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Got A Reply From John Calverley

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I emailed John Calverley, chief economist of American Express, for hist latest thoughts on house prices. Very decent of him to reply so extensively I thought - here it is:

I continue to think that the UK housing market is in a bubble, that prices are

very expensive and will eventually fall back significantly. Of course, as with

anything else in the investment world I hold that view with less than 100%

certainty, but I do put it at 80-90%.

The current lift in house prices is due to the cut in interest rates last year,

the slight pick-up in the British and world economy in recent months, and a

feeling among many people in Britain that, since house prices did not crash, it

is OK to buy again. This is called "anchoring" in the behavioural finance

literature, as I discussed in my book. I seriously doubt whether prices will

rise all that much because they are already too expensive for many people and

also because the Bank of England will probably raise interest rates again. Much

of the rise is in the top end in London at present, where prices fell in recent


The timing of the eventual fall in prices is hard to know. It may not come for

3-4 years or more and, when it comes, it will likely take 3-5 years to unfold

so the big opportunity to buy at a low price could be as much as 8 years away.

It is most likely to come when the world goes through a serious economic

downturn, which does not look imminent but will eventually come.

As I argued in the book, being "short" housing is a risky position since we all

need somewhere to live. I think the key is not to be "long" housing, i.e.

overweight with buy-to-let property or with a house much bigger than you really


But it also true that if you rent a house today you might pay around 5% of the

value annually, while if you buy you will probably also pay about 5% so there

is not much difference. If house prices do not rise paying interest is

"throwing money away" just the same as paying rent.

Bottom line -- you have risk either way.

I hope these thoughts are helpful.

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That's remarkable, Pete, nice one - kind of from the horse's mouth. Not gospel, of course, but he doesn't seem to be putting a spin on things, at least. It's depressing to think of it being 8 years down the line before prices really bottom out but I suppose the thing is that that changes things for most people on this board not one jot. What are we going to do - run out and buy? Sigh. Time to get some curtains up in that dug out out of mine and hope things move a bit quicker than that.

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  • 312 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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