Credit deflation and the reflation cycle to come.

[Lavalas]

Where do you guys see buying close to peak and fixing low interest for ten years in all this risky shit show. Our lass ain’t keen on waiting forever, that’s my problem.

[Band]

8 hours ago, dgul said:

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.

You have some strange idea people only buy houses with mortgages.

But seriously your claim that there is no difference is truly staggering, only a boomer could come up with it.

Quite clearly people ought to just fill their boots, the 2 generations of priced out dont know they were born as they didnt have 15% interest rates for a very short period of time. (you did have MIRAD also)

[dgul]

11 minutes ago, eek said:

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... 

It's funny the requirements that we have.  I once bought my wife an automatic, purely because she demanded a short car and her contrabasson (case), while narrow enough to fit between the front seats, was sufficiently long that it occupied the whole of the length of the interior from boot sill to dash -- it covered the gearstick area making changing gear impossible (on the go).

[invalid]

The UK inflation rate unexpectedly rose in August to 2.7%, the highest level in six months.

Economists had expected a Consumer Prices Index rate of 2.4%. The pound rose after the data was released by the Office for National Statistics.

Wages are still rising more than inflation, with data last week showing wages, excluding bonuses, grew by 2.9% in the three months to July.

Rising prices for recreational goods, transport and clothing drove the rise.

[Funn3r]

9 hours ago, macca said:

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

Same here. And with a decent bit of inflation that huge mortgage will be a piddly mortgage in no time. 

[azzuri82]

10 hours 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.

 

 

Yep, exactly. I imagine around 10% of the population will be able to buy in cash if there's 40-50% off nominal prices, especially in the north of England and Wales/Scotland/Northern Ireland. Obviously these people by any measure will be 'better off'. 

If buying with a mortgage, the risks are much lower with a lower principal and higher interest rates versus higher principal and lower interest rates. The monthly payment will in effect be the same, but the actual 'risks' these people are taking with a lower principal / higher interest rates is far more measured.

[kibuc]

9 minutes ago, Lavalas said:

Where do you guys see buying close to peak and fixing low interest for ten years in all this risky shit show. Our lass ain’t keen on waiting forever, that’s my problem.

It depends how she can mentally handle years of negative equity on a shitload of debt, and for how long her lender will be willing to tolerate it - which is just a guesswork at this point. Personally, I'd find it unbearable and I'd have trouble sleeping at night looking at my balance due and expecting a call from the bank at any moment, but I'm not the most resilient person to begin with.

[kibuc]

8 minutes ago, null; said:

The UK inflation rate unexpectedly rose in August to 2.7%, the highest level in six months.

Economists had expected a Consumer Prices Index rate of 2.4%. The pound rose after the data was released by the Office for National Statistics.

Wages are still rising more than inflation, with data last week showing wages, excluding bonuses, grew by 2.9% in the three months to July.

Rising prices for recreational goods, transport and clothing drove the rise.

Luckily "BBC economic correspondent" is quick to put a spin on it.

I guess if you exclude all the things that rose, we're actually in deflation and a rate cut could be due.

[Funn3r]

13 minutes ago, null; said:

 

Wages are still rising more than inflation, with data last week showing wages, excluding bonuses, grew by 2.9% in the three months to July.

Does anyone actually know anyone who has had a 2.9% pay rise? 

Would certainly induce trilling peals of disbelieving laughter if I were to ask around my own colleagues. 

[Cosmic]

25 minutes ago, Lavalas said:

Where do you guys see buying close to peak and fixing low interest for ten years in all this risky shit show. Our lass ain’t keen on waiting forever, that’s my problem.

I have this same issue, except that its me who's impatient to move. I want somewhere with more room, more garage/shed space and off the top of this damn hill. If something that fits all my requirements comes up I'll go on it, fix for as long as possible. I would be 30-40% LTV and still have a chunk in an ISA. Downside is that I'll have a lot less money to take advantage of any crash in equities.

[dgul]

58 minutes ago, Lavalas said:

Where do you guys see buying close to peak and fixing low interest for ten years in all this risky shit show. Our lass ain’t keen on waiting forever, that’s my problem.

