Early 90S Recession Comparison

[jones87]

I was too young to remember, anybody care to fill me in?

I've looked at previous busts and this one is looks more and more drawn out everyday. In my opinion this recession is only just starting, not 'half way through' as the media would suggest.

Why didn't they ZIRP in the the last bust like they in this bust?

Because this is a 'global' bust, is this minimizing the effects?

....and why do we never learn from history?

[proprlyst]

I was too young to remember, anybody care to fill me in?

I've looked at previous busts and this one is looks more and more drawn out everyday. In my opinion this recession is only just starting, not 'half way through' as the media would suggest.

Why didn't they ZIRP in the the last bust like they in this bust?

Because this is a 'global' bust, is this minimizing the effects?

....and why do we never learn from history?

Hi

I wrote a blog post this topic. http://wp.me/pTU04-i.I looked more specfically at the residential property cycle. What is evident is that low inflation has prevented a flood of repossessions.Also on the blog are recession comparisons with employment. Let me what you think

[Bloo Loo]

The early 90s recession was much longer than some here remember.

My own trade was beginning to suffer in 1989 with wild swings in sales and profits....finally folded in 1992.

also, the housing boom wasnt nationwide....it was mainly in the South East....so while my own property, bought in 1987 climbed to £235,000 and selling ( it was a new build estate) it finally sold for £129,000 at Auction in 1993. ( 5 bed detached).

We were keen to buy again and a really nice Triangle shaped house came up in 1996...£69,000. 4 bed, triangle shaped place with a nice Garden in great catchment area...

I had deposit but no proof of income, so no mortgage could be gotten. I beleive it wasnt until 1997 that SIV securitization was invented by CITI.

[skomer]

I was too young to remember, anybody care to fill me in?

I've looked at previous busts and this one is looks more and more drawn out everyday. In my opinion this recession is only just starting, not 'half way through' as the media would suggest.

Why didn't they ZIRP in the the last bust like they in this bust?

Because this is a 'global' bust, is this minimizing the effects?

....and why do we never learn from history?

UK more or less had pegged its currency to the Deutschmark via the ERM , exchange rate mechanism for political reasons. So as this country went into a (hpc induced ?) recession it was unable to devalue the pound and had to keep interest rates at unsustainable levels killing manufacturing industry and the service sector resulting in massive unemployment, negative equity, defaults etc. In this recession the pound was devalued quickly by 20-30% and interest rates stand at 0.5%. This and QE has stopped unemployment from rising to the levels seen in 1989-1993 and as a consequence house prices from not falling back to mean so maybe we have learnt a lesson from history?

It was only after the Germans had had enough of all this and forced Britain to abandon ERM and devalue the pound, cue Norman Lamont, -and few months later the economy improved markedly - house prices hit bottom in 1993-1994 then flat lined for a few years

One thing we didnt learn from the early 90's was the Nordic Banking crisis - due to housing bubble in Scandinavia. We could have learned alot from that....

Edited February 19, 2011 by skomer

[miko]

As interest rates hit 15% after the boom of 1988 property dropped very quickly from 1989 onwards .

After leaving the ERM in 1992 interest rates dropped quickly but it took a few years for property to stop falling. London and the south east had about 40% falls and the media stopped talking it up . As soon as they said it would never go back up in the mid 90's it started to move back up again.

One big difference back then to now , was those who stayed in their jobs got big pay rises to compensate for the rising prices during that recession , so with falling interest rates rising wages and falling prices by 94/95 property was as cheap as chips.

[Bloo Loo]

As interest rates hit 15% after the boom of 1988 property dropped very quickly from 1989 onwards .

After leaving the ERM in 1992 interest rates dropped quickly but it took a few years for property to stop falling. London and the south east had about 40% falls and the media stopped talking it up . As soon as they said it would never go back up in the mid 90's it started to move back up again.

One big difference back then to now , was those who stayed in their jobs got big pay rises to compensate for the rising prices during that recession , so with falling interest rates rising wages and falling prices by 94/95 property was as cheap as chips.

erm, there used to be a link here featuring the TIMES newspapers property ramping throughout that period.

We also recall being stunned each month as the Haliwide indexes never seemed too bad and the accompanying TV fanfares, while our own place couldnt find buyers or when they could, the bank wouldnt release.

