Bad News For House Prices - Good Post On The Motley Fool

[South Lorne]

http://boards.fool.co.uk/vtuv-bad-news-for-house-prices-12041819.aspx

...net house lending from BofE in billions per quarter...good insight ....house snake will accelerate if trend continues

30-Sep-06 119,184

31-Dec-06 124,001

31-Mar-07 126,024

30-Jun-07 125,945

30-Sep-07 127,775

31-Dec-07 121,398

31-Mar-08 114,629

30-Jun-08 99,338

30-Sep-08 74,392

31-Dec-08 52,319

31-Mar-09 31,074

30-Jun-09 18,073

30-Sep-09 11,572

31-Dec-09 10,550

31-Mar-10 11,475

30-Jun-10 11,302

[moonriver]

In my view, pundits who believe that house prices will continue their post-spring 2009 bounce in the face of a 90%+ collapse in net mortgage lending are living in Cloud Cuckoo Land! ;0)

Good point he makes there.

Interesting link, thanks for posting.

[Parkwell]

Also interesting to note the lending figures around 2002. Who says credit doesn't effect house prices?

31-Mar-01 57,576

30-Jun-01 61,227

30-Sep-01 67,481

31-Dec-01 73,192

31-Mar-02 80,247

30-Jun-02 86,051

30-Sep-02 93,656

31-Dec-02 102,212

31-Mar-03 107,986

30-Jun-03 113,066

30-Sep-03 118,482

31-Dec-03 123,440

[Laughing Gnome]

Good point he makes there.

Interesting link, thanks for posting.

seconded

[easy2012]

...net house lending from BofE in billions per quarter...good insight ....house snake will accelerate if trend continues

So 2010 Quarterly lending is about 1994 low. And if adjusted for real term... the lending collapse is incredible.

However, as pointed out in fool website - this is net lending - could it just be that people are paying down mortgage

quickly as well ?

Edited September 18, 2010 by easybetman

[Tired of Waiting]

So 2010 Quarterly lending is about 1994 low. And if adjusted for real term... the lending collapse is incredible.

(...)

Yep.

The winter will be heart warming.

[LetsGetReadyToTumble]

30-Sep-07 127,775

31-Dec-07 121,398

31-Mar-08 114,629

30-Jun-08 99,338

30-Sep-08 74,392

31-Dec-08 52,319

31-Mar-09 31,074

30-Jun-09 18,073

30-Sep-09 11,572

31-Dec-09 10,550

31-Mar-10 11,475

30-Jun-10 11,302

30-Sep-07 127,775 to 31-Mar-09 31,074, prices drop 25%, interest rates about 5.5%

31-Mar-09 31,074 to now, prices have supposedly increased, but more like held their own, even with dramatically reduced amounts of lending, interest rates at 0.5%.

Therefore I think IRs have a very significant effect.

BTW, do the tabled figures allow for inflation. If not, the latest figures are even smaller in comparison with earlier figures.

Edited September 18, 2010 by LetsGetReadyToTumble

[Democorruptcy]

However, as pointed out in fool website - this is net lending - could it just be that people are paying down mortgage

quickly as well ?

Those figures don't make sense otherwise.

The number of sales has not dropped so dramatically and people say house indices are skewed because higher priced properties are still selling. You cannot have lending dropping off a cliff but sales numbers not doing and high priced properties selling.

[Gigantic Purple Slug]

So 2010 Quarterly lending is about 1994 low. And if adjusted for real term... the lending collapse is incredible.

However, as pointed out in fool website - this is net lending - could it just be that people are paying down mortgage

quickly as well ?

Part of the story, though not all of it. What's intersting is if you plot that data against average house price. Pretty good correlation up to beginning of 04, with house prices increasing as lending increases. The onset of securitisation can be seen. In fact from the 30 Sept 99 to 30 Sept 02 the amount of money doubled (anybody really have any doubt where hpi came from ?)

