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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: Haim R. Branisteanu who wrote (30488)5/22/2005 5:43:54 AM
From: Litore Lapis  Read Replies (2) of 116544
You maybe right about the real estate bubble. The 1990's bubble looks small by comparison.

Some UK links and stories looking at the potential downside.

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09:30 - 21 May 2005
The housing market is heading for five years of pain as property prices fall by 20 per cent, an economist said yesterday. Capital Economics expects three years of declining home values as earnings catch up with property prices before the market begins a slow recovery during the following two years.

Other experts disagreed that a rapid decline was imminent - although figures from Hometrack yesterday support the view that values are slipping.

Ed Stansfield, property economist at Capital Economics, said: "Our view is that the slowdown seen over the last nine months is only the start of a much more protracted slowdown."

He said prices were likely to begin falling later this year, losing between six and seven per cent a year over the next three years, followed by two years of gains of about five per cent a year.

He said the falls would not be dramatic, averaging only around 0.5 per cent a month.

But he warned that the correction would be greater in regions where prices had risen most recently, such as Yorkshire, the North West and even the South West, where the values could drop by as much as 27 per cent.

The group believes the ratio of house prices to earnings has peaked - meaning homes are simply unaffordable for too many people.

Across the nation the typical property is now worth six times average earnings, leaving many people without a hope of buying a home.

Mr Stansfield said: "This is significantly higher than the five-times peak reached in the late 1980s."

But he added that the ratio had begun to dip as house prices stalled while average earnings continue to grow.

Martin Ellis, chief economist of Britain's biggest mortgage lender Halifax, dismissed the fears.

He said the lender expected a drop in prices in 2005 of about two per cent.

However, the Halifax itself released figures yesterday showing that homes are still unaffordable for many key workers. Nurses now find themselves priced out of the market in 93 per cent of towns in Britain, while firefighters would be unable to get on to the property ladder in 90 per cent, the lender said.

There are now only two towns in Britain where nurses could buy a home with a traditional mortgage of three times their salary - Lochgelly and Cowdenbeath, both in Scotland.

The only good news for key sector workers is that affordability in London and the South East has stabilised as price growth in the region has slowed during the past three years.
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