UK House Prices -The next bubble waiting to burst ??
Belize1970 - Thu, 22 Dec 05 :
Honey, I shrunk that house doom forecast
We were wrong, say house price gloom mongers
Tony Dye, the famously gloomy fund manager who quit PDFM in 2000 just as his long-held bearish market forecast was about to come true, was living proof of Keynes's observation that "the market can remain irrational longer than you can remain solvent".
It requires strong nerve to go against the consensus for an extended period. And when long-term bears finally capitulate it's often a sign that their unpopular view is about to be vindicated.
Should we be worried then that Capital Economics, the Dr Doom of the housing market, has back-tracked on its widely publicised forecast that house prices are set for a 20pc slump over three years. Their view now is a less headline grabbing 5pc slide over two years.
Why the U-turn? First Capital reckons lenders have abandoned income multiples as a basis for lending decisions. As long as you can afford the repayments, they'll stump up the loan. With interest rates persistently low in nominal terms that's likely to provide support.
Capital also believes the undersupply of new housing is having a bigger impact on prices than it previously thought. And the economy has stayed more robust than it expected, with employment growth still solid.
That doesn't mean that house prices are not grossly overvalued and the ratio of prices to average earnings is off the top of the historic scale at 5.6.
That multiple is bound to revert to the mean over time. It's just that Capital now thinks the correction will come from a leisurely rise in earnings to meet stagnating prices rather than a violent drop in prices to plug the gap in shorter order.
If that's how it pans out, home-owners will be happy and Capital will have enjoyed the publicity of all those blood on the streets headlines. Do you want to be right or noticed?
