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That House Prices Are Already Back To Normal Article


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http://blogs.thisismoney.co.uk/2010/03/house-prices-are-already-back-to-normal.html

From the front page

Surely people working for a money publication should be smart enough to realize that a massive bubble also raises the trend line and therefore the basis for the whole article is stupid ignorance.

Any 'return to trend', will be a return to trend in income ratios. As this happens the trend line will sink again back to the long term trend for the trend line, if that makes sense.

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http://blogs.thisism...-to-normal.html

From the front page

Surely people working for a money publication should be smart enough to realize that a massive bubble also raises the trend line and therefore the basis for the whole article is stupid ignorance.

We have discussed this before on HPC. The trend line is wrong /distorted and needs adjusting as you say.

But this is thisismoney.co.uk aka The London Evening Standard, which in London anyway is the Property Rampers Gazette!

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Makes perfect sense to me. What they have is a moving average line. In technical analysis these tend to create support/ resistance levels so you would expect a rally here before it breaks through.

If I understood correctly, it is an exponential trend line, which is a little odd.

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Makes perfect sense to me. What they have is a moving average line. In technical analysis these tend to create support/ resistance levels so you would expect a rally here before it breaks through.

Now look at the chart next to this on the Nationwide report, and you will see that house prices in relation to earnings are about 30-35% over the long term average. Earnings growth is currently minimal and many people are in part time work. The long term average price is a bit irrelevant when you would expect to be way above this in boom times and way below it in bad times. This is the nature of most systems - they are prone to overshoot the mean in each direction. In every recession in the past house prices have returned to below the long term norm.

I think we are all amazed that house prices actually seemed to go up last year against that backdrop. Supply is now outstripping supply (by 25% since January in my bit of the South East according to Rightmove) and EAs are telling me they're advising lots of new vendors to market after the Easter school holidays - a second influx of new houses on the market. I think buying now is a pretty big gamble personally, as I find it hard to see where sufficient sellers will come from to meet that supply.

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If I understood correctly, it is an exponential trend line, which is a little odd.

Absolutely. The trend line is just bollix. As you say, it's exponential and by definition the rate of rise continues to increase. Totally unrealistic unless you live in HPI VI land.

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Is it not mathematically correct? if the assumption is 2.9% per annum - when compounded it will generate an exponential curve.

Yes but thats not how I was taught to draw a trend line when I learned statistics a few years ago. It had to be based on the real data.

If you drew a trend a line for say your company sales turnover, you couldn't just compound a hypothetical growth rate, even though sales were falling!

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How people think they ever will ever be smart enough to buy a house when they don't know what the words "trend" and "exponential" mean I don't know.

Some of the dumbest posts I've seen on here outside of the wingnut posts on the EU and AGW.

ROTFLMAO

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Don't worry. Inflation is in the system and interest rates will rise gradually. When that happens and keeps on happening, the property market will fail. At the moment the burst bubble has been filled with hot air by the govt. If they allow this 'recovery' and continue to support it, then the bust will be even harsher in the future. People's incomes cannot justify present prices.

If you knocked on a hundred home owner's front doors and asked if they could afford to buy their own house with a 10% deposit on their current income, you would find a large number could not. If incomes rise 80% from 1996 to now and house prices rise about 300 to 350% there must be a problem. The SE is worst on these measures.

There has been no time in history when the house price to income ratio has not returned to 3x (and below in or after recession). The graph produced by Nationwide is interesting but does look at prices against income, just their own trend line. Not the same.

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[only 1 in 10 people can afford to buy a house,I will start buying houses again when they look cheap and feel cheap.....that graph is ******,late 2010 I recon the fun starts again,recon we are back in the danger zone of people popping back in the property game,

100% agree

Houses are so ridiculously expensive that any idiot should be able to predict a crash. They are so out of touch with what would represent good value it is comical

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How people think they ever will ever be smart enough to buy a house when they don't know what the words "trend" and "exponential" mean I don't know.

