When Is The Crash Going To Come ?

[lewissheridan]

Well I know it's the $ 64 million dollar question, but with all these econimic indicators and evidence for an inpending crash, is 2006 going to be the year for this ? Can we confidently say with certaintly the first half or later half of this year ? or is it going to be slowly drawn out in a clow correction over the next few years ?

I'll be interested to hear what the general consensus is. Obviously the sooner the better, but personally i suspect it it hasn't by the 3rd quarter of this year then it's going to be a drawn out diaster.

Edited December 29, 2005 by lewissheridan

[Mikael_Gorbachev]

HPC is not going to happen. Interest rates are on their way down again this year. Inflation is near 2% and oil prices are on their way down.

[Being_Patient]

Its already started and has been happening for 18 months. HPI is effectively at zero %; within the next few months the major indices may well turn negative then watch sentiment evaporate completely. But we are unlikely to see 20% drops in a year, the 5-10% range is probably more realistic (IMHO). Think medium term, 5 years from now before price recovery begins. Two years from now is probably the minimum time you need to wait, tighten the belt, save like mad, forget about house prices and enjoy life.

My predictions are based on what happened last time, but of course it will be different this time...

[lewissheridan]

Its already started and has been happening for 18 months. HPI is effectively at zero %; within the next few months the major indices may well turn negative then watch sentiment evaporate completely. But we are unlikely to see 20% drops in a year, the 5-10% range is probably more realistic (IMHO). Think medium term, 5 years from now before price recovery begins. Two years from now is probably the minimum time you need to wait, tighten the belt, save like mad, forget about house prices and enjoy life.

My predictions are based on what happened last time, but of course it will be different this time...

I sincerely hope so.

HPC is not going to happen. Interest rates are on their way down again this year. Inflation is near 2% and oil prices are on their way down.

A bit of speculation there, not wholly convincing argument, but thanks for adding to the debate nonetheless

[right_freds_dead]

i read in some newspaper that the crash had been cancelled.

bah.!!

[CrashConnoisseur]

This particular "crash" started in mid-2004 -- the sharp fall in transaction volume was a clear and unambiguous signal. Today's market is very different to what it was two years ago -- it's now a buyers market with turnover constrained by seller reservation pricing.

For various technical reasons the published house price 'indices' overstate the true market, probably by between 5 and 10%. Some of these distortions will soon start to drop out of the year-on-year figures.

Expect to see a slow but variable decline in prices extending over many years. This is why I prefer to use terms such as 'correction' or 'disorderly readjustment' rather than "crash".

A good proxy for confidence in the value of housing and for expectations of future price rises is the amount of money home owners are willing to borrow against the increased value of their home -- Mortgage Equity Withdrawal. Take a look at the last graph in this set which shows 'MEW as a Percentage of Post-Tax Income':

http://www.graphicinvestor.com/econo/UK/MO...S/Mortgages.htm

If you're looking for a "crash", there it is -- a dramatic 50% drop inside a year. Expect to see a rebound of around a third of that fall -- a so-called 'dead-cat bounce' -- before the downward trajectory resumes.

[frugalista]

This particular "crash" started in mid-2004 -- the sharp fall in transaction volume was a clear and unambiguous signal. Today's market is very different to what it was two years ago -- it's now a buyers market with turnover constrained by seller reservation pricing.

For various technical reasons the published house price 'indices' overstate the true market, probably by between 5 and 10%. Some of these distortions will soon start to drop out of the year-on-year figures.

Expect to see a slow but variable decline in prices extending over many years. This is why I prefer to use terms such as 'correction' or 'disorderly readjustment' rather than "crash".

Sounds authoritative!

What are your top reasons for thinking the indices overstate the true market?

frugalista

[CrashConnoisseur]

What are your top reasons for thinking the indices overstate the true market?

I'm hoping to post more on this shortly -- next week.

[lewissheridan]

This particular "crash" started in mid-2004 -- the sharp fall in transaction volume was a clear and unambiguous signal. Today's market is very different to what it was two years ago -- it's now a buyers market with turnover constrained by seller reservation pricing.

