Halifax +1.1% Mom, -12.1% Yoy

[Confounded]

A good piece in MoneyWeeks Money Morning email

Is the house price crash over?

So what’s going on? Is the house price crash over? We don’t think so. There’s certainly been a bounce in prices. But there are good reasons to believe that this is unsustainable.

We believe that the price of property is largely set by supply and demand for credit. In other words, the more you can borrow, and the more relaxed banks are about giving it to you, the higher house prices will go. The boom years demonstrated this amply. Products such as the above-mentioned “Together†home loan, and the rising number of interest-only loans taken out, were fantastic examples of the phenomenon.

But right now, physical supply and demand is having an impact. Because interest rates are so low, the number of forced sellers has fallen sharply. The idea of moving house when the future looks uncertain is also no doubt making many people stay put. So the number of houses coming on to the market has dived.

According to figures from Henry Pryor of HousingExpert.com, the number of properties coming on to the market has fallen from “a peak in February 2004 of over 7,400 per day to just 3,100 today.†Meanwhile, the number of sales has dived from a “peak of 5,200 per day in the summer of 2007… to just 1,300 last Christmas†before recovering a little during the “spring selling season to 2,500 a dayâ€.

So both the number of sellers and number of buyers has dived – but the gap between the two has closed. So you’ve got more buyers chasing fewer properties. And if all of those buyers are cash-rich and fussy, they’re only going to be chasing the best homes on the market. That suggests that the average price paid is going to be higher than you’d see in a more typical market with a larger number of transactions.

As Pryor puts it, “if there were just one home on the market and two buyers in the whole country then estate agents and mortgage brokers would no doubt jump up and down and point excitedly at the excess of buyers and predict a rise in prices as a result… but can we really base the health of the nation’s housing stock on this?â€

This house price bounce won't last

The point is that this can’t last. As David Smith of property consultancy Carter Jonas puts it: “There is a stark shortage of property on the market and this, above all, is driving the rebound we are seeing. The worry is that this shortage of property will cause buyers to sit on the fence again, as they shy away from committing to a purchase at a higher price.â€

But the other point is that sellers who’ve been holding off may see prices rising and decide to stick their homes on the market. The trouble is, while the number of sellers can rise easily, the number of buyers may not go up to match.

That comes back to the availability of credit. To keep house prices propped up where they were, the market needed lenders like Northern Rock, who would extend reckless loans at ridiculous rates to desperate first-time buyers. Or their counterparts at Bradford & Bingley, who would do the same for amateur property speculators.

Those lenders are now out of business as far as the housing market is concerned. And no one is coming in to take their place. That’s why this bounce is going to be temporary.

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

A good piece in MoneyWeeks Money Morning email

Is the house price crash over?

So what’s going on? Is the house price crash over? We don’t think so. There’s certainly been a bounce in prices. But there are good reasons to believe that this is unsustainable.

We believe that the price of property is largely set by supply and demand for credit. In other words, the more you can borrow, and the more relaxed banks are about giving it to you, the higher house prices will go. The boom years demonstrated this amply. Products such as the above-mentioned “Together†home loan, and the rising number of interest-only loans taken out, were fantastic examples of the phenomenon.

But right now, physical supply and demand is having an impact. Because interest rates are so low, the number of forced sellers has fallen sharply. The idea of moving house when the future looks uncertain is also no doubt making many people stay put. So the number of houses coming on to the market has dived.

According to figures from Henry Pryor of HousingExpert.com, the number of properties coming on to the market has fallen from “a peak in February 2004 of over 7,400 per day to just 3,100 today.†Meanwhile, the number of sales has dived from a “peak of 5,200 per day in the summer of 2007… to just 1,300 last Christmas†before recovering a little during the “spring selling season to 2,500 a dayâ€.

So both the number of sellers and number of buyers has dived – but the gap between the two has closed. So you’ve got more buyers chasing fewer properties. And if all of those buyers are cash-rich and fussy, they’re only going to be chasing the best homes on the market. That suggests that the average price paid is going to be higher than you’d see in a more typical market with a larger number of transactions.

As Pryor puts it, “if there were just one home on the market and two buyers in the whole country then estate agents and mortgage brokers would no doubt jump up and down and point excitedly at the excess of buyers and predict a rise in prices as a result… but can we really base the health of the nation’s housing stock on this?â€

This house price bounce won't last

The point is that this can’t last. As David Smith of property consultancy Carter Jonas puts it: “There is a stark shortage of property on the market and this, above all, is driving the rebound we are seeing. The worry is that this shortage of property will cause buyers to sit on the fence again, as they shy away from committing to a purchase at a higher price.â€

But the other point is that sellers who’ve been holding off may see prices rising and decide to stick their homes on the market. The trouble is, while the number of sellers can rise easily, the number of buyers may not go up to match.

