/keep the car another year/don’t eat next week.  The word spreads…slowly at first.

The trickle turns into a flood in a very short time but does run as a trickle for longer than you might think possible.  If you want to gain from this it is all about timing unless you can wait until the flood has subsided…and a lot of people can.

It is obvious: I’m not stupid if you compare me to the right group of people

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