Jump to content
House Price Crash Forum
RichM

Not Like 1989

Recommended Posts

Further evidence today of the weakening economic situation - car sales plummeting.

So, is this going to be the pattern for the coming crash? Will the trigger be a worsening economic climate?

Share this post


Link to post
Share on other sites

What is the difference with 1989?

Whatever most of us think about the shakiness of the economy, the fact is that 'baseline' unemployment is lower than it was in 1989. People are able to keep paying the mortgage even when they stop buying on the high street due to debt and lack of confidence.

This may set up the pattern you describe - the loss of consumption will be the trigger for job losses which will create forced sales.

It is the relative lack of forced sales that seems to have delayed things this time. Eventually bankruptcies would have the same effect. But in 1989 there were (let's say) at least half a million more people unemployed than now. Tens of thousands of bankruptcies don't (yet) make up the difference.

Edited by Starcrossed

Share this post


Link to post
Share on other sites

What is the difference with 1989?

Assumming the current housing cycle is broadly in line with 1989, you wouldn't expect forced sales to be that high

Back in 89 the market was still healthy as far as the public were concerned (including me)

If we look back at some of the VI spin in 89 it looks all too familiar

Even if you were struggling a bit in 89, you cold justify another loan/MEW to cover your house repayments , because there was still the expectation that HPI wold make it all better

There was also a 'dead cat bounce', but as we know now, looking back, in '90,91' & 92' prices dropped dramatically, especially on forced sales

An ominous sign in 2005 is that lenders are repo'ing far quicker than last time (they learnt their lessons from last time)

When things hit the fan, there were press reports of the government asking lenders like the Abbey to go easy on slinging families out of their homes

In 2005, I don't see it working quite the same. Lenders are more global (i.e. Abbey owned by the Spanish), so I don't think NuLab will be able to stall repo's like last time

Also, even when a lender gets a court order, the court are often relucant to kick families out on the streets

This sympathy will not be extended to the 500,000+ BTL properties

Give it a few more months and we will be in 1990 Territory!

Edited by 88Crash

Share this post


Link to post
Share on other sites

Assumming the current housing cycle is broadly in line with 1989, you wouldn't expect forced sales to be that high

Back in 89 the market was still healthy as far as the public were concerned

If we look back at some of the VI spin in 89 it looks all too familiar

Even if you were struggling a bit in 89, you cold justify another loan/MEW to cover your house repayments , because there was still the expectation that HPI wold make it all better

There was also a 'dead cat bounce', but as we know now, looking back, in '90,91' & 92' prices dropped dramatically, especially on forced sales

An ominous sign in 2005 is that lenders are repo'ing far quicker than last time (they learnt their lessons from last time)

When things hit the fan, there were press reports of the government asking lenders like the Abbey to go easy on slinging families out of their homes

In 2005, I don't see it working quite the same. Lenders are more global (i.e. Abbey owned by the Spanish), so I don't think NuLab will be able to stall repo's like last time

Also, even when a lender gets a court order, the court are often relucant to kick families out on the streets

This sympathy will not be extended to the 500,000+ BTL properties

Give it a few more months and we will be in 1990 Territory!

Maybe so, maybe so...we shall see.

Edited by Starcrossed

Share this post


Link to post
Share on other sites

Yawn...what killed people last time was high interest rates, a lot of rises in quick succession. Leaving the ERM(a one off event that will not be repeated any time soon) caused the worst damage.

What will people do this time? long term fixed interest rate mortgages, typically 5 years :) This was not a product that was around much in 1989 so things are different this time. Lots of people were on endowment mortages which were inflexible back then.

In America very long term fixed mortgage is normal so the rises in interest rates do not effect existing homeowners so much as you would expect.

Edited by mercsl

Share this post


Link to post
Share on other sites

What is the difference with 1989?

Whatever most of us think about the shakiness of the economy, the fact is that 'baseline' unemployment is lower than it was in 1989.

What do you mean by baseline , as % of totally economically active?

Dames

Share this post


Link to post
Share on other sites

What do you mean by baseline , as % of totally economically active?

Dames

Just that the total of unemployed is much lower even bearing in mind any fiddling of the statistics.

We can debate the quality of the jobs but the overall unemployed total is lower.

So people can generally pay mortgages even when they don't buy anything else.

PS Edit From Telegraph today:

"The driving force behind the last great housing crash in 1989 was a surge in unemployment. Over the past year, unemployment has fallen by 0.5 per cent."

http://www.telegraph.co.uk/money/main.jhtm...%2Fcmprop27.xml

I agree with the general view here that we are in for a big fall in the economy and it is based on very dodgy ground. But we have further to fall - people have got used to lower unemployment. That can't go on forever. Booms'n'busts etc.

Edited by Starcrossed

Share this post


Link to post
Share on other sites

Tens of thousands of bankruptcies don't (yet) make up the difference.

