Thursday, September 6, 2007

Jeremy Grantham’s view

Danger: Steep drop ahead

First, house prices may move on euphoria in the short term, but long term they depend on family income - the ability to pay mortgages and rent. At levels well above the normal four times family income, the market gradually loses first-time buyers until prices break and fall back to affordable levels. House prices are in genuine bubble territory in the U.S., Britain and many other markets. In Britain and in some critical large cities in the U.S., for example, the multiple of family income has risen to over six times from below four times, and in London last year the percentage of first-time buyers was the lowest since records began. From these high levels, prices are guaranteed to fall. In doing so, they will reduce consumer borrowing and spending power.

Posted by realist @ 01:09 PM (608 views)
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2 thoughts on “Jeremy Grantham’s view

  • Financed by some debatable financial instruments.

    Banking is very simple – lets look again at the 3-6-3 rule; conservatively borrow at 3%, conservatively lend at 6% and be on the golf course by 3 o’clock.

    You dont need a GBP 20 million salary to caretaker that kind of profitable business.

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  • Interesting article, In fact so good that I posted it on this news blog last night………….

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