Friday, January 29, 2010

+1.2% MoM +8.6% YoY

January Index

Commenting on the figures Martin Gahbauer, Nationwide's Chief Economist, said: “House prices strengthened their upward momentum at the start of 2010, increasing by a seasonally adjusted 1.2% month-on-month in January. The 3 month on 3 month rate of change – usually a smoother indicator of the near term trend – dipped slightly from 2.3% in December to 2.1% in January, but this primarily reflects the smaller price increases recorded in November and December. At £163,481, the average price of a typical UK property cost 8.6% more than a year earlier in January, up from 5.9% in December. Unless there is a fall in property values in February, annual house price inflation is likely to move into double-digit territory next month for the first time since May 2007."

Posted by phdinbubbles @ 07:06 AM (6415 views)
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99 thoughts on “+1.2% MoM +8.6% YoY

  • House prices and reality have now officially parted ways.

    And this comes the day after Standard & Poor’s comments about how shaky the British economy and banking system are.

    I’m through holding this counterfeit currency we call Sterling as the downside risks far outweigh the upside gains.

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  • Deflation?

    There won’t be any; it’s been completely arrested by QE.

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  • I can hardly believe the Bank of England thinks this is a good thing. but they do.

    They must be smoking crack in Threadneedle Street. Britain is heading for a very hard landing and in the pilot’s seat, once again, we find the Bank of England.

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  • So the appetite for debt is still alive and well. It’s amazing what you can do with cheap money.

    Despite the incongruity between our economic performance and house prices, the tone of the report seems quite subdued; a look at the “3 Months on Previous 3 Months % Change” graph seems to explain why.

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  • This number is all about unemployment or rather the lack of it.

    In late 2008/early 2009 the average unemployment forecaster suggested that there would be approximately 3 million unemployed by the end of 2009 and that it would peak at 3.2 million. We undershot the 2009 expectations by a staggering 0.5 million

    I was always publicly dubious about the forecasts for 3.2 million unemployed. Many forecasters are now saying that unemployment has almost peaked and I am just as dubious about those claims. I estimate that unemployment will peak at about 2.8 million. Private sector flexibility has surprised the forecasters by lowing wages and reducing hours. The forecasters are now fighting shy but they are wrong to do so. The public sector is not nearly as flexible and many jobs will be lost from this sector in 2010. We still wont get to the previously forecast 3.2 million unemployed because many of the jobs will be shed via natural wastage, hiring freezes and early retirements.

    I have often said that there is a tipping point for house prices at about the 2.8 million unemployment level. That opinion won’t change. I’m sure that this little piece of correlation analysis will strike people as overly simplistic but it actually isn’t. Many of the components that influence house prices are subsets of the master influencer that is unemployment. High unemployment suggests that a government does not have the fiscal leeway to stimulate jobs or to stimulate house prices. It also suggests that a government has lost the fiscal ability to keep interest rates low or to prevent repossessions.

    I am sticking to my earlier forecast for 2.8 million unemployed and to my assertion that this will be a tipping point for house prices.

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  • it_is_going_with_a_bang says:

    So the BOE master plan is something along the lines of use low interest rates to hammer people’s savings, allow house prices to rise to a level that only 0.5% interest rates will sustain and then raise the rates and see what happens.

    It is short term cheap money now but I fail to see how in the long term anything that is happening now will really be seen as cheap for those that will be stuck paying for it.

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  • Hi – I’ve been a lurker on this board for a few years now – mainly because enjoy reading contributions and comments form people whom I consider ‘like minded’ and ‘sensible’. However, having read the latest news, I can’t help but wonder if it isn’t we who are deluded?! After all, there is much discussion on the board about ‘fair value’ and appropriate borrowing multiples – but it seems entirely clear to me that we live in a regime which operates in a totally different way. Given that this is a fact, then maybe our response (to keep out of the market) guarantees us nothing but the poverty of the un-proven contrarian?!

    I really really really hope I’m wrong. For years now, I’ve been saving, paying down debt (I have none), diversifying out of sterling and avoiding excess consumption and all I see is my baby boomer neighbours (many of whom earn a good bit less than me) buying mercedes S-classes and taking 4 trips to goa/the carribean each year on the back of their ‘property wealth’. Meanwhile, I still couldn’t afford to buy the house that I live in!

    I feel sick….

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  • @ Andybee33…

    Meanwhile, I still couldn’t afford to buy the house that I live in!

    And I suspect neither could your neighbours if their ill gotten property gains were stripped away and they had to pay today’s prices, the very same prices they helped drive up. Property is a cancer of this country.

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  • I think this recession has confirmed that house prices don’t fall unless there is pressure on owners to sell. It doesn’t matter what the problems on the demand side are – sellers will not drop their price (and accept what they see as a loss) unless they have no other option. Far from being under pressure, many homeowners on tracker mortgages have benefited from a windfall.

    The two things that can force owners to start selling ‘at a loss’ are unemployment and high interest rates.

    Unlike Falshman, I don’t think unemployment will be high enough, or harsh enough, to have an impact this time. Private sector unemployment will start falling soon and most of the public sector job losses will be reductions in overtime, early retirements or people on VERY attractive redundancy packages – i.e. no 1980s-style financial hardship.

    So my view is that prices will stay as they are until interest rates rise significantly. This could happen if inflation gets out of control but that probably won’t be for a couple of years yet.

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  • I think prices have got a fair way to drop yet. To me it seems a no brainer just looking at the Nationwide adjusted houseprice graph – we appear to about a third of the way down and maybe another 5 years till we reach a bottom – although many will not want to wait that long to buy. I sympathise with you trying to keep your savings intact but you would stand to lose even more if you bought now and prices dropped substantially in 12 months time.

    I think you are right to hope that you’re wrong!! Don’t feel quite so sick, keep on paying the rent and give yourself a big pat on the back.

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  • Hpc Watcher 1304 says:

    Does anyone know where I can find the regional data for the Nationwide survey – it doesn’t seem to be on their report this time. Looking for stats on Northern Ireland.