Some of the dumbest posts I've seen on here outside of the wingnut posts on the EU and AGW.

ROTFLMAO

Care to enlighten the general trend of the thread with your exponential knowledge?

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Don't worry. Inflation is in the system and interest rates will rise gradually. When that happens and keeps on happening, the property market will fail. At the moment the burst bubble has been filled with hot air by the govt. If they allow this 'recovery' and continue to support it, then the bust will be even harsher in the future. People's incomes cannot justify present prices.

If you knocked on a hundred home owner's front doors and asked if they could afford to buy their own house with a 10% deposit on their current income, you would find a large number could not. If incomes rise 80% from 1996 to now and house prices rise about 300 to 350% there must be a problem. The SE is worst on these measures.

There has been no time in history when the house price to income ratio has not returned to 3x (and below in or after recession). The graph produced by Nationwide is interesting but does look at prices against income, just their own trend line. Not the same.

A men to that spot on.I remember the last crash,my Dad saying he couldn't afford to buy his house,nor anyone else up our road,they all had reasonably paid jobs.........2 years later they all could!!!!!!!!!!!!!!

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The logic of the 2.9% exponential trendline:

Currenlt about 30% of income goes on morgage costs, so...

Year	Income	House price2010	100 	30.002011	100 	30.872012	100 	31.772013	100 	32.692014	100 	33.632015	100 	34.612016	100 	35.612017	100 	36.652018	100 	37.712019	100 	38.802020	100 	39.932021	100 	41.092022	100 	42.282023	100 	43.502024	100 	44.762025	100 	46.062026	100 	47.402027	100 	48.772028	100 	50.192029	100 	51.642030	100 	53.142031	100 	54.682032	100 	56.272033	100 	57.902034	100 	59.582035	100 	61.312036	100 	63.082037	100 	64.912038	100 	66.802039	100 	68.732040	100 	70.732041	100 	72.782042	100 	74.892043	100 	77.062044	100 	79.292045	100 	81.592046	100 	83.962047	100 	86.402048	100 	88.902049	100 	91.482050	100 	94.132051	100 	96.862052	100 	99.672053	100 	102.56

So, by 2053 (just about in my lifetime, fingers crossed), I will need to pay 102% of my income on a morgage.... Yes, please!

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How people think they ever will ever be smart enough to buy a house when they don't know what the words "trend" and "exponential" mean I don't know.

Some of the dumbest posts I've seen on here outside of the wingnut posts on the EU and AGW.

ROTFLMAO

I think over the past few years that not knowing anything about maths or economics has been the driving force behind the housing market. like an ex work collegue who got an IO mortgage 'because it was cheaper' she used to buy food on her credit card so had never any plans to save the money to repay the capital;.

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A men to that spot on.I remember the last crash,my Dad saying he couldn't afford to buy his house,nor anyone else up our road,they all had reasonably paid jobs.........2 years later they all could!!!!!!!!!!!!!!

Big inflation allied to big wage increases. Debtors best friends.

Low interest rates with low inflation keep you in debt for much longer sad.gif

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We have been considering buying for a while and very nearly took the plunge last week. But after a weekend away and time to reflect we realised that earning 100k a year and with 100k+ in the bank we should be able to afford more than a tini tiny small 2 bed flat even in London. So we said swivel and lets stick with our cheap rent until prices get sensible.

House prices are not normal.

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If I understood correctly, it is an exponential trend line, which is a little odd.

If we are in the worst recession since the 30's - should it not have a 30's house price reference line?

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We have been considering buying for a while and very nearly took the plunge last week. But after a weekend away and time to reflect we realised that earning 100k a year and with 100k+ in the bank we should be able to afford more than a tini tiny small 2 bed flat even in London. So we said swivel and lets stick with our cheap rent until prices get sensible.

House prices are not normal.

Was looking around my old stomping grounds of London E16 over the weekend. A one bedroom slave box in Felixstowe Court in E16 is around £160k. Its amazing what that buys up North, but I agree, House Prices are not "sensible."

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