Thursday, Nov 27, 2008
That's right, blame the economy
BBC: House prices fall but pace eases
"The slump in house prices eased off in November with prices falling by just 0.4%, according to the Nationwide, the UK's largest building society. The mortgage lender said the rate of price falls "moderated significantly" when compared with October's 1.3% fall. House prices are down 13.9% from November 2007, easing from a 14.6% annual fall in October. However, Nationwide warned that the poor economy would continue to put pressure on the housing market." (isn't it the other way round? The house price bubble bursting has dragged the economy down?)
Posted by mark wadsworth @ 07:35 AM (2920 views) Add Comment
48 Comments
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1. hpwatcher said...
That amounts to a drop of £25,000 in the past year, although the building society says prices are still £25,000 higher than they were in November 2003.
hahahahahahhaahhahahah how long before....''prices are still £15,000 higher than they were in November 1999''
2. cornishman said...
In 1999 a 3 bed detached box on a new estate near here (the sort that would be a terrace, except that it's been split from its neighbour by one metre) cost around £60,000 (yes, really!). At that time, gold was around £175/oz.
So, it took 342oz gold to buy a detached house.
At the moment, the same box on an estate would sell for around £175,000 - although some potential sellers are still holding out for over £200,000. At the moment, gold is £530/oz.
So it takes 330oz gold to buy a house today. In other words, measured in gold ounces, houses are cheaper today than they were in 1999. Using the same amount of gold would make the price £181,000.
Those people holding gold as a 'store of value' might be interested to do the same sum for their area.
If gold really is a store of value - what this means is that house prices haven't gone up in real terms at all.
If gold really is a store of value, what must have happened is that wages have fallen to one third of what they were 10 years ago - but we've not noticed. We've probably not noticed because of the massive deflation in the price of food and TVs.
So will house prices come down - or will wages go back to be equivalent of 1999 levels? Interesting conundrum for anyone sold to rent with some cash to look after.
3. bystander said...
Hope your right hpwatcher. The use of words like 'eases' will make many vendors continue the denial faze, until the banks start their ridiculous lending strategies to get market share again. It is only a matter of time before another wildly imaginative financial vehicle is dreamt up and coated in triple A slime and the whole merry-go-round kicks off again. I hope though that reality will by then have caught up and the sheeple will be buying for home not profit and that the speculators will have found something less damaging than housing, oil, commodities to get their teeth into. Someone should bundle up futures of 'nothing' and sell that - tulip anyone??
4. mytimeisnigh said...
I wonder what the fall would be, if it hadn't been seasonally adjusted or hasn't it been seasonally adjusted? I don't know how to work it out, can anyone help.
5. bilko said...
These reports really annoy me because they clearly are not accurate. The volume of sales is dramatically down and houses where I live are simply not selling and asking prices have hardly dropped. Therefore the most desirable properties are probably the only ones selling and thus we're not seeing a true reflection of what prices would be if people had to sell. If only one property sold last month for 0.4% lower than it's previous months asking price it doesn't give an accurate figure for the value of all the other houses. The reality is that to sell the stock of housing currently on the market prices would clearly have to fall much further just to initiate some interest and reality into the market. Anyone buying property at the moment, unless essential, must be bonkers.
6. phdinbubbles said...
The good thing about small monthly falls is that the probability of a bigger fall next month is increased. We've a long way to go yet. Besides, how many houses have been sold for them to come to this figure?
7. Bertywooster said...
I say "Prices are still higher than when they were lower." Maybe I should be a spin doctor.
I need help, with all these nomonics around I'm confused. Who has called the administrators, MFI or the IMF and which one has run out of money?
8. matt_the_hat said...
Gents I am going to call the bottom of the market early next year.
The gold to house price ratio just shows that the only driving force over the last year has been money supply (debt), and supply and deman is alive and well (money suuply - house numbers not house number - people numbers as everyone was suggesting).
Price deflation is easy to fix - just increase the money supply - this will come in the form of forced lending via nationalised banks - HPC over - however the question everyone wants to answer is do I want to live in this tin pot dictatorship for the next 25 yrs.
9. drewster said...
What bilko says.
The real story is in the auction rooms. Auction sales, 80% of which are repossessions, are achieving 42% falls (from memory - figures quoted on a recent Radio 4 documentary).
10. c'mon correction said...
It's far too early to call the bottom yet. Remember the 2nd phase factors have only just started happening - unemployment rising rapidly, LTV's much higher than even 6 months ago and reduced lending multiples, wages stagnating/falling, home-owners very slowly accepting there WAS a bubble, taxes rising, imported inflation, EU immigrants returning home.....
