Wednesday, July 29, 2009

BBC Reports Bank of England Figures

Mortgage approvals 'on the rise'

"Signs of a further pick-up in the housing market during the summer have been revealed in the latest figures from the Bank of England."

Posted by luckyjim @ 10:06 AM (2256 views)
Please complete the required fields.



37 thoughts on “BBC Reports Bank of England Figures

  • HOUSING REPRESENTS A GOOD INVESTMENT. IT IS YOUR PATRIOTIC DUTY. DEBT IS FREEDOM.

    Reply
    Please complete the required fields.



  • Interesting they suggest chains are being broken now as a results of potential buyers believing that the bottom of the market has not been reached. I’d have thought at the minute chains would be holding up well giving the positive indexes and VI ramping going on.

    Reply
    Please complete the required fields.



  • Witness these happy first time buyers. The state salutes their effort. They look forward to reaping the rewards of participation in the housing market.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    It’s not just the number of approvals that matters, it’s gross lending that matters. It appears, on a rough and ready basis, that once monthly lending drops below £28 to 30 billion, house prices fall and vice versa.

    (this is yet another ‘magic number’ to chuck in the formula, along with correlation of unemployment and house price rises of -0.84, or the cut-off figure of 2.75 million unemployed above which prices fall sharply and vice versa).

    Reply
    Please complete the required fields.



  • Wadsworth,

    I have to say, you are very selective in your ‘magic numbers’. The methodology behind that unemployment correlation was torn apart by many yesterday but now you are quoting it as fact. The .84 figures was based on an 18 month time lag. Was there a massive increase in unemployment 3 years ago (18 months before the crash)?

    We all accept that ‘house prices always’ rise is nonsense’ yet some people cling on to other universal rules.

    There are no ‘magic’ numbers. There is a complex relationship between GDP, inflation, interest rates, liquidity, sentiment, population growth, tax laws, housing policy and house prices.

    Reply
    Please complete the required fields.



  • There’s a certain amout of chicken and egg going on here.

    What would be an interesting and or more meaningful figure (although difficult to obtain because of multiple applications) would be how much money was being leant against how many applications and how many applications were being turned down.

    I can’t help thinking that as prices fall or optimism is low then prices fall as sellers want to sell before prices get lower and buyers hold off for the same reason.

    At least the majic numbers are easy to remember whichever comes first.

    IE 2.8-3 million unemployed
    and 28-30 billion monthly lending.

    Interesting correllation there for a mathematician. Or did someone just make up the numbers.

    Which leads me onto last nights Property Snakes and Ladders – what a wonderful programmme and Sarah is coming into her own now. At l;ast her predictions are coming true and her victims made (or were in the process of making) a thumping great loss.

    She’s just so nice about bringing them round to reality. I loved the phrase she used – don’t make it too trendy as by the time you sell it for the price you want in about 10 years it may well be out of fashion – brilliant Sarah, keep it up.

    Reply
    Please complete the required fields.



  • lighten up luckyjim: it wasn’t torn apart by anyone. Some people tried to read too much into it, some people needlessly criticised it to sound impressive and others got the wrong end of the stick. All that number told us is that house prices usually fall when unemployment rises.

    str 2007: did someone make up what numbers?

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    @ Luckyjim, of course there are ‘magic numbers’ (even if we don’t know precisely what they are – perhaps it’s not £28-30 billion lending but £25 billion or £35 billion).

    When I bought buy-to-lets in the late 1990s, it struck me that if the monthly rent was at least equal to 1% of the purchase price, you couldn’t go wrong (and I didn’t). Call that a ‘magic number’ if you like.

    There is another rule that says house prices, share prices, GDP and salaries rise in line over the long term, and that rents and salaries are very closely correlated even in the short term.

    And yes, there are magic numbers for all the other variables you mention (GDP, inflation, interest rates, liquidity, sentiment, population growth, tax laws, housing policy) so feel free to come up with some ‘magic numbers’ of your own (how many new constructions would we need every year to keep prices flat?). And it’s not just absolute levels but changes that matter (esp. with interest rates).

    Reply
    Please complete the required fields.



  • Flashman

    Sorry it was the numbers that looked remarkably similar (admittedly 10,000 times different). Between the magic unemployment figure we were all discussing the other day and the magic £ mortgage approval figures being discussed here. It wasn’t aimed at your figure, more a tongue in cheek at Sarah Beeny’s programme last night.

    I didn’t finish my post properly. The develpoper on Property Snakes and Ladders last night was making up his numbers so as not to make a loss. He consistantly came up with a new sales price for his flat based on his ever rising cost figures.

