Sunday Times - David Smith

[Bearfacts]

Dear David Smith,

I am sure, as you predicted, that you will have had a good response to your most recent column in the Sunday Times ‘End of house price boom is in sight’. You have inspired me to write too. I am a regular reader of your column and as a non-economist have learnt much from you over the last few years whilst not always agreeing with your analysis. Your most recent column being no exception.

You state in your article that house price crashes are rare and never occur in the absence of a recession. To the best of my knowledge since 1945 there have been three crashes in real terms. As I do not have ready access to data I cannot be precise on the dates but I believe there was a ‘correction’ in the late 50’s as well as a full blown crash in the 70s, again in real terms, and of course no one could / should forget the crash of the 80’s 90’s where prices fell nominally as well. That makes 3 crashes since the war – not exactly rare , more of a regular feature of the UK economy.

I lived through the crash of the 80’s 90’s and owned a flat in London at the time so I remember the period well. My recollection is that the recession started in 92, sometime after the property market started to fall in 89/90. The implication being that the property market crash caused the recession and subsequent unemployment and not the other way around ?

You also state that the UK economy is strong. With record levels of personal and public debt and record levels of insolvencies I think this is debatable. My hunch is that the UK economy appears to be strong because of inflation in the housing market. Afterall it was Mr George who said that the BOE stimulated an unsustainable ( his words ) boom in the market in order to avoid a recession in 2001.

Also, if I may just make a point I believe the soft landing that you predict is not possible for the following reason.

The current level of prices has been achieved and supported by and is dependant on speculation or BTL on an unprecedented scale. I believe something like ¼ of all house purchased in 2006 were for BTL. From all the reports I have read BTL now only makes financial sense if you believe that there will be further capital appreciation. Therefore if the prospect of further capital appreciation is removed there is no incentive for speculators to purchase and indeed a very large incentive for them to sell their property. With speculators / BTLs out of the equation there is nothing to support the bottom of the market. True FTBs are a rare breed now and it’s a long way down to the level at which FTBs will be tempted back in in numbers.

I suspect that you will have been deluged by responses and almost certainly won’t reply on an individual basis but perhaps you could respond to questions and issues raised in a future column.

His reply ( must have been a quiet day at the office !)

Thanks for your-email. There was no house price crash in the 1950s. The only significant nominal fall in the post-war period was in the early 1990s. The economy entered recession in mid-1990, at which time house prices were still rising. Then they fell. The BTL point is one that has been made for years, of course, though there is no sign that landlords are about to desert the market - they're still coming in.

Best wishes

David Smith

Clearly he missed my point about price corrections in real terms. Any thoughts on a response ?

Whatever - the point is that we should take the trouble to e-mail / phone into to radio programs / write to MPs etc because people sometimes really do take notice.

If you happen to be reading this David - thank you for taking the trouble to reply to me - you have risen inestimably in my opinion - although I still don't agree with your analysis - I hope you don't mind me posting your reply - it might widen this fascinating debate.

Edited May 28, 2007 by Bearfacts

[Jimmy2Times]

His response seems to be that of a office boy, I doubt he wrote it, if he did then he's an even bigger pri** than I had first thought.

Edited May 28, 2007 by Jimmy2Times

[munimula]

Whatever - the point is that we should take the trouble to e-mail / phone into to radio programs / write to MPs etc because people sometimes really do take notice.

Absolutely.

This is the latest response from my Tory MP in Poole;

Dear X

Thank you for your recent letter concerning housing. I agree with the points that you make.

There is a gulf between those that own their own homes and those that do not. Housing has been a refuge for money that might have been put in a pension and this has made things worse. The only option I see is to have housing policies that make shared equity a priority so people can get on the housing ladder.

My party currently have a policy review with(sp!) when completed will form the basis for our manifesto I am sure my party will have a lot to say about this then as there will be many thousands of people who will be looking for reassurance that we have there(sp!) interests at heart.

Yours sincerely,

Let them know it's an issue

[Jason]

You do know he has a forum:

http://economicsuk.com/discussion/index.php

I think he still misses the point about BTL, even if they don't sell (which they might not) lack of new entrants will reduce demand enough to bring about a correction. I've argued such points before on his website.

[Sinking Feeling]

I would send him the list of all the articles from The Times going back to 1988 talking about the falling market.

Please post if anyone knows where it is!!

