UK house prices might now stop defying gravity

When you have a gigantic bubble that had burst, the longer you try to support the prices, the longer the economic pain. However, you must remember that these new measures are there mainly to protect banks. It will not necessarily stop a bubble from re-appearing through speculative activity.

http://www.bloomberg.com/news/2010-0...rate-risk.html

Right now, we have a mother of all housing bubbles brewing in Hong Kong despite a 30-40% deposit requirement. We have been there before in 1997 when our house prices were the most expensive in the world and it looks like we are back there again. In 1997, house prices went on to crash up to 70% but we are now near that level again. This time, it is the mainly Chinese who are buying up properties with cash and leaving them vacant. There is very little we can do about it except to limit foreign/non-resident ownership of properties that is extremely controversial.

What is particularly galling for me is that now working full-time in IM, I may never be able to get a mortgage again. Right now, 5 of us are cramped in a flat with less than 800 sq ft of usable space. However, to move up to a flat of 1,000 sq ft (small by western standards) will cost at least 0.75M in a mediocre area. Imagine having to come up with 0.75M in cash! No wonder why so many people in Hong Kong are completely fed up with this situation and there are demonstrations all the time about high property prices.

Derek,

If applied to EVERYONE, EQUALLY(and that means NO government support!!!!!), it WILL solve the problem. The poorer, and even some richer, will stay away unless they can afford it.

Steve

Steve, right now a large scale collapse of house prices in Hong Kong would be very popular. The impact on the economy would be very limited this time because the banks are well protected and local residents are not that involved in speculation.

The government was partly responsible for this in the first place by supporting the big developers. They also derive a large proportion of their revenue through property related activity. Also, they allowed mainland Chinese to immigrate Hong Kong just by buying 0.77M worth of property. Whereas in most countries in the world, if you want to immigrate through investment, you must create jobs. Another problem is that these mainland Chinese buyers tend to leave the properties vacant, and thus further dwindling supplies. If this silly immigration law is not repealed, there is no little chance of controlling this bubble. It is bound to burst anyway, the question is when and how violent.

Hey Derek! THANKS! Hongkong MIGHT be approacing the stupidity of the US with regard to immigration. I thought NO place came so close!

Steve

Derek - 7 million people is a small city?

I am more worried about the fact that politicians would still want to increase populations at a time that scientists are becoming very concerned with current populations. Immigration, in that case, is the only sustainable means of growth.........but then I wonder.........

Why would anyone want to stuff any more people into an area that already holds 7 million?

Frankly, I think anyone on this planet that holds any kind of power whatsoever has just gone stark raving nuts.

Latest inflation figure has been recorded at 3.7%. The Bank of England's got to raise interest rates now.... hasn't it??? :confused:

Latest inflation figure now stands at 4.0% (0.3% increase in one month)... Pressure on mortgages as inflation rises - Channel 4 News

...and yet the governor of the BoE is still cagey about when interest rates will go up -- Interest rates: 'Don't run ahead of yourself', says King - Channel 4 News

So the question is "How high does inflation have to be before the BoE's Monetary Policy Committee votes for a rate rise?". :confused:

bank's should increase the interest now because of you know naa

Yes uk house prices are outta step with many not being able to get on the property ladder but there's a long term shortage of houses available and land to build on. Even taking social housing is way behind demand.
So there may be a minor correction over the next few years but I can't see it long term.

Rich

Richard, I used to share that view -- "House prices are high because availability is low" -- but then I noticed that even after Deputy PM Prescott had initiated a massive house-building plan (was it something like 2 million homes over so many years?), prices kept going up. More houses did not equal lower prices.

Then I saw an interview with Merryn Somerset-Webb of MoneyWeek and I thought that she had solved the riddle: "House prices are dependent on the availability of credit, not the availability of housing".

But if that's true, then why are UK house prices still high when mortgages are harder to secure?

Hence my opening post and my obsession with interest rates: Is the low interest rate the only thing sustaining the overpriced housing market?

I guess we'll find out when the BoE raises the rates....

Is it increasing every month? Its getting harder and harder selling houses if this keeps up.

BoE decides to keep base rate at 0.5%...

Interest rates held at 0.5 per cent for 25th month - Channel 4 News

It would be very nice to see the housing market pick up finally. So much is affected by houses not selling. I've known a few builders that have had to change careers because the work just isn't there. But I've also been advised by financial people that lending is starting to happen and we should start to see some movement in the near future. But it won't happen over night.