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  • luckyjim: As previously stated, I think that 2.75 to 2.8 million will be a tipping point and that unemployment will also peak at about 2.8 million. I therefore don’t think that house prices will sustain prolonged multi-year loses because unemployment won’t follow through much beyond the tipping point. Unemployment of 2.8 million will undoubtedly cause house prices to ‘come off’ a bit but once the numbers of unemployed start to reduce there will be a lag of about 18 months before house prices start to recover. It is this period of lag that will provide the best house buying opportunity.

    You say that you don’t think unemployment will reach 2.8 million. Do you have a forecast in mind? To be specific, I think that the 2.8 million will be reached in the autumn of 2010.

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  • Unemployment has no effect – the government pays – rather overpays your mortgage !!

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  • @14 I don’t think so, not in the UK anyway.

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  • Flashman,

    I don’t disagree with the 2.8m figure, or the timescales for unemployment peaking. I just don’t think it will be enough to cause large numbers of repossessions and therefore a big fall in house prices. It might cause house prices to fall back a little later this year but we are already 9% up on the low point. And that is just an average.

    We won’t see new-build houses at 25% discounts or apartments at 50% off again. Also, in early 2009 it was possible to lock in to 10-year fixed mortgage deals of less than 5%. The best buying opportunity has already gone by.

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  • As long as the government keeps on printing money, QE and bail out/nationalized banks… there is no pressure for banks/building societies to sell re-possessed houses… so the supply will be restrained.

    But that scenario won’t last long… in view of deteriorating UK public finance/deficits and facing public debts down-grade.

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  • Frustrated Buyer says:

    I’ve just been gazumped, so anecdotally can say that the market is warming up, at least here in Southampton. Surely one/all of the political parties would be onto a winner if they pledged to move the rest of the UK to the Scottish system for house purchasing???

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  • brickormortis says:

    Can someone deine simply how Nationwide calcualte their average house price? If they only lend on more expensive properties to buyers with stacks of equity, then they have the power to drive up prices and the illusion of growth by granting mortages more at the higher end. Is their anytning that would remove this, such as some kind of weighting bias reduction? In Shropshire, houses are littered around with selling points like “reduced by £25,000 for quick sale” when in fact these houses have remainded on the market long after such reductions. There are also lots of house sold STC lingering and not gion through and many returning to market. There is also increased auction action within the county, the sales of which will not count in these “statistics” of house prices.

    The sickening thing is that indviduals are now startin got belive that house prices are really rising everywehre and asking silly prices for their houses (and not selling them). Not only this, people are entering the market when in reality their affordability is based solely on low interest rates and will not be sustained should rates rise.

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  • gone-to-colombia says:

    Everything will change after the election.
    These are the last days of a fools paradise

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  • This all hinges on, as mentioned above, unemployment, and of course interest rates. For house prices to continue rising when they are so overvalued these two have to remain favourable. There is obviously a limit to how long they can. I’ve speculated before that the only other way for prices to remain high is for continued wealth transfer to a small proportion of society who then decide to put a large proportion of their wealth into housing. I think this unlikely, and even if it did happen, would have a time limit in its effect.

    The dreadful aspect of this house price boom looks like being the length of time it will take for it to unwind. People get older.

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  • @16. luckyjim

    The best buying opportunity has already gone by.

    That would be the point I sold then, about 7 months ago. Oddly I’m not rushing back in 😉

    @18. gone-to-colombia

    These are the last days of a fools paradise

    Nicely put.

    The UK may play the inflation card to try keep these ‘gains’ but the international money markets will punish us for it. There is no such thing has a free lunch I’m afraid. The gains the older generation have made have being paid for by the younger generation. The scuppered hpc has been paid for by Sterling devaluation and low interest rates. What ammo have we got left exactly to keep these over priced houses over priced? Surely the pool of greater fools is now exhausted?

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  • 17. brickormortis

    I am seeing the same thing happening around my area. I was speaking to two men of retirement age a couple of days ago in the steam room and they believe the real recession hasn’t started yet and what is happening now is people are being drawn in by a false sense of security. One of them said that they know someone who put an inherited property on the market a few months ago at well below the Estate agents recommendation (Priced for a quick sale) and they haven’t had a single viewing yet. My direct experiences and research seem to contradict all the ‘good’ news I keep reading and hearing in the media…go figure!

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  • “two men of retirement age a couple of days ago in the steam room ” a little bit too much info there estrader!

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  • Outersuburbia says:

    The first part of comment 10 (luckyjim) hits the nail quite nicely on the head. Only a relative handful of the British public actually form opinions one way or the other about the general trend of the housing market. The mindset of most is – “I’m confused” and “I really hope my house doesn’t fall in value”

    Quite often these individuals have ploughed significant investment into their homes, in the form of extensions, new kitchens/bathrooms, expensive furniture suites on 18 months interest-free. It’s just too painful to sell it for less than they’ve been led to believe, and so they won’t do so unless their hands are forced. Interest rates – inflation – none of it matters to these people until they feel the effects personally. In the meantime, newspapers unhelpfully change their minds daily on the direction of the property market – and since most people derive all their information from these, the population at large becomes even more confused, and more hesitant.

    So you have a very very slow, and still semi-delusional market. I’m not trying to over-simplify – because there are certainly plenty of factors tugging one way or the other on house prices – but ultimately it pays to watch for the two factors that will affect individual sellers: unemployment and higher mortgage interest rates (not necessarily just the base rate.) Sellers on the whole ARE delusional – reason means little to them, but desparation means a lot.

    And then we just need to hope that investors don’t jump the gun and snatch all these properties too quickly. It would be quite nice if London prices in particular were to suffer a correction, as I’d rather like a house in London. Now I’m sounding delusional..

    On a related note, what do people think will happen when QE ends?

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  • @22 I added that so that people wouldn’t think it took place at the annual meeting in Davos 😉

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  • Flash thanks for the post on Basel II the other day.

