Tuesday, July 13, 2010

Slightly Overvalued Again

Outlook for UK house prices

A fairly benign outlook from the number crunchers at PWC

Posted by ontheotherhand @ 04:25 PM (2091 views)
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9 thoughts on “Slightly Overvalued Again

  • montesquieu says:

    Their ‘median’ scenario suggest a 4% rise in 2011 .. WTF? What economic model is giving them that? Oh, read on and it’s based on trend data from the start of 2010. Considering that ‘trend’ (actually a blip but never mind) is well and truly over, what value at all has this analysis?

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  • What utter twaddle – they don’t seem to have even thought about the question ‘what can people afford?’

    – Complete idiots…

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  • PWC? And what the hell do they know about property prices? They even failed to predict the banking collapse and the housing crash in 2008. They have all the authority of a weatherman predicting yesterday’s weather.

    Ignore them.

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  • The analysis methodology itself is relatively sound and they have stated their assumptions
    HOWEVER
    The initialisation of their model from 35 points of data (“annual data for 1975-2009”; “based on a simple average of the Nationwide and Halifax house price indices”) is a huge flaw which cannot lead them to draw any particularly reliable conclusions.
    SO
    They should have stopped before even running their 2000 monte carlo simulations.

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  • I love the fact we’ve got most of us here who can translate their twaddle into English and common sense and it’s such a good site we’ve got people like 666 who can translate it back again for them.

    We should become a Government advise site and save Mr. Cameron & Clegg a small fortune in their quest to reduce the deficit.

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  • The things is that these projections are put together by people with high academic standings from detailed use of their best numbers available. However they seem to be trained to trust the methodology and never to ponder the philosophical issues or sanity of the results. These employers who only take fresh faced graduates with firsts have a real group think blind spot … or three.

    Extrapolated projections are enticingly deceptive is their reasonableness but actually untrustworthy and a real trap.
    Am really learning to bet against such things.

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  • letthemfall says:

    This reminds me of that Oxford work that fitted a questionable model to conclude that house prices were explained by the parameters they used and were therefore fair value. Apart from the problem 51ck notes, the assumptions behind the model are no doubt as reliable as those used in other econometric models.

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  • ontheotherhand says:

    Their statistics and models apart, I like this comment, “Many economists are quick to point out here that a rise in house prices (or more specifically land prices) does not create any new wealth but just redistributes it between generations. Older home-owners tend to gain and younger people tend to lose out either because they are not yet on the housing ladder or because they are still at a low point on this ladder, so that a rise in house prices makes their next step up this ladder more expensive and so increases their lifetime housing consumption costs in discounted present value terms.

    In general, the authors found that those aged over 40 tend on average to gain from house price rises, while those aged under 40 tend on average to be net losers from house price rises in terms of their lifetime welfare.

    This issue has been explored further in some recent Bank of England research to explore the extent to which the rise in UK house prices and household debt between 1987 and 2006 can be explained by fundamental factors such as changes in demographics, lower inflation and a lower long-run real interest rate. This model suggested that lower long-term real interest rates were the most significant factor behind the build up of debt and house prices since the late 1990s. The key question is whether this lower level of real interest rates, which has been a global phenomenon, will persist, particularly given the large build up of government debt around the world due to the global recession.
    and financial crisis in recent years.

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  • Eternal Sceptic says:

    Seems a total waste of effort to extrapolate trends without any questioning of the underlying reality. Perhaps academics should be placed in maximum security prisons instead of ivory towers. I think the graph of house price trends of previous bubbles on this website is a very good guide to future events.Now the guvmint has shot all it’s bolts, the graph should return to previous trends, although the slope will be far less slippery with the patheitic interest rates we have at present.

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