Jump to content
House Price Crash Forum
Venger

We Are In A Housing Bubble

Recommended Posts

Most regions of the UK are already in a house-price bubble, according to an economics professor from Warwick University. Prof James Mitchell said house prices were overvalued when compared with incomes, raising the risk of a fall at some stage in the future.

Of 13 regions in the UK, he said 10 were currently overvalued.

However, most other economists believe property prices are still affordable, given very low mortgage rates.

...

He was particularly gloomy about the point at which interest rates rise. The Office for Budget Responsibility (OBR) currently expects that to happen in 2015. Prof Mitchell said at that point there would be a risk that household and bank finances would be "stretched to breaking point".

"This raises the spectre of falling house prices, negative equity, bad assets on banks' balance sheets and a return to the so-called great recession we have been so slowly emerging from," he said.

http://www.bbc.co.uk...siness-25318129

Gloomy about what? Millions of people who rent having a chance to afford. Other well-positioned owners having an opportunity to finally trade up. More housing transactions at lower prices. New buyers at lower prices left with more to spend in the economy. Banks paying higher interest rates to attract savings deposits to help their balance sheets, rather than FLS keeping rates low and house prices protected for VIs?

Ah of course gloomy because, won't you think of those lured in buy at really high prices on ultra low mortgage rates who "only wanted a home", who had no choice but to borrow, dragged into the banks, to pay super high stupid prices for homes, and all the older PIMPs.

Share this post


Link to post
Share on other sites
He was particularly gloomy about the point at which interest rates rise. The Office for Budget Responsibility (OBR) currently expects that to happen in 2015. Prof Mitchell said at that point there would be a risk that household and bank finances would be "stretched to breaking point".

Yes, 2015 is the big one, but it'll start next year.

  1. Tighter mortgage rules apply from April 2014 finally banning liar loans and requiring credible repayment strategies for IO. That will put the squeeze on the mortgage market.

  2. CGT “relief” available on sales of second homes will be cut from three years to 18 months, also in April 2014.

  3. The fed will also start tapering in 2014 IMHO, which will inevitably result in interest rate rises here.

  4. In 2015, the first crop of students with average debts greater than 50k will graduate. That will rather crimp demand.

Edited by Quicken

Share this post


Link to post
Share on other sites

http://www.bbc.co.uk...siness-25318129

Gloomy about what? Millions of people who rent having a chance to afford. Other well-positioned owners having an opportunity to finally trade up. More housing transactions at lower prices. New buyers at lower prices left with more to spend in the economy. Banks paying higher interest rates to attract savings deposits to help their balance sheets, rather than FLS keeping rates low and house prices protected for VIs?

Ah of course gloomy because, won't you think of those lured in buy at really high prices on ultra low mortgage rates who "only wanted a home", who had no choice but to borrow, dragged into the banks, to pay super high stupid prices for homes, and all the older PIMPs.

I am probably Josephine Bloggs as mentioned on another thread on HPC today with no way of understanding much of what is spoken about on HPC but very much knowing I NEED to be able to understand what is being spoken about. However, that said, sometimes I think my "confusion" is justified and not simply a matter of being uneducated. So what the hell does Prof James Mitchell mean when he says:

" there was a 93% probability that London is "in the grip of a house-price bubble".

Surely we do not need a Prof to tell us this do we? Of course it is great news when anyone dares to mention "house prices" as a negatie, but would it not be more like a 250% certainty that London IS already in bubble territory given that the average house price in London is now is £452,400 or 16 time the average London wage? So is Prof James offering us a prediction or simply saying in the midst of a torrential downpour that there is a 93% probability that if you do not put an umbrella up, you will get wet.

He then goes on to say "Wales is the next most overvalued region, with an 83% chance of a bubble, followed by north-west England with 80%. The UK as a whole scores 77%."

