Reply to: A realistic picture of house prices

[LittlestHobbo]

Thanks thats now clear as a crystal ball... I always found abstracting the theory a toughy, it almost seemed like you'd start at point a in your understanding confuse yourself for a while, get to point b at which point you'd realise that point b was just a different way of describing point a.

Anyway as for 3) i think there are 1000's of new homes in our area, Pub gardens now have blocks of flats in the middle of them, larger homes have sold the gardens and now have at least 3 new neighbours and most villages round this way appear to have some pretty unattractive new housing complexes on the outskirts. Not to mention the city high rise 2 bedroom flat horrors..

I'm too young to remember, but was there a housing shortage at the end of the 80's early 90's. I remember lots of new estates being built, and discussions on the news about modern day habits of divorce and marrying later etc etc...

Was there then a glut of housing stock by the end of the 90's recession? It does appear that history may be repeating itself...over leaverage of both banks and consumers combining with inflatory preassures.

My prediction for the future, a wealth correction and solar power will get us out of this one...

[expat]

well yes if the supply drops by the same rate as demand then prices would stay the same but volumes would drop, is this what you mean? Surely market volume and market price are different things? My A level economics is a touch rusty - i only lasted a month.

I am saying that the market mechanism of supply and demand is not the correct way to describe the aspects of the current situation that people are mostly interested in. I am not for a moment suggesting that the situation for someone with a house to sell is as rosy as it was last year. But saying simply that supply "exceeds" demand is not useful since it pretends to use the economic theory, when in fact this description is meaningless in terms of the theory.

You are right that if the supply drops by the same rate as demand then prices would stay the same but volumes would drop (remembering that both supply and demand are curves, not single numbers). More likely is that supply will be unchanged, while demand drops. The result will be that the intersection between the 2 curves moves left (lower price) and down (lower volume). Which of these (lower price, or lower volume) seems the better description would depend on:
1. how steep the supply curve is at that point,
2. whether you've got a house to sell, and
3. whether you've got an article to write.

Among the interesting consequences are:
1. the whole point of the supply-and-demand analysis is that neither curve is obliged to change as a result of the other curve changing: it is the intersection that changes.
2. what an unchanging supply curve represents in real life is no individual would-be seller budging on price, but settling for not selling instead. I suspect this will happen a lot, to the disappointment of many would-be buyers who are being told that prices are tumbling, but still can't find the cheap house that they want.
3. as long as the government flaps around trying to be seen to be doing something, but only ever touches the demand and not the supply, they will not succeed in getting everone on the housing ladder; or even a single extra person, indeed.

[Cyberman]

Homes with HIPS are selling quicker on average. The problem is that the market is only currently supporting cash buyers or buyers with a fat deposit.

When it eventually picks up, the value of the HIP will be clearer.

Figures released last week showed that up to 30% of house sales do not have a HIP even though the law dictates that they should, and most HIPS appear very late on in the transaction. Most sellers indicated that buyers did not ask to see a HIP in any case. So they really are a waste of time!!

Will HMG fine sellers that have no HIP ? Another nice revenue raiser perhaps.

[JamieMoles]

He made a joke - didn't he?

Homes with HIPS are selling quicker on average. The problem is that the market is only currently supporting cash buyers or buyers with a fat deposit.

When it eventually picks up, the value of the HIP will be clearer.

[Bagpuss]

Demand is a function of supply, the money supply. That dries up and demand dries up. If Supply of housing remains constant or even reduces, as the money supply contracts so do prices.

[ctdctd]

I thought with HIPS that houses now sell quicker or have our 'clever' government implemented yet another failing system ?
The figures are not mine either... they are the best available because they are from the Land Registry and based on actual selling prices. We can safely blame the lack of current figures on public sector bureaucracy.

He made a joke - didn't he?

[Cyberman]

I've highlighted the pertinent points. How long does it take to sell a house? 3/4/5/6 months?

So in reality you're looking at sales that reflect prices from the end of 2007 / beginning of 2008. I'd hardly call your figures current...

I thought with HIPS that houses now sell quicker or have our 'clever' government implemented yet another failing system ?
The figures are not mine either... they are the best available because they are from the Land Registry and based on actual selling prices. We can safely blame the lack of current figures on public sector bureaucracy.

[DiscoStu]

Interesting figures that are based on ACTUAL SALES registered at the Land Registry from UpMy Street and are a couple of months behind for obvious reasons:



Property market in May 2008


We use property sales from the Land Registry & Registers of Scotland to create an average property price for each region, and compare this against the average in the previous month - as above - and year.

London: +0.8%; +0.3%
South East: +0.0%; +3.0%
East: +0.9%; +3.3%
E Midlands: +1.1%; +0.3%
North East: -2.4%; -1.3%
North West: -0.5%; +1.7%
South West: -2.0%; -0.8%

Wales: +0.6%; -0.7%
W Midlands: +0.5%; -0.5%
Yorkshire: +0.9%; +1.2%
Scotland: +1.4%; +12.2%
Edinburgh: -1.8%; +9.6%
Glasgow: +4.6%; -17.3%


(% changes to average price - previous month, then year)


In my area it shows an increase of 3% in the year to May..... mo massive crash at all.... and Scotland is UP 12.2% over the year !!!

