House prices to suffer 'significant correction' in 2010

Charterhouse

Chucky you are spot on, credit availability is absolutely vital. I would say that credit availability is probably the clearest driver of house prices out there. Where do you see any evidence that credit availability is going to improve over the forthcoming future? I see the opposite given the problems in UK banks/Building Socs which does not bode well for UK HPI imo.

chucky

Charterhouse wrote: »

Chucky you are spot on, credit availability is absolutely vital. I would say that credit availability is probably the clearest driver of house prices out there. Where do you see any evidence that credit availability is going to improve over the forthcoming future? I see the opposite given the problems in UK banks/Building Socs which does not bode well for UK HPI imo.

there is a neutral level of mortgage approvals required for neutral HPI for YoY numbers.
at the moment we're above the neutral HPI level so for now low levels (2% or 3% or a bit more) of HPI look inevitable if mortgage approvals stay around this number.

people will mention 100,000 approvals a month in 2007 but that's a bit irrelevant as that was what was required to maintain the market. at the moment 2010 volumes will support 2010 house prices just like 2009 volumes supported 2009 house prices.

Charterhouse

That neutral level stuff is rubbish, it was made up by someone who just made a graph with both on and drew a level roughly across at the 0% HPI level. Mortgage approvals include remortgages, downsizers, all sorts of things that don't necessarily drive house prices up. It's a fallacy.

DaddyBear

chucky wrote: »

no- first time buyers or anyone looking to buy.

house prices don't fall without mortgage markets making funds more expensive or even there not being money to lend or even unemployment increasing.

house prices don't drop because they're unaffordable or even expensive, they drop because people can't buy them.

for proof of this look at the transaction volumes at any time that there have been house price falls.

Another factor is the number of forced sellers. If interest rates increased to say 5% and the banks continued to keep credit availability constant, house prices would drop because reposessions would increase.
IMO the main reason that house prices stabilised was because of ZIRP and measures to avoid repossesion. There will be a lot if people out there who cannot afford their mortgage under normal conditions. I know of several, many are BTL.

chucky

Charterhouse wrote: »

That neutral level stuff is rubbish, it was made up by someone who just made a graph with both on and drew a level roughly across at the 0% HPI level. Mortgage approvals include remortgages, downsizers, all sorts of things that don't necessarily drive house prices up. It's a fallacy.

so you think the concept of the total demand for final goods at a given time and price level (aggregate demand) doesn't apply to the house market?

Charterhouse

chucky wrote: »

so you think the concept of the total demand for final goods at a given time and price level (aggregate demand) doesn't apply to the house market?

No, not at all, the problem is that the level of mortgage approvals tells us nothing about net demand. It might all be remortgagers staying put, or releasing equity (as I suspect it often was over the past 10 years), or whatever. I wish the data was useful, but honestly it isn't. It's one of those situations where someone plots two things that they think ought to be correlated on a graph and discovers something even though if they stopped and thought about it they would be a bit more sceptical.

chucky

Charterhouse wrote: »

No, not at all, the problem is that the level of mortgage approvals tells us nothing about net demand. It might all be remortgagers staying put, or releasing equity (as I suspect it often was over the past 10 years), or whatever. I wish the data was useful, but honestly it isn't. It's one of those situations where someone plots two things that they think ought to be correlated on a graph and discovers something even though if they stopped and thought about it they would be a bit more sceptical.

i'm talking about YoY - you're right if we're talking over a few months because it can be hidden in the stats.

over the year if people do what you say, it will filter down into increased supply and lower/flatten HPI.

i think the stats are useful - don't tell you the complete story but they give you an indication of where we are.

Charterhouse

I think it gives you a flavour, yes, but unless there are exogenous factors sending house prices up or down can't a lot of transactions just exist in an HPI vacuum? Aggregate demand means nothing without supply, I'm not sure that supply in the UK is really that restricted. A lot of milk and butter transactions happen but that doesn't mean butter prices have to double.

HAMISH_MCTAVISH

Charterhouse wrote: »

No, not at all, the problem is that the level of mortgage approvals tells us nothing about net demand. It might all be remortgagers staying put, or releasing equity (as I suspect it often was over the past 10 years), or whatever.

Which is why they break it down by new purchase, remortgage, equity release, etc.

Any old idiot can pop over to the BoE website and get the stats broken down by type. The mortgage approvals stats reported by the media are usually those for new purchase only, and exclude remortgage, equity release, etc.

Your ability to talk a good game but be so utterly full of carp never ceases to amaze me.

I wish the data was useful, but honestly it isn't. It's one of those situations where someone plots two things that they think ought to be correlated on a graph and discovers something even though if they stopped and thought about it they would be a bit more sceptical.

The approvals figure is extremely useful as an accurate guage of demand because, contrary to your assertions, we know precisely how many of the approvals are for new purchase, remortgage, equity release, etc.

The number of loan approvals for house
purchase (48,198) was lower than the December figure (58,223) and below the previous six-month average (55,924);
approvals for remortgaging (23,611) and for other purposes (23,035) were also lower than in December and lower than
their respective six-month averages (Table .

http://www.bankofengland.co.uk/statistics/li/2010/jan/lendind.pdf

Which is why those people who actually do stop and think about, and have a clue, unlike yourself, know full well that actual mortgage approvals versus the level of price neutrality are strongly correlated to house price direction.

Charterhouse wrote: »

That neutral level stuff is rubbish, it was made up by someone who just made a graph with both on and drew a level roughly across at the 0% HPI level.

Ah, I see.

Perhaps you could point me to the line in the graph above that relates to your fallacious assertion......

No? Thought not.

Mortgage approvals include remortgages, downsizers, all sorts of things that don't necessarily drive house prices up. It's a fallacy.

Except of course, when they don't..... And only include mortgages for new purchase instead.

Graham_Devon

LOL Hamish.

You seemed to miss the point charterhouse was making.

They were not saying they needed it breaking down, or suggesting that the 48k was made up of differing types of mortgages. They were saying it gives no idea of actual demand.

Let's put it simply.

You cannot define demand on these figures, because these are the APPROVED figures. They do not include all those who wish to remortgage, but are denied, or all those who may re-mortgage, but at the moment are staying put.

To define demand, you need to have a running figure of mortgage applications, NOT approvals.

Nicely done though Squire.