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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: maceng2 who wrote (20114)	1/4/2005 4:02:32 PM
From: maceng2	Read Replies (2) \| Respond to of 116555

UK House crash 'main economic threat' By Becky Barrow (Filed: 04/01/2005) telegraph.co.uk The biggest threat to the stability of the economy is a sharp fall in house prices, according to a survey of 21 leading economists. But they saved some of their most pessimistic predictions for the question about changes to economic policy if the Conservatives won the general election. Andrew Oswald, of Warwick University, described it as "too unlikely a prospect to worry about". John Butler of HSBC said: "I don't think it is that interesting as I would assign a small probability to the Conservatives winning." Only two of the 21 respondents to the survey, by the Financial Times, admitted taking a keen interest in the policies of Oliver Letwin, the shadow chancellor. Asked about the biggest threat to the economy, a rapid fall in house prices was the "hands-down winner" after 75 per cent of the economists, who rarely agree on anything, voted the same way. Mr Oswald said: "The biggest risk in my view is that there will be a large fall in nominal house prices and that will start a downward spiral in confidence. I view this as likely." Sushil Wadhwani, a former member of the Bank of England's monetary policy committee, said a housing market correction "could be deeper and longer-lasting than the current Bank of England forecast". The rise in house prices over the last few years has made thousands of home owners feel richer than ever before, even though all the money is tied up in the value of their home. There are concerns that a fall in property values would have a profound effect on consumer spending. But many economists thought that a fall in house prices would be nothing that the Bank of England could not offset by lowering interest rates. Geoffrey Dicks, of the Royal Bank of Scotland, said: "I would ascribe a high-ish probability to a sharp housing fall (say 33 per cent)… but I would ascribe a low-ish probability, say 10 per cent, to this having a significant knock-on effect on consumer spending." Other economists also agreed that the "wealth" that is tied up in the housing market is no longer necessarily linked to consumer spending. The general consensus among housing commentators, such as the Nationwide and the Halifax, is that house price inflation will be modest this year, with many areas experiencing a fall.