|Property Bust- (21.06.02)|
The market obsession has now moved from interest rate rises to the property market boom being abruptly followed by a crash in the near future. Dramatic rises in interest rates are generally now considered to be unlikely in the near future, with 0.5% being added by the end of the year at most. In the past this has been felt to be the main cause of the a property crash so why has the focus shifted?
The main evidence quoted in the press in the last week came from surveys showing house price inflation levelling off. This however cannot be seen as evidence of a crash to come. Even estate agents showing a slowdown in business is unlikely to be a strong indicator, given that the summer is normally quieter in any case and that supply of properties for sale still appears to be limited. It is only with a reduction in demand or an increase in supply that market prices will fall, so the focus should be on the likelihood of this.
The buy-to-let market only has a marginal effect on overall house prices, although the effect is strongest in London. The current slowdown in property price rises is more likely to be a symptom of lower wage inflation as inflation expectations reduce. It is only with lower wages and higher unemployment that a dramatic realignment of property prices will be required. This economic data only means that recent house price inflation cannot be sustained rather than providing evidence of an imminent crash.