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PotNoodle

Are We About To Hit The "fear" Part Of The Bubble

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The QE is to spark business lending and stop general deflation, it is having little direct effect on the housing market.

Even labour voters would rather have a growing economy than no jobs and cheap houses.

No you are wrong here, unelected Brown thinks high house prices will win him the next election and he's

pumping billion of pounds of tax payers money at it when all Labour voters want is cheap housing.

Edited by time 2 raise interest rates

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Guest Steve Cook
The frustrating thing is, in a way, this is a bull trap.

It is only a temporary rise, and it will revert to more (but much smaller) falls over next winter.

But what the bears fail to realise is that not all bull traps occur close to the top. Some occur close to the bottom. Not so much a bull trap, but rather a premature recovery.... It would be just as appropriate to call the coming falls over winter a bear trap.

The point being, that the stereotypical "lifecycle of a bubble" chart was designed more for highly liquid equities or commodities bubbles. It has no precedent in UK housing, even in previous bubbles.

Whilst it is illustrative in terms of phase, it is entirely innacurate in terms of timing and scale.

There is logic to this post and I can agree with some of it.

However, it is just as much speculation on your part to suggest that the falls that follow this bull trap are going to be small as much as it is speculation on the part of others to suggest that they will be large. The reason being that direct evidence is not available until after the event.

So, what it comes down to, in the end, is how much inferential evidence is present right now to suggest which way the cards will fall. For myself, I cannot see how the fundamental economic reality has changed for the better since this crisis started in late 2007. Indeed, conditions have worsened for the average man in the street (higher food and utility costs, rising unemployment and soon-to-be-implemented rises in tax). I cannot see why lenders are going to lend on the multiples of salary they were previously doing or why they will be willing to lend such a large proportion of the property (100% mortgages and beyond). They would be mad to do so given the sh*tty economic prospects of your average punter in the short to medium term. This can only have, at best, a stagnatory effect on house prices and, at worst, a continued downwards effect.

The only possible way I could see house price falls being arrested is in nominal terms via a flooding of the money supply such that this money becomes available to the man in the street. Whilst there has been a massive increase in the money supply, this has been significantly offset by losses elsewhere. In addition, none of this money looks set to filter down to the punters.

Time will tell over the coming months.

Edited by Steve Cook

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me too, but the landlord is only getting 3% yield :lol::lol:

Index linked.

Where else will you get 3% index linked with a good degree of capital protection long term?

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The latest business plan where I work is based on the economy recovering in 2017. Now this isn't based on isolated thinking, "au contraire", it is a figure that was realised after consulting with other companies within the business as well as the customers. Since these are all FTSE 100 companies I have to wonder who is going to provide the "green shoots" of recovery.

Personally I won't be buying anything whilst the company I work for slashes wages and jobs. And, no, there aren't any other jobs out there. The economy is dead, I just wonder what the funeral will be like.

House prices will really start declining in 2010, watch them tumble, not that I'll be in any position to do anything.

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But no one can point to a similar "bull trap" in previous UK House price crashes. That's why you have to use this made up graph.

People need somewhere to live, they don't need Gold, equites or bonds; markets that the graph you know and love is based on.

Actually someone posted the month on month house price figures from previous HPCs just the other day (can't remember the thread though)./ This clearly showed that during every crash, the house price figures took a slight upturn during the spring months before continuing with the downward trend.

Maybe they didn;t actually refere to it as a bull trap then, but that's exactly what it was.

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No you are wrong here, unelected Brown thinks high house prices will win him the next election and he's

pumping billion of pounds of tax payers money at it when all Labour voters want is cheap housing.

You are wrong. there is no evidence outside your head that QE will help the housing market directly.

Of course, if it helps stimulate recovery, the housing market may recover too, but i can't see too many Labour voters complaining about recovery.

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You are wrong. there is no evidence outside your head that QE will help the housing market directly.

Of course, if it helps stimulate recovery, the housing market may recover too, but i can't see too many Labour voters complaining about recovery.

What Labour voters you mean the 15% they just had in last weeks elections, as i said Labour voters

want cheap house prices, this is why Labour will become extinct, i agree with the QE bit that's why

mortgage lending was at a ten year low last month.

