Real Estate bubble bust may be worse than Dot Com bubble bust

and that if people can afford to buy something, but don't want it, or think it is too expensive for what it's worth, then they won't buy them?

this is ground breaking economics, guys.

A great deal of economics is stating things that are so bleedingly obvious we have forgotten what they are.

otm, and most bubbles involve mass hallucinations that basic economic truths aren't true this time.

really, i think we're wondering why people don't just follow those rules all the time, mostly.

so do we all know these rules here on this thread?

well, they're different for BTL, obviously

assume a can opener

thing is, it makes sense' to break the rules during a credit expansion as long as you cash in before the tide goes back out. this how populations get progressively more in debt under the illusions they are getting richer.

the boomers have ridden this wave pretty well. not sure who is going to pay for their retirement though

is it a good time for me to start lending people money?

what are the ways to make immoral cash during a recession?

is it basically to buy out people's stuff at rock bottom prices?

if you follow the rules then it should be relatively easy to know what the bottom is and when it will occur?

yep, xpost. if you can get the cash.

Can I make millions buying foreclosed homes with no money down?

the bottom is always beneficial to those with liquidity/cash rather than those that need credit and are unable to take advantage of lower asset prices

But there is no shortage of houses in UK - people are not in camps waiting for houses to live in

Apparently they're all still living with their parents

-- Tom D., Thursday, April 10, 2008 3:30 PM (1 hour ago) Bookmark Link

heeeeells yes

which deflates the "oh prices are x% down - i'll just buy more" argument

so house prices being high is what's sustaining our society's family bonds in the uk?

I sometimes get the feeling that Laxalt is opposed to anyone borrowing money to buy anything at all.

We will be back in the stone age if people stop borrowing money it's how money is created.

er well it's golden rule 3

3. when you take out a debt you will end up paying more than what you owed
Thursday, 10 April 2008 12:23 (5 minutes ago) Bookmark Link

Well no not exactly - though of course we are all paying back interest on loans that we ourselves don't take (rent is just interest paid back to bank via an intemediary)

Its an inevitability of a system in which money is created as debt, and at certain parts of the cycle its advantageous to ride that expansion. But I think that borrowing in general over the course of the 20th century (certainly post ww2) has really been a kind of peonage hidden behind an illusion of wealth - and that this has been progressively increased since the decline of industry.

We will be back in the stone age if people stop borrowing money it's how money is created.

-- Ed, Thursday, April 10, 2008 4:05 PM (8 minutes ago)

well, yes - its a pretty central plank of capitalism

basically, the way that the burden for this money creation has been shifted ever more onto ordinary people under the illusion of wealth creation

Surely UK corporate debt >>>> UK consumer debt though?

(Actually I don't know if that's even true, it's just an assumption I'd always made)

(Also this doesn't mean the burden isn't shifting, of course)

Since the early 60s (maybe before not sure) uk consumer and mortgage debt has grown hugely (or rather percentagewise equity has shrunk) - as i was trying to say on the uk thread a few months ago we are supposedly richer (through the expansion of owner occupancy) yet, collectively, we 'own' less (as a %) of our houses with each passing year.

the % of money created via mortgage debt has increased hugely since the 60s - ordinary people fulfill that function more than they ever did, under the illusion of becoming richer.

we are supposedly richer (through the expansion of owner occupancy) yet, collectively, we 'own' less (as a %) of our houses with each passing year.

clarify

Well each individual person may well gain more equity with each year. but collectively 'we' owned a larger percentage of uk equity in 1961 than we do today. (Granted, equity is a bit of an ephemeral and theroetical concept but still). This isn't that surprising because with every credit expansion we own more expensive homes, but we are putting down less and less to begin with, and paying off less and less (most recent gains have been prices rising rather than debt being paid off. how much debt is actually paid off in first 5 years? not much)

Its hidden by the huge rises in each bubble - but long term the amount owed to the banks, as a Percentage, of uk housing wealth grows each year, which means the publics share must be shrinking

(its also distorted of course because owner occupancy has been growing over the decades - go back to 1912 and mortgage debt must have been a tiny proportion as ordinary people didn't own houses, landlord class owning outright - so its swings and roundabouts)

Who is 'we'? The general public or property 'owners'? If you're talking about the general public then surely we own more now than we did in the past because only a few decades ago most people either rented privately or from the council. Or are you saying that amongst people who 'own' property the balance has shifted away from people who own outright towards people who are slowly paying off a mortgage? If the latter, isn't that actually a result of widened owner-occupancy?

