So Fred Harrison was right!

mystic_trev

Just noticed this from another Forum. There was great speculation when Fred made this prediction three years ago. Looks like the guy was right all along!

It all happens in 2008

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.

For further gloom

http://www.moneyweek.com/file/3075/housing-boom.html

MissMoneypenny

"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."

Is this the 18 years that SquatNow talks about?

Sir_Humphrey

mystic_trev wrote: »

Just noticed this from another Forum. There was great speculation when Fred made this prediction three years ago. Looks like the guy was right all along!

I am (to put it politely) very sceptical about these fixed-length long-cycle theories. I have not heard of the HPC in 1972 for example (the Barber bubble burst in 1974).

I do not dispute that house prices have shown a cyclical pattern since the 1970s, but putting on mystical number to it's length is little better than astrology IMHO.

As he himself says, there are plenty of reasons to have predicted a crash in 2008, without the 18-year cycle mumbo-jumbo.

brit1234

The 18-20 year cycle is well known. It allows stupid people enough time to forget about the last crash and a new generation who don't know what a crash is to pile on the bandwagon.

I hope one day the majority will use common sense, till then we will have boom and bust.

Sir_Humphrey

brit1234 wrote: »

The 18-20 year cycle is well known. It allows stupid people enough time to forget about the last crash and a new generation who don't know what a crash is to pile on the bandwagon.

I hope one day the majority will use common sense, till then we will have boom and bust.

I have just done some number crunching based on Nationwide 1952-onward nominal time series and ONS RPI all items data.

If 18 year "rule" applies, there should be crashes in 2008, 1990, 1972 and 1954.

There were very minor nominal falls in 1954 (around 1.5% nominal YoY - hardly a crash - RPI in 1954 was 1.8%).

There was a significant real terms only fall from 1974-78 (mainly a function of high inflation).

There was another big real terms only fall from 1980-1983. This again is down to high inflation. For example, RPI in 1980 was 18%, compared to 13.4% in 1979 and 8.3% in 1978 (the big year for RPI was 1975 at 24.2% in the aftermath of the Barber boom).

The data does not fit in a model of housing crisis of every 18 years, (and explodes a myth of early Thatcherism too)

Sir_Humphrey

To add to the above post.

I understand anecdotally that HPs fell during the late 1940s. This was as housing stock destroyed in the Blitz was rebuilt.

So:

No proper crashes before 1974. Then crashes in 1974-78, 1980-83, 1989-1995, 2008-????.

Housing is cyclical since the 1970s, but the 18 year cycle is disproven.

Jonesya

brit1234 wrote: »

The 18-20 year cycle is well known. It allows stupid people enough time to forget about the last crash and a new generation who don't know what a crash is to pile on the bandwagon.

I hope one day the majority will use common sense, till then we will have boom and bust.

I don't think the 18-20 year cycle is that well known, or at least not widely accepted or may be it's that spending 10+ years living with rising prices, seeing them increase year on year, is enough to convince even the smartest people that it truly is 'different this time'. And then it turns out it's not.:rolleyes:

fc123

That was a hard book to read. I did skip bits as I found it hard to read. It was all very 'about the past' and then applying the past to now (normal historian type of stuff).
I did show it to my dad who dismissed it as 'tosh' as a lot of it was so dressed up in rhetoric, it was quite hard to decipher the message.
Basically, it said we are all doooomed....and it's all the bankers fault.

Alan_M_2

Sir_Humphrey wrote: »

I have just done some number crunching based on Nationwide 1952-onward nominal time series and ONS RPI all items data.

If 18 year "rule" applies, there should be crashes in 2008, 1990, 1972 and 1954.

There were very minor nominal falls in 1954 (around 1.5% nominal YoY - hardly a crash - RPI in 1954 was 1.8%).

There was a significant real terms only fall from 1974-78 (mainly a function of high inflation).

There was another big real terms only fall from 1980-1983. This again is down to high inflation. For example, RPI in 1980 was 18%, compared to 13.4% in 1979 and 8.3% in 1978 (the big year for RPI was 1975 at 24.2% in the aftermath of the Barber boom).

The data does not fit in a model of housing crisis of every 18 years, (and explodes a myth of early Thatcherism too)

The problem with trying to tie down this theory is the way the original statistics are compiled.

There was a crash in the early 90's a severe one (and I speak from personal experience), however if you look at historical data it really doesn't appear that bad. It certainly doesn't look like lemmings jumping off a cliff.

This is simply because the statistics are compiled from actual sales information, not anecdotal evidence or theoretical valuations.

I bought a house in 1989, for £72,000. by the early to mid 90's if I had to sell that property it was only worth £45,000 a drop of not far short of 40%. The thing is, that house wasn't sold until until about 4 or 5 years ago for nearly £200,000.

So statistically this house increased in value from £72,000 to £200,000 and no fall was recorded. This doesn't mean the fall never occurred it just means it wasn't recorded.