[BuyingBear]

There was a whopping crash in the 70's in real terms.

[Guest Charlie The Tramp]

I would send him the list of all the articles from The Times going back to 1988 talking about the falling market.

Please post if anyone knows where it is!!

See Jason`s signature above.

[Guest Charlie The Tramp]

There was a whopping crash in the 70's in real terms.

Too true BB, 76-77, the time Charlie steamed in with his 4 bed detached at 3x single earnings. The crash which Evan called the hidden and forgotten one.

There were many bargains about in 1969-1970, I bought a 2 bed maisonette at that time for £3.95k which was sold as a new build in 1967 for £4.5k.

[Sinking Feeling]

From the list:

5th November 1988. House prices crumble - The Times

[Saving For a Space Ship]

Too true BB, 76-77, the time Charlie steamed in with his 4 bed detached at 3x single earnings. The crash which Evan called the hidden and forgotten one.

There were many bargains about in 1969-1970, I bought a 2 bed maisonette at that time for £3.95k which was sold as a new build in 1967 for £4.5k.

Indeed, link to Evan mention of 70S crash to pass to the journo muppet

[BuyingBear]

There were many bargains about in 1969-1970, I bought a 2 bed maisonette at that time for £3.95k which was sold as a new build in 1967 for £4.5k.

Aww, decimal points, how nostalgic!

[Converted Lurker]

Smith's latest piece sickened me quite frankly, it's akin to listening to the guy from one of the previous series of Harry Enfield, the one who has an opinion and is then swayed by the consensus of his mates down the pub, he's that good

There is no consistency to his theme and views at all, he's an economic butterfly and a lightweight. He cites Lehman's 15% 'fair market' correction and then agrees, lazy tw@t, simply wrapping a whole article around someone elses rather pointless conservative prediction, how bold

Is the end of the house price boom in sight?

David Smith opines on the housing market. Referring to himself as Tom Jones is a tad arrogant, perhaps Elvis, at the end of his career, bloated on a diet of burgers whilst sitting on the throne would be a more appropriate image. Come to think of it, substitute throne for fence, which is the dubious 'high ground' David has sat on for a year or two, and we'd be about spot on...

Whenever I write about the housing market I feel a bit like Tom Jones, with his army of underwear-throwing fans. On the one hand it is always good to get a response. On the other, you're never quite sure what you are going to get.

http://firstrung.co.uk/articles.asp?pageid...&cat=44-0-0

Edited May 28, 2007 by Converted Lurker

[Converted Lurker]

Aww, decimal points, how nostalgic!

old money too?

[SeenItAllBefore]

Here are the stats for the last crash:

Year House Sales GDP

1985 1,743,000 +3.6

1986 1,801,000 +4.0

1987 1,937,000 +4.6

1988 2,148,000 +5.0

1989 1,580,000 +2.2

1990 1,398,000 +0.8

1991 1,306,000 -1.4

1992 1,136,000 +0.2

The health of the housing market and the economy in general look to have been pretty intertwined to me. I worked in the industry in 1988-89 and remember how things ground to a halt because a gap opened up between seller's and buyer's valuations. Once that had happened the recession 2 years down the line that would cause the sellers to capitulate and prices to fall was in the pipeline anyway.

As this graph shows the same thing happened in 2004-2005 when transaction volumes fell by a third in 12 months but the MPC was wise to it this time and cut rates to kick start the housing market just in time.

http://www.statistics.gov.uk/CCI/nugget.as...=1&Rank=144

I think people like David Smith conveniently confuse cause and effect to support their arguments but I guess that only time will tell who is right on this one.

[BuyingBear]

old money too?

A pound is a pound is as worthless as a pound.

[Guest Charlie The Tramp]

old money too?

I converted to decimal in case you lot did not understand Imperial.

Here`s some nostalgia for you

Imperial - UK units, coins and notes of Old Money, pre Feb 1971

2 farthings = 1 halfpenny pronounced 'hapepenny' = 0.208p

4 farthings = 1 penny ( d ) Latin - denarius = 0.417p

3 pennies = 1 threepenny bit used to be 'silver', then bronze = 1.25p

6 pennies = 1 sixpenny piece first coin in nickel = 2.5p

12 pennies = 1 shilling ( s ) a bob as in 'bob a job' = 5p

2 shillings = 1 florin a tenth of a pound = metric! = 10p

2s - 6p = 1 half crown biggest coin in regular use = 12.5p

10 shillings = 1 ten 'bob' note first in paper money = 50p

20 shillings = 1 pound note (quid) = £1

Boy did we get a jump in inflation when we converted, just as some countries found when the EU went to the Euro.

