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Spline's Charts versus the Long Cycle

 

Hi moesasji. Thanks for the post, and the cross-comparison with Spline's work.

 

What I find really surprising is that Spline's houseprice-predictor based on BOE mortgages approvals predicts that same curve as for Ireland in the above graph. Just look at http://www.houseprices.uk.net/graphs/ with the added BOE approval prediction. The analysis using mortgage approvals seems sensible, so strange to see such deviation. Any thought on this?

Spline's charts are great, and I think it is very smart to look at them alongside my forecasts (as a sort of "confirmation".)

My work will sometimes forecast turns before they show up in Spline's charts.

 

For example, I am currently expecting a severe downturn in the UK property indices into 2011 and longer. That isn't really showing up yet in his UK property predictor:

xxxd.png

/source: http://www.houseprices.uk.net/articles/hou...rice_predictor/

 

Nor is it showing up yet in the chart he has posted for mortgage approvals:

 

003yo.png

/source: http://www.houseprices.uk.net/articles/pro...y_transactions/

 

Actually, the crash in Mortgage Approvals* is so severe, that when Spline puts it on a longer term chart, you could say that it is anticipating a second leg down in UK house prices:

 

001as.png

/source: http://www.houseprices.uk.net/

 

I suppose a slide could get delayed, or it may not even happen. So you might want to use Spline's site as a confirmation of the turns that I tend to forecast before he picks them up.

 

( BTW, he does seem to like my Builders Bellwether tool, since he has a page updating its indications on his website. )

 

If you put it all together: the notional Harrison 18 year cycle is the longest range forecaster. The Builder Bellwethers comes next. and then, Spline's forecasts.

 

Amongst the published indices, some show a market move before others :

 

003et.gif

 

== ==

*Mortgage Approvals are also tracked here: http://www.housepricecrash.co.uk/graphs-mo...e-approvals.php

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*Mortgage Approvals are also tracked here: http://www.housepricecrash.co.uk/graphs-mo...e-approvals.php

Mortgage Approvals

= : - 2006 - / - 2007 - / - 2008- / - 2009- / - 2010- /

J : 121,000 : 121,000 : 73,000 : 31,000 : 48,198 :

F : 115,000 : 120,000 : 72,000 : 37,937 : 47,094 :

M : 117,000 : 114,000 : 64,000 : 39,230 : 48,901 :

A : 108,000 : 109,000 : 58,000 : 43,201 : 49,871 :

M : 115,000 : 113,000 : 42,000 : 43,414 : 49,815 :

J. : 119,000 : 113,000 : 36,000 : 47,584 : 47,643 :

Jl : 117,000 : 112,000 : 33,000 : 50,123 : 48,722 :

A : 118,000 : 106,000 : 32,000 : 52,317 : 47,372 :

S : 124,000 : 100,000 : 33,000 : 56,215 : 47,474 :

O : 129,000 : 089,000 : 32,000 : 57,345 :

N : 131,000 : 083,000 : 27,000 : 60,518 :

D : 115,000 : 072,000 : 31,000 : 59,023 :

 

Housing dip feared as mortgage approvals stall ..

Bank of England figures for September show approvals for new home loans were static compared with August

 

Fears of a double-dip in the housing market were exacerbated today with news that the number of mortgage approvals remained static in September, while net lending (not including redemptions and repayments) was just £112m during the month – down from £1.62bn in August.

 

The Bank of England statistics showed approvals for new home loans in September totalled 47,474 – near-identical to the August figure of 47,498 but lower than the previous six-month average of 48,764. This follows yesterday's announcement from Nationwide Building Society that house prices fell by 0.7% in October, taking the quarter-on-quarter drop to 1.5%, the biggest decline since April 2009.

. . .

Analysts said the overall trend for mortgage lending was downward, reflecting high (and likely to rise) unemployment, muted wage growth, and low and deteriorating consumer confidence. Howard Archer of IHS Global Insight said low mortgage interest rates and the current stamp duty holiday for first-time buyers on all properties costing up to £250,000 only partially offsets these adverse factors – especially as it is difficult for many people to get a mortgage.

 

"Much will obviously depend on mortgage availability, the amount of houses coming on to the market and how well the economy holds up as the fiscal squeeze increasingly kicks in," Archer added.

 

/more: http://www.guardian.co.uk/money/2010/oct/2...tgage-approvals

== ==

 

I don't fully buy those comments.

 

The problem is not just "mortgage availability", it is also sentiment. People can see that the tide is turning lower, and they are not eager to take mortgages now, when they think they they can save money by buying later. (Of course, the BBA does not want to risk harming their business by telling you that.) All British people are not just stupid sheep, who will just buy because they can. Many will wait to buy when prices are right (ie more sensibly priced.) They have been reading about falling prices, and can see that austerity lies ahead, so it makes perfect sense to wait. The desire to wait will intensify if/when the rate of prices falls accelerates, and/or interest rates begin to rise.

