Uber-Bear Wakes Up and Smells Coffee, Prices Heading UP

HAMISH_MCTAVISH

Nadeem Wallayat over at marketoracle is one of the bears favourite guru's.

He peppers his speech with references to "wage slaves" and "Inflation Mega Trends", like a good bear should, but after being gloomy on housing for quite some time, and categorising the recovery as "Browns Election Bounce", he now seems to be coming around to reality.

Crash now off, UK house prices are heading up, albeit slowly, and it's all down to supply and demand.

It's as if a bear were reciting the "Collected Works of Hamish McTavish":cool:

The long-term battle being played in the UK housing market is that of new build supply always trying to play catchup with ever increasing demand as a consequence of the UK's growing population and changing demographics which is set against many other developed countries that are either experiencing falling populations such as Germany or have ample space to build far beyond that demanded as a consequence of population growth such as the United States. Therefore this analysis as part of a series on the UK housing market seeks to gauge the likely impact of population growth and demographics on UK house prices over the next 10 years.

The recent analysis (02 Aug 2010 - UK Population Growth and Immigration Trend Forecast 2010 to 2030) concluded in the following UK population growth forecast -

The assumptions being factored into the UK population growth forecast are for a natural UK population growth rate of births exceeding deaths of 0.33% per year (current 200k), coupled with net average current immigration trend of 240k per year, supplemented with climate change refugees averaging 50k per year from 2015 onwards extrapolates into the following trend forecast over the next 10 years that targets a rise from 62.2 million as of mid 2010 to 67 million by mid 2020, and should the same trend be maintained beyond 2020 then the UK population could rise to above 72 million by mid 2030. However in all probability the country will not experience the post 2020 trend due to several converging factors including political pressures, capacity constraints and the UK's relegation in the economic prosperity leagues. Which implies a tapering off of net immigration in favour of natural growth which implies a lower total of nearer 70.5 million by 2030 as illustrated by the below graph.







The graph illustrates a major long-term shift took place in the UK housing market dynamics by 2000 when the annual increase in population far exceeded the number of new builds that ended the preceding trend for construction to exceed population growth in terms of addressing the UK's chronic long standing housing shortage, especially considering that the average size of households has continued to shrink falling from 3.1 in 1960 to just 2.4 in 2010 (one of the smallest in the world) as a consequence of the increase in single person households and single parent families.

The below graph shows the ratio between the accumulative change in population since 1970 against the accumulative number of new housing builds also since 1970 as a UK Over Crowding Ratio.



The above graph better illustrates the change in trend that took place starting in the mid 1980's that coincided with the Thatcher governments reversal of the policy for the construction of social housing and implementation of the right to buy programme for the sale of millions of socially owned local council housing that ignited the property boom of the nineties AND noughties, the trend that was set in motion was for the inability of supply to keep pace with population growth, which ensured persistent upward pressure on house prices that despite the recession still shows an accelerating trend as new build supply that currently stands at an estimated 120k to 140k per year is set against government estimates for a requirement of 240k per year which thus ensures that the UK's over crowding situation is expected to continue to deteriorate year on year going forward, especially if the size of average households continues to shrink which requires ever more housing even if the population stopped increasing.

Implications for House Prices
New build supply plays an important part in the housing market as it tends to average at approx 10% of the total number of annual transactions, which is more than enough to have a significant effect on the UK housing market especially as supply over recent decades has been consistently below that which is deemed necessary to meet he demands of a growing population which means that the UK housing market is destined NOT to replicate the housing busts of countries such as the United States or even closer to home of countries such as Spain, where that housing bust has prompted many hundreds of thousands of British ex-pats to cut their losses and return to the UK, closely followed by unemployed Spanish and other PIIGS citizens seeking employment in a more liberal and robust UK jobs market and thus introduce new demand into the UK housing market.

This suggests that the often put forward industry affordability ratios such as X3.5 salary as the likely outcome path for the UK housing market does not accurately take into account the new demand against new supply trend that implies affordability ratios look set to be pushed ever higher to new trend extremes, therefore supporting long-term price trends for UK house prices in real terms, i.e. expensive UK house prices look set to be here to stay for as long as the lack of new supply exists, especially as the UK population is expected to grow by 5 million over the next 10 years against an realistic estimated construction of just 1.2 million new homes.

Not that we've been banging on about all those issues in great detail for quite some time now, or anything.....:D

Anyway.... His conclusion?

Well, he's almost there....

This does not mean there will not be future booms in house prices, just that it is highly likely that they will be more subdued in real terms than that which has occurred during the past 10 years as there will be increasing supply overhanging the market ready to sell at higher prices.

In terms of the trend for the next 10 years, the implications are for a real terms stagnating market for the next 2-3 years, followed byweak real-terms growth, with nominal house prices supported by the governments inflationary policies.

http://www.marketoracle.co.uk/Article22616.html

As always, he's underestimated the inevitable strength of housing moving forwards, and failed to take account of the pending demographic bulge of housebuyers that is bigger than the boomers which starts in 2013, so high end housing will be in short supply for decades.....

But it's a remarkably good effort for a bear.:T

FATBALLZ

Your undeniable expertise is wasted here.

buglawton

So we are supposed to look forward to being like overcrowded lab rats in a cage? This isn't about economics, its simply about being overcrowded.

nearlynew

HAMISH_MCTAVISH wrote: »

Nadeem Wallayat over at marketoracle is one of the bears favourite guru's.

Nice use of apostrophes there Mctittish.


What did you say last week?

"An apostrophe doesn't mean 'look out, there's an s coming'"



You are a very silly boy.

macaque_2

buglawton wrote: »

So we are supposed to look forward to being like overcrowded lab rats in a cage? This isn't about economics, its simply about being overcrowded.

buglawton

I've not seen you before but your have just earned yourself an 'all access pass' to the next 70% club meeting.

ess0two

macaque wrote: »

buglawton

I've not seen you before but your have just earned yourself an 'all access pass' to the next 70% club meeting.

Cap,pipe and slippers optional,no whippets.

chucknorris

macaque wrote: »

buglawton

I've not seen you before but your have just earned yourself an 'all access pass' to the next 70% club meeting.

To be held in the telephone box situated at ......(don't worry it will not be overcrowded)

HAMISH_MCTAVISH

nearlynew wrote: »

Nice use of apostrophes there Mctittish.


What did you say last week?

"An apostrophe doesn't mean 'look out, there's an s coming'"



You are a very silly boy.

A nearlynew post, consisting of more than grunting....:eek:

There really is something wrong in bearland today.:D

Did the Market Oracle get you a bit worried then?:rotfl:

nollag2006

Oh dear ! Looks like the bears have no substantive response to this. Shame really...

HAMISH_MCTAVISH

buglawton wrote: »

So we are supposed to look forward to being like overcrowded lab rats in a cage? This isn't about economics, its simply about being overcrowded.

Less than 6% of the UK is built on.

There's plenty of places to get out there and stretch your legs in peace and quiet.

Even with another 10 million people.;)

nollag2006

Now that awful horsey woman with the double barrelled name has also bought back into the market, it now looks like Jonny "Mad Bear" Davis is the only one left clinging on for a prolongued fall.