[BandWagon]

I wrote this in Jan 06 on David Smith's forum, I suggest you have a look...

http://www.economicsuk.com/discussion/viewtopic.php?t=23

[SeenItAllBefore]

So, in November 2005 he says:

“What we are going to see is modest or no rises in house prices. A very dull market in some ways. A house price crash in the absence of an economic recession? It just doesn’t happen in the UK.”

I don’t think the current 10% plus HPI really constitutes “modest or no rises in house prices” does it? At the time he and others were toting the “stagnation while salaries catch up” theory - but that hasn’t happened. Why? Because if the market stagnates we’ll have the recession he says is necessary to cause a house price crash and the MPC will do whatever it takes to avoid that.

I think that although an increase in housing market activity may initially be stimulated by a growing economy that doesn’t mean that this cannot take over and become the main reason for a wider boom. I’m not sure why he doesn’t want to see this, it seems obvious to me.

[the end is a bit nigher]

He is factually incorrect and strikes me as being a completet knob.

[BandWagon]

What we are going to see is modest or no rises in house prices. A very dull market in some ways. A house price crash in the absence of an economic recession? It just doesn't happen in the UK.

It would be more correct to say "A recession in the UK? It just doesn't happen without a house price crash."

Edited May 28, 2007 by BandWagon

[aardvark]

I wrote this in Jan 06 on David Smith's forum, I suggest you have a look...

http://www.economicsuk.com/discussion/viewtopic.php?t=23

damn he's a stubborn git - your argument clearly show he is wrong and yet he refuses to even acknowledge that a different point of view is possible - he would make a terrible scientist!

[Nickolarge]

damn he's a stubborn git - your argument clearly show he is wrong and yet he refuses to even acknowledge that a different point of view is possible - he would make a terrible scientist!

He wrote,

Despite the chart, the housing market does not "cause" recessions. The route normally runs from an external shock e.g. an oil supply shock, through loss of control of monetary policy - for which there are many examples in UK economic history - through to recession. The housing market is affected, as is the rest of the economy. A housing recession is part of a general recession. The cause is the same - high interest rates - but these tend to act rather more quickly on housing than the economy a whole.

When interest rates bite, as they are doing now, I start cutting down on day to day items. I don't dash out and sell my house at a cut price. I have thought for many years that economics is far from being a science. Most economists are no better than the guys who run those premium rate horse tipping services.

Why, for example, did they once think a wage freeze was the way to fight inflation. You freeze wages and spending slows but prices still rise and business' fail leading to high unemployment. If you froze prices folk keep buying and the factories keep producing and jobs are saved.

There is no limit to the amount of things an ordinary family will buy if you give them the cash. Expenditure always rises to meet income. In the absence of inflation that extra money goes on more items purchased. More demand normally means higher prices but with a price freeze the only way to make money from the demand is to meet it by producing more goods. More goods mean more jobs. More jobs means more people spending. This economic dynamic has been stifled by those who try to control demand by putting prices up. Interest rate rises are part of this corrupt system. If the Americans can have generally higher wages compared to prices (disposable income) why can't we? Because they broke away from the system of control that we labour under over 200 years ago (landed gentry,keeping us in our proper place,etc.). Since then they have had those freedoms eroded and they have slowly but surely come back under that umbrella of control but they still have some way to go.

The fact that property ownership is seen as the be all and end all by many is just a product of the brainwashing that has gone on here for centuries.

[BoomBoom]

Uggh. Why even give that sh1t the oxygen of publicity. He's a ninny who frequently parrots the VI POV as fact.

[Si1]

He is factually incorrect and strikes me as being a completet knob.

I'd have to agree with that - he's quite breathtakingly dismissive, very flippant

he devalues his argument this way too

[the_duke_of_hazzard]

I'd have to agree with that - he's quite breathtakingly dismissive, very flippant

he devalues his argument this way too

Yup, if he thinks house prices didn't crash in the seventies then I'd like to borrow 100K from him now, promising him 101K in 25 years time. He should jump at it.