Monday, Nov 09, 2009

Video - Blanchflower on house prices

Citywire: House prices should fall more than 30%, says Blanchflower

Be wary of those who claim house prices are recovering, says David Blanchflower, professor of economics at Dartmouth College and a former member of the Bank of England's monetary policy committee. If we base our expectations on the house price to earnings ratio, we are likely to see a peak to trough drop of 30%, he warns - though in fact the correction typically overshoots.

Posted by jack c @ 04:47 PM (2362 views)
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37 Comments

1. tyrellcorporation said...

I used to be a bear but now I'm a bull. I just can't see this happening.

Monday, November 9, 2009 05:01PM Report Comment
 

2. vindicated said...

TC, you're scaring me!!! Stop it. Has someone stolen your sign in???

Monday, November 9, 2009 05:33PM Report Comment
 

3. righttoleech said...

the darkest time is just before dawn

Monday, November 9, 2009 05:42PM Report Comment
 

4. phdinbubbles said...

Blanchflower turns into HPCer. HPCers turning into bulls. What's going on and what's next? - Allsopp launching a campaign for LVT?

Monday, November 9, 2009 06:25PM Report Comment
 

5. amjidk said...

the crash should reume after the elections, i think 30-40% over the next 2 years will probably be accurate..

Monday, November 9, 2009 06:30PM Report Comment
 

6. smugdog said...

Amjidk, 30-40%!, dream on, it will be the dawn of a new age, positivity everywhere to be seen,
think of it as a new era, just as the 50's were after the World War.

Tyrellcorporation , my new friend, do come in!

Monday, November 9, 2009 06:56PM Report Comment
 

7. cynicalsoothsayer said...

I think he is reading these postings.

Monday, November 9, 2009 07:08PM Report Comment
 

8. jack c said...

@smugdog - please explain (ideally in detail) the theory of how uk residential house prices can only ever go up?

@tyrellcorporation - regarding smugdog's invitation - please remember that old saying of "just when you thought it was safe to go in the water"

Monday, November 9, 2009 07:08PM Report Comment
 

9. Jayk said...

People like Blanchflower have been repeating this sort of rubbish for over two years. According to them, prices by now should be averaging under 100k.......now it's always "next year, you'll see!". People who believe this are likes donkeys with a carrot dangling in front their faces.

I waited for this mythical crash, it never came, so I bought. I had enough of being a donkey. I'm sure another drop is coming, but more than 30%? Good luck with that......

Monday, November 9, 2009 07:24PM Report Comment
 

10. growler said...

Come on folks...
I'm in industry, and once I stop reading about another insolvency, I'll believe things are bottoming out.
We're seeing a low-sterling assisted asset bubble - driven by London property rises. When the cuts come - as we all know they will - and QE is reversed and interest rates rises, Sterling will bob upwards and then the fun will begin.

Monday, November 9, 2009 07:24PM Report Comment
 

11. ketha said...

Ok, lets be clear about what Blanchflower is saying here, he's saying nothing that hasn't been said here. 30% from peak to trough with overshoot.. but clearly the government is taking exceptional measures which put previous predictive 'models' out a bit... can we have 'something' for 'nothing'.. no.. but that something might not be houseprices, it might be inflation, two decades of poverty, a second depression or just a very long period of 'austerity'. We might not see a 'statistical' crash but it all amounts to the same thing.

Monday, November 9, 2009 07:56PM Report Comment
 

12. estrader said...

I think I am turning bullish now too. The reason being that the public only understands things going up in value, they just want to buy and hold and get rich. Governments want to win the votes of the public, so they will make sure that whatever the public buys (houses) will go up in value. So, on the downside, all you have are the bears, but on the upside you have the bulls, the public and the Government all working together. The bears can never, ever, ever win.

Monday, November 9, 2009 08:22PM Report Comment
 

13. amjidk said...

i think you'll find that it was you who is dreaming, smugdog, time shall tell..
i think to many of the guys on this site are falling into the bulltrap..

Monday, November 9, 2009 08:33PM Report Comment
 

14. will said...

We must all become housing bulls - contrarian house pricers.

Monday, November 9, 2009 08:38PM Report Comment
 

15. fallingbuzzard said...

