Wednesday, October 10, 2007

An alternative view, but not one based upon Supply vs Demand

Where Next For House Prices

The article explores the future of house prices will not be determined by the credit crunch, by interest rates, etc etc, but by what happens to the UK economy. If it continues to grow, house prices will not fall. If the economy stagnates or shrinks, house prices will fall. I like " .... for mainstream borrowers on low loan-to-value ratios, credit conditions have not deteriorated as much as the headlines suggest." This means, to my mind, that a repetition of the early 1990s is unlikely. (If it is accurate!)

Posted by talking rot @ 08:06 AM (1671 views)
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15 thoughts on “An alternative view, but not one based upon Supply vs Demand

  • David Smith's Sub Prime. . . says:

    There are now over 81,000 properties on Property Snake.!!!

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  • That’s rubbish.

    The housing market it determined by public perception. If people think house prices will fall, they will. If people expect 10% growth year on year, they’ll do whatever it takes to get on the housing ladder. It seems opinion is shifting towards the former.

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  • IMHO the economy is not built on solid foundations. The growth has been mainly generated by HPI boosting government and consumer spend. Take away HPI we have to rely on financial services which are looking decidely rocky.

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  • Perhaps Mr Darling is being jolly clever – the economy is literally built on firm founsations – i.e. houses. But the financing of these houses is very fragile and about to go down the toilet. I expect he forgot to mention that.

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  • “If the economy continues to record steady growth then the housing market will cool further but not crash.”

    Looks like all the risks are on the downside then.
    This should remove the “fear of not getting on the ladder” mentality by many FTB and BTL, and buyers will dry up from now on.

    As with all secular cycles we will move steadily from a state of total optimism to total despair over a period of time.
    We are just coming off “total optimism” now and there is only one direction to go – down

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  • Nice on cyril….

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  • Davros has hit the nail on the head. Its unfortunate that economists, as well as those quantitative analylists programming their credit models, are only allowed to use tangible, real-world figures in their calculations.

    There’s simply no math or model or greek symbol that represents the unpredictibility of the masses, and this is why these virtual worlds like Second Life and World of Warcraft are so interesting to those working on the frontiers of statistical mechanics. They allow the physics of mass behaviour to be studied.

    Until the City suits can realistically factor-in herd mentality, the common sense thinking of the man on the street has an advantage, and the quants will always be taken by surprise when their human traders one day start to act counter-intuitively, like shutting down the lending system, almost as if they can’t help themselves.

    I recommend a book called Critical Mass.

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  • When the pound goes down the toilet and unemployment grows, industry will grow to compensate. Perhaps a good time to invest overseas?

    Its not the end of the world, so four horsemen are not at our door!!!

    Sometimes the negativity on this webiste can be like a runaway train.

    And the problem with house prices is that the sheeple refuse to ‘take losses’, so a HPC will be mostly unaccounted for until they are forced to sell. Which I believe is what the are talking about in the article.

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  • We know how markets turn on sentiment, and we also know that our “strong economy” has at least some foundations in the very houseing market he is discussing, so they are actually interrelated, which this fellow takes no account of.

    But then there’s so much he doesn’t take account of. He basically says “there will be (even less) first time buyers, but this won’t affect the rest of the market” – as if first time buyer property is some separate and un-connected part of the housing market in general – what a plank. How does he think people trade up into “the rest of the market” except by selling their properties to first time buyers (and BTL of course, but they’ve just had a tax sting on top of everything else, ha ha!).

    He also seems to think there will have to be job losses to “force homeowners into unwanted sales.” He didn’t watch Panorama I guess – there are people out there who’ve got mortgages but didn’t even have jobs in the first blinking place! There are people out there who lied about the income for the job they do have! There are people out there who could just about afford to borrow 6 times income becuase the base rate was 3.5% and now it’s 5.75%!

    This guy is a spanner.

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  • He’s arguing that problems are marginal and that the ‘mainstream’ is OK. Crises ALWAYS start somewhere that’s ‘marginal’ and then accelerate from there. He says house prices have ‘defied gloomy expectations’ – but those expectations are about what’s going to happen over the next couple of years. The bears are arguing that ‘you aint seen nothin yet’. House prices will be OK ‘if the economy continues to record steady growth’ – but why should it when three of the main props to employment (financial services backed up by lawyers, accountants, computer services etc., government spending/employment and the debt-fuelled consumer binge) are all under pressure. He seems to think there is downward pressure on interest rates and therefore mortgage payments – but there are big inflationary pressures in the pipeline and upward pressure on inter-bank lending rates.

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  • Further to my last comment, I’ve looked into the author’s notion that employment is the catalyst, and unless I’m viewing my figures from stastics.gov.uk upside-down, unemployment was at an 8-year low when house-prices started their descent in the summer of 1989.

    In fact, the overlaying charts fly so blatantly in the face of popular theory that unemployment will lead to price “weakness” that I’ve just gone off to check another site, which does corroborate that unemployment rose from its low of 1.6m in 1989 to 2.9m in 1993.

    Google “Recent examples of cyclical unemployment” and hit the second result.

    Luke

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  • This seems like sound good sense to me. He’s basically saying that :

    1) The Housing Market has slowed considerably, and will slow further
    2) This slowdown will become a crash if the wider economy deteriorates further
    3) There is a risk of wider deterioration, but this has not materialised yet
    4) Given the above, there is a real possibility of a full on HPC, but this is still more likley than not to be avoided. The likelyhod of this happening is however greater than was the case a few months back.

    Seems pretty accurate to be honest, although the ultra bears may be right that the “wider deterioration” has started, but is yet to truly play out.

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  • planning4acrash says:

    Davros, the housing market has nothing to do with punters. It is banks who generate M3 money on the basis of their confidence in the ability of people to pay. It is the banks who decide whether liquidity will allow prices to grow or fall. Suckers in the general population (taken as an aggregate whole), fed with VI commentary take whatever money comes their way.

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  • planning4acrash says:

    But banks like buyers to think that they are in control of the market.

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  • planning4acrash, I disagree.

    Money supply is the means.

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