The Saturday Stunner

[Guest wrongmove]

If it's the nominal price graphs, then would not the inflation adjusted graphs be no more than bear spin?

I think you need to see both. Just showing one could be very misleading - bear spin, as you say.

Investors need to consider real (inflation adjusted) prices, as their concern is protecting and growing their investments.

But as an FTB, my concern is mainly with nominal prices.

[Flick]

First time I've considered the difference between nominal prices and prices adjusted for inflation. Interesting points raised.

Having thought 'more deeply':

Which of he graphs more accurately represents price changes: nominal prices, or prices adjusted for inflation?

If it's the nominal price graphs, then would not the inflation adjusted graphs be no more than bear spin?

I think I'd be right in saying the nominal graph represents 'prices', the inflation adjusted represents 'value for money'

[bazzzzzzz]

But as an FTB, my concern is mainly with nominal prices.

In which case the nominal graphs make for depressing reading, don't they?

Or, if we are looking for nominal falls, perhaps we should concentrate on tracking falls in our areas of choice and deal with hard evidence as it comes in rather than concentrating on nominal price graphs which do not appear to show the very real price falls in previous corrections.

Prices will fall as they have done previously. I won't let pictorial representation of nominal prices deflect me from this belief.

I think.

[beenhearingthisforyears]

Don't forget we have a chancellor who wants to be PM and a Govt that wants to win a 4th term in office...

To win the next election will require there to be NO HPC between now and the election.

Do you not think (deeply?) that Gordon Brown will do what ever he can to postpone any chance of a HPC as long as possible?

The sh!t might start to hit the fan after the election, but that is many years away.

So many people i speak to "believe" this and together with the bank of England's monetary policy which "seeks" to meet the Governments inflation targets can we really see them "allowing" the UK to crash and burn on its knees?

People are thinking: It IS slightly different this time because now we have the MPC.

[spline]

It could be argued that as the cost of ‘other stuff’ becomes cheaper relative to earnings then people are able to divert a larger fraction of their income towards buying a nice house, so that in some sense house prices are able vary in a complementary way to RPI. This mechanism would be further reinforced because the ‘cost’ of a house as seen by a mortgage holder reflects the current interest rate climate (and hence inflation) rather than the ‘ticket price’.

[Flick]

The more I think about this whole f*cking mess, the more I am coming round to the same conclusion.

Forget BTL, forget immigration, forget sentiment. - these are just symptoms of the cause.

It all comes down to one thing, and one thing only, INTEREST RATES.

Interest rates go down, paper money supply goes up, finite asset prices go up.

Interest rates go up, paper money supply goes down, finite asset prices go down.

Which leaves our collective futures in the hands of Ben 'I'll throw money out of helicopters rather than risk deflation' Bernanke & to a lesser degree the MPC & the fudged inflation figures they are forced to work from - not a happy place to be.

I wish I'd worked this out in 2001.

Shoot me down. I need some sense slapping into me.

Edited February 18, 2006 by Flick

[bazzzzzzz]

It all comes down to one thing, and one thing only, INTEREST RATES.

If true, then March 28 is likely to be a pivotal moment if the Fed raises rates, as seems more than likely. And a further raise in May, I've read.

American rates 50 points above UK: what impact on sterling by summer?

Wait and see, but I'll bet BoE will have no choice but to raise.

I'm fixated by US rates and March 28: perhaps because i believe the solution will flow from US rates increasing.

I'm wildly optimistic about this: irrational exuberance?

[Flick]

If true, then March 28 is likely to be a pivotal moment if the Fed raises rates, as seems more than likely. And a further raise in May, I've read.

American rates 50 points above UK: what impact on sterling by summer?

Wait and see, but I'll bet BoE will have no choice but to raise.

I'm fixated by US rates and March 28: perhaps because i believe the solution will flow from US rates increasing.

I'm wildly optimistic about this: irrational exuberance?

I sincerely hope you are right, I have had all the optimism ground out of me.

[bubbleturbo]

I sincerely hope you are right, I have had all the optimism ground out of me.

Chin up.

Even, if you say, it is all interest rates (which I do not agree with). Interest rates are currently up 25% than they were at the low.

This means even if interest rates stay at 4.5%, houses will still be overvalued and affordability will be stretched compared to when they were 3.5%.

Add to that, sentiment and the economy is much worse now that back when rates are 3.5% and there is only one way that house prices are going to go.

