Monday, Feb 09, 2009
Look forward to a long time of prices below average
Telegraph: House prices have much further to fall and that is no bad thing
"Why should we assume that the market will nicely settle down to "fair value"? After all, it has spent a long time above it. Accordingly, it would not surprise me if the market now spent some time below it. The recession looks awful and unemployment is set to rise to well over three million. Average incomes are all very well, but the average is computed over those people who are in work, a number which is set to fall."
Great article, spot on
Posted by growler @ 10:27 AM (1161 views) Add Comment
4 Comments
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1. growler said...
Explores what I've thought about hopw you can see what's happening due to the economists' definition of demand: "Demand is the desire backed by the willingness and ability to pay the price", or, just because the are are cheap interest rates doesn't mean people buy.
"People often get misled by the notion that "housing demand exceeds supply". But demand is not an absolute. It only has meaning in relation to people's ability and willingness to pay."
And then talks about where Capital Economics sees the end:-
"I reckon that house prices will fall by about 20pc this year, taking the total fall to 35pc. But the drop won't necessarily stop there. It is now looking increasingly likely that the market will not bottom until prices have fallen by 40pc-45pc. "
In summary meaning we have another 25-30% of falls to come.
2. Flashman said...
At the risk of sounding like that mad vicar who denied the holocaust…I think that history may well show the great UK housing boom of 1997 to 2007 to have been a myth… a tool used by the banks to create artificial value.
1. During this ten year period a huge number of new houses have been built. It is generally the case that newly built houses sell at a premium. Additionally, by definition, all newly built houses are sold, whereas only a minute percentage of existing houses are sold at any one time. These two factors combined to make it look like house prices were increasing more than they actually were.
2. There has been a decade long boom in improvement/extension. When these improved/extended houses were sold they further distorted the house price statistics because they were not remotely the same pokey, run down, houses that had sold a few years earlier for considerably less wonga.
3. Industrial areas that were devastated by the Thatcher revolution suffered from precipitous falls in house prices. The new Labour government then spent the contents of our piggy bank on public sector jobs. A disproportionate percentage of these public sector jobs went to these post-industrial areas. House prices in these areas rose disproportionately but only because they were previously worth a pittance. Of course, once the govt. spending stops, the house prices tumble back to where they stated. So these house price rises can therefore reasonably be seen as a distorting blip in the statistics. House price increases in these areas, while not remotely representative of the wider market, were however, gleefully used by the Halifax/nationwide cabal to further distort reality.
3. In the heyday of the so-called boom, sale volumes were actually very low. This is because despite the constant propaganda fed by the above scenarios, hardly anyone could afford the asking prices. Only the most gullible or most demented of social climbers bought houses at these prices. As these poor souls constituted such small numbers, their effect on the house price statistics should be partially discounted and considered temporary.
4.Very few records of the 'great boom' bother to include the reductive effect of ten years worth of compound inflation. They should.
Yes I know…I’m an idiot and should stop posting immediately.
3. mark wadsworth said...
Roger Bootle is definitely One Of Us, top article, he's sort of summarised all the relevant facts and logic in one short article. Pretty they didn't include the graph showing HPE since 1945.
4. timmy t said...
"Average incomes are all very well, but the average is computed over those people who are in work, a number which is set to fall."
Typical statistical massaging - that's the same as working out the average net wealth of the population and then only including people with no debt. When you're are looking at house prices in relation to incomes, the average income of people who need a house is what is relevant, not the average income of people with an income.