The property bubble is worldwide.
hbosplc.com
…but labour market softening and pressures on household finances are likely to limit house price inflation
Labour market conditions, however, have softened in recent months despite the economy's improvement. For example, the number of people unemployed in the three months to February 2006 was 30,000 higher than in the preceding three months. Labour market trends and the current high level of house prices in relation to earnings are likely to constrain housing demand. Additionally, substantial increases in utility bills and above inflation council tax rises will put pressure on householders' finances, which is also likely to curb housing demand. Council tax and utility bills are set to represent 35-36% of total housing costs in 2006/07, overtaking mortgage interest payments as the largest cost for homeowners this year. The effect of such downward pressures on householders' spending power has become apparent in the retail sector in recent months, with official figures showing a 0.7% decline in the volume of retail sales between 2005 Quarter 4 and 2006 Quarter 1. These developments should combine to limit the upward movement in house prices and prevent sustained acceleration in house price inflation.
Cupar in Fife is Britain's top property hotspot
Cupar in Fife is Britain's top property hotspot with a 36% rise in prices over the past year. Average prices in Cupar are up from £117,552 in 2005 Quarter 1 to £159,332 in 2006 Quarter 1. Scottish towns dominate the ten towns that have seen the biggest house price rises during the last 12 months with six towns in the list: Lochgelly, Coatbridge, Lanark, Kilwinning and Alexandria in addition to Cupar. Indeed, all four towns recording the biggest price rises in the past year are in Scotland. The remaining four towns in the top 10 comprise three in northern England – Cleckheaton in West Yorkshire, Darwen in Lancashire and Crook in County Durham – and one in Wales - Port Talbot. All 10 towns delivering the strongest price rises over the past year have average house prices below the national average. The relatively high affordability of property in these towns has made them attractive to buyers as they have hunted for bargains. There were only six towns (out of 392 surveyed) with an average price below £100,000 in 2006 Q1 compared with 134 in 2003 Q1.
Another common feature of many of these towns has been their close proximity to major conurbations, making them suitable for commuting to major employment centres.
The Halifax House Price Index is the UK's longest running monthly house price series with data covering the whole country going back to January 1983. The Index is typically based on around 15,000 house purchases per month, and covers the whole calendar month. From this data, a "standardised" house price is calculated and property price movements on a like-for-like basis (including seasonal adjustments) are analysed over time. Properties over £1 million are included and the index is seasonally adjusted with the seasonal factors updated monthly.
also a bubble in emerging market bonds
My vangaurd friends said to get out of the vangaurd EM fund and jump over to the new Vangaurd dividend fund:
flagship4.vanguard.com
May 30, 2006
When investing in emerging markets, proceed with caution
There has been a lot of talk about investing in emerging markets lately, and it's not hard to understand why.
During the three years ended April 30, 2006, mutual funds investing in emerging markets returned, on average, 44% per year, according to research company Lipper Inc. These exceptional recent gains have piqued American investors' interest in countries such as Brazil, China, and South Korea. In 2005 alone, investors put nearly $18 billion in new cash into emerging-markets funds, up from just $6.9 billion in 2003 (also according to Lipper Inc.).
The flip side of extraordinary returns, of course, is extraordinary risk.
Since mid-May 2006, emerging-markets stock prices have become especially turbulent, with sharp pullbacks in high-flying markets such as Russia and Brazil. Emerging markets can play a useful role in a long-term portfolio—with an emphasis on long-term. Reacting to short-term ups and downs in volatile markets is a formula for disappointment.
Opportunities and risks
Emerging markets tend to have lower liquidity and higher volatility than developed markets. Generally speaking, this should translate into higher returns for portfolios with emerging-market exposure. Another benefit is a measure of risk reduction. Because emerging markets don't march in lockstep with other global stock markets, zigs in China and Brazil, for example, may help offset zags in the United States, moderating a portfolio's overall volatility.
Over the short term, however, the risks in emerging markets can be extreme. Developing economies have periodically been plagued by financial crises and cycles of boom and bust. Many investors will remember the collapse of developing Asia's stock markets in late 1996 and 1997 and the Russian debt default in 1998; by the end of the third quarter of 1998, these events had conspired to decrease the value of the MSCI Emerging Markets Index by nearly 50% in a one-year period.
The dangers of performance-chasing
Although the case for long-term investing in emerging markets remains compelling, investor behavior often suggests that interest in developing countries has less to do with portfolio theory than with short-term performance. During 2005, cash flows into emerging-markets funds hit an all-time high, according to Lipper Inc., hot on the heels of the funds' exceptional returns. When emerging markets struggled in 2000 and 2001, investors were pulling money out of the developing world.
"We've seen big pickups in sectors before," said Francis Kinniry, principal with Vanguard's Investment Counseling & Research group. "These episodes haven't always ended well for investors. With emerging markets, there's a troubling history of euphoria, then collapse. Sectors that outperform don't outperform forever. It's worth noting that between 1988 and April 2006, emerging markets' volatility was 60% higher than the U.S. markets and 40% higher than developed international markets."
What's the correct asset allocation?
Emerging markets can help enhance the performance of a long-term portfolio, especially as a component of a larger allocation to international stocks. Vanguard research suggests that a well-diversified stock portfolio can benefit from a 20% allocation to international stocks, with about 2% to 3% of the overall stock portfolio invested in emerging markets.
If you're simply reacting to emerging markets' short-term ups and downs, however, you may face the dilemma that plagues performance chasers in any asset class: A tendency to buy high and sell low as the markets move through their cycles. |
