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Halifax House Price Charts


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And:

1. Zero (negative real) interest rate environment,

2. Gilt prices at the highest since the Bank of England was formed in 1694 (320 years).

In such an environment one would expect asset values to go to infinity - that's roughly what has happened in Hong Kong and Singapore (and why severe restraints have been put in place for property purchases there). What's going to happen when interest rates begin to rise?

Why would asset prices go to infinity because of ZIRP and QE? They've spent twenty years conspicuously not doing so in Japan. I'd suggest that recent HK and Singaporean property inflation has more to do with their dollar pegs and mainland Chinese flight money than anything else.

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Edited by zugzwang
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Why would asset prices go to infinity because of ZIRP and QE? They've spent twenty years conspicuously not doing so in Japan. I'd suggest that recent HK and Singaporean property inflation has more to do with their dollar pegs and mainland Chinese flight money than anything else.

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Theoretically, and mathematically, if the financing cost of an asset goes to zero the asset should go to infinity - hence rising house prices (and gilt prices - although this is based upon the coupon - not the financing cost) when interest rates fall.

I believe that Singapore and Hong Kong have introduced large capital requirements to put a brake on this phenomenon, but even so prices there have shot up.

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Theoretically, and mathematically, if the financing cost of an asset goes to zero the asset should go to infinity - hence rising house prices (and gilt prices - although this is based upon the coupon - not the financing cost) when interest rates fall.

I believe that Singapore and Hong Kong have introduced large capital requirements to put a brake on this phenomenon, but even so prices there have shot up.

But the real-world pricing mechanism must be more complicated than that. Japanese interest rates have been virtually zero for two decades yet mortgage rates have remained stubbornly around 3% while asset values have experienced a near-continuous decline.

HK and Singapore have certainly spent the last few years trying to cool their respective property markets - and denying the existence of bubbles! - but I think the unrelenting upward pressure on the HK dollar is evidence of a LOT of hot money coming out of mainland China and Japan. Maybe it's a stampede to get out of the yen?

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But the real-world pricing mechanism must be more complicated than that. Japanese interest rates have been virtually zero for two decades yet mortgage rates have remained stubbornly around 3% while asset values have experienced a near-continuous decline.

Agreed. It is a lot more complicated.

HK and Singapore have certainly spent the last few years trying to cool their respective property markets - and denying the existence of bubbles! - but I think the unrelenting upward pressure on the HK dollar is evidence of a LOT of hot money coming out of mainland China and Japan. Maybe it's a stampede to get out of the yen?

Maybe the Yen and the Yuan. I've recently read that the Chinese rotating out of Yuan is leading the entire US real estate market to a modest recovery. It's hard to verify this, but there are reliable sources saying so.

IMO, if things kick off between China and Japan, one does not want to be invested in their currencies. Sorry - a little off topic - but it is having an impact on real estate,it seems.

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Cost of capital = actual Interst rates + risk premium (or something like that)

during bubble, the risk is evaluated as being low, and the believers believes that house prices will go to infinity but now even the worst optimists probably realise there is a risk of default. Kind of hard to estimate though. Negative real interest rates make asset prices unstable.

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Interesting chart - but debatable whether the HP to Earnings ratio is fundamental - lot of two income families now; and demographics. planning etc also significant in sustaining house prices. Demand side of the equation can't be completely ignored (though arguably overplayed by market cheerleaders).

The CML base their affordability on whatever income goes on the mortgage application. This completely masks how over expensive houses are now because in the past, there would be a lot more single income applications. Now the second income goes servicing mortgage debt and retailers wonder why they are struggling, being brainwashed that the more people have to pay for a house the more they can spend!

Bankers 1

Retailers 0

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  • 2 weeks later...
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  • 2 months later...

Apologies for not updating these charts recently, but I've been distracted by other concerns.

The Halifax P/E ratio has been creeping up recently, but in general terms it's been hovering around 4.5 for some time now:

HalifaxPERatio0613.gif

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The RPI-adjusted Halifax average house price is currently down 30.1% from the peak, but it's been 8 months since the maximum peak-to-trough fall of 32.6% was set and we never breached the 33.4% fall of the previous crash.

Have we now seen the absolute inflation-adjusted low of this crash? Personally I don't think so, but with George Osborne clearly determined to juice residential property prices in the run up to the election, it may be some considerable time before we see a new low on the chart.

HPC0613.gif

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At present the RPI-adjusted fall from peak is similar to that of the last crash, but things look quite a bit different when adjusting prices for earnings:

HPC_earnings_0613.gif

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RPI and earnings adjustments compared for the present crash:

HPC_earnings_RPI_0613.gif

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The gap between the Halifax and Nationwide fall from peak has narrowed recently. Nationwide is still very close to the low that was set in April:

HPC_haliwide_0613.gif

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Long-term real house prices:

HaliwideRegionalQ22013_UK.gif

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Today HMRC released the latest transaction numbers for residential property. Volume is gradually climbing and June 2013 was 12% up on the same month last year.

hmrctrans0613.gif

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The RPI-adjusted Halifax average house price is currently down 30.1% from the peak, but it's been 8 months since the maximum peak-to-trough fall of 32.6% was set and we never breached the 33.4% fall of the previous crash.

