Why house prices are certain to fall

macaque_2

Here is my formula for determining house price inflation:

HPI = IG X PG X S

Where:
IG = disposable income trend
PG = population trend
S = sentiment

S is the product of historical HPI. The longer that HPI is positive, the more certain it is that S will also be positive. House prices have had such a good run for last 50 years that S will be slow to reverse (but it will happen).


1. Disposable Income Trend
Thas been positive for decades but has now gone into reverse as the UK loses its historical advantages. Manufacturing has been decimated and the much vaunted financial services is a churning scam. Whilst our best Universities are still outstanding, a high percentage of the people who attend them are on student visas. We have switched from being a nation of innovators and craftsment to a nation of aromatherpists and government employees. Without genuine wealth creation our disposable income will slide.

2. Population Trend
The UK population has been growing for years. We will reach a point (if this has not already happened) where the negative effects of high population density (congestion, smaller houses, competition for jobs, overcrowded schools, loss of public services) will drive this trend into reverse.

3. Sentiment
With such a negative outlook for 1 and 2, it is inevitable that house price inflation will be forced into reverse. It will take time for this to affect sentiment but it will happen.

The housing market is currently defying gravity thanks to unbelievably low interst rates. As a solution for keeping prices inflated however this is more like an air bottle than a compressor. People are buying houses today at prices that they could not afford at normal interest rates. Even if some can keep up the repayments when normal interst rates resume, there will be no buyers at these prices.

____________________________________
For clarification, this formula only indicates the direction and general strength of house price movement. All numbers are positive. A low number means falling incomes, populations or sentiment as applicable. A high total means house price inflation and a low total house price deflation.

Graham_Devon

See I'm stuck on this one. Can see what you are saying, but on the other side of the coin, getting a mortgage today is pretty much just as expensive as it was in 206/7.

I don't think the housing market is defying gravity because of low interest rates, as this only effects those on existing trackers and those with tiddly LTV mortgages who can get the best rates. I do however think base rates go up and the difference between base rates and mortgage rates stay how they are, we will be in big trouble.

I think all the low interest rates are doing is holding back reposessions, alongside the pressure lenders face at the moment to do anything but reposess.

Some of those on Northern Rocks books are in over a years arrears now. But it wouldn't be great to see a tax payer owned back reposessing the tax payer.

System

........................

julieq

Nice theory.

Not a theory which is showing any obvious signs of being borne out by events, but it's got a lovely formula and everything, so MUST be true. What units are you using by the way, by my calculation we get HPI of several million percent a year? But then I'm very sentimental (about 4.6 gigaDopesters).

Note that many people aren't paying low interest rates by the way. Even at "normal" levels, they're a low proportion of net income in historical terms. I like the idea that the population is suddenly going to decide to trend down now, but hey ho. Can't really argue with the formula.

Harry_Powell

Graham_Devon wrote: »

I don't think the housing market is defying gravity because of low interest rates, as this only effects those on existing trackers and those with tiddly LTV mortgages who can get the best rates. I do however think base rates go up and the difference between base rates and mortgage rates stay how they are, we will be in big trouble.

I think all the low interest rates are doing is holding back reposessions.

Aren't these two statements incongruous? One the one hand you're saying that low interest rates aren't impacting the housing market because most people are not getting the low rates (except those on existing trackers & tiddly LTV mortgages) then on the other had you're saying low interest rates are holding back reposessions.

How can that work?

IveSeenTheLight

Graham_Devon wrote: »

I do however think base rates go up and the difference between base rates and mortgage rates stay how they are.

Why do you think this?
They didn't stay together on the way down?

I've also shown you recently that mortgage products are starting to get more competative again i.e. the mortgage rates are lowering thus closing the current gap

Graham_Devon

Harry_Powell wrote: »

Aren't these two statements incongruous? One the one hand you're saying that low interest rates aren't impacting the housing market because most people are not getting the low rates (except those on existing trackers & tiddly LTV mortgages) then on the other had you're saying low interest rates are holding back reposessions.

How can that work?

Easy.

New buyers cannot get the same deals as existing homeowners are getting.

Existing homeowners have the better deals, hence less are being reposessed.

I'm kind of on the bulls side here, so don't interogate me too much!!

IveSeenTheLight

julieq wrote: »

Nice theory.

Not a theory which is showing any obvious signs of being borne out by events, but it's got a lovely formula and everything, so MUST be true. What units are you using by the way, by my calculation we get HPI of several million percent a year? But then I'm very sentimental (about 4.6 gigaDopesters).

Note that many people aren't paying low interest rates by the way. Even at "normal" levels, they're a low proportion of net income in historical terms. I like the idea that the population is suddenly going to decide to trend down now, but hey ho. Can't really argue with the formula.

The formula is grossly wrong.

A more simpler set of formula are: -

Supply > Demand = House Prices Dropping
or
Supply < Demand = House Prices Rising.

NOTE: My definition of demand is the desire and the ability to purchase the product, not I want I want I want (but can't afford)

Harry_Powell

Graham_Devon wrote: »

Easy.

New buyers cannot get the same deals as existing homeowners are getting.

Existing homeowners have the better deals, hence less are being reposessed.

I'm kind of on the bulls side here, so don't interogate me too much!!

I'm not on any "side" and don't feel a request for clarification is "interrogation".

chucknorris

macaque wrote: »

The housing market is currently defying gravity thanks to unbelievably low interst rates. As a solution for keeping prices inflated however this is more like an air bottle than a compressor. People are buying houses today at prices that they could not afford at normal interest rates. Even if some can keep up the repayments when normal interst rates resume, there will be no buyers at these prices.

I never thought that I would thank one of your posts but I had to because it was so funny it made me laugh.

I can't remember were you the one who founded the -70% club?

lemonjelly

macaque wrote: »

Here is my formula for determining house price inflation:

HPI = IG X PG X S

Where:
IG = disposable income trend
PG = population trend
S = sentiment

S is the product of historical HPI. The longer that HPI is positive, the more certain it is that S will also be positive. House prices have had such a good run for last 50 years that S will be slow to reverse (but it will happen).

1. Disposable Income Trend
Thas been positive for decades but has now gone into reverse as the UK loses its historical advantages. Manufacturing has been decimated and the much vaunted financial services is a churning scam. Whilst our best Universities are still outstanding, a high percentage of the people who attend them are on student visas. We have switched from being a nation of innovators and craftsment to a nation of aromatherpists and government employees. Without genuine wealth creation our disposable income will slide.

2. Population Trend
The UK population has been growing for years. We will reach a point (if this has not already happened) where the negative effects of high population density (congestion, smaller houses, competition for jobs, overcrowded schools, loss of public services) will drive this trend into reverse.

3. Sentiment
With such a negative outlook for 1 and 2, it is inevitable that house price inflation will be forced into reverse. It will take time for this to affect sentiment but it will happen.

The housing market is currently defying gravity thanks to unbelievably low interst rates. As a solution for keeping prices inflated however this is more like an air bottle than a compressor. People are buying houses today at prices that they could not afford at normal interest rates. Even if some can keep up the repayments when normal interst rates resume, there will be no buyers at these prices.

Nice theory.
How do you propose to quantify your definitions?
Don't see anything here which is measureable, which if so, menas that your theory is untestable.