Rambling or revolutionary thinking?

Tuesday, July 6th, 2010 at 8:56 am

I first met Steve Green in late 2008 I think – he has a superb dry wit and given his day job a great deal of insider understanding into the minds of our tenants and the general population. We all know that we should avoid ‘red lighters’ and the philosophers of the Sun

Steve’s article was posted on one of the forums I belong to and I thought so insightful that I asked if I could repost it on my blog. Both hysterical and obvious – I hope you enjoy – please leave some comments so I can persuade Steve to write more frequently

Norfolk pensioner in undercover house price riddle by Steve Green

As we know red top newspapers sell a lot of papers when they feature a story about house prices sometimes crashing and sometimes booming and sometimes doing both in the same week. People need a break sometimes from being angry and outraged and we can only hate Jordan so much (the “celebrity” not the country). Now the Independent is analysing “how long can the housing market avoid a crash?”

I therefore believe that my mother (the Norfolk pensioner in question!) is giving secret briefings. She has sacrificed the last 60 years of her life dedicatedly watching the ten o’clock news before taking the worries and woes of the world to bed with her and particularly worrying about her soon to be bankrupt oldest son who buys houses. Instead of worrying about my brother the very talented but very under achieving one, who is a chartered engineer. As an employee he has seen many of his employers go bust and at 53 is still not confident enough in his job to buy his first home. The clue for me was that this report came from the Hay Group ( Hay /Norfolk).

The analysis states that “the indicators are all pointing down”. You see graphs are made from numbers and when the number slope is down the numbers keep going down because graphs can’t be made interesting unless they have a valley then a hill and then another valley.

Graph 1. So firstly mortgage lending is down dramatically. Isn’t that because a few years ago most mortgages were remortgages so that people could reduce borrowing costs with new deals or draw out equity and go on a spending spree. So this underlies that people are still buying houses despite the obstacles placed in their way whilst remortgages are temporarily unattractive and less available, due to falling house prices and reluctant lending policies.

Graph 2. Consumer confidence. This graph is made up from asking people. Well when did the general public first start analysing the economy or are they just looking at their own income and expenditure at the time they are asked. Have you seen the price of a loaf of bread? Clearly the link between that and the price of houses is obvious.

Graph 3 The Footsie. This is a lump of premier league companies whose values go up and down every day. The rise and fall of these is so important that we must worry collectively about this on an hourly or daily basis depending on your news channel. Banks, Insurance, mucky Oil companies and large retailers all play in this premier league. Again this is naturally directly linked like bread prices to the price of houses.

Graph 4 Inconveniently for the doom merchants, house prices have risen in the last year giving the graph another peak. Luckily there is something called the ’double dip’ which ensures the graph’s natural gravity will produce another of those neat downward slopes.

Clearly then you are all just kidding yourselves with your contrarian thinking. Fundamentals are just angry people who shout “Death to America”.

However, I have noticed that not many houses are being built as builders are selfishly not prepared to leave their vital organs as security for the bank in order to build houses, to 2010 building regulation standards. Buyers whose lenders won’t lend at the asking price, therefore need the builders to sell at below cost. Buildings materials are energy intensive to produce ie bricks, cement, tiles, glass and steel and wood doesn’t grow on trees either. Tradesmen aren’t going to work for less.

So ultimately house prices are influenced by cost to build which is effecting supply. The level of demand for a product or service, in difficult times like these, is all about necessity. I don’t have to have a Gucci watch but eating and living in a house, are essential and have never gone out of fashion.

Steve and his wife Helen are educated property investors, building their own financial freedom in spite of the doom and gloom.

To our mutual success, wealth and happiness
Vicki – The Property Mermaid

1. Ways to Wealth – Make Money from Property – http://www.waystowealth.co.uk/wtw-events/