Wednesday, October 31, 2007

Don’t be so negative you! Houseprices never fall!

UK house price growth 'picks up'

Referring to a report by the International Monetary Fund which claimed that UK house prices were overvalued, Ms Earley said it was "indisputable" that property values had climbed ahead of certain key indicators, particularly earnings. But that did not mean that house prices were "destined to fall", she added. "In fact, in the absence of an early 1990s-style shock to unemployment or interest rates, they are unlikely to do so," she explained.

Posted by sovietuk @ 08:40 AM (2065 views)
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49 thoughts on “Don’t be so negative you! Houseprices never fall!

  • So a 0.1% drop in September followed by a massive 1.1% rise in October, looks like that party is going to have to be put on hold, maybe even cancelled.

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  • Referring to a report by the International Monetary Fund which claimed that UK house prices were overvalued, Ms Earley said it was “indisputable” that property values had climbed ahead of certain key indicators, particularly earnings.

    But that did not mean that house prices were “destined to fall”, she added. “In fact, in the absence of an early 1990s-style shock to unemployment or interest rates, they are unlikely to do so,” she explained.

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  • How does she explain the USA then, where employment is still close to full, interest rates have actually been cut and the economy is still growing, yet house prices are falling by double-digit figures and sales have slowed to historic lows?

    Oh yeah, that’s right, the UK is completely different and has a different housing market. Those Barratt homes and ex-council houses in Milton Keynes are pretty special after all so I can see why they’ll all still be worth £500k in 10 years time.

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  • If the market here in Hampshire is anything to go by, the number of very high end properties coming on to the market in the last 2 months has grown dramatically (stockbrokers offloading at the top??) and the number of properties going (and staying) under offer has dropped to a trickle.

    Has anyone seen how many properties Nationwide use in their figures? This could so easily be the increased proportion of expensive homes in a smaller mix – especially given all the other evidence from virtually everyone else…even Savills, Knight Frank and other VIs

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  • Spot on the money David – trouble is its the US Dollar!

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  • I think you have a valid point ‘happyrenter’, oop north, where I come from,,, the property market has ground to a complete halt. Properties are now appearing in the local rag with ‘reduced’ tags on them… Obviously Nationwide and Ms Earley have a vested interest in trying to spin the market back into life, but around here it will need CPR and heart massage to get any movement back into the housing market. Funny thing, Remax have just opened a store in my local town,,, timing is everything as they say. Haaaaa…!!! (also, I am ignoring ‘you know who’)

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  • I love the way when there is a 0.1% drop you guys celebrate it madly, and it has never been more than a 0.1% drop. Then when next month it rises by 1.1% there is hardly any comment. As prices continue to go up and up 1.1% becomes more and more money in cash terms.

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  • Does anyone remember how Nationwide disgraced themselves in the last crash ?

    10 months into the crash they (alone) were still claiming prices were rising. Their “surveys” of prices became a laughing stock

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  • David – you actually need to look at some history – what on earth does its never been more than a .1% drop mean? Utter rubbish of course “it” has (even in 2005 it dropped more than that in some months). I dont think that people being repossessed is any cause for celebration if thats whats going to happen but the point is there needs to be some liquidation of debt – OR some other rather more impalatable alternatives. It strikes me that you belive in simple straight line economics – supply and demand is king as far as you are concerned (and thats the sum total of your argument). Maybe you are right maybe house prices will go up in perpertuity but the question is how can they? You cant service a debt with 100% of your income so at some stage there has to be a reality adjustment. Most of this site is saying that Reality adjustment is now but you are saying there wont ever be one as far as i can see. You cant climb a ladder if the step up to the first rung is too big, the step has to come down so you can. The interesting point is does that mean the top of the ladder also has to snake down. Thats the question you need to answer if you want to hold on to the remaining equity of your palatial mansion in the shires. I do agree though the month on month figures should be taken with a pinch of salt – both up and down because they are so easily distorted. Until such time as there are sensible calculations anecdotal evidence is a better indicator. That suggests a one way bet at the moment.

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  • little professor says:

    David does have a fair point…

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  • Oh dear
    Must be time to buy a house then.

    Lets just ignore the following indicators of impending doom;
    RICS survey results last month 8% up, 31% down (time to see a shrink, I remembered the figures without having to check)

    Approved Mortgage figures

    BBC finally leads 6pm news with a negative story (monday I think)

    Local rags with the following adverts New Price (David, do you think that means up or down), Reduced Price, Vacant Possession, No Onward Chain, (and the one I love the most) UNEXPECTEDLY RE-AVAILABLE

    Ho hum, sure there are more reasons why buying now would be bonkers, must go do some work

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  • tyrellcorporation says:

    He might have a point but I simply don’t believe the figures from Nationwide.