"Ordinary people"

yes that is correct. widening owner-occupancy has increased the percentage of equity owned by banks hugely (and yes that is because social housing has been removed to help facilitate this)

"Ordinary people"

fair point, poor terminology.

working people?

Or "Hard Working Families", to use the crap terminology preferred by all the major political parties

;)

so what happened to those people who owned those houses outright? did they sell them to the banks?

we could always go with "the section of society that didn't own in 1923 but were more likely to own in 1972 and still more likely in 2000"

who owned the houses that the section of society didn't own in 1923 but own now?

actually that may be the same question

Landlords

so what used to be landlords are now banks. is that the lesson we're getting from this episode?

what happened to the landlords?

I'm no expert on on 1920's housing! Factories owned housing - don't have any of those anymore, of course. And local authorities - hardly anymore. And landowners - still got them.

Housing wasn't the motor of the economy as more people rented, there was factory housing as tom says, social housing. the way that the owner occupancy class grew postwar in UK and anglosphere (to a much larger degree than in rest of Europe) is pretty fascinating - and has come to represent the largest motor for money creation in the economy.

Not really sure when this all began to take off - if it was immediately after the war or if it wasn't until the 1950s (obviously a lot of house building at that time). I guess another big change was the gradual decline of inner city terraced housing and then subsequent gentrification - which must be a huge motor for price rises over the last 40 years - dragging other stuff up in its wake. and then thatchers selling off of all the social housing the 3rd big push

Laxalt, I still don't see where you're going with this.

To use some invented figures, let's say that at some point some decades ago in Britain 40% of the population lived in privately-rented accommodation (owned by the fraction of the population who were landlords), 30% lived in council housing, and 30% lived in owner-occupied housing. For the sake of argument let's say those in owner-occupied housing were in various stages of paying off their mortgages, evenly distributed from those who had paid off nothing (so effectively the bank owned the property) to those who had paid off everything (so they owned the property outright), so that approximately half of the owner-occupied property was owned by the owner-occupiers and half by the banks (so we could say 15% of all housing was owned by the banks).

And to use some more invented figures, let's say that now the situation is that just 10% live in privately-rented accommodation, only 20% in council housing, and 70% are owner occupiers. Using the same distribution as before (i.e. 50/50 between the banks and owner occupiers) that would give mean that now 35% of all housing is owned by the banks.

So, yes, in this model the banks own more of the nation's housing than they used to (35% instead of 15%), but so do owner occupiers (35% instead of 15%). The ones who own a smaller share than before are landlords (10% instead of 50%) and to a lesser extent the government (20% instead of 30%). I'd agree that the latter is a problem (a lot of social housing has been sold off and not replaced), but I don't see why we should care about the former. Why is it a problem if lots of property that was formerly owned by rich landlords is now owned by banks?

I think it is the fact that the percentage is continuing to increase - ie we are becoming progressively more indebted.

Also i think the bit I would dispute from your post is that the banks owned half the 30% and now half the 70% (of your invented figures) - i think this is where the major growth in bank ownership is rising (within this subsection)

the other main problem is that secure rented houses (via social housing) has been sold off - further encouraging debt as a means of 'security'

government finances when the council houses were flogged off were not exactly secure. the thing you have to grapple with is that it was not just the evil thatcherite yuppies in their suits and ties who wanted that stock to be sold -- that shift in working-class votes to thatcher can't be wished away.

I agree totally - and many did very well out of that - the true cost felt later