Why we only *seem* financially better off than in the 1970s

[Outcast]

I have now, under 4 years left on my mortgage (thank ****).
In ALL that time I have been the ONLY source of income.

Could I do that today.. starting out as a n00b ?
On a truck drivers wage ?

NOT A CAT IN HELLS CHANCE

I rest my case.

 

[Sankari]

oo very nice

Well, we like it.

I'm assuming this means that house prices down there are more inline with British ones, and not the very cheap sounding ones you get in America where you get a very large house, which seams to be made solely of partition walls?

Yes. Although Aussie houses tend to have hollow interior walls and no double glazing. They're built to let the air and light in, and keep the heat out; consequently, they're a right ****** to heat during winter. :/

Although all I ever see on tv of Australian houses is bungalows

That's right. Bungalows are the most common form of housing in Australia. The vast majority of people live in bungalows. My house in Western Australia was a little 2x1 bungalow on a quarter acre block.

Here it is:

It was made with "fibro" (fibrous cement; a type of artificial sheeting) in 1944, and still retains the original clay tiled roof. I sold it before moving to the UK, and bought a house in Tasmania to keep myself in the property market. It cost me $91,000 in 2001 (that's £43,261 in today's money).

My house in Adelaide is built on ~877sqm; it's a 4x1 double brick bungalow with a clay tiled roof. I think it was built in the late 40s to early 50s. My wife and I bought it for £225,000 (£106,964) last April.

 

[Scottly]

I have now, under 4 years left on my mortgage (thank ****).
In ALL that time I have been the ONLY source of income.

Could I do that today.. starting out as a n00b ?
On a truck drivers wage ?

NOT A CAT IN HELLS CHANCE

I rest my case.

If truck drivers can't afford mortgages and they want a house, there's no reason why they can't change to a career that offers higher wages.

 

[Dolph]

Well alright, perhaps I should have said pay more than USA and the Far East. Source: Quentin Wilson on Tonight with Trevor MacDonald some day last week

Do you mean more in absolute or relative terms? The spending power of £1 and $1 is roughly equivilent, and has been for a good while. It only seems cheaper if you think we should get the £ equivelent of the $ cost.

 

[Energize]

NI does not pay for the NHS. It's just an out-dated subdivision of overall taxation in the same way that alcohol duty or car tax is. As a whole we pay *much* more for our healthcare than we used to, just like the Americans. Only they pay bigger premiums, we pay more overall tax (thanks, at least partly, to the shift to two incomes per household).

If you take a look at the actual percentage of our income that we pay as tax+NI, it's comparable if not less than the US espically after this years tax cuts.

http://en.wikipedia.org/wiki/Image:UK_Tax_(percent).svg

http://en.wikipedia.org/wiki/Image:US_income_tax_2008.svg

 

[mattyrigby00]

i blame new labour

 

[The Mad Rapper]

It's about supply and demand. How does cheap credit drive up house prices?

I have to explain this?!

Because if the money isn't there then it doesn't matter what the demand is, that item can't be bought.

For examply, I may like to own a Aston Martin (demand) and the factory have plenty (supply) but I can't afford one and no-one will lend me the money to buy one (credit) so I shall have to go without.

You can have all the demand in the world, but if the money isn't there then the sales don't occur.

Now, cheap credit enabled the demand to be converted into sales. Because there was so much credit and mortgages for unrealistic income multiples were easily available, that demand meant buyers were in competition with each other, increasing the sale prices of property.

That's how it works.

 

[scorza]

Do you mean more in absolute or relative terms? The spending power of £1 and $1 is roughly equivilent, and has been for a good while. It only seems cheaper if you think we should get the £ equivelent of the $ cost.

It's only equivalent because the multi-nationals make it equivalent. Tax and currency fluctuations not withstanding, if something is manufactured in the far East and sold in US retailers at $250, then why isn't it sold in British retailers at the equivalent $250? More likely it's sold at the equivalent of $450. Just what is the extra $200 paying for? Where is the added value?

This situation would be helped if we had genuine free-trade that the multi-nationals like when it suits them E.g. Tesco's being allowed to import Levi jeans.

 

[MTA99]

The vendor has no way of obtaining intimate knowledge of the buyer's financial situation unless confidence is breached - whether knowingly or otherwise.

We were having quite a grown up discussion until this

I'm not suggesting that a vendor either knows the buyers intimate financial situation or would up his asking price on the spot faced with a buyer that is willing to pay asking but the vendor has an idea of how easy it is for a buyer to secure credit and the current market conditions.

If you know that similar properties in the area are selling at £100,000 you don't advertise at £100,000 you go slightly higher (on the basis that you'll always be knocked down). If buyers are able to get a mortgage at favourable rates then your house might sell at the higher price, the extra £5,000 or £10,000 that you are asking could be offset against a rate reduction of 0.5-1%. The "cheap credit" also allowed banks to sell 100%+ mortgages and/or mortgages with longer repayment periods and/or higher salary to mortgage ratio all of which give the buyer more "buying power". Vendors aren't blind to this.

