Tuesday, Jan 06, 2009
2.5% fall - more green shoots
BBC: House prices 'fell 15.9% in 2008'
House prices fell by 15.9% last year, according to the latest survey by the Nationwide building society.
Posted by holding out @ 08:03 AM (2278 views) Add Comment
34 Comments
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1. mark wadsworth said...
It's good to see that Fionulala's time machine is still humming smoothly:
"The price of a typical house is now £153,048, around the same level as of spring 2005, but still over £17,500 more than five years ago."
It's taken just over a year to wipe out the previous two years' gains, and her consolation prize is that it will take another year to wipe the previous three years' worth?
2. beartil2010 said...
I think the fact she keeps talking such garbage says more about Nationwide than her. She probably offloaded half of her BTL portfolio because she saw this coming, but didn't let anyone know because she wanted to ensure her properties sold.
3. little professor said...
4. little professor said...
mark - prices fell over £5,000 this month alone. At that rate, it shouldn't take a whole year to wipe out the £17,500 equity since 2003.
5. little professor said...
Ah, our old friend "pent-up demand" makes an appearance in the pdf report:
“Pent up demand likely to play a part in recovery.
An important underlying factor which we expect to play a part in the recovery of the market is the likely build-up
in pent-up demand since 2003. Since then, first-time buyers have made up only 33% of transactions, compared to
an average of 46% since 1979. If one assumes that the same proportion of first time buyers would have liked to
have entered the market, it is possible to work out how many have been “locked out”.
This adds up to about 750,000 buyers over the 2003-7 period, which is
more than the total number of house purchase
transactions expected in 2008. Clearly this
estimation is fraught with uncertainty and sensitive
to assumptions, but it does appear likely that a
substantial pool of pent-up demand has been
building up, which could make its way back into the
market when affordability improves and economic
conditions and house price growth expectations
stabilise. Moreover, the severe cuts in house
building activity since late 2007 suggests that once
housing market activity does begin to rise again, the
longer term supply pressures highlighted in the
Barker Review could re-emerge relatively quickly.
This in turn could help prices to recover more
quickly."
Incidentally, it's time to update the graph on the homepage again:
6. phdinbubbles said...
Beat me again LP - here's my post anyway:
Can someone please update the indices and the graph on the homepage.
The updated plot (for Q4) of the Nationwide's "Long Term Real House Price Trend" is on their press release. So is the plot of "Ratio of house prices to earnings and rents" which is more informative. If only this graph had been shown to everyone thinking about buying a house over the last decade. It amazes me that the Nationwide produces the best house price information available (that I've come across) and puts it in the same document as Fionnuala's tosh.
I'm finding it difficult to justify a prediction of anything less than 60% real term drop now.
7. doomwatch said...
I can't wait for how Annie Ashworth will spin this one out.
8. a saver said...
Heard a heartening example of Scottish HPC at the weekend.
My sister had been insisting that the Cupar property market was still robust and indeed, she sold her (let's face it fairly crappy) 3-bed terraced stone-built cottage on a busy road for 210K on its first day on the market, in Oct (yes, there's still some idiots about). However, her ex told me that he'd recently put in a cheeky bid for a 3-bed semi and only just missed it. It was one of three that the Min of Defence had been trying to offload for well over a year, reduced from offers over 170K to fixed price 160K. It sold for 110K at auction, while the other 2 went unsold and someone was negotiating a deal for both. So for the house that sold, that approximates a 50% reduction, given that Scottish sellers used to expect at least 20% over asking price.
Anyone else have some Scottish examples/been to Edinburgh auctions?
9. little professor said...
10. mark wadsworth said...
LP, That ratio of house prices to earnings and rents is brilliant, can you tell us the original link.
Yet again, it supports my working assumption that rents and wages increase more or less in line.
11. str 2007 said...
"We did not anticipate the speed of house price falls or the extent of the global and domestic economic slowdown," she added.
Should have gone to HPC.
Excellent You tube video LP (thanks to Crown).
12. maddison said...
I would be interested to see the average price falls by property type. This might strip out the the dodgy new build BTL flats that are no doubt showing the biggest falls...
13. uncle tom said...
Nationwide should be commended for realising that the crash now needs to be seen to its conclusion, and not attempt the stalling tactics of the Halifax.
With all these reports, there seems to be a will to suggest that somehow it 'won't be as bad' in London.
I picked up a snippet of information yesterday that suggested that a quarter of the capital's population are not UK citizens..
