Tuesday, Aug 19, 2008
MoneyWeek predicts 18-24 months til bottom, then flat for a long time
MoneyWeek: Why house prices could fall by 50%
"The average estate agent now has a record 78 unsold properties on its books. That represents a seventh consecutive monthly increase in the amount of unsold stock. If sellers can't sell they are going to have to cut those asking prices a lot further. Buyers know this perfectly well and that's why they aren't buying: why buy now what you know you can buy cheaper next year? House prices are likely to drop by 50% but even that will only bring them back to fair value. How long will all this take? Give it 18 months to two years and you'll find some serious bargains about. However that doesn't mean you're going to make a killing on it in a hurry. By all means look for a bargain in a year or two but don't expect to be able to sell it on at a profit for a good five years."
7 Comments
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1. layers said...
"Some of the other participants even pointed out that with the kind of overshoot you get in most markets, 50% could be optimistic." Exaclty what we've been saying here for some time
2. Kruador said...
50% is the upper end of affordability for salaried, male, full-time employees. Their median salary is £26,297 and on a 3.5x multiple, that's £92k. The average now is £177k if you believe Halifax.
For true affordability you have to look at all workers. The median weekly wage in 2007 for all workers was £374.90 (http://www.statistics.gov.uk/downloads/theme_labour/ASHE_2007/2007_all_employees.pdf, select Table 1.1a), which, annualized, comes out to £19.5k. The higher end of reasonable affordability is then £68,250, a drop from now of 61%. Prices haven't been this low since 1997.
3. drewster said...
4. peter_2008 said...
So if we only lose about 10% a year, does that mean I will have to wait another 4 years to open my bottle of Champagne to celebrate? Or maybe I can start make whiskey. I can call it HPC Reserve 5 Year, 10 Year and 15 Year, depending how long the crash last!!!
5. tyrellcorporation said...
VIs will predict a Vee shaped curve but that relies on people still feeling very confident about housing at the perceived bottom of the market. After 2-3 years of falling prices that confidence simply won't exist and the market will flat-line for years to come. It's easy to be bullish about a housing market recovery when you've just experienced the longest and most extreme HPI in history.
6. mark wadsworth said...
Drewster, we've had that chart here before, and as was pointed out at the time, the y axis for land prices is misleading, it shows that land prices were falling at around 10% p.a. for a decade or so.
7. drewster said...
MarkW,
Sorry, I just took the first graph that I found. You're right it is misleading since it shows Δp rather than p. Prices in Japan did indeed crash hard, but that was followed by many years of further gradual price falls.
The basic theory still stands, that we're increasingly unlikely to see a happy V-shaped crash-and-bounce-back. Personally I reckon MoneyWeek are slightly optimistic with their estimate of five years post-crash til recovery. If an L-shaped crash takes hold, all those hesitant sellers who are waiting for the market to recover will discover that the markets can remain irrational longer than they can remain solvent (Keynes).