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munimula

Mortgage Approvals V House Prices

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In the late 80's crash the graph shows us that the drop in mortgage levels preceded the drop in house prices.

graph.gif

This time around we've had a more dramatic fall in mortgage approvals.

Recent data shows us that now, at the busiest time of the year for the housing market mortgage approvals are only around 95K which from the historic graph would appear to be too low to prevent the crash in house prices that hasn't yet happened.

mortgage_approvals.gif

BBC website http://news.bbc.co.uk/1/hi/business/4727189.stm

Mortgage loans for house purchase figures, a key barometer of demand in the UK housing market, held steady at 96,000 in June.

Loans for house purchases have fallen from a height of over 130,000 a month in late 2003.

Mr Loynes said that falling numbers of loans for house purchases meant that a "hard landing" for the UK housing market was "still very much a possibility."

Mr Loynes recently predicted that UK house prices could fall by up to 20% over the next few years

However, the number of loans have picked up from a low of fewer than 80,000 last November.

If there is link between mortgage approvals (new money to the market) and house prices then from this data it is now inevitable that we really are on the edge of a cliff.

I don't think reductions in IRs will make any difference, banks will tighten their lending criteria as bad debts rise so FTB's will be unable to borrow the multiples previously handed out. If the BoE foolishly reduces IRs they may get away with a couple of cuts before they are then forced to aggressively raise them again to fight off the inflation these cuts will cause. People need to be thinking 'what could IRs be in 5 years time' and could I afford my mortgage if IRs are 6%-7%. From the data we've seen the answer for most people would be 'no' as it appears that as a nation we are struggling with rates at 4.75%. It is not what happens now, or in the next 6 months that will trigger the HPC but at some point there will be a trigger. Against rising US rates, stronger renminbi, rising unemployment, rising oil prices it is only a matter of time before UK rates will have to go higher, much higher than the average person would like to predict. Add to that the higher taxes on they way and we've got all the ingredients for financial armageddon in the UK.

From Money Week this week

Between 1993 and 1998, CPI ranged between 1.5% and 3% and base rates were between 5.25% and 7.5%. With CPI at 2% and rising, base rates 'should' be nearly 6%. This means there is precious little scope for further cuts from here, but as in the past, plenty of room to return to hiking rates if inflation refuses to be tamed

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In the late 80's crash the graph shows us that the drop in mortgage levels preceded the drop in house prices.

This time around we've had a more dramatic fall in mortgage approvals.

Recent data shows us that now, at the busiest time of the year for the housing market mortgage approvals are only around 95K

Here is the graph below that I recently did for FTBH and uses the data from the "Interactive Database" part of the BoE website - brought into Excel and then charted up (I knew my I.T. skills would come in handy one day! :D )

mortgageapprovals9505.gif

In the late 80s mortgage approvals did drop dramatically, had a "dead cat bounce" up to about 95,000 and then carried on falling as we went into 1990.

At the moment, the situation now is that we had the dramatic drop which mirrored the late 80s one back in November 2004. There has been a "bounce" of sorts back to 95,000.

But - the question is will mortgage approvals carry on sliding again as we go into the end of 2005, or will they hover around 95,000 for some months to come ?

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From the historic graph (top graph) we can see that this time, as last time HPI has indeed dramatically fallen to around 0% after the drop in mortgage approvals, mirroring the fall in the 80's crash. Last time after the first dramatic drops in mortgage approvals, approvals ticked up to around 95K-100K for several months but this did nothing to stop the fall in HPI.

I'd bet on mortgage approvals peaking now at 95K and falling into the autumn winter, a sure fire sign that HPI is about to go very negative?

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For those that like a bit of tech analysis......this chart looks shocking!!!

The mortgage approvals are looking like they will FALL sharply again in the not too distant future.

the graph is pretty clear....the up-trend has broken,that's obvious....but the next bit is interesting,what usually happens when an uptrend breaks is it will go back and re-test the last low point,and then FAIL and drop sharply....called a "hook"

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For those that like a bit of tech analysis......this chart looks shocking!!!

The mortgage approvals are looking like they will FALL sharply again in the not too distant future.

the graph is pretty clear....the up-trend has broken,that's obvious....but the next bit is interesting,what usually happens when an uptrend breaks is it will go back and re-test the last low point,and then FAIL and drop sharply....called a "hook"

Hmm... chartists... strange folk you are... any evidence to back up why mortgage approvals will go back down? I know the market is cyclical, but not too sure about mortgage approvals. So, what would be your background aregument to back up this drop that is about to occur?

I personally think raising mortgage approvals is a good thing for a crash, we need purchases to go through to lower prices in an individual area. Then, surrounding houses on the market have to drop prices correspondingly to keep up with the market. What we dont want is a bounce back to the approval levels we saw post 2001. :)

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Guest absolutezero

Don't think anyone can argue with that first graph.

Pattern looks pretty clear to me.

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I would suspec the 'hook' is from people who have been desperate to buy for a while, and jump in at the early part of the fall/stagnation, imagining they have a bargain, or scared they may start to rise again.

No shortage of sellers seeking the greater fool, so mortgage approvals go up a bit, then fall.

Just my theory :)

ABB

Edited by AgeingBabyBoomer

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The hook represents all those committing financial suicide. In 2-3 years time when rates are 6%+ how many people are going to be wishing they hadn't bought?

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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