    Did you see the AEP article on the greek bond sale, posted earlier. Now AEP has a habit of being a drama queen, but to be honest I was suspicious that the apparent good result was a bet on something else, AEP suggests it was hot money, I think the same hunch that has kept the Euro strong ie that Germany/France will eventually bail everyone out.

    Incidentally I don’t think umployment (which I think is impossible to predict very far out) is the controlling principle but income and the appetite to reposses, I’d actually argue that unemployment has helped house prices as the governmemt are for now covering a lot of that through various schemes.

    A lengthy decline in land and house prices a la Japan is in my view baked in whatever happens to employment, short of an economic miracle – which I see highly improbable given the global debt overhang and the impossible burden of hope being placed on China – or inflationary events which I see as quite fairly probable and why it is impossible to be uber bearish on house prices.

    We will recover I am optimistic of that the time frame is longer than I’d like it to be.

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  • ontheotherhand says:

    If you were on a tracker mortgage, would you sell at the moment? If you sell up and rent your monthly outgoings will go up. If you try to move up to a bigger property, you will have to give up your sweet tracker. They are all just sitting tight.

    When a certain bulk of the population can own more cheaply than rent, then prices will not fall, and I wish I could produce a graph showing that. Rent should be more expensive than mortgage interest over the medium term because it does not include maintenance costs, and there is a premium on the flexibility. (the value of flexibility can be seen in that a weekly holiday let is more per day than a summer let, which is more than a 12 month let etc.)

    This will only stop when interest rates go up or unemployment goes up.

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  • ” People get older.”

    letthemfall @ 19 has successfully distilled this tragedy into the above three words.

    In my opinion a person should not take on a mortgage after the age of 35 (35 years-old plus a 25 year mortgage, equals 60 years old).

    I also do not think that anyone should take on anything other than a repayment mortgage because it is essential that you reduce the capital owed, as the mortgage progress. It gives a the lender and the borrower a safety net

    An unaffordable housing market lays siege to the prime repayment years of a prospective purchasers life

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  • happy mondays says:

    @25 This will only stop when interest rates go up or unemployment goes up.
    Or when the people realise we are being scammed & decide not to play the game anymore !
    If this does not settle down to affordable prices, i think Britain will not be a very peaceful place to live ! We shall have a generation of youths coming out of there Alcohol, celebrity obsessed coma & waking up to the fact that they have been stung big time & now priced out of the home owner ism game.. This could damage the infrastructure of this nation severely…

    Andybee33 , it’s a big world with plenty more things to focus on that getting to upset about house prices, be patient & enjoy life !

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  • I am seeing the same thing happening around my area. I was speaking to two men of retirement age a couple of days ago in the steam room and they believe the real recession hasn’t started yet and what is happening now is people are being drawn in by a false sense of security. One of them said that they know someone who put an inherited property on the market a few months ago at well below the Estate agents recommendation (Priced for a quick sale) and they haven’t had a single viewing yet. My direct experiences and research seem to contradict all the ‘good’ news I keep reading and hearing in the media…go figure!

    Prices in my area still seem to be dropping…..s0d what nationwide think!

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  • I apologise if this has been discussed before but I wondered if anyone had any comments on the impact of banks holding on to re-possessed property is having on house prices. Do you think the inevitable sell off will have a significant impact on prices?

    I remember reading this article in December http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/6853039/UK-property-black-hole-threatens-banks-lending.html
    A quote:
    Lenders may be forced into selling a wave of properties as the stock of repossessed assets grows, according to the Bank (BOE). This could disrupt the supply-and-demand balance and place “significant downward pressure” on recovering property values.
    “That would reduce banks’ recovery rates and could potentially prompt other banks to sell their assets, leading to further falls in property values,” the Bank says in the report.

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  • I think it should be compulsary for your mortgage rate to be fixed for at least the first 50% of the term. If you take out a 20 year mortgage, you would have to fix for first 10 years. This would stop people making a long term commitment on the basis of a short term rate.

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  • Let me try and give you an “older” persons perspective on some of these points:

    I agree with the earlier poster who said that this recession is only just beginning and the the full course of it will take many years to play out, particularly, very sadly, in the case of house prices. I’m 60, retired and living overseas but for the past year had been hoping to buy a home in the UK in which to spend my truly advanced years. Like many people on this board I also have been watching and hoping that prices would fall and become more sensible, not only for myself but for the good of the country, current house pricing is absurdly ridiculous and is a very sad scenario.

    As things stand it looks as though unemployment and interest rate factors will not come into play for quite some time, the levels of unemployment may never exceed the magical 2.8 million and frankly that’s good for the UK. But the downside is that many many people of my age, people who bailed out of the UK property market a few years ago in anticipation that this current crisis was long overdue can no longer generate income from their savings and will end up spending capital until UK house prices do correct, by that time our savings will have been reduced to a level whereby hosue prices, even after the fall, are no longer in reach. This is not just a young persons/first time buyers problem, it’s very much shared.

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  • mark wadsworth says:

    S0d them all.

    As Mr Flib says, most people would not be able to afford to buy their own house at today’s prices. Sooner or later we will run out of buyers. Prices my way are still gently declining. End of.

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  • Hi bellwether: Yes, I did see that article. I’m sure there is no smoke without fire but I think he called it a ‘botched’ auction? It was oversubscribed, so I think that the word botched is a bit odd. Also the Euro has hardly budged after all the fuss he created, which might tell us more. Personally I wouldn’t touch a Greek bond with a bargepole but we live in strange times

    Alistair Darling summed it up when he said that markets and people do what they do. He was referring to PIMCO and crew trying to create drama to drive up yields which is, after all, their job

    I see unemployment or the lack of it as being the manifestation of your “income and the appetite to reposses”. Our views are therefore not that disimilar. I do not think that unemployment has bitten yet because a government is able to resist downward forces until the unemployment numbers rob them of their power to prevent repossessions and hold down interest rates. Very high unemployment indicates that a government has lost a battle and is somewhat incapacitated. What I mean by that, is that it would be usual for a government to allow unemployment to rise without firing off some of its ammunition. When unemployment gets very high, they tend to have run out of ammunition. Incidentally I see the earlier HP falls a a consequence of the financial crisis and ensuing panic. Once the financial crisis had been stabilised, the housing market recovered because unemployment was not that high and the government still had bullets to fire. They are running out of bullets and I see unemployment as a guage of their fiscal fuel tank

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  • ES – you obviously have never been to Davos then! My friend owns a place there so i have been there a few times and this:

    “@22 I added that so that people wouldn’t think it took place at the annual meeting in Davos ;)” wouldnt be convincing!

    i.e. http://www.davos.ch/en/summer/activities/wellness/wellness-worlds.html

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  • I see this ‘good’ news has helped Sterling out today – NOT.