It is a compelling approach.  IMO we're due a never-ending slow drift down, reaching bottom (in real terms) in about 25 years -- there are just too many people with money that will BTFD all the way down.  Indeed, by this 'theory' it is essential that this happens -- this isn't a case of 'crash and recovery', but more of a case of driving risk behaviour out of the mindset of the population.  You've got to go from 'you can't go wrong with property' to the average man being repulsed by the idea of property, at least as an investment* (you'd get a begrudging purchase of main house because you've got to live somewhere).

Also, the problem with end-of-debt-cycle times isn't the interest rates (they're bad enough) -- it is the keeping hold of your ability to earn money.  I'd be very wary of putting too much faith in a fixed rate if you're in an industry that is pro-cyclical (ie, anyone that's done relatively well over the last 15 years).

[* I think back to things like the change in attitudes to property from the late 19th century (where you get speculative things like the Ravenscar development) to the early 20th century (where they're going bankrupt), which continues into the 30's where you have country estates lying empty and no-one wanting to buy them.]

[Funn3r]

21 minutes ago, dgul said:

 

[* I think back to things like the change in attitudes to property from the late 90th century

Ah that was some housing bubble after that lunar gold seam became accessible. Everyone piled in to buy a dome in Humboldt's Crater and the price went into orbit (literally.) 💫 Now they won't sell even dropped down to only a billion unicredits for a two-zoner.

[dgul]

58 minutes ago, Banned said:

You have some strange idea people only buy houses with mortgages.

But seriously your claim that there is no difference is truly staggering, only a boomer could come up with it.

Quite clearly people ought to just fill their boots, the 2 generations of priced out dont know they were born as they didnt have 15% interest rates for a very short period of time. (you did have MIRAD also)

The original quote was for people buying houses with wages, which I inferred as meaning with a mortgage (rather than saving up for 10 years, which is 'buying houses with savings').  

I believe that there will be a property crash which will come with higher interest rates, and that for the average man it'll be as hard to buy a property then as it is now.  I do understand the benefits of the erosion of debt with inflation, but the average man will be lamenting how much the monthly costs are rather than filling boots.  The trick of eroding debt with inflation only works really well when you go from high inflation to low (last 40 years), and not when you have 40 years starting with low inflation but where inflation (and interest rates) goes ever higher.

Of course, if you've got savings then it is a completely different matter, but that isn't 'working man buying with wages'.  Rather sadly, most people have been doing exactly the opposite of saving over the last 10 years.  There are people with savings, but these tend* to be the boomers etc -- this is why, IMO, we'll have a long slow drag for a decade or more (they'll be using their savings to BTFD, only to have their investments wiped out -- driving the revulsion).

The point where things are better for the average man buying on wages will be the point where there is such revulsion to buying property with debt that they won't be buying anyway.

I'll finish with my take on the years ahead.  DB is right that it is a time where great wealth can be made -- but it isn't trivial and it now isn't a time for getting excited over the easy pickings.  Now is the time to ensure that your earning power (employment / wage) is likely to remain at least static over the coming decades -- this will be very difficult, IMO.

[* I know there are many savers here, but this isn't normal -- most people will buy a fancy new car at £300 a month rather than a basic older car at £50 (etc), saving the rest.  It is, though, an inevitable position -- you can only get the bust by most people being completely committed to the high debt, low interest rate environment.]

[dgul]

7 minutes ago, Funn3r said:

Ah that was some housing bubble after that lunar gold seam became accessible. Everyone piled in to buy a dome in Humboldt's Crater and the price went into orbit (literally.) 💫 Now they won't sell even dropped down to only a billion unicredits for a two-zoner.

Damn -- forgot my directive to not give people evidence about the existence of time travel.  I've changed it to look like it was about the past, so now only you know -- I'll wipe your mind later (in my time-line -- earlier in yours).

[Lavalas]

32 minutes ago, kibuc said:

It depends how she can mentally handle years of negative equity on a shitload of debt, and for how long her lender will be willing to tolerate it - which is just a guesswork at this point. Personally, I'd find it unbearable and I'd have trouble sleeping at night looking at my balance due and expecting a call from the bank at any moment, but I'm not the most resilient person to begin with.

Should have mentioned that we’re not talking a 5% deposit here. It would have to be sharp crash for us to experience negative equity for any period of time.

17 minutes ago, Cosmic Apple said:

I have this same issue, except that its me who's impatient to move. I want somewhere with more room, more garage/shed space and off the top of this damn hill. If something that fits all my requirements comes up I'll go on it, fix for as long as possible. I would be 30-40% LTV and still have a chunk in an ISA. Downside is that I'll have a lot less money to take advantage of any crash in equities.