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Also it's fair to say most Labour voters are on middle to low income say about £15-20,000 a year with

the ave house price at around £160,000 you can see why Labours attempt to re-inflate the housing market

will guarantee a Tory win.

Edited by time 2 raise interest rates

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does this mean that once the bottom is reached, would this then turn us into Bulls...?

Absolutely.

That's what my STR fund is for :)

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Thanks. Sorry to be dense but how did you calculate the percentage figures, they seem very high to me.

Measured the distance from the top horizontal line (Peak) to the middle (Top of Trap) and from the middle to the bottom (Trough):

Peak to Top of Trap 4.2 units

Top of Trap to Trough 3.2 units

Total drop = 7.4 units

Drop from Peak to Top of Trap = 4.2/7.4 = 0.567 = 57%

Drop from Top of Trap to Trough = 3.2/7.4 = 0.432 = 43%

ie 100% is taken as from the top of the peak to the bottom of the trough. The percentage is an indication of how far through the crash the trap came, not an indication of the drop in prices. If you wanted an indication in the drop percentage referenced to the peak price:

Peak to Top of Trap: -12%

Peak to Trough: -19%

and for interest:

Peak to Bottom of Trap: -13.1%

Peak to Absolute lowest value: -20.2%

Bottom of Trap to Top of Trap: +1.01%

Top of Trap to Lowest Value: -8.4%

If one extrapolates these values to the Nationwide SA figures (up to May) then one might anticipate that if things play out as before, (although there's no reason to think they will) then the end of the bull trap will come in June or July, and that the bottom will come next January at about 30% down on peak.

Picture_7.jpg

Edited to correct bear to bull in final para

post-13003-1244541827_thumb.jpg

Edited by apr400

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Prices didn't fall much from spring 1991, 55,418 in 1991 Q2, to 50,128 in 1993 Q1 or 50,930 in 1995 Q4.

Inflation adjusted there was no spring rise in 1991.

Inflation adjusted would have been irrelevant at the time. At the time people saw prices rise and then fall back again. Inflation adjusted would only be relevant if all income was index linked, whereas of course pay rises come in fit and starts and the average person on the street (ie me) is not thinking "oh well I might get a pay rise next month so that will be a smaller percentage of my income" they're thinking "bloody hell the price has gone up".

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...does this mean that once the bottom...would this then turn us into Bulls...

I think something that causes alot of arguments on here is that there are two types each of bulls and bears...

Bears

People who think prices will fall

People who think prices should fall

Bulls

People who think prices will rise

People who think prices should rise.

Traditionally a bear is someone who think prices will fall and vv for a bull. It is entirely feasible to be a shouldBear and a willBull if you like (as I was around 5 years ago). Now I'm a shouldBear willBear. As some point in the future I will go back to being a shouldBear willBull (as I think that house prices should go down a long way -home not investment etc, but I don't think that's what will actually happen and am in the 30 to 35% crowd myself). At that point I will start house hunting (if I can hold off the distaff side that long - the nesting instinct is strong :) ))

I suppose if house prices fall so much that the market grinds to a complete halt, ala Japan's lost decade then I might even become a shouldBull.

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Actually someone posted the month on month house price figures from previous HPCs just the other day (can't remember the thread though)./ This clearly showed that during every crash, the house price figures took a slight upturn during the spring months before continuing with the downward trend.

Maybe they didn;t actually refere to it as a bull trap then, but that's exactly what it was.

It was Dr Bubb except that DB calls it a dead cat bounce.

A bulltrap as far as I am aware is a surge after prices have fallen

slightly, catching out the over-optimists who pile in too quick.

A dead cat bounce, as far as I am aware, is at the bottom, when prices

have collapsed and a rally starts to revive them, but fails, and prices

bottom out again.

Getting caught in a dead cat bounce is not too bad, usually, as prices

eventually recover and one's losses diminish (assuming one holds on

to the asset).

Bull traps tend to be more costly, of course, as one is left high and dry

having paid far too much for a diminishing asset that will take a long

time to re-valuate to one's cost price.