There may be some short-term support (belief ?!) which will sucker a few more people into buying; nothing changes the fact that prices STILL need to fall approx 30% more to return to long-term sustainable affordibility.
11. c'mon correction said...
Should be - LTV's much lower than 6 months ago!
12. Str Mofo said...
Am I right in thinking we havent had our own subprime crisis yet?
I think we havent seen anywhere near the last massive shockwave to hit the money markets so suggesting the housing market will bottom next year seems pretty rash.
I cant tell which end my baby will squirt out of next so calling the housing market in the most turbulent times in history would be more luck than judgement.
13. mountain goat said...
Mark Wadsworth - yes house price crash has punctured credit which is causing this economic downturn, not the other way round.
Matt - the housing bottom will only be in when job creation turns up again which is likely to take several years. That said I believe we will see a bounce due to all the liquidity being pumped in next year. For housing this will be a bear trap though. The bubble will over-correct and housing will go below construction costs, just like currently commodities are below mining and cultivation costs.
14. gardeniadotnet said...
Why the measures taken so far by the government to fix our economic problems are totally inadequate...
Average house price in NW approx. = £160,000.
Number of people who have bought near top of market = lots.
Number of same people who are going to lose their jobs in 2009 = lots
Number of repossessions = UP!
Price raised at auction (50%) = £80,000
Sum owed to bank = £80,000 (with no assets or means to pay)
= BIG PROBLEM.
15. Luckyjim said...
In my area buying is now cheaper than renting (if you can get a mortgage of course). That rules out further big falls. Whatever is going on in the economy it cannot be possible to buy a house and rent it out for significantly more than the cost of a BTL mortgage.
Apart from areas where there is huge oversupply (city centre flats) rents will not fall - not even if there is mass unemployment. If rents don't fall, house prices won't fall.
A further 10% drop is the best we can hope for.
16. Dave The Dog said...
# mytimeisnigh @ 8.10am
The unadjusted figure is - 0.27% MOM
The unadjusted YOY figure that I've got with the Nationwide figures is - 14.87%
17. it_is_going_with_a_bang said...
It is very hard for anyone to see where prices are going - but you could not rule out a further 20%+ drop over 12 months.
House prices will look stable when the average person can lead an average life and afford an average home.
Right now £170,000 for a 3 bed ex council house in an area of rapidy increasing benefit queues - ( also a large Woolworths and an MFI ..... ) seems like too much to me.
Even taking 20% off comes to £136,000 which is where BTL may well make sense given the current and "probable" future interest rates.
But as much as BTL can help drive a market it cannot do it alone. Without the average idiot willing to pay huge sums of money for a house prices will likely keep dropping.
After all there is a saturation point with BTL. Especially with foreigners going home to seek a better life ( and I mean that nicely! )
What figure are the banks going to use for LTV and earnings to loan value ratio? That's the key to this. When banks were willing to lend 6x salary it was utter madness ... any ideas?
18. titaniccaptain said...
As c'mon correction said post 9 and Gardeniadotnet post 12
If the pace has eased in prices dropping it may be due pixies..........so few houses are selling right now anyway how can any figures reflect anything? its all la la land
19. cornishman said...
gardenia said BIG PROBLEM.
So, the answer is to allow wages to rise so that people can pay the amount of pounds they are committed to paying on their mortgage. But this would make UK workers uncompetitive in the 'global' economy. So make the exchange rate lower so that they are still competitive.
Plan in progress at this moment...
20. Jayk said...
Report: "Nationwide records big drop in house prices for last month."
HPC user response: "Their figures prove crash is in full swing! Shout them from the rooftops! Put them on the front page!"
Report: "Nationwide report smaller drop in house prices last month than previous month."
HPC user response: "They are fixing the figures! They are useless and wrong! Ignore them! Not enough sales to provide reliable data!"
I don't recall many people here complaining about seasonal adjustment potentially masking falls, or lack of sales providing reliable data, when the monthly drops were reporting at 1.5% and higher. What a surprise.
21. confused76 said...
They will sound like a broken record and call the bottom at least ten times next year
No escape: house prices bottom in no less than 5 years from peak, because at any point in time there are many sellers that are still sitting on a profit (those who bought in the 80s and the 90s) and that will just sell at the market price
To me, the bottom will happen when house prices have reached 3 to 3.5x the average salary (still 30% to fall! or in other words go back to 1999 levels)
"£25,000 higher than they were in November 2003" MWAUHH AHAHHA HA HAHAHAH HAHAH
22. matt_the_hat said...
