Tuesday, 11 November 2008

DIY house price projections

One of the blog's regular readers - Brian from Canterbury - printed out one of my charts to do his own long term house projection. Taking the bottom of the last housing crash as his cue, he predicts that house prices could fall 60 percent in real terms by 2015.

When I put this chart together, I predicted that prices would fall by 25 percent in real terms by 2012. That forecast looks way off the mark. House prices are down around 21 percent in real terms since the peak last autumn. In the long run, Brian might be closer to the mark than my woeful forecast.

If anyone else fancies a go at putting together their own forecast, please send it me. So long as you have a good reason behind your forecast, I would be happy to post it. The email address is ukhousebubble@aol.com.

24 comments:

Colin Brazendale said...

I don't understand why the house prices must go the previous lows. The previous lows are not the trend to me. The trend is the line going through the middle on your chart. Please help if I am missing something.

alice cook said...

Colin,

The trend line was my original forecast. I used it to project a fall of about 25 percent in real terms.

Brian's point (one that I recall he made at the time), is that prices overshoot on a downswing.

Anyway, Brian produced his projection which suggests a fall of 60 percent.

That is the beauty about forecasting. Anything could happen. You might be right (previous lows are not a trend). I might yet be right (a 25 percent fall by 2012).

Why don't you give it a shot. Where do you think prices will be?

Thanks for the comment.

Alice

electro-kevin said...

The scale is too short.

It starts in 1952. OK - I'll accept that we could project back to the 1920s.

People are basing their arguments around the housing market over a cycle of a mere 70 years of human history.

There is no stated precedent which determines that the underlying curve should go upwards ad infinitum. The whole presumption that British real estate will increase in value is false and based on assumptions which are founded in arrogance and racism.

What's so special about the British that their houses should continue to be so desirable ?

Markbaldy said...

I think that the prices will be determined by affordablity and not by what magical mortgage products the banks conjure up... as they did till last year.
Couple that with rising fuel bills, taxes to pay for government overspending, rising inflation (due to a weak £ - thanks to Gordon/BOE), massive unemployment, and a shift from seeing a house as an ATM... and I think prices will go back to 2001 levels (compared to earnings) - maybe lower?
But, you have to ask yourself WHAT will bring the UK out of recession ?
I mean we have no manufacturing, confidence in banking is frayed - so how will this recovery come about ?... borrowing money is a quick fix - not sustainable and has to be repaid WITH INTEREST.
Sometimes I think Gordon Brown needs basic lessons in maths... perhaps I'll send him a calculator for Christmas... and yes I'd better make sure the instructions are with it so he knows how to switch it on !

Colin Brazendale said...

Good one Markbaldy. :) I think the recession will hit a bottom just like the boom hit a peak. And trade will go on and things will become scarce again and prices will go up. I am positive about the future! The housing market is like a big ship at sea. It takes time to turn.

London estate agent said...

That fall looks a little steep to me.

I predict that property prices will stabilise by the middle of next year, with some increases towards xmas 2009 and a solid 5-7 percent growth in 2010. The gains will be a little stronger in London.

John Pickworth said...

Fag packet stuff...

I predict a 45% fall from peak (low point December 2009) and then stabilising around the 40% until late in 2010. Prices will creep up a little through 2011 before seeing a London led mini-boom driven by the forthcoming 2012 Olympics.

Then the tax bills arrive for all that borrowed Brown bucks.

Smart money currently going into buying the Presidency of a small cocaine producing republic ;-)

Anonymous said...

E-K: ".. and racism"

Yea, those damn racists.

"What's so special about the British that their houses should continue to be so desirable"

For the last century, increasing population with a Fixed geographical area.

pierre said...

London estate agent: way too optimistic but I am getting used to estate agents' comments about the property market...
Before sharing with us your enlighted prediction of increase for 2009, could you please let us know if you had actually (correctly) predicted the current crash and advised your first time buyer clients to wait xmas 2009 for the market to bottom... How many FTB have you successfully convinced to postpone their purchase?

Mitch said...

Ok my turn....house prices continue to fall until the general economy picks up and people really feel it;not just government "green shoots" rubbish.This could take at a min 4 years.
People have been truly frightened by the speed of this crash.

QG said...

I think the fall is a bit too steep and the timing is a year late. Have a look at graphs on the top of page 3 at: http://www.nationwide.co.uk/HPI/historical/Oct_2008.pdf

Right hand graph:
Judging by the last two dips, the worst of the damage was over in about 3-4 years after peak so extrapolating past 2007 leads me to say the worst will be past this time in between 2010 to 2011.

