Hp Crash Will Accelarate From Here

[IMHAL]

Folks,

If you look at the shape of the last peak/slide in house prices starting at the peak in 1989 (see home page) - you will notice a period of about 1 year where house prices slide quite gradually from the peak until 1990 i.e. until it reached YOY negative as it has just done - the decline from that point on becomes precipitous.

I put to you that we have now reached the same point i.e. we are the equivalent stage in the cycle as 1990 - I think the ride down is going to be spectacular - I would not be suprised to see a 20% or greater falls in house prices from May 2008 to May 2009. I say greater because 1) house prices have risen further this time as a percentage of take home pay and 2) nominal prices are not as tainted by inflation as they where back then - i.e. wage demands are suppressed more now than then.

We are entering the phase that America has just gone through - and America is entering the second stage of declines - more gradual but it will last for 2-3 years and then it will bottom out and stay there for another 2 years.

Buckle up! - the ride has just started.

HAL

[red]

Folks,

If you look at the shape of the last peak/slide in house prices starting at the peak in 1989 (see home page) - you will notice a period of about 1 year where house prices slide quite gradually from the peak until 1990 i.e. until it reached YOY negative as it has just done - the decline from that point on becomes precipitous.

I put to you that we have now reached the same point i.e. we are the equivalent stage in the cycle as 1990 - I think the ride down is going to be spectacular - I would not be suprised to see a 20% or greater falls in house prices from May 2008 to May 2009. I say greater because 1) house prices have risen further this time as a percentage of take home pay and 2) nominal prices are not as tainted by inflation as they where back then - i.e. wage demands are suppressed more now than then.

We are entering the phase that America has just gone through - and America is entering the second stage of declines - more gradual but it will last for 2-3 years and then it will bottom out and stay there for another 2 years.

Buckle up! - the ride has just started.

HAL

20% by May 2009? Pah. 20% by Xmas. Bring it on!

[wanttomoveon]

I tried to start my own thread on the homepage graph but it didn't work so apologies for catching a ride on yours!

I wanted to ask whether the red, long-term trend line was in the right place or in fact too high up. If you extrapolate the black line, it suggests that house price fair value will be reached in just a few months time (albeit that it will probably overshoot).

Surely the red line should be a fair bit lower?

[Imp]

A word of warning, the last crash was different to this crash, caused by politics (abolishment of MIRAS) rather than affordabilty and credit withdrawl. Extrapolation is always a dangerous game. I think the best we can do now, is look at where we are now (such a 50% reduction in borrowing, increased estate agent inventory, potential sales insufficient to keep estate agents in a job etc. etc.) and make our predictions based on these. Whilst history may repeat itself, this is not the 1990 house price crash repeating itself. It is a different asset price crash repeating itself.

[r thritis]

A word of warning, the last crash was different to this crash, caused by politics (abolishment of MIRAS) rather than affordabilty and credit withdrawl. Extrapolation is always a dangerous game. I think the best we can do now, is look at where we are now (such a 50% reduction in borrowing, increased estate agent inventory, potential sales insufficient to keep estate agents in a job etc. etc.) and make our predictions based on these. Whilst history may repeat itself, this is not the 1990 house price crash repeating itself. It is a different asset price crash repeating itself.

I would suggest that it wasn't caused by the abolishment of MIRAS, that was just the trigger. Affordability was very much an issue in the last crash also.

[frozen_out]

A word of warning, the last crash was different to this crash, caused by politics (abolishment of MIRAS) rather than affordabilty and credit withdrawl. Extrapolation is always a dangerous game. I think the best we can do now, is look at where we are now (such a 50% reduction in borrowing, increased estate agent inventory, potential sales insufficient to keep estate agents in a job etc. etc.) and make our predictions based on these. Whilst history may repeat itself, this is not the 1990 house price crash repeating itself. It is a different asset price crash repeating itself.

Dunno about that. A crash is a crash is a crash, as sure as a bubble is a bubble is a bubble. We're just past the bull trap and it's downhill for a good while now.

[Housing Bear]

I put to you that we have now reached the same point i.e. we are the equivalent stage in the cycle as 1990 - I think the ride down is going to be spectacular - I would not be suprised to see a 20% or greater falls in house prices from May 2008 to May 2009. I say greater because 1) house prices have risen further this time as a percentage of take home pay and 2) nominal prices are not as tainted by inflation as they where back then - i.e. wage demands are suppressed more now than then.