That comes back to the availability of credit. To keep house prices propped up where they were, the market needed lenders like Northern Rock, who would extend reckless loans at ridiculous rates to desperate first-time buyers. Or their counterparts at Bradford & Bingley, who would do the same for amateur property speculators.

Those lenders are now out of business as far as the housing market is concerned. And no one is coming in to take their place. That’s why this bounce is going to be temporary.

When, in the last decade or so, has house price inflation been sustainable? Huh?

[grumpy-old-man-returns]

HPI in an economic depression. What a deranged country we live in

exactly Lander.

just don't believe the manipulated stats, use your common sense & experience.

[Neverland]

This is the provisional inflation-adjusted fall-from-peak chart.

I normally post this on the inflation thread when the RPI numbers come out but it's equally relevant on the Halifax thread, so I've made the assumption that the latest month's RPI index will be the same as the previous month (the actual number won't change the shape of the chart much, and in any case the Halifax figure will almost certainly be revised next month too).

Nice graph

(must learn how to do those )

Shows three things to my (small) mind:

- this drop has been sharper than the last time

- in the past there were "dead cat bounces", "ledges" etc

- the final phase is often a low trough, 5 years in that case

So here's the one conclusion I would draw: there may be another downleg (I think so based on prices not yet being below average) or not, but the trough is likely to last a long time, so why rush in to buy?

[Ethel]

In my area on rightmove I seeing nothing but drops, pretty hefty drops at that.

Nothing is selling...

Next leg down a' comin.

I viewed a house in February but felt that it was overpriced by about £20k and the vendor would not negotiate. It's still on the market (has been for 18 months now) and they just this week put the price UP by £10k!! Would you believe it.

[MinceBalls]

Unemployment up and house prices up. More job losses are needed to increase house prices further.

That's given me a good idea, if I lose my job and find myself kicking around I might use my free time to look for a house to buy. That's what's happening right? sic

[twatmangle]

So here's the one conclusion I would draw: there may be another downleg (I think so based on prices not yet being below average) or not, but the trough is likely to last a long time, so why rush in to buy?

Because otherwise you'd be paying rent for X number of years instead of paying off a mortgage for X number of years.

When house prices are rising and clearly in a bubble, don't buy.

When they're falling, don't buy

But if they're stagnating for years, buy, pay mortgage, move up.

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

27 million workers, 1-2 million job cuts? Sure there's fear and wages are not rising, but will rising unemployment really make a major impact?

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

I viewed a house in February but felt that it was overpriced by about £20k and the vendor would not negotiate. It's still on the market (has been for 18 months now) and they just this week put the price UP by £10k!! Would you believe it.

Yes, sentiment has changed. And house prices are increasing.

[Billy Ray Valentine]

Anyway I'm not bothered anymore.

Goodbye

I'll be back periodically to mock your blinkered naieve stupidity....

DB :angry:

Au revoir.

[Guest Daddy Bear]

so you, DB, who in earlier posts said that you made so much money in the previous purchase that you'd have had to work for x number of years to make that, are now turning down circa 100K profit before fees?

you must now be very rich indeed. if i had made the happy transaction such as yours, i'd gladly become a flipper for even a 20k clear profit, nevermind something like 50k+.

what you posted before

DB you must now have become very wealthy to turn your nose up at �50K flip profit. well done you, its all right for some eh!

Yeah - you could say that. £50K - not worth the hassle when you have wife and kids and everything is good. Why change it?

10 years ago - definitely

now - no.

This is also why I know cash will be destroyed. Someone like me who now earns £40K a year can live in a 5 bed house nearly paid for before they are 35?

Utter madness - and also v sad. reflection on society.

[Guest Daddy Bear]

Hi Daddy Bear, I asked a week or so before but I think you missed my post. Do you think it is right to highlight point number 8 on your list?

We have quantitative easing, but is it on as massive a scale as you suggest? I am interested to hear your opinion as I value your posts. Thanks

$23,700,000,000,000 (mind its only an estimate - probably will be a lot less - mind thats just for U.S)

[Bloo Loo]

$23,700,000,000,000 (mind its only an estimate - probably will be a lot less - mind thats just for U.S)

less than 5% GDP.

