Buy Signals In Property Market

[kenzdawg]

I posted this somewhere before I realised it would be more appropriate here.

Interesting discussion, not least because I've been thinking lately what a buy signal in the property market would look like since I'm selling up in the UK and looking at other markets to buy into.

From my understanding there are only two factors that effect house prices: effective demand in the form of equilibrium in the labour market, i.e. falling unemployment, and supply in the form of expansion of the credit supply by banks, i.e. looser lending practices. The problem for a punter like me is that there isn't a direct measure of the latter, so we need to try and get a qualitative idea of the behaviour of the banks. Here's my ill-informed take; the banks are in a psychotic position, their deposits are up but they can't trust their existing or new customers to be reliable creditors so they don't want to lend, yet because they lent at the market valuations leading up to the crash choking off the credit supply will worsen the bad debts in their loans books. Further, there is political and economic pressure on them to increase the broad money supply through credit expansion letting the government and public inflate their way out of debt, yet weakening the bank's cash positions. Basically they're f****d, and would be better off sitting on their customer's deposits, lending it to no one and letting the mugs with existing debts to work off their debt bondage as best they can.

As for modelling the credit supply, I know the disequilibrium model has been used to estimate it as in this paper http://ideas.repec.org/p/pra/mprapa/11904.html . Are there other methods/models for residential property?

Thoughts, anyone?

[kenzdawg]

600 views and not a sausage, eh? Maybe I can answer my own question then. A bit of research tells me that the dominant models in Urban Economics are the Dipasquale-Wheaton model and the von Thunen-Alsonso model. Neither of which, I think, direct incorporate the capital supply as a function of demand. Does the HM Treasury model do this? Maybe someone can enlighten me!

[kenzdawg]

Now that I mention it, does anyone have a pdf of "hm treasury macroeconomic model documentation, 1992" they could let me have? Ta.

[nice tuna sandwich]

OK I'll bite.... Having googled the DiPasquale-Wheaton (1992) Model, might I suggest an increase in building activity as a buy signal? Or it's function... an increase in price!?

What are you thinking?

edit: spelt bite wrong

Edited October 21, 2010 by nice tuna sandwich

[kenzdawg]

Admittedly I don't have high expectations of economic insight from a forum that's predicted five of the last one property crashes. But I'll tell you what I'm thinking, I'm thinking there are disequilibrium conditions necessary for there to be changes in property values. Anticipating those would kinda sorta somewhat be useful for investors to know, and waiting for price increases or construction inputs is following the market not anticipating it.

[libspero]

As for modelling the credit supply, I know the disequilibrium model has been used to estimate it as in this paper http://ideas.repec.org/p/pra/mprapa/11904.html . Are there other methods/models for residential property?

Thoughts, anyone?

Hi Kenzdawg, welcome to the forum.

These sub forums are rarely browsed by the majority of posters.. I wouldn't be afraid to post on the main board, you'll get a much better response.

In answer to your question, the main thing used by bulls in 2008 to call the bottom of the dip was the number of mortgage approvals starting to rise (indicating increased credit supply).

This info is released periodically by the BoE (and probably Nationwide and halifax though I don't remember off the top of my head).

Another indicator is keeping an eye on market slack:

Or finally (possibly) unemployment:

Mortgage approvals are certainly the main one. If you want to second guess these releases you could keep an eye out for statements from politicians/Banks/BoE about their intentions/intervention programs.

To be honest the housing market moves so slowly, how important is it to you to time the bottom to perfection? I have heard many suggest that 3 months of rising prices is the best way to know the bottom is in and gone.

Not sure if that helps / answers your question!

Admittedly I don't have high expectations of economic insight from a forum that's predicted five of the last one property crashes.

Cheeky

Edited October 22, 2010 by libspero

[libspero]

Sorry, didn't read your post properly.. you're looking at actually predictively modelling the credit flows.

I'm not even sure if this is possible as there is a certain amount of government intervention and market manipulation.

I expect the BoE release their predictions of M4 growth but I'm not sure I'd believe them. Even if you could predict that accurately you'd then need to know how much will flow specifically into housing.. I'm not sure whether what you are trying to do has either been done or is even possible.. but I wish you the best of luck. Sounds like there will be a lot of socio-political variables to consider

Let us know if you find/develop a workable model