EDIT here is the link http://www.housepricecrash.co.uk/wiki/Read_what_the_Newspapers_were_saying_last_time_around

Edited February 19, 2011 by Bloo Loo

[jonboy2010]

Hi

I wrote a blog post this topic. http://wp.me/pTU04-i.I looked more specfically at the residential property cycle. What is evident is that low inflation has prevented a flood of repossessions.Also on the blog are recession comparisons with employment. Let me what you think

I remember my parents trying to sell there how loverly 4 bed detached worth about 600000 now took them 5 years to sell sold it for 180000!

['Bart']

The early 90s recession was much longer than some here remember.

In South Yorkshire it started in the late 70s and went on for 20 years.

[interestrateripoff]

http://www.ippr.org.uk/uploadedFiles/pressreleases/Part-time%20and%20temporary%20work%20technical%20briefing.pdf

1. The number of people in both part-time and temporary jobs because they are unable to

find full-time or permanent work has increased sharply during the recession

• The previous peak of part-time workers unable to find full-time work was in Q4 1994 after the

recession of the early 90’s. The number reached 846,000 and levels stayed high for several

years before declining again. The current rise began in 2008 Q3 to reach 1,041,000 in Q4

2009

• There has also been a substantial increase in temporary workers unable to find permanent

work increasing by 40 per cent since the recession began. Note that temporary and part-time

work are not mutually exclusive, so the same worker may be counted in both measures

This might give you a bit of historical perspective.

The other difference is that the public sector wasn't as large as it is now, so at the moment job losses haven't been as bad compared to say in the past because there's a lack between tax revenues collapsing and govt responding in making cuts.

[interestrateripoff]

In South Yorkshire it started in the late 70s and went on for 20 years.

I think in some areas it never ended.

[Bloo Loo]

I think in some areas it never ended.

in others it never began....EC1-3

[miko]

erm, there used to be a link here featuring the TIMES newspapers property ramping throughout that period.

We also recall being stunned each month as the Haliwide indexes never seemed too bad and the accompanying TV fanfares, while our own place couldnt find buyers or when they could, the bank wouldnt release.

EDIT here is the link http://www.housepricecrash.co.uk/wiki/Read_what_the_Newspapers_were_saying_last_time_around

I Remember all the ramping in the papers and all the reasons given why it would go up next spring/year/summer ect. I remember an artical in one paper saying that when they dropped the interest rate 1% from 15 to 14 there would be such a surge in demand the affect would be like dropping the interest rate 3%. They dropped the interest rate 1% and property carried on dropping.

Another artical one year was that people would be buying houses next year not for investment but for nesting they gave some reason that 28 was the most common age for a woman to have her first baby and that coming year due to the birth boom of the 60's there would be more 28 year old women in the country than ever before . They told us that these women and their partners would herald a new boom when they bought houses to nest in . I sat and read the artical and could not understand how these 28 year old women were going to be buying houses as most married women I knew of that age were in NE.

Then in about 95 there was an artical in the Telegraph saying that those in London who bought in 1988 would have to wait untill their mortgages were paid off in 2013 for the value of their properties to go back to the price they had paid in 88, taking into account inflation they would still be on a loss. Just after I read this the opposite happened and it started to move back upwards.

Remember work mates who threw back the keys even thought they could afford the house , some moved and were allowed to take the NE with them ( only those with no other debt and excellent mortgage repayment history ) one guy bought his first 2 bed flat for 64k sold for 27k and bought a 3 bed house for just 56k , he borrowed from family to pay off the NE.

One happy note do also remember a few work mates moaning that the house was worth x amount less than they had paid , however due to low interest rates by the mid 90's and good pay rises the mortgage was much less of their take home pay than it had been at the start.

[Pearshape]

"Then in about 95 there was an artical in the Telegraph saying that those in London who bought in 1988 would have to wait untill their mortgages were paid off in 2013 for the value of their properties to go back to the price they had paid in 88, taking into account inflation they would still be on a loss. Just after I read this the opposite happened and it started to move back upwards. "

The classic shoe shine moment - do the opposite of what the sheeple are being told ----- and i note that one of te papers is doing a peice on gold.............