The bit after the end of 06 is the most interesting. Reminds me of those roadrunner cartoons when Wil-E-Coyote goes off a cliff and his legs are still spinning in the air before the final plumment. Meep Meep.

[Gigantic Purple Slug]

Those figures don't make sense otherwise.

The number of sales has not dropped so dramatically and people say house indices are skewed because higher priced properties are still selling. You cannot have lending dropping off a cliff but sales numbers not doing and high priced properties selling.

Cash buyers from here and overseas. Plus no forced sales.

[easy2012]

Those figures don't make sense otherwise.

The number of sales has not dropped so dramatically and people say house indices are skewed because higher priced properties are still selling. You cannot have lending dropping off a cliff but sales numbers not doing and high priced properties selling.

Think sales drop 50-70%, so yes, not as dramatic as 90% but not far off. I suppose some who STR in 07 went back in. And as Steve said - the overseas too. So, after taking this into account, the sales drop vs lending drop seemed to be in pretty good correlation.

Edited September 18, 2010 by easybetman

[OnlyMe]

Cash buyers from here and overseas. Plus no forced sales.

That would have been my answer. Low interest rates were designed to herd cash back into property/stocks to artificially plump them up again.

[Democorruptcy]

Cash buyers from here and overseas. Plus no forced sales.

I knew someone would say cash sales. That doesn't explain the housing indices holding up though does it? Such as Nationwide are based on mortgage approvals not cash buyer sales aren't they?

[Freeholder]

Monthly gross lending for house purchase taken from later in the same thread. A big slice of the change in the nett figure must be people paying down debt. The banks are re building their ruined balance sheets.

Oct 1997 3,341

Oct 1998 3,367

Oct 1999 5,529

Oct 2000 4,672

Oct 2001 7,476

Oct 2002 10,737

Oct 2003 13,726

Oct 2004 9,662

Oct 2005 13,856

Oct 2006 17,618

Oct 2007 12,511

Oct 2008 3,844

Oct 2009 7,770

Nov 2009 8,039

Dec 2009 7,826

Jan 2010 6,596

Feb 2010 6,342

Mar 2010 6,659

Apr 2010 6,896

May 2010 7,105

Jun 2010 6,960

Jul 2010 7,067

[South Lorne]

Monthly gross lending for house purchase taken from later in the same thread. A big slice of the change in the nett figure must be people paying down debt. The banks are re building their ruined balance sheets.

Oct 1997 3,341

Oct 1998 3,367

Oct 1999 5,529

Oct 2000 4,672

Oct 2001 7,476

Oct 2002 10,737

Oct 2003 13,726

Oct 2004 9,662

Oct 2005 13,856

Oct 2006 17,618

Oct 2007 12,511

Oct 2008 3,844

Oct 2009 7,770

Nov 2009 8,039

Dec 2009 7,826

Jan 2010 6,596

Feb 2010 6,342

Mar 2010 6,659

Apr 2010 6,896

May 2010 7,105

Jun 2010 6,960

Jul 2010 7,067

...the gross will include remortgages ....and less mewing , first time buyers and moves up market depresses the net.....

[Freeholder]

...the gross will include remortgages ....and less mewing , first time buyers and moves up market depresses the net.....

true

[South Lorne]

...also securitisation was the driver of the bubble and upwardly mobile HP....and it's no longer in the equation ....dead in the water....unless cowboy products are developed and attract the people who will never learn....

[koala_bear]

So 2010 Quarterly lending is about 1994 low. And if adjusted for real term... the lending collapse is incredible.

However, as pointed out in fool website - this is net lending - could it just be that people are paying down mortgage

quickly as well ?

Agreed:

If IR decreases and people on repayment mortgages opt to hold the the amount of the monthly repayment constant they start paying back capital very quickly.

But:

If there is a change in the proportion of people opting for IO or repayment mortgages over time this will also effect Net lending, if there is a shift to more IO mortgages, the net lending will accelerate very quickly as the is no repayment. And if BTL on IO mortgages suddenly disappears then Net will crash...