    This country will carry on fooling itself all the way until a loaf of bread costs £5.

    I vote we increase the price of petrol to £100 a litre since prices rises are obviously so good for us.

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  • mrflibble,

    You sold at 25% below peak and 10% below today’s prices – and it’s the rest of the country who are fools?

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  • Guoulatthetrainwreck says:

    Nationwide revises its January figure up by +0.8% so Jan’s rise was 0.4%; December’s ‘rise’ of +0.4% was revised up from -0.4%, so in real terms prices havn’t moved since the end of November. It’s not quite as shocking as it seems. Most of real rises were in Q’s 2 and 3 last year. As the Spring approaches Nationwide will seasonally adjust any movement downwards, so any stalling of prices now will be magnified. Shocked as I am by what has happened over the past year, sentiment will turn at some point, despite interest rates remaining at historically low levels. Keep the faith…

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  • The down fall of a pyramid scheme is usually the limit of population. In the case of property pyramid, it is more to do with credit. The collapse of the property price was because that credit reached its limit. The rebound was because the government then decided to recreat this unlimited credit by printing money and lower base rate. If, this is a big if, the government CAN indeed creat unlimited credit, then yes HPI will be permanent.

    So the question is, do you believe that A government CAN creat unlimited credit?

    History tells me rather not. Labour should read The History of the Decline and Fall of the Roman Empire.

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  • Regardless of anything else I still think now is a bad time to be buying. I’m renting and in an ideal world would prefer not to be but I still prefer it right now. There are too many pitfalls and I think Labour have managed to avoid anything catastrophic happening by the skin of their teeth but I’m not confident in them keeping all the plates spinning all the time. Plus there’s a huge question mark over what will happen after the election (about 14 weeks away!!!). I feel we could get a major shift in sentiment both within the UK and outside.

    I’m a bit dubious about the unemployment figures, for those seeing it as an indicator, far too easy for Labour to meddle with. This week I heard two different callers on different days telling Radio 5 programmes that they can’t claim unemployment benefit because they are living with employed partners. I wonder how many unemployed don’t appear in the official statistics? I’m guessing a lot. There’s several places that the unemployed can be hidden these days, those on ‘Employment and Support Allowance’ (old incapacity benefit don’t count), those on ‘New Deal’ don’t count, and apparently those over 60 who are now being moved onto ‘Pension Credit’ don’t count either.

    Labour are simply going to use every possible trick in the book to try and convince the electorate that “all is well, there’s nothing to see here”. May will be a watershed.

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  • Regardless of anything else I still think now is a bad time to be buying. I’m renting and in an ideal world would prefer not to be but I still prefer it right now. There are too many pitfalls and I think Labour have managed to avoid anything catastrophic happening by the skin of their teeth but I’m not confident in them keeping all the plates spinning all the time. Plus there’s a huge question mark over what will happen after the election (about 14 weeks away!!!). I feel we could get a major shift in sentiment both within the UK and outside.

    I’m a bit dubious about the unemployment figures, for those seeing it as an indicator, far too easy for Labour to meddle with. This week I heard two different callers on different days telling Radio 5 programmes that they can’t claim unemployment benefit because they are living with employed partners. I wonder how many unemployed don’t appear in the official statistics? I’m guessing a lot. There’s several places that the unemployed can be hidden these days, those on ‘Employment and Support Allowance’ (old incapacity benefit don’t count), those on ‘New Deal’ don’t count, and apparently those over 60 who are now being moved onto ‘Pension Credit’ don’t count either.

    Labour are simply going to use every possible trick in the book to try and convince the electorate that “all is well, there’s nothing to see here”. May will be a watershed.

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  • Flash not disimilar, I am perhaps just a little obsessed by what I see around me as the middle classes many of whom are still employed and earning, but at an impaired level compared to when many bought their current homes.

    I wonder if what has kept us going as well as debt, had been a transfer of wealth from the elderly who were prudent throught the good years. A few old folk I know/know of have died recently and they always have savings and investments that seem astonishing to me.

    Techie, good to see steam and bromance are again in the air!

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  • @34. luckyjim

    You sold at 25% below peak and 10% below today’s prices – and it’s the rest of the country who are fools?

    No I sold at 10% below peak to some FTB’s who funded their deposit with your taxes via the Government Catalyst scheme. These people had no idea what they were doing and paid me an extra 10% over what I had previously accepted.

    Over the last 7 months my STR advantage has got worse and worse and with today’s figures has broken even with regards to ownership. If the same trend continues then it will take around another 6 months for selling at peak to break even with renting.

    There are no two ways about it, STR has become worse mainly due to the low base rate, cash in the bank is just not producing enough returns. Although in my case I jumped from a 2-bed semi to a 3-bed detached so am paying an extra £350 pcm premium for it.

    As for the fools remark, collectively the UK people have accepted to live in the smallest houses in the developed world whilst at the same time paying some of the highest prices. Make your own mind up.

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  • b/weather: “Techie, good to see steam and bromance are again in the air!” – is it nearly spring after all!!!???

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  • mark wadsworth says:

    Mr F, well parried sir! My STR advantage is also maybe not as big as I’d hoped (mainly re being conned on interest rates) but I’m sure you did the right thing. Selling to rent is a long term investment 🙂

    I second that last sentence whole-heartedly, but we’ve got to live in rabbit hutches to Preserve The Hallowed Green-Belt and for Food Security, unlike Holland or Switzerland or somewhere with their vast open plains stretching all the way to … oh … er …

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  • Flibble,

    I see. So the FTBs who “had no idea what they were doing” are now sitting on a tidy profit subsidised by the tax payer? What idiots.

