Thursday, 3 June 2021

"House prices will boom before crashing in 2026"

Spotted by TBH in The Daily Mail (of all places):

Anybody predicting the average house price would rise 10 per cent during the lockdowns would probably have been laughed out of the room as the pandemic hit... If the Bank of England and the property industry itself isn't capable of predicting the future of house prices, who then would be bold enough to do so?

Well, one man is happy to give it a try - and what's more, time and time again he has got it right.

Fred Harrison, a British author and economic commentator, successfully predicted the previous two property crashes years before they occurred - and his 18-year property cycle theory says that house prices should continue to boom before crashing in 2026...

He is able to make these predictions having identified an 18-year cycle that he has mapped out from hundreds of years' worth of data.

As much as I love Fred, that's not quite true. The oldest article I found about the 18-year boom bust cycle was circa 1905, which covered US recessions going back to before it was even the US. But he certainly rediscovered this phenomenom.

What would stop a crash from happening in 2026?

In short, Harrison believes nothing will stop the crash from happening unless dramatic government action is taken to prevent it.

'Nothing can stop the crash of 2026, other than if prices were limited to long-run affordable levels, but governments refuse to contemplate that prospect,' he says, 'If people are happy with the booms and busts, there doesn't need to be a solution.'

The best 'solution' according to Fred and many others being to tax land values a lot more and labour and enterprise a lot less, of course, but it's The Mail and they didn't report that.


Piotr Wasik said...

pity corona did not crash the prices. it is said to be the deepest recession on record in the UK.

Bayard said...

Hurrah, that will knacker the Tory government that gets in in 2024.

Mark Wadsworth said...

PW, it is a pity, but as Fred says, 2026 is the next big one.

B, indeed, that's a bonus. Unless they throw it deliberately, like in 2005 (to avoid the 2008 crash)?

Bayard said...

Mark, do you think they are that clued up? It would be amusing if they tried to throw it and ended up with a wafer-thin majority.

Lola said...

B. No. The vast majority of 'Tories' are clueless about any form of economics - even (or especially) those with an econ degree. My MP is one such. Remember, Toryism IS rent seeking.

Mark Wadsworth said...

B, yes, I do think they are that clued up.

But a wafer thin majority during the next crisis would add the overall hilarity. They'll be relying on the DUP again...

L, Toryism is rent seeking. Agreed.

Lola said...

MW. If the Tories are that clued up is must be some form of low cunning then. An narrow ability to dodge the responsibility of their own failures. That all gets a bit problematic with Blair and Co's tenure. But OTOH Blair Brown Balls bought into the Tory's 'house prices always going up is A Good Thing' meme and then made it double bad with an overlay of Marxism.

Mark Wadsworth said...

L, Blair-Brown messed up by believing their own propaganda, that house price rises are A Good Thing.

I hate to think that the country is run by idiots who don't accept that there is an 18-year house price/credit boom-bust cycle. Even if you refuse to accept that it is that regular (which always surprises me), surely any half-way intelligent person accepts that there is some sort of recurring pattern.

Piotr Wasik said...

I have a problem with accepting the 18 year regularity (I did not look at the data, just my ad-hoc suspicion in the NN Taleb's spirit), so leaving that for a moment - it is still obvious that there are long periods of house prices going up, and shorter periods of falls, looking at say moving average with window length = 1 year. What makes me wonder is why they fall in the first place, if government wants them to grow. I am thinking if with the current level of salaries an average London flat was 10 million GBP, it could still be sustainable with government support for mortgage insurance and some sort of monthly payment deferring - an owner would just pay off the mortgage selling the flat after 40 years. On a slightest hint of prices fall, the government could lend money themselves rather than twisting commercial banks' arms. Maybe the house prices are going up indefinitely if you don't look at 1 year moving average, but for example 9y moving average, and we will have 10 million flats with the current salaries?

Mark Wadsworth said...

PW, I also have a problem accepting that it is that regular, but history shows us that it is, it's been like this for centuries.

Even governments can't keep house prices going up continually for ever, there have to be bumps in the road.

Clearly, if you take an 18 year moving average, you will get fairly straight line growth (except 1997 to 2008, which were unusual, but that's for other reasons).

Lola said...

MW / PW I think the 18 year cycle is a bit more recent than centuries. It fundamentally relies on credit expansion possibilities of FRB and an out of control central bank. That only really gets going post WW2. There was an inter-war boom - probably from the same cause -ish, as we'd been off the gold standard since about 1916 (a gold standard tends to control arbitrary money expansion - to a degree). That's a bit of a conjecture. I haven't done the looking for evidence bit in any real detail.

Piotr Wasik said...

MW - "if you take an 18 year moving average, you will get fairly straight line growth" - I did not check, but I expect there was a growth in real terms (i.e. above salaries growth) since since 1970s, when as you call it georgism-lite was dismantled. Was it always growing faster than salaries? I would assume that 1945 - 1970 was a period of real prices (i.e. prices relative to salaries) falling because of georgism-lite introduction.

MW - "Even governments can't keep house prices going up continually for ever"
L - "It fundamentally relies on credit expansion possibilities of FRB and an out of control central bank." - for the credit expansion possibilities, are there any limits? In 2008, if the government was lending money directly to homebuyers, wouldn't it be possible to keep massively negative rates on mortgages secured on houses (land) only, and keep the rest of interest rates and inflation in goods and services in check?

I can imagine in the longer term land price inflation would trigger what people call "real inflation" anyway because retiring downsizers gain real purchasing power, and the newcomers to the market that pay for that are not losing any purchasing power (if there is no deposit requirement), they just take the mortgage. So downsizer's gain is not balanced out by anybody's purchasing power loss => inflation in goods and services I think. The purchasing power loss by buyers was taking place in the period when mortgage maturities were growing, you say it was possible to pay off a mortgage in 15 years; now it is 35 years or so. But when the 35 years limit is hit and all price growth is due to rates that are already negative and going down, I don't think taking out bigger mortgage to fund retiree's windfall reduces house buyer's purchasing power.

However, it can't be a type limit that stopped credit expansion in 2008. There was a brief spike in general inflation and interest rates, but no systemic inflation caused by downsizing retirees. I remember it was more about sub prime mortgages, but then if government took over these mortgages like above, wouldn't it make the bubble go much further?

Bayard said...

"Even governments can't keep house prices going up continually for ever, there have to be bumps in the road."

No there don't, if house prices just increased with average wages, then they could rise forever, as inflation ate away at the value of the currency. In real terms they wouldn't be rising, but noone takes any notice of real terms, they just want to feel that they can sell their house for a larger number of pounds than they bought it for.

Mark Wadsworth said...

L, the cycle is at least 2 centuries old (in the US at least). All banking is FRB, always has been.

PW, From 1945 until the bitter end of Georgism Lite (1990s), house prices went up in line with wages. Sure, it wasn't a smooth straight line and there were mini boom-busts in 1950s, early 1970s and early 1990s, but they were nothing compared to 2008.

B, agreed. Everybody would be happier with modest annual growth of 2% or 3% a year forever, nobody needs 10% house price inflation in 1 year, that's madness.