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Spline's charts are great, and I think it is very smart to look at them alongside my forecasts (as a sort of "confirmation".)

My work will sometimes forecast turns before they show up in Spline's charts.

 

For example, I am currently expecting a severe downturn in the UK property indices into 2011 and longer. That isn't really showing up yet in his UK property predictor:

 

In his defense he has not updated his charts for a number of months. However I was indeed referring to the fact that his mortgage approvals indicate a severe reduction in prices which looks very similar to your curve on the Irish crash. Maybe clearer what I mean if I put the graph here (yellow line is the prediction),

 

housepriceserver.png

 

Uploaded with ImageShack.us

 

It clearly shows a clear deviation from the trend probably starting from the point where interest-rates got absurdly low distorting the market to an extreme. This probably indicates that people in the UK try to find a better place for their savings as leaving it in the bank got them nothing. However if the bounce is completely funded without mortgages...then where the **** does the money come from?

 

ps) I fully agree btw that your approach is picking up trends earlier, but it (for me) is more difficult to see the logic behind it.

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Interesting forecast - which fits the cycle !

...I fully agree btw that your approach is picking up trends earlier, but it (for me) is more difficult to see the logic behind it.

For me: there's a common "narrative" behind these market moves: In other words, the Market is following a story-line that becomes predictable if you understand the plot - ie. the outline of how the cycle works.

 

Each new stage emerges as a reaction to (or progression from) the one before it.

 

Think of it as a book, with the chapters laid out already. For instance, we are now in the "correction" chapter, which in the UK has become distorted, and probably prolonged, by ultra-low interest rates. During this chapter, people need to lose money and get totally fed up with property to correct the huge historical excesses (overvaluation and over-lending) before it can more onto the next chapter (A Recovery.)

== == ==

 

FOR THE RECORD... here's what I have posted on Property Tribes :

 

"It would be much easier to predict the british weather than any fluctuations in the UK housing market,

expert after expert give us another set of possibles,"

 

Is it?

How's this (for a series of accurate predictions)?:

========

July 2007 : UK house prices are about to peak. (They peaked in Q3-2007.)

April 2009: A "Dead Cat bounce" of about 9-12 months has started

Oct. 2009 : The Dead Cat bounce should end around the end of the year

May 2010 : The Dead Cat bounce is over, the market is rolling over

Nov. 2010: The slide will average 0.5-1.0% per month, maybe more, and last into 2013 or longer

 

We will need to wait a while before we know how accurate the last two predictions are. If something happens which is totally unexpected (a War?), then the cyclical pattern might get disrupted. So I watch out for such disruptive events. But normally, I just expect the usual cyclical narrative to be followed, and can see no reason (at this point in time), why we will not slide at "crash cruise speed" into a low in 2013 or so.

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PREDICTIONS

How's this (for a series of accurate predictions)?:

========

Nov. 2010: The slide will average 0.5-1.0% per month, maybe more, and last into 2013 or longer

COMPARE, with other forecasts on that thread:

 

The Centre for Economics and Business Research expects property prices to rise by only 2.2 per cent next year as unemployment increases.

 

Jobless figures will rise on the back of public sector cuts and household incomes will remain under pressure, the economists say.

But the centre expects low interest rates, further quantitative easing from the Bank of England and the ongoing housing shortage to offer some support to the market. House prices are likely to be 16 per cent above their current level by the end of 2014.

 

Howard Archer, of IHS Global Insight, expects house prices to fall by 10 per cent during the coming year, while Capital Economics still expects a 20 per cent slide in property values between now and the end of 2012.

 

Douglas McWilliams, the chief executive of the economics research centre, said: "Quantitative easing* is a powerful medicine and is likely to have a strong impact on the housing market eventually.

 

"House prices may not move much during 2011 but they are likely to rise significantly in the following three years on the back of quantitative easing." The group expects house prices to end this year just under 7 per cent higher than they started it, at an average of £179,411. Sluggish growth next year will be followed by stronger increases of 4 per cent in 2012, 5.4 per cent in 2013 and 4 per cent in 2014, to leave the average property costing £208,816.

 

The centre said any decision to embark on a fresh round of quantitative easing would reduce long-term interest rates and help to boost mortgage lending. As a result, it expects the number of mortgages advanced each month to rise from its current level of 47,000 to around 77,000 by 2014, although this figure is still below the peak of 119,000 reached in 2006.

 

*Horsefeathers! : QE is spurring inflation, and that will lead to higher interest rates, I reckon. And that will not be good for UK house prices.

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ON PREDICTING HOUSE PRICES : Is it possible at all ?

 

The other interesting thing with being late to the STR party is that on lots of issues (eg predicting house price falls, seeing the credit crisis, etc) I've been rather early in predicting what actually happened compared to the general public and then it has taken much much longer for the event to occur, so perhaps late is better?

I believe it is possible to predict the future trend of house prices with some reasonable accuracy, but it is not easy to get the turning points exactly right, nor is it possible to predict the exact extent of a price move.

