Boom - bust - boom When didn't it ?

frugal_dougal_3

Can anyone remember a time when there was neither a boom nor a bust in house prices ?

I have been racking my brains and I can't.

1960's maybe ?

dougk_2

Good point - there is no such thing as long term stability in the housing market (or the job market for that matter).... situations change and society changes so this effects everything.

frugal_dougal_3

Oh well, I guess that as there's been 75 views and only one reply (thanks dougk) the answer must be a resounding NO.

I am hoping that there will be a very gentle but steady rise in house prices for evermore, which will allow for the FTB's wages to catch up so that they can get on the ladder. This is really what Gordon Brown is trying to achieve.

Alternating between boom and bust is no good despite the fact that some people do very well out of it.

deemy2004

Its inherent in market systems, to move to extremes, so I am afraid that there will be nothing steady about whats to follow with regards the housing market.

As the bull trend in house prices from 1994 to 2004 was unprecedented, so it can be imagined that the bear trend from 2005 to 200? will also be unprecedented.

Plain old market driving forces of fear and greed.. For there is no real reason why house prices have tripled other than greed.

A real 10% drop in house prices will be very bad.
A real 20% drop in house prices will be disasterous
A real 30% drop in house prices will be catastrophic

Plasticman

deemy2004 wrote:

Its inherent in market systems, to move to extremes, so I am afraid that there will be nothing steady about whats to follow with regards the housing market.

As the bull trend in house prices from 1994 to 2004 was unprecedented, so it can be imagined that the bear trend from 2005 to 200? will also be unprecedented.

Plain old market driving forces of fear and greed.. For there is no real reason why house prices have tripled other than greed.

A real 10% drop in house prices will be very bad.
A real 20% drop in house prices will be disasterous
A real 30% drop in house prices will be catastrophic

I'm probably being a bit thick (wouldn't be the first time!) but what would the impact be if priced dropped by 10%? We still have low interest rates, good employment etc so surely we wouldn't be seeing the same effect as the last time prices crashed?

deemy2004

Plasticman wrote:

I'm probably being a bit thick (wouldn't be the first time!) but what would the impact be if priced dropped by 10%? We still have low interest rates, good employment etc so surely we wouldn't be seeing the same effect as the last time prices crashed?

A 10% drop would result in a recession....
So many reasons why. THOUGH ! It COULD be offset IF the other main asset class i.e. stock market soared.... if that also tanks or drifts then very BAD ................

What would happen ?
It would make people both be and feel less rich and thus cut back on spending. Which in turn would slow down economic activity and companies would cut back on investment and hiring of staff.

The reduced tax revenue would result in taxes going up and thus dampening demand further which would feed back into the loop, resulting in even lower house prices.

I could get technical but there are so many aspects from the significant effect of small real house price drops as against peoples expectations of rises in house prices., which has a much larger impact on people holding property than can be imagined by just focusing on and saying 10% is not much of a drop...

Okay, I will continue for a little longer.... ..... People expect house prices to rise.... Now if house prices FELL over the next 3 years by say 10%, that would imply a 20% difference on where people expected the asset to be. I.e. at the very least they would have expected a 10% rise, (which given recent activity is pretty much nothing). NOW the effect will be further felt, as inflation will have risen and incomes will have risen so house prices as a % of these indicators would be much lower... thus percieved loss of wealth would be felt even more.

In summary - People expect house prices to rise, if they don't then they feel a monetary loss, i.e. even a savings account would grow by 5% a year or some 17% compound over 3 years. If house prices fall then the effect is even greater ! as now your percieving a 27% loss on a 10% drop !

If the REAL drop is 30% ! Then that would be catastrophic !

This is the reason why the 12% or so drop in REAL prices in the early 90's resulted in a significant recession.... Though given todays low inflation climate a real drop of 12% today would be much more significant !

I think the UK is headed for a recession as the effects of the slowing housing market feeds onitself to slow the economy down and again the housing market. The only way the trend will reverse is when the cycle reaches a stage where houses have been priced at an extremely cheap level which will again ignite demand and so the boom - bust cycle begins again.

Plasticman

Thanks Deemy, it makes sense now. If your prediction is going to comes true then it must be coming very soon. House prices are already static across large parts of the country and appear to be dropping in some. Are there any other indications that a recession is looming?

I'm convinced we are going to see house prices drop. In my area very few first time buyers can afford property and there don't seem to be many buy to let investors either any more. There are a lot of properties here - mostly at the bottom end of the market - that have been for sale for months. Property prices seem static at the moment but as more people want to sell, something has to give.

GDB2222

frugal_dougal wrote:

Can anyone remember a time when there was neither a boom nor a bust in house prices ?

I have been racking my brains and I can't.

1960's maybe ?

Hi, Nationwide have historic data on their website for download, back as far as 1952.

Between 1952 and 1960, the average house price increased from £1831 to £2189. In fact, there was significant inflation during this period, and real house prices were falling. Also, the ratio of house prices to earnings fell from 4 at the start of the period to 3 at the end of it.

HTH

geoff

ivegotabig1

I totally agree with DEEMY , we can all kid ourselves that after such huge gains everything will level out & its a happy ending, remember the ftse peaked at over 7000 pts a few yrs back, it ended up at 3500 !!!!!! things go too far one way...then too far the other !! until a happy medium is reached, there is no way house prices can be sustained at their current levels....NO WAY...& i own my home...i personally think prices will drift lower over the next few yrs...capital economics seem to think so too,although they say 7% this yr!! p.s i dont give any credit to what the likes of the Halifax & abbey say, they have a vested interest in trying to talk the market up all the time,all indipendant impartial (whatever you want to call) "think tanks" like capital economics agree, prices will be heading south...

joepublic_2

I really hope they drop. I dont stand a chance of getting on the housing ladder otherwise. About 6 years ago a friend of mine bought i lttle terrace for 28k and i thought that given another 3 years, i would be able to do the same. His house is now valued at 70k!!

nelly_2

I hope they drop just to upset all the tight !!!!!! who think they can make money by doing nothing other than sit on their tight !!!!!! instead of working. If you want to make money go out and work weekends, thats what I do