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Armitage Shanks

Weekend Challenge For The Hpc Bulls

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I recently posted a thread asking bulls to state their arguments for their bullishness. The crux of most of the replies was that they believe that it's a simple question of supply and demand. This is pretty well established market economics and, if we were talking about something like chocolate or paper, would be hard to refute. The housing market is a pretty peculiar one though, so it could be argued that such unrefined market economic theory doesn't fit very well.

So, the challenge?

Bulls - in the context of the housing market, and in no more than 3 sentences, please define demand.

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People want to own there own houses. More people want to own their own houses than their are houses, therfore demand outstrips supply, forcing the price up.

I define price in realtive terms here, ie people are willing to spend a larger proportion of their income than historically on property ownership.

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For the benefit of the lazy ones:

The Aggregate Demand for Housing in the UK

  • Growth of real incomes

  • Consumer confidence

  • Jobs

  • Expectations of future price movements

  • Changes to the system of housing taxes and subsidies

I would argue that out of five, only two of those criteria are looking more bullish of late.. and they are both the sentiment driven ones.

Edited by libspero

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I recently posted a thread asking bulls to state their arguments for their bullishness. The crux of most of the replies was that they believe that it's a simple question of supply and demand.

Define "bullishness"..... I am bearish on the outlook for property prices short term, and bullish long term. Which is why the detailed response last time discussing the short term impact issues like mortgage funding shortages and unemployment can have on reducing effective demand (ie, desire and ability to purchase).

This is pretty well established market economics and, if we were talking about something like chocolate or paper, would be hard to refute. The housing market is a pretty peculiar one though, so it could be argued that such unrefined market economic theory doesn't fit very well.

It certainly is peculiar. There are a number of additional factors which impact housing economics, but unfortunately for the bears, for every one factor impacting to the downside such as unemployment or restricted mortgage funding, there are several impacting to the upside such an excess of financially able buyers compared to current levels of supply, government intervention reducing forced sales, government intervention preventing reposession, government intervention increasing liquidity, reduction of supply, inability of millions of potential vendors to sell at lower prices due to NE, increasing liquidity in the financial system, steadily increasing mortgage funding for new purchase (as opposed to remortgaging), steadily increasing numbers of approvals, now close to the level required for price neutrality.......

And of course a fundamental shortage of housing types that people want, in the places they want to live, and where employment exists to support them, whilst population increases by the day.....

So, the challenge?

Bulls - in the context of the housing market, and in no more than 3 sentences, please define demand.

Demand is the number of people financially able and willing to purchase a property, either on their own or with assistance from government, family, banks or vendors.

Presently mortgage approvals are forecast at 46,000 for June, and the level of approvals need for sustained price neutrality is forecast at just a few thousand higher. (see Splines work on the subject, chart below only up til May...)

kq_may2009.png

I see no reason why prices will not continue to fluctuate for some time yet, although in far smaller increments than before, but I am in no doubt that we are close to, if not already "bumping along", the bottom.

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People want to own their own houses. More people want to own their own houses than there are houses, therefore demand outstrips supply; forcing the price up.

I define price in relative terms here, id erat people are willing to spend a larger proportion of their income on property ownership than historically was the case.

Just put this into intelligible English, bulls really do have terrible grammar.

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Wives want to 'own' their own houses. More wives want to 'own' their own houses than there are houses, therefore demand outstrips supply, forcing the price up.

I define price in relative terms here, ie wives are willing to spend a larger proportion of the joint income than historically on property 'ownership'.

Made some corrections for you.

Bah Humbug!

:angry: :angry:

Edited by apr400

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People want to own there own houses. More people want to own their own houses than their are houses, therfore demand outstrips supply, forcing the price up.

I define price in realtive terms here, ie people are willing to spend a larger proportion of their income than historically on property ownership.

Not wishing to be rude here but you've used the word demand again without defining what demand is. Care to try again?

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snip

Care to actually just get on with it and debate us instead of drawing this out into a multitude of threads with little response from yourself?

