Do we have 10 years of BAU?

[mikepepler]

I really should be in the woods felling trees, but it's raining today and I've not been on the forums here for a long while and thought I should check in. I do have a question for discussion as well...

Can we count on another 10 years of business as usual, albeit with recession/depression?

The reason I'm interested is that we're pondering if we should stay renting our house (which has solar thermal, communal GSHP, good insulation and plenty of space), or look into buying somewhere. The things that make the choice difficult are:
- prices around Rye, and particularly near our wood, are not cheap.
- we could borrow enough money to get a small place, but it would be nowhere near as nice as the place we rent and would cost more per month.
- We'd need at least 10 years to pay back this amount of money, hence my questions above...

So what do you think? Keep renting and see where prices go? Buy anyway and assume that if things go really bad the govt will have to do something so millions don't lose their homes if they can't pay the mortgage? Wait for local govt to fall apart (planning officers in particular...) and then build a house in the wood? Something completely different?

I guess other people are facing the same choice.

A few years ago I thought things would be clearer by now, but everything seems to be muddling along while the problems in the background are growing. Maybe I need to spend more time on the forums here to keep my doom level up!

[clv101]

It’s a very tricky question. Personally I think house prices have much further to fall. Over 18 months they fell around 20%, the fastest fall we’ve ever seen. There’s no way the biggest housing bubble end with such a modest correction, as unemployment continues to rise and the economy continues to contract. This rapid decline was stemmed by near zero interest rates and billions of quantitative easing. These are temporary measures, the state housing market is currently an illusion.

Interest rates cannot stay near zero as they did in Japan as we have a trade deficit, they had a surplus. We’re going to have to protect the pound with higher interest rates eventually. The public debt we’ve accrued guarantees a future of higher taxation and lower public spending, in turn guaranteeing reduced money supply for housing.

A year after the election this aberration, the eye in the centre of the storm if you like, will have passed and the collapse will resume. That’s my opinion anyway!

So I think the real question is what happens to all the ‘irresponsible’ folk who have bought houses in the last few years with large mortgages, hoping for low interest rates to continue.

It may well be that their irresponsibility is rewarded. Their private loss will be written off or socialised in some way – the precedent is with 3rd world debt and more recently the banking bailout. Does the negative equity, in arrears, “home owning” cohort represent an entity which is too big to fail? If so, you’d better join it!

On the other hand BAU may hang together long enough for housing to lose another 20-50% in real terms, allowing you to pick up a bargain. I’ve no idea how much more housing can lose before the rules of the game change though.

There are a lot of powerful things going on behind the scenes attempting to prop up BAU. They are likely to fail in my opinion and end up making the situation worse than it would otherwise have been. When that happens is anyone’s guess. I think things will be a lot clearer a year after the election.

[adam2]

I voted for less than 5 years of BAU
However I consider a slow slide to be more likely than a sudden crash, if this happens then there wont be an exact date that one can state as being the end of BAU.

If for example a nuclear war breaks out in the ME on xx/xx/2011, then one could say that was the day BAU ended.

If though there is a gradual collapse then the date cant be determined.
Is it when GDP declines 10% ? or 50% ?

Or when oil supplies decline by 10% or 20%?

Or when deaths by cold, hunger or violence outnumber those from natural causes ?

[fifthcolumn]

There weren't enough options for me.

I picked "less than 5" BUT this is misleading.

I believe the UK has up to 5 years of BAU (assuming we can call the current climate BAU) and then it's going to be back in the 1970s for at least ten years and then it remains to be seen whether it's the 80s from there or the 30s.

I also believe, conversely, that large chunks of the thirld world are quite simply *f***ed* over the next decade and as mobbsey pointed out, some times it's going to be hard to watch what we will see on TV.

Certain other parts of the industrialised world, I believe, are going to see continued BAU punctuated with nothing more than what will appear to be "normal" slumps while their economies reconfigure round the new reality.

[fifthcolumn]

It’s a very tricky question. Personally I think house prices have much further to fall. Over 18 months they fell around 20%, the fastest fall we’ve ever seen. There’s no way the biggest housing bubble end with such a modest correction, as unemployment continues to rise and the economy continues to contract.

While I agree that rising unemployment could conceivably drop the prices more, it's worth pointing out that the fall is steeper than you think.

The pound has collapsed since the peak by 33% so house prices have really fallen by 50%.

But if you want to be afraid, the last time there was a house price boom like this house prices collapsed by 80%.

[edit] Oh yeah I really should have read your entire post. Yeah I think I agree with your post.

[Adam1]

On the other hand BAU may hang together long enough for housing to lose another 20-50% in real terms

If Mike is buying with a large loan to value percentage, then Chris's point above is pertinent. If however Mike is buying with a significant deposit, say 33 - 50%, nominal property prices start to become more important, unless Mike is able to invest his cash safely and maintain its real value while real property prices continue to drop - tricky for many of us in the current climate.