I've highlighted the pertinent points. How long does it take to sell a house? 3/4/5/6 months?

So in reality you're looking at sales that reflect prices from the end of 2007 / beginning of 2008. I'd hardly call your figures current...

[LittlestHobbo]

That's right, I was merely saying that those who would like to sell but don't need to, may not. A shift of the demand curve to the left is the same as a shift downwards; if it is seen as the first, it is called a drop in the market price, if the second, a drop in market volume. Same event, 2 views. Neither means that any individual house has sold for less than it woul have done last year.

well yes if the supply drops by the same rate as demand then prices would stay the same but volumes would drop, is this what you mean? Surely market volume and market price are different things? My A level economics is a touch rusty - i only lasted a month.

[fitzy73]

I would say a few of you on here at at classic "denial" stage

http://www.momentonmoney.com/012808_...eCycleofM1.jpg

[ASB]

"Supply" and "demand" are not fixed numbers; each is a function of price. Normally supply is taken to be a curve with positive gradient, and demand a curve with negative gradient. Where they meet, supply = demand, and that gives the market price.

...

That is what I was trying to say - but far better put

[expat]

that makes quite alot of sense, but... when someone needs to sell a house as will probably happen shortly alot more sales will be realised. As there will be fewer buyers than sellers you'd expect prices to drop as sellers compete to atract the smaller pool of buyers.

In economic terms this negates the aspirational argument as wants become needs.

That's right, I was merely saying that those who would like to sell but don't need to, may not. A shift of the demand curve to the left is the same as a shift downwards; if it is seen as the first, it is called a drop in the market price, if the second, a drop in market volume. Same event, 2 views. Neither means that any individual house has sold for less than it woul have done last year.

[Old Greg]

Only hindsight will tell if you actually end up better off, trying to call the bottom will be likened to catching falling knives. I guess the declines is likely to have some way to go so you can probably improve your position. When we last moved in 1991 we sold a house in Middlesex @ 96k. Bought one in Somerset @ 205,000. This subsequently dropped to probably 180,000 (by which time the one we sold was probably about 85k).

About 1 year before when we considered moving the house we sold was probably worth 115k. The house we actually bought was marketed at 350,000 and had an offer of 325,000 turned down.

Cost to change therefore reduced from 250k ish to 110k ish (and at the absolute trough would have been 100k ish).

The point of this? The tendency is that when the recovery starts it has always tended to be strong. If you are still looking to buy a bigger house then wait until there is blood in the streets and only those who would be regarded as insane are buying. This is probably as close as you'll get to calling the bottom.

Good luck.

Agreed - not going to try to call the bottom - when we see something that we really like for the money we want to pay, we'll buy. But I think we'll end up with something better for our money than if we'd bought in April.

[LittlestHobbo]

"Supply" and "demand" are not fixed numbers; each is a function of price. Normally supply is taken to be a curve with positive gradient, and demand a curve with negative gradient. Where they meet, supply = demand, and that gives the market price. And the market volume.

What is likely to happen with press furore and FUD about the housing market is that prospective buyers will tend to wait, since they are being told that prices will drop more. That, together with would-be buyers who now can not get a big enough mortgage, shifts the demand curve left.

For a given supply curve, that means that the market price goes down, and so does the market volume.

It does not necessarily mean that the price of any given house changes at all: it could simply be that some houses do not now sell, when they would have done a year ago.

The whole concept of supply and demand only works if some possible sales do not take place because no buyer and seller agree on this particular item. It is not correct to say that supply exceeds demand (or vice versa) in an economic sense. It may do in an aspirational sense - some would-be sellers wish that a buyer would come along at the price they want - but that is not a description of the market.

that makes quite alot of sense, but... when someone needs to sell a house as will probably happen shortly alot more sales will be realised. As there will be fewer buyers than sellers you'd expect prices to drop as sellers compete to atract the smaller pool of buyers.

In economic terms this negates the aspirational argument as wants become needs.

[expat]

So, in principle if supply is not meeting demand than there is no real reason to suggest prices are compelled to fall. But that is not the case. It is self evident that current supply far exceeds current available demand.

"Supply" and "demand" are not fixed numbers; each is a function of price. Normally supply is taken to be a curve with positive gradient, and demand a curve with negative gradient. Where they meet, supply = demand, and that gives the market price. And the market volume.

What is likely to happen with press furore and FUD about the housing market is that prospective buyers will tend to wait, since they are being told that prices will drop more. That, together with would-be buyers who now can not get a big enough mortgage, shifts the demand curve left.

For a given supply curve, that means that the market price goes down, and so does the market volume.

It does not necessarily mean that the price of any given house changes at all: it could simply be that some houses do not now sell, when they would have done a year ago.

The whole concept of supply and demand only works if some possible sales do not take place because no buyer and seller agree on this particular item. It is not correct to say that supply exceeds demand (or vice versa) in an economic sense. It may do in an aspirational sense - some would-be sellers wish that a buyer would come along at the price they want - but that is not a description of the market.