Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
US Treasury Bonds Pause Near Resistance Before The Next Rally - 18th Oct 19
The Biggest Housing Boom in US History Has Just Begun - 18th Oct 19
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

The housing bear market will result in a recession

Housing-Market / UK Housing Mar 18, 2005 - 06:00 PM GMT

By: Nadeem_Walayat

Housing-Market It is inherent in market systems, to move to between extremes, so at the very least real house prices will decline by 10%, depending on the effects on the economy, which obviously will be negative this will feed through to further declines.

As the bull trend in house prices from 1994 to 2004 was unprecedented, so it can be imagined that the bear trend from 2005 to 200? will also be unprecedented.

Plain old market driving forces of fear and greed. For there is no real reason why house prices have tripled other than greed.

A real 10% drop in house prices will be very bad.
A real 20% drop in house prices will be disastrous
A real 30% drop in house prices will be catastrophic


We will only see the true effect once the trend gathers steam.


A 10% drop would result in a recession...
So many reasons why. THOUGH ! It COULD be offset IF the other main asset class i.e. stock market soared.

What would happen ?
It would make people both be and feel less rich and thus cut back on spending. Which in turn would slow down economic activity and companies would cut back on investment and hiring of staff.

The reduced tax revenue would result in taxes going up and thus dampening demand further which would feed back into the loop, resulting in even lower house prices.

There are so many aspects from the significant effect of small real house price drops as against peoples expectations of rises in house prices., which has a much larger impact on people holding property than can be imagined by just focusing on and saying 10% is not much of a drop...

People expect house prices to rise.... Now if house prices FELL over the next 3 years by say 10%, that would imply a 20% difference on where people expected the asset to be. I.e. at the very least they would have expected a 10% rise, (which given recent activity is pretty much nothing). NOW the effect will be further felt, as inflation will have risen and incomes will have risen so house prices as a % of these indicators would be much lower... thus perceived loss of wealth would be felt even more.

In summary - People expect house prices to rise, if they don't then they feel a monetary loss, i.e. even a savings account would grow by 5% a year or some 17% compound over 3 years. If house prices fall then the effect is even greater ! as now your perceiving a 27% loss on a 10% drop !

If the REAL drop is 30% ! Then that would be catastrophic !

This is the reason why the 12% or so drop in REAL prices in the early 90's resulted in a significant recession... Though given today's low inflation climate a real drop of 12% today would be much more significant !

I think the UK is headed for a recession as the effects of the slowing housing market feeds on itself to slow the economy down and again the housing market. Once started, the only only way the trend will reverse is when the cycle reaches a stage where houses have been priced at an extremely cheap level which will again ignite demand and so the boom - bust cycle begins again !


Disclaimer - All statements and expressions are the opinion of Marketoracle.co.uk and are not meant to be investment advice or solicitation or recommendation to establish market positions.  Our opinions are subject to change without notice.We recommend that independent professional advice is obtained before you make any investment or trading decisions.


The Market Oracle is a FREE Financial Markets Forecasting & Analysis online publication. We aim to cut through the noise cluttering traditional sources of market analysis and get to the key points of where the markets are at and where they are expected to move to next ! http://www.marketoracle.co.uk


This article maybe reproduced if reprinted in its entirety with links to http://www.marketoracle.co.uk



© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Robin Pang
26 Nov 10, 01:03
More than 5 years after this piece of analysis

Excellent and spot on. It is interesting reading this piece more than 5 years after the financial crisis matched only by the Great Depression of '29 that just past. Nadeem's analysis is again, spot on. Applaus applaus ! :-)


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules