House prices have fallen some 80% since 2004 – now back to 1952 prices
Yesterday we got the Nationwide’s attempt to try and tell you that the UK housing market is doing pretty well all things considered, when in actual fact the UK housing market have been in a big slump for years, is in a very precarious state and is set to get much, much worse.
First up, the propaganda:
UK house prices declined by 0.4% in September, after recording a 1.1% rise in August. Monthly price changes have been impacted by a number of one-off factors this year, such as the ending of the stamp duty holiday that cannot be controlled by the usual process of seasonal adjustment.
For this reason the annual rate of house price change is a better guide to the state of the market at present. On that basis, the housing market remains fairly stable, with prices 1.4% lower than September 2011.
So, prices are down but ‘only’ modestly and all appears fairly stable:
“Looking forward, policy measures such as the Bank of England’s Funding for Lending Scheme should provide support for activity in the housing market by ensuring the availability of credit and lowering its cost.
We’ll get to just how well that ‘support’ from the government and that other quasi-governmental bureaucracy, the Bank of England, has done over the last 3 years in a sec. But it is good at least that it is now totally accepted that massive support is being aimed at the housing market.
Which leads to a rather obvious question. What happens when that support is withdrawn – either voluntarily of forced by the market?
Nationwide continues:
However, labour market developments will remain of paramount importance in deciding the trajectory of house prices. There are grounds for caution on this front, as the unusual combination of rising employment and declining economic activity that was evident in the first half of 2012 is unlikely to be sustained.
Clearly they didn’t see the PMI manufacturing report yesterday (Hint: companies are about to slash jobs left and right).
Nationwide then smoke the standard issue ‘hopium’ that John Major has been peddling recently. Hopium passes passes for sound analysis these days apparently:
But there are encouraging signs that the UK will soon return to modest growth. The Olympics are likely to have delivered a boost that will almost certainly bring the recession to an end in Q3.
Encouraging signs? Really? Where? Have these people taken a peek at the UK government’s balance sheets recently (hint: they are on course to run a bigger deficit this year than last), have they bothered to check what the BoE’s balance sheet looks like these days (hint: they’ve expanded it more than any other central bank on the planet).
And it is most amusing that they cite the Olympics for reason to cheer and that Q3 GDP will be positive because the very same Olympics were used last week to explain away why retail sales were so poor:
Retail sales in the UK fell slightly in August, driven by weaker online sales as consumers watched the Olympics, official figures revealed.
Now, household final consumption make’s up 65% of UK GDP, so if people didn’t shop so they could watch some sporting event on the telly, remind us again how the Olympics is ‘good’ for UK GDP?
And even if the Olympics did boost GDP there’s a slight problem with using it for grounds to think the UK economy is on the mend. It only happens once – so what happens the following quarter and the one after that and so on? Hardly grounds to argue that a sustained recovery is on the way (which is something that lasts years not just the odd quarter BTW).
We agree that Q3 GDP might come in positive, but so what? Go look at what the UK’s GDP has been doing since 2008 – it’s still down some 4 years later and is clearly one big-long recession that the politicians and bureaucrats at the central bank are hell bent on turning into a depression (which is exactly what they did in the US in the 30s).
What matters is sustainable growth not just minor up-ticks in the GDP every-now-and-then. And the UK is never going to achieve that whilst all the debt is still in the system (and exponentially getting bigger each year).
The UK is just papering over deep rooted fundamental flaws in its economy and making that debt liquidation when it comes, which it always does, way more painful than it needed to be.
It should also be mentioned just what the Nationwide’s House Prices Tracker is, because it is used all the time in the press to make claims about the price of houses. I mean you would be forgiven for thinking that the Index measured the prices that homes sell for in the UK. But you’d be wrong. From the Nationwide’s methodology page:
…we track a representative house price over time rather than the simple average price. We do not use the simple average price
…House price information is derived from Nationwide lending data for properties at the post survey approval stage…
That’s right, house prices ARE NOT derived at from what houses are ACTUALLY sold for. Rather, an average house prices is ‘guessed at’ from mortgage approvals, which of course may, or crucially, may not, be what a house actually sells for.
And another crucial part of the housing picture isn’t just the price they sell for, it’s how many units are being sold. And when you look at the last 6 years the slump in the housing market becomes all to apparent:
And this year isn’t looking much better, in fact 2012 could see the lowest number of houses sold in a year since 2009, you know, that other recession the UK had but in actual fact has never left.
So what is causing so little homes to be sold? Sellers are asking way more than people are prepared to pay. How much? This much:
One curious feature of the market has been the utter unwillingness of many would-be sellers to sell their homes for a realistic price.
Asking prices are still running about 35% above average selling prices, says property commentator Henry Pryor.
That’s right, a whopping 35%. One could make the argument then that the ‘real’ value of homes in the UK, when based on the only thing that matters when selling anything, what someone is willing to pay, is in fact 35% lower than today’s reported average.
And for those who live in London, enjoying house prices just 2% away from record highs, and thinking they’re immune to the economic realities affecting the rest of the country, these words printed today in the Guardian should be a cause for concern:
“London continues to defy economic logic. To be just 2% below its peak in a paralysed economy is preposterous,” said Russell Quirk, director of online estate agents eMoov.co.uk.
This sort of statement is exactly what you’d expect to see right before a property bubble bursts. Go take a look at all the major housing bubbles over the past 30 years. In every country that has blown a housing bubble everyone thinks that the affluent capital city will be immune from a collapse in house prices, right up until the point that it isn’t.