Guys I think you have become fixated with the graph on the homepage - early next year prices will stop falling in real terms - the printing presses have been turned on.
To understand what I am saying you first have to realize why house prices went up in the first place, until then we will make the same mistake over and over.
23. harold said...
Nice work cornishman @ 2.
24. sold out said...
As c'mon correction says the falls in house prices so far have only been driven by the financial crisis.All we have had so far is the froth and bubbles blown off the top.The second phase factors,the collapse of those glorious fundementals that all the VI's and politicians where trumpeting about 12 months ago have yet to impact on the housing market.They will do during 2009 and thats when the real crash will occur,2008 was the starters the main course will be in 2009,followed by deserts and coffee in 2010.
Let the government nationalise the banks it will not make much differance, you cant lend too much to people on benefits.
25. cornishman said...
harold - thank you.
Of course, another possibility is that house prices and the gold price are both in a similar sized bubble!
26. c'mon correction said...
"printing presses have been turned on". - Yes, this will offer short-term support, even create a dead-cat bounce before reality yet again catches up and prices fall again in the summer (even harder, faster and longer).
Remember, everything has an effect. If "turning the printing presses" on solves everything, then they would never be turned off ! ;o)
27. garb said...
as said, the Nationwide figures are for houses bought with one of their mortgages which obviously excludes cash buyers who will be buying at bigger discounts.
28. landofconfusion said...
"If "turning the printing presses" on solves everything, then they would never be turned off !"
Indeed. And what about sterling? Or doesn't it matter anymore?
29. ana lytics said...
@4 mytimeisnigh
The -0.4% is seasonally adjusted, yes. (It's actually -0.43% if you like your decimal places!)
The non-seasonally adjusted figure is actually higher (i.e. less negative) at -0.27%. So in this instance the seasonal adjustment has exagerated the fall.
I got this data from the Nationwide historic "data download" section on the HPI site. Download the UK monthly indices (post 91) into excel, and create a time series of returns using the index values in column d for seasonally adjusted, and column c for non-seasonally adjusted. The prices in column B generate the index values in column c.
On the matter of calling the bottom......... there's a way to go yet............ Halifax earnings ratio (average house price divided by average male income) at 31/08/08 (latest data available) is 4.92. The peak in July 2007 was 5.84. The long-term average over 25 years of data is 3.99 (call it 4). Hence, if we were at 4.92 at 31/08/08, we are probably now at about 4.65 (back of fag packet calc), so we're still more than 15% overvalued is you assume wage inflation is gonna be pretty low this/next year. Anyone wanna know what the ratio was after the previous 2 house price crashes? 3.5 between 1983 and 85........... and GET THIS............ it was as low as 3.2 between 1995 and 99 (below 3.5 for approx 9 years between 1992 and 2001). If you assume we're going to get an overcorrection to 3.5, then we have another 25% (allowing for small wage growth on the other side of the equation).
I was also interested in seeing how much Mortgage Equity Withdrawal over the last few years has been topping up on GDP........... I was amazed to learn that MEW added in excess of 3.5% (average) to GDP from 2002 to 2007 (inclusive). Considering that MEW is now negative (i.e. folk are paying their mortgages, rather than withdrawing equity) then the UK has effectively had a 4.0% pay cut in 2008. No wonder the high street is suffering. VAT reducing to 15% won't even make a dent.
Bottom of market - Early 2010 for me....... then a long drag along the bottom for a few years.
30. matt_the_hat said...
"If "turning the printing presses" on solves everything, then they would never be turned off !"
Thats the problem - these guys want to stop deflation (including house prices) by whatever it takes - but they also don't want hyperinflation - so they want to turn off the presses when the debt bubble has been inflated away. Please will everyone stop talking about house prices to earnings ratios its so 80's, nowadays its LTV ratios that decide house prices.
31. growler said...
It will be the first HPC that doesn't do some over-correction. If labour think they'll up taxes in 13 months, then by their own estimates that will be when the house prices are at the very bottom. This tax-increase will be being priced in during late 2009 keeping at least 2010 relatively subdued. Before then we'll have banks looking to buy out the meddling Government (who will need cash so might be interested in doing a deal). The upshot of this is the banks will get rid of political meddling but will have less resources for lending. Once all of this is bedded down, think 2011-2012 before "normal" can be widely used. Having possibly learnt a lesson on CDO and dodgy resources, the banks will take some time and all be very careful about high LTVs for some time. So I can see a VERY long and slow recovery to 2007 bonkers prices. This will mean that banks will not be so keen to loan "interest only" since they won't be so sure the capital value will appreciate enough to pay off the sum. Owners will also be less bullish (having emerged from this mess) so might just (you never know) see a bit of sense and either reduce the LTV or go for repayment. This will also depress the OPiuM (other peoples money) sloshing around the system. Since we're a global economy, will banks overseas flash the cash as 2007. Not a chance. Ice(land) is perhaps an irony, but banks will be very cool for some time.
