Wednesday, Mar 03, 2010
Down we go.....
Investor's Chronicle: House prices set for a pounding?
Oh dear. So they don't keep going up to the sky then?
Posted by chrisch @ 01:59 PM (1179 views) Add Comment
5 Comments
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1. fjcruiser said...
Interesting article. Unfortunately, neither Joe public, nor the EA nor the Government read the IC. Shame. it's all there and obvious innit ?
2. str 2007 said...
An interesting article linking the value of sterling to the value of UK property.
I can't find it now having looked, but read an article on bullion vault linking the price of Gold $/oz to the level of the S&P500 (both roughly 1100 currently.
As everyone seems to have been talking about investing/protecting savings lately maybe this would be a good link to discuss/contribute other links that effect one another.
EG if the stock markets all fall will Gold fall with them
Is there a ration between countries stock markets and there currencies. IE are they linked and would they rise and fall together or are they generally opposed to one another ?
Is there a strong leading barometer Dow or S*P level and which markets does that tend to effect positively or negatively ?
From my observations the FTSE seems to follow the S&P500 almost exactly, yet there a diiferent set of stocks in a different country (admittedly selling to an international market), but are these indecise ever likely to go their seperate ways ?
3. mark wadsworth said...
That 'takes a pounding' is a really useful headline - if sterling tanks because things look gloomy, then house prices will tank because things look gloomy. If sterling soars, because things look gloomier elsewhere, then house prices will tank because they are more expensive for yer foreign investor.
4. 51ck-6-51x said...
Note:
One can not conclude U.K. houses are to drop in value from this information, only that they will fall _relative_ to those in the U.S. - that /could/ mean they will increase at a lower rate.
i.e. a play of "short U.K property _and_ long U.S. property" has an expected profit.
but, a play of "short U.K. property" has not been analysed.
5. Sage said...
This is a desperately poor analysis, lacking a basic understanding of economics. The correlation between house prices and sterling is causal. When the economy is doing well people will want to purchase assets such as houses. They will pay for those assets in sterling and the demand for sterling will increase driving up the £. Hence the positive correlation is spurious in that demand for houses causes higher sterling, other things being equal.
You would expect this relationship to hold especially well in a robust strong growth, relatively low inflation environment. The analysis gets more complicated in a higher inflation environment as we now appear to be entering buoyed by near zero rates and money printing. In such an environment the value of sterling could see a secular decline i.e. one that is not directly related to underlying economic performance. The more money that is printed, the less it is worth. In such a situation the weakening of sterling should, all other things being equal, stir demand for UK assets including houses and shares. For overseas buyers sterling assets become cheaper and for UK buyers they offer an inflation hedge against a paper currency the BoE can print at will. In this case house prices (and other hard assets) could continue to rise despite a weak economy (and weak sterling).
Given money printing and ultra low rates, it is more likely that house register double-digit rises than falls over the next few years (in nominal terms).