Thursday, 30 October 2008

I was wrong


Last October, I predicted that UK house prices would fall 9 percent in the coming year. According to the Nationwide, house prices fell by 14.6 percent. The housing crash has surpassed even my dismal predictions.

Average house prices are down ₤30,000 relative to the peak back in October 2007. However, the Nationwide wanted to put this number "into perspective". They boasted that prices were still ₤30,000 higher than five years ago. Well, if the present rate of decline is sustained over the next 12 months, prices should easily wipe out that five year gain.

Just for the record, house prices have fallen back to their February 2006 level. All those bubble profits are evaporating; so many broken dreams, so many crushed illusions.

18 comments:

rab said...

Alice - you were wrong in a good way

Panos Konstantinidis said...

Who remembers the Guiness tv add, that was ending in "Good things come to those wait". Exactly this. Time is at our side now.

Anonymous said...

I have £40,000 and still can't find a flat I can afford where I live in London (statistically the poorest place in Europe to boot!). No, the prices have a long way to go down yet.

fajensen said...

@Anonymous: Move to Sweden!! You can buy a nice property for your cash and live off welfare.

electro-kevin said...

35% by the end of next year.

Caronte said...

You were not wrong, Alice, you were absolutely right, simply not right enough...

Alice Cook said...

Caronte, So I wasn't right enough! Alice

Barry said...

Alice, I cannot but help feel you are enjoying writing this blog. The more gloomy the headline the more you lyricise. Still, why not, there must still be fun to be had.

Mark Wadsworth said...

There's plenty more fun to be had!

* According to today's Nationwide, house prices are down 11% in six months.

* According to Nationwide's inflation adjusted index, we're back to mid 2003 already. So one year's falls have wiped out the previous four year's gains.

* At this rate we'll be back to mid-1990s levels in two years' time, when houses were, to be honest, dirt cheap.

Alice Cook said...

Barry,

Of course I enjoy writing the blog. However, I am not particularly motivated by the miserable headlines. I just find the housing bubble a disgusting con, and I wish this country wasn't so easily taken in by property.

Alice

Anonymous said...

This will be the last really large increase in the annual rate of fall in the Nationwide index. The annual fall in September was 12.4%. This has now risen to 14.6%. The main reason for this jump is that last October's rise of 1.2% has now been replaced by this October's fall of 1.4%. It's hard to believe prices were still rising 12 months ago, and, indeed, this is the last positive figure to drop out of the index.

Over the next few months we'll be seeing small falls from late 2007 (in the range -0.7% to -1.2%) being replaced by larger falls of, say, -1.4%, so the effect will be less dramatic. It will probably mean an overall nominal fall of around 16 or 17% for 2008.

Of course this is before the effects of the credit crunch really start to ratchet up the unemployment figures. We can probably look forward to similar falls next year, giving Alice ample opportunity to express her glee. Bear in mid that two year's falls of 17% will not make a total of 34%, so electro-kevin is perhaps being a bit optimistic (or should that be pessimistic) to see a 35% fall by the end of next year.

For 2010 it's anybody's guess what will happen, as it will depend on how low interest rates can be cut (giving Alice more opportunity to express her indignation). The one prediction I will make is that prices won't rise. At best they'll stabilise, at worst we'll have falls of 5-10%.

Young Mark

Barry said...

Alice,
This country has a long history of denying the obvious. For example, we chose to deny the realities of what it takes to run an efficient business or public entity. Compounding that folly by failing to hold those responsible for making a mess of things to account. Little wonder then that we get such poor governments.
As always, thank you for your most informative blog.

gw said...

Alice,

please provide some more historical perspective in your graphs e.g. one going back to 96 and one going back to 80. Check out the "calculated risk" blog (http://calculatedrisk.blogspot.com/) for illustration of the importance of a longer term historical perspective.

And if you want to know where the prices are heading then take 1996/7 and add inflation. And this assumes no overshooting downwards. It is going to get very ugly.

dearieme said...

"According to Nationwide's inflation adjusted index, we're back to mid 2003 already." Good: that's the measure I like to bear in mind.
By the by, Mark, I've had to stop visiting your blog because it kept fouling up my browser. (As Alice's used to, but no longer does.)

Nick von Mises said...

These falls are at the beginning of the recession. As noted above, add in unemployment, negative public sentiment, repossession auctions, completion of still under-construction projects, reverse immigration, continued bank contraction, and rising saving rates.

It all looks like 50% peack to trough over several years.

Unless Gordon saves us all again.

Alice Cook said...

GW,

There are quite a few previous posts where I have extensively looked at past trends, going right the way back to the 1950s. I even did a youtube video called a "a short history of UK house prices". On a monthly basis, I prefer to focus on short term trends in order to highlight the impact on recent home buyers.

Thanks for the comment.

Alice

Mark Wadsworth said...

D, you are sorely missed. Does my 'blog foul up anybody else? I haven't changed anything recently.

Colin Brazendale said...

It is really amazing how prizes have come down. In the boom times I never would have thought prices coming down this much. What a reality check for me, but I am learning and will make sure I am better prepared next time.