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Toto deVeer

Uk Hpc...sorry Bulls, I Don't Agree...

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Heading for the bottom trend, and may dip below. I predict that the bottom trend will eventually become the 'new norm' for HPI. In 20 years or so, that won't be so bad.

Sorry bulls, but this should be obvious to anyone. Bail now while you still can, it's going to be a long grinding, tooth rattling ride from here...

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nationwideq.jpg

Heading for the bottom trend, and may dip below. I predict that the bottom trend will eventually become the 'new norm' for HPI. In 20 years or so, that won't be so bad.

Sorry bulls, but this should be obvious to anyone. Bail now while you still can, it's going to be a long grinding, tooth rattling ride from here...

I realise the trend line is mathematical nonsense, and have argued this in the past (is we will end up paying more than 100% of salary on housing costs).

But do you have a reference to the Nationwide chap agreeing with this sentiment...?

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nationwideq.jpg

Heading for the bottom trend, and may dip below. I predict that the bottom trend will eventually become the 'new norm' for HPI. In 20 years or so, that won't be so bad.

Sorry bulls, but this should be obvious to anyone. Bail now while you still can, it's going to be a long grinding, tooth rattling ride from here...

What is the point of this post? Other than to establish an incredible new standard in the age old art of preaching to the converted.

There's a fair chance you'll be right, mind. But saying anything with such certainty, to people who believe it anyway, just seems a bit silly to me.

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I realise the trend line is mathematical nonsense

Why is the middle line nonsense? Sure it drifts up and down in crashes and slumps, but why must the LOWER line be the long term mean?

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I realise the trend line is mathematical nonsense, and have argued this in the past (is we will end up paying more than 100% of salary on housing costs).

But do you have a reference to the Nationwide chap agreeing with this sentiment...?

I emailed the Chief Economist, and illustrated mathematically that the assumption of a compounded rate of HPI would, into the future, approach the vertical asymptotically. I have their reply by email, and yes they agreed with my analysis, but essentially stated that this is always the way it is reported, so they would not change it.

This idea of compounding and exponential growth is a nonsense invented only by bankers as a means to suck the borrower dry. No asset increases in value exponentially over the longer time frame (only debt does, because the bankers have crafted it that way).

I have the reply by email but they have asked me to keep this email as confidential correspondence.

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The whole chart is flawed because it under estimates inflation.

We all know inflation has been much higher than reported.

Therefore both the peaks and valleys of the previous booms and busts should be much higher.

A nominal crash of 33% from peak is all we will get, maybe 50% if interest rates > 10%, but cant see that happening myself.

Edited by MonkeyNuts

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What is the point of this post? Other than to establish an incredible new standard in the age old art of preaching to the converted.

There's a fair chance you'll be right, mind. But saying anything with such certainty, to people who believe it anyway, just seems a bit silly to me.

Fair question.

There was another thread, started by someone of the 'bullish stance' (yes there are a few around) who stated that if prices didn't fall over the winter, then there would be no house price fall. Actually this is a secular trend, not just a seasonal thing.

I produced this because it is the most compact way to illustrate all the key forces/trends at play. The actual path of the decline is difficult to predict, but it will occur.

Surprisingly, there still are quite a few people on the forum with an apparently bullish stance.

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Why is the middle line nonsense? Sure it drifts up and down in crashes and slumps, but why must the LOWER line be the long term mean?

The middle line is nonsense because it is based upon a compounded rate of return. This cannot be extended into the future as it will go vertical. Therefore the actual line must be something else. In fact as time passes the compounded HPI rate will become lower and lower. This is the problem with the curve and why it is nonsense to report it this way.

In reality it would be better not to produce a trend line at all when the peaks and valleys are so large. It is simply misleading, in my view.

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A nominal crash of 33% from peak is all we will get, maybe 50% if interest rates > 10%, but cant see that happening myself.

It really depends upon the path of the decline. Because the banks are at such risk, my view is that the government will try to keep this path line flat as long as they can. Eventually it will intersect the bottom trend, but it would take decades. However this could completely destroy the real economy.

The other option is to just let go and let prices reset. The recovery could then begin and the real economy could recover. While this option won't be allowed to happen by the government, it may be imposed by external events.

