Somebody over at HousePrice Crash highlighted this chart showing the ratio of house prices to disposable household income from 1945 to 2007, which was featured in The Daily Telegraph recently:
Now, that chart says to me one thing, and one thing only ...
PS, it appears that the 18-year cycle that I have mentioned before was thrown severly out of kilter by the Second World War; and took until the early 1970s to re-establish itself; apologies for any mis-information.
Friday, 8 February 2008
House-price-crash porn
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12 comments:
I think you are sort of right but the graph is too simplistic. If for instance, the proposed house building by Labour doesn't happen (Tories win next GE) then house prices will remain high because demand will continue to outstrip supply (as long as there is not a deep recession, high interest rates and unemployment).
On a different topic, this genius reading thing. I am not so sure it is good to have a 'genius rating'. This means our blogs (yours and mine) are difficult to read. For instance I did a reading for the criticsrant site itself and it came out as 'elementary school'. Also some top journalists had 'high school' readings.
1) House prices will crash, end of, if I'm wrong on that then I shall have to go back and rethink a lot of stuff. Fred Harrison's 18-year cycles and all that.
2) Central government has nothing to do with how much housing is built. The constraining factor is NIMBYism. I am all in favour of local decisions being taken locally, and if nobody wants any housing built near them, well that's that.
3) You have fallen for the assumption that building more houses helps keep house prices down. Not true, in Ireland and the USA and Spain they have been building about five times as many houses per capita as in the UK, and their house prices booms were just as bad as ours.
4) Part of Nulab's biggest scam was to sustain an unsustainable house price bubble because it produces the feel-good factor, the whole ten years of 'economic stability' was built on sand, it will blow up so horribly in their faces that they will be out of power, well, hopefully for ever.
5) In any event, Nulab have been in power for ten years, it's a bit f***ing late now to start yapping about 'affordable housing', seeing as it was them who made it unaffordable in the first place.
Neil, I take my hat off to you, about three-quarters of your post of a year-an-a-half-ago have turned out to be correct. Yes, and of course the Falklands War was a giant scam.
Neil when prices are rising fundamentals going out of the window, because people cannot see what will stop it rising, so along the way they make all kinds of things up. Supply and demand, and we are joining the euro so rates will be 2% were two of them. Demand was part speculative we all know that, but debt is the bigger problem here. Look at Japan.. UK and other countries are not much different.
When prices fall, then fundamentals kick in as that's the only method you can use to determine the floor.
I predict prices will fall back to late 2001 price levels which creates a 35% fall.
Here are some samples.
Prices will fall 35% I believe and they will fall back to at least 2002 levels.
This means even if you say the average house was 70k in 1998 which is now 160k for example, -35%, they will be worth 100k, which is well above 70k 1998 level, because over the last 10 years if we say inflation has been 5% a year then a 50% increase is ok making the price 105k...
They are my predictions
325 detached fall to 212k..
294 detached fall to 192k
220k detached needs to fall to approx 150k
160k semi needs to fall to 105K
120k terraced house to fall to 80k
Neil, when prices are rising fundamentals going out of the window, because people cannot see what will stop it rising, so along the way they make all kinds of things up. Supply and demand, and we are joining the euro so rates will be 2% were two of them. Demand was part speculative we all know that, but debt is the bigger problem here. Look at Japan.. UK and other countries are not much different.
When prices fall, then fundamentals kick in as that's the only method you can use to determine the floor.
I predict prices will fall back to late 2001 price levels which creates a 35% fall.
Here are some samples.
Prices will fall 35% I believe and they will fall back to at least 2002 levels.
This means even if you say the average house was 70k in 1998 which is now 160k for example, -35%, they will be worth 100k, which is well above 70k 1998 level, because over the last 10 years if we say inflation has been 5% a year then a 50% increase is ok making the price 105k...
They are my predictions
325 detached fall to 212k..
294 detached fall to 192k
220k detached needs to fall to approx 150k
160k semi needs to fall to 105K
120k terraced house to fall to 80k
All this 'supply and demand' stuff is a bit pointless when it comes to houses. The supply is pretty much fixed in any given area (or increases by a very small %), and demand, as measured by 'who wants a house' is greater than the population (most people would have more than 1 house if they could). What matters is 'effective demand' ie who wants a house, and can actually pay for it. I think we can all agree that credit for housing will be less available, and possibly at greater cost, and at a smaller % of the property value, than before the HPC. Ergo effective demand will be significantly reduced, supply will increase gently as more houses are built. Result - lower house prices. Probably falling back to the long term average of 3-4 times average incomes. Possibly undershooting at the depth of the recession. There will be no sudden resumption of house price inflation, for many years to come.
S, exactly. The fact that supply is price inelastic is the argument against subsidies for property or land ownership; and an argument for taxing land values, which has the bonus of keeping land values (and hence house prices) low and stable (at 3 to 4 times incomes, let's say).
The depth of the drop from 1948-60 looks like this is vecause of the genuinely useful mass housebuilding programme of the period. The other 2 look look purely speculative.
It is not the case that housing supply is limited by supply of land for 3 related reasons (1) even in cities we tend not to use land particularly efficiently, (2) it is possible to build upwards indeed the technology to do so far exceeds what any European country is allowing, (3) our transport infrastructure has improved so much that it is now common to live 10s of miles from where you work rather than a few hundred yards.
Taking those together, particularly the last 2 it is clear that the capacity to build exceeds, by several orders of magnitude what we are allowed to build. In theory there is no technological reason why house prices should rise faster than inflation, which would mean down to about 1/3rd, in terms of income over 50 years. Though there is a slight underlying downward trend it is not remotely that good & that i8s purely because of regulatiions.
NC, I think the 1948 blip is due to genuine shortage after WW2 (or indeed lower wages?), thereafter prices reverted to the same low level as in the 1920s and 1930s.
As to your 3 reasons - exactly!
What we need is a two-pronged approach - liberalise planning laws and replace a shed load of other taxes with Land Value Tax. But don't forget that housebuilding is very labour intensive and standards increase over time, so the best we can hope for is that house prices remain flat relative to incomes.
Mark, "... standards increase over time..." - you're not referring to new builds!
Ross, sure some recent new builds have been truly awful. But that is because land is so expensive, they have to skimp on the house.
Hmm, not convinced by that - 30% profit on new build flats iirc.
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