For various technical reasons the published house price 'indices' overstate the true market, probably by between 5 and 10%. Some of these distortions will soon start to drop out of the year-on-year figures.

Expect to see a slow but variable decline in prices extending over many years. This is why I prefer to use terms such as 'correction' or 'disorderly readjustment' rather than "crash".

A good proxy for confidence in the value of housing and for expectations of future price rises is the amount of money home owners are willing to borrow against the increased value of their home -- Mortgage Equity Withdrawal. Take a look at the last graph in this set which shows 'MEW as a Percentage of Post-Tax Income':

http://www.graphicinvestor.com/econo/UK/MO...S/Mortgages.htm

If you're looking for a "crash", there it is -- a dramatic 50% drop inside a year. Expect to see a rebound of around a third of that fall -- a so-called 'dead-cat bounce' -- before the downward trajectory resumes.

Agree, it's just how long they can draw it out and the degree to which they can minimise the effects of the correction/crash. I hope in their efforts to over control it, it quickly gets out of their control. Like a runnaway train where the market has run away with itself, it could be the same story of trying to stop the correction, it's just out of their control!

[Guest Bart of Darkness]

or is it going to be slowly drawn out in a clow correction over the next few years

If a crash (correction) hapens (and I think it will), slow but steady will be the order of the day.

[right_freds_dead]

this is the coastal town. that they forgot to close down.

come come. nuclear bomb.

[Ritters]

HPC is not going to happen. Interest rates are on their way down again this year. Inflation is near 2% and oil prices are on their way down.

Inflation is way more than 2%, get real

[zorn]

I'll be interested to hear what the general consensus is. Obviously the sooner the better, but personally i suspect it it hasn't by the 3rd quarter of this year then it's going to be a drawn out diaster.

The crash will come around the time that interest rates hit 8%. If they don't, as seems likely, then there will be no crash.

Inflation is way more than 2%, get real

I would be interested to see the source for your different inflation figures, and the methodology used. And it had better not be "Well, my council tax has gone up a lot, and electricity is up 10%, and have you seen the price of petrol, and cheap Chinese DVD players don't count, yadda, yadda, yadda", or I shall feel free to mock you.

[EmpiricalBear]

A good proxy for confidence in the value of housing and for expectations of future price rises is the amount of money home owners are willing to borrow against the increased value of their home -- Mortgage Equity Withdrawal. Take a look at the last graph in this set which shows 'MEW as a Percentage of Post-Tax Income':

http://www.graphicinvestor.com/econo/UK/MO...S/Mortgages.htm

Good post Jeff... its a shame the graphs stop in Aug 05, as the recent approvals figures show a rebound... could be the bounce you are talking about. I think it probably is... but then I think we will see a series of bounces and dips for the next few years within an overall downtrend.

Of course... if the current global expansion of the money supply starts to reduce and the underlying deflationary climate is revealed for what it is, then all bets are off, but I wouldn't want to be long too many illiquid assets, or commodities despite the current fashion for them.

[right_freds_dead]

I would be interested to see the source for your different inflation figures, and the methodology used. And it had better not be "Well, my council tax has gone up a lot, and electricity is up 10%, and have you seen the price of petrol, and cheap Chinese DVD players don't count, yadda, yadda, yadda", or I shall feel free to mock you

everythings gone up except wages.

id rather see you explain how inflation is down and in what way are actually better off since 1997 ?

[Ferret]

The crash will come around the time that interest rates hit 8%. If they don't, as seems likely, then there will be no crash.

A little bit high there Zorn, around 5.25% should do it.

This year, as households have continued to pile up debt, HSBC estimates interest rates need only rise to 7-7.5% for the debt servicing burden to spiral out of control. "More worryingly, only 5.5% rates, slightly above neutral [forecasts], would take the debt burden back to the highest since 1991" it warns. And that was the era in which thousands upon thousands of homeowners were tumbling into arrears and when repossessions were soaring to a record.

