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Sybil13

Is Property Really Only Selling At 25 - 30% Off Peak?

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You also have to remind yourself that by all measures, house prices are still well above the long term average and those Bulls are looking for prices to move further away from that average, and not back towards it.

Actually, that is incorrect. By at least two measures, prices today are lower than the long term average or trend. The graph of prices on the front page of this website, shows we have now fallen below the mean. And Rental yields are now above the long term average by 0.2%. By both these measures, prices today are slightly under long term fair value.

Besides, the long term average moves with time.

A few decades ago it was 2.5 times income. Then 3.5 times income. Then for the last decade, 4.5 times income.

The underlying trend, through multiple housing market cycles, is upwards. Just look at the graph of the last 35 years on the main page, showing 3 clear cycles, in each one the high was higher than the previous high, and the low was higher than the previous low. And two of those three cycles happened long before RMBS or 125% mortgages, or property porn, or BTL, or whatever other scapegoat the bears like to blame this week.

If you want to stop HPI, then address the underlying issues. Population growth and planning laws. Everything else is just tinkering, and will achieve nothing.

Bulls expect the average for the next decade or two, to be higher than the last decade, just as that was higher than the decades before, and so on and so on. Building has always lagged growth. Thats why the average keeps increasing.

Edited by HAMISH_MCTAVISH

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Actually, that is incorrect. By at least two measures, prices today are lower than the long term average or trend. The graph of prices on the front page of this website, shows we have now fallen below the mean. And Rental yields are now above the long term average by 0.2%. By both these measures, prices today are slightly under long term fair value.

Besides, the long term average moves with time.

A few decades ago it was 2.5 times income. Then 3.5 times income. Then for the last decade, 4.5 times income.

The underlying trend, through multiple housing market cycles, is upwards. Just look at the graph of the last 35 years on the main page, showing 3 clear cycles, in each one the high was higher than the previous high, and the low was higher than the previous low. And two of those three cycles happened long before RMBS or 125% mortgages, or property porn, or BTL, or whatever other scapegoat the bears like to blame this week.

If you want to stop HPI, then address the underlying issues. Population growth and planning laws. Everything else is just tinkering, and will achieve nothing.

Bulls expect the average for the next decade or two, to be higher than the last decade, just as that was higher than the decades before, and so on and so on. Building has always lagged growth. Thats why the average keeps increasing.

Firstly, I don't think it is reasonable to use a simple average over a chart that spans 34 years as recent trends can skew averages both up and down. Better to use a moving average of a number of years, or even multiple averages.

However, as the chart is displayed, and as you are keen to use it, then I think it would be fair to draw a line through each trough in the graph. That is where prices are heading.

In 2003 the average household income to price ratio was 3.36. By the same measure I would currently estimate it at 4. (Nationwide figures as per the graph above).

If rental yields are above the long term average (open to proof) but with rents having fallen over 6% in the last year, then there is clearly no housing shortage, just a shortage of funding with which to push prices up.

Once again I will point out that DEMAND is driven by the availability of funds to undertake a transaction at a given price. It doesn't matter how relaxed planning law is made or how much the population is controlled. If no-one has the money to pay more for somewhere to live then prices fall. Japan is the classic example. They weren't making land there any more either. Until the Bulls grasp this fact then they are going to be sorely disappointed for years to come.

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Bulls expect the average for the next decade or two, to be higher than the last decade, just as that was higher than the decades before, and so on and so on. Building has always lagged growth. Thats why the average keeps increasing.

Are you really saying this can continue indefinately - ie prices continuously rising to a higher multiple of earnings FOREVER?

:lol::lol::lol:

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Are you really saying this can continue indefinately - ie prices continuously rising to a higher multiple of earnings FOREVER?

:lol::lol::lol:

If lenders were to continue increasing salary multiple indefinitely then it would! There would be demand at higher prices as people would have funding to buy. Remember it was only a couple of years that some VI muppets were saying 10 times salary loans were going to be normal. And the Kent BS had a go at lifetime mortgages that could be passed on to your descendents.

The fact is, that as prices rose, the lenders searched for more and more ways in which to support the market. The low IR affordability argument, increased multiples, lifetime mortgages, interest only mortgages, self-cert (knowing full well people were lying) loans. The more money people were lent the more demand there was at higher prices. That has gone. Over. Finished. Within the group of people who need loans with which to buy, there is no demand for property at 2007 prices.

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Japan is the classic example. They weren't making land there any more either. Until the Bulls grasp this fact then they are going to be sorely disappointed for years to come.

:rolleyes:

Japan has a shrinking or at best stable population doesn't it?

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The fact is, that as prices rose, the lenders searched for more and more ways in which to support the market. The low IR affordability argument, increased multiples, lifetime mortgages, interest only mortgages, self-cert (knowing full well people were lying) loans. The more money people were lent the more demand there was at higher prices. That has gone. Over. Finished. Within the group of people who need loans with which to buy, there is no demand for property at 2007 prices.

Every time a crash happens, people always think some lesson has been learned, and that it will be different next time.

It never has, and it never will.

10 years from now, banks and investors will have forgotten the pain, and will be hungry for profits. A bunch of young smart financial whizz kids will invent a new, improved, way of lending more money, absolutely convinced that THIS TIME, they've got it right, that it's fool proof, and that they are have learned from the mistakes of the past, and really do know how to develop a "new paradigm".

They'll be wrong of course, but they'll do it anyway. :P

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