Why I’m bearish about house prices - City AM

mystic_trev

ONE of the big lessons of the recession – and of several previous downturns, including Britain’s crisis in the early 1990s and the secondary banking crisis of the 1970s – is just how important property is to modern economies. Bubbles in housing or commercial property are invariably devastating; they almost always take the economy down with them when they pop. Regrettably, residential property is still overvalued, albeit not by as much as previously; it is therefore good news that prices are currently stagnant, and thus falling again in real terms as a result of consumer price inflation.

http://www.cityam.com/news-and-analysis/allister-heath/why-i%E2%80%99m-bearish-about-house-prices

twadge_face

...but I thought it was different this time?

The current stagnation in the market will probably turn into a double-dip for house prices; the rebound after the crash had gone too far and cannot be justified on fundamentals. However, the extent of any further drop is unlikely to be as large as what happened after the onset of the financial crisis. Capital Economics has found at least eight examples of double-dips in real house prices in the international data from the past 40 years. On average, the second leg of those corrections wiped off 12 per cent from real house prices (if inflation is 5 per cent a year, then virtually all of this could happen in two years with stagnant nominal prices).

There are three other reasons to be bearish. The anti-City mood and new taxes and regulations are making London far less appealing for businesses – and not only financial ones. At the peak of the market in 2007, the fall in prices required to restore the house price to earnings ratio to its long-run average was 10 percentage points greater than in the historic cases. And less of the required fall in prices was delivered by the initial crash in 2007-09 than in any previous double-dip in house prices. The next few years aren’t looking great for property owners.

I do take issue with the last sentence, though. Anyone who owns property outright will be fine. It is only the overstretched who'll be stuffed like a Christmas turkey...

chucky

Capital Economics has found

don't worry you're pretty little face !!!!!! - it was Capital Economics analysis they're even worse at predicting stuff than Brit!!

sabretoothtigger

falling again in real terms

that part means prices will rise but more slowly then costs

RenovationMan

!!!!!!_face wrote: »

...but I thought it was different this time?


I do take issue with the last sentence, though. Anyone who owns property outright will be fine. It is only the overstretched who'll be stuffed like a Christmas turkey...

I'm overstretched, how and when will I get stuffed?

StevieJ

and not only financial ones. At the peak of the market in 2007, the fall in prices required to restore the house price to earnings ratio to its long-run average was 10 percentage points greater than in the historic cases.

Maybe future interest rates are predicted to be lower than the previous long-term average, is that not how markets work? i.e. adjusting to future expectations. Why do we always have to stick to this price/earnings and not affordability?

twadge_face

chucky wrote: »

don't worry you're pretty little face !!!!!! - it was Capital Economics analysis they're even worse at predicting stuff than Brit!!

Easy now, you cheeky chucky chicken.

http://en.wikipedia.org/wiki/Capital_Economics

Jonathan Loynes, Chief European Economist. Loynes came top of the Sunday Times table of UK economic forecasters in both 2000 and 2005.

http://en.wikipedia.org/wiki/Roger_Bootle

Publications: The Death of Inflation, 1998, ISBN 1857881451

http://www.amazon.com/Death-Inflation-Surviving-Thriving-Zero/dp/1857881451

THE DEATH OF INFLATION predicts that the transition to very low interest rates will bring bit profits to bond-holders but the financial markets will be unstable. House prices will continue to rise. Pay raises will not be automatic, and consumers will become extremely price conscious.

Not a bad effort for tea leaves and make believe, me dear ole chucky chick-a-lit. Squawk!

EDIT: and of course, that was over a decade ago... so perhaps he rightly predicted a boom ("house prices will continue to rise" - I bet that was thought to be ridiculous after the last crash) and now may correctly be about to predict the slump? 'Scomplicated f'sure, but history tells us all the shindiggery of this ilk is cyclic innit.

chucky

!!!!!!_face wrote: »

Easy now, you cheeky chucky chicken.

http://en.wikipedia.org/wiki/Capital_Economics
http://en.wikipedia.org/wiki/Roger_Bootle
http://www.amazon.com/Death-Inflation-Surviving-Thriving-Zero/dp/1857881451

Not a bad effort for tea leaves and make believe, me dear ole chucky chick-a-lit. Squawk!

stop being cupid stunt mr T Face...

how's this for their tea leaves stuff and to confirm that they really are all make believe - got to love their accuracy...

twadge_face

chucky wrote: »

stop being cupid stunt mr T Face...

how's this for their tea leaves stuff and they really are all make believe - got to love their accuracy...

Just shows how out of hand the boom became. Hyperinflation here we come. You gotta show a little imagination, maaaaan.

chucky

!!!!!!_face wrote: »

Just shows how out of hand the boom became. Hyperinflation here we come. You gotta show a little imagination, maaaaan.

good to see that you agree that Capital Economics are nearly as accurate as Devonian Economic theory

twadge_face

chucky wrote: »

good to see that you agree that Capital Economics are nearly as accurate as Devonian Economic theory

I just like to read sensible perceptions of the current situation going forward (as per the City AM editor quoted by the OP), even though I don't get your westcountry reference.

Pretty graph or not, hindsight is a wonderful thing which is kinda useless without a customised DeLorean.

The depressing reality is that property got caught up in the casino-like stocks dealing that ultimately led to the implosion of the financial market, causing prices to defy reason and wrecking economies... just as Mr Bootle anticipated back in 1998. Kaboom!