Stock Market Vs House Prices

[the_duke_of_hazzard]

Presumably the two are correlated, to some extent, with a lag, as both are IR-sensitive? Is there are graph on this anywhere?

[Charles_Darke]

Is there are graph on this anywhere?

Yes, I've seen one somewhere. You can create your own since figures for both are widely available.

[Sledgehead]

Don't say I never do anything for you. Now can we stop cheering clooapsing equities as if the performance of companies that do most of their business overseas / derive a huge swathe of profits off the back of higher commodity price inflation really have a positive correlation with house prices....

... and when is somebody gonna tell us what is really wrong with this sit einstead of telling me to run "firefox"...?

Edited June 13, 2006 by Sledgehead

[Its time to buy]

maybe a year and a bit lag time?

thanks for the graph

Edited June 13, 2006 by notanewmember

[Sledgehead]

I have annotated the overlay with some symbols identifying similar structures. To my mind the house price surge of both the late eighties and the noughties came as a RESULT of collapsing equities. To my mind that makes them COUNTER-CYCLES. See what you think.

What is also clear is that stagnation in th ehousing market from here need not require a fall in equities. The wealth has already been transfered from equities to property. What we need now is a rebuilding of confidence in other asset classes outside property.

[cynic]

I have annotated the overlay with some symbols identifying similar structures. To my mind the house price surge of both the late eighties and the noughties came as a RESULT of collapsing equities. To my mind that makes them COUNTER-CYCLES. See what you think.

What is also clear is that stagnation in th ehousing market from here need not require a fall in equities. The wealth has already been transfered from equities to property. What we need now is a rebuilding of confidence in other asset classes outside property.

I'm a complete clot at all this investment malarkey so please don't jump down my throat. Looking at your graph I see something in the order of 4 years or so of complete harmony between FTSE and the Halifax indices. Sure, both of the phases you've focused have similar characteristics and where the ftse has begun to fall (or HPI going into a higher gear) there does appear to be a counterpoint but what of the harmony? Also, the counterpoint at the beginning of the millenium shows a falling FTSE against a rising HPI when, it seemed at the time to me anyway, a lot of folk had only just become aware of burgeoning cheap credit. Aren't we now at a point where folk are just becoming aware of the possibility of a choking off of same? And doesn't that undermine the parallel?

[Sledgehead]

maybe a year and a bit lag time?

thanks for the graph

Why must people persist in calling it a lag? When house prices were taking off in 2000-2003 there was a view that money was finding its way from th stocks into housing. Whether that was by withdrawl of funds or SM invetstment abstinance, I think it is a pretty fair view. How many times does one have to hear of property "it's my pension" b4 the penny drops that money has gone into property INSTEAD of stocks. Look at what happened to the SM in 1990 when the Halifax index finally topped out : it had regained its previous highs. It then bumped around at those levels for 2 years before going higher. As it went higher housing suffered not only real falls but nominal falls. WAKE-UP!

[Sledgehead]

I'm a complete clot at all this investment malarkey so please don't jump down my throat. Looking at your graph I see something in the order of 4 years or so of complete harmony between FTSE and the Halifax indices. Sure, both of the phases you've focused have similar characteristics and where the ftse has begun to fall (or HPI going into a higher gear) there does appear to be a counterpoint but what of the harmony? Also, the counterpoint at the beginning of the millenium shows a falling FTSE against a rising HPI when, it seemed at the time to me anyway, a lot of folk had only just become aware of burgeoning cheap credit. Aren't we now at a point where folk are just becoming aware of the possibility of a choking off of same? And doesn't that undermine the parallel?

My view is that the gradients per se are not the important part.

Look instead for CHANGES in gradient, or INFLECTIONS. You will see how surges in one asset are aligned with falls or plateauing in the other. Rememeber also that the recent recovery in stock markets is merely that. It is not an event in itself. Indeed, it may well be that looked at in 300 years time this recovery just looks like a bit of consolidation - rather like th epost 1987 movements. Is consolidation a rally? Hardly!