I think we may see a couple more months of last fools and then the market will resume it's downward trent, sentiment turning bearish towards house prices with the idiots late this year.

Especially with global interest rates on the up, economic uncertainty, etc. As Merv said, the "nice" period is now over.

[classixuk]

The log doesn't show it as having been moved, it looks like it was originally posted in the troll sub forum .

Perhaps Burnt Before needed more coffee that morning then?

[bazzzzzzz]

I sincerely hope you are right, I have had all the optimism ground out of me.

I cannot, and will not, believe the BoE will allow sterling to get trashed in the face of increasing US rates. I'm not an expert but it seems incomprehensible the Bank will allow it, not least because of the implications for inflation. The BoE will have to raise. IMO just one 25 points raise will have a devestating impact on sentiment. Just one-that's all it will take. Look to the summer july-august. By then all the stats for 2005 should have been collated and I am absolutley confident we'll be close to yoy negative. Inventories will be sky high. Look out for sales of 'portfolios' on Rightmove. Most significant IMO. BTLs will be dumping this spring and summer in teh face of increased returns in teh stock market and diminishing yields for them.

US rates are the key. I am certain of this.

Oompah! God I feel good. We're on the cusp-I can feel it!

[Badlad1967]

When you look at this image you wonder how on earth stagnation was ever an option!

I should add that Burnt Before posted this image in a topic that ended up in the troll sub-forum! Perhaps one of the moderators needed more coffee that morning?

What do you guys think of the graph? Will stagnation ever be an option?

Could someone please do a graph and remove the adjustment for inflation then? Along the same time scales if possible. I'm not being lazy - it's been too long since I've plotted graphs and I don't want to give any of the special needs posters (bulls) any more straws to cling on to.

Thanks...

[spline]

Could someone please do a graph and remove the adjustment for inflation then? Along the same time scales if possible.

Plotted on this thread?:

http://www.housepricecrash.co.uk/forum/ind...ndpost&p=301534

Edited February 18, 2006 by spline

[Badlad1967]

<SLAP>

Sorry wasn't clear - saw that graph before, but what I was looking for is a projection (based on the cycle) without the inflation adjustment - thus clearing up the confusion of the bulls....

(and me for that matter!)

[spline]

This is a projection done in Sept/05 - it includes nominal prices and some of the other usual indicactors run out for a few years on the assumption that IRs follow the BoE central projection and earnings grow at (IIRC) at 3.5% pa.

Link: http://www.housepricecrash.co.uk/forum/ind...ndpost&p=201829

Edited February 18, 2006 by spline

[BuyingBear]

Stagnation can't go on 4 ever

[DavidGold]

As the original graph indicates, 10 years or so of stagnation - in fact it would be even longer as stagnant prices for that long would lower the long term trend line below the 2.4% p.a. shown.

Alternatively, we can have a quick crash and move on. Merv, ramp up rates 3%+ and lets hear those pigs squeal!

(As for stagnation, prices fell in nominal terms in 1948-9, 1951-4 as well as the 1990's.)

[Adam]

Plotted on this thread?:

http://www.housepricecrash.co.uk/forum/ind...ndpost&p=301534

Well here is my effort RealVSActualHousePrices.pdf

(attached I hope) I don't know how to make an excel spreadsheet into a jpeg, so its a pdf.

I don't think people should get too hung up on the prices of houses dropping. I think the housing market is due for a correction. This will happen either through inflation, or through real house prices dropping.

Either way, you will be able to afford a better home. The downside of inflation is that all the bulls get to say "See, stagnation - told you so!".

The rarely discussed alternative is deflation Japan style. With record numbers of people destroying pound notes (notes! - god i'm old) by going bankrupt, I see this as a real and devastating possibility.

Low inflation would probably help us best, as ACTUAL prices would have to fall in order to correct.

The only thing I know for sure is that housing is definately NOT the place to be - my Debt Free Direct and Debt Matters shares are doing great thanks! Get some and cash in on the misery. Payback time!

