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Redefining Crash Speed - An Argument For -0.3% Per Month

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We've often discussed what constitutes a crash. One viable definition is 1% per month. Here's an alternative - how about this:

If a house falls in value by more than it costs to rent it (say, per month), then that is a crash. This means people save money by STR and buying back into the market later. If prices fall faster than this, then the price falls should be self-perpetuating.

To see what that means in real money, if an average house in a region costs 200k, and rents out for 600 pcm, then that means it has to fall in value by 600 pcm for it to be crash. 600 pcm is (I think) a reasonable rent for a 200k property (it works out at 7200 per year, which is 3.6% yield - about right). Prices falling at 600pcm for a 200k property is also 3.6%, which means crash speed is negative the average yield - about 0.3% per month.

This definition could be refined - to account for the cost of STR and buying back, and figured over, say, six months (say 2% over six months). So a crash is when houses fall by half their annual yield in half a year.

Does the panel agree? :o

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I'm sorry but you are in cloud cuckoo land. Trying to define a crash like this is pointless. You know you're in a crash when the For Sale boards rarely turn to Sold. When the talk in pubs and offices turns to the 'falling housing market.' When fear of redundancy and repossessions stalks the land. Then you are in crash territory and the only houses that sell go at way below asking price after months and months - or even a year - on the market.

It is very hard to turn a bull market into a bear market. The 5 rate rises from 3.5% to 4.75% were definitely doing the trick. The one rate drop last Autumn triggered a new bull market this Spring.

It shows how resilient the market is, how many fools there are, how much more borrowing there is to be done yet. Houses don't go down in nice neatly measured little chunks each month. If prices are falling, it happens very slowly and in big chunks.

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Smiley

Please do not even think about changing the parameters - unless you want to change your name aswel to Gordon...

fp

Edited by Financial Planner

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Sounds reasonable.

I am looking at detached homes in the Stratford area and according to the ODPM's stats for the Q just ended in March 2006:

Stratford-On-Avon £328,827 -8.2% -8.8%

http://news.bbc.co.uk/1/shared/spl/hi/in_d.../county98.stm?d

That is -8.8% YoY and -8.2% for the quarter. A massive rate of acceleration. Some say the sample size is too small to be accurate but I am also monitoring hundreds of properties in our local news papers and note the growing number of "price reduced" ads which are showing 5k off in a month on cheaper BTL-type properties. Drops from 125k to 120k.

The average detached at 328k is dropping at a rate of 28k a quarter (-8.8% last Q) which is far more than the rent on such a property. I am paying 750 a month rent on a house that is worth about 325 so you can see the enormous losses landlords are taking.

The West Midlands has high priced homes but sentiment is turning uglier by the week due to the closure of major manufacturing plants such as Peugeot, Rover, Landrover and the knock on effect on related suppliers.

We are in full crash mode around here. :)

Edited by Realistbear

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Sounds reasonable.

I am looking at detached homes in the Stratford area and according to the ODPM's stats for the Q just ended in March 2006:

Stratford-On-Avon £328,827 -8.2% -8.8%

http://news.bbc.co.uk/1/shared/spl/hi/in_d.../county98.stm?d

That is -8.8% YoY and -8.2% for the quarter. A massive rate of acceleration. Some say the sample size is too small to be accurate but I am also monitoring hundreds of properties in our local news papers and note the growing number of "price reduced" ads which are showing 5k off in a month on cheaper BTL-type properties. Drops from 125k to 120k.

The average detached at 328k is dropping at a rate of 28k a quarter (-8.8% last Q) which is far more than the rent on such a property. I am paying 750 a month rent on a house that is worth about 325 so you can see the enormous losses landlords are taking.

The West Midlands has high priced homes but sentiment is turning uglier by the week due to the closure of major manufacturing plants such as Peugeot, Rover, Landrover and the knock on effect on related suppliers.

We are in full crash mode around here. :)

Figures from Home.co.uk agree with your prognosis but not to quite the same extent.

http://www.home.co.uk/guides/house_prices_...&lastyear=1

It seems to be flats that have suffered worst....has there been much in the way of new developments there?

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Figures from Home.co.uk agree with your prognosis but not to quite the same extent.

http://www.home.co.uk/guides/house_prices_...&lastyear=1

It seems to be flats that have suffered worst....has there been much in the way of new developments there?

Yus, home.co only show a -6% drop in average prices compared with -8.8% according to the ODPM. The "truth" probably lies somewhere in between.

Apr 2005 Apr 2006 Change
Detached £365,910 £344,167 -6%

The huge drop last quarter is reflected in both the ODPM and on Home.co's chart. Might be reflecting the rush to get out following all the announcements of factory closures around here that quarter.

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Yus, home.co only show a -6% drop in average prices compared with -8.8% according to the ODPM. The "truth" probably lies somewhere in between.

Apr 2005 Apr 2006 Change
Detached £365,910 £344,167 -6%

The huge drop last quarter is reflected in both the ODPM and on Home.co's chart. Might be reflecting the rush to get out following all the announcements of factory closures around here that quarter.

the truth is there are low transaction quantities and the number varies wildly, and has done for the past 5 years.

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Sounds reasonable.