[riverside]

I lived in South Yorkshire in the 80's and then moved to Harrogate in the early 90's at the height of the house crash.

Mortgages in those days were variable rate repayment mortgages there were others around but everyone I knew was on a variable rate repayment. First time deposits were around 10% people could elect to repay over 20 to 25 years generally

In south Yorkshire, following the closure of the pits, steelworks and railway engineering unemployment in a village next to mine went to 30% . Skilled people took their redundancy, retrained and moved away from the area for work. or became migrant workers. South Yorkshire was an good place to live if you had a job and a car. There was a lot to do and it was cheap. A lot of the wealthiest people were miners before and after the closures.

Houses did drop in price quick I got rid of mine for about 10% less than it was originally valued. I look at prices at the village where I used to live and the same house that I sold for 43k in 1990 is now £140k . a bit high in my opinion compared to property in the villages around

In those days people worked their way up the housing ladder by moving around the country and trading up in the housing market at the companies expense as the cost of moving was paid for by the company and was in effect a one off pay rise. Companies would provide bridging loans, pay for legal and removal fees and new carpets and curtains. Some would even take your old house from you at a fair market valuation, leaving them with 100's of houses that they had to get rid of at the height of the crash.

Relocation expenses used to be tax free but gradually taxed and companies capped them after abuse by some high flyers hit the papers

I got a promotion from Rotherham to another company in Harrogate. Problem was that because Harrogate was the 30th most expensive place to live in the country at the time I needed double the money to buy an equivalent 3 bed semi. I have looked at 3bed semis in Harrogate today and could get something comparable to the one I had in south yorkshire for about £175k so I think the gap has closed over the years between Harrogate and the part of South Yorkshire I lived in. Perhaps it is down to the growth in public sector employment and labour policies.

I rented. for six months originally in Harrogate at the companies expense, which extended by a further 6 months at my expense. because I got wind of a downsizing exercise. After a year the company downsized from 17k staff to about 5k staff , I took redundancy, even though I survived the initial cull because I would have had to move to Swindon.

I got a job straight away so was able to add the redundancy money to my savings. The interest on which paid the rent in full. I go a job as a Building Society in West Yorkshire with a subsided mortgage and non contrib pension scheme

I was able to see the mortgage business from the inside. The Society was very conservative but was changing a lot of the workers had worked their since leaving school. had enjoyed subsidised mortgages and pensions and other perks. It was pretty poorly managed imho but it didn't have to worry because even at the height of the housing crisis it made £60m profit. Its profits dropped by 50%. at the height of the crash.

The UK mortgage industry was bombproof if run conservatively if societies over leant and had a mortgage book of potential defaulters then they would get into trouble and be quietly taken over by the large Building Society. This way the number of buiiding societies was shrinking and the large ones were getting larger.

I remember talking to its valuers in 1991 and they were convinced that house prices would recover in the next couple of years !!. I didn't agree and didn't buy even though I would have had a reduced interest rate mortgage (the government taxed these perks and so they weren't the bargain that they had previously been) I didn't buy.

A year later i got another job in the North West on more money and a relocation package, again I rented the first 6 months paid for by the company. I rationalised that the house price drop would exceed the benefits I would have got from the relocation package benefits which was certainly true until 1996 and probably true until 1998-99 right my money gravitated into equities during this time which proved beneficial during the equity dot.com bubble.

.

[silver surfer]

I both bought and sold a property during the 1989-95 crash. The biggest thing I learned was that all properties are not created equal, about a third of all property in almost every price bracket is severely blighted, another half is moderately blighted and only 10-15% of property is truly desirable. Remember, this applies to almost every price bracket.

Gloomy north or east facing gardens, overlooked gardens, lack of off-street or convenient parking, 1930's style galley kitchens with a separate cramped dining room, ugly and badly built extensions, too many bedrooms and not enough bathrooms, lack of storage space, lack of soundproofing, insecure and robbery prone,...the list goes on and on.

During a boom we ignore these shortfalls, buy in haste and repent at leisure. But during a bust we become very, very picky. We don't just want a house cheap, we want a great house cheap. And because we no longer feel the need to rush into a purchase before it gets snapped up we tend to reject property after property.

