Monday, March 3, 2008

Interesting article from Jewson Associates

House prices will fall 15 per cent but no crash, says Jewson

Independent investment consultant Jewson Associates has predicted a 10-15 per cent fall in house prices over the next two years. Head of strategy Tim Brown says it does not believe the UK will see a crash in the housing market nor a recession on the scale of that seen between 1990 and 1992. Brown says: “To put this into perspective, even in house prices fell 20 per cent tomorrow, the average house would still have doubled in value since the end of 1999.”

Posted by jack c @ 06:29 PM (1786 views)
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18 thoughts on “Interesting article from Jewson Associates

  • Well, I believe there will be a house price crash and recession!

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  • Average houshold income is 32k x 3.5 = 112k I think thats a fall of more than 20%?

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  • Montesquieu says:

    Interesting how 15% fall is no longer a crash, given the hysteria in the press about recorded monthly falls totalling maybe 2%.

    Thre is good analysis here but definitely a hint of denial … there are lots of (well rehearsed here) reasons why this crash might well turn out to be more severe in terms of price falls than the last time, not least lower levels of inflation which last time hid what was a far more dramatic erosion of value than 15% nominal falls might suggest.

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  • sacred contracts says:

    They say: “The big difference is that interest rates were then at historically high levels. Today’s interest rate levels are low by comparison. Rather than a sharp decline in prices, therefore, we think house price indicators could revert to more normal levels through a combination of time, lower mortgage rates and growth in earnings.””

    But its all about affordability – the difference this time is that people have been borrowing on MUCH bigger multiples – people owe far more money this time around and not just on houses but credit cards too. Last time people with negative equatity had to scrape around to borrow the odd £1-5,000 from family or friends.

    This time who is going to lend / give them the odd £20-30,000? Or even more, much more?

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  • Jewson Associates says that house prices were 5.8 times higher than average earnings in July 2007 – way above the long term average of 3.9 times, suggesting that house prices are 45 per cent overvalued. – “even the less well publicised relationship between the current level of house prices and the long term trend suggests current prices are around 30 per cent above trend.”

    The above makes their 10-15% anticipated price drop look way short of the mark

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  • One thing to keep in mind is that, unlike in 1990, the central banks are attempting to inflate their way out of recession (and into oblivion). This may mean that nominally house prices will not fall as dramatically as they did in 1991-3. That is why it is particularly important to protect the purchasing power of your savings in whatever way you can. Unfortunately, just leaving your savings in the bank to earn interest may not be sufficient to protect it from the bankers’ inflationary policies.

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  • markj69 str05 says:

    @ harold.
    Can you elaborate on your comments about ‘Bankers’ inflationary policies’, pls.

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  • Does Harold really need to elaborate? The BoE is deliberately devaluing Sterling while paying lip service to recognising that such a thing as inflation does exist, but stating it in official terms as only a fifth of what it really is. If interest rates had been kept on hold at 5.75% (low that that is) then we would get a true measure of house price falls. The BoE, via the media, is talking of lowering the base rate to 4.5% by the end of the year, hence price falls in pounds may not be that dramatic, its just that everything else will cost a hell of a lot more. Expect a further 15% on fuel bills and petrol to be £1.20 a litre by the end of the year.

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  • yawn. the damage limitation monkies are been wheeled out again. only 40-50% is realistic
    to get this f00ked country back on it’s feet. London town is like frikkin Mordor at the moment.

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  • I thought the definition of a crash was a fall of at least 10%. In that case Jewson are saying there won’t be a crash and there will in the same breath.

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  • Funny, first there would be a plateau, then a slowing, now a small crash, hmmm what next?

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  • Next…Ongoing correction 🙂

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  • Wealthy Vagrant says:

    I agree with Harold. I think the nominal fall of houses as priced in sterling might only be 10-20% but the value as measured in commodities or a basket of other currencies will be more like 30-40%

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  • Thanks Fed up. Hope that helps markj69 str05.

    I think we will get some deflationary asset classes, such as housing, but overall we are entering a hyperinflationary period in which IRs are kept artificially low. This is very bad indeed for savers who will see their purchasing power decrease (i.e., they will be robbed of their labour, stored as savings). The only answer is to park your savings in inflationary proof vehicles (and I don’t just mean gold).

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  • Lower, Lower says:

    harold: “we are entering a hyperinflationary period … This is very bad indeed for savers who will see their purchasing power decrease … The only answer is to park your savings in inflationary proof vehicles (and I don’t just mean gold)”

    Like a lot of people here, by the sound of it, I don’t own a house but have a sizeable chunk of money waiting for house prices to become reasonable again. I have been worrying about the effect of inflation upon those savings. What inflation proof vehicles to you have in mind apart from gold?

    After the recent rise in gold I also worry that I’ve ‘missed the boat’ there – that much of the rational increase is already ‘in the market’ and any further gains will be more speculative. Any thoughts?

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  • European-bear says:

    One argument about the “low interest rates” that is ignored by all commentators is interest tax relief at source. Just before the onset of the last crash, there was a 25% subsidy paid for by the government. So an mortgage interest rate of 6% (if you can find such a rate) now is the direct equivalent of 8% in 1989 (the onset of the last crash and the approximate interest at the time). Yes interest was restricted on the first 30,000 per person, but effectively it meant nearly every house was able to avail of the full amount with cohabitees etc. So the “after tax” interest rate now is really not as big as most commentators and those in denial like to believe!

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  • tyrellcorporation says:

    ‘inflationary proof vehicles’ – Classic E-Type Jaguars, etc. :0

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  • I have missed the boat with putting my savings into Euros despite disagreeing with the Euro on a point of principle. If only I’d known a year ago that I should transfer my savings into Norwegian Kroner, which as far as currencies go must be one of the safest given how oil rich our Viking cousins across the sea are!

    Even the Euro isn’t a ‘safe haven’ as the ECB is also inflating the money supply. So if the ECB cuts rates because it is frightened of the Euro having gone over the $1.50 mark, then we may see if fall back against Sterling to below 75p. However all this will mean is that Eurozone consumers will ‘enjoy’ higher food and fuel prices everybit as much as we are. It won’t mean that food and fuel prices here will fall.

    Both harold and Wealthy Vagrant are right. 10% – 20% drops in house prices as measured in pounds are likely, which may translate to larger drops in a basket of other currencies. However the real wealth is now being stored in commodities. Even with a nice E-type Jag or vintage MG, its difficult to see oil prices coming down. They are going to stay high.

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