 

Here's some of the folks from Singing Pig, who think it is so very difficult to predict property cycles, yet they happliy hang in there with loads of mortgage debt - Does this make any sense?

 

Anyway, here's a selection of postings from a thread I started there which talks about property cycles:

 

(1)

Can't remember where I got these quotes from (maybe Taleb's Black Swan book, where he quotes others), but I think they are relevant.

 

It is tough to make predictions, especially about the future.

The future ain't what it used to be.

There is a difference between what people actually know and what they think they know.

Plans fail because of the neglect of sources of uncertainty outside of the plan itself.

The unexpected has a one-sided effect with projects.

We need to plan while bearing in mind the fact that we do not understand the future. This takes guts.

The longer you wait to complete a project, the longer you will be expected to wait.

I know I cannot forecast, and some people take that as an asset.

 

(2)

If cycles and trends were any guide to the future, the virtual financial collapse of the world economy would have been foreseen by one or more of the "experts" who are now confidently telling us via newspapers, Sky News, etc exactly what to expect in the immediate future. (DrB: Some did predict the financial crisis !)

 

(3)

Look Bubb - you do NOT have a crystal ball; you do NOT understand how property cycles "work" in the UK; you do NOT impress anyone with your supercilious self-praise; in particular, your posts proclaim that you do NOT understand anything at all about the UK property market. You didn't even see the USA financial collapse coming !

 

So try to get all of this arrogant self-delusion out of your system. We British are not impressed with typical American unsupported bragging, and there are NO consistent and predictable property cycles in the UK. Like other countries, we are affected by the professional ineptitude of bankers and other professions abroad who cause recessions by idiotic lending.

 

(4)

Bubb highlights the idiocy of many peoples approach to investing, that property investing can only work when you know where the bottom and top of the market is so you know when to buy and sell. No other industry is so focussed on such an arbitrary measure. The media, forums and even many investors and pundits seem totally preoccupied with the notion of top and bottom price, as is Bubb. In that respect, for me anyway, he highlights the nonsense that many people feel is important when investing. He may even only be a troll, but a useful one.

 

The first and often the only question I am asked as a property investor is" what do you think the property market is doing?" often closely coupled with a similairly pointless consideration of the economy/employment/politics. All of which is COMPLETELY irrelevant to me as an investor. As a result of this obsession with market value (and top and bottom analysis) people are generally uninformed as to how to make property investing work. I was asked last year what my response was to the Mail headline that Buy to let was dead, like I was supposed to be under threat from some unseen threat in a drop in values/ availability of mortgages. The truth of it is that my overheads have shrunk ridiculously with low interest rates (which I still consider low at 5%) higher rents and a greater availability of cheap houses, the chap asking the question then added, " yes but your net value will have shrunk a bit won't it?" ...!

(DrB: He fails to understand that he has been bailed out by reckless monetary policy, and is still highly vulnerable to price falls.)

 

I think it is rather strange that they rubbish the efforts of others (who have had some success!), and yet are willing to stay invested on the bizarre theory that "no one can predict" - as if: they are relieving themselves of responsibility for studying the cycle, and being prepared for what is coming. I find it very strange indeed!

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(First Posted on GF's Property thread on the Main board):

 

Greece house prices? Take a look at http://www.globalpropertyguide.com/real-es...-house-prices/G

Pretty bad but no where near as bad as Ireland.

Depends on how you look at it, I suppose, Rich.

 

Greece

76_graph2.jpg

Ireland

93_graph2.jpg

 

Here's Britain from the same source:

204_graph2.jpg

 

Ireland is facing its property demons now. So is the USA.

Greece and the UK may still need to do so.

 

Here are the Iberian twins:

Spain

176_graph2.jpg

 

- Notice that the peaks in Spain are almost exactly 18 years apart !

A bigger fall than last time seems likely now.

 

Portugal

156_graph2.jpg

 

If these are "twins", then they are twins like Arnie and Devito

1216667608592_5432_0002_mif_290_210.jpg

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BUILDER BELLWETHER, a forecasting tool - HPC posters are slowly "getting it"

 

I told them for years about this valuable tool, and now they are starting to understand it.

... It was suggested by a PM here, that I respond to the following:

 

Posts from HPC yesterday:

 

BDEV versus PSN and TW ... update

001qj.gif

 

(1) : BtL

Builders Shares Getting Hammered Today:

BDEV down 3.03% and Wimpey down nearly 4%

both now trading at 12 month lows, anyone think WImpey will go under as now only worth 24p a share

 

(2) : MT

You have to give it to Bubb that he does appear to have been right about BDEV being a good indicator not just of house prices but of where the economy is going.

 

I don't mind admitting that I ignored many of his BDEV posts - simply because I was not interested in such things - but once I took the time to read them I ended up following BDEV, and to a lesser part TW, for the past 6 months. It has been fascinating watching BDEV as they have drifted down and, in the past month since the 3.6% Halifax down figures came out, gone down a fair bit.