    Prices are falling in the SW now and have been for about 2-3 months – where do these miracle price rises come from?

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  • david20040_0
    “I love the way when there is a 0.1% drop you guys celebrate it madly, and it has never been more than a 0.1% drop. Then when next month it rises by 1.1% there is hardly any comment…”

    I think that having read some of your past posts, these individuals are not the only ones to selectively concentrate on statistics which suit their arguement.

    The only way to handle these figures, as with all figures produced in these rather uncertain times, is to ask,
    1. who produced them
    2. what interest do they have in the market
    3. what is the source and possibility for statistical aberation
    4. what do the figures show
    5. how do the figures match up to the weight of evidence produced from other sources

    So you know my stance on the market, I have completed on my house sale after being in the market for the last 7 years, and have moved into rented. I’m undecided on the level of falls within the market, but in my area, Buckinghamshire, I have already seen a small reduction in the prices of property coming onto the market, and a more sensible attitude being adpted by sellers, if they are genuinely wanting to sell there homes.

    When reading this report by Nationwide, my first question was also to consider the mix of properties which made up the figures. Based on my conversations wth estate agents, knowledge of the market in my area, and the balance of other statistical, anecdotal evidence and economic fundementals, I would concur with happyrenter’s hypothesis on these Nationwide figures.

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  • Just out of curiosity, I read the actual Natiowide report and found this note at the end –

    “The Nationwide Monthly House Price Index is prepared from information which we believe is collated with care, but no representation is made as to its accuracy or completeness. We reserve the right to vary our methodology and to edit or discontinue the whole or any part of the Index at any time, for regulatory or other reasons. Persons seeking to place reliance on the Index for their own or third party commercial purposes do so entirely at their own risk. All changes are nominal and do not allow for inflation.”

    In other words, they reserve the right to change their methodolgy and ignore all or part of their dataset for whatever reason. Like the CPI figures, the above proviso suggests they can effectively fudge whatever figures they like. This report would not stand up to any form of scrutiny in the academic world, and would be thrown out at the peer review stage – I know because I’m involved in peer review. I will be writing to Fionnuala Earley at Nationwide to see if they will let me have the dataset they used, but I somehow think I won’t get it.

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  • Well it bears absolutely no relation to reality.

    By the way, they should do without the IMF and have this woman do their job instead by the sounds of it.

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  • David does have a point. But what can’t go on for ever, doesn’t! If it did go on for ever, in a few years time the average mortgage holder would only be able to pay interest and not eat, cloth the kids or indeed live……and the longer it goes on, the bigger the crash at the end…..
    One misconception….it is also generally believed that the recession in the early 1990’s caused the house price crash. In fact there is very good evidence that the house price crash (which actually started in central London in about June 1988 and then spread out…..there was still nationwide annual increases in property prices all the way up to late 1989 or early 1990) caused the recession rather than was the result of it. Indeed whilst most of Europe had a fairly mild recession, that in the UK was the longest since the war. Now we see in the USA the housing market is collapsing and doing so BEFORE the recession which will start next year because Americans can no longer use their houses as Bankomats…

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  • Safe As A Crash says:

    David, if you look at Nationwide’s statistics (on this site) you will see that pices have only increased by 2.72% since the start of the year.. The crunch is still to come and the recent credit crunch and interest rate changes still to filter through the market…

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  • The real issue for me with VI spin is that they provide ‘reports’ on house prices and there doesn’t really appear to be any system of checks and balances. They could supply reports on house prices and basically put in there whatever suits them. The only report worth anything to me are the figures from the land registry. Obviously if you ask Ford who makes the best cars in the world, they are hardly likely to say GM?! I just never believe what I read in the newspapers because it is all skewed by political bias, and the CML, NAEA et al, are basically no different to the mass media. They are trying to control their own market by controlling hearts and minds. I’m not a conspiracy theorist, you don’t have to be to believe that people will lie to you just to make a buck, it happens all the time in all walks of life. I’m not depressed, or thick or anything else, just a regular guy with a wife and 3 kids trying to keep my head above water and not get ripped of by people who would kill me for a fiver.
    Enough I think….