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  • LJ – i think you have just divulged the battle ground for this election. Will it be those lovely cuddly labour boys have saved the world when things were in doubt, and saved your properties from more precpitous falls….. in fact they saved everyone apart from the savers!!

    OR

    Do you want those nasty tories who would have let your property values fall because they wouldnt have had the balls to put down the wedge on snake eyes, when it was necessary.
    ————————————————————-

    But gordy wont we have to pay for that going forward? Dont worry we have abolished boom and bust – even when there is one it wont make any difference – and we can all go forward in the land of luxury that we all deserve!!

    … and they all lived happily ever after……

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  • I despair when a debate about buying/selling a house is based on who is getting the best deal out of the taxpayers. This country is ruined.

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  • Further to what I wrote, if you want the best deal out of the taxpayer, the best thing is to own nothing and be unemployed. This country will never let you starve or be homeless.

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  • @57. luckyjim

    I see. So the FTBs who “had no idea what they were doing” are now sitting on a tidy profit subsidised by the tax payer? What idiots.

    You used the term ‘idiot’ not me, the only idiots are the taxpayers who are left picking up the tab for this disaster (like we got a choice!). It could be that taking out a huge debt on a fixed low rate with no deposit is the right thing to do in the current climate. I advised them to fix for as long and low as possible at the time, but it is still a huge gamble based on keeping employed when the deposit is this thin.

    That tidy profit you speak of would have to be realised after the EA has taken his cut and they have managed to shift an illiquid asset in a dysfunctional market. With the gestation period and fragility of flipping a house in the UK a paper profit is very different from a realised profit.

    Would I buy a house in the UK if I had next to no wealth right now? Maybe with the eased bankruptcy laws. Actually no I wouldn’t.
    Would I move my entire wealth back into a house right now? Definitely not.
    Would I buy a house with maximum leverage while keeping my wealth elsewhere? Definitely not unless I made the wealth ‘disappear.’

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  • krustyatemyhamster says:

    “the only idiots are the taxpayers who are left picking up the tab for this disaster”

    Yep, the greater fool turned out to be the taxpayer/saver. Anyone that works for their wealth and makes financial plans based on their income looks like a fool when the lunatics have taken over the asylum.

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  • No mention of volume?

    Flash, what’s behind the magic 2.8 figure?

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  • mark wadsworth says:

    Techieman: “Do you want those nasty tories who would have let your property values fall because they wouldnt have had the balls to put down the wedge on snake eyes, when it was necessary?”

    Yeah right. Labour did the house price bubble thing in order to create the illusion of wealth and keep getting re-elected (and make a tidy personal profit on the side), I don’t think that high land values are a basic part of the social-democratic belief system. They’d be just as happy creating the illusion of wealth by massaging the unemployment figures and taking on an extra two million public sector workers … oh … they did.

    But for Tories, achieving ever-increasing land values is a core part of their belief system, it is their main aim, they are the ultimate Home-Owner-ist Party. So I personally doubt whether they would have the nerve to pull away the lovely taxpayer-funded comfort blanket.

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  • rumble: Long-term unemployment is almost impossible to forecast but I have tried to look at it logically to work out what will happen in the short term. The specialists base their numbers on the stated intentions of corporations and on government economic/spending forecasts. That is why they are so frequently wrong. I think it is better to make your own simple assumptions on what the government and corporations will do.

    I based my recent employment forecast, largely on a return to a long run average of public sector employment numbers because the reduction in private sector employment is starting to decay. The government has been forced to stop spending (whatever they might say) and the numbers will have to migrate downwards to the trend line

    I picked out some milestone numbers for you: 1998 was near the start of the Labour government. 2005 was when the trend started to mildly decay. 2009 was the peak

    2009 6.1 million state employees
    2005 5.8 million state employees
    1998 5.2 million state employees

    A quick eyeball of a long-term chart picks out 2005 as a good ‘return to’ number. I therefore calculated that we will lose about 200,000 state employees (should be 300,000 but I allowed 100,000 for some continuation of trend and political will) and another 100,000 private sector employees. This gives me my 2.8 million number. It’s crude but it hasn’t steered me too badly wrong, thus far. I did some similar crude calculations based more on private sector numbers (because it was only that sector that was bleeding at the time), six months ago and the result was the same.

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  • Mark w @64: It has often been reported that the Labour government created another 2 million state employees. Unfortunately the 2 million number includes the employees from the nationalised banks and also doctors and other hybrid private/public sector workers who were not in the old numbers. They actually took on closer to a million in real terms. I make no comment on whether that is a small number or a big number.

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  • mark wadsworth says:

    @ Flash, according to official figures, it went up by 1.6 million.

    The narrow measure is people whose payslip actually says “XYZ District Council” or “Department of ABC” and these are just above 6 million (up by 1 milion). The ILO definition is wider and includes everybody whose salary is paid directly or indirectly by the taxpayer, so includes sub-contracted cleaners, dustbin men, GPs, university lecturers, the BBC and any number of quangista, and these are just above 8 million (up by 1.6 million). I have no reason to assume that either series is now being counted differently to how it used to be.

    I’m sure that the nationalised banks is “only” tens of thousands out of that figure. But I am sure that there are another half a million who aren’t even caught by the ILO figures (sub-contractors of sub-contractors etc), so I’ll round it up to an increase of two million, if you don’t mind.

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  • I agree house prices are going up because media is reporting as such. However their sources can not be considered trustworthy, Nationwide or estate agents would never report genuinly on the matter. The desired result is to make people believe that if they do not buy now they will miss the opportunity to own a house. My opinion is there are plenty of houses but no value for money.

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  • MW @ 64. I agree it would have made no odds…. but im just highlighting what i think the labour spin will be. The only difference i think is that the Tories MAY have saved some money for the bad times…. but realistically i doubt it!