 

So hats off to Bubb for that.

 

From what I have been reading the problem for the likes of BDEV and TW appears to be that as their share price fall the cost of servicing their debt becomes more expensive and at the same, because the housing market will be getting worse, then the value of their land banks will fall. I have read online the possibility of their land banks halving in value.

 

(3) : DH

Kind of obvious though, isn't it?

. . .

The point is that he thought it was a leading indicator, when - as far as I can tell - it lags the other indicators. So it drops on rightmove falls, Halifax falls etc.

 

What DH is not getting is that the Builders turn down maybe 6 months ahead of the property indices,

and then the TURN in the indices tends to occur at around the same times as the Builder shares cross their 252d/1year Moving Averages.

 

Example:

BDEV / Barratt ... 1yr-chart : 2yr-chart

001lw.gif

 

Peaked in Sept. 2009 (at 193p), and then crossed the 252d.MA in Feb.-2010, just before the HP indicies were peaking.

(That cross was confirmed by the 21d crossing in Feb., and the 76d.MA crossing in March 2010.)

 

I think it is rather nice, useful and potentially profitable to have a 6 month advance warning of a turn.

These guys think it is just a ho-hum thing. What can I say? It's "Pearls before swine" for DH, I suppose.

 

(4) MB, there totally "gets it":

But BDEV has been going down for nearly a year whilst house prices were going up. BDEV had its bounce earlier than house prices in 09 and started its downward trend before house prices did. So it led them.

 

All builders shares were spooked by the halifax large fall - the market started feeding on itself - but if you look at the last 12 months the shares have been falling for most of it; I don't understand how you can say that it has lagged if you just looked at the last 12 months as oppesed to the last 3.

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The council of mortgage lenders has just released data showing a continuing mortgage slump as reported by the press association.

 

The group now expects net lending, which strips out redemptions and repayments, to be just £9 billion during 2010, well down on its original forecast of £15 billion and its revised forecast of £12 billion, and only a fraction of the £108 billion that net lending totalled in 2007.

 

That means that the net lending for this year is 1/12 of that seen in 2007 (the UK property peak).

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The council of mortgage lenders has just released data showing a continuing mortgage slump

That means that the net lending for this year is 1/12 of that seen in 2007 (the UK property peak).

WOW:

The group now expects net lending, which strips out redemptions and repayments, to be just £9 billion during 2010, well down on its original forecast of £15 billion and its revised forecast of £12 billion, and only a fraction of the £108 billion that net lending totalled in 2007.

Total advances are expected to be around £137 billion, less than half the £363 billion advanced in 2007, and significantly lower than the group's original prediction for the year of £150 billion.

The forecasts illustrate just how much the mortgage market has shrunk since the credit crunch first struck in the third quarter of 2007. They also suggest the market has failed to recover at all during 2010, as both forecasts are lower than the totals recorded for 2009.

Meanwhile, separate figures from the Bank of England showed that mortgage lending for house purchase fell to a nine-month low of £5.3 billion during October.

 

Year=: NET LENDING === - - - - - - - - - - - - : GROSS LENDING === - - - - - - - - - -

2007 : .. £108 bn / 189k : 571,400 houses : ... £363 bn / 189k : 1,920k houses :

2010 : Est £ 9 bn / 166k :. 54,200 houses : Est £137 bn / 166k :.. 825k houses :

 

_48927678_uk_ave_house_price464.gif

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The land registry report that prices fell nationally by 0.8% in October. Average prices are now £165.505.

 

As reported by the BBC

 

 

Recent house price surveys have shown the effect of a lack of demand among buyers unable to secure a mortgage, as well as more properties coming onto the market.

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Trend?

 

Recent house price surveys have shown the effect of a lack of demand among buyers unable to secure a mortgage, as well as more properties coming onto the market.

 

This has led to a stagnation, or slight dip, in prices in recent months.

 

Paul Diggle, property economist at Capital Economics, said: "The second consecutive monthly drop in the Land Registry measure of house prices is further evidence that the devaluation is becoming more embedded.

 

"The fact that house prices are still overvalued across a range of measures, combined with the poor outlook for the underlying economic drivers of the housing market, means that house prices are likely to fall considerably further next year."

. . .

The Halifax is introducing a new standard variable rate, known as the homeowner variable rate (HVR), from 11 January 2011. Anyone taking out a mortgage with the group from that date will revert to the new rate when their initial deal ends.

 

The HVR will charge interest of 3.99%, compared with interest of 3.5% currently charged on the group's standard variable rate (SVR).

 

This follows moves by Lloyds TSB, Cheltenham & Gloucester and Nationwide to replace their SVRs of 2.5% with ones charging 3.99% for new customers.

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A great chart from Money Week showing UK house prices and net mortgage lending. Source.

