Friday, June 06, 2008

Going downmarket

The Guardian’s headline today, ‘House prices fall at fastest rate since 90s crash’, is wrong. They’re falling more quickly now.

The graph below shows the cumulative percentage fall in property prices month by month. The blue line runs from January 1991 to December 1992, and the red line starts in August 2007. I’m using averages of the Halifax and Nationwide indices.

What’s obvious is that this time around, prices are dropping a lot more suddenly than in the early 1990s (there were sporadic falls for some time before and after 1991-92, but interspersed with some faltering rises and general stagnation; those two years were when most of the action happened).

I don’t really know what this might suggest: maybe that prices will fall farther this time, maybe that the fall will end sooner, maybe a mixture of the two. The broader economic situations then and now, as well as the proximate causes of the house price falls, are very different. The average price-to-earnings ratio has grown much higher lately than in the late 1980s boom, but we don’t have to suffer today the brutal interest rates that ERM membership demanded until autumn 1992.

And, as Chris says, these figures are national averages – there’s plenty of variation by type of property, region and even neighbourhood. That said, I could well be out of my tiny mind to be trying to buy my first flat right now.

I may have just wasted a few hundred quid on a pointless survey and legal fees, but on the latest figures the average property is dropping by over a grand a week. Indeed, an academic analysis has found that falling prices may mean that property becomes cheaper and hence more affordable for first-time buyers. I wish I’d been paid to come up with that.

So all I have to do to avoid being hit by a price crash is wait an unknowable amount of time, or else cause it myself, by making obscenely low offers.


rob said...

Freemania seems pretty important to me - I'll bet the info here IS of benefit to all!
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Chris said...

What’s obvious is that this time around, prices are dropping a lot more suddenly than in the early 1990s

I wonder if that's more another case of the Feiler Faster Thesis - people currently in the housing market, buying or selling, processing the information much more quickly, added to the media's need for catastropher narrative - rather than (solely) a reflection of underlying economics.

Anonymous said...

They've still got a lot further to fall. Drive into Manchester and marvel at the hundreds of empty "luxury" flats. It might just be possible for me to sell my dinky terrace and grab one of them this time next year ...

Anonymous said...

Completely off topic but could you drop me an email Tom?