..these are fair weather friends, and if the grass looks greener elsewhere, they'll be off.
Over Xmas, a cousin in the capital's building trade told me that the smart and skilled Poles have already gone home, leaving the idiots behind.
Could be an awful lot of London rental property left empty..
14. ana lytics said...
There are some interesting points to note when looking at the spreadsheet of historical data backing up the Nationwide release (I'm looking at the UK Monthly Series post-91)......
.........the average house price now (Dec 08) is £153,048
Fionoodler correctly points out that this is approx the same value as in Spring 2005 (£153,876 at 31/03/05), and 17.5K more than Dec 2003 (£135,444).......... but (as ever) she is cherry picking her stats........
My turn to cherry pick............. take a look at the 31/08/04 Average House Price.......... (4 years and 4 months ago) ......... £153,743, a 0.8% fall in average house price if you use the Non-Seasonally Adjusted index values.
The 4 Year number? Dec 04 was £152,623.......... a 0.3% fall over the 4 years........
Extrapolating this forward a few months........ an interesting question is how long will it take for the 5 year number to turn negative? Currently we're looking at a 13.0% rise over 5 years (amazingly & worryingly the average house price rose £18,300 between 31/12/03 and 31/08/04!)............
If you assume a (meagre) 1% fall in HPs per month over the next few months (to make the model VERY conservative)......... the 5 year number goes negative at 31/05/09..........
If you assume a 2008 monthly average (approx -1.4%), the 5 year number goes negative at 30/04/09.......
One thing is certain, Fionoodler will have no 5 year stats to hide behind come the end of Q2 09..........
15. str 2007 said...
Thank you for that analysis ana lytics.
And only about 18 months at current terminal velocity to get back to May '02.
Or 24 months (end 2010) to get back to 2000 prices (or off the end of our Nationwide chart).
16. little professor said...
mw - the graph is from the nationwide report, page 2:
http://nationwide.co.uk/hpi/historical/Dec_2008.pdf
I added in the black trend line myself, not very scientifically - looking at it again, it should be even lower, probably completely flat.
17. monty032 said...
Looking past Fionnuala's "tosh" and downloading the Nationwide spreadsheets, I notice that nominal house prices are now back where they were in June/July 2004. Inflation-adjusted prices are now back where they were in 2003 Q3/Q4. So just 14 months of falls have taken us back to where we were five years ago. And the falls don't look like stopping any time soon.
Has anyone else noticed that you don't often hear people saying "my house is my pension" these days? And there seems to be a sudden scarcity of property programmes on TV? I suppose there is a lead time of six months to a year to work through the ones they commissioned before the Northern Rock crisis, and none have been commissioned since.
18. mark wadsworth said...
Ana Lytics, you beat me to it.
I have now done a post charting Fianalala's time travel adventures backwards and forwards through the months and years.
19. little professor said...
Without the seasonal adjustment, prices are actually 3.4% down month on month, not 2.5%. Don't get taken in.
Another home-made graph, using the Nationwide figures:
20. ana lytics said...
Yeah, I'm wondering what reference time periods fionoodler will start quoting soon?
"However, house prices have still risen since March 2003, when I had a nice holiday in Morocco........... (pause for reminiscing) ........ ahh happy days"........
or
"However, house price inflation since I started drinking decaff soya lattes is still positive.........."
Standard reporting time periods for the performance of any asset or investment fund are usually...... 1 Mo, 3 Mo, YTD, 1 Yr, 3 Yrs, 5 Yrs and then 10 Years.............. so I think I know where the noodler is headed after 31/05/09............ something along the lines of........
"However, house price inflation over 10 years is still strong, over 100% growth since 1999 ..........(when I was learning maths in remedial classes at secondary school)........."
Only trouble, the game is up when 5 years becomes negative (as virtually no-one has a fixed rate of greater than 5 years). Hence, virtually anyone re-mortaging from a fixed rate to a new deal post-31/05/09 will find it hard to get a good deal if they didn't originally put down, say, 15% or more.......... game over........
21. Mark Wadsworth said...
@ LP, thanks. How did you 'cut out' the chart from the pdf?
Yes, the black line should be flat. Like the red line. A 50% overall fall does not look unlikely using your second chart, but I think from the numbers this is the FTB ratio, the overall average didn't go under 3, surely?.
22. voiceofreason said...
LP @ 5: So when do we predict will be the bottom of the market ?
