Boom, Crash
Nov. 8th, 2007 11:43 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
andrewduckerChatting to Mike earlier about housing booms and crashes, and this seemed useful enough to repost:
You've got a classic bubble at the moment:
1) Prices of a commodity go up by more than inflation
2) People buy the commodity in order to invest in it.
3) This pushes prices up more, due to bidding inflation.
4) Go to (2).
I watched this happen three times now - the comic market of the early 90s, stock market in the late 90s, and then the housing market this time round. Eventually the growth slows as it tops out, some kind of tremor hits the market and price rises slow to the point where they are no longer higher than inflation. At that point the smart money gets out. This drives down prices further, causing the less smart money to get out. This causes a glut on the market, and if you're nto careful an actual run on the market (and if you're _really_ not lucky, a run on the banks).
The ratio of investors to normal buyers doesn't even have to be that high - just so long as they can push prices up and bring people along with them for a while. The buy to let market is apparently about 10% of the property in the UK, but that's easily enough to do it.
You've got a classic bubble at the moment:
1) Prices of a commodity go up by more than inflation
2) People buy the commodity in order to invest in it.
3) This pushes prices up more, due to bidding inflation.
4) Go to (2).
I watched this happen three times now - the comic market of the early 90s, stock market in the late 90s, and then the housing market this time round. Eventually the growth slows as it tops out, some kind of tremor hits the market and price rises slow to the point where they are no longer higher than inflation. At that point the smart money gets out. This drives down prices further, causing the less smart money to get out. This causes a glut on the market, and if you're nto careful an actual run on the market (and if you're _really_ not lucky, a run on the banks).
The ratio of investors to normal buyers doesn't even have to be that high - just so long as they can push prices up and bring people along with them for a while. The buy to let market is apparently about 10% of the property in the UK, but that's easily enough to do it.
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no subject
Date: 2007-11-09 12:04 am (UTC)Longer term, while buy-to-let may slacken off, we still have a population growing faster then we can put bricks to mortar. I also think that the last housing crash is still fresh enough in everybody's mind that the fear of a another one will in itself moderate prices somewhat. Also, the stock market isn't a healthy alternative at the moment, so I wonder where buy-to-let investors would put their money instead.
no subject
Date: 2007-11-09 12:16 am (UTC)I got to make my pension investment choices the other day. Pacific Rim for me!