Have we now seen the absolute inflation-adjusted low of this crash? Personally I don't think so, but with George Osborne clearly determined to juice residential property prices in the run up to the election, it may be some considerable time before we see a new low on the chart.

The absolute inflation-adjusted low of '89 came several months after base rates had begun to rise (in 1994) suggesting that the market had fully cleared by then. Surely this time round, as before, it will not be possible to say with confidence that the absolute inflation-adjusted low has been reached until interest rates begin to renormalise.

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The absolute inflation-adjusted low of '89 came several months after base rates had begun to rise (in 1994) suggesting that the market had fully cleared by then. Surely this time round, as before, it will not be possible to say with confidence that the absolute inflation-adjusted low has been reached until interest rates begin to renormalise.

Impressive work FreeTrader. Thanks. I feel encouraged by this although very angry at the bubblenomics of the current pratts in No. 11. Definitely we are looking at 2 years of counter trend market pumping. Short termist beyond belief!

Interest rates are indeed the grim reaper waiting in the wings. The pressure in the system is growing as the malinvestment creates more and more deadweight of non-performing debt, and speculative margin seeking is fueling latent infation in the basic factors of production. Rates have to move up, and the move will become uncontrollable and the destruction enormous.

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  • 7 months later...

Bump for FreeTrader (hopefully)

Thanks R K.

I've been steering clear of this thread because I think it's become quite a divisive one for the forum.

As it became obvious around 2005/06 that we were going to have a massive financial bust I expressed the view several times here that a strategy based on holding the value of one's wealth in real terms (as measured by RPI) over the coming decade would be a reasonable one. Assuming one could achieve this, measuring house prices against RPI would be a good indicator of relative value.

A while after I started this thread some forum members began to take issue with this measure. What counts, they argued, is house prices as measured against earnings, and so I began to post a chart showing the Halifax index deflated by earnings as well as the one for RPI. At the time there wasn't actually much difference between the two, although it was notable that earnings were slightly lagging RPI whereas in the previous crash earnings growth had outstripped inflation.

As we stand now however there is a growing divergence between the two measures and I've become uncomfortable with highlighting this because I'm in the camp that measures house prices vs RPI. Due to the action of central banks and their stated aim to increase asset prices, it's been very easy over the past few years to beat RPI on investment returns (and by some considerable margin). I fully appreciate however that for those whose fortunes are tied to earnings from employment, house prices don't seem to have corrected nearly as much, if at all.

Anyway, for what it's worth here are the latest charts:

P/E Ratio

HalifaxPERatio0114.gif

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Fall from peak (prices adjusted by RPI)

There isn't much difference between the two crashes, but have we now seen the low for this cycle? In the last crash the real low was hit after 76 months and we're now 77 months into this one. Unfortunately I don't think we're going to get an answer to this until after the 2015 election.

HPC0114.gif

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Fall from peak (prices adjusted by earnings)

There's a marked difference between the two crashes on this chart, with prices down 37% in the 1989 crash against 21% this time.

HPC_earnings_0114.gif

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RPI vs Earnings

As earnings growth continues to lag RPI inflation the gap has been increasing.

HPC_earnings_RPI_0114.gif

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Halifax vs Nationwide

Halifax has consistently shown a greater fall from peak than Nationwide, but this may be due to the substantial difference between the two peak prices (£199,612 vs £186,306). The current nominal prices of the two series aren't that far apart.

HPC_haliwide_0114.gif

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Many thanks FT.

Understand the points your making. I have always found this one of the most illuminating threads on here since it's data based and judging from other responses many people share that view.

Hopefully you'll be minded to update it from time to time - who knows quite what will happen as/when rates start to tick up and we're past the election, expiry of existing support schemes and so on. In any event they provide an excellent snapshot of where we're at and have been, if not necessarily where we're headed.

Edit: I'm also mostly in the RPI camp, but retain a certain level of discomfort that prices/earnings didn't mean revert to trend as they did completely in the US. So far at least. Not a good outlier to leave hanging in my view.

Thanks again.

Edited by R K
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Nice to see this thread resurrected, RK.

And thanks again to FT for taking the time to post your charts and thoughts.

One thing occurred to me looking at that incipient second peak, maybe we're fixating on 1989 too much? Perhaps the comparison we should be making is with the 70s/early 80s instead? A double bubble, separated by a vast deflationary chasm, the twin peaks of which were less than a decade apart. Moreover, the second peak in 1980 had been brought about by a combination of sustained monetary tightening, a soaring pound, and a significant rises in unit labour costs. It's perfectly conceivable that this scenario could be repeated in 2015/16 as the next govt strives to put the brakes on Osborne's runaway spending train.

UK-houseprice-inflation.jpg

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  • 2 weeks later...

A couple of days ago the Bank of England released Mortgage Lenders and Administrators (MLAR) statistics for Q4 2013.

http://www.bankofengland.co.uk/pra/Pages/regulatorydata/mlar/2013/q4publication.aspx

The MLAR data gives the average weighted interest rate on new mortgage business on a quarterly basis. Here's this interest rate plotted against the Halifax average house price:

HalifaxHPIvsMortRateQ42013.gif

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  • 2 months later...

Nominal prices have jumped quite a bit since January.

Nationwide index is now at an all time high - or a price breakout. Uncharted territory.

Edited by R K
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  • 415 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% +
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      • Even
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      • up 5%



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