[Casual Observer]

The crash will come around the time that interest rates hit 8%. If they don't, as seems likely, then there will be no crash.

I would be interested to see the source for your different inflation figures, and the methodology used. And it had better not be "Well, my council tax has gone up a lot, and electricity is up 10%, and have you seen the price of petrol, and cheap Chinese DVD players don't count, yadda, yadda, yadda", or I shall feel free to mock you.

I agree with Zorn; the CPI range of measurables is actually a lot wider than many people on this forum imagine it to be. Inflation is obviously different to each individual, dependant on his spending pattern, but between RPI and CPI I think we have a pretty accurate overall measure.

There's a bit too much decrying of stats on this forum, when they don't support the Bear cause, house price indices included. I don't buy the conspiracy theory that they're fiddled. Spun, no doubt, but definately not fiddled.

Edited December 30, 2005 by Casual Observer

[crash co-ordinator]

HPC is not going to happen. Interest rates are on their way down again this year. Inflation is near 2% and oil prices are on their way down.

Ah, that's ok then

[zorn]

everythings gone up except wages.

id rather see you explain how inflation is down and in what way are actually better off since 1997 ?

I believe the CPI figures. The methodology is available for all to see on the National Statistics website. If you disagree, that's fine, but you can't just say that they're unrepresentative or that they're fiddled -- at the very least, you have to say what's wrong with their methodology, and it would really be better if you could cite some alternative figures (with methodology) that you believe to be more reliable.

A little bit high there Zorn, around 5.25% should do it.

Rates had to double from their low point last time -- I don't see that it will be different this time.

[right_freds_dead]

I believe the CPI figures. The methodology is available for all to see on the National Statistics website. If you disagree, that's fine, but you can't just say that they're unrepresentative or that they're fiddled -- at the very least, you have to say what's wrong with their methodology, and it would really be better if you could cite some alternative figures (with methodology) that you believe to be more reliable.

ok. ill start with my brother.

his wage hasnt risen since 1999, yet the costs for his housing have doubled.

hows that ?

[Casual Observer]

ok. ill start with my brother.

his wage hasnt risen since 1999, yet the costs for his housing have doubled.

hows that ?

Coz if your brother was representative of the whole population, prices would have falen drastically, based on lack of dosh

He's not - most peoples pay has risen since 1999, and their housing costs haven't doubled.

[right_freds_dead]

ok. then my friend who works at a childrens home.

his wage has gone up by 37p per hour since 1999. he works 50+ hours.

his rental costs have almost tripled. most of his overtime goes to a btl landlord.

my freinds at a newspaper i worked at in east lancs. the wage for my old job in 2001 has gone down by 4k.

local houses have doubled-tripled in price.

Edited December 30, 2005 by right_freds_dead

[Casual Observer]

ok. then my friend who works at a childrens home.

his wage has gone up by 37p per hour since 1999. he works 50+ hours.

his rental costs have almost tripled. most of his overtime goes to a btl landlord.

my freinds at a newspaper i worked at in east lancs. the wage for my old job in 2001 has gone down by 4k.

local houses have doubled-tripled in price.

I know, but for all the examples you can put forward of low earners and low wage rises there are many high earners with rising salaries. How else has HPI been so high since 1999 - some one's coughing up the asking prices? If we were all poor detached houses would cost £80k

[Ferret]

Rates had to double from their low point last time -- I don't see that it will be different this time.

So you disagree with HSBC`s warning and stats, no doubt with all the other surveys conducted on the massive debt problem by reputable organisations you also disagree with.

[right_freds_dead]

I know, but for all the examples you can put forward of low earners and low wage rises there are many high earners with rising salaries. How else has HPI been so high since 1999 - some one's coughing up the asking prices? If we were all poor detached houses would cost £80k

yeah. sure it is. HPI is rife because people earn more money,

so like to now pay double for the exact same houses as before -

your argument makes no sense.