Credit deflation and the reflation cycle to come.

[Funn3r]

4 hours ago, leonardratso said:

they tracked you on your phone and knew you were in the area, so quickly constructed a harvester and laid on a breakfast just on the off chance you fancied one.

That was Matrix upgrade X66.6 well spotted. Sorry there was no avocado in your brekky; the coder responsible has been reprimanded. Shouldn't really say this but there's an Easter Egg you can try next time - put 8 sugars in your tea the waitress serves you topless. 

[Band]

1 hour ago, dgul said:

I don't think it will work this way.  Everyone will be worse off, albeit by different relative amounts.

I wont, and neither will people looking to buy a house with wages.

[dgul]

37 minutes ago, Banned said:

I wont, and neither will people looking to buy a house with wages.

I disagree.  The first years of buying a house has always cost all they money you've got left after essentials.  All that changes are interest rates and the (important) impact of inflation.

I'd agree that you might be better off if you're in the market to buy a 'complex' house with savings -- difficult to mortgage properties collapse to nothing in property market crashes

[Band]

7 minutes ago, dgul said:

I disagree.  The first years of buying a house has always cost all they money you've got left after essentials.  All that changes are interest rates and the (important) impact of inflation.

I'd agree that you might be better off if you're in the market to buy a 'complex' house with savings -- difficult to mortgage properties collapse to nothing in property market crashes

Disagree all you want but youre wrong.

Youre suggesting people wont be better off with a hpc. Its the utter bollox i hear from the msm on a daily basis.

 

[Funn3r]

15 minutes ago, dgul said:

I disagree.  The first years of buying a house has always cost all they money you've got left after essentials. 

Yes I know boomers always have this up their sleeve as a moan card. But I really did live through 15% interest rates. How do you think I felt as a young kid with a house getting endless letters from the building society saying "guess what pay more again bwahaha sucker". Got to the point where I was thinking f hell what am I going to eat.

[dgul]

9 minutes ago, Banned said:

Disagree all you want but youre wrong.

Youre suggesting people wont be better off with a hpc. Its the utter bollox i hear from the msm on a daily basis.

 

We'll get a HPC.  But by and large people who want to buy but haven't yet and who've not got much deposit (<20% )won't be better off.  

People who've bought recently will be much worse off.

People who bought ages ago won't be worse or better off, but will think they're worse off (because they owned a house before, and they'll have exactly the same after).

Frankly, IMO with what's coming most people will be worse off, and by some margin.  But this is only because of the made up bonkers economy going away; the closer you are to the made up bonkers economy, the worse it'll be for you.

7 minutes ago, Funn3r said:

Yes I know boomers always have this up their sleeve as a moan card. But I really did live through 15% interest rates. How do you think I felt as a young kid with a house getting endless letters from the building society saying "guess what pay more again bwahaha sucker". Got to the point where I was thinking f hell what am I going to eat.

But that's exactly my point.  At 15% interest rates you get cheap house but are hammered by interest rates.  At 1% you get an expensive house but have negligible interest costs.  The end result is the same -- all of your money, please.

 

[Band]

17 minutes ago, dgul said:

 

But that's exactly my point.  At 15% interest rates you get cheap house but are hammered by interest rates.  At 1% you get an expensive house but have negligible interest costs.  The end result is the same -- all of your money, please.

 

Quite remarkable. Obviously paying 300k for a house and paying rock bottom prices for the same house due to high interest rates are just the same then. 

Obviously paying the actual cost of the house down is the same in both scenarios.

Truly remarkable.

To add in your previous post everyone would be worse off now its just most.

 

 

[macca]

20 minutes ago, dgul said:

But that's exactly my point.  At 15% interest rates you get cheap house but are hammered by interest rates.  At 1% you get an expensive house but have negligible interest costs.  The end result is the same -- all of your money, please.

 

If we can crash the house prices by 2/3rds I will pay cash..