These have the potential to be decent threads, but they're strung out for so long they get sidetracked.

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Hamish,

Always read your threads with interest as you seem to be the only designated 'bull' with well considered opinions which I respect. I sit on the bear side of the fence (ever so slightly) personally, however have done so since 2005 when I sold and banked so imho called this crash many years ago (like many others on here).

I would like to explore your thoughts regarding how long the bottom will last for - I ask this because it seems to me we have two opposing pressures on the market at the moment - lack of supply in housing stock on one side putting upward pressure on prices and lack of finance supply on the other keeping them down. If we are at or near the bottom now thats is

cheers

Kaine

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Hamish,

Always read your threads with interest as you seem to be the only designated 'bull' with well considered opinions which I respect. I sit on the bear side of the fence (ever so slightly) personally, however have done so since 2005 when I sold and banked so imho called this crash many years ago (like many others on here).

I would like to explore your thoughts regarding how long the bottom will last for - I ask this because it seems to me we have two opposing pressures on the market at the moment - lack of supply in housing stock on one side putting upward pressure on prices and lack of finance supply on the other keeping them down. If we are at or near the bottom now thats is

cheers

Kaine

Hi Kaine,

You are absolutely correct, we do have two opposing forces on the market at the moment, but it's a bit more complex than a straightforward lack of supply and finance.

On the upwards pressure side, we have......

-Lack of supply

-Increasing funding for new lending

-Increasing mortgage approvals

-Lower than expected (and lower than last crash) reposessions & forced sales due to government interventions

-An increase in the number of mortgage products available at high LTV's

-Many millions of people with high equity/high savings willing to help family members onto the ladder

-Increasing population

-Decreasing household density

-A shortage of houses of the types people want, in places they want them, and where employment is to support them

-Increasing consumer confidence

-The recession is ending

-The desire of government to stimulate the market before an election

-The desire of the next government not to crash the market as their first act in office

-The pervasive view amongst the public that property is an investment that will always increase long term (self fulfilling prophecy)

-The property-porn culture

-The large numbers of people at, or close to, negative equity who simply cannot sell at a lower price

-The large number of boomers who NEED a higher price for retirement when they downsize, and who would rather wait many years to sell than jepordise their retirment funds

-A weak pound creating some overseas investment in UK property

On the downwards pressure side, we have......

-Rising rates

-Rising unemployment

-currently decreasing average incomes

-A shortage of mortgage funding

-approvals still below long term average

-high deposit requirements

-Property is still above previous crash overshoot levels, and still above recent (50 year) income to price ratio averages.

Theres a long debate in the merits of the competing pressures, but in a nutshell, I reckon the following is the most likely outcome.

Spring bounce ends at some point between now and September. Further, but much smaller, falls over next winter. Total falls from peak to trough between 20% and 28%, (my bet is now 25% to 28%, down from my previous bet of 35%) depending on the duration and strength of this bounce and the size of falls over winter. If the bounce ends now, 25-28% is most likely. If the bounce remains at 2% per month or so til september, 20% to 23% is more likely.

Recovery begins in earnest Q2 2010.

Price trough most likely Feb 2010, at within 5% of the 2009 feb trough, with the sweet spot for buying really anytime between september this year and february next. Leaving it beyond then will be a mistake for mortgage buyers, but cash buyers won't suffer too much by waiting another year.

Prices for 2010 a small net gain, and solid, steady, 3% to 5% per year growth resumes in 2011. Stronger growth (5% to 8% per annum) towards the middle of the next decade (2015 onwards), with full on boom conditions starting around 2020.

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Thanks for your detailed reply - fully appreciate it was more complicated than my summary (I was picking out just two key factors).

-The desire of government to stimulate the market before an election

wrt to this issue, this is one of my major concerns - I really can't call how much effect this has

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Hi Kaine,

You are absolutely correct, we do have two opposing forces on the market at the moment, but it's a bit more complex than a straightforward lack of supply and finance.

