Singing Pig

What The Experts SayHouse price crash predictions are premature - NationwideFionnuala Earley, Nationwide's Chief Economist, said:"Some commentators are already suggesting that the market is poised for a fall with affordability so stretched, especially for first-time buyers. At a simplistic level, a move in the house price to earnings ratio back to its long term average would imply a fall in house prices of nearly 40%. However, the long term average house price to earnings ratio is not a good benchmark given that we would expect this ratio to trend upwards over time."Reasons for this include the decline in real and nominal interest rates since the 1980s and a change in people's preferences towards housing as an investment, as a supplement or alternative to equity based pensions. In addition, as we have mentioned several times, the UK suffers from a slow response of housing supply to changes in demand, which supports house prices. Looking at mortgage payments as a proportion of take home pay, which takes lower interest rates into account, suggests that rates could increase by more than 2% before affordability (on this measure) became as stretched as in the late 1980s."A more important factor which would suggest that large price falls are unlikely in the current economic climate is the state of the general economy. Clearly there are risks to interest rates, but in the current circumstances it is not clear how big these are. Even the tone of Mervyn King's letter to the Chancellor and his testimony to parliament seemed fairly sanguine. In both cases the Governor expressed the view that CPI inflation could fall back sharply over the next four to six months, which would suggest severe rate hikes are unlikely."Back in the 1980s the collapse in prices came about following a sharp rise in interest rates (from 7.4% in mid 1988 to around 15% two years later) and a 1.4m increase in unemployment at a time when the economy was slowing. Today the economy is continuing to grow; the labour market has been remarkably strong and interest rates have increased by only 0.75% in the last two years."

We have a huge property bubble that was built on pure speculation rather than true value of homes.  When you get double digit house price inflation on homes without considerably adding to their value then it it mostly speculation in the price and is vulnerable.

 

This is a crash with the fastest house price falls in history occurring.  Anyone who says otherwise is in denial or lying.  Next month will show a further large drop as the credit crunch lending conditions effect the figures more and with even more sellers dropping their prices to sell.

hmmm, who should we take more seriously ...brit, or the chief economist of the UK's largest building society?

answers on a postcard ..........

I personally would trust someone without a vested interest, perhaps Mervyn King, who has made it blatantly obvious rates will not be cut to save the housing market.  Oh, the fact that he expects prices to fall significantly this year and next is good enough for me to build my war chest for at least the next 18 months, moer likely 36 when the full scale of the carnage is revealed.

Lets put it this way, Brit was more correct as to the timing and the scale of the falls than any of the vested interests in the house lending market were... No surprice there then.. 

don;t be surprised when merv is, ahem, "leaned on" ... i think you will find that the state of the housing market will have a major influence on gordon's prospects for re-election ... and we'll then see how strong merv is ... i suspect we'll be able to put with a bit more inflation (wink), let's just chip rates down a little eh? .....etc!

Sorry pod, you are talking complete and utter crap.  The governor is not a property bull, quite the opposite.  And he is being leaned on, by the IMF, who are quite frankly aghast at our public deficit. 

No IR cuts next month, nor the month after. 8-1 was the last vote, with that American *** Blanchflower  trying to destroy our economy.

There is more to the UK economy than house prices.  

The other point, IRs can get cut, it makes no difference.  This is perhaps the biggest reason MErv wont cut.  the latest IR cuts have been characterised by climbing LIBOR.  Check the stats.  Libor is still as high as it was before the cuts.  Merv isnt going to cut until the wheels are absolutely screeching to a halt. If he cuts too early, we will go down the Japanese 10 year deflation route, with no way out.  And I can assure you, that scenario would be far, far worse than the 30% falls I am predicting.  Do your research.  Tokyo prices fell 80%, yes 80% as a result. Is that what you want here?  Tokyo has a far higher capita per square mile ratio than London, yet prices fell 80%. See? IR cuts are not going to happen.  If you think you are going to re mortgage for anything less than 7.75% in the near to mid term, as LIBOR is going to climb, and there is absolutely nothing left that the boe can do. The government bonds for turd burger mortgages card has already been pulled. There is nothing else left in the deck.

I can name many experts with far less bias than Nationwide. The IMF has always been my favorite and they predicted 30% drops before the credit crunch had even transpired. Fionnula is an eternal bull and this is exactly the sort of thing she always says. Fortunately for the sake of credibility we have other experts to balance her out...

The sheer size of the drop in house prices, without the economy having yet slowed significantly, suggests that this housing market correction will be deep and prolonged.

 HOWARD ARCHER, UK ECONOMIST AT GLOBAL INSIGHT

It now looks more likely than not that house prices will suffer double-digit falls both this year and in 2009.

 

Of course there will always be people predicting the bottom when actually we are still near the peak. Many were telling us that the credit crunch was over and prices to rise 6% this year only a couple of months ago...

 

And as for the quote ""Back in the 1980s the collapse in prices came about following a sharp rise in interest rates (from 7.4% in mid 1988 to around 15% two years later) and a 1.4m increase in unemployment at a time when the economy was slowing. Today the economy is continuing to grow; the labour market has been remarkably strong and interest rates have increased by only 0.75% in the last two years." So what?

The US crash that had a headstart had IRs FALL during the period with unemployment only starting to bite recently. Some seem to think that because interest rates aren't going through the roof a crash is impossible, but if you look at every crash since WWII (and there have been 4 big ones) only one of those could be linked to interest rates. Bubbles always burst - interest rates last time, bad credit this time. Interest rates are staying pretty stable and we're still experiencing the biggest falls in 15 years!

Once again someone who should know better should stop spouting pseudo-economics. There is a wealth of economic theory that that has been refined and perfected over hundreds of years - maybe she should start referencing that rather than new-spin mumbo-jumbo.

i didn't say merv was a property bull ... read my post!  i said that i wouldn'be surprised to see rates fall 25 or 50bp ....... you may think that falling house prices are great ... but Joe Public doesn't and therefore the government has got major problems. 

totallt agree there are other considerations, but IR are one of only a very small numebr of weapons we have to influence things ... naive to think the BOE is truly, truly independent.  as for whether IRs can/will influence LIBOR...well, not so far, but don;t bet on it. 

we'll see!