Unfortunately the really good properties, the ones that tick all or most of the boxes, these properties don't become more common. In fact they become rarer. The reason is that the really good properties tended to be bought in the first place by the more experienced, patient, prudent buyers. And these are the types of people who are that little bit less likely to end up in a messy divorce, they're generally the last to be laid off; in other words they're less likely than the average to find themselves as a distress seller. Consequently, the most desirable properties in almost every price bracket become that much harder to find during a bust. They're still out there, but you'll need patience and perseverance to find them.

The net result is that the headline house price declines are driven by the absolute collapse in the price of the blighted properties, EA windows fill up with this rubbish and it becomes almost unsaleable. The really good properties still experience price declines, but unfortunately they fall significantly less.

I'm a cash buyer (I sold to rent in 2005) looking for a four bedroomed detached house in the best part of Lymington, I want a private south or west facing garden, off street parking for two or more cars plus a double garage. A large kitchen/diner that leads out to the garden with a good sized utility room. I want at least 2.5 bathrooms, a character property in a quiet non-estate location with easy access to the shops. In other words I want all the things that everyone else wants!

I'll find what I looking for, but what I learned in the 1989-95 crash was that it won't be easy or quick, and I won't enjoy quite the discount that the Halifax or Nationwide figures might suggest.

[CrashConnoisseur]

2011 Predictions (as at January 2010)

[...snip...]

8. Despite the 0.5% decline in Q4 2010 there won't be a double dip recession, but growth will be anaemic.

I'm impressed by your ability to correctly predict this with such precision.

[CrashConnoisseur]

also, the housing boom wasnt nationwide....it was mainly in the South East....

In Lincoln (where I was living at the time), two-bed terraced houses went from around 20K to 45K in about 18 months as the wave passed through then gradually fell all the way back to 20K after the bust.

[teatastic]

I both bought and sold a property during the 1989-95 crash. The biggest thing I learned was that all properties are not created equal, about a third of all property in almost every price bracket is severely blighted, another half is moderately blighted and only 10-15% of property is truly desirable. Remember, this applies to almost every price bracket.

Gloomy north or east facing gardens, overlooked gardens, lack of off-street or convenient parking, 1930's style galley kitchens with a separate cramped dining room, ugly and badly built extensions, too many bedrooms and not enough bathrooms, lack of storage space, lack of soundproofing, insecure and robbery prone,...the list goes on and on.

During a boom we ignore these shortfalls, buy in haste and repent at leisure. But during a bust we become very, very picky. We don't just want a house cheap, we want a great house cheap. And because we no longer feel the need to rush into a purchase before it gets snapped up we tend to reject property after property.

Unfortunately the really good properties, the ones that tick all or most of the boxes, these properties don't become more common. In fact they become rarer. The reason is that the really good properties tended to be bought in the first place by the more experienced, patient, prudent buyers. And these are the types of people who are that little bit less likely to end up in a messy divorce, they're generally the last to be laid off; in other words they're less likely than the average to find themselves as a distress seller. Consequently, the most desirable properties in almost every price bracket become that much harder to find during a bust. They're still out there, but you'll need patience and perseverance to find them.

The net result is that the headline house price declines are driven by the absolute collapse in the price of the blighted properties, EA windows fill up with this rubbish and it becomes almost unsaleable. The really good properties still experience price declines, but unfortunately they fall significantly less.

I'm a cash buyer (I sold to rent in 2005) looking for a four bedroomed detached house in the best part of Lymington, I want a private south or west facing garden, off street parking for two or more cars plus a double garage. A large kitchen/diner that leads out to the garden with a good sized utility room. I want at least 2.5 bathrooms, a character property in a quiet non-estate location with easy access to the shops. In other words I want all the things that everyone else wants!

I'll find what I looking for, but what I learned in the 1989-95 crash was that it won't be easy or quick, and I won't enjoy quite the discount that the Halifax or Nationwide figures might suggest.

This is a great post. A useful reminder that finding the perfect house is not the same as finding a house. Having spent 6 years looking ourselves, we get the keys in a couple of weeks. Our STR beating 5 other offers with a chain to the finish line. Good luck with your search SS.