Yet with the average house price now at £245,879 (North-east £146,000 using figures from this article yesterday My link "A Whole Generation Won't be able to afford or Buy a Home" ) my maths are not great but I think that is something like wages of £51907 and £30,822 (at 4.5 x's income) , then can there be too much doubt that we ARE in bubble territory and have been since house prices shot up using for instance houses in Long Hill pre-2000 between £71,500 and £87000 My link up to £180,000 ish in 7 years around peak. If that is not bubble territory then I don't know what is, but perhaps I am missing something that clearly these very clever Professors are far more "qualified" to understand especially when they start to feel "particularly gloomy" about historic low interest rates going up and the "spectre" of house prices falling and "A Whole Generation" then being able to afford to both rent and buy, how terrible would that be!

But can somebody please explain to a Josephine Bloggs like my self, that if property prices had continued to have some reasonable and feasible relationship with 3.5 times one wage and 1.5 the 2nd wage (rather than 10x's 2 wages and or interest only etc etc) then how could land prices now be £100,000 + for a building plot then £1000 to £1500 per sq metre for build costs? If house prices lost 30 to 40% to take them back to "affordable" (rather than having to build 12,000 homes on green belt in order to provide 3500 "affordable" homes which nobody can still afford) then what happens to build costs and land values? Surely we would be better as a nation to go through the short term pain threshold of a market adjustment NOW would we not than continue trying to support that which is clearly not benefiting anyone in the long run, is it?

Share this post


Link to post
Share on other sites

I am probably Josephine Bloggs as mentioned on another thread on HPC today with no way of understanding much of what is spoken about on HPC but very much knowing I NEED to be able to understand what is being spoken about. However, that said, sometimes I think my "confusion" is justified and not simply a matter of being uneducated. So what the hell does Prof James Mitchell mean when he says:

" there was a 93% probability that London is "in the grip of a house-price bubble".

Surely we do not need a Prof to tell us this do we? Of course it is great news when anyone dares to mention "house prices" as a negatie, but would it not be more like a 250% certainty that London IS already in bubble territory given that the average house price in London is now is £452,400 or 16 time the average London wage? So is Prof James offering us a prediction or simply saying in the midst of a torrential downpour that there is a 93% probability that if you do not put an umbrella up, you will get wet.

He then goes on to say "Wales is the next most overvalued region, with an 83% chance of a bubble, followed by north-west England with 80%. The UK as a whole scores 77%."

Yet with the average house price now at £245,879 (North-east £146,000 using figures from this article yesterday My link "A Whole Generation Won't be able to afford or Buy a Home" ) my maths are not great but I think that is something like wages of £51907 and £30,822 (at 4.5 x's income) , then can there be too much doubt that we ARE in bubble territory and have been since house prices shot up using for instance houses in Long Hill pre-2000 between £71,500 and £87000 My link up to £180,000 ish in 7 years around peak. If that is not bubble territory then I don't know what is, but perhaps I am missing something that clearly these very clever Professors are far more "qualified" to understand especially when they start to feel "particularly gloomy" about historic low interest rates going up and the "spectre" of house prices falling and "A Whole Generation" then being able to afford to both rent and buy, how terrible would that be!

But can somebody please explain to a Josephine Bloggs like my self, that if property prices had continued to have some reasonable and feasible relationship with 3.5 times one wage and 1.5 the 2nd wage (rather than 10x's 2 wages and or interest only etc etc) then how could land prices now be £100,000 + for a building plot then £1000 to £1500 per sq metre for build costs? If house prices lost 30 to 40% to take them back to "affordable" (rather than having to build 12,000 homes on green belt in order to provide 3500 "affordable" homes which nobody can still afford) then what happens to build costs and land values? Surely we would be better as a nation to go through the short term pain threshold of a market adjustment NOW would we not than continue trying to support that which is clearly not benefiting anyone in the long run, is it?

The Prof is using academic speak to say "In all likelihood, London is a bubble" and the same to lesser degrees in other areas. Why say it in 7 words when you can write a whole paper.....