    I’ve posted the link for the programme (hasn’t appeared on the blog yet) hope you enjoy it.

    Reply
    Please complete the required fields.



  • luckyjim: “Was there a massive increase in unemployment 3 years ago (18 months before the crash)?”

    The price “crash” was caused by the credit crunch and a banking crisis. The presence of this momentous and relatively rare event does not render the historical correlation between unemployment and house prices invalid. The presence of this correlation does not exclude the possibility of other factors having an effect

    Reply
    Please complete the required fields.



  • @luckjim

    The .84 figures was based on an 18 month time lag. Was there a massive increase in unemployment 3 years ago (18 months before the crash)?

    I’m not sure that you realise you’re using a strawman argument by confusing cause and effect. Just because fire causes smoke does not mean that smoke causes fire.

    Reply
    Please complete the required fields.



  • Lucky Jim – you really are starting to sound like a reformed smoker having a go at the other smokers in a self righteous manner. [not that being a HP shorter is particularly bad for anyones health (you might argue it is for financial health) or anti-social….. or is it!

    Economists were arguing for a long time that there would be no HPC because there was not enough unemployment (or moves toward more unemployment) and IRs were pretty low by historical standards. But unemployment lags the contraction. If the contraction is caused by an external event then the unemployment comes next. Its the next wave after the CC and deflationary response to that CC.

    Per Flash’s point at 7 – i think i was guilty of all of the above.

    Reply
    Please complete the required fields.



  • techie : I think you were only guilty of the first one and then you voluntarily corrected it

    Reply
    Please complete the required fields.



  • Flash – i had to get “wave” in my post somehow!

    Reply
    Please complete the required fields.



  • refusetobuy says:

    I’ve put some actual numbers on yesterdays correlation post (also wasting a lot of webspace).
    Just in case anyone wants to try to reproduce the -.81 correlation.

    Just copy any paste as text into Excel, and use the CORREL function

    Reply
    Please complete the required fields.



  • I have to stand up for Luckyjim on this one. He’s dead right – all the factors he talks about influence HP’s. Whilst I accept that there may be Magic Numbers, surely these only stand if all other factors remain equal. But one going up will cause others to go down and vice versa to varying extents. I don’t believe there is a brain on this planet that is big enough to come up with the equation which dictates house prices. If there were, we wouldn’t be in this mess.
    Like I said yesterday, if Nationwide and Halifax can’t even get house prices to correlate with house prices, what fecking chance is there of getting an accurate prediction with all these variables? Sod all I reckon.

    Reply
    Please complete the required fields.



  • Ok, happy headline (as always for the BBC) but there is some dire news in there …

    – “In the savings market in June, building societies saw customers withdraw £2.2bn more than they put in in June, compared with depositing £419m more than they took out last June.”

    People are living on savings

    – “net lending for house buying in June, by all lenders, grew by £343m – only very slightly higher than the rise in May which was the smallest monthly increase on record.”

    Just above the record low, only way is up …?

    – “The number of mortgages approved for house purchases in June rose to 47,584”

    Still half of what they were 2 years ago.

    Reply
    Please complete the required fields.



  • Techieman, I’ve always argued against over simplification of the argument. It’s got nothing to do with where I think the market will go next.

    You don’t have to be pro-smoking or anti-smoking to know that you cannot assess the health risks of smoking on the fact that you know somebody who has a great aunt in her 80s who has smoked all her life.

    Likewise, it is far too simplistic to use historical trends between house prices and unemployment to predict what will happen next in the housing market.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    RTB, thanks for that. IF you do CORREL with changes in unemployment and changes in house prices you get a correlation of 0.30 which is pretty useless, I admit.

    But if you sort the Q-on-Q house price changes into two columns, one for when unemployment had risen, and one for when unemployment had fallen, the average quarterly price increase when unemployment was rising was 1.7% and the average quarterly price increase was 3.1%. (against a long run average quarterly increase of 2.1%).

    Which is maybe not particularly helpful either, but it must mean something.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    I meant to say

    “… and the average quarterly price increase when unemployment was falling was 3.1%”.

    Reply
    Please complete the required fields.



  • Likewise, it is far too simplistic to use historical trends between house prices and unemployment to predict what will happen next in the housing market.

    Wha … ? So we shouldn’t look at historical figures because … they might say something that doesn’t support your argument?

    Nationwide and Halifax used to publish forecasts until house prices started going down, and the BBC used to publish them word-for-word as if they were the gospel truth.

