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Willy Weasel

Prof Miles - Hpc Hero

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Back in November last year Prof Miles produced a paper for Morgan Stanley (reproduced in full in the Resources section of this site). Here's an extract from the introduction to the report:

We estimate that a substantial part of the doubling of UK real house prices over the past ten years is due to income growth, population growth and falling real interest rates. However, one third to one half reflects changes in expected house price inflation — that is a speculative element of demand, which is likely to be volatile. Falling real house prices at some point are likely, but timing is very difficult to predict. The key question is whether, starting from here, we are likely to have significant falls in real house prices once those expectations come down. We think this is quite likely — but our simulations suggest that the timing is very hard to fathom and that we could still get a year or so of rising real house prices. So a substantial fall in real house prices is likely at some point in the relatively near future, though it could yet be one to two years away.

Read the report in full - it's still the best analysis of the housing bubble that I've read

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The other bloke whose analysis/prediction I would love to see come true is that of Prof Congdon ... think I got his name right ... you know the one ... he and his economic chums got together and wrote that letter to Merv advising him that if they didn't get a grip, CPI and base rates would launch into orbit.

Real inflation won't be so great ... but I'd be happy with the idea on base rates :rolleyes::rolleyes:

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Guest DissipatedYouthIsValuable
Back in November last year Prof Miles produced a paper for Morgan Stanley (reproduced in full in the Resources section of this site). Here's an extract from the introduction to the report:

We estimate that a substantial part of the doubling of UK real house prices over the past ten years is due to income growth, population growth and falling real interest rates. However, one third to one half reflects changes in expected house price inflation — that is a speculative element of demand, which is likely to be volatile. Falling real house prices at some point are likely, but timing is very difficult to predict. The key question is whether, starting from here, we are likely to have significant falls in real house prices once those expectations come down. We think this is quite likely — but our simulations suggest that the timing is very hard to fathom and that we could still get a year or so of rising real house prices. So a substantial fall in real house prices is likely at some point in the relatively near future, though it could yet be one to two years away.

Read the report in full - it's still the best analysis of the housing bubble that I've read

He's wrong about the size of the fall, however, it'll be 60%

Edited by DissipatedYouthIsValuable

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Back in November last year Prof Miles produced a paper for Morgan Stanley (reproduced in full in the Resources section of this site). Here's an extract from the introduction to the report:

We estimate that a substantial part of the doubling of UK real house prices over the past ten years is due to income growth, population growth and falling real interest rates. However, one third to one half reflects changes in expected house price inflation — that is a speculative element of demand, which is likely to be volatile. Falling real house prices at some point are likely, but timing is very difficult to predict. The key question is whether, starting from here, we are likely to have significant falls in real house prices once those expectations come down. We think this is quite likely — but our simulations suggest that the timing is very hard to fathom and that we could still get a year or so of rising real house prices. So a substantial fall in real house prices is likely at some point in the relatively near future, though it could yet be one to two years away.

Read the report in full - it's still the best analysis of the housing bubble that I've read

I'll have a look per your recommendation tuffers, tho' that introductory extract reads like a statement of the very bleedin' obvious that any of many punters on here might have written. Anyone whose single paragraph summary contains 5 uses of 'likely' sounds like they're madly hedging (sorry, it jumped out, poor editing to leave that in the introduction).

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I'll have a look per your recommendation tuffers, tho' that introductory extract reads like a statement of the very bleedin' obvious that any of many punters on here might have written. Anyone whose single paragraph summary contains 5 uses of 'likely' sounds like they're madly hedging (sorry, it jumped out, poor editing to leave that in the introduction).

Give the whole article a read. Here's another extract for you:

All this prompts an obvious question: have we reached a situation where house prices are so high that they cannot be

sustained for much longer? Very simple measures of affordability (most obviously the ratio of average house prices

to average household incomes) look immensely stretched relative to past levels. But any consideration of demand and

supply for housing makes it clear that house prices should depend on a wide range of factors, which include average

incomes, interest rates, movements in population and the pace of new house building. Unless we take some account of

a much wider range of factors than just incomes, it makes little sense to talk of house prices as being unsustainable.

But neither does it help at all in judging the sustainability of prices to say that supply has not gone up enough relative to demand and that is why prices are so high. That is just a truism and devoid of value as a means to assess whether

prices are on a sustainable path or instead have been driven up by expectations of future high values that cannot

themselves be fulfilled. House prices are whatever they need to be to match supply with demand — this is a market that

clears. But it does not follow that we are in a sustainable equilibrium; we can be in a bubble. This would be a situation

where the beliefs about what happens to prices in the future — a likely key driver of demand today — are not consistent

with the path of prices that matches demand to supply. That is the definition of an unsustainable path, or bubble.

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Give the whole article a read. Here's another extract for you:

All this prompts an obvious question: have we reached a situation where house prices are so high that they cannot be

sustained for much longer? Very simple measures of affordability (most obviously the ratio of average house prices

to average household incomes) look immensely stretched relative to past levels. But any consideration of demand and

supply for housing makes it clear that house prices should depend on a wide range of factors, which include average

incomes, interest rates, movements in population and the pace of new house building. Unless we take some account of

a much wider range of factors than just incomes, it makes little sense to talk of house prices as being unsustainable.

But neither does it help at all in judging the sustainability of prices to say that supply has not gone up enough relative to demand and that is why prices are so high. That is just a truism and devoid of value as a means to assess whether

prices are on a sustainable path or instead have been driven up by expectations of future high values that cannot

themselves be fulfilled. House prices are whatever they need to be to match supply with demand — this is a market that

clears. But it does not follow that we are in a sustainable equilibrium; we can be in a bubble. This would be a situation

where the beliefs about what happens to prices in the future — a likely key driver of demand today — are not consistent

with the path of prices that matches demand to supply. That is the definition of an unsustainable path, or bubble.

OK, OK, I give in, I'll read it this evening... :rolleyes:

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