House Price Crash Discussion Thread

Turnbull2000

Via GHPC, here's an article from 2005 that's looking to be a real gem.

Bust will follow boom - but when?

I have drawn on 300 years of business-cycle history and reached one firm conclusion: housing booms precede recessions. That said, there is a big difference between this bubble and past bubbles. In the past, national economies have operated with a degree of independence. Today, we all sink or swim together: the major economies of the world are synchronised into a single business cycle and so are property prices.

Very true. Property prices have bubbled across many nations simultaneously.

House prices can’t rise indefinitely for the simple reason that at some point they become unaffordable. Wages can’t rise as fast as house prices can when a speculative frenzy is underway, so there will come a point when the average man can’t buy the average house, and prices have to fall as a result. My research shows that this tends to work in 18-year cycles. There are usually 14 years of rising prices followed by four years of recession across the broader economy. I’ve looked at data across four continents and at 300 years of British economic history and it seems that this 18-year cycle is present across the globe, irrespective of the distinctive characteristics of each economy – whether the country is resource-rich (USA) or resource-poor (Japan), or whether the population is high density (the UK), or low density (Australia). Governments always think they can in some way control boom and bust cycles, but so far they have failed.

Take note and stop kidding yourself PM Brown.

So when will the crunch really come? History suggests that things will start to collapse in 2008 (18 years on from 1990 when the last bubble burst). But there are a few good reasons apart from the historical 18-year cycle that should make us think that the bubble will run to 2008. Government spending is still very high in the UK, for example – now that the Treasury has redefined its version of a ‘cycle’, Gordon Brown can raise borrowing to support his spending commitments. This should continue to offer some stimulus to the economy until 2007/2008, when it is scheduled to tail off.

Can anything be done to head off the depression of 2010? In my view, it’s too late for the UK. The Bank of England is caught in a double-bind on monetary policy. If house prices are to be held at their current levels, debt levels will have to keep rising. That puts a continuing downward pressure on interest rates, which induces further upward twists in the price of houses. But if the Bank keeps cutting interest rates as unemployment rises and high street sales drop, it will aggravate stresses in the economy (inflation, for example). There is nothing it can do in the short term.

Wow. Not much else I can draw from that other than suggest batten down the hatches and lynch Kirstie Allsop.

Generali

Hi Turnbull2000,

I'd be interested to see evidence of (say) GDP/GDP growth vs house price values over the past 300 years.

I've been looking for that sort of thing for a while. I've not seen credible evidence of a business cycle prior to the move to fiat currency. Even then evidence is scratchy at best IMO.

G

Turnbull2000

This is US orientated, but the 'world is synchronised' remember. Whilst there's talk of a recession over here, a small number of economists over there are contemplating a new depression. The Telegraph recently ran an article telling us "1929 could look like a walk in the park"!

An image that defined the 1929 depression was countless thousands of Americans camped out in shanty towns - the sort you'd expect in the slums of Rio, not the wealthy Northern regions of the US.

Well...

2007 - Tent city in suburbs

ONTARIO, California (Reuters) - Between railroad tracks and beneath the roar of departing planes sits "tent city," a terminus for homeless people. It is not, as might be expected, in a blighted city center, but in the once-booming suburbia of Southern California.

The noisy, dusty camp sprang up in July with 20 residents and now numbers 200 people, including several children, growing as this region east of Los Angeles has been hit by the U.S. housing crisis.

The unraveling of the region known as the Inland Empire reads like a 21st century version of "The Grapes of Wrath," John Steinbeck's novel about families driven from their lands by the Great Depression.

As more families throw in the towel and head to foreclosure here and across the nation, the social costs of collapse are adding up in the form of higher rates of homelessness, crime and even disease.

While no current residents claim to be victims of foreclosure, all agree that tent city is a symptom of the wider economic downturn. And it's just a matter of time before foreclosed families end up at tent city, local housing experts say.

"They don't hit the streets immediately," said activist Jane Mercer. Most families can find transitional housing in a motel or with friends before turning to charity or the streets. "They only hit tent city when they really bottom out."

ManAtHome

Dunno when that (post 815) was written, but (IMHO of course) things should have been levelling off in 2003/4. Probably would if "they" hadn't invented CDOs - still, what's a broken bank, and a credit crunch between "perpetual boomers"...

One thing I do fine more than a bit perturbing is the widespread quote that a squeeze on the economy will naturally reduce inflation - if I understand that correctly, people will spend their last quid on a plasma telly (going down) and go without food and fuel (going up)..?

consultserv

Reading your post was quite interesting as alot of people are thinking the "so called crunch" is going to affect everybody on such a large scale. I would be surprised (if not completely shcoked) if your house will drop by £20K.