    Umm … you’re not David Smith from EconomicSuk.com in disguise by any chance are you? Your loose grasp of causality and statistics seems eerily familiar.

    Reply
    Please complete the required fields.



  • Actually LJ – i do kinda take your point. If the correaltion was that HP only went up or down based on unemployment then the economists i reffered to whould have been right and we would only be starting to see HP falls now. Since im in an agreeable mood though i also agree with Mark W and Flash. All other things being equal there must be a figure of unemployment above which HPs fall faster and futher.

    What that figure is – i have no clue, if it can be tempered by other things then perhaps you are right. Having said that i dont think – medium term that those other things will be enough to temper the falls. They just dont move quickly enough.

    As for my smoking analogy, we know that you bought recently and a couple of your posts have taken the devils advocate position a little too far in my view (not incidentially this one). But then again maybe im being over sensitive. You said you werent sure whether you would come back here after you did a good deal on a new build (I think) which was (at that time) probably around the bottom of the market. I just wouldnt be over cocky – remember picking bottoms gives you dirty fingers ;-).

    Reply
    Please complete the required fields.



  • refusetobuy says:

    MW, That sounds like a much better way to look at the data. Correlations are missunderstood (and can be very misleading)

    BTW I’ve tried Quaterly averages, taking diferences, lagging the data. Everything I do gives a correlation of -0.3

    Reply
    Please complete the required fields.



  • refusetobuy says:

    Oops, better.

    Reply
    Please complete the required fields.



  • Before stating the bleedin obvious, i think there must be a range of unemployment values or rates (even if it were perfectly measured) or rather a range of numbers / rates of non working people v. working people, which is neutral. At different points in time that neutral range must deviate dependng on “other things”. However the maximum of that neutral range must be definable.

    Obviously if everybody was unemployed (AND no one had savings) then it would be irrelevant what HPs were as no-one could afford one.(so at then end they must degenerate to no value – which might not be the same as priced @ nothing.

    IF of all the unemployed some people had savings then the sales would go to those. If we have full employment then HPs must – in the long run – be a function of GDP growth. There must abe a steelers wheel point – which must change depending on the other things.

    Its then at different ranges that HP more adverse negative correlation must occur. Particularly as HPs are determined at the margins. I suppose you could test this by looking at areas with high unemployment rates and seeing what they are going for, and comparing that with areas with low unemployment. But then what constitutes an area? You need to compare homogeneous – eg “Estates” where the housing stock is the same, and access to services are the same. That would have to assume that values are not eroded by say vandalism of the housing stock.

    Reply
    Please complete the required fields.



  • techieman

    I don’t think I’ve made any predictions about the market recently. I’m certainly not being over cocky – I’m well aware that the current data fits your Spring Bounce pattern.

    All of us will buy sooner or later. Hopefully this site will help people decide when and why.

    Conspiracy theorists (remember P4AC) and those who simply dismiss evidence they don’t like aren’t helping anyone.

    Reply
    Please complete the required fields.



  • Techieman (again)

    Economist sometimes talk about the ‘time between job’ rather than the unemployement. If the average time it takes toi find a new job increases from 4 weeks to 6 weeks thats a 50% increase in unemployment. In the UK that would be an extra 1 million out of work at any point in time.

    People tend to image 1 million home owners struggling to pay their mortgage. If that where the case we would see 100s of thousands of repossesions. I think the prediction this year is a mere 5000 more than normal.

    If you think of the rise in unemployment as being an extra couple of weeks between jobs (on average) you can see why it does NOT have a profound effect on house prices.

    Why is there a statistical correlation ?

    High interest rates cause the economy to slow (end unemployment to rise).
    High interest rates also put downward pressure on house prices.

    So when we have high interest rates we get rising unemployment and falling house prices.

    When we have a wet summer more umberallas are sold and more people holiday abroad.
    Selling more umbrellas (by lowering their price say) would NOT cause more people to holiday abroad.

    Reply
    Please complete the required fields.



  • “those who simply dismiss evidence they don’t like aren’t helping anyone”. Im not sure what you mean in this context. Further to mine @1.36pm – i think we are trying to determine how important the unemployment numbers are, but i for one am definitely not saying that the evidence is that the number of unemployed does not matter. Put it another way if the unemployment rose to 3m but the (working) population rose by say 3m – then on balance that would be a positive. If you take that in reverse a rising number of unemployed while people are leaving – im not saying thats the case – would have more of a negative impact.

    So yes you cant take unemployment in isolation, but realistically the non unemployment changes wont – IMO – come in quick enough to offset the reduction in the money -earning workforce, as much as the government has / will try

    Therefore i dont think there is evidence that the unemployment rate / number doesnt have AN affect, we just arent sure the extent of that affect.