 

HP and Net Lending Chart

 

In a nutshell, this collapse in NML suggests UK house prices are standing at the cliff face. If they were to follow net lending trends, residential property values could be about to halve.

 

Net mortgage lending is as analogous to the rate at which air is being pumped into a vastly overinflated balloon. If the air is flowing out at a greater rate than it is being pumped in then it deflates.

 

Another chart from Money Week show HPI almost touching zero.

 

HPI Chart

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A great chart from Money Week showing UK house prices and net mortgage lending. Source.

aa3h.gifHP and Net Lending Chart

I reckon that despite falling demand, PRICES have been propped up by ultra-low rates.

Sellers are unwilling to drop their prices, and buyers "overpay" because low rates make prices look affordable

 

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Sentiment is deteriorating again.

 

Property supply is rising, and homes are slumbering on the market, awaiting price cuts.

And this is DESPITE the continuance of ultra-low rates...

 

aa30.gif

/source: http://www.hometrack.co.uk/commentary-and-...ey/20101129.cfm

 

How long before we go back to the sort of negative sentiment we saw at the bottom?

 

BACK AT THE LOWS in April 2009,

Few saw that the Turn was already underway.

 

Here's the old survey from HPC in April 2009:

 

POLL: Speed of UK House price declines (118 member(s) had cast votes in April 2009)

====

 

How are you experiencing house price declines in your area of the UK?

 

[13.56%] : Property price falls are speeding up (16 votes )

[50.00%] : Crash cruise speed underway - prices are falling at a fairly steady rate (59 votes )

[16.10%] : The rate of decline has slowed noticeably (19 votes )

[: 2.54%] : Prices seem to be stable - have stopped falling (3 votes )

[: 0.00%] : Prices are now showing a slight uptrend (0 votes )

[16.10%] : The picture is very mixed. No conclusion is possible (19 votes )

[: 1.69%] : No comment (2 votes )

 

My belief about a bounce, or signs of stability, if we see them :

 

[50.00%] : There will be no bounce this year (59 votes )

[38.98%] : What I am seeing, will be nothing but a Spring bounce (46 votes )

[: 5.08%] : The stability could eventually lead to a recovery (6 votes )

[: 2.54%] : This is THE LOW in the cycle (3 votes )

[: 3.39%] : No comment (4 votes )

 

Availability of finance that I am seeing :

 

[: 5.08%] : It is virtually impossible to borrow to buy a home where I am (6 votes )

[20.34%] : Loans can be obtained by those who have a 40-50% deposit, and sufficient income (24 votes )

[35.59%] : Mortgage loans of 70-75% LTV are available (42 votes )

[: 6.78%] : 80-85% loans are available (tell us more) (8 votes )

[: 4.24%] : Loans of 90-100% can be obtained (5 votes )

[27.97%] : No comments (33 votes )

 

/see: http://www.housepricecrash.co.uk/forum/ind...09612&st=30

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I reckon that despite falling demand, PRICES have been propped up by ultra-low rates.

Sellers are unwilling to drop their prices, and buyers "overpay" because low rates make prices look affordable

 

That is pretty much it. Vendors simply do not have to sell, therefore buyers who can do and feel forced into it, stump up the money. This can only continue as long as interest rates remain this low for existing property owners. I don't see this continuing all that much longer. Sovereign states are increasingly competing for funds; with each other, with banks who need to roll over debt and corporations. The bond market must surely respond with demands for higher yields. The only thing that can slow this is more QE, the effectiveness of which will continue to diminish. QE must eventually lead to higher long-term interest rates anyway. IMO higher interest rates will happen sooner rather than later. When this finally occurs the banks will not suffer that much because they have already been given the last two year to reduced their exposure, and have been doing just that. The larger UK banks are becoming well capitalised again and they will be able to withstand significant falls in house prices.

 

We have already transitioned from the phase that occurred in late 2007/early 2008 where all actions we aimed at saving the financial system. The banks have survived and many prospered. Looking ahead I believe it is necessary to prepare for an environment with significantly higher interest rates. If unemployment also increases then large HP falls are in store. I now firmly believe that we are on the cusp of a serious second leg down. The government could act, as Brown and Darling did, and throw everything at it a second time. Over the next few months, as house prices continue to drift down we should be asking ourselves the following questions:

 

1. What can the government do to prevent the second down leg?

2. What are they doing now, or have already done to prevent it?

 

Unless the answers to these two questions are broadly the same then the government is not genuinely acting to support prices and the falls will increase.

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...Over the next few months, as house prices continue to drift down we should be asking ourselves the following questions:

 

1. What can the government do to prevent the second down leg?

2. What are they doing now, or have already done to prevent it?

 

Unless the answers to these two questions are broadly the same then the government is not genuinely acting to support prices and the falls will increase.

Not much can be done.... that makes political sense for those in power now.