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  • I’ve just heard the ultimate example of how stupid people are in relation to housing.

    A 3 bed semi in what can only be charitably described as a mediocre area of Leeds has sold for £134995 compared to a similar property in the same road selling for £115k in October 2009, i.e. a 17%+ increase in 3 months.

    I think the sheeple have completely lost it when it comes to property.

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  • “Yah, I sold at peak” echoed through many offices in the last two years. Smugness abound.

    We care to not speak too loudly now, the smugness has disappear for many, “Did we do the right thing Dear?”, not in selling,
    but bragging and boasting of how we had beaten the system, and how we would reap in spades on the rebound.

    Now, we pass by our colleagues desks silently, but cringe on hearing how “Yes, 10% gain this year – fantastic”

    As vacuouspolitician said recently, “They [YOU] exhibit a distinct whiff of elitism…mass Schadenfreude and the feeling that people are so poisoned/consumed with hatred they take themselves far too seriously”.

    I suppose what goes round, comes round. Enjoy.

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  • hey smuggy…. did you have a chance to work out that gearing calculation? I suppose a line graph over time would be good, but for arguments sake lets just stick with some hard numbers at different time periods.

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  • sentiment will turn at some point, despite interest rates remaining at historically low levels. Keep the faith…

    The problem is that so many people are still waiting to buy. The whole point about a house price collapse is that no one wants to buy; until then, any large falls aren’t going to happen.

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  • One person’s schadenfreude this week is another person’s next week.

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  • mark w: you round up and I round down. There is no right and wrong, it all depends on how you are using the numbers.

    For my purposes, it is not so much that “either series is now being counted differently to how it used to be” but more a very large increase in the number of hybrid private/public sector jobs that could easily end up being counted twice. Private sector employment has also increased in this timeframe to the extent that adding up the two nominal figures sometimes equals more than the total number of employed.

    I agree that it difficult to define some groups of people, which is why there is confusion. Many private companies have only a few departments that are devoted to government contracts or even who are temporarily on loan. Some individual private workers spend some of their time serving government functions and some of their time serving a private function. There are even several large government commercial initiatives (energy and research springs to mind), which are co funded by the state and by the private sector. Part-private doctors are a classic example of the confusion. They, along with many other hybrid workers have been removed from my totals. The blurring of private and state functions is definitely greater than it used to be, so we sometimes have to do some filtering to get a sensible result

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  • I have no need or desire to prove my accounting, worth or credibility to anyone Techie.

    Your post smacks of smugness (touché!). Information provides ammunition don’t you know.

    Let us just say that perhaps GB has been most kind over the last few years.

    Now, it is becoming increasingly difficult.

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  • mark wadsworth says:

    Flash, those are all very fair and sensible comments, but I take my figures from official quarterly labour survey which excludes (as far as possible) double counting.

    Whether they do it correctly or not is not the point, the question is, do they count them consistently, and I would guess that they do.

    As to your “company with one department working for government” problem, perhaps they just allocate that department’s employees? I have no idea, but these statistics chappies are pretty thorough, I have found. It’s the way that the MSM report the figures that sometimes stinks.

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  • hey smug… nope i wasnt being “smug” at all. I dont know how i could be by saying that?!?

    I was going to do some technical analysis…… obviously! And really it was out of interest. I dont know why you have a problem with thinking it would adversely affect credibility. It seems a bit egotestical [sic] to me, not to divulge. I have no problem divulging market positions – even in real time, to record my thinking. I also have no problem being wrong… its part and parcel of doing what i do.

    Of course i wouldnt tell anyone the size of those positions, but thats as much to do with sounding lairy as anything else. Still each to their own.

    Information provides amunition? Yes but why would you care if all the “losers” on this site try to shoot you down in flames? Strange.

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  • FM & MW,

    Why you are debating the figure? It doesn’t really matter whether unemployment peaks at 2.7, 2.8 or 2.9 million. It’s not going to trigger off mass repossessions or forced sales. If you think it will, share your reasoning with the rest of us. The only explanation put forward so far (@6) is that 2.8m will trigger a change in sentiment. I don’t see why that should be the case.

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  • One thing that could drive a HPC is the EA’s! It must be hurting as they are hardly selling anything, so could be pretty close to being unemployed themselves!!

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  • mark w: In this case, I put a few search words into a database and called up any research papers on the subject. The decent authors are usually pretty good, so I am happy to use their numbers (unless it is my particular subject). In this case the numbers are filtered which may or may not make them right. Its all subjective and it very much depends on the task. I think we can agree that there are a lot of the buggers

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  • luckyjim: A few months ago we all discussed the correlation between unemployment and house prices. Several past recessions were looked at and most agreed that there was a strong correlation between unemployment and house prices. My own numbers clearly showed that unemployment doesn’t have much effect until it reaches about 2.8 million. At this point house prices fall quite sharply. Its all based on past correlations, so you are entitled to believe that the correlations will not hold this time. For me, the correlations were so strong that I am happy to base a prediction on them. It is not a matter of sentiment because it doesn’t matter what a persons sentiment is ,if unemployment causes them to miss their mortgage payments. When enough people can’t afford their mortgage the supply of houses on the market significantly increases and prices fall. It’s all quite logical

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  • @luckyjim

    Lucid commentary as always.

    Let’s assume for sake of argument that you are correct in your assertion that unemployment does not force sales this time. In such a scenario, do you have any opinion about what house prices will do in the next 3 years? For job reason I’m not in a position to buy so must plan to rent for at least another year or two hence I find myself speculating about the future.

    Deep down, I’m still very sceptical about property prices holding up but I’ll acknowledge that you’re predictions over the last year have turned out pretty well so far. So does one of our better property bulls have anything to say?

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  • Doesn’t look good from where you’re standing does it Quiet Guy.

    How does the trendline analysis look for this basket case Techie?

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  • Good grief smugdog! After all the times I’ve responded to your questions and invited a response only now do you respond with another pish and trite comment. As I said, deep down I’m a bear but am interested in LuckyJim’s views – unlike yours because you never actually say anything of substance.

