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Housing market recovery not until 2023?

October 15, 2008

When exactly the housing market will recover is anyone’s guess and gloomy predictions abound. One academic says it even could take as long as 15 years. for-sale-signs.JPG

Andrew Clare, a professor of asset management at Cass Business School in London, used futures contracts based on the Halifax house price index to figure out his dire prediction. He calculated that in 2010 the average will be 40 percent lower than the peak of 199,600 pounds in August last year – about 120,000 pounds.

That’s particularly bad news for those who bought a house last summer, and Clare predicts that negative equity will be “a big feature of our economic landscape for years to come.”

The Halifax said last week house prices dropped at their fastest rate in September since records were first kept 25 years ago, with the average average price down 13.3 percent.

Comments

It’s easy when you’re in a dip to think that it’s all gloom and doom – but 2023 is pretty gloomy, even by most pessimists’ standards. This housing market correction is different to the one at the end of the 1980s, this time it’s a lack of mortgage finance as well as the fact that prices got out of kilter with salaries. Last time it was mostly due to high interest rates. It took about 7-8 years last time for prices to regain their momentum. With banks now bailed out and talk of ‘normality returning’ to house prices, we can probably expect a similar sort of timescale this time. The question on everyone’s lips, though, is how much longer till the market bottoms out. We’ve only been falling for about 9-12 months, before that it was the rate of increase that was declining rather than the prices themselves. That suggests we have at least 1 possibly 2-3 years of falling prices and/or static prices ahead.

Posted by Citiboy | Report as abusive
 

It depends what people think of as a “recovery”. The market will start moving again when prices at the bottom end become affordable to first time buyers at approx 3 times average salary. In that respect Clare is probably right in that the average price will bottom around 2010 and the market will then start to move upward, so has “recovered”.

If a “recovery” is regarded as a return to 2007 price levels, that will occur approx 5 years later in 2015, but it will be in money devalued by inflation.

There’s no magic formula or economic insight involved in this. History tells the story, just as it told us that Labour would drive the country over a cliff. The only difference is that this time round, there’s lots of other lemmings going over the cliff with us.

Posted by Jason | Report as abusive
 

If it was just the lack of mortgages then I think we could have a quick recovery but now we are heading into a global slowdown we are going to see much lower prices for a lot longer. The only positive side is that there is strong demand for housing and increasing rental returns.
This is assuming there is someone with a job who can pay the rent.

Posted by David | Report as abusive
 

Things will not recover until people feel secure in their ability to pay the mortgage. No matter how cheap the loan or house stability in employment is essential. We need to bring back agriculture and manufacturing and give ordinary working people the means and independance to enjoy a life style and achieve a mobility now lost.

Posted by Maggie | Report as abusive
 

Mr Clare is way off the mark here. No way is he right, unless his crystal ball is made of mud! No disrespect intented here.

I predict a kind of normality to return within two years. Things happen quickly these days – everything including models and markets have changed totally – and no one can underestimate this factor..

No one can possibly predict such a skewed resolution and it is folly to try to pretend that we know more than the markets do.

Despite the turmoil we must remember one salient and paramount fact: the Mr Brown strategy was adopted and played out and this will, without doubt, make this financial catastrophe short-lived.

The world is a different place from the 1920′s: measures that are inherently stabilising and effective have been taken and are already starting to kick-in with notable effects.

It is not at all appropriate to add two and two together to make five, especially when we need to strengthen the person in the street in their financial hopes and beliefs.

Posted by TheTruthIs... | Report as abusive
 

Interesting comments.

“…the Mr Brown strategy was adopted and played out..”

Indeed it was. And now we all have to face the consequences while HE plans how he’ll spend the pension that WE will pay for.

Posted by Andy | Report as abusive
 

House prices will bottom out in about 2010/2011 at about 25% below current levels. I think there may be a bit of an upward blip for the London Olympics. The utter naivete of world leaders in not recognising (or if they do recognise it, not saying) that the whole credit crisis is caused by people of the Western world living on borrowed money they cannot afford to repay, does not augur well for the future. Be that as it may, the “real” economy will continue to give them all (and unfortunately the rest of us) a good hiding for quite a few years to come.

Posted by Matthew | Report as abusive
 

Hmmmm…. not sure if people are keeping an eye on what is happening in America at the moment but they are pretty well spent, which is going to affect us all in a way we cannot imagine. There is no use comparing this with previous recessions as this is going to be far bigger than anything we have ever seen. Credit default swaps will just be the start.

 

Cycles seems to be sharper and faster. Although the economic prospect is looking pretty dire – whitch justify why prices are expected to fall 40% peak to through – I think that the current pessimism for long term house prices is exacerbated by the recent events. The banks might well suffer a while, but when credit is unlocked again – although credit will not be as available as before – price should catch up. If the credit situation improve soon enough – and recent government measures could contribute to it – prices might not fell 40% as currently predicted. I also think that price might peak up slowly after they bottomed out, but they will accelerate faster and sooner than anyone is expecting right now, particularly because of interest rate level. So forget what you’ve lost already, there is nothing to do about it. Instead, work on being ready when new opportunities will come, as this might be sooner than expected.

Posted by Eugene | Report as abusive
 

Property will never again be the investment vehicle it has been and we will have to accept it.
The government can’t keep supporting mortgages through tax payers, in particular those on low and modest incomes much further why…?
money will start to flow out and away, already elderly people unload their cash to avoid paying care costs, there is always a reaction when you lean on a section of society in this way.
They will have to look at building new council houses(call them affordable or starter homes with part ownership if you like)
why…?
Because unless they accept the changes to the housing market and and that all can’t afford to buy even at reduced prices they will be voted out and this seems very likely anyway. There are many people now on low and modest incomes who will react at the next vote and this does not seem to have been really been considered.
outcome – less pressure on the housing market to overheat.
The jobs market will be in trouble too, with an economy based on service we might become the sick man of Europe again.
answer… no more easy credit no matter what the economy is asking
decent interest rates for savers, secure (gaurenteed) properly risk factored and above inflation.
The FSA restructered so it is what it says on the tin. No more sloppy operations, what has happened in not new, thousands of pensioners lost their savings 2002/3 and watched while fat cats had huge salary incresaes and golden handshakes…wasn’t that a sign of things to come?
winners…
landlords and rent but not with the capital property gains they have enjoyed so far, more like the 1960′s or the continent.

Posted by mammachou | Report as abusive
 

TheTruthIs: “No one can possibly predict such a skewed resolution and it is folly to try to pretend that we know more than the markets do.”

Unfortunately, if you read the article again you’ll see that Mr Clare draws his conclusion FROM the markets: The level at which traders are buying and selling futures contracts based on the Halifax house price index.

So if you think the situation isn’t as bad as this, you’d better be hoping that the markets are wrong!

Posted by Dylan Summers | Report as abusive
 

Looking back over the last 40 years or so, periods of real house price growth (relative to RPI) have been followed by equally long (or short) periods of real negative growth. This time round, we’ve had about 12 years of real growth, so we could now get 12 years of negative real growth.

This talk of prices bottoming out in a year or two takes no account of what’s happened in past slumps – in the 90′s it took about 7 years peak to trough, so why do people think it’ll be only three years this time round? Short memories.

Posted by Mark | Report as abusive
 

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