The European property bubble begins to hiss
It seems that US property troubles are heading across the Atlantic, with holiday home favourites France and Spain beginning to look wobbly. What does this mean for those Britons who've bought property abroad?
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Markets were reassured by the minutes from Bank of England's Monetary Policy Committee meeting earlier this month, where we found out that one of the MPC members had actually voted for a cut in rates, rather than the rise that many would have thought more likely.
However, the Bank's governor, Mervyn King, showed that there's still everything to play for when he spoke to the Commons Treasury Select Committee yesterday.
He remains worried about the soaring growth in the money supply, and is concerned that it means inflation will head higher in the long term. His fears suggest that the next move to 5.5% could still happen sooner than most expect.
But perhaps it's not so much the Bank of England we should be worrying about, as the European Central Bank. Particularly anyone who owns investment property in continental Europe...
It looks like the troubles in the US are heading across the Atlantic. The latest data reveals that property construction in France dived 15.1% in the three months through February, while house prices fell 0.6% in January, says The Telegraph. Jean-Paul Six of Standard & Poor's said: 'This is the trailer for the movie we are going to see across Europe this year.'
Interest rates in the Eurozone have been rising inexorably, and now stand at 3.75%. It doesn't seem like much compared to the UK's 5.25%, but those hikes are starting to hurt. It's not just France - more and more experts are bracing themselves for a meltdown in Spain, where more than 93% of mortgages are on floating rates, and where more homes are being built 'than in France, Germany and Italy combined,' reports Ambrose Evans-Pritchard in The Telegraph.
'We have a serious property bubble in this country and everyone is in denial; it's worse than in the US,' one Manuel Romera, director of Madrid's Instituto de la Empresa, told the paper.
The interesting thing is that French lending standards aren't even particularly lax. Most mortgages are fixed rate, they don't have a sub-prime market (you usually have to put down at least a 25% deposit), and the ratio of household debt to income is around 65%, compared to 115% in Spain and 146% in the UK.
A key problem could be a loss of appetite among foreign buyers. About 180,000 British people own holiday homes in France, and one in 20 sales in the country last year was conducted with a foreigner double the proportion in 1998.
If price rises in Europe's holiday home hotspots are slowing down, it could be an indicator that the UK's appetite for housing is also on the wane - perhaps because our own property market is eating up so much of our resources, or because the speculators have now moved onto other, riskier territories, such as Eastern Europe.
One thing's for sure - the European Central Bank isn't thinking about ending its rate-rising cycle any time soon - so we can expect more discomfort, to say the least, in European housing over the coming year.
Turning to the stock markets...
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In London, the FTSE 100 closed flat at 6,292 yesterday as support from bid targets including Next offset Wall Street weakness and a mixed mining sector. For a full market report, see: London market close
Across the Channel, the CAC-40 ended the day 10 points higher, at 5,587. In Frankfurt, the DAX-30 closed 29 points firmer, at 6,858.
On Wall Street, investors remained cautious ahead of Fed chairman Ben Bernanke's address to congress today. The Dow Jones lost 71 points to end the day at 12,397. The tech-heavy Nasdaq closed 18 points lower, at 2,437. And the S&P 500 lost 8 points, ending the session at 2,437.
In Asia, the Nikkei tracked Wall Street lower overnight, closing at 17,254 this morning, a 110-point fall.
The price of crude oil had jumped by over 1% this morning; futures were last trading at $63.74 a barrel. In London, Brent spot had made similar gains and was at $65.87.
Spot gold was at $666.25 this morning, off an intra-day high of $668.80. Silver had risen to $13.32.
And in London this morning, supermarket chain J Sainsbury announced a 5.9% rise in fourth-quarter revenue at stores open at least a year thanks to customers spending more on healthy fruit and vegetables in the post-Christmas period. Shares in the retailer, currently being pursued by private equity, had slipped by a penny to 550 in early trading.
And our two recommended articles for today...
Don't believe the inflation myths - What really causes inflation: higher energy prices or poor energy policy? Tax increases or others' refusal to pay? And is globalisation really putting downward pressure on prices? To find out why the government's explanations are often at odds with reality, read: Don't believe the inflation myths
Who will be caught out by easy credit next? - Bubbles in asset values are created by what might be called 'mindless lending practices'. So far the US subprime mortgage market has fallen prey to the relentless expansion of credit. But could the big banks also be under threat? For more on why banks are ignoring the risks, despite their better judgement, see: Who will be caught out by easy credit next?