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

To: Square_Dealings who wrote (22483)	1/31/2005 10:34:21 AM
From: mishedlo	Respond to of 116555

4% house price rises this year, says study Ashley Seager and Charlotte Moore Monday January 31, 2005 The Guardian House prices will not go into reverse, but will rise at a healthy rate for at least the next two years, according to a new report from one of the City's most respected housing market analysts. Rob Thomas, formerly of City investment bank UBS and the Bank of England, predicts that house prices nationally could rise 4% this year and 6% in 2006. There have been fears that buy-to-let investors, who have helped drive house price rises in recent years, will pull out. Mr Thomas says there is little chance of that because investment returns from property remain higher than those from the stock market. "A switch in sentiment in the housing market from negative to positive will occur once it becomes clear that interest rates have peaked, sometime later this year," said the head of UK Housing Economics, an independent consultancy. The Bank of England raised interest rates five times between November 2003 and August last year, at least in part to take the steam out of the housing market which had seen prices more than double in just five years. Housing market data has been gloomy for several months, though price surveys are now showing tentative signs of the market bottoming out. Experts are split, with some arguing that prices are in for a long period of stability while earnings catch up, and others believing that prices could fall 20%-30% over the next year or two. Mr Thomas thinks prices will rise again. He says that at the end of 2004, average net yields on residential property of 3.5% still compared quite favourably with the main alternatives - equity dividend yields of 3.1% and 30-year gilt yields of 4.4%. Also, there had been no surge in first-time buyers in this boom as there was in the late 1980s. "Concerns about buy-to-let investors exiting the market and the disappearance of first time buyers have been overblown," he says. He adds that there is no sight of an economic "shock", such as rising unemployment or a dramatic rise in interest rates, which could push the housing market into reverse. Moreover, rapid population growth and a lack of new house building will support the fundamentals of the market, he argues. "House prices remain reasonably well underpinned by low interest rates, steady economic growth and acceptable yields compared with other assets. The positive short-term demographic outlook and an inadequate rate of new house building provide some further support," says Mr Thomas. · The Bank of England's monetary policy committee is "more likely than not" to increase interest rates this year, a report from a think tank said today. In its quarterly report the National Institute Economic Review says the economy is operating very close to full capacity and the labour market is tight. This, in combination with continuing economic growth, could push inflation upwards and as result the MPC will increase the cost of borrowing to keep inflation to its target of 2%. guardian.co.uk