From: M Holmes 
Newsgroups: uk.politics.misc uk.finance
Subject: Re: "Worst housing market for 30 years" as estate agents admit to "overpricing". House price crash on the way ?
Date: Mon, 9 Jan 2006 20:03:20 +0000 (UTC)

In uk.finance Richard Faulkner  wrote:
> In message , M Holmes 
>  writes

 >>> I am guessing that holding property, (and some other

>>> things), without debt would not be too bad a thing either?

>>That should be fine if it's not held for investment purposes. 

> MM! But, presumably, people will need to rent if they cant buy, and
> wouldnt demand assist in maintaining rental levels, or would you
> expect rents to fall dramatically? (I'm obviously thinking of my own
> situation, where I am 43% geared, and loan payments are 33% of
> income). 

Obviously if I'm right, best advice is to get your gearing down as much
as feasible, but that's good advice in almost any circumstance currently
imaginable (I.E no inflation at a multiple of base rate).

The rental markets could get interesting if it plays out as I expect. Of
course right now, where there are Sell-to-Renters around (how many
though?) then that's good for supporting rents. 

As I see many people defaulting or being foreclosed, that would seem to
support rental markets and there will likely be some effect there. 
However I also see many folks being so financially wrecked that they
won't be renting either - they'll be moving it with relatives.  Added to
this I anticipate family breakups will reduce considerably and so a
driver of the rental markets for flats and small houses will vanish. 

Basically fewer people will be able to afford a split and I forsee more
conservative times where families will be more together as brash
consumption vanishes.  Also expect that the vogue of "we're splitting
for the children's sake" will be seen for the parental selfishness that
it is, and warring parents will be socially expected to hang in there
until the kids have flown the nest, perhaps even to the extent of theree
being welfare sanctions to encourage the behaviour.

Longer term I think the government is going to be faced with dual calls
from effectively bankrupt pensioners (because they didn't save or
because their pension fund went south) and welfare claimants.  The
pensioners will win because they've already paid in and have a valid
claim, where welfare folks have been a net drain and don't.  Plus folks
who are fit but don't work are in a better position to remedy their
situation than those who are old and retired.  Welfare claimants are
going to be by and large told to get on their bikes and find work even
as the unemployment rolls are rising. 

A third set of claimants will arrive on the scene: unemployed and
bankrupted debtors and foreclosed homeowners. The government is in debt
too and with the coffers already depleted with the welfare versus
retirerees fight, they'll have to find a solution that doesn't make
state coffers any worse and doesn't cramp the economy and those still
solvent with yet higher taxes.

They'll take a look at all those empty houses the banks and building
societies have been landed with and think "Hmmmmm". So what we'll see is
a pseudo-nationalisation of reposessed properties as they're rented to
ex-welfare folks and the repossessed at capped social rents. It'll be
justified by ssaying that properties shouldn't be left empty at a time
of national crisis and they're effectively doing the banks a favour by
earning them rents.

That's going to throw a monkey wrench into the rental markets even
before they start to think they can do some favours for private
landlords with empty houses while they're at it. Expect the folks with
second homes to get walloped by tax too - they're going to be seen as
bad guys who made the bubble worse.

In the end, there'll probably be a political consensus that says that
free markets in rents went too far (and I'm a libertarian remember, this
is not something I want to see happen) and that the experiment failed.
Landlords will again be scapegoated and regulation against
"profiteering" will make a comeback.

How far it'll all go is inherently unpredictable. Recall though that
stockjobbing was outlawed for nearly a century after the last great
British credit bubble and that short-selling was all but outlawed for
individuals for half a century after the Wall Street Crash. Those were
the scapegoats of those bubbles. People who've been congratulating
themselves on their financial acumen do not tend to blame themselves for
their recklessness after the fall. Nor do politicians tend to be overly
introspective regarding how much they might have been responsible.
Scapegoats will be found and they will be very publicly punished.

It's a sad fact that free marketss do not tend to survive bubbles with
their reputations unscathed. This probably says more about the faults of
people tha the faults of free markets.

>>With China's bubble going into reverse and Fannie and Freddie out of
>>the game, the dominoes are now stacked.  Let's see if I'm right about
>>the bowling ball coming from the derivatives markets. 

>>I know I've always said that one can't time these things, but the
>>signs are all there and my gut says that the brown stuff has left the
>>runway and is fast approaching the rotating object. 

>>Next up: all these investment shows on TV will be quietly pulled and
>>we'll start to see lifestyle advice based on making do and getting out
>>of debt. 

> We are already seeing this. 

> Make me Rich, and Pay off Your Mortgage in 2 Years. 

Hmmmm, you may have a point here...

>>Eris willing, we might finally see the back of Reality TV too... 

> I doubt it - It's one of the cheapest forms of TV production. 

I feel I have to be optimistic about something though.

FoFP