On the upwards pressure side, we have......

-Lack of supply

-Increasing funding for new lending

-Increasing mortgage approvals

-Lower than expected (and lower than last crash) reposessions & forced sales due to government interventions

-An increase in the number of mortgage products available at high LTV's

-Many millions of people with high equity/high savings willing to help family members onto the ladder

-Increasing population

-Decreasing household density

-A shortage of houses of the types people want, in places they want them, and where employment is to support them

-Increasing consumer confidence

-The recession is ending

-The desire of government to stimulate the market before an election

-The desire of the next government not to crash the market as their first act in office

-The pervasive view amongst the public that property is an investment that will always increase long term (self fulfilling prophecy)

-The property-porn culture

-The large numbers of people at, or close to, negative equity who simply cannot sell at a lower price

-The large number of boomers who NEED a higher price for retirement when they downsize, and who would rather wait many years to sell than jepordise their retirment funds

-A weak pound creating some overseas investment in UK property

...

nearly all of those factors are defensible as 'reasons why it might be possible to sustain house prices that are, by historic standards, surprisingly high relative to wages given that we are in a deep recession'.

it's massively stretching credibility though to argue, though, that these are reasons why prices might increase from the level that they are currently at, given that they are currently [relative to wages] high by standards even of the peak boom phases of past economic cycles. we have had less than two years of price falls. as you know, many sellers have simply refused to accept that prices have fallen, leading to incredibly low sales volumes given the inability of would-be buyers to buy at 2007 prices. it seems far more likely to me & most on here that the price falls we've had so far are only the beginning.

it will all boil down to lending. if lending reverts back to something close to peak levels [i.e. low LTVs and, more importantly, high income multiples] then house price growth is possible. without, you bulls will [absent surprisingly high wage inflation] be extremely lucky to prices anywhere close to the £200k average anytime this side of the year 2020.

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Hi Kaine,

You are absolutely correct, we do have two opposing forces on the market at the moment, but it's a bit more complex than a straightforward lack of supply and finance.

On the upwards pressure side, we have......

-Lack of supply

-Increasing funding for new lending

-Increasing mortgage approvals

-Lower than expected (and lower than last crash) reposessions & forced sales due to government interventions

-An increase in the number of mortgage products available at high LTV's

-Many millions of people with high equity/high savings willing to help family members onto the ladder

-Increasing population

-Decreasing household density

-A shortage of houses of the types people want, in places they want them, and where employment is to support them

-Increasing consumer confidence

-The recession is ending

-The desire of government to stimulate the market before an election

-The desire of the next government not to crash the market as their first act in office

-The pervasive view amongst the public that property is an investment that will always increase long term (self fulfilling prophecy)

-The property-porn culture

-The large numbers of people at, or close to, negative equity who simply cannot sell at a lower price

-The large number of boomers who NEED a higher price for retirement when they downsize, and who would rather wait many years to sell than jepordise their retirment funds

-A weak pound creating some overseas investment in UK property

On the downwards pressure side, we have......

-Rising rates

-Rising unemployment

-currently decreasing average incomes

-A shortage of mortgage funding

-approvals still below long term average

-high deposit requirements

-Property is still above previous crash overshoot levels, and still above recent (50 year) income to price ratio averages.

Theres a long debate in the merits of the competing pressures, but in a nutshell, I reckon the following is the most likely outcome.

Spring bounce ends at some point between now and September. Further, but much smaller, falls over next winter. Total falls from peak to trough between 20% and 28%, (my bet is now 25% to 28%, down from my previous bet of 35%) depending on the duration and strength of this bounce and the size of falls over winter. If the bounce ends now, 25-28% is most likely. If the bounce remains at 2% per month or so til september, 20% to 23% is more likely.

Recovery begins in earnest Q2 2010.

Price trough most likely Feb 2010, at within 5% of the 2009 feb trough, with the sweet spot for buying really anytime between september this year and february next. Leaving it beyond then will be a mistake for mortgage buyers, but cash buyers won't suffer too much by waiting another year.