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  • Paranoia Blue says:

    Ignore the numpties! The real countDOWN – going on, in the background, will become – “acceleratingly”- more and more, significant!
    Make your last-minute preparations, sooner, rather than later. ATB

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  • My old friend on HPC – Quiet Guy (of which I have many)

    I was just pointing out that it will be even worse for you looking to buy a year further down the line.

    HPC has just had the life blood sucked out and the support machine turned off. Beep Beep Bepp

    Durrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr………………………………

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  • quiteguy

    I see nothing much happening while interest remain rates low. We might get inflation next year followed by rate rises. Otherwise I expect prices to drift up slowly or stay as they are. I think it’s important to review things on a month by month basis though. Most of the people on here got it badly wrong last year because they didn’t modify their stance when interest rates got slashed and the Bank started printing money. The game changed.

    I see the magic chart has now been replced by a magic number. If one god fails you…

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  • while interest rates remain low

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  • Thanks for response LuckyJim

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  • quiet guy, he NEVER has anything of substance to add, just plenty of baiting. A bit like David90210 and Greenwave (apologies if I have the names wrong), maybe he’s one of them? A ‘troll’ in old money I believe. Best ignored really, which I’m going to do from now on.

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  • There is no virtually correlation between interest rates and house prices

    This following is a real correlation table for interest rates and house prices. The very low numbers shows that there is virtually no correlation between house prices and interest rates. The table contains 30 years worth of data.

    Number of Lag Years
    Correlation
    0
    10.44%
    1
    12.61%
    2
    13.34%
    3
    3.51%
    4
    -1.87%
    5
    11.29%

    There is however a very decent correlation between interest rates and the number of house price sales. When interest rates are high the number of sales drops. The price however remains virtually unaffected.

    The correlations between unemployment and house prices are very high. The numbers produced are not ‘magic’. They are the result of a proven statistical approach.

    The opinion that low interest rates are the main driver is based on nothing more than a hunch. We can never be certain of an outcome but I would always prefer research to a hunch

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  • House prices will end the year 10% higher – FACT

    House price inflation fears will send prices rocketing.

    (A fear of selling and not having the funds then to purchase something better, so the circle begins)

    Your togetherness is extremely charming. You are all a great tonic.

    Oh, Wiltshire, close the curtains, there’s a good lad.

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  • Hang on Flash!

    So we are talking about unemployment being 2.8m. Is that based on a percentage of the workforce? I cant see how an absolute number works. Also I would question the basis for the correlation. I mean on the bear side it could be that a shrinking workforce means that an amount of 2.8m is a higher proportion than before. On the bull side, wouldnt changes in subsidies / changes to interest only / payment holidays etc etc, have an impact, surely as would where we are in the cycle (affordability ratios) [bearish] and also the savings rate (or the cushion that people have – again bearish).

    I would actually agree with LJ here. I dont think the absolute number is magic… although the percentage maybe.

    Infact i just found this http://www.pyrosoft.co.uk/blog/2009/04/25/unemployment-versus-house-prices-1975-2008/

    In short im not convinced the amount / % IS the holy grail, although it might be part of it… As for IRs are we seriously saying that a tracker at +1% over a 0.5% base will make no difference to someone with a tracker of over of over a 5% base? Again a correlation will depend on how many people are stretched and where we are in the affordability cycle.

    The other thing i would ask is, is 30 years worth of data enough? Im assuming we can go back 30years because the % of owner occupation has stayed constant throughout that period – its about 70% since the 80s?? I would be interested (since America has a much longer period of high owner occupation) to see if there is a correlation with the US unemployment numbers.

    Finally what is the co-efficient , are you saying its 1 for unemployment over 2.8m? Sorry to bombard you with this stuff.

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  • Hang on smug : “House prices will end the year 10% higher – FACT”. Thats a bit of a meaningless statement. Do you mean from January 1st until December 31st? Are you sure it wont be 10.1% or 9.9999%?

    And for what? Which index… or do you mean Bungalows in Cleethorpes? Terraces in Scunthorpe? Executive flats in Leeds? Masionettes in Middlesbrough? Semis in Hampshire?

    Have you been on the sherberts?

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  • techie: A theory that has been consistently proven wrong for 30 years is not worth considering. You can’t second guess hard data. There is no point in saying ‘but surely if this and that happened then there would be an effect’. You are mixing two incompatible lines of inquiry. Over the course of the last 30 years ‘this and that’ have constantly happened but there has still not been any significant correlation between interest rates and house prices. It is counter intuitive but it is a fact nevertheless. Data from several countries gives an almost identical result. Each result from a different country compounds the probability of the result being good because their situations are often very different. Percentages and population changes are baked into the data so there is nothing to look at there. The correlations between unemployment and house prices are, on the other hand very strong and of course minor changes in population and work force have been accounted for. Again things that intuitively should have changed the result have happened continuously for more than 30 years in several countries and yet the result remains the same.

    Intuitive hunches are fine but when they are consistently disproven by all available data then they can’t be taken seriously. Fortunately I put my money where my mouth is and bought several building plots at depressed prices because the unemployment numbers were not consistent with the low prices. Incidentally, the demand for building plots is now very high. I get offers on a weekly basis which must tell us something about the market. By my reckoning I’ve got until Autumn to shift them or build them out. For the time being the plots are worth about 30% more than I paid for them.

    Off to bed now. Good night

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  • Regarding the chart you linked: You have to look at the lags. That chart shows the correlations and the lags perfectly. It is one of the most reliable correlations you will find. Read the first comment under the chart.

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  • Sorry for the quibbling, but I thought your magic number was 2.75 million flashman?

    Anyway, before today I thought there was a strong likelihood that the Nationwide seasonally adjusted MoM would turn -ve either this month or next, based on the fact it’s been slowing down (and it seems to be leading the halifax in describing the bounce/beginning of years of rampant inflation) and the fact that people were likely to be rushing to buy in december before the stamp duty holiday expiration, thus increasing demand in december and suppressing it in the new year. However, I was of the opnion that if the two main indexes didn’t show falls before spring-time, the whole thing would carry on until at least the autumn before any chance of falling. Heaven forbid, I think I’m becoming slightly bullish for the next few months now, which is probably a leading indicator of imminent falls.

