Everyone knows Bozo blathers on about the massive over-pricing in the UK property market. Everyone knows that you only have to look at the history of UK property since 1970 to know that it only ever goes up and can never come down, and that therefore Bozo must be an idiot.
Well Bozo's idiocy is legend! Why stop now?
Of course anyone with a brain capable of level one analytics will have noticed that the financial crash we just experienced came in markets that people had decided could only ever go up! One of the few people who realised that all the sub-prime debt would go sour had realised that the model could only work if the market went up - even a flat market would lead to collapse!
If you take some real money and invest it in anything, equities, pork belly futures, whatever, if the value of your investment goes down you have the great option of shrugging your shoulders and waiting out the decline for your long term plan that the investment will go up over five or ten years.
The problem with most of the financial markets is leverage. It is not real money being used, it is money borrowed or manufactured through margins. The pressure for short term results goes up exponentially when the money you just invested is borrowed. Of course it helps if you borrow for the same term as your investment horizon. Which, in a mortgage, you do...
BUT. Some rude man at the bank wants you to make a repayment every month!
And if you borrow 100% and if you have negative equity and if the market is flat it become easier and easier to walk away from the disaster.
That's OK too now, because the banks won't lend you 100% anymore. Only 75%.
But of course RBS has made 20,000 people redundant since the crash - how do we think they are doing with monthly repayments?
Not to mention the gazillion people the Coaltion will be forced (by the bank bailout) to make redundant... they may struggle a bit with the repayments too.
So why all this gloom Bozo? What's your point?
Well my friends at the Royal Institute of Chartered Suveyors have just released a report which Reuters headline describes as: RICS house price index hits 16-month low in September
For those of you too bone idle to click the link let me tell you the highlight.
The score for new instructions (i.e. sellers) went from +12 to +22
The score for new enquiries (i.e. buyers) stayed at -2
Now i am not an economist, but isnt growing supply and falling demand a bad thing for prices?
This may sound like gloom to some of you, but, not everyone in the country is a home owner (or a second home owner and a house in Tuscany holiday home owner). And for a lot of people in this country a return of prices to a level where ordinary working people can afford to buy a home is NOT a bad thing.
For a lot of people in the UK, the good news is house prices will continue to fall... and while you are saving for the 25% deposit the market is not going to run away from you.
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