The 20% Swing

[nohpc]

A hypothesis I am thinking about:

In a booming market more nice houses are for sale and people are more likely to hold out for higher prices so average house prices are artificially inflated across the board

In a receeding market there are far fewer nice expensive houses for sale and sellers of the rubbish houses are more desperate to offload so prices seem artificially deflated across the board.

So even if prices go up or down 30% this mostly affects desirable houses in a boom (up) or cruddy houses in a crash (down).

[MSWHPC]

A hypothesis I am thinking about:

In a booming market more nice houses are for sale and people are more likely to hold out for higher prices so average house prices are artificially inflated across the board

In a receeding market there are far fewer nice expensive houses for sale and sellers of the rubbish houses are more desperate to offload so prices seem artificially deflated across the board.

So even if prices go up or down 30% this mostly affects desirable houses in a boom (up) or cruddy houses in a crash (down).

In a boom all sorts of crud gets inflated. e.g. garages going for £30k!

[ParticleMan]

So even if prices go up or down 30% this mostly affects desirable houses in a boom (up) or cruddy houses in a crash (down).

This boom was all about gearing. The crash will be, too. If you want to know what will fall furthest, and fastest - you need metrics for underwriting LTV. And I suspect the market dispersion of high LTV is uniform, with any bias likely toward middle income areas.

"Quality" is a term used to stimulate greed - by invoking pride. A useful sales tool. But not, in the final analysis, fungible.

[crashmonitor]

A hypothesis I am thinking about:

In a booming market more nice houses are for sale and people are more likely to hold out for higher prices so average house prices are artificially inflated across the board

In a receeding market there are far fewer nice expensive houses for sale and sellers of the rubbish houses are more desperate to offload so prices seem artificially deflated across the board.

So even if prices go up or down 30% this mostly affects desirable houses in a boom (up) or cruddy houses in a crash (down).

Definitely agree that price rises have been exagerated by the indicies on the way up.We have just had the biggest MEW fest in history,people have invested most of that back into home improvements.You certainly aren't comparing apples with apples from say 1996 to 2007 whence prices peaked.Even more bizarre is the land registry basing its index on flips,houses that are resold.No doubt the indicies could get distorted on the way down as investors try and offload Detroit- style trashed homes in the forthcoming slump.

[nohpc]

This boom was all about gearing. The crash will be, too. If you want to know what will fall furthest, and fastest - you need metrics for underwriting LTV. And I suspect the market dispersion of high LTV is uniform, with any bias likely toward middle income areas.

"Quality" is a term used to stimulate greed - by invoking pride. A useful sales tool. But not, in the final analysis, fungible.

the market dispersion of LTV is uniform but the market dispersion of sub prime is not. Sub prime more likely to have undesirable cheaper properties in not so nice areas whereas prime the opposite. So in a crash way more subprime properties being sold and far fewer decent properties = artifically lower prices.

Land reg should account for that though because they compare like for like I guess.

[ParticleMan]

the market dispersion of LTV is uniform but the market dispersion of sub prime is not. Sub prime more likely to have undesirable cheaper properties in not so nice areas whereas prime the opposite. So in a crash way more subprime properties being sold and far fewer decent properties = artifically lower prices.

I think the effects will net out. Just to be clear - I'd take a good guess that where V in LTV is set by income as it was before and will be again, there will be a rapid and involuntary de-gearing of so-called "prime" borrowers in middle-income (ie, "nice") areas.

Associating "poor" and "not so nice" with "sub-prime" doesn't seem a useful construct to me. There's plenty of poor people living in "nice" areas. And plenty of "not so nice" areas with low gearing, too.

Edited February 29, 2008 by ParticleMan

[babesagainstmachines]

The credit constraints that apply to the least creditworthy in a chain will apply to the whole chain. Basically, they will all fall in proportion.

Could anyone tell me what an "executive home" is. And why they build estates with hundreds of them. Is everyone an "executive" nowadays?

[Benedict]

Definitely agree that price rises have been exagerated by the indicies on the way up.We have just had the biggest MEW fest in history,people have invested most of that back into home improvements.You certainly aren't comparing apples with apples from say 1996 to 2007 whence prices peaked.Even more bizarre is the land registry basing its index on flips,houses that are resold.No doubt the indicies could get distorted on the way down as investors try and offload Detroit- style trashed homes in the forthcoming slump.

In that case have they really been distorted? Surely then some of the price rises are for genuine improvements in the value of the housing stock, which are changes that wouldn't be expected to be cyclical (barring trashing of homes).

[crashmonitor]

The credit constraints that apply to the least creditworthy in a chain will apply to the whole chain. Basically, they will all fall in proportion.

Could anyone tell me what an "executive home" is. And why they build estates with hundreds of them. Is everyone an "executive" nowadays?

Presumably only executives can afford the 20% depreciation as soon as the keys are handed over on these places which are ramped by the incentive package.Rather like buying a luxury new car.

[Son of Taeper]

The credit constraints that apply to the least creditworthy in a chain will apply to the whole chain. Basically, they will all fall in proportion.

Could anyone tell me what an "executive home" is. And why they build estates with hundreds of them. Is everyone an "executive" nowadays?

An "executive home" to my mind is a home that non executives aspire to. You rarely find executives living in them because of the lack of space inside and out.

