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2005

What Exactly Is A 'soft Landing'

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There has been lots of discussion on this forum about what constitutes a 'crash' but I don't recall any about what a 'soft landing' is.

So what do these people mean when they say 'soft landing'?

Do they mean a return to house price rises at inflation level?

Do they mean stagnation?

Or do they mean a slight fall to get rid of the overvaluation of properties and unrealistic vendor expectations.

If an economist believes house prices are 20% overvalued - would a soft landing mean a 20% correction?

It seems to me this term is used a lot without any claification and conjures up memories of the BSE crisis when the Tory government redefined what 'safe' meant.

Thoughts anyone?

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I think we're in the middle of a "soft landing" (so far).

I suspect that the course of events and the outcome will only become obvious in retrospect.

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There has been lots of discussion on this forum about what constitutes a 'crash' but I don't recall any about what a 'soft landing' is.

So what do these people mean when they say 'soft landing'?

A "soft landing" is no significant decrease in nominal house prices. Small nominal decreases in some regions don;t stop it being a soft landing, but a big (>10%) nominal decrease in one region or >5% nominal decrease in the national figure would turn it into a hard landing.

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My personal definition of a soft landing would be between +5% and -5% growth or fall in house prices - on the basis that you would hardly notice any change.

I guess +5% or -5% is at the noticeable point but you've got to draw the line somewhere.

Where we are now, is soft landing territory and its been like this for at least 18 months if not longer in some areas and there is very little sign of that changing in the next 12 months.

Now a soft landing can't last forever (can it ?) as stability has not been normal for the past 40 years. But as far as I can see there is as much chance of house prices going up as there is of them coming down - people on here are suffering from wishful thinking, when there are predicting "house price crash"

The Government, BoE, big business, the general public, just about everybody is very happy with the current state of stability. If they could keep things as they are for the next 5 years, champagne corks would be popping all over Government and the Central Banking World. Its all just perfect for these guys.

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Guest Charlie The Tramp

If they could keep things as they are for the next 5 years, champagne corks would be popping all over Government and the Central Banking World. Its all just perfect for these guys.

Here`s one very pessimistic CB.

RBA warning of 'meltdown'

David Uren, Economics correspondent

27sep05

The Reserve Bank of Australia warned yesterday that the current calm in financial markets could be the prelude to a storm that could wreak havoc in the world economy.

The RBA believes the boom in markets for shares, bonds and housing in many countries is unsustainable.

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But as far as I can see there is as much chance of house prices going up as there is of them coming down -

people on here are suffering from wishful thinking, when there are predicting "house price crash"

The Government, BoE, big business, the general public, just about everybody is very happy with the current state of stability. If they could keep things as they are for the next 5 years, champagne corks would be popping all over Government and the Central Banking World. Its all just perfect for these guys.

How can you justify that opinion?

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My personal definition of a soft landing would be between +5% and -5% growth or fall in house prices - on the basis that you would hardly notice any change.

I guess +5% or -5% is at the noticeable point but you've got to draw the line somewhere.

Where we are now, is soft landing territory and its been like this for at least 18 months if not longer in some areas and there is very little sign of that changing in the next 12 months.

Now a soft landing can't last forever (can it ?) as stability has not been normal for the past 40 years. But as far as I can see there is as much chance of house prices going up as there is of them coming down - people on here are suffering from wishful thinking, when there are predicting "house price crash"

The Government, BoE, big business, the general public, just about everybody is very happy with the current state of stability. If they could keep things as they are for the next 5 years, champagne corks would be popping all over Government and the Central Banking World. Its all just perfect for these guys.

very plausible argument.

i would accept the possibility of your definiton of a soft landing if the increase in prices thus far had been more gentle and was not accompanied by phenomenal increases in debt , deterioraiting public finances, trade deficits growing and the destruction of much of the real economy. under labour.

you rightly state that historically stability has been misisng over the last 40 years.

you conclude that there is an even chance of prices rising as falling.

i see the odds are something like 100/1 on of prices falling as there is no logical basis to support the increase possibility.

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The current boom took 8-9 years to reach its peak (1996 to 2004/5; I believe it has now peaked).

Assuming it takes a similar or slightly shorter amount of time to reach bottom (40% off the peak, in real terms) requires a 7% fall p.a. in real terms for 7 years, or 4.5% fall p.a. in nominal prices, with inflation providing the rest.

That would feel like a soft landing for many people, but the fall in real terms after the last boom was similar -although the boom was slightly shorter, and the crash was a bit steeper just after the peak than towards the trough, but real prices fell ~40% between 1990 and 1996.

So do we believe the last boom ended with a crash, or a GSD?

It might be several years before people start to realise that prices have been gently declining for long enough to have made a real hit on the value of their house.

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very plausible argument.

i would accept the possibility of your definiton of a soft landing if the increase in prices thus far had been more gentle and was not accompanied by phenomenal increases in debt , deterioraiting public finances, trade deficits growing and the destruction of much of the real economy. under labour.

you rightly state that historically stability has been misisng over the last 40 years.

you conclude that there is an even chance of prices rising as falling.

i see the odds are something like 100/1 on of prices falling as there is no logical basis to support the increase possibility.

So why have they been increasing since about August/September ?!

and when , oh when am I going to see this ripple effect from the South East spread as far as Yorkshire ?

cos, if you can believe the halifax, then prices are starting to increase again in London as a whole. In which case, we are about to see the next positive ripple to add to the tsunami of the last 5 years !

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So why have they been increasing since about August/September ?!

and when , oh when am I going to see this ripple effect from the South East spread as far as Yorkshire ?

cos, if you can believe the halifax, then prices are starting to increase again in London as a whole. In which case, we are about to see the next positive ripple to add to the tsunami of the last 5 years !

