The 70% club

stephen163

Surely, if prices go down to 69k at (the same as the real value of house prices in 1996 at 2008 prices), then by definition, the average price now would be the same as the average price in 1996.

Heyman_2

sdooley wrote: »

It is incorrect because the graph shows real (in the sense of 'the cost in today's money') house prices. Average house prices in the late 70s were not £58k, that would have bought a mansion - more like an average of £10,000.

So from the 78 low to the 96 bottom house prices increased in real terms by 20%. In nominal terms they would have increased by 220% (allowing for 200% (under 7%p.a.) inflation over the 18 years). Actual inflation was higher than 7% over the period.

Inflation has been lower since 1996 - if we expect house prices to next increase in real terms in 2014, assume a low inflation rate over the period of 4% we still get 110% inflationary increase, add the 20% trend increase and you might expect a nominal (though not a real) house price drop of 30-35%.

To put it another way - house prices have trebled during the boom (trough to peak) - but the price of everything will have doubled from 1996 to 2014 - so for house prices to fall 70% in nominal terms means they would be worth less than half what they were at the low point in 1996.

I started a reply along these lines late last night and just could not be bothered to finish it off, and aborted it!

So glad to see you come in and address this, given the gross over-simplification of theory in the OP. The part of your response that I have bolded is absolutely correct - I was thinking it last night but wasn't 100% given that I was only born in the mid-70s!

Thanks for the post though, you put it better than I could've! :T

adr0ck

do people actually believe prices will fall by 70%? or are they just having a laugh

if anyone does believe that prices will fall by 70% do you actually realise that that means there wont be any new homes built including housing association homes?

stephen163

I'm still missing the reason why you can't use real house prices (adjusted for inflation) at historic troughs as an indicator for future troughs. When I was reading the post, this is what I assumed it to be anyway...

....and inflation since 1996 stands at about 35%, not 100%

dopester

Times - Have Your Say

Here in California, housing has dropped 55%. Yes, it can drop
40%; it can drop 60% and 70%. Until people have jobs and
can make the house payments, the price of housing will continue
to drop.
john, placentia, california republic

Keep in mind some say were only 18 months behind California in the credit-crunch fallout.

And their house prices rose what..... didn't they only double at most in last 10 years? So even then much cheaper than here - and still causing chaos as they crash.

So I think that makes up for all their extra "land" argument that some use to justify crazy high prices here (ignoring the fact that prices here are so way out of line with wages)..

And how many empty BTLs are there in the UK at the moment? Mix in big jumps in unemployment, pay-cuts, fear of unemployment, deflation - some tough times ahead and a mind-melting house price crash.

adr0ck

yes but if there is a 70% fall in average house prices you will not have a building industry left at all it will be completely wiped out

no more new homes for anyone (those 1.5 million on housing waiting lists will be waiting a very long time indeed to get housed)

Heyman_2

stephen163 wrote: »

I'm still missing the reason why you can't use real house prices (adjusted for inflation) at historic troughs as an indicator for future troughs. When I was reading the post, this is what I assumed it to be anyway...

Because for me it's an overly simplistic way of determining where house prices might bottom out.

It just completely ignores everything else to do with the current climate and simply concentrates on that graph and the last 3 troughs over the last 30-odd years to make a determination of where the 4th trough might end up. You even ignore the previous peaks and the scale of the drop from those peaks!

For me it's just really really simplistic. Not stopping you doing it though if you want to - knock yourself out.

brit1234

I think there will be lots of properties down around 70%+ but these will be properties in marginal areas, of poor quality or oversupply. I believe the majority will bottom 50-60% down. This will still cause carnage and reflect an overcorection of the 3-3.5 times salary lending.

Remeber the simple fact that people need time to save a deposit from nothing will increase the speed of the falls. Thats got to be 3-4 years before wide spread deposits start emerging. Its taken me about 5 years for a £30K deposit when the banks were giving out 125% mortgages. I don't know any of my friends in the same deposit state, most have started saving very recently.

silvercar

Its the low interest rates that will help property prices from free falling. Once it becomes cheaper to buy than rent, people will hurry to buy again.

baileysbattlebus

dopester wrote: »

Times - Have Your Say

Keep in mind some say were only 18 months behind California in the credit-crunch fallout.

And their house prices rose what..... didn't they only double at most in last 10 years? So even then much cheaper than here - and still causing chaos as they crash.

So I think that makes up for all their extra "land" argument that some use to justify crazy high prices here (ignoring the fact that prices here are so way out of line with wages)..

And how many empty BTLs are there in the UK at the moment? Mix in big jumps in unemployment, pay-cuts, fear of unemployment, deflation - some tough times ahead and a mind-melting house price crash.

Hpi in the US.
From Dec 1996 to 2006 house prices rose by more than 200% in Los Angeles (264%), San Diego (232%), Miami (219%), and San Francisco (209%), according to the SPCS-20 Index. Over the same period, house prices more than doubled in several other metropolitan areas: Washington DC (172%); Phoenix (169%); New York (197%); Tampa (160%); Las Vegas (157%); Seattle (146%); Boston (131%), and Minneapolis (112%).

Los Angeles & rest of California

Estimated median household income in 2007: $47,781 (it was $36,687 in 2000)

Los Angeles $47,781
California: $59,948

Estimated median house/condo value in 2007: $633,800 (it was $221,600 in 2000)

Los Angeles $633,800

California: $532,300

you can see the difference in incomes and property prices over the last 10 years in LA in 2007 the income multiple was over 13 times. And 9 times for California in general.

it was worse than here - interesting point is the change in incomes - 36.6k in 2000 to 47.7k 2007 - just the same as here, little wage inflation but massive HPI - is this to do with inflation being reported at an artificially low rate, like here, I mean how can the producers in index (cost of materials and fuel) be 13.8% and cpi 5% - or am I being stupid here. if inflation is low generally interest rates are low and wage increases are kept low?