UK housing market:
- I learned about this website sometimes ago and I thought it's one of the leading source of information to have forecast the current US and UK economic and housing downturn: http://www.housepricecrash.co.uk/
- The US and UK housing markets are both in the process of reverting back to their means before overshooting to the downside, just as what happened when it's overshooting to the upside. This process is unstoppable, as indicated in human history *over and over and over again*, no matter what president-elect Obama and Gorden Brown do. The best thing to do is to let these house prices fall. Even if they can manage to reduce the fall in nominal prices in the short run, REAL prices (when measured in terms of REAL purchasing power) will continue to decline in the long run.
- During an economic expansion, asset prices (stocks and houses) which are fuelled by credit expansion (meaning money printed out of thin air by central banks) can go up, your boss can afford to give you bonuses after bonuses, as well as pay rises. During an economic contraction, asset prices fall, so is your nominal income. At worst, you could be sacked.
- According to the Austrian Business Cycle Theory [1] -- I am a student of the Austrian Economics [2, 3] -- such a boom-bust cycle is largely controlled *deliberately* by the central banks, through its manipulation of the money supply.
- However, the current global economic downturn is an animal that the world has never seen since 1930. This downturn is not caused by the central banks deliberately. This one is caused by the breakdown in the credit market even without the central banks doing anything to it. That's why they are all now in a panic and fire fighting mode, trying to reflate the banking and financial industries using the only tool they have -- money printing again. Their actions will guarantee us all to experience a great deal of inflation in the future.
- Don't buy a house when inflation rate is higher than the rate of house price appreciation, which is in a negative territory at the moment -- meaning a big no no.
- Inflation determines your REAL purchasing power.
- Taking out a mortgage for buying a house means signing yourself up to repay a debt, of which is priced at the current market value, with your future earnings. I repeat: future earnings -- which can decrease or even going to zero during an economic contraction.
- An asset is something that can generate you income. For example, an intellectual property, a company that's making profit (Warren Buffet is extremely good at buying companies that can make profits no matter when), a house you owned outright and you are collecting rents from, etc. A liability is something of the opposite.
- A house can be an asset as well as a liability. It becomes a huge liability when you didn't time your buying right.
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