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Maddog21

House Price Correction Not Over Yet

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One swallow does not a summer make, and although there has been quite a lot of positive data on the housing market of late, it would be unwise to read too much into yesterday's unexpectedly strong Halifax house price survey.

As Halifax points out, there were several positive months during the last housing downturn of the early 1990s. This one too is likely to prove a temporary blip. Housing transactions remain at exceptionally depressed levels, making the sampling data small and unreliable. Mortgage approvals were down 22 per cent year on year in the latest Bank of England figures. What's more, there is a shortage in supply of the sort of desirable properties that cash buyers are after. Many potential sellers will wait until prices recover before putting their houses on the market. Those that do come on the market, particularly in the posher areas of London, continue to be highly sought after, so much so that there has been an unwelcome return of the practice of gazumping for some of the more expensive properties.

Where there is no shortage of supply and prices are still falling precipitously, such as new build and in economically depressed areas of the country, there are very few transactions, so these areas of the market have little impact on the survey data.

With unemployment set to continue rising strongly for at least the next year, together with increased levels of repossession, it is quite hard to see a sustained, nationwide recovery in house prices being established any time soon. Historically, employment has been a big factor in determining house price trends. It would be unusual, to put it mildly, for house prices to rise while unemployment is growing.

You need a big deposit to get a mortgage these days, yet the nominal cost of a mortgage has never been lower, making housing very affordable. Also on the positive side, as long as deposit rates are as low as they are, property looks as good a use of your money as any. Yet rates are eventually going to start rising again, and with them the costs of servicing a loan.

The most reliable yardstick for judging house prices has always been their relationship with average earnings. The long-run average is about four times earnings. During the boom, this ratio rose to unsustainably high levels. Yet the fall in house prices so far, combined with continued growth in average earnings in the meantime, has since returned the ratio to pretty close to trend.

This doesn't necessarily mean house prices are about to bottom out. All markets tend to overshoot on the upside, and undershoot on the downside. Housing is little different. During the last downturn there was a very considerable overshoot, when the ratio fell to substantially below its long-run average, before prices bottomed. I'm sticking with the view that house prices will fall at least 30 per cent peak to trough. So far we have had only 22 per cent.

Edited by Maddog21

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Come on Bulls!!!!!!!

Lets hear it

No, I can't really argue with that.

This is a blip. There are further, although much smaller, falls to go over next winter. 30% off peak, when we had already reached 22%, seems reasonable. Could just as easily be 25%. Or 35% if some new liquidity crisis comes along before then.

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No, I can't really argue with that.

This is a blip. There are further, although much smaller, falls to go over next winter. 30% off peak, when we had already reached 22%, seems reasonable. Could just as easily be 25%. Or 35% if some new liquidity crisis comes along before then.

Fair play Hamish

When do you see the bottom?

I can see this dragging out for another year at least

minor falls then bumping along the bottom for 3-4 years after that

Labour will keep proping it up as long as possible until the election

Then where we go from there is anyones guess

30-40% is pretty much what most people were saying on here at the start

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This stage of the economic cycle is called "the bull trap"- often mistakenly referred to as "the bear trap".

bubble-lifecycle.gif

It is, as its name implies, a trap to sucker in simple-minded optimistic chumps who think next Winter's prospects for the economy are good, simply because it is now June and the sun is shining. You know, Sibley, that sort of thing.

Next we have "return to normal", and then the brown stuff seriously collides with the oscillating object.

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No, I can't really argue with that.

This is a blip. There are further, although much smaller, falls to go over next winter. 30% off peak, when we had already reached 22%, seems reasonable. Could just as easily be 25%. Or 35% if some new liquidity crisis comes along before then.

I genuinely appreciate the candid nature of your post Hamish, although I disagree with you when you say this Winter's falls will be smaller. This Summer's unemployed will be getting into difficulty then, and constanty rising unemployment simply causes a "vicious circle".

I'm an HGV driver, I'm in the front line of the economy and I can tell you that things are getting worse by the day. We are getting laid off in droves because nobody is buying anything so we aren't delivering it.

To anyone overly excited by this month's Nationwide and Halifax figures, good luck and may the Lord's blessing go with you.

Me, I just can't wait for September etc! ;)

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No, I can't really argue with that.

This is a blip. There are further, although much smaller, falls to go over next winter. 30% off peak, when we had already reached 22%, seems reasonable. Could just as easily be 25%. Or 35% if some new liquidity crisis comes along before then.