Can't argue with your general thrust.

Share this post


Link to post
Share on other sites
He was particularly gloomy about the point at which interest rates rise. The Office for Budget Responsibility (OBR) currently expects that to happen in 2015. Prof Mitchell said at that point there would be a risk that household and bank finances would be "stretched to breaking point".

"This raises the spectre of falling house prices, negative equity, bad assets on banks' balance sheets and a return to the so-called great recession we have been so slowly emerging from," he said.

There's a logic fail in his argument.

Can anyone spot it?

Share this post


Link to post
Share on other sites

So what the hell does Prof James Mitchell mean when he says:

" there was a 93% probability that London is "in the grip of a house-price bubble".

:lol:

Good question. I know it's a bubble, so agree with his findings; in fact it's a super-bubble.

Yet him giving a percentage probability. There must be a better way to express the case.

93% probability. He sounds like Spock from Star Trek, so media probably will ignore him and his findings, and they'll soon be back to hoping we get higher house prices as evidence of a recovery.

Share this post


Link to post
Share on other sites

The Prof is using academic speak to say "In all likelihood, London is a bubble" and the same to lesser degrees in other areas. Why say it in 7 words when you can write a whole paper.....

Can't argue with your general thrust.

Yep, basically that - which might gain him kudos in academic circles but it is the kind of talk IMPO that makes most people switch off.

Wales is the second over-priced after London with an 83% probability of a bubble? I am reminded of Star Trek where Bones tries to get Spock to understand that they are real people with real feelings and not a probability statistic when their shuttle might burn up.

Share this post


Link to post
Share on other sites

:lol:

Good question. I know it's a bubble, so agree with his findings; in fact it's a super-bubble.

Yet him giving a percentage probability. There must be a better way to express the case.

93% probability. He sounds like Spock from Star Trek, so media probably will ignore him and his findings, and they'll soon be back to hoping we get higher house prices as evidence of a recovery.

Hah! You beat me to it. :D

Share this post


Link to post
Share on other sites

:lol:

Good question. I know it's a bubble, so agree with his findings; in fact it's a super-bubble.

Yet him giving a percentage probability. There must be a better way to express the case.

93% probability. He sounds like Spock from Star Trek, so media probably will ignore him and his findings, and they'll soon be back to hoping we get higher house prices as evidence of a recovery.

Prof: Sir, the possibility of successfully navigating an exploding super-bubble is approximately 3,720 to 1.

PM: Never tell me the Odds

Share this post


Link to post
Share on other sites

Hah! You beat me to it. :D

You expressed it better, giving an example of real people and dangerous situation for people in/out of the bubble to Spock's cold logic assessment. ;)

I watch too many of the Spirk (Spock and Kirk friendship) fan videos on YouTube.

Share this post


Link to post
Share on other sites

:lol:

Good question. I know it's a bubble, so agree with his findings; in fact it's a super-bubble.

Yet him giving a percentage probability. There must be a better way to express the case.

93% probability. He sounds like Spock from Star Trek, so media probably will ignore him and his findings, and they'll soon be back to hoping we get higher house prices as evidence of a recovery.

Ah thanks for your replies, I start to "get " it, "academic speak" and % probability and then spin as to whether this is "bubble" territory or "evidence of a recovery" whilst nobody seems clever enough to consider, as someone has said on another thread today, if "idiocy" (perhaps parading under the guise of "professional" "academic" "qualified" and "authoritative") "harms society" and/or how we can remove the "idiot feedback" systems which are currently feeding into (but more like leaching than nourishing) not just ours but world economies...and start to nurture "smarter" feedback systems which take into account ALL the information not only that which benefits the few (short term), gains votes etc rather than "optimally" providing the conditions for real sustainable recovery from the idiocy that led to 2007 and beyond...and the perpetual kicking the can and passing the buck, but hey, what would I know