[Band]

28 minutes ago, Funn3r said:

Yes I know boomers always have this up their sleeve as a moan card. But I really did live through 15% interest rates. How do you think I felt as a young kid with a house getting endless letters from the building society saying "guess what pay more again bwahaha sucker". Got to the point where I was thinking f hell what am I going to eat.

Id sooner have a mortgage where i had to go without for a few years than the current scenario of it costing 12 times average salary for a 3 bed semi.

Thing that your age group always forget to mention is the vast wage inflation in the decades prior.

1 minute ago, macca said:

If we can crash the house prices by 2/3rds I will pay cash..

Crash 25% i will. His comment is the sort id expect to read on a landlord website. Truly astounding logic.

[dgul]

47 minutes ago, Banned said:

Quite remarkable. Obviously paying 300k for a house and paying rock bottom prices for the same house due to high interest rates are just the same then. 

Obviously paying the actual cost of the house down is the same in both scenarios.

Truly remarkable.

To add in your previous post everyone would be worse off now its just most.

 

 

Yes.  You're paying £1,000 a month (or whatever you can afford) in both scenarios.  Of course, inflation plays a significant part over the longer term, but that's irrelevant if you can't buy the cheap house in the first place because you can't afford the high-interest rates on the loan.

Sure, if you can pay a decent amount of cash, then you're quids in -- but the quote was neither will people looking to buy a house with wages.  The average housebuyer with a 15% deposit (that is a 10% deposit now) won't (IMO) see a lovely land of housing costs of a tiny fraction of their earnings. 

The best position of all will be in buying houses (or flats) that are difficult to mortgage and with a motivated seller (inc repossessions) for cash -- the prices of these will go down the most.  It might take a while to reach rock-bottom though; those with cash will move in to get the 'bargains' from the start (BTFD).  Trouble for them is, the prices will keep on going down (in real terms) -- IMO we've got a 25 year bear market in housing ahead.

[BurntBread]

9 hours ago, dgul said:

I don't think it will work this way.  Everyone will be worse off, albeit by different relative amounts.

From the time when our species was trading Dentalium shells, up to the days of posting pictures of restaurant meals on facebook, our happiness has been largely determined by the relative amounts.

6 hours ago, dgul said:

But that's exactly my point.  At 15% interest rates you get cheap house but are hammered by interest rates.  At 1% you get an expensive house but have negligible interest costs.  The end result is the same -- all of your money, please. 

Yes, but isn't the difference that at 15% rates, the time for which you are being fleeced and don't have two pennies to rub together, is a lot less?

[eek]

22 hours ago, Castlevania said:

The buy to letter in the second part is also in the first part, moaning that he’s been trying to sell a property for 18 months. Clearly asking too much.

Yep - price to sell early or you will forever be chasing the market down....

[MrXxx]

7 hours ago, dgul said:

We'll get a HPC.  But by and large people who want to buy but haven't yet and who've not got much deposit (<20% )won't be better off.  

People who've bought recently will be much worse off.

People who bought ages ago won't be worse or better off, but will think they're worse off (because they owned a house before, and they'll have exactly the same after).

Frankly, IMO with what's coming most people will be worse off, and by some margin.  But this is only because of the made up bonkers economy going away; the closer you are to the made up bonkers economy, the worse it'll be for you.

But that's exactly my point.  At 15% interest rates you get cheap house but are hammered by interest rates.  At 1% you get an expensive house but have negligible interest costs.  The end result is the same -- all of your money, please.

 

Ehh?...your £300k debt will always be £300k but the 15% interest rate (and so monthly payments) has the potential to reduce...so surely better to have a smaller loan, especially considering the interest over the lifetime of mortgage?!...OK, inflation will work away the real value of the £300k but you still have the greater interest payments on the greater sum.

[eek]

 

3 minutes ago, MrXxx said:

Ehh?...your £300k debt will always be £300k but the 15% interest rate (and so monthly payments) has the potential to reduce...so surely better to have a smaller loan, especially considering the interest over the lifetime of mortgage?!...OK, inflation will work away the real value of the £300k but you still have the greater interest payments on the greater sum.

