subject: Another house price crash looks "remote" according to the FT [print this page] Another global house-price crash looks unlikely according to a new report in the Financial Times last week.
"Historically low interest rates and the basic under-supply of good quality homes in places where people want to live and raise families underpin the current general level of house prices" says the FT. "These (factors) might slip again in some countries but so long as the global economy heads in the right direction the prospects of a widespread house price crash from these levels look remote."
According to FT writer John Kay and FT property correspondent Daniel Thomas, "the market for prime property in the top cities is the only truly global residential market. Demand for these properties is closely tied to the fortunes of the financial sector and in the months immediately following the collapse of Lehman, luxury apartments in London and Hong Kong saw the biggest quarterly falls they have experienced."
Things have improved markedly though says the report, even in Manhattan which was hampered by the strength of the dollar against the euro. Real estate in cities such as London and in the prime markets of the South of France remains in demand from overseas buyers, who typically account for more than half of all properties sold above 15m.
"For the foreseeable future, there will be economic headwinds to further house price growth, outside exceptional markets such as China and the associated commodity-rich countries of Asia, Africa and South America" says the FT.
The top end of the property market is back says the FT "in some places pushing prices back to and even beyond their peak of 2007."
And yet there is still unease: "the market might be good again today having seen prices bounce off the floor found at the end of 2008 but tomorrow is not so certain."
It is fear of the much-dreaded "double dip" that is doing the damage.
"After the shock of the financial crisis, most housing markets have at least stabilised, while some have bounced back strongly" says the FT. "But concerns that the situation remains fragile are growing. In the UK, the Royal Institution of Chartered Surveyors has reported that members are seeing more falls than rises, that a fall in buyers' enquiries is dragging prices lower, and predicts a fall of 5 per cent in 2010, and continuing declines in 2011. In the US, Alan Greenspan has expressed concern that the "small dip" in house prices, which he says most economists predict, would induce a major increase in foreclosures, which could feed on itself."
Kay and Thomas argue that "there are two broad schools of thought about the determinants of house prices. Jean-Michel Six, chief economist in Europe at Standard and Poor's, the rating agency, adopts a financial market perspective. In his view, we might not yet have witnessed a full correction of some of the imbalance that the 1997-2007 housing bubble created, such as decreasing affordability or surging price-to-rent ratios. The housing market is like other financial markets: price expectations create momentum that drives prices arising from normal affordability ratios. But they must eventually return to these norms through mean reversion', creating the endemic booms and busts of cycles."
Another house price crash looks "remote" according to the FT