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  • I’ll go with the figured from Nationwide, i’ll just put it down to the tax break billionaires selling up on their multi million pound houses.

    As for david’s comment quoting Ms Earley, fair enough the IMF doubt it’s going to happen… however in the same article Nationwide themselves say that the figures should not be taken as a definative guide.

    We’re a financial services based economy, there is a financial crisis, it’s just a matter of time before we see a rise in unemployment. Oil price inflation, rising food costs, and china’s economic timebomb might just rock inflation enough to cause the BoE to react with a rate change. Looks like those conditions are being set up nicely!

    Although there is no denying the british boner for homeowning, stupidity is something which will never go away.

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  • Whatever these figures say, I see the London market on hold. I’ve been watching it carefully since I sold six months ago. Judging by the searches I’ve been doing, less than 10% are under offer after a month on the market. It used to be about 60 or 70% under offer after this period

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  • Very good post uncle chris.

    David is right and wrong. Yes some posts do gloat on the misery that is about to fall on families when their homes are repossed. But all the data and anecdotal evidence points towards a correction in the housing market. A boom financed by more borrowing of “equity released”, whatever that is supposed to mean, is unsustainable. The house next to mine is a developer’s dream, owner died, in need of modernisation etc etc has been on the market for the last 4 months. At 320 000 it is 60 000 below the market price achieved in May. Anecdotal and true.

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  • tyrellcorporation says:

    Great find Uncle Chris, you’ve unearthed the scam! They realise these reports are a pile of crap and this caveat proves it.

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  • david…

    Lets face it, you are out of your depth. This has been displayed by you on many occassions. You display the economic insight of an estate agent spouting a vested interest. you completely fail to grasp the econoic path that the Uk is walking down.

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  • David

    Ms Earley is a brave economist. She is predicting the first asset price correction that ends at the trend line i.e. all asset booms and crashes have ended with under or overshooting but this will be the first not to.

    The supply of mortgages is falling away as quickly as demand. Moreover, house price growth is weakening when supply is falling (probably due to HIPS)…imagine what prices would have done if demand and liquidity adjusted as they obviously have, BUT supply had remained around its recent average (instead of falling as it has).

    The pillars that vested interests talk of (low unemployment, low interest rates) have not provided support in the US…both are lower in the US. Support from too many people in the country relative to land/housing…Japan had lower unemployment and interest rates AND twice the population density and similar numbers of people being add to its population in the late 1980s to the mid-1990s….that did not stop prices falling from 1990 to 2005.

    On top of liquidity this bubble, like all others has been driven by ignorance.

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  • If this report had said that there had been a 1.1% drop the figures here would not have been questioned and the methodolgy of Nationwide’s research would nopt have been questioned. But because this is not the answer that most of you guys want to hear you pick it apart using spurious methods.

    Nationwide is one of the most respected building societies in the UK.

    Can we just face facts for one moment, a 0.1% drop in September is nothing, it has been eclipsed by this 1.1% rise. 1.1% as house prices continue to rise is more and more in cash terms.

    If a 1.1% rise has occurred during a supposed “slow down” then this supposed house price crash party is really not going to happen in May.

    I know that my comments are going to be shouted down as usual but the more I visit this site I realise that most of you here are not basing your reasoning for a house price crash on reality but more and more on hope that a house price crash will occur.

    Surely with house prices now at nearly 9* times salary, if it was going to occur it would have done so by now.

    *******Reaches for tin hat***********

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  • David in the city it used to be called the “dead cat bounce”.

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  • Safe As A Crash says:

    david20040_0 said…

    “I know that my comments are going to be shouted down as usual but the more I visit this site I realise that most of you here are not basing your reasoning for a house price crash on reality but more and more on hope that a house price crash will occur.”

    David there might not be a crash, but house prices may be negative by 3% pa for the next 5 years…

    I think 2008 (especially end Q1 to Q3) will be the worst…

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  • We all know the VI statistics are manipulated, I have spent my whole life producing busines statistics and changing a bottom line from -2% to +1.1% is 15 minutes work.

    Tell me what answer you want Ms Earley and I will produce the report. (As Uncle Chris mentions even easier when they are not audited)

    The interesting thing is how much they have manipulated them, one last ditch attempt to reverse the current market sentiment.

    But you can only produce rubbish for so long before you lose your credibility my dear Fionnuala!!