The only people that sell in a falling market (in general) are those that have to, i.e - unemployment has occurred, overstretched budget, divorce and separation etc. So only distressed sales occur which is a much smaller proportion of the general level of sales that happen. Also repossessions and auctions are not included within these figures (genuinely distressed sales).

The statistics are only as good as the figures from which they are compiled and as you've clearly pointed out, there was no crash in the early 90's according to statistics, the thing is, there was, but it was so severe next to nothing was selling at all. Those that were in real trouble were repossessed, and these figures don't count apparently. So with no (or very few sales) there are no statistics, therefore if there are no statistics there is no crash....

There is a cycle, whether it's 18 years or 14 years is a matter of opinion, but as one poster has already pointed out here this has more to do with a new generation of buyers who have no recollection of any previous falls experiencing the joy that is HPI for themselves and falling under the very same spell the previous generation did. Add to that people with selective memory and the cycle starts again.

Sir_Humphrey

Alan_M wrote: »

The problem with trying to tie down this theory is the way the original statistics are compiled.

There was a crash in the early 90's a severe one (and I speak from personal experience), however if you look at historical data it really doesn't appear that bad. It certainly doesn't look like lemmings jumping off a cliff.

This is simply because the statistics are compiled from actual sales information, not anecdotal evidence or theoretical valuations.

I bought a house in 1989, for £72,000. by the early to mid 90's if I had to sell that property it was only worth £45,000 a drop of not far short of 40%. The thing is, that house wasn't sold until until about 4 or 5 years ago for nearly £200,000.

So statistically this house increased in value from £72,000 to £200,000 and no fall was recorded. This doesn't mean the fall never occurred it just means it wasn't recorded.

I don't dispute there was a crash in the early 1990s. I think you may have misread my post. The Nationwide figures show a big crash in the early 1990s.

I am a long standing bear on GHPC, so I am not arguing a bull position. I do not dispute that housing has been cyclical since the early 1970s. I am disputing that there is a mystical length of time for this to all pan out. The trouble with the 18 year cycle is that it ignores a real terms HPC in the early 1980s, and exaggerates a tiny fall in 1954. There is virtually no evidence of such a cycle in the period when the post-War consensus was in operation.

We bears have much stronger arguments than this pseudo-economic pap.

Alan_M wrote: »

There is a cycle, whether it's 18 years or 14 years is a matter of opinion, but as one poster has already pointed out here this has more to do with a new generation of buyers who have no recollection of any previous falls experiencing the joy that is HPI for themselves and falling under the very same spell the previous generation did. Add to that people with selective memory and the cycle starts again.

I think that generational thinking may apply, but not in the way you think. I will illustrate my point.

My parents were FTBs in 1973. They faced the problem of rapid HPI during the Barber boom. They bought and were so stretched they could not even afford to properly furnish their first house. However, inflation and large pay rises soon eroded the millstone and they were able to buy a bigger place (where they still live) in 1977. The 1970s "real" HPC was never seen as such by my parents. I don't think other people saw it that way either. Ironically, they still thought the inflation was awful for other reasons. From 1977 onwards, they paid no notice of house prices (and living up North the early 1990s HPC did not affect them at all anyway).

Skip on to 2005, and HPI is rapid. I panic about the idea of never being able to buy, and my parents try to help me on to the "ladder". They point out to me that inflation erodes the repayments and you I may miss the boat. They do not realise what really happened in the 1970s, and (rightly) view the decision to buy as right at that time. The early 1990s crash they perceive as an southern aberation brought on by the inept Tories. They think that Brown is an economic genius.

Luckily, I do my own research and decide to wait and see. It is only in the last few months that they begin to accept that I may have been right after all.

This long-winded anecdote goes to show that generational memory is more complex than just "forgetting the last crash". And why should it lead to a particular year of buying? Had I been born in 1975 rather than 1980, then the effect would have come in at another arbitrary time (2000).

I am only 28, but I remember seeing news story about Negative Equity as a teenager, and laughing at Norman Lamont's "green shoots" speeches. Not everyone has the memory of a goldfish.

Alan_M_2

My generalisation is exactly that, a generalisation.

Whilst you clearly have a reasonable grasp of what has occurred historically you will find yourself in the minority when compared to the general population of this country.

Your suggestions are reasoned and well put, but I feel you're giving far to much credit (no pun intended) to the general populous, the vast majority of whom have very little grasp of economic cycles and what causes them and quite frankly don't care.

Forums such as MSE and GHPC are on the whole populated by people who have an opinion about a given subject, we have to be remember that posters on forums such as these make up a tiny percentage of the house buying population of the country. Many of the population in general will consider nothing further than how much mortgage they can get, combined with whatever the 9 O'Clock news says combined with what the Sun/Daily Mail/Daily Express says and base their decision on that.

It is very easy to overcomplicate theories, often the simplest explanation is the best explanation and whilst I agree that not everyone has the memory of goldfish, I'd hazard a wild guess (based on nothing more than my life experiences and the fact I run a business connected with the construction industry) that 90% of the general populous do have goldfish memories (or selective memory as I prefer to describe it)