Friday, 14 January 2011

the daunting dynamics of Staffordshire house prices

I find these regional house price charts quite daunting. Fundamentally, they all look the same. The challenge is to say something different about each one.

The data for these charts comes from acadametrics. The first datapoint is in 2000. Between that starting point and 2007, prices double. Thereafter, they fall back and begin to recover in 2010.  Nevertheless, the final datapoint looks horribly inflated compared to the first datapoint.  The chart screams out a single word - BUBBLE!

With each chart I am troubled by the same question. Why would an otherwise unremarkable region of England suddenly see the value of property double in seven years? I have my answers; excessive credit, bad lending practices, unscrupulous real estate agents, Krusty Allsopp, and property-ramping journalists. However, these answers seem so inadequate when confronted with the shocking price dynamics of a place like Staffordshire.

I have been to the West Midlands. The region is dominated by small terraced housing, built for factory workers in the late Victorian or early Edwardian periods. Most of them were built without inside bathrooms.

These houses are pokey, difficult to heat, and with tiny rooms. The walls are thin, the gardens are small, and the kitchens are impossible. People do amazing things with them to make them attractive places to live in, but lets be honest, these houses are horrible. And don't misunderstand me; the houses in London are just as bad. Why on earth would anyone pay £200,000 for one?

To this latter question I have no answer. I just don't get it. I will never understand it.


Anonymous said...

Funny, I thought you had never been further north than the Watford Gap.


WF said...

Little boxes in neat little rows.

Anonymous said...

Nice part of the country.

Anonymous said...

When deflated by the RPI, the lower final point gives a better indication of value - I would guess in this case about 20%?

What is keeping prices up, in my view, are the artificially low interest rates. One of the desired effects of low interest rates, on the part of the Bank of England and the government, is to make people feel wealthier than they ought to feel and thereby to maintain consumption. Eventually either interest rates will have to rise and house prices revert to genuinely sustainable levels, or homoe-owners will just take a further massive hit by way of unchecked inflation. Either way, real lower values will assert themselves and home-owners will feel less well off than at present.

B. in C.

james c said...

House prices doubling over 10 years equates to 7% compound p.a. That is maybe 2% above the rate of nominal earnings growth.

So house prices might have grown by 2% above earnings for 10 years-hardly a big deal.

Anonymous said...

James c you are obviously a financial illiterate. I bet you aren't rich. Two percent real growth over ten years by the miracle of compounding is a big deal.

Jens said...

James, if what you said was true then we wouldn't have had a banking crisis. Obviously, something big happened, and a doubling of house prices in Staffordshire might have something to do it.

It is one thing for a fancy house in London to increase in value far faster than incomes. That could be explained by growing income inequality, or an influx of rich Russians. But Staffordshire? Give me a break.

M said...

Crap housing - that is England.

james c said...

Strange comments-all the data shows is that the price of a house has grown by c 20% more than earnings.

This does not, in itself, seem like a big deal and much less dramatic than the 100% rise, that the chart shows.

Jens-that is simple arithmetic.
Anonymous-no, comopunding does not make much of a difference for a 2% interest rate.

Anonymous said...

The issue is the rise from around 1995, not just from 2000. London prices tripled in ten years 1995-2005, and in the ten years up to the peak whether it is 2007 or 2008 in your chosen region, the same tripling effect will be seen. It was an enormous bubble, and one which in the natural course of the bust would in real terms see a total drop of two-thirds. Even if you feel there is real earnings growth over the cycle, that has to be tempered with the fact that busts 'overshoot' before the final low. Google on " Lifecycle of a Bubble" or go to:

B. in C/