UK House Prices -The next bubble waiting to burst ??
Belize1970 - Tue, 03 Jan 06 :
Extracts regarding housing from FT economist survey (too long to publish all of it)
In last year’s FT survey, three-quarters of economists said that the housing market was a big risk. This year, only six out of 40 mentioned the housing market.
Is it time to accept that house prices are not too high?
Economists spent most of 2004 worrying about a housing crash that failed to materialise in 2005. House prices stopped rising, starting in London and the south-east and spreading to the rest of England. By the end of 2005, the only areas with rising prices were in Scotland and Northern Ireland.
The market went flat but did not fall. Prices dipped some months but rose in others and by the end of the year, the number of monthly transactions was at a normal level and prices were stable.
Consequently, economists have changed their views about the housing market. The most popular answer given by almost half was that prices were still a little above a sustainable level, but would probably remain relatively constant, gradually bringing down the value of homes in relation to incomes.
Another popular view was that house prices can be justified by the extremely low levels of real (after inflation) interest rates, making houses quite cheap relative to bonds. But as Ben Broadbent warned, buying property on this basis might be very risky because “bonds may also be, and probably are, overvalued”, so if they fell, pushing up real interest rates, the housing market might again be less secure.
Diana Choyleva of Lombard Street Research was one of the six economists who was most comfortable with the market at these levels: ”Our affordability indices show that prices are not overvalued at current incomes and interest rates”.
But her willingness to accept there has been a long-term shift to higher house prices is not shared by almost a third of the economists polled, who still thought the market was overvalued, even if they did not believe a crash was in prospect.
They're paid a lot of money to come up with these thoughts!