 

When Labour was still in power, and hoping to be re-elected, it made sense to do reckless things that propped up prices like:

+ Encouraging banks to lend beyond sensible LTV's

+ Discouraging foreclosures

+ Pushing up housing benefits

Since all these things made many voters happy, and the damage that they caused was really only visible (to most) in hindsight/

 

Now the "political equation" is much different. I believe the Coalition knows that house prices need s bigger correction, and for them, it is better to get it started sooner, rather than later, so they can assign the blame for the bubble and a possible crash where in belongs: on Brown and BofE loose money. If they delay it another year or two, then Labour might escape blame.

 

So the Coalition must think it is best to "take those pins out" now and aim them at the housing bubble (and also at their Gordon Brown voodoo dolls- he's a pathetic and "abysmal" creature, well-designed for blame that he richly deserves.)

 

The crunch will come within the next few weeks, as year-on-year comparisons turn negative. Potential homeowners will step up their complaints about the lack of mortgages, but many will just see the negative comparisons, and decide it is better to simply wait for lower prices. Those who bought at high prices may ask the government to "do something." But with rates already at low levels, they cannot cut rates further, and forcing banks to "lend more" will not be sensible, since that would help delay the slide, and would not be consistent with the prudent image that the Coalition has worked so hard to portray.

 

This chart from Hometrack speaks loudly:

aa30.gif

 

Supply is exceeding demand, and properties are languishing longer and longer on the market, waiting for the vendors to cut prices to a level that buyers are willing to pay. In a market with falling prices, buyers demand a bargain - a discount to compensate them for the risk of buying in a falling market. When rates were pushed down (and they remain at ultra-low levels), buyers had the incentive to buy from the argument that low rates made it cheaper to own than to rent. But 2011 may usher in lower rents (thanks to caps on Housing Benefits), and also buyers may be worried that the period of low rates is closer to the end than the beginning, and falling prices may persuade them that the "total return" of owning is negative, and is not a smart financial move any more.

 

So will the Coalition stop the House Price Crash train once it is set in motion?

 

I think not. I think they may even say something about how lower prices are good for First Time Buyers. These are the voters of the future. Their numbers are swelling every year, and old homeowners are going "off line", or losing interest in politics. The homeowning boomers no longer sit on the thrown of political influence, it is more of a mixed electoret, and so the Coalition may actuall do what makes sense for the future of the country, and let UK and Great London houseprices slide back to more affordable levels. Second leg down, here we come.

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Not much can be done.... that makes political sense for those in power now.

 

When Labour was still in power, and hoping to be re-elected, it made sense to do reckless things that propped up prices like:

+ Encouraging banks to lend beyond sensible LTV's

+ Discouraging foreclosures

+ Pushing up housing benefits

Since all these things made many voters happy, and the damage that they caused was really only visible (to most) in hindsight/

 

Now the "political equation" is much different. I believe the Coalition knows that house prices need s bigger correction, and for them, it is better to get it started sooner, rather than later, so they can assign the blame for the bubble and a possible crash where in belongs: on Brown and BofE loose money. If they delay it another year or two, then Labour might escape blame.

 

So the Coalition must think it is best to "take those pins out" now and aim them at the housing bubble (and also at their Gordon Brown voodoo dolls- he's a pathetic and "abysmal" creature, well-designed for blame that he richly deserves.)

 

-- etc --.

 

 

I agree with most of the above, but I think that you have excluded a third option for the government. That is to, as you say, pull the pins out; only slowly and maybe not all of them, thereby controlling the both the rate and amount of falls. This could possibly avoid an outright crash. Electorially the collation do have something to loose from an uncontrolled fall in prices. The real test is whether or not they are prepared to raise rates, as you said earlier low rates are the biggest "pin" supporting prices. Even a small rise will be enough to push prices down quite a lot; but they won't do it unless they are sure that the banks are sufficiently capitalised to be able to withstand the losses.

 

On one level it makes sense for them to raise rates a little bit early on, while they are still in control of the process, rather than waiting for the bond markets to force it on them. Do they have the balls for this? If rates do not rise I think prices will continue to fall by a few percent a year but not spectacularly. It just doesn't make sense for an owner to sell for a loss when the cost of servicing a mortgage are so low. but this will all change very quickly if a rate rise is forced. The question remains, will the government continue the initiative they started of gradually removing (changes to housing benefit) the props? If so, how far will they go down this road?

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I dont think that the BofE need to raise rates to cause a house price crash, though that would speed it up. The slide is altready underway, if you look closely. There's no need for yoy negative changes to see whjat is occurring.

 

The following quote and comment comes from a new thread that I have started in the Main section, called "the politics of house price falls." And it suggests that the government doesn't need to "put a pin in" (ie raise rates) to burst the bubble - if they did that they would be accused of causing the problem. They can just sit back now and let it happen, and the blame will accrue to Labour, where it belongs.

 

"the "burden of proof" is not on those expecting a big slide, it is now on those expecting stability or higher prices."

- see below

 

Hi Dr B,

 

Well, first I should say I actually believe prices are likely to fall, just not at crash speeds.

