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Dr John Mills

House Prices Nearly Down To 1990 Prices

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Dear Readers,

I have been playing around with the Nationwide Building Society's figures, dowloadable from their website and displayed as a graph on the opening page of HousePriceCrash. It seems to me that these figures must have been overlooked by media and people in the industry. If you look at the house prices adjusted for inflation (displayed as the graph) and divide by the data set representing the 'trend' (this is more or less equivalent to average economic growth - 2.4%), you can see that house prices are actually now descending in real terms, and are within a whisker of house prices of around 1990. This means that your house (if you own one) is more or less no more valuable than it was 16 years ago. I do not own a house, but will wait until house prices are back to the normal growth region. Currently (and in ~1990), houses are 1.4 times overpriced with respect normal economic growth!!

Dr John Mills (Southampton University)

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Dear Readers,

I have been playing around with the Nationwide Building Society's figures, dowloadable from their website and displayed as a graph on the opening page of HousePriceCrash. It seems to me that these figures must have been overlooked by media and people in the industry. If you look at the house prices adjusted for inflation (displayed as the graph) and divide by the data set representing the 'trend' (this is more or less equivalent to average economic growth - 2.4%), you can see that house prices are actually now descending in real terms, and are within a whisker of house prices of around 1990. This means that your house (if you own one) is more or less no more valuable than it was 16 years ago. I do not own a house, but will wait until house prices are back to the normal growth region. Currently (and in ~1990), houses are 1.4 times overpriced with respect normal economic growth!!

Dr John Mills (Southampton University)

I'm going to be the first to admit that I have absolutely no idea what you are talking about!

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Dear Readers,

I have been playing around with the Nationwide Building Society's figures, dowloadable from their website and displayed as a graph on the opening page of HousePriceCrash. It seems to me that these figures must have been overlooked by media and people in the industry. If you look at the house prices adjusted for inflation (displayed as the graph) and divide by the data set representing the 'trend' (this is more or less equivalent to average economic growth - 2.4%), you can see that house prices are actually now descending in real terms, and are within a whisker of house prices of around 1990. This means that your house (if you own one) is more or less no more valuable than it was 16 years ago. I do not own a house, but will wait until house prices are back to the normal growth region. Currently (and in ~1990), houses are 1.4 times overpriced with respect normal economic growth!!

Dr John Mills (Southampton University)

Well if thats the case, I going out to get me 2 of those great value properties!

BTW. guessing from your 'Dr' title, you sound like youre an academic economist - have you thought of a career at BoE monetary committee? - I hear they have a couple of vacancies

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Guest The_Oldie

I think Dr Mills is saying that the housing market is in about the same position as it was in 1990, which was the begining of the last correction ;).

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Well if thats the case, I going out to get me 2 of those great value properties!

BTW. guessing from your 'Dr' title, you sound like youre an academic economist - have you thought of a career at BoE monetary committee? - I hear they have a couple of vacancies

Neither wage inflation or CPI inflation has been thundering ahead at 18% compound growth per year for a decade, so I would suggest you see a G.P, if you believe houses are the same in real terms as in 1990!

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I think Dr Mills is saying that the housing market is in about the same position as it was in 1990, which was the begining of the last correction ;).

I'm not sure he said that.

He said that houses are worth no more than they were in 1990, which is wrong, isn't it? Well, the graph on the home page say's it's wrong!

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Currently (and in ~1990), houses are 1.4 times overpriced with respect normal economic growth!!

So a 40% correction in real terms could be on the cards?

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Guest The_Oldie

I'm not sure he said that.

He said that houses are worth no more than they were in 1990, which is wrong, isn't it? Well, the graph on the home page say's it's wrong!

He has factored in growth at 2.4%.

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What he appears to be saying is that currently houses are 1.4 x what they should be. And that in 1990 they were also 1.4 x what they should be. He implies that houses will again be 1.0 x what they should be which is when people should consider buying them.

If history repeats then houses will be 0.9 x what they should be at some point ;)

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What he appears to be saying is that currently houses are 1.4 x what they should be. And that in 1990 they were also 1.4 x what they should be. He implies that houses will again be 1.0 x what they should be which is when people should consider buying them.

If history repeats then houses will be 0.9 x what they should be at some point ;)

Can't we get him back?!

He can't just pop in here and say something no one else has ever mentioned, and then disappear in a puff of smoke! :)

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So a 40% correction in real terms could be on the cards?

No, if they are priced at 1.4 now and 1.0 is the 'right' amount, then there needs to be a 28.5% fall in prices (ignoring inflation - if you add that in at 4% (for wages), then 6 years will mean that prices don't have to fall at all and they will be in line.

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No, if they are priced at 1.4 now and 1.0 is the 'right' amount, then there needs to be a 28.5% fall in prices (ignoring inflation - if you add that in at 4% (for wages), then 6 years will mean that prices don't have to fall at all and they will be in line.

So stagnation for 6 years would correct the market?

