Sunday, December 28, 2008

David Smith is back

Chaos of 2008 causes havoc for predictions

What a horrible year that was. A full-blown credit crunch, of the kind I have never witnessed before, alongside a nasty commodity-price shock. Economists, unsurprisingly, found it a tough year to predict. That was partly because of the nature of the crunch itself. Things turned out gloomier than even the pessimists expected. Any economist getting it right during 2008 would have required mystical powers of prediction. A year ago, just about the gloomiest forecast for house prices you could find among economists was for a fall of 5% in 2008. Data from the main lenders, Halifax and Nationwide, point to a fall about three times that. I always argued that you needed a big economic shock to produce a fall in house prices, and I was right.

Posted by little professor @ 05:44 AM (2055 views)
Please complete the required fields.



14 thoughts on “David Smith is back

  • charlie brooker says:

    As Arthur C Clarke once proposed “For every expert there is an equal and opposite expert.”

    Reply
    Please complete the required fields.



  • last_days_of_disco says:

    So his argument is that he was right in ramping property all along because no one could have foreseen the credit crunch which caused house prices to fall. But wait a second weren’t sub-prime in the USA and self-cert mortgages here the first cause of this mess?

    What a pathetic attempt at self justification. I was right because I was so wrong seems the logic here. Sheesh.

    Reply
    Please complete the required fields.



  • yes turning points are difficult – but economists get paid to predict these things. So none got it right – erm not true, many forecasters got it right in terms of the fact that a build up of debt was dangerous, that such debt would have to be destroyed (either through liquidation or default) and that a contraction in credit would follow which would be a catalyst (but not the main reason for) a fall in H prices. After that everything that depends on HPs and debt would look shakey. Et Volia.

    Exact day of the turning point – no, although here NR was the “aha moment” its just people couldnt bring themselves to recognise it. Year of the turning point – yep some saw that. what really surprises me is how people didnt realise how quickly it would get so bad. Even today people are still in denial….. Yes well so my property hjas lost 15%/20% since the top BUT thats ok cause its 3 x what i paid for it…….

    As for David (I was right even when i was wrong) Smith, you are wrong about the fact that oil wasnt forecast (by some) to go to $147 and back to $35 last year. Infact he is a very good contrarian barometer. I like him…. keep up the (bad) work!

    Reply
    Please complete the required fields.



  • it_is_going_with_a_bang says:

    “I always argued that you needed a big economic shock to produce
    a fall in house prices, and I was right.”

    What sort of Get Out of Jail Free Card is that to play?
    I could argue that I always argued a meteor strike could threaten house prices
    The issue here is was the ‘economic shock’ predictable. The answer is absolutely it was.
    The bottom line is the money has to come from somewhere. History has told everyone – including David Smith – what happens when you run an economy on unaffordable house prices. One day the house(price) of cards WILL come falling down and it will hurt people when they are under it.

    There were people that predicted what would happen in 2008 it’s just that David Smith didn’t listen to any of them.

    Reply
    Please complete the required fields.



  • little professor says:

    To be fair, I slightly edited the last line. Here’s the original:

    I had always argued that you needed a shock big enough to push the economy into recession to produce a big fall in house prices, and so it was.

    Reply
    Please complete the required fields.



  • So no news here then unless you were a blindfolded herrnit living in a subterranean cave for the last couple of years. Just an essay really.
    It appears many HPC bloggers have,”mystical powers of prediction” – Aren’t they the lucky ones!

    I predict that one day a man in a responsible position will admit his failures and simply follow the right path. Better late than never.

    Reply
    Please complete the required fields.



  • But there was no shock! No earthquake, no hurricane, no war, nothing. The “credit crunch” was caused by too much debt. Like the straw that broke the camel’s back, at some point there was a debt which broke the economy’s back. Even the precise timing wasn’t too hard, we could see the camel’s legs wobbling before it finally broke.

    Worst of all for David Smith, by this time last year we’d already had Northern Rock. The writing was clearly on the wall. Silly man.

    Reply
    Please complete the required fields.



  • I think the Mail financial section was saying that prices were passing their 4 x salary (+deposit) ratio back around 2003.
    And that was when I became extra cautious about buying something that would likely fall back to that price.

    People have been calling the end of the house price boom for some years and been ‘wrong’ for a few of them because they thought that the mathematics would do the talking.

    Some of those people, no doubt, can label themselves ‘economists’ by whatever Smith’s definition is.

