Thursday, Apr 16, 2009
Decent analysis of housing market
ROOF Magazine: Slide rule
This is a long one, but a decent analysis of the state of the property market.
Conclusion is that the market most likely has a way to fall yet.
There are a number of useful graphs and comparisons to previous crashes and on the whole it reads as a straightforward analysis of the current state of the market, which is a refreshing change from the yanking going on in the mainstream media at the moment.
Posted by dohousescrashinthewoods @ 04:27 PM (934 views) Add Comment
6 Comments
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1. uncle tom said...
Overlooks some important details..
..the piece pays a lot of homage to the Nationwide's 2.9% real price growth trend line, without considering whether this trend line is a sustainable trend, or the product of an underlying long term price bubble (which it is)
Although true economic growth, leading to better appointed homes, should result in a small degree of real price growth, the trend toward smaller households mitigates against this. I believe the true trend line, once this crash has played itself out, will be closer to 1%.
..the piece also trots out that highly misleading graph that shows affordability in terms of mortgage interest payments.
That particular graph appears to only reflect borrowers in the first year of their mortgage, and overlooks the endless grind of paying off the debt during periods of low inflation.
Better graphs would show the interest paid by all borrowers, or with interest rates less the prevailing rate of inflation.
2. paul said...
Nicely deconstructed, Tom.
3. Happy Renting said...
The increasing number of households is interesting, especially as interest rates have fallen so much, and many (?) people would be on interest-only mortgages. What will happen when interest rates go up again......
4. will said...
Good post. Confirms what we already knew.
5. icarus said...
Re UT's point about long-term trends - a long period of price falls, which seems very likely over the next few years, will bring down the trend line.
The ups and downs in house prices have to e seen in the kind of long run UT talks about. If you look at major western economies since WWII there is a long-term falling off in the year-on-year growth on the main macroeconomic indicators - GDP, investment, profitability, productivity, wage growth and job creation. Real wages for most of the population have been pretty stagnant for thirty years. The resulting drop in aggregate demand has led to governments underwriting greater volumes of debt. Governments went in for classic Keynesianism in the '70s and '80s and just kept the ship afloat. The attempts to balance budgets in the early '90s led to recession. After that the patient needed stronger and stronger doses. Now it was low interest rates and asset price bubbles, first in equities, then in housing - Keynesianism in the private sphere, or private deficits.
We now have/had an economy based on an explosion in household borrowing, feeding upon and fed by an explosion in house prices, consumer spending and property investment. Profits were boosted by reducing employment and getting more production per $ of wages, further holding down aggregate demand. Companies borrowed not to invest in production capacity (declining profitability saw to that) but in paying off unfunded liabilities, paying dividends, buying their own stocks to drive them up and M&A.
The patient is now in a coma and the quacks don't know what to do about it.
6. Eternal Sceptic said...
Do I detect green shoots of mainstream realism creeping into the news?