MoneyWeek Roundup: House prices fall more than in the Great Depression

House prices have been one of this week’s big talking points on both sides of the Atlantic.

Across in the States, residential property is having a terrible time. The widely watched Case-Shiller Home Price index fell by 4.2% in 2011’s first quarter, which added up to a 5.1% drop on the year before. This lowered the overall price level to a nine-year low, and means US home values have now dropped by a third from their 2006 peak. It’s a bigger price fall even than during the Great Depression. Ouch!

It’s not been quite so bad over here. April’s figures from the Land Registry have just indicated a 0.8% price rise on the month.

Year-on-year, though, UK home values dipped by 1.3%.

But it was the latest figures for mortgage approvals – which history shows are a very handy pointer to future prices – that was the real story this week.

Approvals for new purchases hit a record low for April since Bank of England records began in 1993. Remortgages, meanwhile, fell by 10% compared with March. It’s all a very clear hint that the next move in UK house prices will be down. To get the full picture on this and other housing market indicators too, check out our house price indicators.

● As we pointed out in Money Morning, “mortgage approvals aren’t the only reason to worry about the housing market”.

You can read the piece here: UK house prices are heading for another double-digit fall, so I’ll not repeat the details. Though as this is a topic dear to the hearts of regular readers, you won’t be surprised to see there has been lots of feedback. And as ever, views differ widely.

“It’s pointless to talk about house prices in such a generic fashion”, says Andrew Nicholas. “The supply of housing ‘in the right places’ has never kept up with demand. In euro or US$ terms, London prices are cheap. With the population of this country rising at an alarming rate, over the medium to long-term house prices in the right areas will always increase”.

Yet “can foreign millionaires alone really soak the London market, including Brixton, Hackney, Leyton, and Streatham rather than Chelsea and Knightsbridge?” asks Robert Birquet. “Londoners themselves pay the mortgages and the rent. Falling real incomes and house prices to rise? Someone from Mars would think us mad”.

Ian the adviser reckons that: “as an IFA, I’m finding UK houses still overvalued by up to 25% on average. The average person can’t afford the average house. First-time buyers can’t hope to save a 20% deposit, some have student debts and ‘Bank of Mum and Dad’ can’t always help. Who knows what’ll happen to repossessions when interest rates rise back to normal levels?”

Many thanks for these comments – and for the rest too. Shortage of space means I can’t include any others today, but please keep them coming – we’ll be mentioning more of your thoughts in future Saturday round-ups. If you’d like to have your say, you can do so here.

● Let’s move on from property. What about interest rates? When will they rise? And by how much?

With global growth now fizzling out, as John Stepek pointed out yesterday, interest rates may not rise for a while. That’s because “with the cost of fuel and food rising, people don’t have the money left over to buy anything else”. Less demand for cash will keep the price of money – in other words, interest rates – in check.

But that will eventually change. And as John also noted this week, “when rate rises do arrive, they’ll be much more aggressive than anyone expects”.

For years the West has happily imported cheap goods from the likes of China. This won’t continue forever. The cost of China’s exports is climbing along with Chinese pay, while Western wages are stagnant.

“Eventually the East’s advantage will be eroded away – it’s just a matter of time before wages come back into balance. So Western labour will come back into demand. Wages will surge, forcing interest rates a lot higher, and far more rapidly, than anyone expects. That would be bad news for most stocks, but worse for bonds.”

● Sounds like there could be some choppy times ahead for financial markets. So what should investors do?

John spotlights several ideas about how you can protect your wealth. Like, for example, trading the Aussie dollar against the US dollar – which you can do via spread betting.

Of course spread betting is different from investing in shares. “Spread-betting currencies isn’t for those who like a quiet life”, says John. “You can lose more than your initial stake. Timing isn’t easy, as I’ve learned to my cost on a few occasions.”

“But if you are interested, you should sign up for the free MoneyWeek Trader email. Veteran trader John C Burford gives his tips and tactics on minimising losses and maximising profits. I’ve found John’s advice to be very helpful, particularly his constant reminders about disciplined money management”. You can sign up for MoneyWeek Trader here.

● And in the latest MoneyWeek magazine out yesterday, there are plenty more ideas on what you can do. This week’s cover story features our latest Roundtable. That’s where we get a panel of investment experts to thrash out what the risks are, and to tell us where the think you should put your money.

And these experts have done the business – they’ve come up with 12 investments for your portfolio today. Oh, and if you want a quickfire way of keeping track of major global financial moves, note that we cover them all in the news and markets pages of the magazine.

If you’re not already a subscriber, and you’d like to become one, you can get your first three copies free here.

● Finally, and while on the topic of new stuff, my colleage Tim Bennett has just published his latest video.

It’s all about ‘swaps’ – how interest rate swaps work, and what they mean for investors. This isn’t the simplest of subjects, but for those who aren’t too well acquainted with it, Tim’s your man to explain it.

The video tutorial series that he’s put together has had some rave reviews from readers. And that’s from both market veterans and those with less investment experience.

You can watch the video here: Beginner’s guide to investing: What is a swap? What’s more, if you’d like to look back at some of Tim’s earlier videos, or you’ve missed one, don’t worry: you can access the archive here.

To hear about other bits and pieces on the internet that have amused us or made us think, sign up for our Twitter feeds – we’ve listed them below.

Have a great weekend!

Merryn Somerset Webb
• John Stepek
• Tim Bennett
• Ruth Jackson
• James McKeigue
David Stevenson

  • Dave

    This is a really interesting article on how house valuations can’t just be judged overall. There are regional factors affecting price. I have previously read that the zone one London properties are actually quite a good investment for foreign buyers, with much of the demand coming from Asia.

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