    Apologies for saying that you were being cocky, but thats how some of your posts have come across since your purchase.

    Reply
    Please complete the required fields.



  • LJ – we keep crossing [in more ways than one!:-)]. But to my mind your post turns your own argument on its head, unless i have read it out of context.

    High interest rates cause the economy to slow (end unemployment to rise).High interest rates also put downward pressure on house prices.

    Yes but we havent got them have we so what is causing unemployment to rise? Unemployment is rising now because of the combined retrenchment of the purchasers of goods which is a deflationary spiral which the gov is trying to thwart. The retrenchemnt is caused in part by the fear of unemployment -which itself is based on people realising that the banks have turned the tap off and will make it more difficult for people to live beyond their means. In short A credit bubble has burst.

    There is a tipping point and i would argue thats been reached. Relative to forecasts about there not being more repos – (and i do understand what you mean re the short term unemployed) then im not sure what credibilty alot of these forecasts have. Look at the government’s own forecasts for GDP – the possibly variances are so wide so as to make the forecast unusable.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    @ RTB now we are getting somewhere.

    Let’s remember that a quarterly increase of 1.7% is roughly the same as average quarterly inflation since 1971 which appears to be 1.5%.

    So if inflation is now more or less nil, we’d expect house price inflation or more or less nil.

    Reply
    Please complete the required fields.



  • refusetobuy says:

    @MW
    That ties with a comment a colleague made, that in previous house price crashes houses didn’t fall in real terms.
    It seems like we are adding an extra ‘house price’ dimension to the Phillips curve.

    Reply
    Please complete the required fields.



  • techieman

    It is simply that while unemployment and house prices tend to move in sync (in opposite directions) one does not cause the other. They are both caused (in most cases) by high interest rates.

    But, as you point out, this is a very different scenario. So why should the historical trends (which mirror interest rates) have any bearing on todays unique scenario (which does not)?

    We already have evidence that the trend order is reveresed. Usually house price falls come after unemployment not before.

    Reply
    Please complete the required fields.



  • Techieman, far be it for me to say what LJ’s point is, but to me his post makes sense.
    Given that we have the lowest IR’s in history, this should point towards lowering unemployment and increasing house prices, but we clearly don’t have these, which reinforces his earlier post that there are far more elements to be taken into account. And trying to come with a formula is so nearly impossible it’s not worth bothering.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    Just for the heck of it, I tried the exercise again with three columns (remembering that average compound quarterly inflation rate since 1971 is 1.6% – not 1.5% as I said above)

    Column A – unemployment rate rising by > 0.1% – average quarterly price increase 1.1%
    Column B – unemployment rate changes by 0.1% or less up or down – average quarterly price increase 2.7%
    Column C – unemployment rate falls by >0.1% – average quarterly house price increase 3.3%

    Although those averages “look” pretty conclusive there is still a wide-ish range (even in quarters when unemployment was rising there were still some quarters when prices rose and vice versa).

    Reply
    Please complete the required fields.



  • I’m really not sure if you LJ and i are saying the same thing but in different ways. I do still think there is a HP / Unemployment link, and that when the unemployment gets worse then we will have more HP falls. its cumulative. Re history, i would like to examine this in relations to other credit bubble bursts in history. My view is they all burst and end up with an economic contraction and its THAT which causes the problem.

    If you like the reason for the fall in HP is either a credit bubble bursting or an increase in real IRs. Both bring on – in varying degrees – an economic contraction – which then causes unemployment which then ADDS to the spiral effect – a perfect storm if you like or a Minsky moment.

    http://www.rgemonitor.com/blog/roubini/208166/

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    Of course correlation does not mean causation, so I tried it the other way round and sorted each quarter’s unemploymnet increase/decrease into three columns

    Column D – quarters in which house prices rose <1% or fell - average increase in unemployment rate 0.08%, i.e. from a 5% unemployment rate to a 5.08% unemployment rate.
    Column E- quarters in which house price rose between 1% and 2% - average increase in unemployment 0.05%.
    Column F - quarters in which house prices rose > 2%, – average fall in unemployment rate 0.3% (i.e. from 5% to 4.97%)

    So there’s a correlation that way as well but it doesn’t appear to be as striking as the other way round.

    Reply
    Please complete the required fields.



  • Mark Wadsworth says:

    D4mn, for Column F that should read:

    “quarters in which house prices rose > 2%, – average fall in unemployment rate 0.03% (i.e. from 5% to 4.97%)”

    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>