Tuesday, Jan 05, 2010
Who do you agree with?
FT.com: Property: Are residential property prices now fairly valued?
The following economists’ answers appear in no particular order.
Posted by bufferbear @ 01:29 AM (1266 views) Add Comment
11 Comments
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1. phdinbubbles said...
Blanchflower nails it - what's the world coming to.
"No. It is hard to see how house prices can rise given the declines in earnings and reduced availability of credit. These are very thinly traded markets currently. Auction markets suggest much steeper price falls than the Halifax or Nationwide indices. I still expect to see peak to trough falls of at least one third, with potentially more because of overshooting. Seems unlikely that house price: earnings ratios can really be rising as many people are in part-time jobs, hours have been reduced and many firms have introduced wage freezes. And first-time buyers still can’t afford to enter the market."
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3. a saver said...
Wow Phd, I too am amazed to hear Blanchflower talking sense! So you wonder why did he vote for the IR cuts that have been largely responsible for rampant HPI. The recent strong bounce is really a disaster in the making, luring more people into a debt trap.
4. jack c said...
Ruth Lea, economic adviser, Arbuthnot Banking Group - "On some measures – eg price to earnings ratios – still expensive. On the ratio of mortgage payments to earnings – they look reasonably fairly valued, though this may mislead because of the current very low interest rates"
Ruth's comments lend a bit more support for my theory that the Silver Bullet in all of this has to be interest rate rises e.g 0.5% current base rate rising to 2.5% = 400% increase !
5. will said...
The argument for 'lack of supply' astonishes me. I have closely monitored the Exeter area for the past 4 years (since I sold) and can state that the same number of properties for sale have remained constant throughout that period. It stands at around 600 on Rightmove and has barely altered. Furthermore, many houses now advertised in Exeter were being advertised in 2005 and remain unsold.
So for anyone looking to buy a house in Exeter, there are plenty - no shortage at all. In fact there are a lack of buyers as proven by the number of unsold homes in Exeter.
Perhaps the banks, building societies and estate agents and the Government wish us to believe there is a lack of supply as their comments in this article clearly demonstrate. Come on chaps, it's an affordability issue - we don't want interest only 40 year mortgages.
6. jack c said...
The FT article excluded the man who was recently voted by the (vested interest) Sunday Times as the most accurate forecaster of 2009
See - www.timesonline.co.uk/tol/money/property_and_mortgages/article6968262.ece
Here is Stuatz rather predictable prediction
Assetz, the property group, is the most bullish of our (Times) forecasters, predicting that average prices will rise up to 5% because housebuilders will struggle to build more property and interest-rate rises are more likely to be modest than severe.
7. tenant super said...
The way the question is phrased is interesting. "Are residential property prices now fairly valued?" is a completely different question to "Where will residential property prices go over the next x years?" though the two may be linked, this isn't necessarily so. Some of the experts here have answered one or both questions. What is fairness anyway? Does it relate to building and land costs or does it relate to buyer income?
To most people, I think the answer to this question on any scale is 'no'. Like our railways, our prices are amongst the highest in the world, with poor quality (room sizes, heating efficiency etc) for what you pay.
My hope is that Paul Mortimer-Lee, BNP Paribas and John Muellbauer, Oxford University turn out to be right.
My fear is that Dr Tim Leunig, London School of Economics and Patrick Minford, Cardiff Business School are right.
8. alan_540 said...
The majority view in this survey appears to me to be that current prices are unsustainable but the timing for price falls vary from sooner to later.
There's no way I would consider buying a house in this climate. The only question is whether I am in the minority or not and only time will tell!
9. Gringodave said...
I think it is eminently possible that people are simply willing to spend more of their wage on their property than they were decades ago, because most people see it as a fail-proof investment. It will take something special to break this perception, and therefore break the upwards trend of house prices...
10. letthemfall said...
A large range of views, the majority thinking that prices are too high. I note that those who don't tend to use the somewhat pat argument of supply and demand, and falsely equate price and value. It seems to me that the only way for prices to stay up is for the housing stock to move gradually into the ownership of a smaller and smaller proportion of the population, although even this will have a limit once this movement is complete, whereon prices will decline. However, I think this is unlikely to happen. In the end it is going to depend mainly on cost of credit and when it begins to rise.
11. Open Minded said...
What would interest me is finding out which of these so-called 'experts' correctly predicted that prices would fall 2/3 years ago, and which said that prices would go up and up because of 'strong fundamentals'.
My personal opinion is don't place too much weight on expert opinion!