He's got it right though. House prices are reflecting thinly traded markets.

Monday, November 9, 2009 09:06PM Report Comment
 

16. rumble said...

Enough of this lunacy, let's hear a serious opinion:

Reuters

Monday, November 9, 2009 09:15PM Report Comment
 

17. jack c said...

House prices are currently expensive on every traditional measure and ultimately there has to be a correction (I prefer this description rather than crash). The difficult bit is predicting precisely when a prolonged correction will take place. It could of course be that we are someway into a price correction and the recent upswing (comprising of very low transaction volumes) is part of a DCB. Markets do not follow a straight line (housing included) and in fairness techieman predicted a Spring bounce long before the Nationwide/Halifax figures started going positive again. The political cat and mouse games will be up in May 2010 and as growler points out at post 9 (Monday, November 9, 2009 07:24PM) thats when the fun (or should I say market termoils) will begin.

Monday, November 9, 2009 09:16PM Report Comment
 

18. tyrellcorporation said...

Thanks for the offer smugdog but I have to decline. I'm now tempted by 'benign indifference' rather than switching camps. I live in hope of a fall but realise without any levers to pull were all swimming against the tide and have been for years. Yes by every reasonable measure house prices are massively overpriced but none of us counted on the measures taken to shore up the ponzi scheme. In many ways the credit crunch was the one thing we didn't want because the threat of depression meant the remedy was off the scale. Ironically I reckon a standard type of recessionary slowdown might have given us a better result.

I'm gonna look for a house to buy in the new year. Fu**ed off with waiting to be frank.

Monday, November 9, 2009 09:32PM Report Comment
 

19. jack c said...

Interesting article @ seekingalpha.com/article/172288-u-s-and-u-k-property-bubbles-bounce-then-bust-again

Unfortunately I cant post the above titled "U.S. and U.K. Property Bubbles: Bounce, Then Bust Again" up on the main board - suffice to say the graphs are interesting suggesting the bounce is now topping out

Monday, November 9, 2009 09:42PM Report Comment
 

20. growler said...

TC

What's 6 months....?

Can't remember where I posted, but property would have to rise a lot for the maths to work.

At the risk of a pun, before the general election we are bound to be knee deep in government bull###t - and once all that rubbish is over, we'll have no bulls, but be left with the ###t

Monday, November 9, 2009 09:45PM Report Comment
 

21. tyrellcorporation said...

@ Growler - Possibly, but I could just as easily say that in 6 months time, printing money is still happening and the mother-of-all inflationary bubbles is being blown up by central banks across the globe. Gold and stocks are surging because investors know what's game the West is playing. Labour governments always end up with rampant inflation and this will be no different IMO.

Monday, November 9, 2009 09:59PM Report Comment
 

22. techieman said...

ah ah i wonder if this rings true?

"TC - well if you assume that people are taking theirs off the market and if people do think that the alternatives are shaking (including money in the bank) then that could be the catalyst for a rise....not a fast paced one, but then people (such as the auctioneer) could be saying the market is bottoming. Now Im not saying where this will be but the seeds of a suck in are IMO being sown. We will then see the bulls back on here saying stuff like well you all had your chance and you blew it. At that point they may be right, but im betting that they arent!

The thing is a bear market moves with retracements to the upside (it normally -eg 1929 to33) spends more time going up but for smaller amounts than the downmoves (spose that obvious). - look at a chart for the FTSE then make that chart monthly and compare it with the chart on the homepage and you might get what i mean.

But in truth if you want to get a place then fair enough at some point it will be a good time to buy. Is that now - in my view no even if there is a retracement (the key time is probably next spring).

Friday, October 10, 2008 10:06AM"

http://www.housepricecrash.co.uk/newsblog/2008/10/blog-panic-spread-across-world-markets-this-morning-as-the-ftse-index-dived-in-early-trading-18091.php

Monday, November 9, 2009 10:15PM Report Comment
 

23. techieman said...

shame you weren't here then Smug - but as you can see your arrival is counter cyclical!!! Now you may be right a while longer but then you may have to go to ..... the dark side :-).