[Guest Daddy Bear]

less than 5% GDP.

[Bloo Loo]

[Kazuya]

[bear_or_bull]

I viewed a house in February but felt that it was overpriced by about £20k and the vendor would not negotiate. It's still on the market (has been for 18 months now) and they just this week put the price UP by £10k!! Would you believe it.

That's because your government bailed them out. Nice eh? Someone will buy that one day, and the sellers will get richer & the buyer poorer. And then even poorer still when tax goes up and services will go down. Apparently it's all a brilliant thing.

[MOP]

less than 5% GDP.

$23.7 trillion is nearly twice US GDP.

[Bloo Loo]

$23.7 trillion is nearly twice US GDP.

thanks...I thought he was referring to the UK QE.

I dont read all the 0's in a DB post.

still

[cht]

This is the provisional inflation-adjusted fall-from-peak chart.

I normally post this on the inflation thread when the RPI numbers come out but it's equally relevant on the Halifax thread, so I've made the assumption that the latest month's RPI index will be the same as the previous month (the actual number won't change the shape of the chart much, and in any case the Halifax figure will almost certainly be revised next month too).

What a wonderful chart. Many thanks FT.

[Neverland]

Because otherwise you'd be paying rent for X number of years instead of paying off a mortgage for X number of years.

When house prices are rising and clearly in a bubble, don't buy.

When they're falling, don't buy

But if they're stagnating for years, buy, pay mortgage, move up.

Thats all fine, but since we can't all predict the future as perfectly as you, I suggest waiting and seeing in an uncertain situation

In a stagnating housing market, your logic depends on the relative level of rents to interest rates and might not create value, no?

[loginandtonic]

Yeah - you could say that. £50K - not worth the hassle when you have wife and kids and everything is good. Why change it?

10 years ago - definitely

now - no.

This is also why I know cash will be destroyed. Someone like me who now earns £40K a year can live in a 5 bed house nearly paid for before they are 35?

Utter madness - and also v sad. reflection on society.

£50k not worth the hassle? i wish i was as comfortable as you, can i rub you for luck? (no, not there! ;o) )

[Neverland]

Yeah - you could say that. £50K - not worth the hassle when you have wife and kids and everything is good. Why change it?

10 years ago - definitely

now - no.

This is also why I know cash will be destroyed. Someone like me who now earns £40K a year can live in a 5 bed house nearly paid for before they are 35?

Utter madness - and also v sad. reflection on society.

F*ck off and go troll somewhere else

No one is interested in how rich or how clever (you say) you are

[BecksMyCat]

$23,700,000,000,000 (mind its only an estimate - probably will be a lot less - mind thats just for U.S)

Can I ask how you came to this estimation? (I am assuming you are counting 12 zeros as a trillion). Is this your estimation of how much you think they will spend once all this is over? Is this a future prediction?

It might be easier on everyone to miss out the zeros.

I have been struggling to find a link as to how much has been QE'd in America. I did find this which if I understood correctly suggests they are buying $1450 billion in mortgage backed securities, and $300 billion in US treasuries.

This was back in June though

http://www.american.com/archive/2009/june/...asing-challenge

Do you have a more up to date or clearer source, or have I misunderstood (which is equally possible).

I am a concerned that you have exagerated a bit, but you seem to know your stuff so I am sure you will be able to provide more information.

[R K]

Starts getting marginal from here on in in nominal terms I think.

Perhaps another modest slide after this summer bounce into the winter with real terms lows grinding down over the next couple of years. But I think it will start becoming more a question of local markets, aside from 'commodity' housing and 2 bed flat developments, where we're going to continue to see developers and sales companies like DylanHarvey go bust for a while yet I'm sure.

There is also the issue of negotiating a bigger discount in a falling market to consider as well as time to retirement and other personal issues.

I'm not very bothered personally - I like the freedom of not owning but I'm sure we haven't yet seen the back of QE with the election shortly to take a more prominent role and sterling has risen 25% since Jim Rogers told us it was in the bin. But in nominal terms, as we go into the winter I think we'll have had the best of it. Will we have much lower nominals and better rates into Autumn/Winter 2010? I find it hard to see how we will.

I'm comfortable with Harrison's 14 up and 4 down model, giving a further 2 years 'ish but that last 5-10% average fall starts to become a trade-off with other factors I think.

2p 'orth. Don't shoot me.