[northwestsmith2]

UK more or less had pegged its currency to the Deutschmark via the ERM , exchange rate mechanism for political reasons. So as this country went into a (hpc induced ?) recession it was unable to devalue the pound and had to keep interest rates at unsustainable levels killing manufacturing industry and the service sector resulting in massive unemployment, negative equity, defaults etc. In this recession the pound was devalued quickly by 20-30% and interest rates stand at 0.5%. This and QE has stopped unemployment from rising to the levels seen in 1989-1993 and as a consequence house prices from not falling back to mean so maybe we have learnt a lesson from history?

It was only after the Germans had had enough of all this and forced Britain to abandon ERM and devalue the pound, cue Norman Lamont, -and few months later the economy improved markedly - house prices hit bottom in 1993-1994 then flat lined for a few years

One thing we didnt learn from the early 90's was the Nordic Banking crisis - due to housing bubble in Scandinavia. We could have learned alot from that....

For a day more like

The 90s recession was a gunshot wound to the chest and a few years of follow up care.

The 2007 recession is a prostate cancer which began around 2005 and the patient refuses any treatment.And

regards herbal treatments as the main route to recovery. Nothing can be allowed to cause any pain or side

effects such as real treatment.

If you look at the facts, black wednesday was a blip and trade weighted sterling fell fast and long both narrow and broad

in the 00s recession BELOW levels reached during a panic 24hours.

There is no evidence QE has stopped unemployment from rising, unemployment is within a hair

of breaking % of population records which is feat in itself.

Edited February 19, 2011 by northwestsmith2

[Guest tbatst2000]

As interest rates hit 15%

That's technically true but interest rates never really hit 15%. They were at 10% at the start of the day Britain left the ERM, went up to 12% and then 15% and back down to 12% all on the same day:

http://news.bbc.co.uk/onthisday/hi/dates/stories/september/16/newsid_2519000/2519013.stm

[council dweller]

I wasn't here, left in September 1989 (went to the far far east)

If I remember correctly my wages went up by 2% against 3% inflation. I imagined the same thing happened year after year and so got on a plane.

If I was a young mang now I'd do the same thing.....pay rise of 1% this year set against 4% inflation (at least)

Came back in 2004 though!

[exiges]

This is a great post.

I agree with Teatastic, that was a good well-considered post SilverSurfer.

[miko]

That's technically true but interest rates never really hit 15%. They were at 10% at the start of the day Britain left the ERM, went up to 12% and then 15% and back down to 12% all on the same day:

http://news.bbc.co.uk/onthisday/hi/dates/stories/september/16/newsid_2519000/2519013.stm

Wrong

You are talking about 1992 when John Major would not pull out of the ERM .

Prior to that May 1988 interest rates dropped to 7.5% at the start of the boom as everyone bought to get double miras. When double miras was scrapped in August that year interest rates had hit 12% by november the same year they were 13% . In May of 1989 they hit 14% and then the all time high in October 1989 15%. They stayed at 15% for one whole year until October 1990 , John Major actual dropped the interest rate by 1% when we first joined the ERM. They had dropped to 10% by the day that you talk about and during that day they once hit 15% again . The next day Major started to reduce them as the £ was devalued and by Nov that year were down to 7% . Maybe by default I say by default as he was forced out of the ERM and then cut the interest rate that was the start of the recovery.

[FunkyGibbon]

I remember the 1990's recession well. I purchased my first home in 1989 at the peak of the house price bubble in East London for £95,000 with a 95% interest-only mortgage. Three years later, I had the house valued by a local agent and was given a valuation of £65,000. As a result, I had £30,000 negative equity and was unable to sell. At that time, thousands of people were defaulting on their mortgages and literally handing their house keys back to the lender in the belief that would be the end of the matter. However, I held onto the property after making some sacrifice in my living standards. House prices subsequently recovered and after 13 years, I eventually sold the house for £155,000. I have been a member of housepricecrash.co.uk ever since and have seen the value of my old house double to £300,000+ since my sale in 2002.

[OnlyMe]

In Lincoln (where I was living at the time), two-bed terraced houses went from around 20K to 45K in about 18 months as the wave passed through then gradually fell all the way back to 20K after the bust.

Almost everything went up to the double Mirad limit as a minimum price before it was removed.