Posts Tagged ‘Price’

UK house prices may be rising again, but they are still too expensive. Or so is the inference from data published by the OECD this week.

In fact, suggests the OECD, UK house prices to rent are 31 per cent higher than the historical average since 1980, and to income they are 22 per cent above average. That may seem a tad worrying.

But then again in Canada, average prices to rent are 64 per cent over the Canadian long-term average, and price to income is 30 per cent over average. In Australia the extent of apparent over valuation is 37 and 21 per cent respectively.

The OECD data suggests that house prices are also more over-priced in Belgium, Norway, and Sweden than they are in the UK.
In France and Sweden, the ratio of price to rent and income, is at a similar level to the UK.

They are much cheaper in the US, Germany, Japan, and Ireland. Okay, as long as interest rates are so low, maybe house prices could be affordable in the countries where they are apparently overvalued. But what will happen if interest rates rise?

If interest rates go up because the economy is doing well, then that may be fine.

But supposing they rise because of external factors, for example because of rising wage costs in China, or because there’s less money sloshing around global money markets, or rates rise because as the baby boomers retire, they draw down savings. See: the Great Reset 

© Investment & Business News 2013

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Many have speculated that 2013 will be a year of rising house prices, thanks largely to the funding for lending scheme. Others say changes introduced to supporting both would-be and existing home owners in the recent budget will lead to rising house prices next year and beyond.

These predictions may be right, but property bulls often forget to mention that real wages have been falling for over two years, so low rates or not, there ain’t much spare money out there among households at the moment.

What we can say is that the monthly report from the Royal Institution of Chartered Surveyors (RICS) does not provide much support to the rising house prices theory.

In fact the survey’s main headline index seems stuck at a level consistent with zero growth.

The index is produced by asking surveyors if house prices went up or down in their region. The percentage number who said down is subtracted from the percentage number who said up. So if the index is less than zero that means more said down that up.

The interesting thing about this index is that it has proven to be a good forward indicator. The index is not very volatile, usually recording modest changes on the respective previous month. But when it does change significantly those changes tend to stay in place for a while and other surveys tend to show complementary results for some time afterwards. In short, the RICS index is good at predicting change.

Last year it got steadily better, rising from minus 23 in July to minus seven in October. Since then the steady improvement has either slowed or perhaps stopped completely. In November the index was minus nine, then minus one in December, and it seemed on course for going into positive territory. But in January the index fell back to minus 4 and then minus 6 in February.

So what would the March reading be? Well it was minus one.

That elusive jump into positive territory is proving to be precisely that: elusive.

RICS did say that the number of houses sold in the UK during March was at a three year high. So maybe it is just a matter of time before we see the predicted rise in house prices. Maybe, but as was said earlier, it is difficult to see how households can really afford to run up much bigger mortgages.

©2013 Investment and Business News.

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