Hamish, I'd say we are on the classic curve. So yes, the fast bit has happened, there will be further drops but the angle will be pretty shallow and the declines will probably be over another 3-4 years. I reckon another 10-15% off in nominal terms, and from now on the indexes will be 2 months down, one month up and various other patterns.

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No, I can't really argue with that.

This is a blip. There are further, although much smaller, falls to go over next winter. 30% off peak, when we had already reached 22%, seems reasonable. Could just as easily be 25%. Or 35% if some new liquidity crisis comes along before then.

McTavish quote:

I noted that instead of doing this, he could have just been responsible when he was younger, bought a house as young as possible, and ended up mortgage free by 38 like myself, but with 400K in equity.

HAMISH UPDATE - £280000 or £260000 of equity like myself .

Edited by Sybil13

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Well I'm sorry but I don't agree with you.

About a year or so ago when I found this site some of the points being made had me worried.

As things stood I think you lot would have had your house price crash.

Thank god the government stepped in and changed the rules. Once I saw that happen I knew house prices wouldn't go down long term. You keep quoting they have but in reality we all know that it's actually a very small amount of places on the market now that are cheaper.

Most homeowners don't need to sell and are waiting until they will get the asking price they want.

http://www.express.co.uk/posts/view/105763...little-for-sale

When you read that article a clever person can see only one way for prices.

I must admit until recently the unemployment was starting to worry me. I can tell you in the last month it's picked up in leaps and bounds. My industry is the best for signs of how the economy is going. Always has been.

You can believe me when I say this recession is over. Might have a bumpy ride for a year or so but the fat cats are really cleaning up now. If you have money this is a wonderful time.

I think Harry and a few others will find that cheap place they are after if they look hard enough. However, the idiots on here who have never had the means or inclination to buy a house will just carry on with their Grey bitter and twisted existence.

Anyone who thinks buying your own home makes you a sheep or stupid is a loser.

Anyone who can't deal with the reality that people and business's exaggerate on loan forms is deluded as well. You need a reality check.

Finally, anyone who thinks people who invest in BTL to secure their familes future is a vulture is just a bitter and twisted member of the 'not haves' gang.

Why not worry about your own boss who's ripping you off daily?

The government?

One good thing is these people are twisted now. I'm looking forward to their comments in the coming months. I love the excuses and reasons they give when things get better. Now watch. They are in for a hell of a beating. :lol:

You are clearly MAD

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Well I'm sorry but I don't agree with you.

About a year or so ago when I found this site some of the points being made had me worried.

As things stood I think you lot would have had your house price crash.

Thank god the government stepped in and changed the rules. Once I saw that happen I knew house prices wouldn't go down long term. You keep quoting they have but in reality we all know that it's actually a very small amount of places on the market now that are cheaper.

Most homeowners don't need to sell and are waiting until they will get the asking price they want.

http://www.express.co.uk/posts/view/105763...little-for-sale

When you read that article a clever person can see only one way for prices.

I must admit until recently the unemployment was starting to worry me. I can tell you in the last month it's picked up in leaps and bounds. My industry is the best for signs of how the economy is going. Always has been.

You can believe me when I say this recession is over. Might have a bumpy ride for a year or so but the fat cats are really cleaning up now. If you have money this is a wonderful time.

I think Harry and a few others will find that cheap place they are after if they look hard enough. However, the idiots on here who have never had the means or inclination to buy a house will just carry on with their Grey bitter and twisted existence.

Anyone who thinks buying your own home makes you a sheep or stupid is a loser.

Anyone who can't deal with the reality that people and business's exaggerate on loan forms is deluded as well. You need a reality check.

Finally, anyone who thinks people who invest in BTL to secure their familes future is a vulture is just a bitter and twisted member of the 'not haves' gang.

Why not worry about your own boss who's ripping you off daily?

The government?

One good thing is these people are twisted now. I'm looking forward to their comments in the coming months. I love the excuses and reasons they give when things get better. Now watch. They are in for a hell of a beating. :lol:

Sibley, everyone on this site is in agreement that long term house prices do go up in line with wage inflation but onlt by 3.5 times the average. This is the sustainable level. What we have seen is this sustainable fundamental rule broken, and no it is not different this time. Prices are still far above this and it is this lax lending that has led the economy to where it is. Think about the job loss stories; hundreds of people each week still being made unemployed, but this is looked as positive as there aren't thousands as in previous months. People are still losing their jobs and ability to service their debts though.