The point was that the monthly cost is the same and people always look at the monthly cost not the actual price (just watch someone purchasing a car). Now it may be obvious to us that  purchasing something at 10 times average earnings you are betting (all In) on 0 never coming up on the roulette spin but most people don't get that far. 

Also wages used to rise by inflation (or greater than inflation). Anyone seen much of a pay rise in the last 10 years now immigration is high...

[Castlevania]

8 hours ago, dgul said:

I disagree.  The first years of buying a house has always cost all they money you've got left after essentials.  All that changes are interest rates and the (important) impact of inflation.

I'd agree that you might be better off if you're in the market to buy a 'complex' house with savings -- difficult to mortgage properties collapse to nothing in property market crashes

The big difference is the value of your money. Your savings will buy you a bigger deposit. In addition if you have a £1,000 left over each year to overpay, in a higher interest lower house price scenario that £1,000 will pay off a higher % of the outstanding mortgage and you’ll also have a cash flow benefit as you’ll be saving paying a higher amount of interest on that £1,000. Sounds far better to me.

[DurhamBorn]

23 minutes ago, Castlevania said:

The big difference is the value of your money. Your savings will buy you a bigger deposit. In addition if you have a £1,000 left over each year to overpay, in a higher interest lower house price scenario that £1,000 will pay off a higher % of the outstanding mortgage and you’ll also have a cash flow benefit as you’ll be saving paying a higher amount of interest on that £1,000. Sounds far better to me.

It is yes.The interest rate isnt what pushes you along the risk curve,its the amount of debt compared to income.Thats why the very best time to buy a house is when interest rates are close to their peak for the cycle.What needs to be remembered about the end of this long disinflation cycle is that governments/CBs have pushed interest rates down while still pumping money into the economy.That money saw low velocity and ended up parked in assets.In the UK mostly houses.Of course that is why the pain will be even worse going forward for those buying at peak or close to peak.HTB the most exposed of everything.

The best time to buy anything in a reflation/inflation cycle is when it is at its lowest capital value.Interest rates dont matter.In a rising inflation cycle lumps of capital that come your way will slash your debts.Redundancy,share awards,lump sum from pensions etc.

eek is also right however that people tend to look at the monthly cost only.Thats an end of cycle thing.People cant remember the pain and dislocation of a crash and have reached the point where they see no crash will ever happen.It just doesnt come into their thinking.That is why the mug money always takes most of the pain in any cycle.They claw their way through semi decent times to a stage where they can join in,but that tends to be the end of cycle.It happens over and over and its one of the reasons the sentiment indexes are a tool i use a lot.

[dgul]

59 minutes ago, MrXxx said:

Ehh?...your £300k debt will always be £300k but the 15% interest rate (and so monthly payments) has the potential to reduce...so surely better to have a smaller loan, especially considering the interest over the lifetime of mortgage?!...OK, inflation will work away the real value of the £300k but you still have the greater interest payments on the greater sum.

That is very true -- and is in fact the basis of what is usually called the 'housing ladder' -- it only works in high inflation/interest rates environments.  This isn't a panacea though -- if you've got 10 years of high interest rates, with a high spread over inflation (because banks aren't stupid), with a real risk of them increasing as well as decreasing, you've not got an easy life.  

1 hour ago, eek said:

 

The point was that the monthly cost is the same and people always look at the monthly cost not the actual price (just watch someone purchasing a car). Now it may be obvious to us that  purchasing something at 10 times average earnings you are betting (all In) on 0 never coming up on the roulette spin but most people don't get that far. 

Also wages used to rise by inflation (or greater than inflation). Anyone seen much of a pay rise in the last 10 years now immigration is high...