32. Olivier said...
Here comes the bull trap...
33. ana lytics said...
@25 matt_the-Hat
"Please will everyone stop talking about house prices to earnings ratios its so 80's, nowadays its LTV ratios that decide house prices."
Sorry, but HP to E ratios have their part to play in this discussion.
I do agree that LTVs are also key, but seeing as most banks won't lend over 85% on a sensible income multiple, then HP to E ratios are already factored into their lending practices and their expecations of where prices will go (i.e. down another 15%, maybe more). Why disregard HP to E ratios now - at the end of the day houses are homes (for the majority of folk), and homes are secured on incomes (in the greater part). End of.
Unless the banks are forced to lend out at 5x income or 100% LTV again, house prices will keep falling and I for one will not buy until the HP to E ratio falls below 4 (fair value).
34. Andrew said...
@25 matt_the-Hat, you have gone full circle before even starting out, the increasing money supply scenario you are describing has already happened over the last 5 years at about 15% per year. This is it, the result of what you think will happen (another increase in money supply) all over again, is right before us now. All financial buttons are being pushed at random just to see if one of them will work, but the system is broken, out of control and unpredictable.
So I don't think you can call the bottom just yet, house prices stubbornly rose for the last 10 years to rediculous levels, all we know now is that they are falling, fast.
35. geed said...
Fill yur boots matt the hat! Suckered in, some people will never learn.
Unemployment is rising, RPI is falling (forget about pay rises next year for those lucky enough to hold their jobs). 100, 95, 90, 85, 80% LTV mortgages have almost dissapeared or become extremely expensive. 25%, and increasingly 40% deposits are required to gain any deal from the banks, ciao ciao FTBers... Banks know that house price will fall from peak by at least 25%, most probably 40%. Taxes will rise over the next 2-3 years to pay for government borrowing. Experienced landlords are staying well clear of property, they know house price crashes take a little longer than 12 months to play out, try 4-5 years. Canny investors know that stocks will start rising much earlier than illiquid assets such as houses once we pull through this recession, this is where the money will be/is going.
This was always going to happen, due to the extreme rapid falls in house prices, over 15% in one year, any moderation in these falls is seen as a recovery.
Growlers point @ 26 regarding the banks wanting to get rid of government meddling is a good point.
hooray! the house price crash is over......Fools!! hehehehe.
36. matt_the_hat said...
Looking on the back of a "ten pound note" it say I promise to pay the bearer on demand 10 pounds, where can I go to get my 10 pounds and what does this asset look like - sorry I'm only a youngster and haven't seen a pound before.
37. confused76 said...
matt
you do not know what you are talking about
"early next year prices will stop falling in real terms - the printing presses have been turned on"
so run the presses, and "real" house prices will fall even faster!
... not to mention if you convert the UK house prices into $$ and €€... AHHAH AHHHAH
38. confused76 said...
Yeah, forgot the LTV ratios
Matt,
LTV's of 80% or less is the new mantra. Get used to price reductions of 50% to restore the LTV ratio, since the size of the deposit ain't gonna increase any time soon, as people do not have any spare income to save
Forget 100% or 125% LTVs, at least not this century
People will have to do actual work to earn money. Sorry you are young I do not want to shock you with these horror stories
39. phdinbubbles said...
"nowadays its LTV ratios that decide house prices."
Don't buyers determine future prices from now on? How much would you spend on one confused76?
40. letthemfall said...
I think confused76 has it right: house prices will revert to their long-term trend, which is related to incomes, naturally enough. This is what has happened in the past and I see no reason why it should be different this time. We may even get a big overshoot. The two big booms since the 80s were driven of course by credit supply (never available to this degree in the past). This latest surge has raised debt to huge levels, which is why I think the chances of a long deep recession are high, with the possibility of a Japan-style slump, or even something worse. We may end up with a highly unstable situation where deflation bounces into high inflation, for reasons stated above. Impossible to say. But I very much doubt we will see a return to the credit conditions, supported by financial sophistry, of recent years for the forseeable future. Long term, who knows? It didn't take that long for one housing boom to follow another.
41. matt_the_hat said...