HAL

Yes. You seem to be quite correct in your assumptions.

One of the most basic teachings of all Technical Analysis of all financial charts is Support and Resistance. If you draw a simple trend line connecting the 3 "lows" in the Nationwide chart, and extrapolate the line to the right, this is where the "Real House Price" can be expected to fall to.

It looks like the price will fall to a "Real House Price" of approximately £80,000 over the next three years, or so. It is difficult to be sure of the timing. This would be approximately a 60% fall from the peak of the graph, which is also very close to the Fibonnacci numbers, another Technical Analysis teaching.

This seems extreme, but when you take into account the state of the mortgage market, it is perhaps not so extreme!

I would like to hear other comments! There must be others who are interested in Technical Analysis!

Best wishes,

Housing Bear

[IMHAL]

A word of warning, the last crash was different to this crash, caused by politics (abolishment of MIRAS) rather than affordabilty and credit withdrawl. Extrapolation is always a dangerous game. I think the best we can do now, is look at where we are now (such a 50% reduction in borrowing, increased estate agent inventory, potential sales insufficient to keep estate agents in a job etc. etc.) and make our predictions based on these. Whilst history may repeat itself, this is not the 1990 house price crash repeating itself. It is a different asset price crash repeating itself.

I agree that circumstances are different and no two crashes are plyed out exactley the same - but, and this is a big but - once negative sentiment takes over then the same dynamics drive the market - in short we are passing the denial phase and ae about to enter the panic stage! It is going to get faster on the down side from her on in.

Also to the other poster - yes I also think the red line is set too high - we will easily see that passed probably by the end of this year.

HAL

[Moo]

A word of warning, the last crash was different to this crash, caused by politics (abolishment of MIRAS) rather than affordabilty and credit withdrawl. Extrapolation is always a dangerous game. I think the best we can do now, is look at where we are now (such a 50% reduction in borrowing, increased estate agent inventory, potential sales insufficient to keep estate agents in a job etc. etc.) and make our predictions based on these. Whilst history may repeat itself, this is not the 1990 house price crash repeating itself. It is a different asset price crash repeating itself.

Not 100% in agreement over the causes of the last crash, but the 'be wary of extrapolation' idea is something I agree with wholeheartedly. There are very human experiences that can be genuinely said to be 'the same as last time', and whilst history can give us a few pointers to the future, it can never give definitive answers.

[Guest DissipatedYouthIsValuable]

Yes. You seem to be quite correct in your assumptions.

One of the most basic teachings of all Technical Analysis of all financial charts is Support and Resistance. If you draw a simple trend line connecting the 3 "lows" in the Nationwide chart, and extrapolate the line to the right, this is where the "Real House Price" can be expected to fall to.

It looks like the price will fall to a "Real House Price" of approximately £80,000 over the next three years, or so. It is difficult to be sure of the timing. This would be approximately a 60% fall from the peak of the graph, which is also very close to the Fibonnacci numbers, another Technical Analysis teaching.

This seems extreme, but when you take into account the state of the mortgage market, it is perhaps not so extreme!

I would like to hear other comments! There must be others who are interested in Technical Analysis!

Best wishes,

Housing Bear

And the intrinsic association between Fibonnacci numbers and the price of anything is?

Apart from attempting to constrain a sense of mathematical order and attain a following?

Homeopathy for graphs.

Edited May 1, 2008 by DissipatedYouthIsValuable

[Guest X-QUORK]

Just to add...Reversion To Mean, and don't forget the overshoot.

[Scarecrow]

A word of warning, the last crash was different to this crash, caused by politics (abolishment of MIRAS) rather than affordabilty and credit withdrawl. Extrapolation is always a dangerous game. I think the best we can do now, is look at where we are now (such a 50% reduction in borrowing, increased estate agent inventory, potential sales insufficient to keep estate agents in a job etc. etc.) and make our predictions based on these. Whilst history may repeat itself, this is not the 1990 house price crash repeating itself. It is a different asset price crash repeating itself.

MIRAS wasn't abolished until 2000 - was it amended earlier? I think I got something like £20/month in the late 90s - did people get a lot more before the housing crash?

[IMHAL]

Not 100% in agreement over the causes of the last crash, but the 'be wary of extrapolation' idea is something I agree with wholeheartedly. There are very human experiences that can be genuinely said to be 'the same as last time', and whilst history can give us a few pointers to the future, it can never give definitive answers.

