The 70% club

macaque_2

StevieJ wrote: »

I am starting to think that you actually believe 70%, I thought you were joking :rotfl:

If you want to know why I am serious about the 70% correction, you have to consider the fundamentals.

If someone had said to you 10 years ago that house prices would rise by 200-300% without any significant shift in disposable incomes, your reaction would have been one of deep sceptiscism if not outright disbelief. If you were familiar with 'tulip fever', however you would have agreed that such things happen but do not last.

For the past few years, we have experienced a 'post industrial economy' where the service sector has grown at the expense of everything else. On the face of it, it would seem to have worked brilliantly. The government have trumpeted a huge rise in UK employment. If however you take the rise in tax (corrected for inflation) and divide this by the average salary, you will discover that the employment rise is almost solely due to government funded employment (private and public sector jobs). Most of these jobs are unsustainable.

The crowning glory of our sevice sector was (until 2007), the city. They have been earning £100billion a year in interest from UK borrowers. Now they have realised that the liability for these debts is bigger than the revenue and the city is contracting rapidly.

On the subject of house prices, you have to realise that these are ultimately linked to income and not population levels. In terms of the relationship between income and mortgage borrowing, this is now shrinking to more rational levels of 3.5X earnings. On the question of salaries, the UK has been paying itself too much. With the busting of the bubble, the service sector jobs will be decimated as will jobs funded by tax revenues. If we are to avoid mass unemployment, people will have to accept jobs at much lower salaries to compete in a globalised economy.

If you take account of falling incomes and 3.5x mortgages, the prospect of a 70% price correction looks more like a certainty than a possibility.

Your analysis of the housing market is like someone looking at the victim of a serious fall. Because the observer cannot yet see the bruising and broken bones, he optimistically concludes that the injured party 'will be fine in a day or two'.

ad9898_3

macaque wrote: »

If you want to know why I am serious about the 70% correction, you have to consider the fundamentals.

If someone had said to you 10 years ago that house prices would rise by 200-300% without any significant shift in disposable incomes, your reaction would have been one of deep sceptiscism if not outright disbelief. If you were familiar with 'tulip fever', however you would have agreed that such things happen but do not last.

For the past few years, we have experienced a 'post industrial economy' where the service sector has grown at the expense of everything else. On the face of it, it would seem to have worked brilliantly. The government have trumpeted a huge rise in UK employment. If however you take the rise in tax (corrected for inflation) and divide this by the average salary, you will discover that the employment rise is almost solely due to government funded employment (private and public sector jobs). Most of these jobs are unsustainable.

The crowning glory of our sevice sector was (until 2007), the city. They have been earning £100billion a year in interest from UK borrowers. Now they have realised that the liability for these debts is bigger than the revenue and the city is contracting rapidly.

On the subject of house prices, you have to realise that these are ultimately linked to income and not population levels. In terms of the relationship between income and mortgage borrowing, this is now shrinking to more rational levels of 3.5X earnings. On the question of salaries, the UK has been paying itself too much. With the busting of the bubble, the service sector jobs will be decimated as will jobs funded by tax revenues. If we are to avoid mass unemployment, people will have to accept jobs at much lower salaries to compete in a globalised economy.

If you take account of falling incomes and 3.5x mortgages, the prospect of a 70% price correction looks more like a certainty than a possibility.

Your analysis of the housing market is like someone looking at the victim of a serious fall. Because the observed cannot yet see the bruising and broken bones, he optimistically concludes that the injured party 'will be fine in a day or two'.

A good analysis macaque, however, StevieJ is obsessed with the :rotfl:smilie, I'm not sure these days whether he is laughing at someone else or himself, I suspect the latter.

silvercar

Supply and demand. At the moment house builders arenn't building and demand is pent up by FTBs and STRs waiting in the wings. Demand has increase due to the amount of households increasing over the last generation; far more people living as single (adult) households rather than couples.

Cannon_Fodder

silvercar wrote: »

Supply and demand. At the moment house builders arenn't building and demand is pent up by FTBs and STRs waiting in the wings. Demand has increase due to the amount of households increasing over the last generation; far more people living as single (adult) households rather than couples.

All that was true a year ago.

We are still having a crash, not a gentle period of re-adjustment.

Dithering_Dad

Are we actually in a crash or just a sharp correction? I've never seen a definitive erm definition about what constitutes a housing crash. There is a definition for recession (negative growth for 2 quarters), but not for a housing 'recession'.

Is a 17% drop over 12 months a recession or a correction? I guess it depends on the individual and what their own biases are?

I am just not seeing anything like even a 17% drop in my area. The same old properties are still on the market (not selling but no price drops) and very few new ones are being marketed. It seems like people are just sitting tight. I have seen a really dodgy house in our village on an auction site but it's tiny, next door to a really rowdy pub and to be frank, a right !!!!!! hole. If those are the ones dropping by a large amount, then you can keep 'em.

Kenny4315

fatpig wrote: »

Also another classic:

"House prices only ever go UP UP UP"
Krusty and Phil spender, property 'experts' 1997 -2007

Experts ..... ?

Every time a buyer is interested they always have them offering near to or at the asking price ... as if it were the only potential house on the market. I reckon those that bought on their sorry advice should sue them for all they have ... but best get in early ... there might not be much left soon ... :rotfl:

Cannon_Fodder

Dithering_Dad wrote: »

Are we actually in a crash or just a sharp correction? I've never seen a definitive erm definition about what constitutes a housing crash. There is a definition for recession (negative growth for 2 quarters), but not for a housing 'recession'..

Is it 20% for stock market crash?

Barring a minor miracle, another couple of months will see us hit 20% down from peak for houses.

Admittedly using stats that might not match the regional experiences of some.



The point is, demand was supposed to be there a year ago.

If it was, which some debate, it didn't stop what we are going through now.

It cannot, therefore, be relied upon.

dopester

That is such a great post macaque.

Bulls = read it and learn.

chucky

dopester wrote: »

That is such a great post macaque.

Bulls = read it and learn.

zero to learn here. respect the viewpoint but that's all.

to take notice of economic indicators or predictions from somebody who posts on a sub-board of a main forum is crazy.

whoever takes any notice, should really not be someone who is in a position to make such a big step like buying a property.

StevieJ

silvercar wrote: »

Supply and demand. At the moment house builders arenn't building and demand is pent up by FTBs and STRs waiting in the wings. Demand has increase due to the amount of households increasing over the last generation; far more people living as single (adult) households rather than couples.

Don't confuse them with logic, please.