Because most people simply don't have access to the cross country information we have. We know that prices down south are falling and little is selling.

However if quality sells (and it always well) a quality house sold expensively (possible in any market) will screw the figures up for the entire area especially when little else is actually sold.

Oh and to answer the first question its the "Impossible Dream" as featured in the Honda ads.

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So do we believe the last boom ended with a crash, or a GSD?

It might be several years before people start to realise that prices have been gently declining for long enough to have made a real hit on the value of their house.

i lived througfh the last crash and to be honest it did not feel like a crash.

however, i had not bought at the peak and was not a forced seller.

people, who bought say before 2001 and dont sell until say 2008 will not have noticed much apart from a loss of potential paper money.

people who have bought at or near the peak and need to sell up ( divorce, death etc) will feel the crash.

the wider impact will be the same as last time,

a general economic downturn with rising unemployment

at the time i did not realise that it was funadmentally a consequence of the housing boom of the 80's

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So what do these people mean when they say 'soft landing'?

I'm not sure. I've never seen defined in a book on technical analysis. Have a look here:

Murphy, John J. - Technical Analysis of the Finacial Markets.

They simply don't exist in equity markets (it would be stable equilibrium). Short term stagnation and volatility around a mean can occur, but in the longer term, either the price will go up or it will go down.

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Soft landing: A crash when viewed in advance through rose-tinted spectacles.

It is fuelled by the vain hope that a market, which has attained an impossibly high state, can somehow stay there defying gravity. It is an ideal, yet fictional state imagined by home owners who have seen the value of their property increase to impossibly high levels. They have accepted that prices cannot continue to increase at the previous rate but imagine a nirvana where their property value will forever remain at this idyllic plateau.

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I asked David Smith (from the Sunday Times) the same question.

Here's his response:

EconomicsUK Forum

Interesting.

Now the real issue is not what we think a soft landing is but what the economists and the BOE think a soft landing is. Or to put it another way, what would they accept as a soft landing.

If they accept that houses are overvalued by, say 20% (just using this as an example) then it is perfectly possible that that they would be happy to see house prices fall by 20% (asking or seeling price?) - and they could still claim a 'soft landing'.

Unfortunately this won't feel very 'soft' for those that bought overvalued property at the top of the market.

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Guest magnoliawalls

The Government, BoE, big business, the general public, just about everybody is very happy with the current state of stability. If they could keep things as they are for the next 5 years, champagne corks would be popping all over Government and the Central Banking World. Its all just perfect for these guys.

If the powers that be manage to keep prices as they are for the next 5 years, what will that do to personal debt?

Those who buy for the first time, or move to a more expensive property in those 5 years will still have to borrow much more in real terms than if they had bought 5 years ago. Even if prices do somehow stagnate the pressure on young families will keep increasing.

Eventually there will be an external shock or something will just have to give anyway.

Edit: It would be interesting to estimate how mortgage debt is likely to increase if prices remain at the same level for the next 5 years. Has anyone done this?

Edited by magnoliawalls

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I also asked David smith this: http://economicsuk.com/discussion/viewtopic.php?t=8

The bulls on here say a soft landing has been achieved, but if they believe the Halifax, house prices are more expensive (in real terms) than anytime in the last 2 years (wage inflation ~ 4%, Halifax ~5%). So how can this be a soft landing?

I would say a soft landing is where houses don't fall in nominal terms (over the year), and where wages increase affordability.

I would suggest it has more stagnated, with low transaction volumes, which in turn is making all house price indices difficult to show the full picture. I can't see the housing market stagnating for more than 2 years.

I also think there was alot of SIPPS ramping, pushing up prices, therefore I will be watching the next 3-6months with interest... There's along way to go before anyone throws any towels!

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The bulls on here say a soft landing has been achieved, but if they believe the Halifax, house prices are more expensive (in real terms) than anytime in the last 2 years (wage inflation ~ 4%, Halifax ~5%). So how can this be a soft landing?

Well they're right. There has been a soft landing. Now its time for the crash.

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There is no such thing as a soft landing, its another bit of spin peppered to the masses from the Labour Party spin machine.

Hard economics will prevail, and I'm afraid the Ten O'clock news will return to reporting on the Trade Deficit, and subsequent job losses on a nightly basis.

Its one big circle, however Labour bucked the trend by pumping borrowed money into the economy to stave of a recession that would have been due to hit the UK in 2000.

When it does come in 2007 its gonna be doubly worse!!!.

Money has to be repaid, and if its not repaid by the borrowers then I'm afraid its Joe Public who have to repay it in increased bank charges and higher interest rates.

There is no such thing as a miracle economy, never was, never will be.

Old fools will come home to roost, and the young economists will shortly be out of a job.

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very insightful , Laurejon....all this Chinese deflationary effect on prices has done is prolong this debt binge much longer than would normally be the case in a boom phase of the boom-bust cycle............making the impending bust phase also more exaggerated than normal.....................it's just a question of when rather than if...............

Edited by Michael

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Whith the Chinese its a double Whammy!!!.

On the one hand they are supplying the world with cheap goods to subsidise the existence of the global economy in the short term, but on the other they are putting upward pressure on the all important energy sector due to their insatiable capacity to burn up energy as they grow at exponential rates on a monthly basis.

Something is gonna pop very soon and its not going to be the prawn crackers down at the local take away.

Number 27 will no longer be Sweet and Sour Chicken with Egg Fried Rice but the number on the Nuclear missile silo pointing somewhere we dont like.

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  • 339 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% +
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      • Even
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