Cover of MoneyWeek magazine issue no 507

Going nowhere

8 October 2010 / Issue 507

What next for house prices?

PLUS:

  • How to hunt down bargain shares
  • Are we heading for a global trade war?
  • Why we should let the banks go bust

Excerpt

We’re still living in a bubble

When our property experts met at last year’s roundtable, they were mostly convinced that property prices would be down significantly by the time they met again. They were mostly wrong.

Instead, once the first round of forced sellers had been disposed of, ultra-low interest rates allowed everyone else to hang on: mortgage payments fell by two thirds in the year to March 2009. Supply collapsed as a result (people preferred to stay put than sell at non-peak prices), so much so that even with the mortgage market more or less frozen, prices started to rise. This week, depending on who you listen to, they are no more than 10% off their late 2007/early 2008 levels.

So what next? Once again the panel is almost unified. Everyone except Stuart Law remains convinced that the only way is down – by something in the order of 20%-25% over the next five years. Why? Read this week’s roundtable and you’ll see that we talk through everything from the low level of transactions to rising supply, the death of the first-time buyer and the ongoing banking crisis.

But the real reason is pretty simple: our housing market is still a bubble.

• Read the full editor’s letter here:
We’re still living in a bubble