Prices for 2010 a small net gain, and solid, steady, 3% to 5% per year growth resumes in 2011. Stronger growth (5% to 8% per annum) towards the middle of the next decade (2015 onwards), with full on boom conditions starting around 2020.

It was a ponzi scheme Hamish. We wont see 2007 multiples of salary for housing costs again in our lifetime. You are luckier than most because you own one house outright, and although the values of your houses will never recover, you will survive, many wont.

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wrt to this issue, this is one of my major concerns - I really can't call how much effect this has

Why be concerned? It is what it is, and knowing it will happen allows you to time the market more accurately

I laid out a timeline for the crash back in January detailing the likely response of government to try and stimulate recovery prior to the next election. I've been 100% accurate with the response, and 90% accurate with timing. (I thought QE wouldn't happen til Q3/4 this year, not Q2, but other than that....)

The sweet spot for buying will be next winter. No need to be concerned, just be prepared.

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Hamish,

Always read your threads with interest as you seem to be the only designated 'bull' with well considered opinions which I respect. I sit on the bear side of the fence (ever so slightly) personally, however have done so since 2005 when I sold and banked so imho called this crash many years ago (like many others on here).

I would like to explore your thoughts regarding how long the bottom will last for - I ask this because it seems to me we have two opposing pressures on the market at the moment - lack of supply in housing stock on one side putting upward pressure on prices and lack of finance supply on the other keeping them down. If we are at or near the bottom now thats is

cheers

Kaine

There is no lack of supply in housing stock, there is now an overbuild of newbuild which no one wants. There are many people not willing to sell at the moment because they cannot psychologically process the "loss" they must take. This will change, we are reaching a tipping point, and there will be a realisation phase when people take what they can to offload their liability (property). Some news items I watched today seemed to be preparing us for IMF intervention. Anyone undecided as to what to do should get rid of their property now for whatever they can get, and pick over the bones in a year or two, maybe pick up a couple of cheap houses.

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go on, explain. what is it? what can/will goverment do to prop up house prices?

House prices and the wider economy are now so interlinked as to be inseperable.

EVERYTHING done to stimulate the wider economic recovery will also eventually stimulate house prices, and vice versa.

Future HPI is guaranteed. It's now built into the system to such a level that decoupling is impossible.

Besides, given that prices are curently rising, perhaps the more relevant question is what have the government done to prop up house prices...... ;)

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Hamish - with all due respect I don't think its thats straight forward - my concerns relate to the fact the current powers are only playing the short game for political positioning - I have a healthy deposit to use to purchase a home, however even with a modest mortgate would not like to see interest rates reach the mid teens again.

Anyway, thanks again for your comments - appreciated

Kaine

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There is no lack of supply in housing stock, there is now an overbuild of newbuild which no one wants.

And if there is only an oversupply of newbuilds that no one wants....... You have just proved my point.

There is a shortage of housing of the types people want, in the places they want them, and where the employment exists to support them.

A surplus of newbuild flats in Manchester helps nobody looking for a victorian terrace in London........ ;)

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There is no lack of supply in housing stock, there is now an overbuild of newbuild which no one wants.

I tend to agree, however over the last 12 months I have seen a marked drop in 'family homes' in my local towns - lots of new build three story town houses and flats however

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Why be concerned? It is what it is, and knowing it will happen allows you to time the market more accurately

I laid out a timeline for the crash back in January detailing the likely response of government to try and stimulate recovery prior to the next election. I've been 100% accurate with the response, and 90% accurate with timing. (I thought QE wouldn't happen til Q3/4 this year, not Q2, but other than that....)

The sweet spot for buying will be next winter. No need to be concerned, just be prepared.

There will be a number of pointless announcements tomorrow, shortly followed by a knock on the door from the IMF, rates will rocket, and anyone who can`t afford their mortgage is going into social housing. Sell now if you can.

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