Monday, August 10, 2009
Edmund Conway writes in the Telegraph about the late, great U.K. housing market
boom bust, offering up some not-too-surprising parallels to the U.S. housing market:
The housing market crash is over; prices have fallen as much as they are going to; sit back, strap up and prepare for the recovery. That, at least, is the impression we’ve been left with after a number of institutions effectively declared that the slump is at an end. Last week the Royal Institution of Chartered Surveyors binned its forecast for a 15pc fall in house prices this year and replaced it with the prediction that home values could actually rise. This morning, the Centre for Economics and Business Research said we could expect a (small) rise in house prices between next quarter and the end of 2009.The chart reproduced below is then offered up as an example of what housing market bottoms can look like, this one from the U.K. in the mid-1990s.
So is the house price crash really over? I’m afraid not - at least not as far as I’m concerned. This is not to say there won’t be plenty of rises as well as falls over the next few years. As this chart from Nick Parsons of National Australia Bank shows, in reality, house price crashes aren’t all about consistently falling prices; during the early 1990s, prices rose quite sharply in some months, but over a three year period they tended to fall that little bit more than they rose.
It bears a striking resemblance to one that appeared here about ten days ago in the memorable discussion Has the housing market hit bottom?
There aren't too many examples of housing market "bottoms" over the years, but, so far, from what data is available on the subject, it appears there is a considerable delay between the first monthly increase in home prices to the eventual market bottom in home prices.
Unfortunately for those who are buyers today, that gap is measured in years, not months.
The housing market is not like the equity market. Whereas share prices tend to fall sharply earlier than most other asset prices and then recover rather quicker, property behaves more sluggishly, usually dropping gradually and spending a long time at the bottom before slowly gathering pace some time later. A property crash usually lasts five years or so. The reason is that house prices are particularly sensitive to increases in unemployment. When people lose their jobs they sometimes have to move house or, if the worst comes to the worst, have their homes repossessed. It is almost unheard of for the property market to bounce back when unemployment is still rising at a fair whip.The whole thing is worth reading - it parallels some of the more "enlightened" housing market commentary appearing in the U.S. over the last couple weeks.
Moreover, the rises in the average house price at the moment masks a key fact, which is that the actual turnover of housing is still close to a record low. Some people may be willing to pay a little more, but this represents only a tiny fraction of the market; few people are putting their homes up for sale; few are really looking to move (in this regard it is worth drawing a parallel with the stock market: yes, it has risen sharply in the past few months, but this has been on extremely low volumes).