RealVSActualHousePrices.pdf

[firebug]

Might I point out to you that it has been in "soft landing" mode for... realistically all of 6 months as best. It was still undergoing rises in July last year and the mood was still unequivocally positive on all but this site. And the "soft landing" is starting to look like actually falls except in Londinium (centre of the dark empire). Hence it is unlikely to get anywhere near the trend line anytime soon. It is if you note around 1/3 to 3/5ths above the trend line. I'm looking at a plummet and I won't be buying until it is 10% below the long term trend line. If that means I never have a house, I'm fed up, I've wanted a house for 30 years (I grew up in crappy goverment rental) so at this stage I am prepared to conceed it to lost dreams.

You have my sympathy, I too grew up in council crap, some of the most notorious council estates in England and scotland. Now at the ripe old age of 38 I am still living in council accomodation. I always wanted to live in a house with a garden (lived in tenements and flats my whole life). Huge sigh!

[ajh]

This graph gives a long term ‘unadjusted’ view of the usual culprits. And it’s very clear that house prices tend to follow earnings, not prices in general as reflected by the RPI, so that as earnings appear to have consistently outpaced RPI so have house prices. This explains why ‘real’ house prices as deflated by RPI in classixuk’s graph appear to be more ‘amplified’ on the right hand side. Also interesting that the current situation of low inflation and, particularly, low interest rates has allowed people to chase up the price of houses on the back of easy and low-cost credit. Reversing this process, as Dr Bubb says, requires either a growth spurt (earnings, inflation) that would carry a sting of higher interest rates and almost guarantee a crash, or prices fall back during a crash of sorts. Stagnation is certainly a possible outcome, but a perfect stagnation it would have to ‘stick’ for decade or two to recover the imbalance.

This is the graph I've been waiting for .

So at some point at the bottom of the current cycle we should expect the wages line and house price line to touch again on this scale, like they did around 1972 and 1979 and 1995. That would imply a 50% reduction in house prices relative to wages, phew.

[Badlad1967]

This is a projection done in Sept/05 - it includes nominal prices and some of the other usual indicactors run out for a few years on the assumption that IRs follow the BoE central projection and earnings grow at (IIRC) at 3.5% pa.

Link: http://www.housepricecrash.co.uk/forum/ind...ndpost&p=201829

Excellent - thanks for that.

[bazzzzzzz]

This is the graph I've been waiting for .

So at some point at the bottom of the current cycle we should expect the wages line and house price line to touch again on this scale, like they did around 1972 and 1979 and 1995. That would imply a 50% reduction in house prices relative to wages, phew.

Thanks for the explanation: I can follow it now.

[Londoner]

When you look at the graph just remember that the trend line is not fixed.

If prices go up the trend line will go up. If prices go down the trend line will go down.

Prices do not move in accordance with the trend, it is the trend that moves in accordance with prices.

Edited February 19, 2006 by Londoner

[geneer]

vs

Best I could find at short notice I'm afraid - though unadjusted one only goes to2003.

It doesnt look quite so dramatic.

Is inflation really that low? Yes our measure of inflation is low, but I beg to differ that inflation is low.

Goddamit I dont want to be a bull.. whats happening to me ?????? Mother, help me !

Maybe not so dramatic. But still, if you draw a line through the long term trend, still looks like a fairly significant correction is coming.

I also feel its no coincidence the the IMF (and various other commentators) feel that houses are overvalued

by just about what either of the graphs shown.

Don't despair HPCr's.

[Scipio_Africanus]

When you look at the graph just remember that the trend line is not fixed.

If prices go up the trend line will go up. If prices go down the trend line will go down.

Prices do not move in accordance with the trend, it is the trend that moves in accordance with prices.

Londoner,

You seem to be suggesting that the dependent variable will eventually change the independent one, and that statistical relationships such as that suggested by the house price trend are not neccessarily to be trusted.

It would be nice to know, I suppose:

1. How many years of data this graph is based upon.

2. How strong the relationship was.

3. What the probability of a chance relationship is?

At the moment the dependent variable must be several standard deviations about the predicted value. Obviously if this carries on the underlying equation of the trend line will change.

The equation assumes that conditions are broadly the same. Obviously it will break down if conditions have changed. Are low interest rates here to stay, for example?

To me, it's just a case of the dependent variable have reaching a temporary peak, in terms of SDs above the trend line. If the data runs over many decades, then I don't think we need worry too much about the robustness of the equation. I would guess that in a few years time the dependent variable will be several SDs under the trend line

BTW HAS ANYONE GOT THE RAW DATA THAT MAKES UP THE GRAPH. Then we can load it into a statistics package and get some idea about how good the relationship actually is.