Phase

Where we are in the cycle now (method 1)

  • We saw the ‘wave form’ in the cumulative factors, but to locate ourselves in the cycle it is helpful to look at un-cumulated factors, which are in the domain of returns, not prices

  • In the chart we see that the blue bars (factor 3, Mid-price vs the rest) are waning in strength, while the green bars (factor 2, North vs Southeast) are rising

  • New data from the Land Registry gives a revised picture from last month in which factor 3 is much weaker, with south Midlands (Luton, Milton Keynes) underperforming and Prime Central London picking up - this is reflected in an unsmoothed factor 3 heading negative

  • To arrive at the phase angle we take the arctangent(factor 3/ factor 2), the result shown in the lower chart for the last 5 years

  • During the 5 years the smoothed blue line has descended (clockwise movement) from 190 degrees to 30 degrees, about 30 degrees per annum

  • In fact on the last cycle, factor 3 in blue reversed sign almost overnight in July 2003, ending a long run of positivity (mid price outperformance) and going strongly and persistently negative, corresponding to a phase change of 20 degrees in 1 month

  • Factor 3 last month appeared to have possibly rolled over and gone negative, but we expressed some caution about using the front month data. This proved justified, and the factor is revised to be slightly positive - however we are probably approaching a turning point

  • As factor 3 heads negative it is time to go for the extremes of price - highest or lowest nationally - because negative factor 3 will increasingly hinder mid-priced areas such as the Midlands

  • On the highly smoothed (hence lagging) 12-month version we are now around 0 degrees, corresponding to end 2003, 16 years ago

  • Taken at face value we have seen a very rapid acceleration in the cycle with a sudden flip in factor 3, meaning that prime/super-prime London has started its outperformance relative to all commutable areas which on past performance should endure many years

  • As always, some caution is called for due to the low data density in the final months, so we await confirmation of this trend reversal