Mike, is your current rental more secure than a typical assured shorthold tenancy? If it is, it sounds like quite a nice setup you have already. Could you not get planning permission for a home in your wood, given that you derive your living (or a significant portion of it) from it. Are prices, nominal or real, dropping or likely to continue to drop, in Rye? How many suitable potential properties are there in Rye?

[Ludwig]

For what it's worth, a mystic I talked to last year said that there was going to be a "big change" in the world around the year 2011. My gut feeling is that he was probably right.

[biffvernon]

Wait for local govt to fall apart (planning officers in particular...) and then build a house in the wood?

I like this option. Maybe not fall apart but get campaigning for low impact building.

[caspian]

For what it's worth, a mystic I talked to last year said that there was going to be a "big change" in the world around the year 2011. My gut feeling is that he was probably right.

[caspian]

There are a lot of powerful things going on behind the scenes attempting to prop up BAU. They are likely to fail in my opinion and end up making the situation worse than it would otherwise have been. When that happens is anyone’s guess. I think things will be a lot clearer a year after the election.

Agreed. I voted "more than 10 years" because I think that the momentum of the current system means that BAU is likely to remain with us for a long time. There will be a gradual deterioration in standards of living as energy supplies tighten, but this juggernaut is going to be hard to stop.

[snow hope]

Sounds like a nice place Mike. I would advise to keep renting, but try to get it on say a 5 year basis, so you have surety and the landlord can't throw you out with a couple of months notice.

I agree with a lot of what Chris has said. House prices will drop further and we are going to have the mother of a double dip!! After the election, some seriously draconian measures are going to have to be taken to sort out the financial mess in the UK. This is likely to cause an even greater downturn than we have seen so far.

It is hard to see a way out, unless A government has the balls to really take things by the scruff of the neck and make paradigm change. In my view there is little chance of this occuring as we will no doubt spend our collective effort chasing BAU....... which is going down the wrong road

[syberberg]

I nearly voted "Don't Know" as it's a rather tough call. I opted instead for "No, but at least 5 years".

The cliff that ends BAU is out there ahead of us, but I personally have no idea as to exactly where it is.

As for house prices, I agree that they still have a way to go yet before they hit the bottom and the longer this slow-bleed recession lasts, the further they will fall and it's a complete gamble I wouldn't want to bet on just yet (not that I'm in any position the buy a house right now, but you know what I mean).

My advice Mike, is to keep renting for as long as it's cost effective to do so.

[Quintus]

For what it's worth, a mystic I talked to last year said that there was going to be a "big change" in the world around the year 2011. My gut feeling is that he was probably right.

As the going gets increasingly rough, I expect more and more people to seek comfort in unusual religion, mysterism, charismatics, gurus, radical religion etc.

That said, I don't want to be disparaging about anyone else's spiritual beliefs; up to a point, in the words of Mr Lennon, "whatever gets you through the night".

[Blue Peter]

As the going gets increasingly rough, I expect more and more people to seek comfort in unusual religion, mysterism, charismatics, gurus, radical religion etc.

And extreme politics.

The archdruid has an interesting post on that:

Change you can regret

Imagine along these lines, dear reader, that sometime in the next year or so you start hearing media reports about a rising new figure in American politics. He’s young and charismatic, a military veteran who won the Distinguished Service Cross for bravery under fire, and heads a vigorous new third party that looks as though it might just be able to break the stranglehold of the established parties on the political system. Some of his ideas come straight from the fringes, and he’s been reported to have said very negative things about Arabs and Islam, but he’s nearly the only person in American public life willing to talk frankly about the difficulties Americans are facing in an era of economic collapse, and his party platform embodies many of the most innovative ideas of the left and right. Like him or not, he offers the one convincing alternative to business as usual in an increasingly troubled and corrupt system.

Peter.

[Ludwig]

For what it's worth, a mystic I talked to last year said that there was going to be a "big change" in the world around the year 2011. My gut feeling is that he was probably right.

As the going gets increasingly rough, I expect more and more people to seek comfort in unusual religion, mysterism, charismatics, gurus, radical religion etc.

That said, I don't want to be disparaging about anyone else's spiritual beliefs; up to a point, in the words of Mr Lennon, "whatever gets you through the night".

I don't know how genuine this mystic was, I was just throwing something into the ring for a bit of controversy

My interest in mysticism isn't due to a search for comfort. I have always been interested in it, to a greater or lesser degree. I actually find the idea that the future might be fixed quite horrifying.

I don't claim to know how time works, but I am reasonably convinced that there is more to it than the linear way we consciously perceive it.

I'm not really interested in arguing why I hold the opinions I do, having already done it many times and ended up in pointless arguments.