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Comparing Cycles Of Uk House Prices

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One of my favorites compares the different housing cycles in the UK. Source:http://wp.me/pTU04-i

The chart shows the speed of decline in the current cycle relative the previous cycle thatproprate.jpg peaked in late 1989. The base date of 100 is set at the peak of each cycle. The house price index used is the Halifax monthly house price index.The current house price cycle has taken a V-shaped recovery, while the earlier cycle was u-shaped. This in my opinion, maybe due to the high interests in the early 1990s set to maintain the GBP within the European exchange rate mechanism. However, in the latest cycle the Bank of England cut interest rates to on all time low; helping provide support for house prices. Lower mortgage rates (specifically standard variable rates) have enabled homeowners to service their mortgage. Consequently, this resulted fewer properties being put up for sale given the economic backdrop

post-25690-12769858604868_thumb.jpg

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Here is a charts I have worked on that I found interesting http://proprateanalyst.wordpress.com/2010/05/15/

The chart shows the speed of decline in the current cycle relative the previous cycle that peaked in late 1989. The base date of 100 is set at the peak of each cycle. The house price index used is the Halifax monthly house price index.The current house price cycle has taken a V-shaped recovery, while the earlier cycle was u-shaped. This in my opinion, maybe due to the high interests in the early 1990s set to maintain the GBP within the European exchange rate mechanism. However, in the latest cycle, the Bank of England cut interest rates to an all time low; helping provide support for house prices. Lower mortgage rates (specifically standard variable rates) have enabled homeowners to service their mortgages. Consequently, this resulted fewer sales instructions given the economic backdrop. Consequently house price have risen due to shortgage of properties on the market.

proprate.jpg

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Nice clear charts.

One question worth asking is around the "real" chart.

I have started hitting on a theory that we have had abnormally low inflation the last few years, largely because of China.  As Chinese wages storm upward, and the loosen the Dollar peg, I suspect we could see the price of many goods rise quite fast.

So in essence I am wondering if the inflation factor applied to the real historic data may be too low and perhaps house prices are less overvalued than people might think.  That said,  house price to income ratio are a key determinant and as income growth has been lower too,  perhaps they are still overvalued.

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Nice clear charts.

One question worth asking is around the "real" chart.

I have started hitting on a theory that we have had abnormally low inflation the last few years, largely because of China.  As Chinese wages storm upward, and the loosen the Dollar peg, I suspect we could see the price of many goods rise quite fast.

So in essence I am wondering if the inflation factor applied to the real historic data may be too low and perhaps house prices are less overvalued than people might think.  That said,  house price to income ratio are a key determinant and as income growth has been lower too,  perhaps they are still overvalued.

Thank you for your response.

I used the Lloyds Halifax Index. I agree with you about China wage rises. I still think that until China has stronger share of world trade in high tech and more value industries the government will maintain the current policy of low wages and low valued currency. Even if wages and prices rise, my opinion is that China's share of world trade will fall slightly as countries switch to buying those goods from other countries that are able to supply goods at a lower price. The latest BOE inflation report attributed current level of inflation that is above the target to: the decline of the pound (£), return to 17.5% vat, and rising oil prices. I think you could be right about low inflationary period has made house price seem over valued. I am currently looking at the correlation of goods inflation and house prices. I also dig in my archives to see if there is anything I can dig out to demonstrate your theory. Maybe look at the lat 1970's house price and compare nominal to real house prices. The char i have shows that nominal price rising and real prices dropped.

As for house price income ratio, I had a professor who used to warn against using the as a measure. It is more applicable to FTBs, than people moving homes who usually come with equity from the previous house (higher down payments).

I hope that helps. I hope to contribute more to the discussion HPC. I have bee a follower for some time now.

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As for house price income ratio, I had a professor who used to warn against using the as a measure. It is more applicable to FTBs, than people moving homes who usually come with equity from the previous house (higher down payments).

