Halifax House Price Charts

[19 year mortgage 8itch]

...and here is the earnings-adjusted fall for the last crash compared to the current fall. Certainly the fall from peak was greater at this stage back in the 1990's, but the difference isn't quite as dramatic as many seem to think. Prices were down 30% compared to 25.3% today.

Trouble is I could knock 10% off nominal prices today they don't look any cheaper.

Interesting to see from the charts how in the last crash pay rises kept ahead of inflation unlike this time round.

[FreeTrader]

Trouble is I could knock 10% off nominal prices today they don't look any cheaper.

Prices are still looking warm on the P/E measure despite the falls so far.

Interesting to see from the charts how in the last crash pay rises kept ahead of inflation unlike this time round.

Yes, and also remember that during the last crash both nominal and real interest rates were much higher than they are today, so anyone sitting on a bundle of cash was effectively seeing house prices falling much faster than they are today.

[FreeTrader]

Halifax has updated its regional house price indices for Q2 2011:

Data: http://www.lloydsbankinggroup.com/media1/economic_insight/halifax_house_price_index_page.asp

[seb197]

can someone explain how the peak index number is worked out?

i understand the graph going up and down but not the rating the figures are given?

[FreeTrader]

can someone explain how the peak index number is worked out?

i understand the graph going up and down but not the rating the figures are given?

The index for each region is a measure of comparative value, with a base index of 100 for 1983. Each quarter the Halifax will work out an average (standardised) price for each region, and the index will be changed accordingly. Using an index rather than an absolute value makes it easier to compare how house prices have changed relatively across regions.

So, for example, if the standardised average house price in a region was £30,000 in 1983 and is calculated at £160,000 today, the index will be (160,000 / 30,000) * 100 = 533.3.

As Satch says, the peak for Greater London is 810.6, which occurred in Q3 2007. In other words, at that time prices in London were on average 8.106 times higher than in 1983 (for houses sharing the same characteristics).

[seb197]

Thank you!

[FreeTrader]

Update of the fall-from-peak chart now that July's RPI figure has been published.

The average house price as measured by the Halifax rose by 0.6% in July 2011 when adjusted for RPI inflation. The 12-month change is -6.7%.

[cells]

Thanks again FT.

In comparing the two periods, there is an implicit assumption that the two rises prior to the fall were identical. Do you have the respective boom rises of the two to hand? It may provide a different bottom to the falls.

Yep the chart should be based at say the average of the last two three four maybe five year average before the peak or any blow off at the top of the cycle would greatly distort what your looking at

[Riedquat]

Update of the fall-from-peak chart now that July's RPI figure has been published.

The average house price as measured by the Halifax rose by 0.6% in July 2011 when adjusted for RPI inflation. The 12-month change is -6.7%.

A depressing graph. If it follows then we're not too far off the bottom, but in a worse position than last time due to the reasons already given by others.

[FreeTrader]

Thanks again FT.

In comparing the two periods, there is an implicit assumption that the two rises prior to the fall were identical. Do you have the respective boom rises of the two to hand? It may provide a different bottom to the falls.

I agree that there's a danger of such an assumption being made, which is why I think it's best to look at the fall-from-peak chart and P/E chart in conjunction.

I haven't been posting the P/E chart so often as it isn't really changing much from month-to-month, but here's the latest:

If we look at April 93, which is the equivalent point from peak in the last crash to today, prices were beginning to look pretty cheap and we weren't that far from the bottom. At present however UK residential housing arguably remains well overpriced and we still have the potential for some very significant falls (in nominal terms as well as real).

So although it's been said before on this thread, let's emphasise again that it's entirely possible (some would say likely) that the trough on the fall-from-peak chart for the present crash is going to be considerably lower than that of the '89 crash.

In short, the fall-from-peak chart is simply a comparative visualisation – I don't believe it has any predictive value and most certainly shouldn't be regarded as an indicator of when prices have reached bottom.

[R K]

Thanks again FT.

In comparing the two periods, there is an implicit assumption that the two rises prior to the fall were identical. Do you have the respective boom rises of the two to hand? It may provide a different bottom to the falls.

That knife cuts both ways.

There's an implicit assumption that because the 89 bust fell to a P/E of a little over 3 that this bubble must also. Yet this bubble peak p/e ratio exceeded that of '89 by some margin. Apples and pears?

Apr '09 was the nominal price low. It's been inflation wot done it since then with a rather large dollop of QE, which wasn't present during the '89 bust.

My assumption is that the bubble, as opposed to the rising trend, started around 2003 so will revert to that point to complete the bust with a P/E of around 4 somewhere around 2015. The new black. But it's pure supposition as everything else.

[rantnrave]

Many thanks to FT...

Charts like these really encourage me to hold out buying for longer.

[BelfastVI]

Thanks again FT.

In comparing the two periods, there is an implicit assumption that the two rises prior to the fall were identical. Do you have the respective boom rises of the two to hand? It may provide a different bottom to the falls.

Not sure I agree with this graph as you have used nominal prices for the 1990's crash and adjusted real prices for current.

[BelfastVI]

Thanks again FT.

In comparing the two periods, there is an implicit assumption that the two rises prior to the fall were identical. Do you have the respective boom rises of the two to hand? It may provide a different bottom to the falls.

In the three years leading up to the 1989 crash UK prices rose about 60%. In the three years to the 2007 crash UK prices rose 30%

[scottbeard]

That knife cuts both ways.

