Thursday, Aug 13, 2009
More trouble for house prices…
MoneyWeek: The unemployment figures mean carnage for the property market
Britain's dole queues just got a lot longer. Another 220,000 people were added, according to yesterday's official stats. That takes the total to 2,435,000, or a rate of 7.8%, the highest since 1996. What's more, the number of people without work is set to increase much further. And even if you still have a job, the chances are that your pay packet's hardly growing. And that spells more trouble for house prices…
Posted by damien @ 11:11 AM (2330 views) Add Comment
25 Comments
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1. flashman said...
The chart (in the article) is a good graphical representation of the lagging effect of employment. Early in the chart, there is a lag before house prices reacted to falling unemployment. Later in the chart, there is a lag before house prices reacted to rising unemployment.
Another observation from past data: The house price curve is usually not as steep as the unemployment/employment curve until unemployment/employment reaches a critical mass. At this point the house price curve usually becomes steeper than the employment curve. As I have said before, I think the critical mass point is around the 2.75 million unemployed level. That being the case, we can reasonably expect house price falls to accelerate 3-6 months after we reach 2.75 million unemployed
By the way, HPC'ers should be cheering on the bullish equities market because it is causing money to come out of the bond market (interest rates consequently rise). If equities markets continue to rise, house prices will be tag-teamed by rising unemployment and rising interest rates. If I can just hold off Mrs flashman for a few more months
2. mrflibble said...
Been thinking much the same as what is mentioned here. We are treading water at the minute that is for sure. Although a lot of commentators suggest it will be next year before the big falls kick back in I think it will be much sooner. The housing market is a sitting duck trying to perform the impossible while all the fundamentals that support it are falling apart.
3. cyril said...
Flashman - so when do you think it will be a good time to trade up? Mrs Cyril is also getting a bit impatient.
4. flashman said...
cyril: I don't think it'll be sensible to buy until roughly Autumn 2010. There's no way I can hold out that long but I've previously done well building my own house, so buying a few acres is what I’ll do to soften the blow. Council planning departments will pass almost anything at the moment, so it's not all bad. I got out of buying a house this summer by breaking my elbow but I can’t think of any other delaying tactics
5. 51ck-6-51x said...
flash
- Good observations, I concur. There will be slight changes to critical mass point due to reduced earning too ( those that are forced to take reduced pay [ or hours & cannot find other work ] that then cannot afford to maintain payments on their debts ); but the effect probably wont be huge, but may lower your critical mass slightly as compared with previous recessions.
Aside:
Note that David Stevenson has quoted 7.8%, the headline unemployment rate - this is the percentage of economically active people that are unemployed. Economically active people are the set of employed and unemployed, this discounts anyone who is not employed and not signed on. The figure as a percentage of the working age population is 6.13%.
mrfibble
- oh I do hope you are right, that would reduce the stress on yours truly too; I agree with the premise, however I am not so sure the effect will be so sharp - people can ride out arrears for sometime, especially if they have 12 months payment protection insurance against redundancy; this is probably contributes to the lag mentioned by flash.
6. 51ck-6-51x said...
Aside, cont... - That is: working population is 6.13% unemployed, 72.7% employed, and 21.17% neither employed nor unemployed.
7. mander said...
I think in the UK in about one year time dreaming about property will be over. Americans do no believe in property anymore, the rest of the world deos not believe in property anymore so I am not buying.
8. flashman said...
51ck: Yes quite right, the critical mass point could be moved by any number of factors. At the moment, reduced pay is probably balanced out by low interest rates but if rates start to rise, then it's game on
9. Shergar75 said...
Still think house prices will remain pretty much the same 20% down on 2007 mabey another 10% to fall in certain areas, there just are not enough affordable houses to go around, we should be building our way out of this recession keeping building trade going and solving the problem of a lack of affordable housing. wouldnt trust mervyns billion pound hand outs to the rats in the city didnt a huge wad of it go missing on somebodys watch last month (you couldnt make it up)...how many of the people made unemployed lately owned houses anyway ? i bet not that many as a lot of job losses are coming from factory and lower end jobs. (not all i know but a lot.)...i dont think the british want a housing crash its like well yes we do need it really but no no no we shant we bloody shant have it, its so funny when mervyn is on tv telling britain what a hash he and the city made of it financially then the bbc news are straight in with positives like the germany france story today and house price increases on monday....
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11. mark wadsworth said...
@ Flash, good work with the elbow. My tactic was to sign up for another twelve month lease back in June so that gives me until next summer to fob off Mrs W. Rather less painful, I think?
I can't quite make out the horizontal scale on that chart - does this show a lag of about 18 months as previously discussed? If so, that is all the more reason for Mr Cyril to wait until unemployment starts falling again AND THEN to wait another year before he caves in to Mrs C.
12. mrflibble said...
Do you guys really have problems convincing your other halves with this whole house ownership thing or are you just jesting amongst the lads here? A place to live is a place to live, whether you own it or not is kind of irrelevant surely?
13. letthemfall said...
Perhaps the real sign of the end of the property nonsense is when all the missuses stop asking all the misters when they are going to buy a house. Mr: "Darling, I think it's time we bought a house." Mrs:"Oh, no dearest, let's take out a 10 year lease instead."
14. icarus said...
Is a tipping point for jingle mail and foreclosures just around the corner? Look at the US, where the value of residential property has fallen from $22 trillion in Dec 2006 to $15 trillion today and still falling. Mortgage debt has been unchanged at about $10.6 trillion. Thus the debt/equity ratio has risen from 48% to 70% and likely to rise to 80%. Take away the 30+% of homeowners with no mortgage and the average mortgage holder has a debt/equity ratio of over 100% and rising. The Deutsche Bank report of last week estimated that 48% of US mortgage holders would be 'underwater' by early 2011. Look for a downward spiral of household indebtedness, low spending, unemployment, foreclosures, jingle mail and further houseprice falls.