Agreed that earnings multiple is most relevant to FTBs, but houses being currently priced out of the reach of most FTBs is surely a sign that they are overpriced?

House prices have risen because of an abundance of credit that is not sustainable. The housing market cannot find itself suspended indefinitely at some level at which only existing homeowners can afford to buy another house! It is tulip bulbs all over again, and once it dawns on people all they have bought is a tulip/house and not a golden goose, prices will readjust.

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Unfortunately it seems to have gone unnoticed that amidst the UK's obsession with house prices, that 'restrictive' monetary policy between 1990-97 built a very stable, very sustainable wider economy.

This time no such stability can be achieved until a large amount of debts are repudiated, which no one seems willing to do.

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Unfortunately it seems to have gone unnoticed that amidst the UK's obsession with house prices, that 'restrictive' monetary policy between 1990-97 built a very stable, very sustainable wider economy.

This time no such stability can be achieved until a large amount of debts are repudiated, which no one seems willing to do.

Yes this makes me so angry. But to be fair to Labour they did'nt light the touch paper until 2001-2002 so they duped everyone for a few years including myself.

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As for house price income ratio, I had a professor who used to warn against using the as a measure. It is more applicable to FTBs, than people moving homes who usually come with equity from the previous house (higher down payments).

This is the logical fallacy of the appeal to authority - the idea that a thing is true because it is the opinion of an eminent person. It may be that your professor does not use it as a measure, in his opinion, but until the explosion of unsustainable credit during the recent bubble, the housing market used it as a measure, in living fact, going back at least to the second world war, and not just for FTBs.

The price to income ratio cycled round a flat average of about 4.1:1, getting as high as the mid 5s and as low as the 3s. The cycling around this mean was exactly in phase with the availability of credit. The recent bubble was caused by the long term mean being abandoned by a bubble of unsustainable credit.

This credit has not been repaid.

Until that situation has been rectified, either through repayment or default, prices cannot resume any sustained upward trajectory.

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Yes this makes me so angry. But to be fair to Labour they did'nt light the touch paper until 2001-2002 so they duped everyone for a few years including myself.

Ha, my dad voted for them in 1997, regretted it almost immediately after Gordons first budget when he 'raided' pensions.

Now my dads near retirement never a day goes by he doesnt remind us all of this.

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Ha, my dad voted for them in 1997, regretted it almost immediately after Gordons first budget when he 'raided' pensions.

Now my dads near retirement never a day goes by he doesnt remind us all of this.

i wouldnt worry the tories did the same in a roundabout way by making it more tax efficient for companies to take pension holidays in the 90s when the markets were booming, effectively penalising through taxation those companies that didnt take a holiday.

As for the charts it just highlights the magnitude of the crash, its massive and of a degree many times larger, this shows itself via extreme volatility which means there is much more fear and emotion present in this market than the 80s one,

Edited by Tamara De Lempicka

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We see a lot of opinion from bulls, trying to suggest that the previous decline was the crash and that the recent rally is destined to head back to the sky.

This market has taken exactly the form predicted by the 'shape of a bubble' graph. The rally has stalled before taking out the previous high and is building out a lower high. What follows, as the bears expected, is the real crash.

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One of my favorites compares the different housing cycles in the UK. Source:http://wp.me/pTU04-i

The chart shows the speed of decline in the current cycle relative the previous cycle thatproprate.jpg peaked in late 1989. The base date of 100 is set at the peak of each cycle. The house price index used is the Halifax monthly house price index.The current house price cycle has taken a V-shaped recovery, while the earlier cycle was u-shaped. This in my opinion, maybe due to the high interests in the early 1990s set to maintain the GBP within the European exchange rate mechanism. However, in the latest cycle the Bank of England cut interest rates to on all time low; helping provide support for house prices. Lower mortgage rates (specifically standard variable rates) have enabled homeowners to service their mortgage. Consequently, this resulted fewer properties being put up for sale given the economic backdrop

To save people having to click on the image.

proprate.jpg

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Unfortunately it seems to have gone unnoticed that amidst the UK's obsession with house prices, that 'restrictive' monetary policy between 1990-97 built a very stable, very sustainable wider economy.