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Dear Readers,

I have been playing around with the Nationwide Building Society's figures, dowloadable from their website and displayed as a graph on the opening page of HousePriceCrash. It seems to me that these figures must have been overlooked by media and people in the industry. If you look at the house prices adjusted for inflation (displayed as the graph) and divide by the data set representing the 'trend' (this is more or less equivalent to average economic growth - 2.4%), you can see that house prices are actually now descending in real terms, and are within a whisker of house prices of around 1990. This means that your house (if you own one) is more or less no more valuable than it was 16 years ago. I do not own a house, but will wait until house prices are back to the normal growth region. Currently (and in ~1990), houses are 1.4 times overpriced with respect normal economic growth!!

Dr John Mills (Southampton University)

Blimey, lets ignore interest rates totally!

Lets make the common mistake data reverts to trends, and what really happens the trend changing with the new inputs.

For example Nationwide trend in 2000 was 1.5%

housenationwidelongtermtrend.gif

Perhaps I could be bold enough suggest some reading, if you think house prices are 40% overvalued.

Consider this If they were and fell by that amount (40%) , average rent would be 8.50%, not bad I'm sure you would agree, considering, if prices did fall to your fair value, you would expect HPI in line with economic growth + RPI (your numbers). IE about 4.5%, giving a total return of 13% when you would be able to fund it at 5% (probably less because the BOE would have cut rates,

Anyway the reading.

http://www.bankofengland.co.uk/publication...5/speech255.pdf

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So stagnation for 6 years would correct the market?

If the variables that people have given above are correct, then those numbers would fit. I did not do the research, but joining the dots, if you have 6 years compound inflation at 4% (which is where wage rises are), then that takes out the 28% correction (give or take the odd percent).

I don't know whether the 1.4 is correct - I think the problem is that these are macro numbers applied to micropricing issues - I think overall it's probably not far out, but local circumstances may dictate a greater or lesser adjustment/stagnation or even continued rises.....

Edit to add - I have assumed level interest rates - of course as others have said, if they rise, then the price may be approaching the 1.0, but the affordability of the mortgage won't be, so they are likely to drive down prices (or at least hold them back from rising).

Edited by Rachman

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NO!!!!!! What he is saying is that the graph on the home page, whereas it is adjusted for inflation, is not also adjusted for economic growth. When you factor in that too, the graph has turned past the peak and prices are falling. The 1990 bit is a red herring. He merely pointing out that is where we are now. It would be nice if he had posted the graph onto the profile then it wouldn't have caused so much confusion. If he's from Southampton University he must be good. They rock! All the best grads come from Southampton!

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NO!!!!!! What he is saying is that the graph on the home page, whereas it is adjusted for inflation, is not also adjusted for economic growth. When you factor in that too, the graph has turned past the peak and prices are falling. The 1990 bit is a red herring. He merely pointing out that is where we are now. It would be nice if he had posted the graph onto the profile then it wouldn't have caused so much confusion. If he's from Southampton University he must be good. They rock! All the best grads come from Southampton!

where did you go to university Scummy?

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geesh if you wanna own a house, buy one, if you dont then dont. who cares if its value for money or not, I bought the place cos I want to live in it, what else matters.... :blink:

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geesh if you wanna own a house, buy one, if you dont then dont. who cares if its value for money or not, I bought the place cos I want to live in it, what else matters.... :blink:

May I ask why you have visited a forum about house prices?

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Dear Readers,

I have been playing around with the Nationwide Building Society's figures, dowloadable from their website and displayed as a graph on the opening page of HousePriceCrash. It seems to me that these figures must have been overlooked by media and people in the industry. If you look at the house prices adjusted for inflation (displayed as the graph) and divide by the data set representing the 'trend' (this is more or less equivalent to average economic growth - 2.4%), you can see that house prices are actually now descending in real terms, and are within a whisker of house prices of around 1990. This means that your house (if you own one) is more or less no more valuable than it was 16 years ago. I do not own a house, but will wait until house prices are back to the normal growth region. Currently (and in ~1990), houses are 1.4 times overpriced with respect normal economic growth!!

Dr John Mills (Southampton University)

Dear Dr John Mills,

You seem to suggest that housing market grows above inflation and the surplus growth above inflation mirrors average economic growth. What would be your reasons to suggest that? National Economic growth, loosely speaking, happens due to innovations, growth in productivity and expansion. It would be rather difficult to find much of this in residential housing market. Wealth effect is inflationary so it could not play this role.

Asset prices may indeed rise above inflation if public preferences change. But this would not have much to do with the speed of national economy and could have rather short-lived effects. It would be interesting to have your opinion on that.

Many thanks

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Dear Dr John Mills,

You seem to suggest that housing market grows above inflation and the surplus growth above inflation mirrors average economic growth. What would be your reasons to suggest that? National Economic growth, loosely speaking, happens due to innovations, growth in productivity and expansion. It would be rather difficult to find much of this in residential housing market. Wealth effect is inflationary so it could not play this role.

Asset prices may indeed rise above inflation if public preferences change. But this would not have much to do with the speed of national economy and could have rather short-lived effects. It would be interesting to have your opinion on that.

Many thanks

Housing market will grow in excess of inflation, and will grow roughtly in line with wage inflation. Economic growth has little to do with it. (apart from the obvious, recession job losses, which is why total earnings are more important)

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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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