Left hand graph:
Very useful for people savings up a deposit. Currently, house prices are falling in nominal terms i.e. even without compensating for inflation. When future editions of the Nationwide report show the left hand graph take off again then that is a warning to savers - your savings may be eroding in value faster than inflation.

Don't bother trying to work out precisely where the bottom is - you'll only know for sure when it's past.

@london estate agent

2009? Your pulling our leg right?

Nick von Mises said...

That trend line steepens far too much from 1990. What's it based on?

Long term, housing trends with incomes (which haven't grown in real terms since early 1970s) less maintenance. The trend line ought to be more or less flat from the mid 1970s in real terms comparing like for like. Hard to do, of course, because new builds can't be properly compared and the UK doesn't have a Case-Schiller style existing homes index that I'm aware of.

Oh well, this is far from my area of expertise. It's enough to know peak-to-trough 50% real decline is the middle of the range of likely drops.

Anonymous said...

I am from Hong Kong. We experienced serious deflation during 1997-2003.

How much the house price will be dropped in UK and US? I think our experience may give some cues.

The average house/apartment price index (6th July, 1997 as 100) dropped to 31.77 on 24th August, 2003.

Since then, the index was never higher 75 (73.98 on 2nd March, 2008)

If same happened to UK/US, houses prices will drop at least 60% from peak to tough.


mL


data can be found from:
http://www.centanet.com/icms/ICMServlet/download/174-1451-12998/CCI&L.xls

John Pickworth said...

Good heavens mL, that's really scary.

The problem in the west is we're used to seeing cyclical peaks and troughs. Slumps are new in recent times and nobody really knows what its going to look like... or indeed if we'll even have a slump. Personally, I think we will. The current economic climate just feels all wrong this time around and especially so in the UK.

Anonymous said...

Before the Asian crisis, we never expect properties CAN fall. We only knew it would go up and up.

Also look at Japan. Japanese and HK people are the very people on earth experienced deflation and can tell you how painful it is.

Mind you, we Fareast people used to save money. When we have economic downturn, we still have some cushions.

One more thing I would like to mention is: Depression was common, and suicide rate surged sharply. Middle class were largely wiped off. Roubini joked that we should buy stocks from company which manufacture anti-depression drugs. After all Roubini did not experience deflation himself. I see worse because people either denied they have depression or they can't afford to buy medicines. Neither can chemists escape from deflation.

Cross my fingers, hope this will never happen in UK.

mL

Anonymous said...

London Estate Agent is continuing the tradition with the "Free Beer Tomorrow"predictions of previous slumps.
The son of a friend of mine is a partner in a big name national firm of top end estate agents.I believe they have a rotation of who calls bottom to save embarassment but anyway his prediction in Feb 2008 for this year was 3% growth in prices.
Their problem lies in the fact that the written word fails to project the authority of received pronounciation which,from an early age,is drummed into such folk so that their rantings are believed by lesser people such as us.

HousingFinland said...

Could you produce the same type of chart, inflation adjusted?

I did the same exercise...you can see it in the site: http://housingfinland.blogspot.com/

which show, price but adjusted to inflation...

HousingFinland

Anonymous said...

Just watch.

Stay out of the market.

Don't get caught in the Spring bull trap.

B. in C.

Mark Wadsworth said...

All this adjusting for inflation is pointless. Long run, prices have to be plotted against earnings growth - that's why the Nationwide chart shows the 2.8% rising long term trend - that's the excess of earnings growth over inflation.

So all you need for a comparative is absolute house prices at bottom of last trough in 1995 and a handy indexation calculator that indexes things up for earnings growth.

Ah ... £60,000 (avg price 1995) in 1995 = £98,000 in 2007, or about half what avg prices actually were.

Nick von Mises said...

Mark,

As usual I enjoy your bare bones approach to back-of-the-beermat calculations.

electro-kevin said...

"For the last century, increasing population with a Fixed geographical area."

Yeah. And everyone demanding their own bedroom and a shower every day.

That's not how it is in the big bad world.

Why should it be any different in Britain ?

Racism.

electro-kevin said...

We demand our standard of living for no other reason than we're British.

Smell the coffee.

Anonymous said...

Nick,

What's yours?

I drink Fourier.

B. in C.

Anonymous said...

All th bubbles looke largely symmetrical on the graph, like it's a pattern. Bad stuff. :( Sheni.