===========================================

I take the point from above posts that the bubble model is intended

for equities, primarily, but I beg to differ that the principles

are not the same or are not transferable to property.

Dr Bubbs graph and the one above show that the model did hold

good during 1989-1993.

And it is beginning to look as though it will be played out again.

PN

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The bubble graph, which we all know and love, shows a very interesting

area after the false recovery of the bull trap, labelled "return to normal".

bubble.jpg

If, indeed, we are seeing the "return to normal" stage now;

then, next we should see - July/August/September and following - the failure

of the "recovery" and the next stage developing.

Rising swap rates, rising mortgage costs, and then rising interest rates

will feed through as unemployment (we have breen promised) heads

towards three million.

If, indeed, the "return to normal" collapses, then, for those who are vulnerable,

will come a stage that will be very nerve-wracking indeed.

Buyers, particularly, will be completely scared off if the "recovery" proves false.

That's when we should see the really big drops in prices.

QFT

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The latest business plan where I work is based on the economy recovering in 2017. Now this isn't based on isolated thinking, "au contraire", it is a figure that was realised after consulting with other companies within the business as well as the customers. Since these are all FTSE 100 companies I have to wonder who is going to provide the "green shoots" of recovery.

Personally I won't be buying anything whilst the company I work for slashes wages and jobs. And, no, there aren't any other jobs out there. The economy is dead, I just wonder what the funeral will be like.

House prices will really start declining in 2010, watch them tumble, not that I'll be in any position to do anything.

So you'll be saving money, then. And where will all that saved money go? Other people's mortgages, maybe?

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Also it's fair to say most Labour voters are on middle to low income say about £15-20,000 a year with

the ave house price at around £160,000 you can see why Labours attempt to re-inflate the housing market

will guarantee a Tory win.

Except Labour are attempting to reinflate the deflating economy as a whole, not house prices for which they have done very little directly.

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The frustrating thing is, in a way, this is a bull trap.

It is only a temporary rise, and it will revert to more (but much smaller) falls over next winter.

But what the bears fail to realise is that not all bull traps occur close to the top. Some occur close to the bottom. Not so much a bull trap, but rather a premature recovery.... It would be just as appropriate to call the coming falls over winter a bear trap.

The point being, that the stereotypical "lifecycle of a bubble" chart was designed more for highly liquid equities or commodities bubbles. It has no precedent in UK housing, even in previous bubbles.

Whilst it is illustrative in terms of phase, it is entirely innacurate in terms of timing and scale.

The fundamentals all indicate a return to housing costs at about late nineties prices, if you `re lucky.

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Except Labour are attempting to reinflate the deflating economy as a whole, not house prices for which they have done very little directly.

So taking over Northern Rock with tax payers money, then giving out 90% mortgages in a crashing market is responsible

behaviour in your book?

Edited by time 2 raise interest rates

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QFT

Que ?

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Measured the distance from the top horizontal line (Peak) to the middle (Top of Trap) and from the middle to the bottom (Trough):

Peak to Top of Trap 4.2 units

Top of Trap to Trough 3.2 units

Total drop = 7.4 units

Drop from Peak to Top of Trap = 4.2/7.4 = 0.567 = 57%

Drop from Top of Trap to Trough = 3.2/7.4 = 0.432 = 43%

ie 100% is taken as from the top of the peak to the bottom of the trough. The percentage is an indication of how far through the crash the trap came, not an indication of the drop in prices. If you wanted an indication in the drop percentage referenced to the peak price:

Peak to Top of Trap: -12%

Peak to Trough: -19%

and for interest:

Peak to Bottom of Trap: -13.1%

Peak to Absolute lowest value: -20.2%

Bottom of Trap to Top of Trap: +1.01%

Top of Trap to Lowest Value: -8.4%

If one extrapolates these values to the Nationwide SA figures (up to May) then one might anticipate that if things play out as before, (although there's no reason to think they will) then the end of the bear trap will come in June or July, and that the bottom will come next January at about 30% down on peak.

Picture_7.jpg

Gotcha, thanks. That does all make sense. As you say "if things play out as before".

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