    Reply
    Please complete the required fields.



  • 5. little professor said…To be fair, I slightly edited the last line. Here’s the original:

    I had always argued that you needed a shock big enough to push the economy into recession to produce a big fall in house prices, and so it was.

    Sunday, December 28, 2008 10:49AM

    Doh, Like rents not covering mortgage payments. Big shock!

    Reply
    Please complete the required fields.



  • Oldfashionedbanker says:

    “My forecasts scored only two points.”

    One for the scrap book!! David Smith still stands out as the only journalist refusing to talk of bubbles in asset prices and credit. Its like he is blind to the blindingly obvious. As someone else said along with the Economist magazine on gold prices he is the best contrarian indicator out there. The worst problem for me however is his very annoying style of writing in which he proposes one scenario, lets say a house price recovery (I fully expect him to write something along these lines early next year) with some strong arguments for. And then says “not likely” but with some purposefully weak arguments against. Blantant double speak and confusion journalism at its worst.

    Heres my predictions on his “5 indicators for economic outlook” with a HPC.co.uk slant and some predictions/comments.

    Growth -2.5% – Continuing weak retail and housing lead the way with negative growth in most sectors possible execptions are pharma, arigulture, and IT
    Current A/C Deficit 1.5% Continued weak pound and consumer confidence causes imports to fall and makes our services cheaper leading to a slight recovery in this indicator
    CPI 4.5% – Two words we shall be seeing a lot more of next year, quantitive easing. The 2% target will be officially abandoned in 2009 “for the good of the economy” (Expect a sharp recovery in commodity prices when the remaining hedge funds find funding and confidence) This is the only way that the debt destruction can happen without deflation and possible depression.
    Bank rate 1% – I don’t think they can bring themselves to do the full 0% after the savaging the pound has endured. My opinion it should be 3% absolute minimum the banks solvency crises is the problem not the bank rate. The ZIRP policy didnt work for Japan why would it work for us? If we continue down this route we effectivly paint ourselves into a corner as far a some future leg of the ression is concerned, just as Japan is finding now there is nowhere to go from 0%.
    Unemployment 3.2m – D’oh!

    Reply
    Please complete the required fields.



  • The housing market took longer to fall over than many of us thought likely, because there was an unusually long period without any serious upsets in the financial system, coupled to a culture of increasingly reckless lending.

    The property bubble was vulnerable to a financial crisis for five years before one came along that was big enough to puncture it, and throughout that period, it was blatently obvious that the rapid increase in consumer debt was unsustainable, and a crisis waiting to happen.

    It was also very clear that the longer the bubble took to burst, the worse the consequences would be, and that those consequences would stretch far beyond the property market.

    Had there been sensible and prudent consumer credit controls covering loans and mortgages, the bubble would never have occured, and we would not be in a crisis today.

    This is not wisdom with the benefit of hindsight – it was blatently obvious for years, as can be seen from this site’s archives.

    Reply
    Please complete the required fields.



  • UT
    Hear Hear

    Reply
    Please complete the required fields.



  • The time the economy started going belly up was about 2000, so the idea that this is a crash isn’t very helpful, revelation is better. We cannot truly have had a “nice” decade if external creditor nations have been suppressing our domestic inflation. The expansion of the state based on false taxation revenue you could argue that started back in 2002 or before.
    The UK has been digging a hole for a decade irrespective of the crash, or credit crunch. Low skills, benefit culture, unfunded future liabilities…etc. Lets not forget also, that sterling has tanked. So in a foreign currency the house price falls are higher.
    I wonder how many people in Zimbabwe said “If that Robert keeps going then soon I will be able to buy that nice semi at a bargain price” and how many said “help, help, get me out, help”.
    I think that 2009 is when things will get started. This is nothing. The UK, having shoved a French banger up its own *rse, is discussing how bad the pain will get. Actually the current pain is just from the heat of the sizzling fuse, the banger hasn’t gone off yet.

    Reply
    Please complete the required fields.



  • stillthinking,

    Based on your above comments, I can highly recommend the book Fantasy Island by Larry Elliott (Guardian) and Dan Atkinson (Mail). It explores the debt bubble from a political, social, and economic perspective. Their prognosis for Britain is a sharp decline in economic and military power. I read it over Christmas and I wish I’d read it 18 months ago when it came out. It’s an easy read, and at £7.99 easy on the pocket too.

    Reply
    Please complete the required fields.



Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>