There's an implicit assumption that because the 89 bust fell to a P/E of a little over 3 that this bubble must also. Yet this bubble peak p/e ratio exceeded that of '89 by some margin. Apples and pears?

Apr '09 was the nominal price low. It's been inflation wot done it since then with a rather large dollop of QE, which wasn't present during the '89 bust.

My assumption is that the bubble, as opposed to the rising trend, started around 2003 so will revert to that point to complete the bust with a P/E of around 4 somewhere around 2015. The new black. But it's pure supposition as everything else.

So in summary, you're saying "it's different this time"?

I actually agree - interest rates are much, much lower and if this persists it will head off bigger falls.

[R K]

Yes, you are right at least in part. There are two things in play here. The long term debt/interest rate trend and the impossible to forecast 'event' that such a trend can easily result in.

Maintaining low interest rates does enable debt to be more affordable and that the two have trended in the last 30 years in an inverse fashion to each other.

This is fine unless rates have to rise in response to an international loss of confidence back to more normal levels to protect the pound and/or to quash runaway inflation.

The latter may not be on the immediate horizon, but I challenge anyone to rule it out.

If we have runaway inflation asset prices will be rising will they not?

The rising rates with falling house prices theory doesn't hold up as we know. Nominal house prices rise as rates rise (or more correctly, rates rise as house prices rise).

what's 'normal'?

Anyway, don't want to detract from FT's excellent thread on what's actually happened/in suffice to say I think it'll be some combo of the instersection of real prices and bubble bust returning to long-term trend (reportedly c2.9% p.a.) which I get to around £140k real in 2015. I'm sure I''ll be wrong.

Edited August 16, 2011 by Red Knight

[FreeTrader]

The average house price as measured by the Halifax index fell 1.8% in August when adjusted for RPI inflation. The year-on-year fall is 8.7%.

We're now at the four-year anniversary of the August 2007 nominal peak, and currently the RPI-adjusted fall from peak is 28.86%, very close to the low of -28.94% set in April 2011. At this stage of the previous crash, the real average price had fallen 27.8%.

--------

RPI-adjusted prices in the two crashes are tracking quite closely at present, but it's a somewhat different story when adjusting for average earnings, with prices currently down 25.6% in this crash against a fall of 30.8% in the '89 crash:

--------

Meanwhile the PE ratio remains historically high:

[FreeTrader]

September's 0.5% fall in the nominal average house price as measured by the Halifax index translates into a 1.2% drop when adjusted for RPI inflation.

We've now hit a new inflation-adjusted low on the fall-from-peak chart, with real prices down 29.7% from peak. At the same point in the previous crash prices were down 28.7% and they didn't fall any further for nearly a year.

Will a new round of QE halt the decline, at least temporarily?

---------

In real terms prices are at October 2002 levels:

---------

The P/E ratio continues to drift downwards:

[Pytyr]

As ever, the important one is the price/earnings ratio

[Killer Bunny]

Will a new round of QE halt the decline, at least temporarily?

No. No. No.

It wasn't QE1 that raised SE prices. It was 0.5% rates and beefing up public sector. QE1 made no new lending in the economy. QE2 will do same. No fall in rates and small cuts now happening.

[Bloo Loo]

September's 0.5% fall in the nominal average house price as measured by the Halifax index translates into a 1.2% drop when adjusted for RPI inflation.

We've now hit a new inflation-adjusted low on the fall-from-peak chart, with real prices down 29.7% from peak. At the same point in the previous crash prices were down 28.7% and they didn't fall any further for nearly a year.

Will a new round of QE halt the decline, at least temporarily?

---------

In real terms prices are at October 2002 levels:

---------

The P/E ratio continues to drift downwards:

nice work.

Just wondering where the finance is going to come from to raise prices again...or are we in for a fall to reflect the unavailability of credit.

[Bloo Loo]

Devaluation and bargains for overseas investors.

Over 50% of new build flats in London went to far east buyers.

bluy to ret?

[MinceBalls]

No. No. No.

It wasn't QE1 that raised SE prices. It was 0.5% rates and beefing up public sector. QE1 made no new lending in the economy. QE2 will do same. No fall in rates and small cuts now happening.

I tend to agree. QE was and IS for bank solvency issues. They buy back Gov bonds, inject cash into the banks which then don't bother to lend it on.

The BoE are sh1t scared the banks are going to go pop, end of.

House prices were/are affected by interest rates: middle class families in the south east particularly seeing interest payments on their mortgages go for example from1.5K per month to £200 per month putting more than 1K in their pockets each month. The areas where prices (mortgages) were higher (the south east) were buoyed more by these policies.

But the value of the additional money has been steadily eroded as inflation bites, families are starting to notice the squeeze and interest rates have nowhere else to go. It's a disaster waiting to happen.

If this plan is really going to work the gov actually need wages to rise to erode some of the debt away in relation to the pound in the pocket of the average person which isn't happening at the minute. But they are sh1t scared that once the genie (wage inflation) is out of the bottle it cannot be put back.

No win

[rantnrave]

bluy to ret?

That reads like a Japanese accent - they haven't got any cash to spare though, even with a seriously overvalued Yen.

[rantnrave]

Can I also add a big thank you to Free Trader for keeping these updated!

Mods - can we get these added as an item in the graphs section?