I am looking at detached homes in the Stratford area and according to the ODPM's stats for the Q just ended in March 2006:

Stratford-On-Avon £328,827 -8.2% -8.8%

http://news.bbc.co.uk/1/shared/spl/hi/in_d.../county98.stm?d

That is -8.8% YoY and -8.2% for the quarter. A massive rate of acceleration. Some say the sample size is too small to be accurate but I am also monitoring hundreds of properties in our local news papers and note the growing number of "price reduced" ads which are showing 5k off in a month on cheaper BTL-type properties. Drops from 125k to 120k.

The average detached at 328k is dropping at a rate of 28k a quarter (-8.8% last Q) which is far more than the rent on such a property. I am paying 750 a month rent on a house that is worth about 325 so you can see the enormous losses landlords are taking.

The West Midlands has high priced homes but sentiment is turning uglier by the week due to the closure of major manufacturing plants such as Peugeot, Rover, Landrover and the knock on effect on related suppliers.

We are in full crash mode around here. :)

Hi

the sample size is very small, here are the L/R numbers, which have about 4X the size of the ODPM numbers

http://www.upmystreet.com/property/prices/...avon-90924.html

Now if you believe these are correct then from 1Q03 the average house price was £231,250 , then by 3Q03 it was £533,500 and now they are down to £303,555. Obviously if you believe this has nothing to do with very small samples, the crash has already happened?

Hi

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Guest wrongmove

I am looking at detached homes in the Stratford area and according to the ODPM's stats for the Q just ended in March 2006:

Stratford-On-Avon £328,827 -8.2% -8.8%

http://news.bbc.co.uk/1/shared/spl/hi/in_d.../county98.stm?d

That is -8.8% YoY and -8.2% for the quarter.

We are in full crash mode around here. :)

RB, a very short, very basic bit of stats:

There were 162 sales used to calculate the QoQ figure. Statisically, that means that the standard error of this data is one over the square root of the number of samples, i.e. 0.079 or 7.9%. That means that more than 60% of the averages will be within +/- 7.9% of the "true" value. The other 40% will be even worse.

So what LR is really saying is that the QoQ drop was 8.2% +/- 7.9%.

Now this could be the real figure is -16%. Or it could mean that we are just looking at noise............. :)

You can do this calculation for all of you figures - the results would be intriging !

Rule of thumb: 25 bits of data, error is 20%, 100 bits of data, error is 10%, 10,000 bits of data, error is 1%

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Hi

the sample size is very small, here are the L/R numbers, which have about 4X the size of the ODPM numbers

http://www.upmystreet.com/property/prices/...avon-90924.html

Now if you believe these are correct then from 1Q03 the average house price was £231,250 , then by 3Q03 it was £533,500 and now they are down to £303,555. Obviously if you believe this has nothing to do with very small samples, the crash has already happened?

Hi

That's why I have said I don't believe any stats. Looking around me, tells me prices are going down. I believe my eyes.

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Marina

Please do not even think about changing the parameters - unless you want to change your name aswel to Gordon...

fp

I'm not sure what you mean but it sounds like 'we've found a way to convince ourselves a slow, very drawn out crash is happening and we don't want anyone pointing out it is nonsense'.

Fair enough.

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I'm sorry but you are in cloud cuckoo land. Trying to define a crash like this is pointless. You know you're in a crash when the For Sale boards rarely turn to Sold. When the talk in pubs and offices turns to the 'falling housing market.' When fear of redundancy and repossessions stalks the land. Then you are in crash territory and the only houses that sell go at way below asking price after months and months - or even a year - on the market.

It is very hard to turn a bull market into a bear market. The 5 rate rises from 3.5% to 4.75% were definitely doing the trick. The one rate drop last Autumn triggered a new bull market this Spring.

It shows how resilient the market is, how many fools there are, how much more borrowing there is to be done yet. Houses don't go down in nice neatly measured little chunks each month. If prices are falling, it happens very slowly and in big chunks.

Spot on post imho.

I think that borrowing is the key here! The banks are starting to get stung with lots of BAD DEBT. So I would like to add that there is also another factor here.

I know of people who are IN EMPLOYMENT who cannot sustain their debt levels. There is talk around NOW about this. People will GO OFF BORROWING. Banks will GO OFF LENDING.

TB

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I’m all for speculating how the rate of property is going to fall, but here in Brighton they are still going up. :angry:

I know someone who put a place up for sale last October at £730k. They just sold for £640k.

Don't tell me they're still going up! ;)

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I know someone who put a place up for sale last October at £730k. They just sold for £640k.

Don't tell me they're still going up! ;)

I know someone who was looking for a 4 bed detached cottagey sort of place in Hampshire. Saw a place - offers in the region of 800k. Someone had offered 820 so he offered 880. He pulled out when it got to 980.

What is the point of mentioning what happened to one (top end of the market) property? That end of the market is always very fickle.

Spot on post imho.

I think that borrowing is the key here! The banks are starting to get stung with lots of BAD DEBT. So I would like to add that there is also another factor here.

I know of people who are IN EMPLOYMENT who cannot sustain their debt levels. There is talk around NOW about this. People will GO OFF BORROWING. Banks will GO OFF LENDING.

TB

It's true that this is becoming a regular media subject. Which is good. But, as someone else said, lenders seem to be launching ever dafter offers at the moment. Saturday's Telegraph had a feature on some mob launching new shared ownership mortgages - for 'everyone' not just 'key' workers - with very lax lending criteria.

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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% +
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      • Even
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      • up 5%



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