The horror story is this:
1, People will have to do actual work to earn money - but they better run down to the shops with a wheelbarrow before it becomes worthless
2, the size of the deposit ain't gonna increase any time soon - no because its inflated away
3, Wealth and power is moving east along with talent - hope you are not too old to move confused
Real house prices will fall, yes. along with your saving and pay for your labour - your starting to get there
I can sense the penny (or should I say pound with inflation) is dropping with the increased emotions in your reply - too young maybe but I read the history books and we are no smarter than last time
42. gardeniadotnet said...
Hyperinflation here we come.
The thumb is going to come of that grossly distended financial hosepipe before long.
The alternative, the collapse of our monetary system, is too horrific for the Government to contemplate.
43. techieman said...
If there is a move back up early next year - and i think i was one of the first to say this on here - it will be a countertrend move. So much like the falls in 2005 were counter to the bull market, the rise in 2009 spring will be counter to the bear. This will (IMO) suck people in - if not into the property market then at least into the "we have managed to come out of this intact" mantra.
GB goes for the election then. Win or lose this will make no difference to the Property market, the market will re-instate the falls. Its actually not about the credit conditions / LTVs or anything else. Those are just symptoms which then feed onto the cause. The cause? Its the end of the K wave, mass psychology. The folks all know this which is why the establishment people will all come back with differeing degrees of deniabilty.
First deny its possible, then deny that it will be anything but short and shallow then deny it will take years to sort out and deny it will be anything but a normal recession. Its the business cycle, plain and simple. The move up from yes 1750s (no typo) has to be corrected. The late 80s was a contertrend move against the dominant uptrend so this is NOT the same. Thats why it has a different feel about it (sharper falls) .
They will at the first opportunity (momentum down is reducing etc) say quick get in and buy now while you can. Its always been like that so it will be the same this time. That mantra is wrong IMO.
The inflation or reflation that is being embarked on may work or actually more importantly people may BELIEVE it will work which would be the primary cause of any move back, but once the momentum on that move wanes (and it could be a relatively strong move) then there will be massive falls. The deflation will be such that long term the authorities run out of bullets. The kings new clothes. However the timing of the move back up is a guess, and its not impossible for the move down to be in the region of 40% before we get the rebound.
44. mark wadsworth said...
@ Techie 36, quite probably there will be dead cat bounces along the way, the key to this is that the fall/crash will last at least another two years, possibly four or six, who knows. Any increases between now and late 2010 are to be completely ignored. What you have to wait for is a one year period (at least, possibly two) of low and stable prices before thinking about going in again.
45. sold out said...
Techieman@01.17
I do agree with your prediction of Gordon going to the polls early next year they must be considering this option.
However am still not convinced that their will be a spring bounce next year.Surely the avalanche of bad news is such that 2009 is going to be really Grim for everyone.
Even the goverment attempting to intervene, re banks lending is not going to be enough to turn around this sucker.
The media are so quick to jump on these figures 0.4% falls this month compared to previous months as being the turning point.
Its quite clear that this time of year is notoriously slow in the property market and therefore sales volumes are going to distort the figures.
If we see a period of 3 to 4 months where the falls are consistently less and appear to be stabalising i may sit up and take notice.
I believe that if there is a rally its more likely to occur after the falls have reached closer to 40% and that will be more likely at the end of 2009.
People have been and will be calling the bottom of the market for the forseeable future. The truth is i guess that when the bottom of the market is reached it will take months before most of us realise its happened.
46. techieman said...
Yep Sold out - either spring 2009 or spring 2010 for a rebound. Either way i agree with you and Mark W that it wont be the end of the [down]move. My overrding point is to be prepared for a move back up (so its no surprise) but to hold out against it, at least until falls are "substantial" - now what constitutes substantial differs depending on your viewpoint. As for him going to the polls i think he will only go if he believes the patient has been cured or at least in remission. So i think the DCB and the election will be timed to co-incide.
47. planning4acrash said...
cornishman, absolutely correct, you have broken free from the propaganda and are able to view the situation from a stable perspective now, but note, leveraging has been the only thing that let housprices keep up with gold. When the housing market de-leverages, prices will plummet relative to gold. This is why gold prices must be suppressed by COMEX, because once gold soars, the Emperor truly has no clothes and its game over.
48. Tenyearstogetmymoneyback said...
Re all the comments about P/E ratios.
The things that everyone keeps fordetting is that when money is borrowed the money has to be paid back.
There are only 300 months in a 25 year mortgage. So even if interest rates were 0% a £300000
mortgage would require £1000 paying back EVERY month. Of course people thought that they could just keep
re-mortgaging but unless you have Fred Goodwins pension I can't see many people managing that past the age
of 45.