Again - I agree with your and the previous posters caution over extrapolation - and again I will say that if you look past the numbers you will see real market sentiment at work - when people are aware of what they perceive to be real losses - they will react - we have just reached that point - next stage is panic.

The current market cycle is not so different to the previous one - excess lending and euphoria, all the same arguements but this time the rise has been bigger and I expect the downside to swing negative harder. So not quite a one to one extrapolation.

On the Miras issue - the media will always pick one trigger to feed the masses - this time it is sub-prime in the USA - not so different really - same boom and bust - just a different soundbite.

HAL

[roadtoruin]

I would suggest that it wasn't caused by the abolishment of MIRAS, that was just the trigger. Affordability was very much an issue in the last crash also.

Definitely right. Abolition of dual-MIRAS in 1988 led to stagnation immediately after a huge HPI spike (Lawson stupidly gave a 2-month window preceding abolition which precipitated panic buying). Even then GC1 proper did not initiate immediately. Ultimately, just like this time round, it was affordability wot dun it.

[Timm]

I wanted to ask whether the red, long-term trend line was in the right place or in fact too high up. If you extrapolate the black line, it suggests that house price fair value will be reached in just a few months time (albeit that it will probably overshoot).

Surely the red line should be a fair bit lower?

Think of the trend line as a bit like an average of existing data. Currently it is supported by the fact we have had a recent boom. As lower figures come in as a result of the bust, the trend line will fall.

[General Melchett]

I would suggest that it wasn't caused by the abolishment of MIRAS, that was just the trigger. Affordability was very much an issue in the last crash also.

Agree: Finished my 1st degree in 88 and thought if I went to do my PhD I might never be able to afford any place the way things were going. I was wrong about never being able to afford somewhere, though: Late 1991, I bought my first place (a 3 bed ex-council house) on a 3 x mortgage on a shitty postdoc salary ;-)

[bobthe~]

MIRAS wasn't abolished until 2000 - was it amended earlier? I think I got something like £20/month in the late 90s - did people get a lot more before the housing crash?

Double Miras for non-married couples (married couples were only allowed one chunk of MIRAS) was abolished in June 89 (I think).

There was a last minute rush that squeezed the last bit of HPI toothpaste out of the tube, then there was tumbleweed for a while.

Theny house prices did what they had never done before and went down.

Once that happened the banks tightened their criteria and got rid of 110% and then 100% mortgages (sound familiar?)

But they didn't stop lending by choice, like they have now.

Also the idea of re-mortgaging to a better deal wasn't around then either. ERCs went beyond the discount period in order to allow the lender to claw back the discount over time.

Of course we will never return to THOSE bad old days.

Catflap and I were discussing this on the NWide thread last night.

If you accept that GC1 was not across the whole of the UK, and look at their regional figures, 20% drop in one year for a region is well within the bounds of possibility this time.

Things are, after all so much worse on the demand side.

[wanttomoveon]

Think of the trend line as a bit like an average of existing data. Currently it is supported by the fact we have had a recent boom. As lower figures come in as a result of the bust, the trend line will fall.

If it's an average there should be as much above the line as below - whereas to me it looks like there is a lot more below it!

[VeryMeanReversion]

I tried to start my own thread on the homepage graph but it didn't work so apologies for catching a ride on yours!

I wanted to ask whether the red, long-term trend line was in the right place or in fact too high up. If you extrapolate the black line, it suggests that house price fair value will be reached in just a few months time (albeit that it will probably overshoot).

Surely the red line should be a fair bit lower?

Keep up at the back....

http://www.housepricecrash.co.uk/forum/ind...p;#entry1099257

We covered this trend line issue yesterday.

VMR.

[Guest]

But they didn't stop lending by choice, like they have now.

I disagree that banks have stopped lending by choice.

[Disillusioned]

Yes. You seem to be quite correct in your assumptions.

One of the most basic teachings of all Technical Analysis of all financial charts is Support and Resistance. If you draw a simple trend line connecting the 3 "lows" in the Nationwide chart, and extrapolate the line to the right, this is where the "Real House Price" can be expected to fall to.

It looks like the price will fall to a "Real House Price" of approximately £80,000 over the next three years, or so. It is difficult to be sure of the timing. This would be approximately a 60% fall from the peak of the graph, which is also very close to the Fibonnacci numbers, another Technical Analysis teaching.

