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Alfie Moon

Ft Economics Editor Answering House Price Questions

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See below for details of a chance to ask Chris Giles, the Financial Times economics editor, questions about house prices. I particularly like the chance that some of the contributions may be published in the FT newspaper. Could be worth ago. Note that it starts in about 40 minutes time. Good luck to any that have a go.


Ask the expert: Where are house prices heading?

Published: October 3 2005 17:13 | Last updated: October 3 2005 17:13

The FT House Price Index for September is published on Friday 7 October, providing the most accurate guide to the real trends in residential property prices using Land Registry data. Chris Giles, the FT’s economics editor, will answer your questions on the housing market from 12-1pm BST. Send your questions in advance to ask@ft.com

The most thought-provoking online contributions may be published in the Financial Times newspaper. Please supply your full name and location.

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And here is the first question Chris answered:

After the death of my mother I have her house to sell. I was advised to put a price of £695,000 on it but, when I pushed the agents on lack of progress they suggested that to seize the autumn market we drop the price by £50,000. In the same road the properties, of which there are about 20, range in price from £500k to £2.5m but I believe there is potential to make the house worth at least £850,000 with some investment.

Do you believe it is worth my while investing £100k and taking the risk that I will cover my investment in the next year? I will have to pay the remainder of the inheritance tax in November but my mother’s funds should cover this.

Kate Farrington, Principal Consultant, Penna plc, London

Chris Giles: The market in the next year is particularly difficult to call. But here are some quick facts.

1) Right now, the prices in the market seem to be pretty stable. Prices stopped rising in the South East last year and have been pretty flat ever since - some months they go up a touch, some months down. Don’t believe any one index - particularly the Halifax index at the moment, which shows almost a 4 per cent rise over the past two months - that suggests there have been any decisive movements in house prices recently.

2) The house price annual inflation rate is falling and there is a good chance it will hit zero in the next few months on some measures.

3) But activity, the numbers of people buying and selling, has been rising back to normal levels.

These facts suggest that the market is showing no signs of imminent implosion and is healthier than it was a year ago. That should be pretty encouraging for you. The one risk is that as the annual rate of inflation falls to zero (as it is likely to do because last year’s rises will fall out of the calculations), sentiment might change and buyers might again become very scarce.

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If the house prices remain where they are the economy crumbles..

It is already failing due to reduces spending caused by debt levels.

If the debt levels continue to rise as hard as would be required to support this debt then eventually the recession will move the economy into a position where it clearly demonstrates that these levels of debt cannot be supported.

If everyone gets into 10% more debt, then the economy looses this money.

House prices can only be realistically maintained at the average trend levels.

The average trend levels are about 4 times salary over time for the average house.

This is not set by affordability to the people, but by what the economy can support as debt payments from each salary it generates.

The economy generates wages.

2/3ds of the economy is made up of these wages being spent back into it in purchases, which also generate tax revenue.

If the Economy looses money to debt repayments then the revenues are not garnered back in the way of monetry expenditure and tax.

There for the economy struggles

The economy struggles to pay wages.

Wages drop in the way of redundancy.

The economy does not make as much money

Redundancy again remove money from the economy as money is not spent and tax revenue not garnered

tax burdens increase to support the jobless. who are not generating now for the economy.

Recession spiral.

House prices are 4 times wages.

anything else is temporary

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