Yeah, I’m impatient too but it’s not her who sits reading about the economy all day 

You’re right, this scenario definitely needs to maintain focus on requirements. Paying more and settling for less (or anything) is the road to problems.

17 minutes ago, dgul said:

It is a compelling approach.  IMO we're due a never-ending slow drift down, reaching bottom (in real terms) in about 25 years -- there are just too many people with money that will BTFD all the way down.  Indeed, by this 'theory' it is essential that this happens -- this isn't a case of 'crash and recovery', but more of a case of driving risk behaviour out of the mindset of the population.  You've got to go from 'you can't go wrong with property' to the average man being repulsed by the idea of property, at least as an investment* (you'd get a begrudging purchase of main house because you've got to live somewhere).

Also, the problem with end-of-debt-cycle times isn't the interest rates (they're bad enough) -- it is the keeping hold of your ability to earn money.  I'd be very wary of putting too much faith in a fixed rate if you're in an industry that is pro-cyclical (ie, anyone that's done relatively well over the last 15 years).

[* I think back to things like the change in attitudes to property from the late 90th century (where you get speculative things like the Ravenscar development) to the early 20th century (where they're going bankrupt), which continues into the 30's where you have country estates lying empty and no-one wanting to buy them.]

I am leaning towards a slow grind down too, in which case it will be hard to pin point any optimum time to buy considering the interest rates that might be available earlier in a reflation and the money you’re chucking away in rent whilst waiting. I dunno. It’s wise to consider other aspects of a long fix, you’re right. Health permitting, my earnings are about as stable as you’ll get and with a heavy lean towards the type of industry that may prosper. Hers... harder to predict but she’s a grafter, for sure.

Thanks for your thoughts, all.

[DurhamBorn]

38 minutes ago, dgul said:

The original quote was for people buying houses with wages, which I inferred as meaning with a mortgage (rather than saving up for 10 years, which is 'buying houses with savings').  

I believe that there will be a property crash which will come with higher interest rates, and that for the average man it'll be as hard to buy a property then as it is now.  I do understand the benefits of the erosion of debt with inflation, but the average man will be lamenting how much the monthly costs are rather than filling boots.  The trick of eroding debt with inflation only works really well when you go from high inflation to low (last 40 years), and not when you have 40 years starting with low inflation but where inflation (and interest rates) goes ever higher.

Of course, if you've got savings then it is a completely different matter, but that isn't 'working man buying with wages'.  Rather sadly, most people have been doing exactly the opposite of saving over the last 10 years.  There are people with savings, but these tend* to be the boomers etc -- this is why, IMO, we'll have a long slow drag for a decade or more (they'll be using their savings to BTFD, only to have their investments wiped out -- driving the revulsion).

The point where things are better for the average man buying on wages will be the point where there is such revulsion to buying property with debt that they won't be buying anyway.

I'll finish with my take on the years ahead.  DB is right that it is a time where great wealth can be made -- but it isn't trivial and it now isn't a time for getting excited over the easy pickings.  Now is the time to ensure that your earning power (employment / wage) is likely to remain at least static over the coming decades -- this will be very difficult, IMO.

[* I know there are many savers here, but this isn't normal -- most people will buy a fancy new car at £300 a month rather than a basic older car at £50 (etc), saving the rest.  It is, though, an inevitable position -- you can only get the bust by most people being completely committed to the high debt, low interest rate environment.]

Its interesting,but iv been phoned by an old employer today and offered a good job temporary.They will suffer hugely in the downturn.Iv also got a chance for a permanent job for a company that will do very well in the downturn and out the other side.Its less money,but still very good for the NE.Im actually quite tempted to take the 2nd one and put two years in.My mate is the boss,its 15 minutes from home,i can keep my business ticking over,gives me more time to position my portfolio and of course will mean dividends,business profits and wages can all flow into buying up assets later (my monthly all in living costs are only £410 a month).Iv pretty much retired,but i am really tempted to do it and i never thought id say that.

