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Looks Like Bull@*&! Smells Like&%*@, Probably Is...

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As reported in today's FT, a group of academics at Oxford Uni have developed a model of the housing market that they think is the dogs. I am no economist and do not have time to decipher their paper (link below) but they think that there is no bubble and the market won't crash because their model says it won't. More precisely they think that a bubble is only created when it is not supported by 'fundementals'... the current market IS supported by fundementals.

As I said I am no economist but do know academics who are up their own $*&!'s. Dare I suggest that if their model is as accurate as sugggested they would be relaxing on a far away beach by now paid out of the huge sums they would have made out of the market!

Having said all that if there are any economists reading this who can scan through the paper and give a view, it might be an interesting topic of debate.

http://www.housingoutlook.co.uk/Papers/WasThere.pdf

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Guest Bart of Darkness
As reported in today's FT, a group of academics at Oxford Uni have developed a model of the housing market

Some self-assembly required?

May contain small parts, not suitable for the under-5s.

I expect to see Blue Peter do their own version made from toilet roll tubes and sticky back plastic.

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As reported in today's FT, a group of academics at Oxford Uni have developed a model of the housing market that they think is the dogs. I am no economist and do not have time to decipher their paper (link below) but they think that there is no bubble and the market won't crash because their model says it won't. More precisely they think that a bubble is only created when it is not supported by 'fundementals'... the current market IS supported by fundementals.

As I said I am no economist but do know academics who are up their own $*&!'s. Dare I suggest that if their model is as accurate as sugggested they would be relaxing on a far away beach by now paid out of the huge sums they would have made out of the market!

Having said all that if there are any economists reading this who can scan through the paper and give a view, it might be an interesting topic of debate.

http://www.housingoutlook.co.uk/Papers/WasThere.pdf

Lots of interesting new models were used by economist/banks circa 2000 to justify dotcom. How valid are they now?

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I think there were two main criticisms of the paper.

1. Brings into the model the effect of nominal interest rates, this is despite every other study ever done finding no relationship - it is real rates that matter.

2. Ignores the rental sector completely on the grounds of small size - a major flaw IMO.

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An interesting report. The problem I have with it is the conclusion. Even accepting that their model is correct they jump a bit at the end when predicting the future. They talk of a "gloomy" situation as one where inflation rises (how much?), interest rates rise (again, how much?) GDP/head falls marginally and stock market is flat. This is hardly gloomy. IRs are below long run average, inflation is rising and under reported. That those two will rise istn't gloomy, it's expected. A stock market with no real gains for two years is also not the most unlikely thing in the world given it's rapid growth over the last two years. There seems to be no mention of unemployment at this point either.

So, their model could be 100% accurate - they may just be slightly too optomistic about the future. Plug some alternative numbers about ir/unemployment/GDP into their model and we might see 20% decreases in housing prices - which according to them would suggest a bubble.

1. Brings into the model the effect of nominal interest rates, this is despite every other study ever done finding no relationship - it is real rates that matter.

I wondered about this, but I think nominal rates do matter. In fact that is a large part why we are in a bubble now because nominal rates are low. They mention this in the abstract, with high nominal (+ inflation) the cost of the house is shifted towards the early years of the mortgage, at which point you hit borrowing constrains preventing escalating prices. Low nominal rates change that. This comes back to people thinking about their ability to pay a mortgage not the mortgage compared to their income. I havn't read their whole report, but it seems to me nominal rates are relevant.

2. Ignores the rental sector completely on the grounds of small size - a major flaw IMO.

I wondered about that. I know almost no one who owns their place they live in London, and this included a lot of lawyer friends earning very good money. Is the rental sector really that small in London?

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We made a start at pulling this apart on Sunday afternoon, and actually made quite good progress :) , but it turned out that the forum largely ignores this type of thing so I don’t think anyone felt it particularly worth persuing it any further. Anyway, it’s all very informative - thread is here for those that are interested:

Link: http://www.housepricecrash.co.uk/forum/ind...ndpost&p=331572

Edited by spline

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  • 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%



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