Uncharted Territory

January 3, 2009

Stick to the facts, Halifax!

Filed under: Credit crisis, Economics, Housing market, Media, Politics — Tim Joslin @ 6:30 pm

I really thought I was going to get through the morning without choking on my bran flakes (if they’re good enough for Hoycules, they’re good enough for me!).

Then I read the Guardian headline: “Glimmer of hope for housing market despite further pressure on prices”.  You what??  Curiously the online version of the article has a slightly different spin: “Housing market braced for brutal 2009 as prices and mortgage lending plunge”.  The latter appears to be the earlier version as it is dated 2nd January, whereas the print version appeared today, 3rd.  How do these changes happen?

The Halifax’s “point” (emphasised in a sub-heading in the print Guardian) is that “the speed of decline may be stabilising”:

“The Halifax said that the average house price had fallen 5.2% in the fourth quarter of the year – similar to the third-quarter drop of 5.6% and the second quarter’s 5.1% fall.  [I suspect these figures are seasonally adjusted].  But that still means prices are falling at an annual pace of more than 20%, although the Halifax said it showed the speed of decline may be stabilising.”

At least the Guardian mentions again later in the article that the total fall from the 2007 price peak could be 50%, as they yesterday reported Capital Economics suggest.

Halifax have officially suspended their house price predictions.  Conveniently, of course, this allows them to point to green shoots of recovery, instead of in effect having to warn buyers to beware further price falls:

“Martin Ellis, chief economist at the Halifax, said: ‘A number of factors will help to support demand and should help to limit the downturn. Improving housing affordability and an easing in the pressure on the majority of households’ finances should support market activity and prices.’

He added that the house price-to-earnings ratio – a key affordability measure – was at its lowest for five and a half years at 4.4 times, down from nearly six times in the middle of 2007 and not far above the long-term average of four times.”

Shameful. Perhaps I can suggest how to complete this paragraph. If 4 is the long-term average (and it well may not be long-term enough, giving too much weight to the two recent booms in the 1980s and from the mid-1990s to the mid-2000s), and the measure can overshoot by 50%, why wouldn’t it undershoot by an equivalent amount, that is to below 3?  In which case prices would have to drop another third.

And shame on the Guardian and the rest of the media for continuing to report “predictions” from those with a vested interest in talking house prices up.

As I mentioned yesterday, the British public are not so stupid.  Have a look at the comments on this Times piece.

With prices falling at more than 2% a month (an “annual pace of more than 20%” as the Halifax helpfully points out), you’ve got to doubt either the rationality or more likely the motives of those organisations predicting a 2009 drop of 10% or less.

The sooner house prices bottom out the better.  If unfounded optimism by vested interests leads to a sucker rally this will help no-one, least of all the first-time buyers who will regret being drawn in.

As I happened to mention a little while ago, I reckon prices could easily fall 50% in total, simply on the basis that as a market participant over 3 decades (and OK, I admit it, a consumer of huge amounts of punditry on the topic), property seemed to me to be selling at around twice fair value, at the peak in the summer of 2007.

Btw, there’s a nightmare scenario: we’re Brown toast if interest rates (and therefore mortgage costs) have to rise to check inflation before house prices have recovered.

So on the basis that a 50% drop is needed to bring the buyers out in force and turn the market, but with some moderation in the current rate of price decline, we’ll see another 15-20% drop in 2009, and  5-10% in 2010.  I’d respect the Halifax a little more if they came out and said something like this.

We’ll know in a while, crocodile!

And I’m now starting to wonder if the Government haven’t been allowing for similar price predictions for some months now.  ‘Cos measures like the daft VAT giveaway smack of panic to me.   Maybe Brown was (and perhaps still is) hoping for a dead cat bounce this Spring, a snap General Election and another 5 years of power

We’ll find out later, alligator!

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