Sunday, October 12, 2008

As we are supposed to be talking about house price crashes, I thought I might put this one up

Property slump finally hits the baby boomers?

Another article about how people who thought their house was their pension are now realising that it isn't going to pay up. But what is interesting is the paragraph halfway down which says 'Mead believes that, for most people, it makes sense to hang on in – not least because of the dearth of potential buyers. “After the crash of 1989, it took seven or eight years for prices to come back,” he says. “This time it’s different, because everything has happened so quickly. Prices have dropped by 25% in six or seven months, so it should take only three or four years for them to come back.” ' No it's not. The crash has only just started, and prices won't "come back" for a very long time, if ever.

Posted by jonb @ 08:59 PM (1738 views)
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13 thoughts on “As we are supposed to be talking about house price crashes, I thought I might put this one up

  • planning4acrash says:

    Yes Jon b, what we are seeing is the piercing of a debt bubble began after the Great Depression. The 1990’s crash should have been that event, but total lax policies facilitated today’s boom. Why? Because the 1990’s bubble wasn’t big enough for Goldman Sach’s to justify taking over the whole show. The whole reason we’ve suffered a housing boom and had to rent, is so that a bunch of inbred psychopaths can consolidate their grip over the issuance of money to maintain their grip on power.

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  • Talked to 2 baby-boomers this week about HPC.
    First, where mother had died leaving house in probate so they had initially put house on market. This week they took it off the maket as they did not want to sell and end up with money in a bank. They would rather have it in the house even though depreciating as “the house can’t get up and walk away”.
    Second where, despite my warnings, they were scrabbling around for cash as a deposit on what they saw as under-priced property, including poss mewing.

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  • Mark Wadsworth says:

    Prices have dropped by 25% in six or seven months

    Oh, have they now? I mean, I wish this were true, but is it?

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  • One realistic comment in the article here : ” Prices have dropped by 25% in six or seven months”
    Apart from that I can’t really find anything other than hopeful talk and the sort of ideas that might suit but not necessarily work for the odd person/family.
    I don’t really like the term ‘baby boomers’ either should be ‘baby minded.’ Far more accurate description for people who expect and rely on house prices rising infinitely. Placing them in a certain age bracket is idiotic.

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  • Just a thought…the Americans are throwing a $trillion at the banking system, the Brits are throwing £100bn. Even the Portuguese are weighing in with E20bn. If we go on injecting money into the system like this we should get high Western inflation.

    At some stage rising affordability meets the prices of houses coming down and the market “bottoms”. When might this happen? I think the Mortgage market will need to stabilise before that can be predicted – no sign of that today!

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  • markj69 str05 says:

    “After the crash of 1989, it took seven or eight years for prices to come back,”

    ‘Come back’ obviously means the transition between reducing in price to increasing in price, and NOT reaching the same peak price of ’89. This cycle actually took approx’ 12 years! Hmmm, and this crash has only been going for 12 mnths. The next 4yrs are going to be interesting, methinks.

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  • I often think that one of the problems with many contributors to this site is that they expect things to happen fast and if they can’t see a week on week change they start to doubt. What they don’t grasp is that this is happening very fast, even when compared to 1929. Speed of crash cannot be used to predict speed of recovery. If anything, a faster crash does more harm which would lead to a longer slump and a slower climb out of the mire.

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  • Have I understood that correctly? Because the house prices falls speed up, the prices will quickly rise again? Interesting hypothesis. I will call it the trampoline theory and will put it in shelf next to “the earth is plate, and we’re in the centre because the horizon appears to be at the same distance in all directions”. Just for those who don’t understand the sarcasm: The house prices fall because they are extremely inflated by uncontrolled wholesale funding. That’s gone and won’t come back. Hence when house prices rise again one day (in years to come) they will still remain much lower than today, in real terms.

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  • We don’t know yet whether the crash is “faster” or “slower” than previous crashes. All we know is that the first year of it has seen a bigger fall than the first year of previous crashes.

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  • It is entirely feasible that a large proportion of the ‘baby boomers’ will be dead before their houses are worth what they were in the summer of 2007. After the 1929-32 crash it took over 22 years and a world war for the Dow Jones Industrial Average to return to it’s 1929 level i.e. anyone who bought stocks in mid-1929 and held onto them saw most of his or her adult life pass by before getting back to even. As for timing if it is similar to 1929-32 crash we are about 1/4 of the way through the down cycle only this time there are many more factors and variables than there were way back then and peoples economic and retirement expectations are vastly out of sync with reality. This episode has a long way to run and the actions of our government and others will probably make things more protracted and worse than anyone can forsee.

    Edward Lorenz’s paper on chaos theory entitled ‘Predictability: Does the Flap of a Butterfly’s Wings in Brazil set off a Tornado in Texas?’ may well sum up the current situation.

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  • Look at the 35 year price graph on this page – clearly there have been 3 crash’s in that period and it is interesting to note (as we entre) the 4th that the difference between top and bottom is pro rata much the same for all three and the period before prices started to rise again was 3 to 6 years – if you live in your house (didnt buy as an investment) then to be frank as long as you can maintain the repayments then it is not praticularily important what the price is – if you are moving up or down sizing the new house will have been effected equaly by this crash. Prices fall because there are no buyers i.e. because people sit on their hands and wait OR because those that would buy cant get the finance to gear their cash.

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  • stillthinking says:

    @nickolarge
    Totally agree. This crash may be fast and dramatic, with sudden twists and turns, but it plays out slower than paint drying.

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  • Well I’m probably as guillty as any of being impatient and doubting at times.

    Pumping hundreds of billions into the economy must make a difference the question is how much.

    At some point things will take a turn upwards. I’m inclined to agree that all should heading down despite the bailout and should have gone down sooner than now if city traders were looking as far ahead as us on here.

    In fact things should go down even further now as we are ‘popped bubble’ minus several hundred billion now where as we were just popped bubble before.

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