This time no such stability can be achieved until a large amount of debts are repudiated, which no one seems willing to do.

Seems about right, 1997 things were running very nicely indeed.

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Here is a charts I have worked on that I found interesting http://proprateanalyst.wordpress.com/2010/05/15/

The chart shows the speed of decline in the current cycle relative the previous cycle that peaked in late 1989. The base date of 100 is set at the peak of each cycle. The house price index used is the Halifax monthly house price index.The current house price cycle has taken a V-shaped recovery, while the earlier cycle was u-shaped. This in my opinion, maybe due to the high interests in the early 1990s set to maintain the GBP within the European exchange rate mechanism. However, in the latest cycle, the Bank of England cut interest rates to an all time low; helping provide support for house prices. Lower mortgage rates (specifically standard variable rates) have enabled homeowners to service their mortgages. Consequently, this resulted fewer sales instructions given the economic backdrop. Consequently house price have risen due to shortgage of properties on the market.

proprate.jpg

I came across thise article and thought your theory. http://www.marketoracle.co.uk/Article20377.html. please let me know if it helps. You have inspired to look at the relationship with btw inflation and house prices.

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(...)

As for house price income ratio, I had a professor who used to warn against using the as a measure. It is more applicable to FTBs, than people moving homes who usually come with equity from the previous house (higher down payments).

I wonder where your professor thought that the homemover's equity came from?

He obviously didn't think it had anything to do with the 7x income mortgage taken out by the FTB at the bottom of the chain.

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Here is a charts I have worked on that I found interesting http://proprateanalyst.wordpress.com/2010/05/15/

I find the charts in the link provided interesting.

In the real prices chart I note a funny thing. The two previous crashes are symmetrical in the buildup to the peak and then to the trough. I wish the new one does not follow this otherwise it will mean about 9 years to bottom from peak.

Regards,

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Yes this makes me so angry. But to be fair to Labour they did'nt light the touch paper until 2001-2002 so they duped everyone for a few years including myself.

Everyone was warned way back in 1997.. the signs were there .... it's just unfortunate that so many didn't have the basic instinct to realise quite how dangerous Labour would be , and once they were in of course it was headline after headline to con the people , chucking and wasting good money after bad and bribing more and more workers with unsustainable jobs in the public secotr. The thing that frightenes me is not that Labour did it as to be frank thats what they stand for , but that so many people voted for them to start with and again and again and again... millions even voted for them this time around ( it was like turkeys voting for christmas)... we would have gone won to an even greater degree if that shower had got in again, calling in the IMF for a bailout would have been a certainty.

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Everyone was warned way back in 1997.. the signs were there .... it's just unfortunate that so many didn't have the basic instinct to realise quite how dangerous Labour would be , and once they were in of course it was headline after headline to con the people , chucking and wasting good money after bad and bribing more and more workers with unsustainable jobs in the public secotr. The thing that frightenes me is not that Labour did it as to be frank thats what they stand for , but that so many people voted for them to start with and again and again and again... millions even voted for them this time around ( it was like turkeys voting for christmas)... we would have gone won to an even greater degree if that shower had got in again, calling in the IMF for a bailout would have been a certainty.

I don't think Labour was dangerous in 1997, and I have no regrets about voting for them at that point. What seemed far more worrying was the critical lack of investment in infrastructure; school buildings collapsing around the kids ears, and people dying on hospital waiting lists that were a national disgrace. OK, perhaps the tories might have started to rectify some of those deficiencies, but their manifesto didn't suggest it, and they deserved to be thrown out. I'd agree from midway second term labour started to lose the plot, started wars, borrowed on PFI, sold gold, and tried to out-tory the tories on income tax cuts. But to say the country was in anything like good shape in 1997 is rewriting history IMO.

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  • 146 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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