15. chubba said...
Firstly - good article! Warmed the cockles of my bearish heart :D
@flash @cyril @mark wadsworth - I am happier now I am not in the same boat. Argument with Lady chubba a couple of weeks ago and again today about me "being unreasonable and unrealistic" in wanting a sensibly priced house. We have two very young children and my arguments about wanting the best for them are paying off. We are well placed having sold in Nov 2007 and in rented since then plus I have managed to keep my job but have also had to lay 3 people off from our small team. Of the three laid off all are freelancing, not getting full-time work and this is, of course, not reflected in unemployment figs but also adds to the tally of falling wages / hours, which are not reported in the media.
Lady chubba asks "what makes you so special that you think you will get a bargain" - I explain about who well placed we are due to selling when we did, having a decent household income and also the facts that small numbers of houses on the market are sucking a fair amount of the people in our situation back in to the housing market. Few FTBs able to get mortgages means that chains collapse or offers made do not come to fruition when the potential buyer realises they cannot get the credit they want. All this, to me, suggests house prices must fall further before they stabilise.
I have tried to explain that even if prices do not fall greatly they will not rise quickly from here as houses are unaffordable as they are so the sensible money has to wait it out a little longer yet. My main concern is we may not see the rapid deterioration we all desire until after the general election and I don't know if I can hold out that long...
Best of luck to you all.
@mrflibble - not trying to be in with the lads, telling it like it is. Lady chubba wants to "have pictures on the walls and decorate the kids' rooms" - I can understand but pointed out that every percentage fall in prices probably means another £6-8k we will not have to spend over the lifetime of the mortgage and I would pay her £10k not to have pictures on the walls for another 18 months! She saw the point 2 weeks ago but today (mainly due to an almost nice house coming on the market in our area that she wants to view) we are back to square one. I understand her frustration but when the kids are both under 4 then they do not care if their room is decorated or not! Fingers crossed the falls will come soon...
16. Chubba said...
@flash @cyril @mark wadsworth - I am happier now I am not in the same boat.
For clarity, meant - "not the only one in the same boat..." You know what I mean!
17. vindicated said...
Just for a bit of balance here guys...I'm a missus and I'd sooner hammer nails in my head and suck out my own eyeballs than buy a house right now.
18. flashman said...
mark w: Maybe I'll try a rib or ankle this autumn. I can't make out the dates on the chart but I know that unemployment started ticking up in about March 2008. I think the banking crisis did its own damage to house prices but we have yet to see the unemployment effect. The timing system you suggested to cyril is good but personally, I wouldn't attempt to time the market. Another 10-15% off current prices will do me fine
mrflibble: I know it's not very hard-headed but my wife wants to decorate the childrens rooms, grow a herb garden and plant some fruit trees. It's little things like this, that make owning a house more desirable. We will be cash buyers and my wife quite rightly points out that if house prices seriously crash then our capital might not be safe in a bank.
19. mark wadsworth said...
@ LTF, 2.01 pm. Good point. When I got into buy to let in 1998 - 2000, Mrs W (and a lot of other peopl I knew) was very nervous and kept asking "Are you sure prices will not fall again? Isn't it very risky?"
@ Vindicated, 2.20 pm. Thanks for reassurance. Would you please try and badger your female friends on behalf of us blokes? Maybe they'll believe your before they believe their husbands? Ta muchly in advance.
20. the number cruncher said...
To flashman et all
Mrs Number Cruncher has been desperate to buy a house since her sister bought in 2006. I have nearly lost my marriage waiting for the downturn.
Only showing her the renegade economist videos has saved my marriage.
Please hurry up and fall, please......
21. martin said...
As number cruncher said, "Please hurry up and fall, please"
Thing that I dont get is, prices are falling or have fallen but all the houses on my watch list are at exactly the same price as they were 18 months ago (and they have all been on the market that long). I'm in a position now where I will pay 20/25% below the October 2007 asking prices knowing that prices may well drop a further 15% or more. I'm willing to take the chance but asking prices have not changed in the area I am looking at (northwest would you believe).
When will post drop prices be seen?
22. tenyearstogetmymoneyback said...
While people are on the topic of other halves, rising house prices were the main factor in ruining
my relationship.
When I moved in with my partner I thought that if I could save £10000 a year
I could keep up with property prices and eventually buy an equal share in her place.
Saving wasn't a problem. What was was that her place kept going up about £20000
a year and in all the time I was there I could never afford half of it (while she now has
about 90% equity).
Life would be so much simpler if house prices were stable.
:- Duncan
Bought 1989 £65500 Sold 1999 £70500.
Property value in May 2009 (from Land Registry data on an identical house five doors down) £154000
23. vindicated said...
@Mark Wadsworth - unfortunately, most of my girlie friends think I'm a fruitloop. (not sure how much of that is down to my views on the housing market though.......)
24. timmy t said...
I got divorced 3 years ago. She kept the house which was then valued at £300K. She's just sold it for £350K. So in the time that houses are supposed to have gone down by about 16%, hers has gone up by 16%. Go figure!
25. bidin'matime said...
Re other halves - I get the same problem with Mrs B from time to time, but as we rent a great house that we couldn't afford to buy, that sort of softens it - fortunatley (in this respect) the days of painting the kids walls are all behind us - (the reason, as I recall, why we didnt sell in 1989 and rent, when I knew we should..). The 'better off by £x / wk' argument is good, but then they want to spend it..!
Mind you, for a while I was almost a 'guru' when prices were falling - I rode on a wave of success - but now they've slowed, we're back where we were - her being more defensive and it all being down to me (rather than 'us') thinking prices will fall further...