Don't know the exact figures from '89, but certainly of the properties I was aware of that were repo'd, the majority were repo'd without bankruptcy orders

I has 5 houses repo'd (no bankruptcy)

I had several developer friends and several friends with residential morgages, who were repo'd and from memory, only two were actually made/declared bankrupt

A bit anecdotal, I know, but the total value of the above was over 10 million

thats why I posted a couple of times, about the 'paper falls' and the 'real falls'

This 'peak to trough' stuff has its place, but remember its the margins that move the market

Last time many of the places above, I refer to, were sold at 66% of peak '89 prices

You are either a house buyer, a house seller or a bystander

Long term property prices/trends has very little relavance on repo day!

(unless it really i different this time??)

Share this post


Link to post
Share on other sites

Yawn...what killed people last time was high interest rates, a lot of rises in quick succession. Leaving the ERM(a one off event that will not be repeated any time soon) caused the worst damage.

What will people do this time? long term fixed interest rate mortgages, typically 5 years :) This was not a product that was around much in 1989 so things are different this time. Lots of people were on endowment mortages which were inflexible back then.

In America very long term fixed mortgage is normal so the rises in interest rates do not effect existing homeowners so much as you would expect.

But the IRs came down again quite quickly after each peak, why didn't the market recover?

5 yearsfor the fixed term mortgages? More like two. And the point that is being made more and more frequently is that the economy is slowing quickly anyway. If people lose their jobs it doesn't matter what fixed rate they have on their mortgage!

Share this post


Link to post
Share on other sites
Guest Charlie The Tramp
Yawn...what killed people last time was high interest rates, a lot of rises in quick succession. Leaving the ERM(a one off event that will not be repeated any time soon) caused the worst damage.

We have another ingredient this time around massive personal debt, just a 0.75% rise in interest rates as global inflation takes off and the pack of cards will collapse quickly as the coming recession bites hard.

All IMHO of course.

Share this post


Link to post
Share on other sites
Guest Riser

Each Boom and Bust housing cycle has its own unique combination of factors. Last time it was inflation and high interest rates, this time it is high levels of debt increasing sensitivity to rate rises and a high proportion of investors inflating the market.

ABN AMRO Eurovision False alarm

Recent UK consumer data have been mixed. Retail confidence fell to its lowest level

ever in September as consumers struggled to repay the debt taken out in recent

years (Chart 2 taken from Payback time, Euro Vision, 16 June 2005). But

mortgage approvals jumped in August as the Bank of England cut interest rates. This

divergence between housing and retail activity is unprecedented (Chart 3). Perhaps

investors, not ordinary consumers, are returning to the housing market.

I suspect the bull run for housing over the past couple of months has been the result of speculators buying into the belief that they will be able to get 40% tax breaks by putting investment property into SIPPS.

We could have a strong crash trigger if the timing of an announcement stating that ordinary BTL investors were excluded from taking advantage of SIPPS coincided with the MPC starting to increase rates to tackle inflation. Once the BTL brigade start to panic we will see the market fall faster than in 1990.

Share this post


Link to post
Share on other sites

I am basically a bear but am not confident the pound will fall sharply to import inflation and cause Irs to rise.........as the Euro zone has its sluggish economy and and the US has its twin deficits ......

so i dont think the £ will be going down much any time soon against either of these important currencies...

It has never happened before but it would be interesting to see the effect of a fall in all of the £ ,Euro and $ against the Asian currencies....

Share this post


Link to post
Share on other sites

http://news.bbc.co.uk/1/hi/england/kent/4406224.stm

Is this a sign of economic weakness, or something else?

Me, I think its a sign of the success of cheap air fares.

:lol::lol:

For once I agree with TTRTR. I think the news blog has too much about "50 jobs lost" here and there. Every year hundreds of thousands of jobs are lost and created. It's job losses due to economic trends that we need to see, such as (at the moment) in retail and property related business - the ones that are the first to go as the property market goes into reverse.

Share this post


Link to post
Share on other sites

Yawn...what killed people last time was high interest rates, a lot of rises in quick succession. Leaving the ERM(a one off event that will not be repeated any time soon) caused the worst damage.

That lasted less than a day. After that interest rates went back down to 10% and then started their long track down. And house prices also kept on going down for another few years.

Don't cling too hard to that comfortable fantasy about the ERM exit.

Edited by IP Newcomer

Share this post


Link to post
Share on other sites

For once I agree with TTRTR. I think the news blog has too much about "50 jobs lost" here and there. Every year hundreds of thousands of jobs are lost and created. It's job losses due to economic trends that we need to see, such as (at the moment) in retail and property related business - the ones that are the first to go as the property market goes into reverse.

The jobs lost in the blog about Ferries and in my opinion is due to economic factors as are many of the others. This one was possibly due to fuel increases and people tightening their belts ie. no using the ferries for "jollies".