[azzuri82]

12 minutes ago, DurhamBorn said:

Its interesting,but iv been phoned by an old employer today and offered a good job temporary.They will suffer hugely in the downturn.Iv also got a chance for a permanent job for a company that will do very well in the downturn and out the other side.Its less money,but still very good for the NE.Im actually quite tempted to take the 2nd one and put two years in.My mate is the boss,its 15 minutes from home,i can keep my business ticking over,gives me more time to position my portfolio and of course will mean dividends,business profits and wages can all flow into buying up assets later (my monthly all in living costs are only £410 a month).Iv pretty much retired,but i am really tempted to do it and i never thought id say that.

Just do it. If you don't like it you can always chuck it after a couple of months, giving your mate fair warning.

[DurhamBorn]

6 minutes ago, azzuri82 said:

Just do it. If you don't like it you can always chuck it after a couple of months, giving your mate fair warning.

Yes very true.

[Funn3r]

23 minutes ago, DurhamBorn said:

Yes very true.

So long as it doesn't demand all your time, such that you don't feel like posting interesting stuff in this thread... 

[sancho panza]

3 hours ago, Lavalas said:

Where do you guys see buying close to peak and fixing low interest for ten years in all this risky shit show. Our lass ain’t keen on waiting forever, that’s my problem.

I think it's the best way to do mortgages.Get yourself through the point where repayment component is higher than interest.

3 hours ago, kibuc said:

Luckily "BBC economic correspondent" is quick to put a spin on it.

I guess if you exclude all the things that rose, we're actually in deflation and a rate cut could be due.

This is the Shaun Richards thesis.

The irony being that 'Core CPI' excludes most the things things you actually need to live like food,roof over your head and fuel.

2 hours ago, dgul said:

The original quote was for people buying houses with wages, which I inferred as meaning with a mortgage (rather than saving up for 10 years, which is 'buying houses with savings').  

I believe that there will be a property crash which will come with higher interest rates, and that for the average man it'll be as hard to buy a property then as it is now.  I do understand the benefits of the erosion of debt with inflation, but the average man will be lamenting how much the monthly costs are rather than filling boots.  The trick of eroding debt with inflation only works really well when you go from high inflation to low (last 40 years), and not when you have 40 years starting with low inflation but where inflation (and interest rates) goes ever higher.

Of course, if you've got savings then it is a completely different matter, but that isn't 'working man buying with wages'.  Rather sadly, most people have been doing exactly the opposite of saving over the last 10 years.  There are people with savings, but these tend* to be the boomers etc -- this is why, IMO, we'll have a long slow drag for a decade or more (they'll be using their savings to BTFD, only to have their investments wiped out -- driving the revulsion).

The point where things are better for the average man buying on wages will be the point where there is such revulsion to buying property with debt that they won't be buying anyway.

Some good pearls in there if I may say.One of the key things to remember is that as the fractional reserve system contracts,the banks will not be as free with credit,so it will indeed be harder for the working person with no real savings to buy.

1 hour ago, DurhamBorn said:

Its interesting,but iv been phoned by an old employer today and offered a good job temporary.They will suffer hugely in the downturn.Iv also got a chance for a permanent job for a company that will do very well in the downturn and out the other side.Its less money,but still very good for the NE.Im actually quite tempted to take the 2nd one and put two years in.My mate is the boss,its 15 minutes from home,i can keep my business ticking over,gives me more time to position my portfolio and of course will mean dividends,business profits and wages can all flow into buying up assets later (my monthly all in living costs are only £410 a month).Iv pretty much retired,but i am really tempted to do it and i never thought id say that.

I've got my job going part time DB,to help with the kids and to allow me more time with our pension pot.I expect to be shorting vigorously,this time next year unless something catastrophic happens before then.This is a once in a lifetime opportunity coming in many ways.

I'm full time at the mo ,hence my disappearance from this fine thread for days at a time sometimes.Part time,clear your bills.It's a nice position to be in.

Working 15 mins from home sounds great.I'd go for the second one.

 

[sancho panza]

DIY downturn becoming deeply entrenched.Housing to follow.

https://news.sky.com/story/bq-owner-kingfishers-half-year-profits-down-30-11502053

'B&Q owner Kingfisher has reported a 30% drop in half-year statutory pre-tax profits to £281m.

The DIY group's revenue for the six months to 31 July was barely up at 1.2% to £6.8bn as it continues to bear the costs of its group-wide transformation programme.

 

Kingfisher, which also owns the Screwfix tool retail chain, said the profits slump came as a result of its ongoing restructure, a product range revamp and higher labour costs in the period.

