Saturday, 16 August 2008
A short history of UK house prices
I spent the morning experimenting with Picassa and put together this rough slide show that looks at the history of UK house prices. Just click on the right side arrow key to move the pictures along.
It was a first attempt, so bear that in mind when you look at it. Any constructive comments will be most welcome.
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19 comments:
Alice,
Thanks, this warms my heart! Brilliant! I saw a real house prices graph in the late 80's produced by Scrimgeour Vickers in a Guardian article called "Home is Where Your Timing Counts a Lot, and followed it religiously, buying in '93 in the South-East. Boy am I glad I took the advice you are offering in this mini-movie!
I believe the lines of the peaks and the troughs are worth analysing (please, if there is a mathematician who can do Fourier analysis and predict these!.
It seems to me they are rather like what one would see if one waggles a mildly upward-curving thin ruler (the trend) in the air; on the up-stroke, a steeper curve appears (the line of the peaks), but on the downstroke one can even see a downward curve, as the dynamics of the system overcome the gentle upward curve of the ruler.
Since this time the real upward swing is I think greater than at any other time, I think the present credit evaporation and contraction in the economy (the reaction to the excessive upward movement, the vacuum caused by excess) is likely to lead to a more pronounced downward overshoot that before.
When I try to sketch this out, the shapes look right when one draws a drop of nearly 60% in real prices by c. 2015.
Having watched the market closely last time on this, I am very confident your advice is right - and that a danger is that after the correction has started, many will be so amazed early in 2009 at getting 20-25% off the peak month price in 2007 that they will still over-extend themselves in borrowing (a 'bull trap').
In my view first-time buyers should wait for nearer the real bottom in a few years time, unless the rent is just too painful to bear!!
Blessings,
B. in C.
Constructive comment... I consider myself a speed-reader and I found that very, very fast.
Asteve, I know. There doesn't appear to be a way of slowing it down.
The only thing I can suggest is that you press the stop button and work through it manually.
Excellent. Crisp. Adapt for, put onto, YouTube?
More good news:
Repossession orders up by a quarter
* Friday August 15 2008 10:06 BST
http://www.guardian.co.uk/money/2008/aug/15/repossessions.property
Rambo
Alice, it makes more sense to use a house-price-to-earnings ratio rather than just inflation adjusted, which would flatten the graph slightly. The longest chart I have found (from 1945 onwards) shows that prices on that basis were lower in the mid-1990s than at any time since 1945.
I stuck it on my blog here.
There will be a period of denial where sellers will not accept that their house is worth less than a year ago and buyers won't pay for something they think will go down in value - so stalemate.
Then as BTL landlords are forced to sell (because the rents are not paying the mortgage) and the number of repos increase putting
more empty properties on the market... the flood gates will then open and prices will plummet.
I don't mean half a percent here and half a percent there - I mean huge changes - perhaps houses will be worth half their current price ?
Even then the average house will still be out of reach for a lot of key workers - especially those without a good deposit.
HI
Did u notice that in three of the cases, falls in house prices resulted in the government of the day being replaced - no wonder Gordon Brown is trying to reinflate the housing market
My wife and I bought our first flats in '72 and '74 - not the absolute worst time to buy, but not too clever either. The later drop in price, though, was partly disguised by the Heath/Wilson inflation. I wonder if the present government will decide that a bit of inflation may take the sting from a drop in real house prices?
Interesting slideshow.
Howevr I still think this one
http://www.youtube.com/watch?v=bl3Z6MXYe_4
is more entertaining especially as the creator managed to predict the future two years ago.
:- Duncan
Duncan, that's just Fred Harrison's 18 year cycles (1971, 1989, 2007), which Fred has been writing and lecturing about since the mid-1980s (thus predicting the last two booms/busts more or less to the month).
The reasons we didn't have these booms/busts in the 1950s and 1960s were:
1. Massive house building programme (OK, they were council houses, I'd prefer to see more private building, but the effect is much the same). But you can't do that now because of the NIMBYs.
