Sunday, Jan 27, 2008
House prices DON'T always go up
Reuters: As safe as houses? Dutch history suggests not
The Herengracht index is a unique index drawn up by Piet Eichholtz, a real estate professor at Maastricht University using records of Dutch house prices over 350 years. It has been cited by Yale economist Robert Shiller for its reflection of the inexorable logic that bubbles always burst.
"There are long periods where prices go up and prices go down. But over the centuries there is no uptrend or downtrend," said Eichholtz. "The index teaches that the house market is volatile and in real terms doesn't go up or down structurally."
Eichholtz says home-owners have short memories when it comes to big price falls: "When there is volatility every so often people are very myopic and tend to forget. A price fall of 30 to 40 percent is rather common and cannot be ruled out for the US and UK.
5 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. little professor said...
The Herengracht index shows real prices in the early 1970s were little changed from 1650. But home values have more than doubled since a slump after the 1979 oil crisis, suggesting a big correction is long overdue for the Dutch market too.
Eichholtz said it is hard to predict how far global markets might fall but noted that the S&P/Case-Shiller index has doubled since 1990, suggesting U.S. house prices could even halve.
But he added the current crisis is nowhere near as bad as the Dutch crash after the French occupied the country in 1795: then, house values on the Herengracht tumbled 80 percent.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=598#PaperDownload
2. who stole my pension? said...
I got an email this morning from an auction site that said "Happy New Year .......As one would expect, in the current market climate, there is a large number of lots offered on behalf of banks and building societies (around 160 lots or 39% of the catalogue). Many of these will be of appeal to first time buyers and potential investors." Not sure it will appeal to anyone, just yet, but none the less the market is turning.
3. dohousescrashinthewoods said...
On a related note, I've been looking at the IG index spread bet on house prices and trying to work out where one would break even.
The current market expectation for national average house price is 189K for March and 182K for June.
The December HBOS figures put the national average at 197K, so to break even on such a trade, prices would have to fall 6% by March and 9% by June.
That may be just a mistake in my workings out, but if it's right, the market is predicting quite a sharp correction.
(The next question is whether the market is over or under optimistic - and whether it's worth placing a small trade..)
4. converted lurker said...
on a related note the latest Venmores auction for Liverpool, end of Jan, has by their standards only a handful of entries. I reckon its approx 30 versus normally 150.
5. Lloyd said...
30-40%, hopefully 50% Yipee can't wait, so that I can afford a house to live ib at last!