[sancho panza]

 

 

https://notayesmanseconomics.wordpress.com/2018/09/19/uk-inflation-is-back-on-the-rise/

'How is this reflected in the headline inflation data?

We get plenty of rhetoric from the Office for National Statistics.

The CPIH is the most comprehensive measure of inflation. It extends the CPI to include a measure of the costs associated with owning, maintaining and living in one’s own home, known as owner occupiers’ housing costs (OOH), along with Council Tax.

Sounds good doesn’t it? But really it is a heffalump trap which is a national embarrassment. The catch is that the measure used does not exist and is never paid. What happens is that it is assumed that if you own your own home you pay rent to yourself and it is that “rent” which is used. Why? Well if you take a look at the number you will get a powerful clue.

Private rental prices paid by tenants in Great Britain rose by 0.9% in the 12 months to August 2018, unchanged from the 12 months to July 2018.

As the owner occupied housing sector is around 17% of the CPIH measure you can see why it has consistently been below the other inflation measures. Even worse there are more than a few statisticians who think that via a poor balance between new and old rents the official rents data is too low anyway. That is to some extent backed up by the way the official rents series has weakened when we are told wage growth is rising.

So a series which is under serious question ( rents) is then used to measure inflation for those who by definition do not pay rent.'

[spygirl]

3 hours ago, Lavalas said:

Where do you guys see buying close to peak and fixing low interest for ten years in all this risky shit show. Our lass ain’t keen on waiting forever, that’s my problem.

Will you be staying put for 10 years?

South of Sheffield - wait.

North of Sheffield - put a 20% off offer in.

House sales are brutal - outside of new build HTB and the arse end of BTL therer is very little selling.

One stat that I struggle to get but would be interesting to know is the proportion of 65+ home onwers versus under 40.

At the moment - and for the next 10+ years - Scarborough is seeing the number of probates are overwhelming the pruchases.

And its not just going to be Scarboorugh.

Places where 50% of the under 50s have moved onto tax credis are going to see only a small number be able to get a mortgage.

Other places where the financial secor provided most ofthe jobs are being reamed. Mainly the South.

QEzilch IR have let people hold housig too high. But there's not escape from low transaction.

A shift change in IRs, whic I expect, will see a lot of people running for the exit.

 

 

 

 

 

[DurhamBorn]

@sancho panza i agree and although id pretty much retired im only 47 and almost everything i earn from the job will be available to invest.The job will not go away however big the downturn as you rightly said its job two id take on the slightly less money and see how long i want it.To be honest it was my partner who said i should take it.She said would you not rather have dividends and wages etc building up to buy cheap assets rather than be paying the bills with them?.Im not proud at all,and the fact is i think a generational opportunity is coming along very soon (and is already upon us in some areas,PMs etc).If i can bring in extra capital quickly to deploy into that then i owe it to my family to do it.It sounds crazy,but each extra £20k now i can deploy i see x 4 by the end of the next cycle.Il keep my business going and il SIPP everything over £12k probably.

[sancho panza]

35 minutes ago, DurhamBorn said:

@sancho panza i agree and although id pretty much retired im only 47 and almost everything i earn from the job will be available to invest.The job will not go away however big the downturn as you rightly said its job two id take on the slightly less money and see how long i want it.To be honest it was my partner who said i should take it.She said would you not rather have dividends and wages etc building up to buy cheap assets rather than be paying the bills with them?.Im not proud at all,and the fact is i think a generational opportunity is coming along very soon (and is already upon us in some areas,PMs etc).If i can bring in extra capital quickly to deploy into that then i owe it to my family to do it.It sounds crazy,but each extra £20k now i can deploy i see x 4 by the end of the next cycle.Il keep my business going and il SIPP everything over £12k probably.

I did a portfolio for Mrs P a while back compounding at 6% p.a and she was surprised how the compounding can take lead to a trebling of the initial stake and a trebling of the divi income in 20 years.Anyhting you can do to add to the pot,speeds up the time to target.My main aim is to try and use our part time salaries to pay the bills and then reinvest the proceeds.

 

My attitude is that I will now work part time till I retire.I'm around your age too.I may go full time for a few years to max out my NHS pension if it's as I understand it.(Best 3 years out of your last 10).But I'm not that bothered.Life's too short and we live humbly quite happily.

 

Edit to add-not sure how long the Nhs pension will last.I wouldn't want to rely on it,or the state pension.