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  • Northern Rock was one of the most respected building societies, too

    at least with house prices ‘accelerating’, the need for a rate cut disappears, and if inflation is at all affected by the escalating food, oil and Chinese import prices (might depend on whether they use a Nationwide calculator with the dodgy ‘-‘ key), we will need another round of interest rate rises.

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  • tyrellcorporation says:

    LOL! David Nationwide et al will never report figures of more than about a 1% drop, it’s simply not in their interest to do so and the caveat that uncle Chris found proves that despite the apparent validity of the figures to the wider public, Nationwide can effectively just make them up with impunity.

    The best thing to do to put your mind at ease is to actually look around you at what’s happening to prices in EA windows – REDUCED stickers are starting to spring up like a nasty rash and I suspect this will continue for the next 12-18 months at least.

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  • To come to that conclusion, David, you’ve had to ignore the last few months of continuous news of credit crunches, rising defaults falling volumes and the fact that BTL is now a mug’s game. On top of that you have a track record of skewing results and ignoring facts.

    I guess time will tell…

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  • David, I would love to “face facts”, but do you honestly believe we are getting FACTS from mortgage providers who have a huge vested interest in talking up the market and therefore generating more business. Like Bingo, I do not hold much truck with figures from any banks, building societies or estate agents. I do however, (1) look at numerous price reductions in my area, (2) witness 4 of my friends struggling to sell their houses and ALL have now dropped their prices – a fifth sold recently after dropping their price 18%, (3) find several houses that are priced (or have sold) at similar or lower levels to those seen in 2005 (4) heard many reports of many houses at auction (over 50% according to radio 4’s PM yesterday) failing to reach reserve prices. Those are FACTS and the truth of the situation – I do not believe that Nationwide are providing facts.

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  • Ooops – just had another fact land in my inbox – follow this link.

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  • David – picking up on your point about 9 times salary – here is a simple calculation. My son earns £35,000.00 p.a. as a Junior Doctor. Mutliply by 9 and you have £315,000.00
    Basing a mortgage on a repayment – not an interest only – or rental as it should be called and you have a repayment of £2053 per month. This is based on a 6.0% interest rate.
    Now look at earnings. On a maximum tax code, your PAYE is £531.00 a month and NI is £272 a month. This leaves you with £2113, so once you pay the mortgage, you have £60 left.
    Is this practical or sensible ? The answer is no, so after 7 years of study and 4 degrees, he lives in a rented flat with a group of friends.

    Other people are in the same position or a lot worse position. Do not speak of wishful thinking. It is wishful thinking to imagine house prices can go up and up. The price is too high, prices need to come down and in fact, they are doing so. This is reality and the view of right thinking people, not privileged individuals.

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  • In the early phases of the last HPC there were reports of minor house price rises here and there and upbeat forecasts by industry spokesman. Any graph about anything, especially in economics, goes up or down in a jagged rather than a straight line. In a ‘healthy’ housing market prices go up AND the quantity traded remains high. If the latter drops markedly, as it has done, this is a sign of a market heading south. These dodgy Nationwide figures give Fionnuala Fionnuala the opportunity to repeat herself yet again – IF employment remains high and interest rates don’t go up (she never mentions LIBOR rates or the ending of fixed rates on mortgages) then the market can sail along merrily. And if pigs could fly we’d be seeing pork on the poultry shelves.

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  • David – maybe a few of the visitors to this site indulge in a bit of wishful thinking from time to time (look at the title).
    But a small decline in house prices is significant because the whole thing is propped up by expectations of growth, which everyone knows is unsustainable in the long term. Something will have to give, but nobody knows what or when.When house prices start to slide, things can turn nasty very quickly, but the turning point can only be seen clearly afterwards. Hence numerous false dawns to date, but keep your fingers crossed, this time it’s going down big time.

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  • Guys, I am as bearish as the next person, but we do need to beware of the dangers of Groupthink, especially on special interest sites as this, which really encourage such. Give David a break, his points are as valid as the counterpoints also made.

    BTW, I checked out the HCP calculator on the this is money site and it correctly backtracked the prices of my current and previous homes to what I paid when I bought them…. neat. But I do object to being called a doom-monger etc on such sites. Is it a doom-monger to want my kids, my nephews and neices, my kid brother and my younger colleagues to be able to afford somewhere to live without being in financial servitude for the rest of their lives? I think far more accurate for such sites to call those who want prices to keep going up ‘selfish, ignorant fools’ or stronger, and to stop slagging off people with our views.

