Best of the Week
Most Popular
1. Crude Oil and Water: How Climate Change is Threatening our Two Most Precious Commodities - Richard_Mills
2.The Potential $54 Trillion Cost Of The Fed's Planned Interest Rate Increases - Dan_Amerman
3.Best Cash ISA Savings for Rising UK Interest Rates and High Inflation - March 2018 - Nadeem_Walayat
4.Fed Interest Hikes, US Dollar, and Gold - Zeal_LLC
5.What Happens Next after February’s Stock Market Selloff - Troy_Bombardia
6.The 'Beast from the East' UK Extreme Snow Weather - Sheffield Day 2 - N_Walayat
7.Currencies Will Be ‘Flushed Down the Toilet’ Triggering a ‘Mad Rush into Gold’ - MoneyMetals
8.Significant Decline In Stocks On The Cards! -Enda_Glynn
9.Land Rover Discovery Sport Extreme Driving "Beast from the East" Snow Weather Test - N_Walayat
10.SILVER Large Specualtors Net Short Position 15 Year Anniversary - Clive_Maund
Last 7 days
GDX Gold Mining Stocks Fundamentals - 16th Mar 18
Nationalism, Not the Russians, got Trump Elected - 16th Mar 18
Has Bitcoin Bought It? - 16th Mar 18
Crude Oil Price – Who Wants the Triangle? - 16th Mar 18
PayPal Cease Trading Crypto Currency Bitcoin Warning Email Sophisticated Fake Scam? - 16th Mar 18
EUR/USD – Something Old, Something New and… Something Blue - 16th Mar 18
DasCoin: A 5-Minute Guide to How It Works - 15th Mar 18
Stock Market Downward Pressure Mounting - 15th Mar 18
The Stock Market Trend is Your Friend ’til the Very End - 15th Mar 18
6 Easy Ways to Get What Women Want, for Less! - 15th Mar 18
This Isn’t Your Grandfather’s (1960s) Inflation Scare - 15th Mar 18
Eye Opening Stock Market Index, Volatility, Charts and Predictions - 15th Mar 18
Gold Cup At Cheltenham – Gold Is For Winners, Not For Gamblers - 15th Mar 18
Upcoming Turnaround in Gold - 14th Mar 18
Will the Stock Market Make Another Correction this Year? - 14th Mar 18
4 Ways To Writing An Interesting Education Research Paper - 14th Mar 18
China Toward Sustainable Economic Growth - 14th Mar 18
Stock Market Direction Is No Longer Important - 14th Mar 18
Trade Tariffs Defeat Globalists and Return Prosperity - 14th Mar 18
Stock Market Crash is Underway and Cannot be Stopped! - 14th Mar 18
Are Energy Sector Stocks Bottoming? - 14th Mar 18
Nasdaq Stocks Soars to New Record High After Strong Job Reports - 14th Mar 18
Bitcoin BTCUSD Elliott Wave View Calling for Rally toward $15,000 - 13th Mar 18
Hungary’s Gold Repatriation Adds To Growing Protest Against US Dollar Hegemony - 13th Mar 18
Record Low Volatility in Precious Metals and What it Means - 13th Mar 18
Tips for Writing and Assembling the Classification Essay - 13th Mar 18
Gerald Celente "If Rates go up too High, the Economy goes Down, End of Story" - 13th Mar 18
Stock Market Selloff Showed Gold Can Reduce Portfolio Risk  - 13th Mar 18
Silver Does it Again! Severe Consequences - 12th Mar 18
Has the Stock Market Rally Run Out of Steam? - 12th Mar 18
S&P 500 at 2,800 Again, Stock Market Breakout or Fakeout? - 12th Mar 18
The No.1 Energy Stock To Buy Right Now - 12th Mar 18
What Happens Next When Stock Market Investor Sentiment is Neutral - 12th Mar 18
Economic Pressures To Driving Gold and Silver Prices Higher Long-Term - 12th Mar 18
Labour Sheffield City Councils Secret Plan to Fell 50% of Street Trees Exposed! - 12th Mar 18
Stock Market Uptrend Resuming? - 11th Mar 18
Bond Market Interest Rate Yields Are Rising Again… Stocks Are on Thin Ice - 11th Mar 18
Death of Europe's Greenest City, Police State Sheffield Labour Council to Fell 50% of Street Trees - 11th Mar 18
Do All Bull Stocks Markets Need to Have a Bearish Divergence? - 11th Mar 18
An Inflation Indicator to Watch, Part 3 - 11th Mar 18
Online Stock Trading Tips - Tips about Online Trading & Day Trading - 11th Mar 18
NDX makes a new high. What does that mean? - 10th Mar 18
Blue Chip Companies on Track for $800 billion Buyback Record in 2018 - 10th Mar 18
Cheap Gold Stocks Basing - 10th Mar 18
An Introduction to Online Forex Trading - 10th Mar 18
Sheffield Police State as Tree Protesting Citizens Are Snatched off the Streets! - 9th Mar 18
Riding the Bitcoin Wave - 9th Mar 18
Are We in Late Cycle? Implications for Gold - 9th Mar 18
US Bond Market 3 Amigos Bottom Line - 9th Mar 18
The Stock Market Bubble Conversation - 9th Mar 18
The Last Great Myth of Every Financial Market Euphoria - 9th Mar 18
London Property Market Sees Brave Bet By Norway As Foxtons Profits Plunge - 8th Mar 18
Casino and Bingo - A Brief Statistics - 8th Mar 18
Stock Market Shrugs Off Trade War Fears, But Will It Go Higher? - 8th Mar 18
Gold Stocks & Silver Oversold but Not Gold Price - 8th Mar 18
Benefits of Using Same Day Loans In Emergencies - 8th Mar 18
Permanent Life Insurance: Is it a Waste of Money or a Valuable Investment? - 8th Mar 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

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 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 !

This article maybe reproduced if reprinted in its entirety with links to

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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