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Tuesday, December 03, 2002

UK Housing Prices Near the Top?

Is the rate of increase in UK housing prices nearing its ceiling? The latest monthly figures (November) which put the annual rate at nearly 25%, in a generally low inflation environment, only serve to underline how bubble-like the house price explosion has become. Clearly these numbers bear little relation to any any real appreciation in the underlying value of the assetts concerned, and stand in marked contrast to the recent growth estimates revisions from the UK Treasury.

House prices climbed 2.0 per cent in November from October's 1.4 per cent monthly rise, Nationwide said. The average house price rose more than £2,000 last month to reach £115,761. The surging housing market is expected to act as a brake on interest rates cuts when the Bank of England's monetary policy committee announces its rate decision on Thursday, despite new evidence showing manufacturing stagnated last month. House prices have underpinned Britain's consumer boom and fears of the unsustainable rate of growth have led to concerns about the threat of another housing market crash.

John Butler, UK economist at HSBC, said the housing market remained buoyant at a time when global uncertainties had increased. "That makes the UK vulnerable, a vulnerability that has been encouraged by the Bank of England. We believe house prices and consumer spending will slow next year, but the threat of a crash has increased. However, crashes typically need a trigger," he said. "That trigger would tend to come from a rise in rates or rapidly rising unemployment. The former still seems increasingly unlikely. And the latter is well supported by the public sector. It is true to say that at the moment there seems no mechanism for it to self correct."
Source: Financial Times

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