Friday, April 30, 2004

One of my favorite economic indicators to follow are housing prices in the consuming 'Anglosphere'. You know the routine: Asians work hard and save, send their capital and goods to the Anglosphere where Americans and Brits consume with hedonistic abandon. We all play our part in keeping the global economy afloat, now, don't we?

Yet high consumption in the US and UK over the past three years or so has been supported by a wealth effect, first derived from securities (esp. in the US) and later from the housing stock. Thus fears of housing bubbles in the US or UK has global implications.

Hence the General's interest in today news on the British housing market out of The Independent:
Fears of a slump in house prices grew yesterday as figures showed a surge last month in prices and mortgage debt, and a leading think-tank said there was an "evens" chance of a crash within two years.

The National Institute of Economic and Social Research said the longer the current boom continued, the worse would be the slump and its impact on the economy.

Its warning came just days after Gordon Brown, the Chancellor of the Exchequer, staked his reputation on a benign outcome for house prices, saying the market was on a sounder footing than before the crash of the early 1990s.

There was fresh evidence of a speculative boom from figures from Nationwide building society showing that prices jumped 2.1 per cent in April, equivalent to more than �100 a day. . . .

house prices were as much as 40 per cent over-valued, adding that a crash could sending them tumbling by 20 per cent - equivalent to the gains of the past two years.

This would wipe as much as 1.25 per cent off economic growth - equivalent to �12.5bn in cash terms but not enough to deliver a recession. He said there was little the Bank of England or the Government could do to stop the crash.


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