[South Lorne]

If there is a change in the proportion of people opting for IO or repayment mortgages over time this will also effect Net lending, if there is a shift to more IO mortgages, the net lending will accelerate very quickly as the is no repayment. And if BTL on IO mortgages suddenly disappears then Net will crash...

....lenders when remortgaging are forcing people towards repayment from IO where appropriate to claw back gradually any equity left in the shrinking values....."suck them dry".... this will contribute towards depressing the net along with fewer FTBs and upwardly mobiles and low numbers of MEWers at remortgage time (due to lack of or negative equity) ....

Edited September 18, 2010 by South Lorne

[sleepwello'nights]

The winter will be heart warming.

If you lose your job?

[Tired of Waiting]

If you lose your job?

Of course not.

We were talking about house prices (just in [the unlikely] case you hadn't noticed).

And even more precisely, our point here is housing affordability - a good thing (just in [the unlikely] case you didn't know that either).

Edited September 19, 2010 by Tired of Waiting

[Normal]

"They show Bank of England measure VTUV, net mortgage lending, on a 12-month rolling basis since Q3/87"

VTUV is the seasonally adjusted, net lending TOTAL of lending on dwellings AND consumer credit.

I think VTVJ, "secured on dwellings" is the series you want to see.

[sleepwello'nights]

Of course not.

We were talking about house prices (just in [the unlikely] case you hadn't noticed).

And even more precisely, our point here is housing affordability - a good thing (just in [the unlikely] case you didn't know that either).

I thought you'd read some of the economics postings on this forum.

One of the most likely factors to cause house prices to drop is an increase in unemployment. If unemployment remains low and mortgagors can afford to make their monthly payments then the housing market will likely stagnate, but that won't necessarily translate into a fall in prices. House owners will stay put. They won't trade up or down. They won't need to move. If they do, then they will likely become accidental landlords, rent out their house and rent somewhere to live where they relocate to.

[Tired of Waiting]

I thought you'd read some of the economics postings on this forum.

One of the most likely factors to cause house prices to drop is an increase in unemployment. If unemployment remains low and mortgagors can afford to make their monthly payments then the housing market will likely stagnate, but that won't necessarily translate into a fall in prices. House owners will stay put. They won't trade up or down. They won't need to move. If they do, then they will likely become accidental landlords, rent out their house and rent somewhere to live where they relocate to.

I am very familiar with the economic arguments. To be precise, a stronger factor is interest rates. (And in the longer term, planning policy.)

But the main point now is that HPs are still too high. Considering all economics fundamentals, HPs are completely unsustainable. There is no choice here. Prices will fall. Gravity always wins.

And this will be a necessary thing for the rebalancing of the economy in the longer term. (See my sig.)

Of course there will be millions of individual winners and losers in this process, and this can be truly tragic. And that was the fault of the last government and monetary authorities (FSA and BoE), that allowed this crazy credit bubble. But if we try to keep prices artificially high for longer the disaster will be even worse: even more debt to deal with.

Sorry, but the correction is necessary, unavoidable, and the sooner the better. If we delay it, the problems will be even worse!

[sleepwello'nights]

I am very familiar with the economic arguments. To be precise, a stronger factor is interest rates. (And in the longer term, planning policy.)

I don't disagree with your longer term view.

My feeling is that for political reasons it will be easier if nominal house prices plateau. House price affordability is based on the proportion of income spent on housing. Whether its low house prices and high interest rates or high house prices and low interest rates the balance remains. There are important provisos but all else being equal as individual incomes rise then necessities take a smaller proportion and discretionary spending increases. An individual can choose to save or consume. In the post war years discretionary spending channeled to into housing has seemed like been having the best of both worlds.

In my living memory the capital value of a house has always, bar a few short periods when prices fell, increased. The yield from property based on purchase price, not market value, has always increased. Rents increased with inflation. Indeed this was one of the main factors why most people I knew, even my parent's friends when I was a child, were prepared to make sacrifices to own property.

It will take a long time of continually falling prices to remove this sentiment.