Monday, November 9, 2009 10:17PM Report Comment
 

24. techieman said...

oh and btw "TC" in that quote was titanic captain not tyrell corp. and estrader shame on you... you really should know better.

Monday, November 9, 2009 10:22PM Report Comment
 

25. letthemfall said...

Some intemperate talk this evening - some things don't change.

Monday, November 9, 2009 10:31PM Report Comment
 

26. techieman said...

jack @ 18 - i think that article needs some more explanation. Pretty charts though!

Monday, November 9, 2009 10:37PM Report Comment
 

27. fubar said...

Oh look, Jack C asks reasonable questions at 8, smugdog is notable by his absence. Can't imagine why.

Monday, November 9, 2009 11:09PM Report Comment
 

28. luckyjim said...

Blanchflower completely failed to see the crunch coming when he was in the MPC. He got is spectacularly wrong. Why should we pay any attention to what he says now ?

Monday, November 9, 2009 11:17PM Report Comment
 

29. mark wadsworth said...

@ PhD, Krusty does support Land Value Tax! She wants to tax everybody else to bail out the banks to prop up land values.

Tuesday, November 10, 2009 01:07AM Report Comment
 

30. amjidk said...

@ no 27, because his reasoning actually makes sense now, perhaps he's seen the light...

Tuesday, November 10, 2009 01:23AM Report Comment
 

31. nopensionnohouse said...

Nooo way chaps this is definitely not the bottom. Not until average house prices are 3.5 times average wage.

(can’t believe I’m saying this) what Blanchfolwler says. (I feel dirty now).

What a complete c0ck Blanchflower is. If only he was speaking like this while he had the power to actually do something. 1:23 “... and in any case you have to worry about people who have the incentive to tell you that house prices are rising .....”

All with a straight face as well. Priceless.

Tuesday, November 10, 2009 07:35AM Report Comment
 

32. str 2007 said...

nopensionnohouse

Can you not see that houses won't return to 3.5 times average wage.

Banks lend fully against 2 wages now and most people buy a house as a couple/partner.

With a big deposit, good credit rating etc you can get 5 times joint from Barclays/Woolwich.

Unless there is a massive problem or massive increase in interest rates prices will only fall to what 2 people can comfortably afford.

So look for say 3.5 times average household income as the bottom of the market.

No doubt someone has the national household income figure ( I'm guessing it's in the region of £35k) But more in the South East £40kish.

I'll be amazed if we've seen the bottom. My original guuesstimate was all indexes showing at least -25% peak to trough (no inflation included) so that would give us anopther downleg from here of 10-15%, but I doubt anymore than that.

I just don't want you to miss the bottom ;-)

Tuesday, November 10, 2009 09:59AM Report Comment
 

33. letthemfall said...

What is most surprising about the last few months is the credit available, albeit less than before. Prices will only stay up if credit keeps flowing. I don't see how that can last.

Tuesday, November 10, 2009 10:10AM Report Comment
 

34. Ndg said...

When houses hit bottom nobody will want to own a house. Carbon assets.

Tuesday, November 10, 2009 10:20AM Report Comment
 

35. str 2007 said...

letthemfall

The banks have realised a self fulfilling prophecy, if they stop lending prices will fall and the security on their lending will evaporate.

Therefore by continuing to lend they maintain the value of their security.

Perhaps by lending so much (5 times joint) they are forcing the government into a situation where they can't raise interest rates without collapsing the whole economy.

This leaves the banks with a very healthy margin lending out at an average of say 4.5% while getting the money at 1.5%.

With regard to where the money is coming from they are simply producing more of it.

IMO 5 times joint is more than many would have taken on the derized self cert 'liar loans'.

I doubt the government are even aware of the trap that's being laid by the banks.

Tuesday, November 10, 2009 11:11AM Report Comment
 

36. letthemfall said...

str 2007
Yes, that's what appears to be happening. But there is a lifetime to that. It is postponing the day of reckoning, which will be inflation, high interest rates, and gnashing of teeth (the teeth of housing bulls and their kin hopefully).

Tuesday, November 10, 2009 02:23PM Report Comment
 

37. str 2007 said...

We'll see, high inflation maybe what they're all looking for anyway.

Tuesday, November 10, 2009 03:48PM Report Comment
 

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