Some anecdotal evidence of this attitude was on display in London just last week. Goldmadesimple spoke with managers of funds in the UK at an event. One such fund manger said that ‘everyone’ he speaks to thinks that house prices in the UK can only go up. Something that even said fund manager thought was a worrisome thing to be hearing.
So let’s get down to the facts about the house market in the UK. Here is a chart of UK house prices priced in sterling and priced in gold since 2000.
The very first thing that should jump out at you is the last three years have essentially been flat. This is important because it was 3 years ago that the BoE reduces interest rates to the unprecedented low of 0.5%.
To put that dramatic drop in the BoE’s overnight rate, which fed though bringing down mortgage rates for millions of people into perspective, here is just how much money this has ‘saved’ mortgage owners in the UK:
Across the UK, mortgage payments have nearly halved as a proportion of income from their 2007 peak of 48 percent, as house prices have dropped along with mortgage rates.
That is quite an incredible amount in just 5 years. Basically the average person spent 50% of their monthly income on paying their mortgage. Today it is nearly 25%. That’s an enormous ‘saving’ courtesy of the BoE.
But go back and look at the chart above again. Note what it has done to house prices in the UK, essentially nothing. House prices in the UK since the BoE went insane have just gone sideways.
Also think of all that extra disposable income that home owners have been gifted by the BoE, and then think of the fact that the UK is still mired in a recession.
So what gives? Shouldn’t all that extra cash ‘boost’ aggregate demand and also the economy like the Keynesians preach? Which incidentally is the exact justification that Ben Bernanke at the Fed used when pitching QEinfinity.
The trouble is all that ‘free cash’ for debtors with mortgages isn’t free at all, it comes with a price attached that most don’t seem to have yet grasped. Higher prices.
So whilst people might be ‘saving’ money on reduced interest expenses they’re paying more to drive to work, feed the children and heat the home.
In fact this should give you a good general idea about just how much price inflation has already been created by the BoE, and just how much more is in the pipeline. All those dramatically reduced mortgage payments and the UK is STILL in recession.
Back to the chart:
(click for sharper image)
Now, pricing things in gold is a great way to try and find out what is really happening to any market and the housing market is no different. This way we can get rid of any nominal gains (or reduced losses) that a house might of had simply due to the loss of purchasing power of the £ in your pocket as opposed to ‘real’ gains.
We can see that in terms of how many ounces of gold it takes to buy the average UK house, the market really peeked in 2003/4 and NOT 2007.
When priced properly we can see that UK house prices have fallen about 80% from their peak in 2003/4, In 2003/4 it took about 716 ounces of gold to buy the average UK house – today it takes just over 149 ounces.
And since the BoE started going print crazy house prices have fallen about 40%, when in nominal terms they’re flat.
On a longer term chart of the same metrics we can really see just how far nominal house prices have got away from reality.
(click for sharper image)
From 1952 to the interim top in 1987/8 house prices rose an amazing 3200%. But look what they did in terms of gold over the same time period, the only rose 40%.
When you include the 1987/8 – 2007 run in house prices as well the increase from 1952 to 1987/8 house prices shot up an amazing 9000%. Since then house prices have fallen about 20%, but are still up some 8700% since 1952.
But just look at what house prices have done in terms of gold. Back in 1952 the average cost of a house was just £1890, or about 150 ounces of gold. Today, some 60 years later, the average price of a house in the UK is, you guessed it, about 150 ounces (149.1 to be precise).
Just think about that for a second, something that in nominal terms has risen 8700% in 60 years, has risen 0% when priced in gold. How is that for ‘stable prices’, the always abused and misleading term that the BoE loves to crow on about that they’ve achieved.
Well the numbers don’t lie 8700% vrs 0% – clearly there is only one winner here in the stable prices stakes. How anyone can take the BoE seriously when it talks about stable prices is beyond us when you see numbers like that.
So just how much higher can gold go in terms of housing from here? We fully expect a repeat of the 1980 high in gold and low in houses priced in gold.
In 1980 gold very briefly reached £371. The average price of a house in Q1 1980? £22,676.
Which meant that for a short time in early 1980 it only took 61 ounces to buy the average UK house.
To go back to that average today would take a gold price of £2700, some 150% higher than todays prices. Of course the average house prices could fall instead to create the same 61:1 ratio, and would have to fall to around £68,000 from the £163,000 price today.
However, knowing what we know about the UK government and the central planning bureaucrats at the BoE, they simple will never let house prices go down in nominal terms. This way they can point to the housing market and CONvince the people they are better off.
And it really is a con. Nominal values are totally meaningless. Let’s say you buy a house and it doubles in value, but the purchasing power of the pound falls in half over the same time period. Are you really any richer at all, have you made any money? Of course not, you’re back where you started in ‘real’ terms, and that is ALL that counts.
So don’t be fooled about headlines about “house prices up 1%” one month and “down 1%” the next. They’re totally erroneous data points that carry very little decent information for you to act upon.
Instead keep a close eye on what the ‘real’ value of houses are doing over the next couple of year priced in gold – the last honest measure of anything left on the planet.
Related posts:
- As house prices fall in the UK for the year in terms of gold house prices are back at 1986 levels
- House prices fall again making fresh lows – now back to 1986 prices
- As UK house prices fall they’re now back to 1986 prices when priced in gold
- UK house prices fall 2.3% for the year: Gold:House ratio now at 151:1
- House prices in the UK continue their slide – in gold terms still at 1986 prices
Link to this article: : http://www.goldmadesimplenews.com/gold/house-prices-have-fallen-some-80-since-2004-now-back-to-1952-prices-8230/
Posted by Thomas Paterson on Oct 3 2012. Filed under Gold News.
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