A lot of food jobs in the blog recently and these are usually the last things to go in a recession , someone always wants food. Maybe its cheaper to manufacture in other countries with the Euro now, hence more manufacturing moving out of the country and of course the services job losses going to India.

If these aren't economic factors then I don't know what are.

:ph34r:

Share this post


Link to post
Share on other sites

What is the difference with 1989?

Whatever most of us think about the shakiness of the economy, the fact is that 'baseline' unemployment is lower than it was in 1989.

I honestly think unemployment/employment levels are a red herring and a poor indicator of the current employment/economic situation.

First: low unemployment and high employment are not the same thing.

unemployment is the claimant count e.g how many people had a job, lost it and are now claiming unemployment benefit.

employment is not based on unemployment firgures. High employment can mean that many people who were not previously claiming unemployment benefit are going into work e.g lone parents, carers, people on sickness and disability benefit, housewives etc.

So... you can have lots of people losing their jobs and still have employment figures going up. (When the figures are reported look at which ones are being reported unemployment or employment)

Why is this important? Because what if those people who have lost jobs have lost average to high paying jobs and those who gain jobs are at the lower paid end of the market.

Look at the two examples below.

Mr and Mrs A. Mr A earns £25,000 per year. Mrs A stays at home to look after the two children. Mr A gets made redundant. Mrs A takes a job to help out and earns £12,000 per year.

Result - unemployment/employment levels stay the same but the household earning has dropped by £13k per year.

Look at it on a larger scale:

A company lays off 200 people in an area. All were earning £25K per year. But in the last year the government has enabled 300 lone parents and people on disability back to work. Most are in low paid/part time jobs.

Result - unemployment figures are low - employment figures are high BUT the mean household income in the area has reduced and some households will be on unemployment benefit.

The bottom line is - can a person afford to pay their mortgage and credit? If they can't then they are in trouble.

The difference between 1989 and 2005 is that employment patterns are different.

We don't need high unemployment for people to get into arears and default on mortgages. The level of debt in this country is so high that a reduction in household income would be enough to tip some people over the edge.

Indicators of this would be IMHO:

less spending on the high street

less spending on non-essential items such as holidays/gym membership

less spending on products previously purcahsed on credit e.g cars

a reduction in the number of people taking out private health insurance or sending children to private schools

and

a surprise increase in mortgage defaults/arears that doesn't tally with the overall economic picture.

Don't hold your breath waiting to high unemployment figures - you may not see them and you may not need them for a house price correction to occur.

Share this post


Link to post
Share on other sites

Result - unemployment figures are low - employment figures are high BUT the mean household income in the area has reduced and some households will be on unemployment benefit.

Yes, that's a possibility. Which is why it's a good idea to look at the Average Earnings Index as well as the employment and unemployment figures. And the AEI is currently increasing by 4% per year, faster than the CPI, RPI-X and RPI inflation measures, indicating that in fact this is not happening on a national scale.

Share this post


Link to post
Share on other sites

people on long-term sick running at over 2.5m - strangely enough many are in previous economic blackspots - these people won't be losing their homes through unemployment

interest rates are rising from a low base - all this bull cr*p about us having much lower interest rates than previous years is irrelevant if you take a mortgage at 4% and rates rise to 6%

if the government forces people to put money into pensions then that will have an impact on what people can spend on houses

Share this post


Link to post
Share on other sites

I am basically a bear but am not confident the pound will fall sharply to import inflation and cause Irs to rise.........as the Euro zone has its sluggish economy and and the US has its twin deficits ......

so i dont think the £ will be going down much any time soon against either of these important currencies...

I see the GBP=1.3USD within 4 years, GB has sold us out and there is nothing in the UK that the rest of the world wants except maybe its services.

Share this post


Link to post
Share on other sites

Yes, that's a possibility. Which is why it's a good idea to look at the Average Earnings Index as well as the employment and unemployment figures. And the AEI is currently increasing by 4% per year, faster than the CPI, RPI-X and RPI inflation measures, indicating that in fact this is not happening on a national scale.

I don't know anyone who is going to get a 4% increase. These figures must be skewed or someone has their chart upside down.

4% must have been skewed by the fatcat pay busting packages for CEO's who offshored all they could

Share this post


Link to post
Share on other sites

Yes, that's a possibility. Which is why it's a good idea to look at the Average Earnings Index as well as the employment and unemployment figures. And the AEI is currently increasing by 4% per year, faster than the CPI, RPI-X and RPI inflation measures, indicating that in fact this is not happening on a national scale.

Does this look at the mean or the median average?

Mean average can be skewed by extreme rises at the top of the scale.

A good way to look at the average wage and how this could impact on the housing market is to 'chop off' the top X% of high earners and look at the average wage increase/decrease of the rest of the population.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 301 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% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.