Life's luxuries are one thing, but you can't blame people buying an essential using debt where that is more cost effective with renting that essential.  My point was more that everything works out the same -- in terms of short to medium term impact an efficient market (and it is efficient in purely economic terms, even if it is mad) will have the same pain per individual.  If prices go lower then demand will increase until the market moves back to an equilibrium where people are spending all the money they've got left after essentials.

39 minutes ago, Castlevania said:

The big difference is the value of your money. Your savings will buy you a bigger deposit. In addition if you have a £1,000 left over each year to overpay, in a higher interest lower house price scenario that £1,000 will pay off a higher % of the outstanding mortgage and you’ll also have a cash flow benefit as you’ll be saving paying a higher amount of interest on that £1,000. Sounds far better to me.

Yes -- the deposit effect is real.  This biases the system to people with access to cash -- savings, yes, but more often family money.

[dgul]

1 hour ago, BurntBread said:

 

Yes, but isn't the difference that at 15% rates, the time for which you are being fleeced and don't have two pennies to rub together, is a lot less?

It doesn't feel that way at the time.

[eek]

Just now, dgul said:

Life's luxuries are one thing, but you can't blame people buying an essential using debt where that is more cost effective with renting that essential.  My point was more that everything works out the same -- in terms of short to medium term impact an efficient market (and it is efficient in purely economic terms, even if it is mad) will have the same pain per individual.  If prices go lower then demand will increase until the market moves back to an equilibrium where people are spending all the money they've got left after essentials.

I'm not blaming people, just showing how all people in the market (both banks and borrowers) work out how much they can borrow.

Zero % interest rates are going to be a big cause of the mess when interest rates return to normal(er) levels.

[dgul]

11 minutes ago, eek said:

I'm not blaming people, just showing how all people in the market (both banks and borrowers) work out how much they can borrow.

Zero % interest rates are going to be a big cause of the mess when interest rates return to normal(er) levels.

i'd agree with that.  

But when we get there the working man isn't going to say it.  He'll be saying 'fuck -- how can I afford to buy my new BMW now.  I hate the government for letting interest rates rise'

[eek]

4 minutes ago, dgul said:

i'd agree with that.  

But when we get there the working man isn't going to say it.  He'll be saying 'fuck -- how can I afford to buy my new BMW now.  I hate the government for letting interest rates rise'

I suspect the issue will be more how can I afford any car now not just a new one.

 

I'm car hunting at the moment and need to visit a Mini garage tomorrow I'm not looking forward to their attempt to sell me a new one on credit (I want a second hand one cash only) - thankfully the model I want isn't available at the moment due to the EU's emission changes.

[DoINeedOne]

Something a friend said to me the other day "All these new cars everywhere" remember when we were at school and it was rare to spot a new number plate like for the current year you would see one and be like wow that's a brand new BMW 1995 plate 

silly little things you forgot 

[dgul]

14 minutes ago, DoINeedOne said:

Something a friend said to me the other day "All these new cars everywhere" remember when we were at school and it was rare to spot a new number plate like for the current year you would see one and be like wow that's a brand new BMW 1995 plate 

silly little things you forgot 

In a few years people will be lamenting how much they'd spunked on new leather, that they could be spending on real assets that have been wiped out.

[or spending on not getting repossessed / going bankrupt]

[afly]

33 minutes ago, eek said:

I suspect the issue will be more how can I afford any car now not just a new one.

 

I'm car hunting at the moment and need to visit a Mini garage tomorrow I'm not looking forward to their attempt to sell me a new one on credit (I want a second hand one cash only) - thankfully the model I want isn't available at the moment due to the EU's emission changes.

Prepare for a 2 hour hard sell on a 1 year warranty

[eek]

8 minutes ago, afly said:

Prepare for a 2 hour hard sell on a 1 year warranty

I know. The only reason I'm going is that I need to know that in an emergency I can fit a baritone saxophone in the boot with one back seat down... After that shopping will be done over the phone after selecting suitable options and getting the garages to offer me their lowest price...