UK House Prices -The next bubble waiting to burst ??

Footsie's surge puts property in shade
Simon Watkins, Mail on Sunday
1 January 2006

CITY forecasters were again proved wildly wrong last week as the stock market ended 2005 far above their predictions. The FTSE 100 settled at 5,618% - up 17% on the year and 12% higher than the average rise forecast by investment banks.

Skip additional links
WANT TO KNOW MORE?

* READER SERVICE: Share dealing

OTHER STORIES

* We've beaten the bears
* Top investment fund returns 81%
* New on the market
* Sunday newspaper share tips
* Four for safety, three for thrills

FTSE LATEST
5618.80-19.50
Go to Market data
THE EDITOR'S CHOICE

* TOP STORY: Experts predict rate cut
* TOP POLL: Where next for rates?
* TOP TOOL: Find best loan rate

The Footsie's strong performance, helped by a late surge in share prices in the last two weeks of the year, means share prices rose faster than house prices for the first time since 1999.

If dividends are included, total returns to investors in the FTSE 100 reached 22% last year.

These returns were far higher than the 3% annual rise in house prices reported by the Nationwide Building Society last week.

The gains are also far greater than those achieved in America, where the Dow Jones index returned less than 3%. But the London market's performance was slightly below that of the French and German stock markets, which delivered returns of about 26%.

In December 2004, the average forecast from the equity strategists at top investments banks was for the FTSE 100 to end 2005 at only 5,000.

Hilary Cook, equity strategist at Barclays Stockbrokers, was among those who forecast the 5,000 level.

She said: 'We upgraded our forecast in February to 5,200 and then again in August to 5,500 as we saw signs that Japan and Germany were sparking back into life. On top of that, the merger mania since October kept it going still higher.'

The rise in the London market was driven by the mining and oil sectors. While these were not the biggest risers, their huge weight in the FTSE 100 helped power the market's full-year triumph.

The strong performance was, however, matched by other indices. The UK's second-tier index, the FTSE 250, rose even faster, gaining 27% in value, and with dividends included the total return was more than 30%.

Again, mining groups were a dominant feature with Indian miner Vedanta Resources, up 120%, among the biggest contributors.

Forecasts from City analysts are for the FTSE 100 to end 2006 about 10% higher than current levels, between 6,000 and 6,100.