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I emailed the Chief Economist, and illustrated mathematically that the assumption of a compounded rate of HPI would, into the future, approach the vertical asymptotically. I have their reply by email, and yes they agreed with my analysis, but essentially stated that this is always the way it is reported, so they would not change it.

Could you post the email you sent them?

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Maybe we will see falls to the red line (about £80,000?), who knows.

What I can say with a fair degree of certainty is that if that happens, it will happen in an environment of widespead bank failures where deposits turn out not to be guaranteed by government, an accross the board pension fund collapse and thousands of families left homeless and hungry.

Personally, I think they will print before that happens.

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Maybe we will see falls to the red line (about £80,000?), who knows.

What I can say with a fair degree of certainty is that if that happens, it will happen in an environment of widespead bank failures where deposits turn out not to be guaranteed by government, an accross the board pension fund collapse and thousands of families left homeless and hungry.

Personally, I think they will print before that happens.

families wont be homeless and hungry..theyll be in B+B, theyll be getting back on their feet. Banks will collapse...yes, but to hit the bottom line, then mortgages will still be being issued.

Printing makes no difference....3 x salary mortgages will be even more imperitive then.

Only a fool buys when an asset that has a price based on borrowing, is at its cheapest finance costs....this means that capital costs are their max.

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Maybe we will see falls to the red line (about £80,000?), who knows.

What I can say with a fair degree of certainty is that if that happens, it will happen in an environment of widespead bank failures where deposits turn out not to be guaranteed by government, an accross the board pension fund collapse and thousands of families left homeless and hungry.

Personally, I think they will print before that happens.

Trapped in a vice.

Either:

-print to save the banks and wreck the real economy

or

-let assets reach a true value, and destroy the banks.

Walking a tightrope...and this will ultimately determine the rate of the house price decline...

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Could you post the email you sent them?

I cannot send their reply, but here is what I sent them....

"- -----Original Message-----

Sent: 20 April 2009 16:46

To: Fionnuala Earley

Subject: Your long term chart is mathematically impossible...

Just a quick comment.

The chart (Long Term Real House Price Trend) of page 3 of your March

2009 review cannot be correct mathematically.

It appears that you are trying to match a compounded rate to the most

recent value of the index. However, this produces a curve that is

concave upward, with a constant compound rate.

Due to this concavity, any mathematician would tell you that when you

extend the curve into the future the limiting condition of this

relationship (which is of an exponential form for a constant annual

interest rate) leads to the limiting condition where the house price

trend will approach a vertical slope (the tangent to the trend line is

vertical) at some point in the future, so that an infinitesimal time

change will lead to an almost infinite price increase. This cannot be

correct mathematically.

Therefore you might consider reviewing your trend line representation

and provide something that would be of a more suitable form."

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I cannot send their reply, but here is what I sent them....

"- -----Original Message-----

Sent: 20 April 2009 16:46

To: Fionnuala Earley

Subject: Your long term chart is mathematically impossible...

Just a quick comment.

The chart (Long Term Real House Price Trend) of page 3 of your March

2009 review cannot be correct mathematically.

It appears that you are trying to match a compounded rate to the most

recent value of the index. However, this produces a curve that is

concave upward, with a constant compound rate.

Due to this concavity, any mathematician would tell you that when you

extend the curve into the future the limiting condition of this

relationship (which is of an exponential form for a constant annual

interest rate) leads to the limiting condition where the house price

trend will approach a vertical slope (the tangent to the trend line is

vertical) at some point in the future, so that an infinitesimal time

change will lead to an almost infinite price increase. This cannot be

correct mathematically.

Therefore you might consider reviewing your trend line representation

and provide something that would be of a more suitable form."

That reads like greek to me, but thanks for emailing them!

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Did you agree with them that their reply should be kept confidential beforehand? I'm not sure you have a legal duty to keep their reply confidential. After all, you are just an ordinary member of the public, anybody could have written in and asked the same question, and presumeably got the same reply.

I am confused as to why you (or they) would want the reply kept confidential?

