House Prices and the budget
The Budget has created another government piece of interference. The
idea is that if they help people get on the so called property ladder
that will make people think things are going better than they really
The idea is that if more people can afford to buy houses then they
will, and that will make the housing market recover, and that will make
everyone think they are more wealthy, and the feel-good factor will
feed through into the rest of the economy.
So many assumptions, and every one of them dangerous.
A ladder is useful for going up on the roof. It's also useful for
getting down to the ground from your bedroom window if the house is on
fire. What I mean is you can go up a ladder, but you can also go down
it. You dont need a snake to slide down. Thus, the concept of the
property ladder is seriously flawed.
The real way to look at the purchase of a house is simply as a home.
You dont get on the food ladder. You buy food and eat it. You dont get
on the tv ladder. You buy a tv and watch whatever takes your fancy. You
should be buying a house to live in, that's all. Similarly, if you cant
afford the tv you dont buy it. If you cant afford a house then you
shouldn't buy that either.
The problem with life in 2013 is that the government has over-spent,
and most people have also over-spent. The answer to that problem is
most certainly not to encourage people to over-spend even more. In that
sense this new government scheme is daft, and counter-productive.
The other part of the idea is also misconceived. Property prices go up
and down in line with demand, and money available, but there is a
problem with houses being treated the same way as commodities. A home
is for ever. You should be thinking of buying a home as a long-term
situation. If you move house that doesn't really alter the situation,
you are just changing one house for another, but you always need a
home. You can rent it or buy it, but it should not be traded like stock
market derivatives. House prices should ideally be largely stable.
Let's go back to this idea of the property ladder. The idea is that you
climb up the property ladder, but you cant climb it unless you're on
it. However, the whole point of the image is that you should aim to get
on the bottom rung and climb up. You dont get on three rungs from the
top, or even right on the top rung, because then the only way you can
go is down, or stay where you are. What's the point in that?
The property market cant go up any more from where it currently is for
one very good reason, and that means anyone getting on the property
ladder now can only go down or stay where they are. We are currently at
the top rung.
The reason we cant go up any more is that people cant afford to buy at
current levels so they most certainly wont be able to afford to buy at
higher levels. It really is that simple. It's common sense.
Wages need to be rising faster than inflation for there to be more
disposable income to afford higher payments, but wages are not rising
faster than inflation, quite the reverse. Secondly, interest rates are
on the floor, and can only stay where they are or go up. As interest
rates rise so does the cost of money, and therefore the cost of
mortgages, and therefore, to compensate, house prices have to come down
as they become unaffordable.
There is no sensible housing ladder. The housing market currently is a
snake. The government's scheme is misconceived. People will be
encouraged to enter the market at a high, and they can only lose by
doing that. They are also being encouraged to take on debt when the
country has too much debt, and they are being encouraged to lock in a
debt at an artificially low interest rate which can only rise in the
longer term, thus creating more debt problems in the future.
My recommendation is: Dont get sucked in. This is another idiot idea.
The only good thing is that I dont think it will encourage too many
people to take on more debt, so there will not be any meaningful surge
in house prices. If there is a surge it will be counter-productive and
will ultimately lead to more people losing more money over the medium
term as prices crash back again.