Housing bubble

[Peahead66]

Just curious as to peoples views on the current housing bubble do you think it will burst soon?? Also with so much personal debt totaling around �1.1 trillion now I think what on earth will people do if interest rates go up??

[twiglet4frog]

lose there homes? more bankrupts? with no one able to buy their first house now because of house prices so high (�50,000 for a beach hut in last weeks paper) eventually prices will go go very low, maybe upto 30% off the current asking price (already losing �800 - �1500 per week at present in some areas) and we will see a market place moving again, but what happens to thos that recently bought their houses at a high price needing a large mortgage to afford it when they lose 30% on the price of the house? I am so glad that i have no debt!

[Peahead66]

My thoughts exactly twiglet4frog.

[jake-the-peg]

Most places are seeing a drop now but it would take some significant external event to trigger a dramatic fall.

There are a lot of people priced out of the market right now and drops in price make them able to buy so they support the prices.

You'd need a very sharp increase in interest rates or unemployment for a collapse

The idea that just because house prices are very high now they'll soon go very low because of some natural order is a bit odd.

Have a look here for an assessment:

http://www.hometrack.co.uk/index.cfm?fuseaction=news.news

If interest rates go up significantly then house prices would drop and a number of people would find themselves unable to move (negative equity) and struggling to meet repayments. This would mean they'd cut back in almost all areas they could car purchases holidays home improvements etc would be first for the chop. This would mean shops and businesses would feel the pinch and the economy could start to slide. It's therefore very unlikely that the Bank of England would want to suddenly raise interest rates. They'd probably only do it if they needed to prop up the pound and with the dollar weak again that's unlikely 

[Peahead66]

I thought (looking back through some historical economic records on the internet) that all economic cycles are about boom and bust? I know alot of people have said that many boom and bust cycles are engineered on purpose for the purpose of wealth transference but I dont know much about that. Interesting how looking back through the history of these cycles though how much debt was encouraged prior to the bust. Interesting reading also about other people who have lived through previous crashes and how they are talking about seeing the same signs again. I guess time will tell.

[jake-the-peg]

Generally boom and bust cycles relate to things with perceived values rather than things which people actually need like food or housing.

The classic example is Tulip bulbs in the 17th century.

Tulips became immensely prized after their introducution in the late 16th century and nobles outbid each other to have the best and greatest and the prices hit astronomical levels before there was a sudden loss of confidence and everybody raced to ell and it all collapsed.

Same thing in the shares in South Sea Island companies a hundred years later. Same thing in DotCom companies.

The thing that seperates all these from house prices is that nobody needs tulips or South Sea Island shares or many of the DotCom companies.

People need houses. The prices collapsed in the above examples because there was massive speculative buying of things that were intrinsically worthless.

True there was a collapse in the 80's but interest rates then ramped up to 12% so no matter how much people needed houses they couldn't afford them.

You'll find house prices will drop mostly where all those "property lifestyle" programs have encouraged speculative buying especially if the stock market start to look up.

I think a lot have people have now been predicting a crash so long they are emotionally tied to the idea and think "it's just a matter of time". I guess if you preach the end of the world long enough one day you'll be right!