QE will devalue our currency so that our reliance on imports will cripple the country. My firm is the bell weather for the economy, large engineering equipment, and our orders are slowing right down; this means that energy prices are going to sky rocket. (The equipment we make).

So with a large and growing number of unemployed; a reliance on imports rather than exports and energy prices increasing I feel confident enough to say that house prices will return to 3.5 times average salary level as they have always done. Please do feel free to counter any of my points sibley.

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The most reliable yardstick for judging house prices has always been their relationship with average earnings. The long-run average is about four times earnings. During the boom, this ratio rose to unsustainably high levels. Yet the fall in house prices so far, combined with continued growth in average earnings in the meantime, has since returned the ratio to pretty close to trend.

Whilst that statement is technically correct here is another way of looking at it:

http://news.bbc.co.uk/1/shared/spl/hi/guid...ml/nn2page1.stm

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And what way is that then? average prices over each decade?

I'll wait ten years and expect to get the past decades average price when I buy.

The long term run average is not necessarily that significant when the trend is almost remorselessly upwards.

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The long term run average is not necessarily that significant when the trend is almost remorselessly upwards.

So do you see this trend as sustainable? Interesting how the graph showing the rise to 6.1x wage (and other trends) stops at 2005.

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I think that 6 x wages is actually right.

When lending was super lax the high street banks were only ever giving 3.5 x earnings but a fool knew you only had to see a decent FA who could sort out whatever monies you wanted.

It won't change. Give it a year and it will be the same.

Nobody would have a house if they did things by the book.

I agree 100% with you.

It's how business is done, and as you say, nobody would have a house otherwise. If you want a good house, you have to borrow good money. Sure, you can buy a horrid little 1 bedder for the low sum of £150K in a below average area, but who wants to live like that?

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I agree 100% with you.

It's how business is done, and as you say, nobody would have a house otherwise. If you want a good house, you have to borrow good money. Sure, you can buy a horrid little 1 bedder for the low sum of £150K in a below average area, but who wants to live like that?

at last some common sense on the website.

How can ANYONE afford even a modest house if the banks wont lend to match the price tag? come on banks, we need decent housing, please get lending.

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I agree 100% with you.

It's how business is done, and as you say, nobody would have a house otherwise. If you want a good house, you have to borrow good money. Sure, you can buy a horrid little 1 bedder for the low sum of £150K in a below average area, but who wants to live like that?

Not enough people, judging by the number of 1 bedders lying empty in towns and cities across the UK.

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Not enough people, judging by the number of 1 bedders lying empty in towns and cities across the UK.

more evidence...damn the greedy banks...stop hoarding, get lending.

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more evidence...damn the greedy banks...stop hoarding, get lending.

I like this game.

It's high time we returned to the good old days when 100% self-cert loans were the norm and everybody could enjoy the benefits of home ownership, no income required.

I am willing, as a taxpayer, to help the hard working families keep the roof over their head since any other course of action would be tantamount to treason.

Spending is so important to our wellbeing and the futures of our children that only a return to 2007 levels of lending will do.

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I like this game.

It's high time we returned to the good old days when 100% self-cert loans were the norm and everybody could enjoy the benefits of home ownership, no income required.

I am willing, as a taxpayer, to help the hard working families keep the roof over their head since any other course of action would be tantamount to treason.

Spending is so important to our wellbeing and the futures of our children that only a return to 2007 levels of lending will do.

indeed, tax is a way of spreading the over earnings of the majority to those who need help.

without borrowing, where would we be? borrowing is the centrepin of the economy.

course, lets turn this round and say, SPENDING is the centrepin of the economy.

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indeed, tax is a way of spreading the over earnings of the majority to those who need help.

without borrowing, where would we be? borrowing is the centrepin of the economy.

course, lets turn this round and say, SPENDING is the centrepin of the economy.

Yeah, but the important thing is that we're all spending again, even if it is somebody else's money. If we can't pay it back in future, we can rely on the government and taxpayer to help get us back on track - printing more money is the natural solution and produces real benefits for society. It's easy when you know how.

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Yeah, but the important thing is that we're all spending again, even if it is somebody else's money. If we can't pay it back in future, we can rely on the government and taxpayer to help get us back on track - printing more money is the natural solution and produces real benefits for society. It's easy when you know how.

indeed, deficit spending, a feature of the UK economy since the 1920's has never failed. It has maintained us through a world war, and continues to ensure we are able to maintain a global presence in two theatres, and of course, UK borrowing is but a fraction of what it is in other less developed states, like Germany and France.

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