Wednesday, Feb 28, 2007
Demand weakening
FT.com: House prices rise 0.7 per cent in February
“Nevertheless, the January and February data taken together hint that the housing market could be starting to lose buoyancy.”
Markets reacted little to the stronger than expected Nationwide report, with traders more concerned about about the ramifications of Tuesday’s and Wednesday morning’s global equity sell-off.
Posted by dohousescrashinthewoods @ 09:07 AM (52 views) Add Comment
8 Comments
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1. David said...
0/7% rise on an average 170k house is still well over a 1k rise per month.
Yet again as I predicted.
If house prices keep on rising by 1k a month I don't care whther only rising by 1k a month is a 'slowdown' it is still ridiculuos with them rising by that much.
Stop kidding yourselves guys, you always have a go at me saying that I am going to be wrong.
But as predicted house prices will rise by 1k every month because that is what people expect them to do. Prices rises have just become ingrained.
A tiny blip in the stock markets is not going to lead to a house price crash or correction.
2. David said...
This quote shows the British mentality over house prices right now.
Even if the stock markets are crashing more people are likely to put their money into houses because they are seen as safer.
I have been proven right for so long and yet all I do is get shot down in flames by you guys who completely ignore me, even when I am predicted right, time after time.
"And don't forget the confidence factor.
The house price boom is a story that just keeps running. It seems people never tire of hearing how much more their property is worth this week.
Slow down
And with so many of us sitting on "equity mountains", or even becoming paper millionaires, it's not hard to see why people feel more comfortable with the concept of remortgaging to move upwards and onwards, to buy a second (or maybe a third or fourth) property, or to help their kids get a toe on the housing ladder.
Will the bubble burst? Not for the foreseeable future."
3. sold 2 rent 1 said...
David,
I agree with you that whilst the economy is strong, IR low, and unemployment low, prices will continue to rise.
However by the end of the year the economic climate will be changing for the worse
2007 prices peak
2008 small price falls
2009/2010 HPC - recession
4. dohousescrashinthewoods said...
David, I agree that you have been proven right to date, but I have a different angle. Here it is as clearly as I can muster for a Thursday morning:
HPI is a symptom of the global liquidity bubble. If you watch that bubble, you will see where bricks and mortar will go.
How can I justify this?
- Global liquidity makes for easy credit.
- Easy credit means more money (and more people with more money - subprime).
- This increased money supply is chasing a fairly static stock in the UK (demand side up, supply side approximately static).
- Money supply leads to inflation, ergo HPI.
- Global liquidity is starting to dry up (Global IR, BOJ/carry trade, stricter lending as subprime goes bad, losses or collapses over "creative" lending).
Therefore, whilst the Titanic may be sitting pretty for a while yet ("existence proof" that prices don't go down) if liquidity continues to unwind, HPI will unwind as a matter of course.
If what I have stated above is indeed correct and runs its course, we will see a decrease in the money supply and a corresponding decrease in house prices. Sentiment, spin, VI, froth and lyrics really can only skew (read exacerbate) the overshoot. If people fundamentally can't get credit, they fundamentally won't be able to offer asking prices. The further it sails above reality, the sharper the correction and overshoot when it reconnects. (read "wait until everyone advises you against property before you buy")
I love the drama on this site, and the fact that you are still right is quite exciting, but looking at fundamentals, supply is static and demand (that can be converted into sales) will be constrained by the availability of credit. If liquidity unwinds, she will founder.
I hope that clearly explains my position for HPC.
5. Marcus B said...
The house market is a financial market, markets move in cycles, granted the up portion of this and pretty much all other financial market cycles have been stretched much much longer than anyone expected in recent times, for all the reasons we all know and have discussed, but it is still in a cycle, and eventually it will turn. Remember the number one rule of investing - pigs get slaughtered - why, because they forget that everything moves in a cycle and think the bumper profits can go on forever and ever and ever. They can't.
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7. Sharpeeuk said...
there is a long term link between average house prices and average salaries.
the long term ratio the two has been somewhere between 3 and 4.
10 years ago the ratio was about 3. today it is about 9.
if house price rise at the same rate they have done over the last 10 years, for 10 years into the future; this ratio will be 25.
judge from that what you will - but can you afford a house 9 times your salary? how about 25 times?
8. sold 2 rent 1 said...
I can't wait for the quarterly report by Edmund Conway, Economics Editor at The Telegraph, on the Lombard Street Research LSR "housing affordability" index.
It should be out at the beginning of April and if we have an IR rise in March then it will be plummeting down big-time
The last 2 articles were published on 3 Oct 2006 and 3 Jan 2007
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/10/02/cnhouse02.xml
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/01/02/nhomes02.xml
For all you bulls that need convincing that the market is nearing its peak. LSR are the most reliable HP predictors in the business.