 

Secondly, I don't consider 0.5% per month a crash, -20% YOY is a crash.

 

Apart from that, basing future movements on previous actions is not always a good idea. You of all people know this. Time on market depends on sellers need to sell quickly.

-0.5% can give you a crash if it continues long enough. But normally, it would pick up pace as the surplus supply increases and confidence erodes.

 

Look what happened in from mid-2007:

Mo'Yr Hali.ns Na'wide M Ave.H&N AveHN AyoY%

 

Jul'7 200,578 184,270 J 192,424 +0.34% 10.84%

Aug'7 201,081 183,898 A 192,490 +0.03% 10.36%

Sep'7 200,168 184,723 S 192,446 -0.02% 9.09%

Oct'7 197,817 186,044 O 191,931 -0.27% 8.10%

Nov'7 194,258 184,099 N 189,179 -1.43% 5.00%

Dec'7 195,333 182,080 D 188,707 -0.25% 5.60%

(2008)

Jan'8 191,275 180,473 8 185,874 -1.50% 4.05%

Feb'8 193,448 179,358 F 186,403 +0.28% 2.45%

Mar'8 190,619 179,110 M 184,865 -0.83% -0.14%

Apr'8 190,952 178,555 A 184,754 -0.06% -2.38%

May'8 186,482 173,583 M 180,033 -2.56% -5.46%

Jun'8 181,765 172,415 J 177,090 -1.63% -7.65%

Jul'8 178,440 169,316 J 173,878 -1.81% -9.64%

Aug'8 175,408 164,654 A 170,031 -2.21% -11.67%

Sep'8 173,350 161,797 S 167,574 -1.45% -12.92%

Oct'8 168,158 158,872 O 163,515 -2.42% -14.81%

Nov'8 162,848 158,442 N 160,645 -1.76% -15.08%

Dec'8 158,437 153,048 D 155,743 -3.05% -17.47%

(2009)

Jan'9 159,818 150,501 9 155,160 -0.37% -16.52%

Feb'9 159,208 147,746 F 153,477 -1.08% -17.66%

Mar'9 157,066 150,946 M 154,006 +0.34% -16.69%

 

In the early stages of decline, the mom changes bounced around, as they are bouncing around now. They settled into a hard-down condition beginning in May 2008, two months after the yoy change went negative. Perhaps yoy negative change is what is needed to destroy people illusions.

 

Those who are paying attention to mom changes should not need to wait for a you negative reading to understand what is happening. It is already clear from the monthly data that we are headed towards negative reading, and it will take something like a "bullish miracle" to avoid that.

 

With prices now falling, and about to pierce into yoy negative, and time-to-sell rising, the momentum is clearly down, and the "burden of proof" is not on those expecting a big slide, it is now on those expecting stability or higher prices. The sentiment is still too bullish, but that will erode over time under the drip-drip-drip of lower prices.

 

Of course, I could be wrong, and if we now get 3-6 months of stability, the burden of proof will shift to the Bears. But I think that RB has been foolish in throwing in the towel just as the Bear case is winning through. It is as if he is showing himself to be a weather vane of sentiment, and not a man of conviction and careful analysis.

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... another post from the other thread on Main , for the record here ...

 

Here's a quick summary

(DrB's EXCERPT...):

+ Media Sentiment (including advertising)

+ Family and Friends Sentiment

+ Mortgage Rate and Availability Expectations and Actuals

+ House Price Expectations and Actuals

+ Direct Family Pressures

At some point, actual economics will trump all the sentimental influences.

 

And I do think that when yoy growth goes negative is where the bullish sentiment really melts and the slide can pick up steam.

 

I have put the two charts together since they show that the speed of selling is now worse (ie slower) than it was for a similar level of year-on-year change:

 

ukhpi.gif

 

To me, this suggests that people do have some memory of the firts leg down, and they are beginning to become reluctant to buy again.

 

The fact that Time-to-Sell is almost a perfect mirror image of the 6 months change is interesting. But I also find interesting how the momentum to the downside is perfectly reflected on both. It looks steady and relentless in both legs. Last time there was a brief pause around yoy flat. Will we see it in prices? Perhaps not. Since Time-to-Sell has gone rising steadily.

 

I think people need to remind themselves what Time-to-Sell represents. It is a ratio of Supply divided by Sales. The More supply and the less sales, the higher the Ratio goes. So what is happening now is that sales are deteriorating while supply is increasing.

 

Here's an excerpt from the recent November 10th Home report:

 

"Overall prices of homes on the UK market appear to be levitating... Early indications show that buyer interest is waning in the face of high stock levels on estate agent books. Price-cutting of property on the market continues to increase in frequency (a new 21 month record for October fueling the growing 'discount culture' in the UK housing market.

. . .

