We could debate exactly when the onset of the 'Global Financial Crisis' actually was, but let's just all agree it started in 2007, making this year the 10th anniversary. So have we had a 'lost decade'? Exhibit A is a 10 year chart, but who can guess what the Y axis represents?
Chart 1:
EDIT: Here's some more charts. What are they?
Chart 2:
Chart 3:
Chart 4:
Chart 5:
1) US Dollars
2) Euros
3) Swiss Francs
4) Japanese Yen
5) Pounds Sterling
According to Nationwide, UK house prices appear to have fallen when measured in every major currency except the pound. These charts do not take into account rental income (or imputed rental income for owner occupiers) but nor do they take into account any return on the foreign currencies. The US stock market is (for example) 55% higher than it's 2007 peak in USD terms and 150% up in sterling terms. Safe as houses? It's safe to say UK housing has been a lacklustre investment for the last decade.
23 comments:
Are the numbers displayed actual figures of whatever is on the graph?
Yes, the numbers are the actual monthly numbers for things, downloaded from reliable data sources.
Although they might be abbreviated (i.e. 900 might mean 900,000 or 900,000,000).
I think house sale volumes are connected
House sales are indeed connected, you are getting warm.
#1 - London house prices
The others - regional house prices
Nope. They are all house price indices. And I could do them again for London or other regions, which would be a very interesting exercise, but that's not what they are now.
Which indices, do you nationwide vs Halifax etc?
They are all Nationwide indices, just expressed differently.
Real terms, inflation adjusted, relative to earnings?
Nope.
Nationwide house prices in:
1) USD
2) EUR
3) CHF
4) JPY
5) GBP
Have edited the post with the answers etc.
Looking at regional inequities (and detached houses, flats etc) is a great idea and nationwide do have the data!
SL, my follow up question is, did you notice that
a) GBP and house prices move in the same direction, thus exaggerating falls and increases or
b) GBP and house prices move in opposite directions, thus cancelling each other out expressed in foreign currency terms?
I think when hot money is flowing into the UK (or maybe just London) land prices and sterling tend to rise in tandem (e.g. 2001 - 2007 and 2009 - 2014). Likewise, both can fall in tandem when hot money flows out.
But since the last bubble burst, a 25%+ fall in sterling has helped to mask what is really going on. It never ceases to amaze me how many otherwise financially astute people (i.e. the younger 2 of the 4 over at C@W) claim the exchange rate is meaningless. Then I remind themselves they both went into the GFC with a big mortgage, so of course they speak in support of this policy, it saved them from the fire.
Had we been like Ireland, or Spain or Greece, and had their mortgage in a foreign currency, they may well have suffered.
But I reckon anyone who owned a decent house outright in 2007 is still down on not selling, hedging into foreign get bonds and renting for the last decade.
SL, I have seen a forecast that land prices will continue to rise for the next eight years in accordance with the 18-year cycle, but the the money to finance this rise will be more "hot money" from abroad, generated by a collapsing pound.
However, I am not sure how this squares with an increase in interest rates, unless these manage to stay at virtually zero for that eight years. I suppose you could postulate that an interest rate rise in the near future could cause a crash that fits in as a severe "mid-term wobble" after which the "hot money" would push prices back up to the cyclic peak.
SL, "GFC"?
Can you build the same chart for House Prices v Gold? (I bet it'll be 'even worse').
the the money to finance this rise will be more "hot money" from abroad, generated by a collapsing pound
I'd have thought foreign investors would only pile in expecting an appreciating pound. I would expect at the top of this cycle the pound will be significantly higher than it is now. I'm mainly in UK equities that have mainly UK earning atm. The plan will be to change into fx near the top of the cycle.
The money to 'finance' a boom will come from the usual place - the banks and shadow banks. The government will probably come up with ever more imaginative ways to 'help' people borrow more too.
I am not sure how this squares with an increase in interest rates, unless these manage to stay at virtually zero for that eight years.
Even if bank rate quadruples before the end of the cycle, it will be 1%. There's already been talk of a cut to 0.1% (perhaps if they invoke article 50?). If that happens they will only ever rise in increments of 0.1% The more we borrow, the more historically low interest rates become the norm. I do not expect to see bank rate over 1.5% in the next decade.
But why would interest rates rise? Because the US starts doing it so we follow? Perhaps. Of course the other possibility is that the pound becomes a carry currency and rates stay pinned. If investors expect the £ to weaken then they borrow £ to buy foreign assets. UK house prices rise in £ terms and the UK has more of an 'internal' house price bubble. This is a possibility.
But if the UK starts following the US 'up' a little bit while the EZ stays at 0% (I think this is likely), then hot money will flow into the UK and into land.
I probably could, but I'd be reinventing the wheel. I did a google search and there seems to be a few out there already. And you're right, they do look a lot worse.
What I'd really like to see is a long term UK house prices including rental income v S&P500.
Steven_L. Indeed. Basically all currencies are crap (currently).
"I'd have thought foreign investors would only pile in expecting an appreciating pound."
Perhaps I was wrong to use the term "hot money". The forecast I saw was talking in terms of foreigners looking for a safe haven, so as long as UK land didn't reduce in value against whatever the foreigners' home currency is, then it would be an attractive investment.
"The money to 'finance' a boom will come from the usual place - the banks and shadow banks."
Prices have got where they are on the back of falling interest rates. They can only rise more, regardless of how much the banks try to lend, if incomes rise, which seems unlikely. Yes the govt can fiddle with subsidies, but they aren't going to have the same effect as a 5% cut in rates. However, if money pours in from abroad, that is the same as UK citizens earning more.
They can only rise more, regardless of how much the banks try to lend, if incomes rise, which seems unlikely.
Or with greater density (more people paying rent per acre). In London and Brighton low paid workers in dorm rooms (hostels) and sharing 3 to a studio is quite normal.
Or the share of GDP going to rent could increase. I think this has been happening to some extent as basics like clothing and entertainment get cheaper. I don't subscribe to the view that it is 100% impossible for landlords - especially acting in concert and perhaps even in concert with government - to ratchet up rents. I don't think all landlords do extract 100% of what they could extract for a start, some are very unprofessional. Also if landlords all adopt the 'pass this onto the tenant' mentality it might have an effect.
I think rent control is a policy whose time is coming.
"I think rent control is a policy whose time is coming."
If it's anything like what we had last time it will be a disaster.
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