2. Sensible lending (3 times mortgage, minimum capital ratios etc), which Thatcher chipped away at (possibly rightly) and where Nulab completely wilfully turned a blind eye, and...
3. We had Schedule A taxation and Domestic Rates, which add up to something like a Progressive Property Tax - not as clever or as cool as Land Value Tax, but achieves a similar effect. (but you can't do that now because of this false belief that LVT does not relate to ability to pay. Of course it f***ing well does).
It's simple, all very simple, it's basic economics.
Dear Alice,
Thank you for your most helpful graph, which is most informative.
I am an amateur technical analyst, and find that this much derided occupation is actually remarkably reliable, especially over long time frames, as most hedge funds would agree!
The prices in all previous bubbles have actually reverted to a trend line connecting all the previous lows. This is rather lower than the mean.
On this basis, prices are set for an approximately 55% decline!
This figure applies whether real or national prices are used, and also works on house PE graphs, and also multiple of earnings graphs.
The implications are of course staggering!
Best wishes,
Richard
Hello Mark
Thanks for the comments. I'm aware of the eighteen year cycle.
An important point which you missed is that when you had high inflation (as in the 1970s) there was almost no chance of anyone ending up in negative equity, whic as we know from the 1990s can cause big problems.
Very VERY good, Alice. Could be slightly slower, though there doesn't seem to be a lot you can do about that.
It's a mistake to look at this housing boom as though it was win-win for everyone involved. Many have been stranded in rip-off tenancy arrangements. The huge profits made from trading must have meant that suckers were being profited from. Was I one of the suckers?
At its peak I relocated in the West and bought an overpriced house having sold what I thought was an equally overpriced house in London - I was happy to trade like-for-like. London went on to have its own mini-boom afterwards when City bonuses went haywire and the lenders started doing crazy things with mortgages which I could not have forseen - contrary to what people say this did not translate into an across the board rise in national house prices to the same degree. I'm 150k short on the deal which might drive some people mad but hey ! I'm relaxed about it all. My house is not a 'property' nor does it come 'wiv loads of potenshall' - it's simply my HOME. The local town is my community not to be speculated away or prospected on.
The damage this 'boom' has done to community spirit in Britain is immense - I speak first hand of the lovely community which dissolved before my eyes in Bushey, North London as houses became, primarily, tradable commodities.
A huge con trick.
Richard:
I'm with you and used that trend line to predict when to buy in the early 90's. Then it just looked like a straight line which fed perfectly (I mean perfectly) into the trend through the 60's
The dip actually went below that straight line by the end of the trough 95/96, for the first time.
Which mean that there are two ways to conceptualise this - either as an oscillation around a mean, which as you perhaps imply doesn't seem to get to the heart of matter.
Or one can simply think of the line of the troughs as the 'sustainable' level, and everything above it as boom and bust. On that basis, the 60's trend works in very well to the subsequent troughs, though it now looks like a dipping curve rather than a straight line.
All power to long-term thinking and amateur analysis, I say.
The clever chartists in the city are looking for much quicker gains, but it's the long graph, as you say, which shows more.
I think as the UK economy weakened towards the end of the 60's, the Barber-Heath dash for growth set up this new repeating pattern of boom-bust.
* * *
A philosophical point is - did the unions really cause the problems in the mid-late 70's, or were they justifiably reacting to the inflationary effects of the Heath-Barber deregulation?
Still, I expect reigning orthodoxy means we are not allowed even to ask that question... maybe there is truth on both sides.
B. in C.
Kirsty Allsop & the media bear a lot of responsibility.
Great blog, Alice.
Kirsty Allsop needs a damn good spanking (and so does Sarah Beenie) and I am the man to do it. But on a more serious note, around my trendy, affluent (effluent?) North London 'hood, the estate agents now have 'Reduced to Clear' signs over the houses. I have never seen that one in my lifetime. How long until we see '2 for 1' specials, and 'buy one in Finsbury Park, get two in Hull for free' specials?
How on earth did you create this slideshow with Picasa? I have been fiddling with it all day to try and do the same thing, and am close to admitting defeat.
1971 was when the dollar was cut from the gold standard. Coincedence?
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