Its an iterative process, vendors pushing the limits of the market and if the buyers bite the prices rise.

EDIT: ^^^And what Mad Rapper said!

 

[Dolph]

It's only equivalent because the multi-nationals make it equivalent. Tax and currency fluctuations not withstanding, if something is manufactured in the far East and sold in US retailers at $250, then why isn't it sold in British retailers at the equivalent $250? More likely it's sold at the equivalent of $450. Just what is the extra $200 paying for? Where is the added value?

There isn't any, but in terms of what you get for your money as earnt, the value is identical. Between the US and UK, most jobs earn the same amount, just change the sign at the front. If you earn $10k and something costs $100, it's exactly the same as earning £10k and something costing £100. That's the situation they take advantage of, because, as you point out below, we don't have true free trade which would solve it.

This situation would be helped if we had genuine free-trade that the multi-nationals like when it suits them E.g. Tesco's being allowed to import Levi jeans.

Absolutely, a full free trade situation without the courts interveneing or artifical market boundaries would do much to prevent this problem.

 

[Sankari]

I have to explain this?!

Because if the money isn't there then it doesn't matter what the demand is, that item can't be bought.

For examply, I may like to own a Aston Martin (demand) and the factory have plenty (supply) but I can't afford one and no-one will lend me the money to buy one (credit) so I shall have to go without.

You can have all the demand in the world, but if the money isn't there then the sales don't occur.

Now, cheap credit enabled the demand to be converted into sales.

You've proved that cheap credit enabled the demand to be converted into sales. You haven't proved that cheap credit drives up house prices.

The demand was already there; the cheap credit simply facilitated it; the market set the prices.

Because there was so much credit and mortgages for unrealistic income multiples were easily available, that demand meant buyers were in competition with each other, increasing the sale prices of property.

That's how it works.

Under a buyer's market, prices tend to drop because the vendors are now competing with each other for sales, while the buyer can pick and choose. And that's exactly what we're seeing right now. The cheap credit merely perpetuates the market; it does not raise or lower the prices.

Do you seriously think that everyone started putting their house prices up because they thought to themselves "Well, people are more likely to afford my house now, so I'll jack up the price"?

Prices rise under a vendor's market, which is created when supply is outstripped by demand. The scarcity of houses allows vendors to keep their prices artificially high, because they know there are fewer alternative properties available.

This is not what we're seeing at the moment.

 

[Sankari]

We were having quite a grown up discussion until this

No, I think we got derailed when Mad Rapper tried to argue that cheap credit drives up house prices because everyone can afford to pay more.

I'm not suggesting that a vendor either knows the buyers intimate financial situation or would up his asking price on the spot faced with a buyer that is willing to pay asking but the vendor has an idea of how easy it is for a buyer to secure credit and the current market conditions.

Yes, but he has no way of knowing the individual circumstances of any particular buyer. All he knows is that people can get a mortgage quite easily. This does not necessarily mean they can get a mortgage sufficient to buy his house!

If you know that similar properties in the area are selling at £100,000 you don't advertise at £100,000 you go slightly higher (on the basis that you'll always be knocked down). If buyers are able to get a mortgage at favourable rates then your house might sell at the higher price, the extra £5,000 or £10,000 that you are asking could be offset against a rate reduction of 0.5-1%. The "cheap credit" also allowed banks to sell 100%+ mortgages and/or mortgages with longer repayment periods and/or higher salary to mortgage ratio all of which give the buyer more "buying power". Vendors aren't blind to this.

Its an iterative process, vendors pushing the limits of the market and if the buyers bite the prices rise.

EDIT: ^^^And what Mad Rapper said!

Prices are driven by the twin forces of supply and demand. If the market is under-subscribed, prices will rise. If the market is over-subscribed, prices will fall. It doesn't matter how easily people can get credit; ultimately, the market determines the price.

You can be up to your ears in easy credit, but if the market is over-subscribed, prices will fall regardless.

 

[Radiation]

There is nothing (other than your current financial position) stopping you benefiting from the success of any company that has issued shares.

Yeah sure but as i said it would be better if the savings were passed on to everyone using and working for those companies, that way no one gains any more than anyone else and no one has to do anything other than use or work for them.

Well duh. Business is about making profit, and beyond that it's about maximising profits. Who the hell are you or anyone else to decide that a company is making 'too much' money? And you seem to have a poor idea of who shareholders usually are, they're not always super-rich businessmen - large multinational companies often give shares to employees as a bonus, and funds can be bought intop by just about anyone.

If you have a problem with shareholders earning too much, here's a tip: buy shares and get in on the action!

Yeah that's the problem, the current system and mindset is profit motivated, this is really the general issue and why there are money problems today, its my place to decide as a human, companies aren't people you know, the people working and using them are and they're who matters, shares allow one of the most questionable ways to make money on the back of others hard work, i know anyone can do it but the fact remains most don't and its really only worth it when with a large amount of money so it only really makes the rich richer. I only want a better standard of living for everyone, I don't see how anyone can really argue with that if they're a decent human being?