Share this post


Link to post
Share on other sites

http://

www.wbs.ac.uk/about/person/james-mitchell

Professor James Mitchell

Professor of Economic Modelling and Forecasting

Research Interests

Professor Mitchell researches a broad range of applied economic, financial and econometric issues of practical interest to policymakers, financial institutions and business. Specific research interests include econometric (time-series and panel data) modelling and forecasting, economic statistics, business cycles, survey data and migration. Recent projects, funded by the ESRC and supported by the Bank of England, have studied the modelling and forecasting of economic and financial variables in probabilistic terms, in the face of uncertainties. This reflects both the belief that a point or central estimate or forecast should be accompanied by a quantitative indication of how likely this central estimate is and the fact that reliance on a single model is risky. His research has been widely published in leading academic journals such as The Economic Journal, Journal of Applied Econometrics and Journal of the Royal Statistical Society.

Teaching in 2013-2014

Finance PHD [Full Time]

IB9BM0 Econometrics

IB9CN0 Financial Econometrics

IB9CP0 Macroeconomics

Full Time MBA

IB9BT0 Managing in a New World

Global Energy MBA

IB840G Economics of the Business Environment

Email: James.Mitchell@wbs.ac.uk / Tel: 024 765 73138

Biography

James Mitchell is currently Professor of Economic Modelling and Forecasting at Warwick Business School, University of Warwick. Previously he was Professor of Economics and Finance at the University of Leicester. Prior to that he worked at the National Institute of Economic and Social Research (NIESR) in London for twelve years, rising to be a Senior Research Fellow. He holds a Ph.D. in Economics from the University of Cambridge. His research papers are available at http:

//ideas.repec.org/e/pmi127.html

" there was a 93% probability that London is "in the grip of a house-price bubble"

So if the Professor can calculate it so accurately then it must be possible for the BoE to do the same. Maybe that should also be pointed out to the BoE when corresponding with them about the question "how do they define a bubble" and when they respond with evasive answers - and refer them to the Professor's calculations and conclusions.

Apparently the Professor already interacts with the BoE so they must be familiar with his work.

Edited by billybong

Share this post


Link to post
Share on other sites

So if the Professor can calculate it so accurately then it must be possible for the BoE to do the same. Maybe that should also be pointed out to the BoE when corresponding with them - and refer them to the Professor's calculations and conclusions.

I am thinking that possibly the difficulty here is what can/cannot be acknowledged.

Donald N Michael in a book called "In Search of the MIssing Elephant" says in a chapter titled "Leadership's Shadow: The Dilemma of Denial" that :

. "Arguably, the most profound threat to the development of a planetary civilization is the inability of leaders to admit that there are fundamental circumstances with which we must deal that cannot be acknowledged." Doing so would require confessing that we do not know how to deal with them. "Many cannot or will not face this dilemma: that dealing with the underlying threats to our civilization requires acknowledging them." Doing so threatens many people in many ways, and would be rejected and denied, as would the bearer of the bad news. "As Freud observed, the first thing that is denied is the fact of denial as a pervasive psychological condition."

Thus perhaps:

Prof: Sir, the possibility of successfully navigating an exploding super-bubble is approximately 3,720 to 1.

PM: Never tell me the Odds

Share this post


Link to post
Share on other sites

Donald N Michael in a book called "In Search of the MIssing Elephant" says in a chapter titled "Leadership's Shadow: The Dilemma of Denial" that :

. "Arguably, the most profound threat to the development of a planetary civilization is the inability of leaders to admit that there are fundamental circumstances with which we must deal that cannot be acknowledged." Doing so would require confessing that we do not know how to deal with them.

Interesting, and that may be so in certain special circumstances.

However I think they know exactly how to deal with them (decades of constant house price inflation, trebling again late during 2000s) but choose not to.

