Housing
With regard to my outlining of the government's new house building incentive Orphi states that "Last time I checked, the problem was that nobody can afford the houses we've got, not that there aren't any." and what happens on GMTV this morning - an announcement that house prices have fallen; we've got the sellers just no buyers.
The problem is the difference between buyers and potential buyers. In simplistic terms supply outstrips demand, that is there are more houses for sale then people who want to buy them. This is not wholly true - there are more houses for sale then there are buyers who can afford them; it's a subtle difference that Orphi spotted. We have a combination of factors - the banks are 'correctly' cracking down on mortgages, and the market is waiting for the prices to hit rock bottom before they buy.
What is interesting to me is the mass doom and gloom panic that some media outlets want to turn this into an "As house prices fall so will the economy" type of thing as if that's the only thing keeping us going. I've mentioned before how odd it is that we expect house prices to always increase when we expect everything else to fall, and how prices made a sharp turn upwards as a multiplier of median wage.
So we see a contradiction here - if we build more houses then the supply will increase compared to those able to afford them and that therefore the price will decrease until supply matches that level of demand. At the same time we have the media wailing that the sky is falling due to the drop in house prices.
The solution is to ignore the media, but are any politicians willing to do that?
4 comments:
In a way, it's a bit like exam results. If exam results increase, the media wail that exams are getting too easy. If exam results fall, the media wail that kids are getting too stupid. Because, you know, there are no other possibilities, right?
Likewise, for seemingly years the media has been whining about house prices spiralling out of control and how nobody can afford to buy a house anymore. If it's really true, then it seems bloody obvious (to me) that prices must eventually fall.
And now they're falling, and the media is screaming that the sky is falling. WTF?
Trouble is the entire housing market is built on the assumption that values will increase. It's a reasonable good assumption when you realise it's not the house that's gaining value it's the space it occupies which is part of a finite amount.
This however fails if you increase the amount of space available either by building vertically or by opening up new tracts of land, or you inflate the prices of such beyond their sustainable means as has happened multiple times on the Stock Markets.
In either case the price starts to fall. For anything else this wouldn't be a problem, but house costs have been forced so high that the majority can only purchase through loans. With the fall in prices the collateral put up (the house) is worth less than the loan.
Fail to keep up with the loan repayments and you lose by the house and are still in debt. That's where the media's worry lies.
Even this shouldn't be too much of a problem as the banks don't make 'stupid' loans, ya know 110% mortgages and the like ya'd have to be really dumb to do something... like... that. Oh.
The irony is that with the banks hoarding all the money to themselves this is probably the best time to allow property prices to fall, but the media are still suffering from lag and thus move to doomsayer mode as soon as they see a decline.
Assuming that prices will always rise seems like a pretty stupid assumption in any situation. But maybe that's just me?
With all these people screaming that nobody can afford to buy houses anymore (without borrowing 17 times their income), you'd think a fall in prices would be beneficial.
As I said it's logical if you consider why they'd rise and that the media is still entrenched into the old mindset that a fall of prices is bad and that they're the ones forming public opinion.
From another point of view if you own your property outright you want to see its price rise so you can sell it and downsize with a nice pot o'money. If you're paying a mortgage you want to see it rise because if it falls and you fail to keep up payments you'll lose your house and still be in debt.
As it could be said both groups form the majority it's their point of view that prevails.
Post a Comment