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F.t. Issue House Price Warning Today

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Copied in full as it will go on sub soon:


So far so good for housing and growth
Published: March 18 2006 02:00 | Last updated: March 18 2006 02:00
Britain and Australia led the way. The US looks to be at the turn. Southern Europe could have some way to go, and there is some scope, in the long run, for Japan and Germany to catch up. But from a global standpoint, the greatest house price boom in history is probably past its peak and into a cooling-off phase. So far this has been a less painful process than many feared, which bodes well for the future.
However, a soft landing is still far from assured.
At this juncture most eyes are on the US, the engine of global growth, where the housing market is still giving out mixed signals. Annual house price inflation at 13 per cent in the fourth quarter was only fractionally below its peak of 14 per cent in the second quarter. New home starts remain fairly strong. However, home sales are down and the stock of unsold homes is at a nine-year high relative to turnover. Overall the data points to a further, possibly quite abrupt, slowdown in price rises, though it is not conclusive.
The good news is that those countries that have seen a sharp slowdown have not seen either a significant fall in nominal house prices or a disastrous impact on growth. Annual house price inflation in Australia recovered from 0.1 per cent in the first quarter of 2005 to 2.3 per cent in the fourth quarter. UK annual house price inflation has edged up again following three strong months, led by London, and is now running at 3.4 per cent. Growth in both countries dipped below trend as house price inflation fell, but has since shown signs of recovery.
It would be foolish to deny any link between house prices and consumption. But UK and arguably Australian experience suggests this link is not as strong as might be expected. The UK slowdown in 2005, for instance, owed as much to one-off rises in utility costs, taxes and interest payments as it did to weaker house prices.
There are big differences between national markets. The US could experience a sharp decline in residential construction. But the house price-consumption link might be relatively weak today in general. Low savings in the English-speaking economies may reflect low long-term interest rates rather than housing gains. High levels of recent mortgage equity withdrawal need not per se signal trouble ahead. Unlike in previous house price booms, inflation everywhere remains moderate, limiting the likelihood of excessive interest rate increases to come.
The big caveat is that house prices remain richly valued by almost any measure in the Australian, the UK and important regional US markets. Ownership cost to rent ratios mean buying only makes sense if buyers assume still sizeable capital gains to come. If these gains do not materialise we could yet see a further downward leg to the market, perhaps with more serious consequences for growth. Like a bicycle, the housing market may have to keep going to avoid falling over.

Affordability and low yields in relation to investment are the twin arrows in the HPI monster's heel!

In addition are the wild cards: IR, B o J, Birdflu (if it mutates depression will follow), War, Recession, oil price spike continuing... Any one of these factors will send the prices tumbling. And what are the odds of none of these scenarios coming to pass?

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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