There is a housing correction due, but it will be more geographic based, rather than by a value (house worth)

The crunch will hold prices (within an acceptable margin) until the full extent of the Sub Prime situation is revealed.

With such a HUGE shortage of houses available, therefore demand is stronger than ever, but all that said there will be minimal reductions in values, but it wouldn't be long term.

In affect, we are entering a buyers market for property. Depending on your mortgage terms, remortgaging is always a good move to maximise lower rates.

Steve

jebervic

CUT N PASTED

But gives a od argument as to why housing is STILL agood investment

Latest housing projections
The latest population projections published by the ONS (Office for National Statistics) has revised upwards estimates of net immigration from 145,000 to 190,000. The forecast now is that the UK’s population will increase to 65 million in 2016 & then 71million by 2031; a jump of 10.5 million on current levels. This further calls into question the ability of the UK house builders to provide sufficient numbers of dwellings to accommodate this increasing demand. Existing projections for house building before the revised population suggests that their will continue be a shortfall of housing each year of around 33,000 dwellings.

Gordon Brown recently stated that by 2020 3 million new homes will be built.

The reality for landlords and the Government is that the private house builders have a stranglehold over housing supply. This is because they own or control a significant amount of the limited development land needed to build these homes and potential residential investment properties. Following the massive housing depression of the late 80’s and early 90’s when many house builders just avoided going bust. House builders have learnt their lesson from this and now only build when they are confident of making an adequate return. Added to this is an increasingly restrictive planning system which makes the release of development land more time consuming and expensive than ever, restricting further the release of potential development land. This means that when Gordon says 3 million homes will be built by 2020 we can take this with all the same certainty as if I was to announce to the world that; ‘I’m going to be the next Queen of England’. Added to this situation is the revised ONS population statistics suggesting that these housing projections will need to be revised upwards significantly if the rising population is to be accommodated. All these factors points to a massive housing shortage.

This is good news for landlords and property investors is that unless the politicians turn off the tide of immigration fast, a housing shortage and rising house prices seem to be guaranteed.

Generali

If there's a shortage of housing, why aren't rents rising quickly? I'd be happier paying more rent than moving the family to Old Mother Generali's or sleeping rough! My guess is most people are the same. There is a reasonable argument that there is a shortage of family houses in London and the Home Counties but there isn't a shortage of houses in general.

Turnbull2000

jebervic wrote: »

CUT N PASTED
But gives a od argument as to why housing is STILL agood investment

You forgot your source.

By Chris Horne of Propertyhawk.co.uk, a site developed by Landlords for Landlords.

nelly_2

Turnbull2000 wrote: »

You forgot your source.

Landlords pimping hpi?

thats like Harold shipman promoting more autonomy for GP's

IveSeenTheLight

Turnbull2000 wrote: »

You forgot your source.

So your point is you are questioning the source as to where they are writing for rather than question the points raised by the writer.

Thinking for myself, it seems easy to understand that IF there is a major increase in population, then naturaly without new properties (either refurbished unused properties or physically new properties) then there is only going to be an increased demand for either properties for rent or for sale.

Naturally IF the population does not increase or actually decreases, then this may not be the case.

Is there any evidence out there to the UK population increasing?

The UK has a growing population. It grew by 349,000 people in the year to mid-2006 (0.6 per cent). The UK population has increased by 8 per cent since 1971, from 55,928,000. Growth has been faster in more recent years. Between mid-1991 and mid-2006 the population grew by an average annual rate of 0.4 per cent and the average growth per year since mid-2001 has been 0.5 per cent.

The mid-2006 population of the constituent countries of the United Kingdom is estimated as follows:

The UK has an ageing population. This is the result of declines in the mortality rate and in past fertility rates. This has led to a declining proportion of the population aged under 16 and an increasing proportion aged 65 and over.

In every year since 1901, with the exception of 1976, there have been more births than deaths in the UK and the population has grown due to natural change. Until the mid-1990s, this natural increase was the main driver of population growth. Since the late 1990s there has still been natural increase, but net international migration into the UK from abroad has been an increasingly important factor in population change. In the year to mid-2006 natural change was an important driver of change accounting for 45 per cent of total change.

From http://www.statistics.gov.uk/CCI/nugget.asp?ID=6

You can understand why if the UK has an aging population without enough births to support the aging population, that the government is only too happy to allow the immigration to rise.