Negotiation, Negotiation, Negotiation

UK Property Investment news and comments from Mark Harrison of YourPropertyExpert.com

Property Crashes compared to Stock-Market Crashes – long term

Posted by markharrison on January 14, 2009

This week’s Economist has an interesting article based on research done by Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard. (The original paper, The Aftermath of Financial Crises is available to download – click on the title in this blog.)

The paper investigates “severe financial crises”, including “headline names” like the US (1929), Argentina (2001), Hong Kong (1997) and Japan (1997), as well as more minor crises.

Some interesting statistics, though:

  • In major financial crises, House Price falls have averaged 36% from peak to trough, and the slump has lasted 5.0 years on average
  • In major financial crises, Share Price falls have averaged 56% from peak to trough, and the slump has lasted 3.4 years on average

So, we can see that house prices do fall less than shares, but that house price slumps can last a very, very long time.

Of course, a lot hinges on whether we really are in a “severe financial crisis” – if we are, then we could see another 3-4 years of property price falls in the UK. But if we aren’t, well things might turn around. That having been said, the most hopeful forecasts I’m seeing from serious ecomists talking about how things might reach the bottom by the end of 2009, rather than carry on falling.

Buying rental property? Not me, not this quarter.

4 Responses to “Property Crashes compared to Stock-Market Crashes – long term”

  1. Mark T. Market said

    I recently featured Taleb speaking out in frustration against the economic and banking establishment, also joined by his mentor: Benoit Mandelbrot. Their statements about rapid crashes has striking correspondence with Jared Diamond’s observations about societal collapse.

  2. Jane Trahan said

    On behalf of Profs Reinhart and Rogoff, thanks for your interest, but please note that the correct academic citation for their paper has names in alphabetical order, not vice versa. Thanks.

    Sincerely, Jane Trahan
    Assistant to Professor Kenneth Rogoff
    Harvard University

  3. mirc said

    hey thank for your post

  4. Jane,

    Thank you for the correction. I’ve updated my article.

    It’s worth noting that the Economist article introduced the two authors the “wrong” way round as well, though did get them correctly in the footnote citation.

    Regards,

    Mark

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