What causes HPI ?

DervProf

Here`s the main reason that I have strong opinions on house prices. Yes, I think that high property prices and high HPI is a bad thing. Of course, many people think it`s a good thing, and those differences make for great debates here and elsewhere.

Now, there are many debates on what causes HPI. Many say it`s supply and demand (pointing out that the UK has a property shortgae, and therefore prices are high, and will keep rising). Others will say that property prices are related to availability and cost of credit. I agree with both of these points (although I still think that high house prices and HPI is a bad thing). However, there is another factor that I`ve been banging on about for quite a long time. It`s far less obvious, but I`ve always said it`s a big factor.

Media Hype.

We`ve all read the headlines, seen the property !!!!!! and watched the news as they announce "more good news for homeowners, prices have risen x% for the xth month in a row" (usually followed by an interview with a grinning EA, bank representative, or property expert). I`ve often become quite annoyed by this "spin", and thought that it must be having quite a large effect on the public`s willingness to pay more and more for property. You might think that the media coverage can`t have really had much effect on HPI. I`ve always thought that it has a far greater effect than many realise. I`ve just read an article that backs up my opinion.

http://www.guardian.co.uk/money/2010/aug/10/falling-house-prices-blame-media

Here are a selection of surveyor comments, from Glamorgan to London via Yorkshire and Gloucestershire, in response to the latest Rics survey:

"Media hype is definitely affecting potential purchasers' expectations regarding prices falling over the next few years, with lower offers being made as a result"

"I worry that press comment may depress confidence"

"Providing the media does not get negative, there is no reason for a dip. Bricks and mortar are attractive investments as always"

"Doom and gloom in the media is resulting in low valuations. A bit of positive talk and the market would pick up"

It goes on and on. Firms in Colchester, Worcestershire and Walsall comment:

"Media prediction of 20%-40% housing slump is not helpful"

"Media commentary is affecting buyers' confidence"

"We have noticed over the last 2/3 weeks that the market appears to be quieter. This may well be ... a result of the continual media speculation"

Perhaps a firm in Slough sums up the mood of many surveyors when it writes:

"If the property market is left to its own devices, it will gently rise over the next 12 months. If the media scare the public with headlines, this will become a self-fulfilling prophecy"

So, professionals in the property industry are admitting that the media does have an effect on property prices. Not only that, that want a continuation of positive reinforcement from the media.

So, how much of the demand, in the "supply and demand" is simple need, or media driven greed ?

I wonder how much people would be asking/paying for property if there was a long term media embargo on the subject, or quick, simple reports on market data, rather that speculation and opinion ? I`d suggest that prices would not be as high as they are now, and if they were, most people would say "how much" ???

And to the EA`s and property investors - put up or shut up, you`ve had years of free advertising and promotion, you were only too pleased to be quoted in the press, or appear on telly and tell us how great HPI was.

Oh, and to the public - think for yourselves, rather than listen to the "experts", it might save you a lot of money.

Linton

I dont think the media scare stories either way have much more than a temporary or marginal impact. In the medium/long term any hype cant move that far from economic fundamentals.

A larger reason I suggest is that people see their house as reflecting their perceived status in society and therefore in a sense want to pay more.

If houses got cheaper my impression is that most people wouldnt pocket the extra cash, they would go for a larger house or one in a higher status area. So the average house price wouldnt fall.

DervProf

Further proof of media influence and herd mentality.

Not too long ago there were media stories of bread shortage (I think it was bread, although it might have been possible problems with food delivery). I seem to remember supermarket shelves being rapidly emptied of bread. I suspect that if the supermarkets had increased the cost of bread by 40%, it would still have sold out.

No harm done, because I think the "panic" was soon over. If the media had kept up the warning people of food shortages, the supermarkets would have been able to keep prices high, and people would have continued to stock pile food.

Henry_P_Chester

What causes HPI ?

Is it Hamish's ramping?

mbga9pgf

HPI at wage inflation level is perfectly normal.

HPI above this is caused by d*ckheads borrowing more than they can afford.

Henry_P_Chester

mbga9pgf wrote: »

HPI at wage inflation level is perfectly normal.

HPI above this is caused by d*ckheads borrowing more than they can afford.

So it is Hamish then...

DervProf

Linton wrote: »

In the medium/long term any hype cant move that far from economic fundamentals.

Or economic fundamentals get closer to the hype ?

iPhone 4 anyone ?

Gold plated, fairy dust coated HDMI cable - just £80. It`ll give you a better picture sir.

The economical fundamentals are that if the media hype something for long enough, people will believe it and will pay the asking price.

DervProf

Henry_P_Chester wrote: »

Is it Hamish's ramping?

That could be a very small part of it.

Hamish.

Very small part.

Those seem to go well together.

phil_b_2

What about previous house price booms, was there media hype then?

DervProf

phil_b wrote: »

What about previous house price booms, was there media hype then?

Not as much (no internet and 24 hour news, for example), and they usually ended with a fairly steep and prolonged crash.

From memory, the last boom was shorter, steeper, and did end up with a crash. Statistics might prove me wrong, but that`s what I remember.

Linton

DervProf wrote: »

Or economic fundamentals get closer to the hype ?

iPhone 4 anyone ?

Gold plated, fairy dust coated HDMI cable - just £80. It`ll give you a better picture sir.

The economical fundamentals are that if the media hype something for long enough, people will believe it and will pay the asking price.

I could take your point as regards some BTLers and "a house is a pension" people. But for the average FTBer, no. I would think most are looking for a house to live in and seeing a mortgage as better than rent.

I guess whether hype has made a difference is arguable but unprovable. On the other hand I do believe that market forces are capable doing the job on their own.