Typical (median) Time on Market for unsold properties has risen a further 9 days since last month and now stands at 118 days. Meanwhile the average (mean) Time on Market is also up 8 days to 192 days. These figures are consistent with the observation that somewhat fewer properties are entering the marketplace after the summer surge and those that are currently for sale are spending more time in agents' portfolios."

/source: http://www.home.co.uk/asking_price_index/HAPIndex_NOV10.pdf

 

What stopped the freight train to the downside last time was a move to ultra-low rates. That trick has been tried (along with the ramping up of Housing Benefits), and the BofE cannot cut rates to negative numbers.

 

Maybe this time prices will need to fall all the way down to genuinely affordable before the downwards momentum will be stopped.

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Bearish data has just been released by the council of mortgage lenders.

 

 

An expected decline in mortgage lending towards the end of the year has now become apparent, data released by the Council of Mortgage lenders shows. Lending for both house purchase and remortgaging were affected by a lull in activity in October. There were 46,000 loans for house purchase (worth £6.7 billion), down 4% in number and 6% by value from September. The total was 16% lower (12% by value) than in October 2009, but lending numbers in the final quarter of 2009 were boosted as buyers brought forward transactions to take advantage of the stamp duty holiday.

 

Some interesting highlights:

 

  • FTB Volume down 19% YoY
  • FTB Value down 17% YoY
  • The average loan-to-value for house movers 69% an increase from 67% in September
  • The average income multiple was 2.84, down from 2.89 in September."

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Just read a new article in Money Week.

 

In the US, Russell Napier of CLSA is talking about inflation climbing to the 4% region while ten-year Treasury yields hit 6%. It's hard to disagree. Over the last 50 years the average yield on these bonds has been just above that level.

 

 

This raises the question: will rising bond yields cause base rates to rise as well? This will be very bearish for property prices.

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Bearish data has just been released by the council of mortgage lenders.

 

Some interesting highlights:

  • FTB Volume down 19% YoY
  • FTB Value down 17% YoY
  • The average loan-to-value for house movers 69% an increase from 67% in September
  • The average income multiple was 2.84, down from 2.89 in September."

There are some interesting CROSS-currents in the market now

 

The average price of a home in England and Wales climbed for a seventh month, gaining 0.2 percent, research company Acadametrics Ltd. and LSL Property Services Plc said in an estimate released today. U.K. producer prices increased for a second month in November, the Office for National Statistics said today in London.

 

A heads-up, or a false indicator? Taken together with the rise in the Homebuilder shares, it could be a heads-up.

 

Meantime, the average of the H&NIndex shows we are clearly in a Crash Cruise speed phase, with prices down -0.9% in November

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There are some interesting CROSS-currents in the market now

 

Interesting indeed. Rightmove, usually one of the most bullish indices, has recorded a record 6.2% fall in asking prices over the last 2 months.

 

3.2% fall in November

3.0 fall in December.

 

YoY is still 0.5% though. So still positive, but only just.

 

See report here.

 

 

A heads-up, or a false indicator? Taken together with the rise in the Homebuilder shares, it could be a heads-up.

 

Meantime, the average of the H&NIndex shows we are clearly in a Crash Cruise speed phase, with prices down -0.9% in November

 

Given the recent downward move in asking prices I'd say it was a false indicator. The Acadametrics index is based on the Land Registry data so lagging around 4.5 months so the shift downwards probably isn't showing up in data yet.

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Given the recent downward move in asking prices I'd say it was a false indicator. The Acadametrics index is based on the Land Registry data so lagging around 4.5 months so the shift downwards probably isn't showing up in data yet.

Good points.

When the big 5% jump in Rightmove's October asking prices was announced, I characterised it a "seasonal, trying on" of higher prices, which would be quickly rejected - and so it was.

I wasn't aware of the time lag in the other figures.

With the big move down in Rightmove, I think we can safely ignore the dated Academetrics index.

 

I have to wonder how long those Builder share prices can go on levitating, when most everything else looks bearish.

And they haven't yet broken above key resistance. Blips like these have been "faded" several times in the last few years

 

Mon.: Rt'move : London : Hometrack chg./ Na'wide H.old.SA Hali.SA Hali.nsa: H&Nindex : mom :DelusIdx

2010

S. : : 229,767 : 399,019 : 157,600*-0.4% / 166,757 = n/a = 161,974 163,639 : £165,198 :- 1.49% :139.1%

O : : 236,849 : 418,778 : 156,200* 0.9% / 164,381 = n/a = 164,949 165,275 : £164,828 :- 0.02% :143.7% : Hi Delus.

N : : 229,379 : 420,248 : 155,575 - 0.4% / 163,398 = n/a = 164,708 163,268 : £163,333 :- 0.91% :140.4% :

D : : 222,410 : 408,248

=====================================

mom: -3.04%: - 2.86% : Est.DI: 136.2 % / : -0.60%: = n/a = : +1.82%: -1.4% : - 0.91%

 

The Delusion Index is dropping fast as those "aspirational" asking prices are cut / read: "unrealistically high"

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