Looking at your graph, an undershoot to average prices of £100,000 (i.e. 3.5 x earnings + deposit, or about 1999 prices) will bottom out in late 2009, early 2010. This is much more rapid than previous dips.
Unless some idiot turns the reckless lending taps to full in the meantime (Gordo are you listening ?).
23. phdinbubbles said...
This is the kind of silly thing that goes through my head every time I look at the Nationwide historical stats (the same thing applies to the Long Term Real House Price Trend data as well):
The booms and the busts keep getting bigger. A very simplistic model, but is it possible? - a drop from x6.5 to x2 earnings = 69% drop in price/earnings ratio over the best part of a decade?
24. mark wadsworth said...
@ VOR, I reckon two years at least till they bottom out. JU might predict ten years of falls, who knows? Once prices fo y-o-y positive again, it's time to buy. £100,000 seems about right as a target. This would be 2002 levels according to Nationwide (prices rose from£95k to £115k in that year, allegedly.
That's my new mantra "back to 2002", which could mean falls of anything between 40% and 50% from peak.
@ PHD, that new line is pure unbridled genius.
25. pelethar said...
phdinbubbles 22 -
That's a very alluring graph but I can't see it personally, unless the tinfoil hat brigade's direst warnings come true, and we're all eating cold baked beans out of a tin. The scenario you have presented is basically absolute economic armageddon for the Western world, rather than just an extremely nasty asset price crash, which is what I think we're going through. 40% falls from the peak is my best guess now, bottoming out somewhere around the end of this calendar year / early 2010, followed by at least 18 months of bumping along the bottom.
26. luckyjim said...
phd
At 5 times annual rental income the yield for a BTL investor is 20%. In other words, a flat that earns 10k a year in rent could be bought for 50k. Or they could leave their 50k in the building society where it will earn 1k a year. Even with an overshoot it hard to see us reaching that stage.
27. phdinbubbles said...
@pelethar
I don't think that prediction above will come true either (at the moment) - I think a bottoming out at x3-3.5 salary is feasible though. Having said that I find it impossible to look at that graph without considering how each successive boom is bigger and more drawn out (and the same for the busts).
@luckyjim
How much would a BTL investor make if base rates are 5-10%?
28. luckyjim said...
LP@19
Is that chart correct ? The House Price to Earnings ratio was less than 4 even during the eighties boom?
29. Silversurfer said...
Luckyjim-
I was thinking about the same point - yes, at 5x annual rental income the *gross* yield would be 20%
But now let's factor in vacancies, maintenance, letting fees, management fees etc. I wonder what the net yield would be? I defer to the technical guys here, but could well believe the net yield would be less than 10%.
Given the risk of further capital depreciation, this doesn't sound like an outrageous risk-adjusted return.
So maybe phdinbubbles' scenario isn't so far fetched after all?
30. little professor said...
28 luckyjim - Is that chart correct ? The House Price to Earnings ratio was less than 4 even during the eighties boom?
Yes, according the Nationwide, the house price to earnings ratio reached a maximum of 3.9 in Q2 1989. The long-term average is 3.3 (or if you exclude the madness of the last five years, 2.9)
You can find the data direct from Nationwide here:
http://www.nationwide.co.uk/hpi/downloads/FTB_HPER.xls
Halifax give different results, mainly because they take the average income as being £35,000.
31. mark wadsworth said...
@ Silversurfer & Luckyjim & Little P.
As I pointed out at 21, this is the FTB ratio, so lower prices, similar salaries. The all-earners-all-houses ratio never went down to 2, it went down to 3. But it also went higher than 6 (I think).
32. luckyjim said...
MW
You are correct - this is the FTB ratio.
BTW, I notice you say that the line for the long term average should be flat (at around 4?). This assumes that attitudes to housing have never changed - that people today are not prepared to spend more on housing than previous generations. Surely you agree that that is not the case.
33. little professor said...
mw - thanks for the correction
34. mark wadsworth said...
@ LJ, 32. Look at LP's chart of house prices, earnings and rents. That shows that rents and earnings move pretty much in line (actually that chart shows that rents fell from 38% to 31% of earnings over 23 years, but let's not split hairs).
My own chart of ratio of house prices adjusted for earnings growth going back to 1952 (which is much the same as a ratio-of-prices-to-earnings- chart) shows a fairly consistent 'bottom', it's just that the last bubble was particularly BIG.
But as they always say, this is not investment advice, please discuss suitability of this product with an IFA.