    The recent rises seem to be driven by investment, as evidenced by the declining proportion of FTBs in the mortgage stats, with sentiment driven by the idea of getting a better return than on a savings account (from anecdotal evidence of speaking to friends). A period of stagnation (as suggested by LJ) would surely be enough to make investors think of investing elsewhere though, as I suspect most are absolute amateurs (thinking of capital gains rather than yield) who think that HPI is indeed back to normal (>=10%pa) and here to stay. When the back to normal theory gets tested then prices will surely begin to fall as investors flee and the positive feedback plays the other way round (removal of FTBs fear of paying more later becomes fear of paying too much now, etc). So I think that prices will fall again regardless of rises in IRs and unemployment, but it might take a long while to get there, by which time any combination of different factors might tip things downward. And then there’s inflation…

    So, to summarise my rambling: I haven’t a fecking clue what’s going on. Time for another beer.

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  • Apologies flashman, you said 2.75-2.8 million @13

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  • Flash…thanks for the responses. I am not trying to second guess the data at all. I am just wondering if the correlations work when all other things arent equal. In that way I’m just looking at other factors for clues. Overall i dont have an empirical approach to this anyway – so i am happy to go with what you are telling me since i havent done the work and you obviously have. I did reach the same conclusion a while back but that was just really based on oversold indicators and sentiment, and probably experience and hunch and finger in the air. Thats why i really thought this move back would last longer than most thought, but frankly i dont know now when the bear will re-instate and i would only re-assert the bear after a couple of months of negative numbers. I dont believe that the bear market has finished, but similar to Phd if i thought it had then it really would be time to short!

    The chart i posted was percentage unemployment. I assume your number comes from a comparison of the tipping point rates based on the working population in your previous data stratas. Simply put if the working pop was half previously then the number would have been 1.4m before.

    Im supposed to have an inquiring mind – even at quarter to twelve on a Friday night…. aren’t i? Goodnight!

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  • hello phd: yes it is fecking confusing and you have just about included every factor worth considering in your educated ramble. I get criticised for my semi bullish views on the economy so I shouldn’t be too hypocritical……but I can’t help being annoyed by some of the bullish house price analysis. It usually seems to be based on nothing more than wishful thinking and bombast. It is impossible for one brain to collate all the factors that you list in your post and come to a conclusion. My employment ‘magic’ number is the only firm bit of research that I have found so I stick to it like glue and try to discount the intuitive stuff that leads us all astray. It appears to be simplistic but as I said in an earlier post, it reflects elements of every component in your post. Hows’ that for a ramble? Cheers

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  • techie: I am always happy to have a discussion with a fellow inquiring mind. Inequalities in the raw data (including population changes) are always allowed for, where possible. You know more than anyone that nothing is certain but we can only do our best. Cheers

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  • Cheers flashman. I forgot to mention levels of repossessions, changing forms of ownership, e.g. shared equity/ownership (surely if a large enough proportion of youngsters are prepared to buy houses between them then the whole party can be kept going, sustaining multiple home ownership of the elders? – or does it? – if the average number of FTBs buying a single house is 2 for example, then the number of houses bought by FTBs is going to be half the average, thus only supporting prices on half normal transaction volumes), differences in employment culture masking the figures, etc, etc. The list is endless, but I can always think of a counter argument to every argument in support of high prices. I’m still bearish in the long-term, but I’ve no idea when the current rally is going to end; hopefully sometime before I die.

    I got fed of thinking about all the competing factors a couple of years ago and came to the conclusion that the most reliable relationship with regards to prices in the long-term is the 3-3.5 salary multiple for the bottom of crashes after all the investors have fecked off (another traditional HPC magic number) and that it would probably take 8-10 years to reach there from 2007. This obviously covers a multitude of sins, in that prices could just stay the same whilst wage inflation shoots up – and it’s going to take a while to see if it’s right!

    I’ve always liked Mark Wadsworth’s wage-adjusted house price plot since the 50s:

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  • Thanks phd. I do like that chart. I haven’t seen it before. Yes it must almost be a truism that house prices will one day return to the magic 3-3.5 salary multiple. I suppose the variable is the possibility of growing inequalities in income. It is possible that disparities in income will take off as we rebalance our economy (towards manufacturing) so that a small wealthy minority will be able to buy multiple houses and rent them out. The majority wont be able to buy a house at all because the desirability of taking rent from your own employee will cause the wealthy to buy land and property. In this back to the future scenario, houses might not get anywhere near the magic 3-3.5 (this scenario differs from the current btl nonsense because the credit wont be available to all). It’s actually what I see happening down the road a bit.

    As far as I can tell the only thing that will create an affordable housing market is strong legislation but we wont get that until the majority have been excluded from the market. At the moment we have marks home-ownerism protecting the market.

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  • Flashman, I suppose the question would then be, how long it would take people to revolt against such feudalism? Given the docility of the younger generation in the face of the BTL/property ramping onslaught of recent years, it might take a while. Or perhaps they’re all quietly seething and about to explode.

    Anyway, looking at different counties/cities on home.co.uk , the average time on market seems to be swinging sharply upwards in most areas (after it dipped in 2009 for a lot of places). Given that price falls are usually accompanied by these upswings in time on the market I’m feeling a bit more bearish today about what could happen over the next few months.

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  • phd: On those charts it does look like the bullish story is starting to decay.

    I can’t help thinking that most young people are quite aspirational. They’ve been brought up in a permanent boom environment and they think that there is a very good chance that they will be successful. I think that sentiment could reverse spectacularly, if they end up disappointed. Ultimately I can’t see feudalism taking hold while we still have a vote. As soon as feudalism becomes apparent and the voting majority are properly screwed, all hell will break loose. Why do people always wait to be screwed before they act?

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