A friend of mine (happens to be a btl landlord) who I hadn't seen for years came to visit me a year or so back and passed the comment "I see you've got yourself a nice riverside executive home" I almost fell off the chair laughing. Sure it was nice enough but we only bought it because we couldn't afford a property with character in the same area.

[huw]

"Quality" is a term used to stimulate greed - by invoking pride. A useful sales tool. But not, in the final analysis, fungible.

Houses in general are not fungible. Okay, identical new-build apartments in the same block might be, but even then there will be differences that might make a buyer choose one over another.

Housing "quality" might not be measurable ... but I suspect most of us can detect it, or its absence.

[huw]

An "executive home" to my mind is a home that non executives aspire to. You rarely find executives living in them because of the lack of space inside and out.

A friend of mine (happens to be a btl landlord) who I hadn't seen for years came to visit me a year or so back and passed the comment "I see you've got yourself a nice riverside executive home" I almost fell off the chair laughing. Sure it was nice enough but we only bought it because we couldn't afford a property with character in the same area.

What's an executive in any case? I remember in the 70s they used to advertise executive this and executive that (selling briefcases and the like) but what does it mean?

[mitchbux]

Could anyone tell me what an "executive home" is.

One toilet per occupant.

[thedebtisreal]

People keep telling me that the big nice properties suffer less in a crash.

Doesn't seem to be working that way though. In my borough (Hammersmith and Fulham) prices fell 7.5% last quarter (Land Registry, sorry EDM). The majority of that fall came from detached homes. So, I'm not sure I believe that anymore. I'd be quite happy with a fall in flat prices myself.

Edited February 29, 2008 by thedebtisreal

[lets get it right]

The credit constraints that apply to the least creditworthy in a chain will apply to the whole chain. Basically, they will all fall in proportion.

Could anyone tell me what an "executive home" is. And why they build estates with hundreds of them. Is everyone an "executive" nowadays?

An executive home is one where the attempt to own it effectively executes your lifestyle. The executive home can be thought of as your boss. You have to work hard to please it, indeed, to keep it.

It is in no way a home FOR an executive. Rather IT is the executive and you are its humble servant.

[Ursus Helvetica]

A hypothesis I am thinking about:

In a booming market more nice houses are for sale and people are more likely to hold out for higher prices so average house prices are artificially inflated across the board

In a receeding market there are far fewer nice expensive houses for sale and sellers of the rubbish houses are more desperate to offload so prices seem artificially deflated across the board.

So even if prices go up or down 30% this mostly affects desirable houses in a boom (up) or cruddy houses in a crash (down).

You're slipping. Does this mean that you're going to change your name to nonicehousepc?

[silver surfer]

"Quality" is a term used to stimulate greed - by invoking pride. A useful sales tool. But not, in the final analysis, fungible.

I disagree.

Most of us instinctively understand what quality is in the context of housing, it's those aspects of a property that enhance the utility of occupation. For example, of two otherwise identical properties on a street, the one with a south-west facing garden is of higher quality than the one on the other side of the street with a north-east facing garden.

But during a boom most people get a bit light-headed and lose this grounding. In a desperate rush to get on and up the housing ladder any old tat becomes acceptable. But during a bust there's a return to more sensible discrimination between properties, and we realise that actually the majority of Britain's housing stock (and this applies to all price bands) just isn't very good.

[silver surfer]

A hypothesis I am thinking about:

In a booming market more nice houses are for sale and people are more likely to hold out for higher prices so average house prices are artificially inflated across the board

In a receeding market there are far fewer nice expensive houses for sale and sellers of the rubbish houses are more desperate to offload so prices seem artificially deflated across the board.

So even if prices go up or down 30% this mostly affects desirable houses in a boom (up) or cruddy houses in a crash (down).

Unfortunately this was pretty much my experience during the 1989/95 crash. I'd successfully sold a property and was looking to buy. But instead of being an easy process it was just a hard grind. I had the money, but the properties just weren't there. Estate agent windows were full of the same old badly compromised rubbish (north facing gardens, poor access to transport and amenities, dodgy extensions, low bathroom to bedroom ratios, etc). It's almost as if it needs record prices to tempt owners of the genuinely desirable properties in any price band to actually offer their houses for sale!

[zinny01]

the market dispersion of LTV is uniform but the market dispersion of sub prime is not. Sub prime more likely to have undesirable cheaper properties in not so nice areas whereas prime the opposite. So in a crash way more subprime properties being sold and far fewer decent properties = artifically lower prices.

Land reg should account for that though because they compare like for like I guess.

nohope, that depends on your classification of sub prime. If you classify my mate who earns a joint income of £80,000 with his partner who lied to buy a £800,000 house in Clapham last year with a deposit of £200,000 as sub prime then you are going to find a lot of high value homes, especially in London, which are sub prime.

We've had the conversation before about you making assumptions ahead of reality.

[crashmonitor]

In that case have they really been distorted? Surely then some of the price rises are for genuine improvements in the value of the housing stock, which are changes that wouldn't be expected to be cyclical (barring trashing of homes).

Benedict totally agree that the indicies are reflecting the value of homes today including the genuine improvements.My bug bear is that Bulls then apply the index as direct profit without considering the cost of those improvements,the average spend being £4000 per annum and wiping out 2% of the growth every year.Now we are at 2.7% annual growth,that has been achieved by an outlay of 2% .