Not least because of this below, and with the value of their own homes / voters homes in mind.

a0a55a6d380a1c59ba7ab5ff45490c43.jpg

Share this post


Link to post
Share on other sites

Some of the responses in this thread indicate just why many academics despair of trying to communicate their evidence-based findings to a media uninterested in the data, data that they are more interested in spinning as arguments for or against some pet love/hate. The media unfortunately only takes its lead from society.

I imagine the reported 'probability' will be some kind of statistical confidence in the data. The fact that a newspaper/politician/man in the street wants a black-or-white answer where none exists is their own failing, not that of the person trying patiently to explain to them in the most comprehensible way the shade of grey that the evidence actually suggests.

Share this post


Link to post
Share on other sites

So if the Professor can calculate it so accurately then it must be possible for the BoE to do the same. Maybe that should also be pointed out to the BoE when corresponding with them about the question "how do they define a bubble" and when they respond with evasive answers - and refer them to the Professor's calculations and conclusions.

Apparently the Professor already interacts with the BoE so they must be familiar with his work.

95% is 2 sigmas. 93% is close enough.

Share this post


Link to post
Share on other sites

I am thinking that possibly the difficulty here is what can/cannot be acknowledged.

Donald N Michael in a book called "In Search of the MIssing Elephant" says in a chapter titled "Leadership's Shadow: The Dilemma of Denial" that :

. "Arguably, the most profound threat to the development of a planetary civilization is the inability of leaders to admit that there are fundamental circumstances with which we must deal that cannot be acknowledged." Doing so would require confessing that we do not know how to deal with them. "Many cannot or will not face this dilemma: that dealing with the underlying threats to our civilization requires acknowledging them." Doing so threatens many people in many ways, and would be rejected and denied, as would the bearer of the bad news. "As Freud observed, the first thing that is denied is the fact of denial as a pervasive psychological condition."

Thus perhaps:

Prof: Sir, the possibility of successfully navigating an exploding super-bubble is approximately 3,720 to 1.

PM: Never tell me the Odds

Apparently the Professor interacts with the BoE and indeed the BoE have funded/supported him to work on stuff (refer my earlier post) so they must rate him.

Apparently one of the themes he's worked on is that to present a credible argument on some topics (such as house prices) then you have to know the odds and indeed be prepared to quote them. Maybe that's why he's quoted probabilty in the OP article.

Recent projects, funded by the ESRC and supported by the Bank of England, have studied the modelling and forecasting of economic and financial variables in probabilistic terms, in the face of uncertainties. This reflects both the belief that a point or central estimate or forecast should be accompanied by a quantitative indication of how likely this central estimate is..

So the answer to

"PM: Never tell me the Odds"

is

"Then your statements are not credible".

Seeing as the BoE has been given the role and apparently the powers to prevent any house price bubble it seems that if there is way of confirming a bubble (and the Professor says it is possible, one already exists and it's possible to calculate it's probability) then they have an obligation to nip it in the bud right now.

Otherwise the government's statement that the BoE has the role and the power to prevent a house price bubble would be an outright lie.

Edited by billybong

Share this post


Link to post
Share on other sites

...

However I think they know exactly how to deal with them (decades of constant house price inflation, trebling again late during 2000s) but choose not to.

...

I don't think dealing with the housing crisis is even that hard. I could probably think of 10 different ways of doing it. In fact, I'm not convinced that any of the major economic problems, such as poverty or unemployment, are that difficult to fix, it's just that no-one really tries.

Politicians and the media represent a very narrow range of beliefs and ideas, and all of us accept various aspects of society as if they are preordained and unchangeable, making radical change impossible. Through a kind of evolutionary process, those ideas will be aligned to the interests of a small number of very wealthy people.

I suspect most people genuinely believe rising housing costs are a positive economic sign, and don't ever question this belief. It doesn't even occur to them that this is a problem to be solved. At best, they'll worry about the negative side-effects, which is where we get the idea of 'affordable housing', but that's not the same thing at all.