 

[Outcast]

If truck drivers can't afford mortgages and they want a house, there's no reason why they can't change to a career that offers higher wages.

What an utterly ridiculous, ignorant comment.

No wonder it has been ignored by everyone else.

 

[MTA99]

Yes, but he has no way of knowing the individual circumstances of any particular buyer. All he knows is that people can get a mortgage quite easily. This does not necessarily mean they can get a mortgage sufficient to buy his house!

Of course he doesn't know whether Mr Jones or Mrs Smith can afford a mortgage to buy his house but he can chance his arm, push his luck, test the limits of the market

Prices are driven by the twin forces of supply and demand. If the market is under-subscribed, prices will rise. If the market is over-subscribed, prices will fall. It doesn't matter how easily people can get credit; ultimately, the market determines the price.

You can be up to your ears in easy credit, but if the market is over-subscribed, prices will fall regardless.

We aren't talking about a market that's over-subscribed with lots of cheap credit. We're talking about the opposite, an under-subscribed market with rising prices and cheap credit pushing those rises further. As I outlined in my post above if a favourable mortgage deal means you can pay £10,000 more without is "costing" you anything then buyers are more likely to pay higher asking prices.

I suppose you could look at it from a supply demand point of view by bracketing buyers into credit potential. If previously you were able to acquire £120,000 but credit market conditions meant that you could now afford £135,000 (for example) it would place a bigger demand on properties in that price bracket since there are now people who were able to buy at £135,000 before the cheap credit AND the people with the cheap credit. By your own admission, increased demand leads to higher prices. 'Course the cheap credit affects (almost) everyone so arguably all the buyers step up but again this is an iterative process.

 

[MTA99]

Yeah sure but as i said it would be better if the savings were passed on to everyone using and working for those companies, that way no one gains any more than anyone else and no one has to do anything other than use or work for them.

If I start a company and I have no shareholders (other than myself), I pay myself and my employees a good wage, if the books show a profit I could reduce the price of my widgets to the customer and/or pay my staff more. The following year money in equals money out, everything stays the same. I've helped myself, my employees and society in general by being a decent human being.

If Mr. X starts a company and he sells shares in his company (on the promise of a share of future profits) he's able to raise more capital than me in the first instance and buy a bigger and better machine than mine. Soon he's selling twice as many widgets and by economy of scale is able to reduce his prices. He makes a profit some of which he shares this with his shareholders, the rest goes into hiring more staff and buying more equipment. Soon he's employing twice as many people as me and selling 4 times as many widgets. He's able to reduce prices further.

Soon I'll have to make a decision, do I increase prices (bad for society) or pay my employees less or lay off some staff (bad for society)? All the while Mr X is selling widgets cheaply, employing more people than me and distributing a share of his profits to others.

Your issue isn't with shares as such, its with capitalism

Yeah that's the problem, the current system and mindset is profit motivated, this is really the general issue and why there are money problems today, its my place to decide as a human, companies aren't people you know, the people working and using them are and they're who matters, shares allow one of the most questionable ways to make money on the back of others hard work, i know anyone can do it but the fact remains most don't and its really only worth it when with a large amount of money so it only really makes the rich richer. I only want a better standard of living for everyone, I don't see how anyone can really argue with that if they're a decent human being?

What do you suggest we replace the current system with? Yes the rich are able to get richer *IF* they use their money wisely but i'm sure they'd argue that its their INVESTMENT in business that allows it to grow and create jobs........is that not beneficial to society?

 

[Energize]

Do you seriously think that everyone started putting their house prices up because they thought to themselves "Well, people are more likely to afford my house now, so I'll jack up the price"?

When people have more money they can afford to pay more to beat other peoples offers on the house. Thus the price goes up.

 

[The Mad Rapper]

You've proved that cheap credit enabled the demand to be converted into sales. You haven't proved that cheap credit drives up house prices.

The demand was already there; the cheap credit simply facilitated it; the market set the prices.



Under a buyer's market, prices tend to drop because the vendors are now competing with each other for sales, while the buyer can pick and choose. And that's exactly what we're seeing right now. The cheap credit merely perpetuates the market; it does not raise or lower the prices.

Do you seriously think that everyone started putting their house prices up because they thought to themselves "Well, people are more likely to afford my house now, so I'll jack up the price"?

Prices rise under a vendor's market, which is created when supply is outstripped by demand. The scarcity of houses allows vendors to keep their prices artificially high, because they know there are fewer alternative properties available.

This is not what we're seeing at the moment.

With respect you've gone off on a tangent. What you asked me was how cheap credit made house prices rise and I've explained that to you very well.

I didn't say we are in a sellers market as we were during the house price boom, we're clearly in a buyers market, because now the credit has gone and lending is returning to sensible multiples there's nothing to support the inflated prices.

The prices went up because of cheap money and are now falling because it's gone.