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  • tyrellcorporation says:

    Good find Uncle Chris! I’ve just looked at the drops for my area (Exeter) and the percentage falls have doubled! many are now 7-9% falls where previously they most was 4-5%. The tide has turned and remember these are falls in asking prices so you could easily get another 5-10% off these prices if fear has seeped into the sellers brains.

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  • I hate to put a sideways spin on the old 3.5x income guage.

    But …

    If inflation has increased (the CPI index is a fudge anyway, so best to ignore it) and property is keeing place with inflation, then it means that wages in real terms have fallen, the gap is accentuated by the increaseing Tax Burden. If property is estimated at, say, 7x salary, we are really looking at over expectation in value for money or standard of living terms.

    The other side to this is that everything has a cost to fabricate in the first place. If building costs have been passed onto the purchaser with only the same margin of profit for the developer. Ok, this does explain why 2nd hand properties are always cheaper than new, and the same occurs everywhere else and is more obvious in the car market, for sake of comparason.

    I will throw in a reference to a minimum standard of living based on the Parker Morris Report (see: http://en.wikipedia.org/wiki/Parker_Morris_Committee), which puts most new builds (in any catagory) below the minimum standard anyway.

    Then add the government’s intension to increase the size of the rental market from 11% to 15% (apparently?).

    Answers on the back of a postcard please …

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  • from memory the Halifax house price index-for many years the only barometer of the housing market-uses a similar methodology.ie they put a value on the nations housing stock.Thus through the nineties recesion,when houses were going for half their 89 value,they recorded drops that were miniscule in comparison.The FT.com index is a far more useful tool as I believe it uses a consistent formula.

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  • The issue is one of faith in the numbers/sample and interpretation (and what the motive of those compiling and interpreting the numbers is). At the same time, there is only so far numbers can be massaged without losing ALL credibility. If the number was a 1.1% fall it would suggest that the real figures were so bad that Nationwide could not massage them anymore (their motivation is to make the numbers look as good as possible). When it is a 1.1% rise the same applies i.e. their job is still to make the numbers look as good as possible. So the issue is one of credbility. Those wanting prices to fall will not TRUST those with an interest in wanting a rise.

    But I refer you to the cross country comparison I posted earlier as to why I think the so-called pillars she refers to in no way make a crash impossible.

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  • David is absolutely correct, whenever price rises are reported they are rubbished by the posters on this site and vice versa. I don’t think it is very constructive to simply dismiss these figures. I’m sure they are accurate based on the data they use, namely mortgage approvals. The usual criticisms of the Halifax and Nationwide figures apply in that they are mortgage approvals not sales but mortgage approvals have proved to be a fairly decent indicator.

    That said I agree that the Nationwide figures do seem completely out of step with all the other figures and the anecdotal evidence of reduced signs etc. Hopefully it will prove to be simply a blip.

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  • I think it is great that David comes onto this blog with a conflicting opinion to the majority of views on HPC – it helps to dispell the poplular press rumour that we are all just a bunch of miserable mis-contents who missed the gravy train…

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  • David…Fionnuala herself said,

    “The annual rate of price growth picked up from 9.0% in September to 9.7%, but this is still down from a peak of 11.1% in June and was partly driven by base effects. The rise in the annual rate temporarily breaks the slowing in price growth we have seen since June, but is unlikely to mark the start of a new upward trend.” [my emphasis]

    Just to explain, “base effects” almost certainly means there were proportionately more high-value properties being sold during the month than previously, which would artificially skew the flat average upwards (just as the lack of high-value properties a couple of months ago, thanks to hips for 4-bed properties, purportedly skewed the Rightmove figures downwards to show -2.7%).

    If even the bullish VI Fionnuala isn’t talking up these, her own company’s figures, then why are you?

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  • She also said;

    “November and December saw particularly robust gains in 2006, and unless prices perform very strongly for the rest of this year, the annual rate of price growth will resume a downward path. The 3-month on 3-month rate of price growth – which helps smooth monthly volatility – edged up only modestly from 1.7% to 1.9%, which is still below the average of 2.2% seen so far in 2007.

    While some may be tempted to interpret October’s numbers as a sign that house prices are immune to deteriorating affordability and tightening credit conditions, such a conclusion would be misguided.”

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  • I think dugmug gets the brownie points today.

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  • David

    Forget all the lengthy debates that has been transpiring on this site since the Norther Rock crisis. There is truly only one word that describes in perfect detail, what will determine the future direction of house prices…………… AFFORDABILITY!

    WAKE UP!

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