Share this post


Link to post
Share on other sites

Interesting, and that may be so in certain special circumstances.

However I think they know exactly how to deal with them (decades of constant house price inflation, trebling again late during 2000s) but choose not to.

Not least because of this below, and with the value of their own homes / voters homes in mind.

a0a55a6d380a1c59ba7ab5ff45490c43.jpg

exponentials are not special circumstances.

Share this post


Link to post
Share on other sites

Some of the responses in this thread indicate just why many academics despair of trying to communicate their evidence-based findings to a media uninterested in the data, data that they are more interested in spinning as arguments for or against some pet love/hate. The media unfortunately only takes its lead from society.

I imagine the reported 'probability' will be some kind of statistical confidence in the data. The fact that a newspaper/politician/man in the street wants a black-or-white answer where none exists is their own failing, not that of the person trying patiently to explain to them in the most comprehensible way the shade of grey that the evidence actually suggests.

All probabilities are just opinions, but other than that I would totally agree in most case, certainly in the proper sciences.

In this case, as is so often the case in economics, the problem isn't the probabilities it's the unstated assumptions.

We've had a housing bubble for well over a decade, he is (as far as I can tell) ignoring the huge pre-existing bubble, so he can analyse the relatively small changes of the last year or so.

Also, what is a bubble? I think the only meaningful definition is something like 'house-prices that cannot be supported in the long-term by the local economy without either unsustainable debt or government interference'.

In any case, 'bubble' suggest an oncoming crash. This is related to another unstated assumption, although it isn't really fair to blame the economist in this case.

The second unstated assumption is that a housing-bubble is the problem.

In fact high housing costs are the problem, sustainably high housing costs are actually worse than an unsustainable bubble. Basically the BOE, the government and their economists are discussing how much people farming they can get away with.

Edited by (Blizzard)

Share this post


Link to post
Share on other sites

I hear your sense of "despair" trying to communicate with people who want black and white certainties in a world in which nothing is, in an absolute sense, "certain" only infinite spreads of "probabilities" which include the probability that "certain" things can look "certain" for a while before they start to look very uncertain again.

So yes, even as Josephine Bloggs, I get the sense of "despair" when a person is trying to patiently explain something and the next headline is "House Prices to Go Up 35% Next Year" or something similar. We all, each in our own ways perhaps only hear the bits of evidence that feeds into what best supports our personal "evidence base" and excludes perhaps what would offer alternative perspectives.

However, I wonder about the inherent problem in "evidence-based findings" in a world where what we are often observing/measuring/calculating etc is by no means "certain" , with any sense of "certainty" being inbuilt in some way in the measurement which in then "determines" the "probabilities" .

And I am thinking about the recent warning by Carney in which he said to potential home buyers " are you counting, even subconsciously, on the price of your house keeping going up and if something happens an ability to sell it quickly and not facing the consequences of not being able to pay?"

And I am wondering in relation to what you have said above, if the public were "fed" more "shades of grey that the evidence actually suggests" rather than OVERLY FED HOUSE PRICES RISING BY 35% BY BLAH BLAH...what the "lead from society" would be?

In recent polls didn't something like 65% say they thought HTB 2 would not be helpful and they would prefer to see house prices coming down to affordable levels?

I wonder therefore about "government" "bank" bias in so many evidence-based findings, with Ms and Mr Bloggs voice barely registering at all...

Share this post


Link to post
Share on other sites

Apparently he says (from the OP article)

We are in a housing bubble, claims economics professor

Most regions of the UK are already in a house-price bubble, according to an economics professor from Warwick University.

He backs up his statement with a probability figure of 93% (for London) which is extremely close to a certainty

100% is an absolute certainty but the BoE is obliged to prevent a house price bubble happening not wait until it's already arrived.

When are they going to act - according to the government they've been given the powers take action.

Does the BoE disagree with the Professor's statement "We are in a housing bubble" ?

Edited by billybong

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   211 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

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.