Housing Market: Difference between revisions

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[[File:HPI June 2018.JPG|700px|border]]

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The UK's financial sector is reliant on housing market prices being on a constant upward trajectory. The 2008 financial crisis was primarily caused by deregulation in the financial industry. This permitted banks to engage in hedge fund trading with derivatives. Banks then demanded more mortgages to support the profitable sale of these derivatives. The banks increased the amounts that lenders come borrow to purchase a property. As the amount of money increased in the system and the amount extended to lendees house also increased, naturally house prices rose. Due to the nature of the derivatives system they are guaranteed against mortgages. The value of property in theory becomes a tangible asset to support speculation. Put simply, the value of property became the guarantor for the whole specualtion bubble. Rather like playing poker and putting your house in the pot.

'''Figure 4''' illustrates how the market crashed in 2008 and how it made a remarkable recovery. This is historically unheard of for a market to collapse and then almost immediately recover to previous levels. This was due to the financial sector pretty much carrying on as before with large swathes of cash pumped into the sector allowing it to recover and start the whole process again by using rising house prices to provide security for deriviatives. The banks were given public money that saw them survive the crash and then through the introduction of [[Quantitative Easing]] begin to gamble and to support the gambling by using mortgages as security.

As you will see from the graph, there have been a number of dips in house prices rises since its recovery in 2009/10. It must be born in mind that the dip of 2011 only saw house prices shrink for a short period. Since 2010 house prices have typically been in growth while wages have been in decline. When there has been a indication that house inflation has reduced the government have stepped in to ensure that the prices do not begin to fall. They have always moved quickly to boost the demand side by offering subsidies to first time buyers. The first time this was offered was in 2013. As you will see in figure 4 at the start of 2013 how price inflation was still recovering from the 2011/12 deflation.

:::: '''<big><big>Help to buy was first introduced in 2013 by then chancellor George Osbourne. The scheme provided 20% of the house price on new builds for first time buyers. At the time £10 billion was put aside for the scheme.</big></big>'''

At the introduction of right to buy the house builders so a significant increase in profits due to them adding the 20% into the price of the house. The reality being that the right to buy was a major success at propping up house price inflation. Duncan Stott of the PricedOut group said at the time “Help to buy should really be called ‘help to sell’, as the main winners will be developers and existing homeowners who will find it easier to sell at inflated prices. Pumping more money into a housing market with chronic undersupply has one surefire outcome: house prices will go up.”

House inflation then increased to a high point in 2014 of 9%. House inflation then held fairly steady above 5% until late 2016 when houses prices began to fall away again. It is a normal reaction of the market for prices growth to steady as the multiples to wage become untenable. In 2017 Philip Hammond extended the help to buy scheme with the injection of a further £10 billion. This was despite warnings from Morgan Stanley that the previous help to buy scheme had done nothing to help house buyers, but had only pushed up new build house prices. However it was particularly important to the government to support house inflation in 2017 as the London housing market was seeing deflation of prices. It is critical to the house of cards that the confidence in the London housing market is substained. A reduction of foreign investors into the new build market in London would see the whole structure tumble.

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