It is Obvious

Chris Rick has got altogether too much to say

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Posted by chrisrick13 on April 16, 2015

It is obvious: I wish I was a poor man

The housing market is a market but one that is heavily interfered with by government.  ‘Market forces’ simply do not apply or at best are corrupted.  There are huge lurches as all the interference does not dampen and stabilise but runs positive feedback and creates chaos.  Who cares?  A house is where you live and whatever the cost now is irrelevant because you are in it.  The problem comes if you have to sell and the ‘market’ has moved against you or your circumstances change and you can no longer afford to own it.  The other problem is if you don’t own one!

If the price oscillates it is difficult to see if there is a trend in house price movements but you can work out what ‘forces’ might apply to influence the trend.  It is not important to home owners as they are in their home.  However it is important to people who are retiring and have hopes that some of the value of their house can be accessed to provide income in their retirement…and those without a home.

A word of warning.  All the house price numbers need to be considered either as absolute numbers or inflation adjusted.  That makes it tricky as there are so many inflation numbers many of which are dodgy at best.  I wonder if that is deliberate by government?  The average price of a house according to Halifax in mid-2007 was about £200,000 and in 2012 dropped to about £160,000.  That is a fall of about 20%.  Over that period inflation was about 20%.  So in 2007 terms that average house was worth only about £130,000.  This is a drop of about 35%.  From that low it has gone to about £190,000 which is about…£130,000 in 2007 terms.  Not good from an investment perspective but given the negative interest rates on bonds is actually not bad for the last couple of years!

Assume that there will be some large dislocations in the economics of this country what will be the trend for house prices?  Bear in mind that one of these dislocation might be exchange rates of the GBP.  So you have to stand in this country.

Another 20 million houses are needed over the next 20 years to hold the increase in population needed to get GDP growth that will enable the country to service its debts.  Yeah.  The likely projection of UK population growth against the current rate of building sees this country short of 3 million houses over the next 10 years.  Provided there is not a breakdown and collapse of this society it means that demand will be much more than supply.  Prices will go up but might not go up in real terms.

It means that the people who drive the market will less and less be able to enter the market at the bottom.  Indeed they will not want to.  This implies that large rich entities will buy these houses and rent them.  This is akin to feudal lords owning everything and letting peasants live in houses on their land if they work for the lord 24/7 – i.e. pay rent.  Will our society stand for that return to the middle ages?  There is a good chance that average house prices will drift along just out of the reach of average house buyers.

If you have property beyond your home then probably hang on to it.  If you think that you know somewhere good to put your money then get out now.  You will be able to make a lot of money telling others the place you have found.

Back to one of my themes.  Invest in yourself (health and skills).  Keep some decent cash for emergencies.  Enjoy yourself and spend everything else while that wealth has value and you can physically get around to spend it.

It is obvious: I wish I was a poor man then I would really have no  money worries

 

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