The other point in this regard is interesting as it pertains to folks who are all -asset bears. Some of these welcome SM falls as they see them presaging property falls. Maybe, but you have to look to fundamentals to argue this, NOT technicals. Why? Simply because these same uber bears claim the SM has not recovered AT ALL but is merely still in a downtrend supercycle. That means your recent 4 year correlation would be anathema to these sorts.

Edited June 13, 2006 by Sledgehead

[cynic]

My view is that the gradients per se are not the important part.

Look instead for CHANGES in gradient, or INFLECTIONS. You will see how surges in one asset are aligned with falls or plateauing in the other. Rememeber also that the recent recovery in stock markets is merely that. It is not an event in itself. Indeed, it may well be that looked at in 300 years time this recovery just looks like a bit of consolidation - rather like th epost 1987 movements. Is consolidation a rally? Hardly!

The other point in this regard is interesting as it pertains to folks who are all -asset bears. Some of these welcome SM falls as they see them presaging property falls. Maybe, but you have to look to fundamentals to argue this, NOT technicals. Why? Simply because these same uber bears claim the SM has not recovered AT ALL but is merely still in a downtrend supercycle. That means your recent 4 year correlation would be anathema to these sorts.

Don't say I didn't give you fair warning of my ineptitude!

OK. at your 2 critical points, there are inflexions in the FTSE - but no inflexions in HPI...they seem to be conintuing on their optimisitic and upward curve? I do see an accelaration in HPI subsequent to the FTSE inflexions but the HPI has all the look of a frictionless momentum (ok...negative friction= accelaration). I'm going to have to try and make my own sense of your points about the perceptions of consolidation vs rally (sorry, I've a lot to learn!...don't spend too much of your time on this!).

[Sledgehead]

Don't say I didn't give you fair warning of my ineptitude!

OK. at your 2 critical points, there are inflexions in the FTSE - but no inflexions in HPI...they seem to be conintuing on their optimisitic and upward curve? I do see an accelaration in HPI subsequent to the FTSE inflexions but the HPI has all the look of a frictionless momentum (ok...negative friction= accelaration). I'm going to have to try and make my own sense of your points about the perceptions of consolidation vs rally (sorry, I've a lot to learn!...don't spend too much of your time on this!).

Charts are always open to interpretation. There is no right and wrong because we are all looking at differing time frames. For instance, somebody with a 100 year outlook would say all of these assets positively correlate as they all end higher over the time frame of this chart. Not much use to HPC folks however.

Nonetheless, I have added some annotation to the chart to explain how I interpret it. In my book both curves have changes in gradient at the criticakl points. Not ehowever that the gathering of house price data and the inevitable lag due to transaction delays will skew the picture (I have indicated this on th echart below).

By the way, you should not assume that I believe the picture of 1990->1996 will be replicated going forward (drooping HPI and rampant SM). I am merely pointing out that the most recent (and therefore one might argue more significant) historical correlations do not suggest a falling SM now will force a fall in HPI.

Edited June 13, 2006 by Sledgehead

[cynic]

Charts are always open to interpretation. There is no right and wrong because we are all looking at differing time frames. For instance, somebody with a 100 year outlook would say all of these assets positively correlate as they all end higher over the time frame of this chart. Not much use to HPC folks however.

Nonetheless, I have added some annotation to the chart to explain how I interpret it. In my book both curves have changes in gradient at the criticakl points. Not ehowever that the gathering of house price data and the inevitable lag due to transaction delays will skew the picture (I have indicated this on th echart below).

By the way, you should not assume that I believe the picture of 1990->1996 will be replicated going forward (drooping HPI and rampant SM). I am merely pointing out that the most recent (and therefore one might argue more significant) historical correlations do not suggest a falling SM now will force a fall in HPI.

Thanks for the refinements, I had already spotted the accelarations in HPI and 'sort of' spotted the timing relative to the SM slumps - though not critically enough to take into account your lags. I'm working at trying to digest all this.