This seems extreme, but when you take into account the state of the mortgage market, it is perhaps not so extreme!

I would like to hear other comments! There must be others who are interested in Technical Analysis!

Best wishes,

Housing Bear

Like this? Which is from here.

Edited May 1, 2008 by Disillusioned

[PotNoodle]

Yes. You seem to be quite correct in your assumptions.

One of the most basic teachings of all Technical Analysis of all financial charts is Support and Resistance. If you draw a simple trend line connecting the 3 "lows" in the Nationwide chart, and extrapolate the line to the right, this is where the "Real House Price" can be expected to fall to.

It looks like the price will fall to a "Real House Price" of approximately £80,000 over the next three years, or so. It is difficult to be sure of the timing. This would be approximately a 60% fall from the peak of the graph, which is also very close to the Fibonnacci numbers, another Technical Analysis teaching.

This seems extreme, but when you take into account the state of the mortgage market, it is perhaps not so extreme!

I would like to hear other comments! There must be others who are interested in Technical Analysis!

Best wishes,

Housing Bear

I have previously tried two estimates :-

1) Reversion to trend with overshoot corresponding to last crash

2) Extrapolation of troughs from previous crashes

Both give figures of 50-55% drops in real price.

Intersting that this figure is also postulated today on the news blog.

[jonboy]

Does anyone here have ideas about what the mechanism of the HPC will look like finishing with the outcome of cheaper houses in EA (those left, of course) windows.

There has been talk of parallel markets on here in areas where, for e.g. there are particularly bullish EAs (is there any other kind (sigh))/BTLers, or something about the locality which is keeping costs high.

I just can't see the mechanism by which it all happens nor the driver for the mechanism which would give us an indication of the rate of HPC. Here's my muddle:

Vendor puts house for sale at stupid price given current climate (that's still happening, when/why will that change?)

EA values house at same stupid value (maybe slightly less cos they don't want to lose the vendor)

It has no real interest - no sale house stays on market at same price (unless..?)

The lenders don't agree - no sale house goes back on market at same or almost same stupid price (unless..?)

The lenders agree (and they are still agreeing to many) a mort.

The lenders surveyer confirms the amount (when will they ever stop doing that??).

SSTC - yey!

Gazundered - no sale house goes back on the market at sam ish price...

Apart from the odd quick sale for desperate measures it looks like it might take a while for all this to filter in to reality..?

Tin hat on!

[roadtoruin]

I have previously tried two estimates :-

1) Reversion to trend with overshoot corresponding to last crash

2) Extrapolation of troughs from previous crashes

Both give figures of 50-55% drops in real price.

Intersting that this figure is also postulated today on the news blog.

It's fairly unlikely that you could use linear extrapolation in your example 2) above, did you do that or was there an exponential function ? Assuming troughs were spaced at regular intervals (~18 years...), with the y-axis being linear, a straight-line extrapolation could only hold for a limited period of time. In practise, joining up the troughs would have an upward curve slightly similar to the trend-line. Unless of course every HPC was of greater magnitude even in % terms than the one that preceded it. Buying a house in 2100 (if we still do such silly things then) would be a pretty hair-raising exercise.

[IMHAL]

Does anyone here have ideas about what the mechanism of the HPC will look like finishing with the outcome of cheaper houses in EA (those left, of course) windows.

I don't think that there is a single answer - there are many drivers which will over time force prices downards. Got to remember that those with large equity and a good steady income will not be setting the market prices for houses on the way down - that is the job of the various flavours of distressed sellers.

Currently I'd say that we are at the end of the denial phase for house prices falling and almost at that phase for declining economic activity - a kind of Willie-Coyotee moment for the economy - we think its still Ok but we havn't looked down.

Soon:

1/ The stalling economy will mean more redundancies forcing people to sell quicker than they want to - and hence accept lower prices

2/ Immigrants will start to move back - this will have an effect of Landlords - most will go bust and liquidate

3/ Uncertainty in the market and housing will make buyers hold back

4/ Mortgage equity withdrawal is drying up - this means less discretionary spend = less jobs in the highstreet

5/ Some sellers will panic when they see prices falles gather pace and will want out

6/ Debt will start to get the better of some and they will need to sell

Most homeowners will stay put because they cannot sell or cannot move - they do not make the market prices.

Those that will need to sell will set the prices - the banks will also limit the amount that buyers can pay - a double wammy helping the market to 're-adjust'!

HAL