Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
War and Young Americans - 27th May 19
Stock Market Rally Over – Downtrend Resumes - 27th May 19
How to Choose a Good Online Estate Agent - 27th May 19
Bitcoin Price Stalls Near $8100 - 27th May 19
UK EU Election Results, Brexit Party Victory, Labour and Tory Bloodbath, UKIP and ChangeUK Die - 27th May 19
The Three M's of Hyperinflation : Milosevic, Mugabe, And Maduro - 26th May 19
Global Multi-Market / Asset Charts Review - 26th May 19
An Oil Shock Could Be the Black Swan That Finally Drives Gold Higher - 26th May 19
Brexit Party Forces Theresa May to Resign, Boris Johnson Next Tory Prime Minister? - 26th May 19
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

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