So, you're inclined to the view that a falling SM might lead to prolonged HPI? Or no correlation this time?

[Robbrent]

Can I get a little point across, when funds were withdrawn from the Stock Market to invest in property, it was not you 3 bed BTL, that got the investment, it was commercial property, hence the boom in commercial property development.

I don't think many institutions switched to buy number 4 Acacia Avenue, the cause of HPI has been the glut of easy credit, yes of course some of this credit may have been lent out by said institutions rather than invested, but a huge percentage of it has come from Asia, and unfortunately that's where much of it will be staying over the next few years

[Its time to buy]

i cant seem to extrapolate your interesting findings to what will happen from 2006 onwards....

if the past is repeated then the money out of stocks will go into property, and we;ll have another upswing in houseprices on a mamouth scale

if this is true, then surely we must buy now!!!

I dont think its as simple as a SM to property link - i hope

Edited June 13, 2006 by notanewmember

[Robbrent]

i cant seem to extrapolate your interesting findings to what will happen from 2006 onwards....

if the past is repeated then the money out of stocks will go into property, and we;ll have another upswing in houseprices on a mamouth scale

if this is true, then surely we must buy now!!!

Read my post, the money won't go into property (and if it did not into houses at any rate) much of it will have to be paid back, beleive it or not speculators have borrowed huge amounts to invest in the SM over the last couple of years hence massive rises.

Much IMO of the remainder will be kept in cash or may be even gold,

[Its time to buy]

Rob

I ve got a gut feeling youre right. The stock market correlation is a red herring

Who are the big sellers of stocks ? Fund managers are unlikely they will plough in to 2 bed luxury flats on canal walk.

[Robbrent]

Rob

I ve got a gut feeling youre right. The stock market correlation is a red herring

Who are the big sellers of stocks ? Fund managers are unlikely they will plough in to 2 bed luxury flats on canal walk.

I guess it's just your average run of the mill speculator, money week ran something a few weeks back about the amount of borrowed money being used in the SM, I guess with rates on there way back up, they decided to get out and pay back whilst they could.

However I think it is a warning that everyone should listen too, there are severe storms on the horizon and this just the foretaste

[needle]

If this chart was for more than 20 years it might give us a better view.

Bear in mind this does not even show the 1980s gold spike or indeed inflation figures or interest rates in context.

I'm sure you could find a correlation between pretty much anything if you looked.

Also, a similar chart for US HP's and Dow might show similar analysis.

[Sledgehead]

If this chart was for more than 20 years it might give us a better view.

Bear in mind this does not even show the 1980s gold spike or indeed inflation figures or interest rates in context.

I'm sure you could find a correlation between pretty much anything if you looked.

Also, a similar chart for US HP's and Dow might show similar analysis.

Perhaps you would care to find the data that is more than 20 years old and chart it for us needle.

I find it hard to believe that I am being criticised for merely complying with a request and then pointing out that the commonly supposed +ve property / SM correlation just doesn't show up in the data available.

As for robs point about money going into commercial property, he fails to acknowledge that stock markets go up on NEW MONEY not the stuff that is already there. Deny it all you like but there has been a wholesale turning away from the SM from private investors. Whether it is dotcom dispair, pensions piss-pot-performance, enronitis or with-profits wilt, ORDINARY people HAVE chosen to put money in Acacia Avenue INSTEAD of into bundled investments - which, you should be aware, pump money into the SM. Without new flows of funds, pension funds have found their capaital adequacy ratios severly tested and have been FORCED to sell SM investments. At the same time these same ordinary investors have ditched guaranteed equity bonds and unit trusts and pensions in favour of deposits on property which they have borrowed heavily against. So instead of Joe Soap buying a £10k unit trust, he's piled £100k (90 borrowed ) into property. You may wish to make it sound more complicated but it is the BTL investor, seeking "a property pension" that is the crucial differencebetween a property market with low interst rates and no takers and a property market as it is now. Remember FTBs dried up a year agowhilst BTLers have stepped up the pace of their purchasing. If cheap money were the sole driver, why did FTBs dry up?

[Charles_Darke]

i cant seem to extrapolate your interesting findings to what will happen from 2006 onwards....

if the past is repeated then the money out of stocks will go into property, and we;ll have another upswing in houseprices on a mamouth scale

if this is true, then surely we must buy now!!!

I dont think its as simple as a SM to property link - i hope

I think it's a possibility. There aren't too many decent assets to invest your money into at the moment.

[Sledgehead]

I think it's a possibility. There aren't too many decent assets to invest your money into at the moment.

Did you know that th e FTSE has an average ROCE of 40%? BTL manages about6.

[teddyboy]

Remember FTBs dried up a year agowhilst BTLers have stepped up the pace of their purchasing. If cheap money were the sole driver, why did FTBs dry up?

I believe that the BTL brigade used leverage to buy extra properties as HPI was going UP all the time. This makes the banks risk to a BTL smaller, whilst prices are rising, as he can sell his portfolio or the bank could repossess. The FTB however, has nothing other than his wages as a reassurance to a bank. The purchasing prices being a lot more than 3.5x salary make him/her a higher risk to the lender. They have nothing to fall back on.

A fine example is the article in Bricks N Mortar about 3 guys who built up a £1m property portfolio within 12 months. The caoital appreciation was enough for the lender to use these properties as a security. In theory, these guys should/could not possibly get the £800K required to acquire them.

TB

Edited June 14, 2006 by teddyboy

[Time to raise the rents.]

Perhaps you would care to find the data that is more than 20 years old and chart it for us needle.

I find it hard to believe that I am being criticised for merely complying with a request and then pointing out that the commonly supposed +ve property / SM correlation just doesn't show up in the data available.

As for robs point about money going into commercial property, he fails to acknowledge that stock markets go up on NEW MONEY not the stuff that is already there. Deny it all you like but there has been a wholesale turning away from the SM from private investors. Whether it is dotcom dispair, pensions piss-pot-performance, enronitis or with-profits wilt, ORDINARY people HAVE chosen to put money in Acacia Avenue INSTEAD of into bundled investments - which, you should be aware, pump money into the SM. Without new flows of funds, pension funds have found their capaital adequacy ratios severly tested and have been FORCED to sell SM investments. At the same time these same ordinary investors have ditched guaranteed equity bonds and unit trusts and pensions in favour of deposits on property which they have borrowed heavily against. So instead of Joe Soap buying a £10k unit trust, he's piled £100k (90 borrowed ) into property. You may wish to make it sound more complicated but it is the BTL investor, seeking "a property pension" that is the crucial differencebetween a property market with low interst rates and no takers and a property market as it is now. Remember FTBs dried up a year agowhilst BTLers have stepped up the pace of their purchasing. If cheap money were the sole driver, why did FTBs dry up?

Nice pictures Sledgehead and I appreciate your condid approach rather than trying to put a bear spin on it. As they say the numbers don't lie.

However I did want to point out that I have said for a very long time on this forum that private investors have turned to property in the UK only since the BTL mortgage emerged in 1997. Prior to that, they had very little opportunity for real estate investments apart from their own home and the fact that they could become a developer if they wanted to.

So IMO the property market has recovered and shares in the UK may have been overvalued by people's lack of choice of investments.

[Sledgehead]

So IMO the property market has recovered and shares in the UK may have been overvalued by people's lack of choice of investments.

roughly translated:

unpresedented and unsustainable heaps of cheap money made available to novices to invest at piss poor rates of return = BTL boom

Edited June 14, 2006 by Sledgehead

[Sledgehead]

Nice pictures Sledgehead and I appreciate your condid approach rather than trying to put a bear spin on it. As they say the numbers don't lie.

And here is why TTRTR cheers every time the Stock market falls:

Edited June 15, 2006 by Sledgehead

[Time to raise the rents.]

And here is why TTRTR cheers every time the Stock market falls:

House prices and Stock market in May (HPI is RICS enquiry based)