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M&G's leading indicator

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M&G's leading indicator

Postby Beerhunter on Tue Jan 06, 2009 8:00 am

Very nice graph showing the correlation between Mortgage approvals and Nationwide HPI from here;

Image

At the end of 2008 of M&G correctly predicted -15%, but now now predicting -27% :o

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BH
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Re: M&G's leading indicator

Postby PropertyAnalyser on Tue Jan 06, 2009 7:27 pm

Good find.

Very similar to the method used by 'spline' ?? over on HPC and on his blog.

I am quite sure we will see similar falls this year as we did last year. Only when the recession is over, houses cost 3.5 time the average wage and banks regain some confidence will the whole pyramid scheme start all over again :o

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Re: M&G's leading indicator

Postby Beerhunter on Tue Jan 06, 2009 10:36 pm

PropertyAnalyser wrote:Good find.


I can't take take credit... twas posted by London-loser on GHPC... it's a beautiful thing correlation :roll:

Very similar to the method used by 'spline' ?? over on HPC and on his blog.


I think his latest venture is using Kalman filters to predict future HPI... for those not familiar with splines site, it's very interesting; have a wonder over to www.houseprices.uk.net (also listed in the links section)

From http://www.houseprices.uk.net/articles/ ... predictor/

Image

Figure 3. Annual change in prices YoY. Comparison of the Halifax YoY and an estimated YoY using the Kalman HPI shifted forwards by six months, i.e. the red line is produced six months before the blue line is published and thus serves as a predictor. The graph allows you to estimate the degree to which the predictor is under- and over-shooting at the peaks and troughs.


I think this is probably over-estimating as the blue and red lines diverge significantly towards the end of 2008.

However, looking at the peaks and troughs (eg the big trough in 2005, the end of 2003, the clink mid 2001, the peak mid 2007 etc).. the red line (estimated YoY) appears not be estimating 6 months in advance, but more like 8 or 9 months and should be shifted right slightly.. in which case the red and blue lines at the end of 2008.

This also makes more logical sense, as HPI has fallen faster than people expected/predicted since the end of 2007, so the predication should be "catching up" as the credit crunch unfolds.

I am quite sure we will see similar falls this year as we did last year. Only when the recession is over, houses cost 3.5 time the average wage and banks regain some confidence will the whole pyramid scheme start all over again :o

PA.


Interesting you mention recession, as I think its a key indicator. I've not investigate/thought about this much, but try plotting the house prices and marking where recessions begin, then look at house prices where the recession starts, then look and the previous house price peak and following house price trough afterwards... there used to be a graph on HPC with this (was a few years ago) which I noticed a neat "correlation" between these features :ugeek:
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