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Did you agree with them that their reply should be kept confidential beforehand? I'm not sure you have a legal duty to keep their reply confidential. After all, you are just an ordinary member of the public, anybody could have written in and asked the same question, and presumeably got the same reply.

I am confused as to why you (or they) would want the reply kept confidential?

Looks like you are right. A more careful read of their terms seems not to restrict me, the addressee, an any way. They only seem to restrict those who are not the addressee.

So here you go:

"Thank you for your note about the long run real house price graph - it

is not often we have such technical comments!

You are absolutely correct that having an exponential trend would

eventually result in a near vertical slope. While this may seem strange,

many financial series do in fact exhibit such properties. For instance,

if one tried to fit the whole series of the Dow-Jones index with

dividends reinvested onto a single chart the line would become more and

more vertical. It is for this reasons that often the scale is

transformed by taking logs of the series, so as not to have a graph

which looks explosive. Similarly, when doing time-series regression

analysis, one normally takes the log (or the delta log) of a series.

The nominal series of house prices clearly exhibits an exponential

trend, but it is less clear whether one would expect real house prices

to exhibit a linear trend or an exponential one. In the sample we have,

the exponential trend fits the data better and this is why we use it.

The chart is simply intended to illustrate the movement in prices over

the long run, rather than to be used as a tool for forecasting so we are

not suggesting that the compounded growth of 2.9% should be used to make

very long projections for real house prices. Nevertheless, we do

re-estimate the trend as the sample increases.

Thank you again for your comments"

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Maybe we will see falls to the red line (about £80,000?), who knows.

What I can say with a fair degree of certainty is that if that happens, it will happen in an environment of widespead bank failures where deposits turn out not to be guaranteed by government, an accross the board pension fund collapse and thousands of families left homeless and hungry.

And if we dont then we will end up thousands of homeless and hungry caused by unaffordable basic shelter ... business failures in a massive scale because noone has any disposable income, complete collapse of the welfare state as tax receipts plummet because noone has a job AND THEN we will have a almighty credit crunch and property price collapse to lay waste to whatever is still surviving.

So .. yes your right but its much the lesser of two evils, at least if we have a asset value collapse now we can build our way out of it again with relatively little (a few tens of thousands of people destitute and a bank collapse or three) damage.

Edited by goldbug9999

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snip

For instance, if one tried to fit the whole series of the Dow-Jones index with

dividends reinvested onto a single chart the line would become more and

more vertical. It is for this reasons that often the scale is

transformed by taking logs of the series, so as not to have a graph

which looks explosive. Similarly, when doing time-series regression

analysis, one normally takes the log (or the delta log) of a series.

We wouldn't want to scare people with explosive graphs would we...

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nationwideq.jpg

Heading for the bottom trend, and may dip below. I predict that the bottom trend will eventually become the 'new norm' for HPI. In 20 years or so, that won't be so bad.

Sorry bulls, but this should be obvious to anyone. Bail now while you still can, it's going to be a long grinding, tooth rattling ride from here...

Absolutely right, the trend line has been dragged up by unsustainable HPI.

Give it a few years and it will be near where you have illustrated.

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What is the point of this post? Other than to establish an incredible new standard in the age old art of preaching to the converted.

There's a fair chance you'll be right, mind. But saying anything with such certainty, to people who believe it anyway, just seems a bit silly to me.

There are some who are not converted and there are many bulls posting, ad nauseam, that house prices always go up, so it's nice to see a sensible, reasoned, and in my opinion, accurate appraisal of the market.

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Absolutely right, the trend line has been dragged up by unsustainable HPI.

Give it a few years and it will be near where you have illustrated.

The problem with the middle line is that it is not based on full house price cycles and has been skewed upwards by being based mostly on the boom part of the cycle.

Alternatives to the current middle line (not as a forecasting tool but just to show current values out of line)

a ) come up with a cyclical adjustment for the nationwide figures based on say 1983-96 as a cycle (and 1977-83) - the cycles could be defined as peak to peak if so inclined.

b ) extrapolate the line from the end of the previous cycle i.e. 1996 with the value based on the pre1996 prices

both would be quite entertaining educational as compared to the middle curve

Edited by koala_bear

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  • 261 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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